Nufarm Limited Annual Report 2004

Plain-text annual report

I I N U F A R M L M T E D 2 0 0 4 A N N U A L R E P O R T NUFARM LIMITED 2004 ANNUAL REPORT DIRECTORY Directors KM Hoggard – Chairman DJ Rathbone – Managing Director GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie AO GW McGregor AO Dr JW Stocker AO RFE Warburton Company secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Sylvia Miller & Associates Locked Bag 50 Toorak Victoria 3142 Australia Auditors Ernst & Young 120 Collins Street Melbourne Victoria 3000 Australia Trustee for capital note holders New Zealand Permanent Trustees Ltd Share registrar Australia Computershare Investor Services Pty Ltd GPO Box 2975EE Melbourne Victoria 3001 Australia Telephone: 1300 85 05 05 Outside Australia: 61 3 9415 4000 Capital notes registrar New Zealand Computershare Registry Services Limited Private Bag 92119 Auckland NZ 1020 Telephone: 64 9 488 8777 Registered ofﬁce 103-105 Pipe Road Laverton North Victoria 3026 Australia Telephone: 61 3 9282 1000 Facsimile: 61 3 9282 1001 NZ branch ofﬁce 2 Sterling Avenue Manurewa, Auckland NZ Telephone: 64 9 268 2920 Facsimile: 64 9 267 8444 WEBSITE: http://www.nufarm.com Nufarm Limited ACN 091 323 312 I I N G S E D T A O B E U L B Y B N G S E D D N A L T E E W S N A L L G Y B D E C U D O R P I I CONTENTS MANAGING DIRECTOR’S REVIEW HEALTH SAFETY AND ENVIRONMENT CROP PROTECTION INDUSTRIAL CHEMICALS MANAGEMENT TEAM BOARD OF DIRECTORS CORPORATE GOVERNANCE DIRECTORS’ REPORT 10 16 18 22 26 28 30 34 STATEMENT OF FINANCIAL PERFORMANCE STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT TREND STATEMENT 40 41 42 43 86 87 89 SHAREHOLDER AND STATUTORY INFORMATION 90 growth + focus + results = value NUFARM LIMITED 2004 ANNUAL REPORT FACTS IN BRIEF Trading results Operating proﬁt after tax Sales revenue Total equity Total assets Ratios Earnings per ordinary share (weighted average, excluding non-recurring item) Net debt to equity (gearing ratio) Net tangible assets per ordinary share Distribution to shareholders 12 months ended 31.7.2004 $000 76,202 1,576,815 560,494 1,431,578 12 months ended 31.7.2003 $000 64,269 1,458,811 462,321 1,357,814 47.1c 61.0% $2.17 41.3¢ 98.0% $2.05 Annual dividend per ordinary share 23.0¢ 20.0¢ People Staff employed 2,613 2,566 FOCUS + GROWTH + RESULTS = VALUE FOCUS++ Focus = crop protection + experienced management + shareholder returns. Focus on crop protection is a fundamental part of Nufarm’s business strategy. With an experienced, hands-on management team and a proficient board of directors, we are focused on strengthening brands, expanding our product range and delivering maximum returns for shareholders. 02 NUFARM LIMITED ANNUAL REPORT 2004 FOCUS + GROWTH + RESULTS = VALUE NUFARM LIMITED ANNUAL REPORT 2004 05 FOCUS + GROWTH + RESULTS = VALUE GROWTH++ Growth = geographic expansion + product range + market share + profitability. Growth is integral to Nufarm’s success. In 50 years, we have grown from a small regional operation to one of the world’s leading crop protection companies. Nufarm is growing its market share positions in key products and continuing to expand into new global markets. NUFARM LIMITED ANNUAL REPORT 2004 05 FOCUS + GROWTH + RESULTS = VALUE RESULTS== Results = reliable outcomes + delivering on guidance + quality earnings growth. Results are what count. Nufarm customers expect and receive reliable results from quality products, with top technical support and flexible supply. And getting it right with our customers means consistently better results for our shareholders. 06 NUFARM LIMITED ANNUAL REPORT 2004 FOCUS + GROWTH + RESULTS = VALUE NUFARM LIMITED ANNUAL REPORT 2004 09 FOCUS + GROWTH + RESULTS = VALUE VALUE Value = strategic relationships + people + efficiencies + strong brands. Value is found in solid investments. Nufarm invests in strategic relationships and alliances, people, product development and manufacturing improvements. We create value by improving business efficiencies that drive stronger margins. At Nufarm we understand the value of a strong brand. NUFARM LIMITED ANNUAL REPORT 2004 09 NUFARM BUSINESS SPLIT ECONOMIC VALUE ADDED KEY EVENTS Industrial Chemicals Crop Protection Crop Protection Industrial Chemicals �� 2004 1997 Fertilisers 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. The EVA in 2004 was $43.4 million, due largely to an improved working capital position. �� • OPERATING PROFIT INCREASES BY 18% TO $76.2 MILLION • CROP PROTECTION BUSINESS ACHIEVES GROWTH IN MAJOR MARKETS • BASF BRANDS ACQUISITION MAKES STRONG CONTRIBUTION • MAJOR INVESTMENT PROPOSED FOR BRAZIL • PROPOSED DIVESTMENT OF NON-CORE BUSINESSES MANAGING DIRECTOR’S REVIEW 10 NUFARM LIMITED ANNUAL REPORT 2004 managing director’s review focus + growth + results = value The 2004 ﬁnancial year saw a very solid performance from the company’s core crop protection business. The tax paid proﬁt of $76.2 million represents an increase of more than 18 per cent on the previous year’s net operating proﬁt ($64.3m). Total group sales were $1.58 billion, up by eight per cent on the 2003 year. Earnings per share were 47.1 cents, an increase of 14 per cent on last year’s 41.3 cents. This was achieved on a higher capital base following the issuing of some 11 million new shares associated with a capital raising in January – February 2004. The company’s balance sheet at year-end shows a further substantial reduction in net debt to equity, down by some 38 per cent to 61 per cent. This improvement in the balance sheet builds on the signiﬁcant gains made in the previous year and reﬂects strong cash ﬂow ($202.7 million), an improved working capital position (reduced by $65m), and the repayment of $109 million in debt. Other balance sheet ratios also strengthened. Return on funds employed increased from 13.9 per cent to 15.7 per cent at the EBIT level, and interest cover increased to 4.4 times from 3.4 times. Business review The crop protection business achieved a 17 per cent increase in sales to $1,441 million and represented 91 per cent of group sales. This reﬂects a key strategic objective to focus our efforts in the crop protection sector and gradually exit those businesses where Nufarm does not have core strengths and competitive advantage. Crop protection is an industry in which the company has a 50-year history and is clearly the area where Nufarm has the potential to add most value in terms of future growth. We have sought to strengthen our position via a combination of geographic and product portfolio expansion and made excellent progress on both fronts in the 2004 ﬁnancial year. The core business also generated stronger proﬁt growth (up by 20 per cent), compensating for a lower contribution from Nufarm’s industrial chemicals businesses. The company achieved stronger sales and proﬁt results in all of its major global crop protection markets except France, where the business is being realigned to achieve additional higher margin branded product sales. To date, Nufarm has been predominantly a third party supplier of technical product in France. This is a major agricultural inputs market and we will achieve better results going forward by establishing a stronger branded products business. In 2004, Australasia accounted for 48 per cent of total sales, the Americas 28 per cent and Europe 24 per cent. Our larger global presence helps protect the company from the impact of adverse seasonal conditions in any one market. In 2004, seasonal conditions were average to good in the various geographies where Nufarm products are sold. Higher sales of premium branded products and enhanced operational efﬁciencies resulted in stronger margins in most markets. In January 2004, we announced the acquisition of the global phenoxy herbicides business from the German company, BASF. This acquisition saw Nufarm assume control of a number of leading brands in various markets, with particularly strong positions in Europe. Sales of these brands were approximately $25 million and generated a net proﬁt of some $5 million. Margins achieved on these sales were stronger than those assumed at the time of the acquisition. NUFARM LIMITED ANNUAL REPORT 2004 11 Group sales + 8.0% 7 7 5 1 8 5 4 1 9 2 4 1 3 2 3 1 3 1 2 1 EBITDA* + 4.0% 0 . 7 0 2 8 . 9 9 1 2 . 2 8 1 1 . 4 6 1 9 . 2 6 1 Operating proﬁt + 18.0% 2 . 6 7 3 . 4 6 8 . 6 5 1 . 1 5 9 . 1 5 n o i t a s i t r o m a d n a n o i t a c e r p e d i , x a t , t s e r e t n i 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 0 0 2 m $ 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 0 0 2 m $ f e r o e b s g n n r a E * i 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 0 0 2 m $ Return on average funds employed 15.7% 7 . 5 1 0 . 4 1 5 . 3 1 5 . 3 1 6 . 4 1 Net debt to equity Earnings per share 61.0% 1 6 8 9 2 5 1 6 4 1 6 1 1 47.1¢ 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 0 0 2 % 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 0 0 2 % 12 12 NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 managing director’s review The considerable effort we have maintained in communicating Nufarm’s performance and prospects to the broader investment market undoubtedly has helped the stronger share price. focus + growth + results = value This acquisition also contributed to an improvement in the company’s methyls business, which grew in both volume and price and incorporated a higher proportion of branded product sales versus lower margin third party technical sales. While further initiatives are required to achieve increased and sustainable proﬁtability from the methyls business, the 2004 result marks a welcome turn-around in its performance. The BASF acquisition was partly funded by equity raising with strong support by both institutional investors and Nufarm’s retail shareholders that participated via a share purchase plan. The institutional placement was completed at a discount of less than two per cent to the previous closing share price, with a subsequent strengthening of the share price that has been sustained through the balance of the year. The considerable effort we have maintained in communicating Nufarm’s performance and prospects to the broader investment market undoubtedly has helped the stronger share price. During the period in review, Nufarm also reached agreement to distribute the full BASF crop protection product range in Australia. These products have proven to be a valuable addition to our portfolio and have enhanced our position in higher value sectors such as horticulture. Nufarm’s global manufacturing facilities achieved record throughput to meet higher sales demand, leading to stronger labour and overhead recoveries and lower unit costs. Changes were made in a number of facilities to make better use of assets and improve efﬁciencies in synthesis, formulation and packaging. In summary, Nufarm continued to grow both sales and brand share in key geographies and strengthened its global position and market shares in its major core products, including phenoxy herbicides and glyphosate. A very active product registration program resulted in a number of new product launches during the year, and – despite a very competitive pricing environment – the company was able to strengthen margins across the business. A more detailed overview on the business performance is included on pages 18 to 23 in this report. Non-operating items The net impact of various restructuring initiatives, sale of assets and other non- operating items during the 2004 reporting period was not material. The major restructuring activity was in France and included the closure and sale of a manufacturing facility in Mulhouse; the sale of the Paris based administration building; and a reorganisation aimed at reducing manufacturing overheads and strengthening marketing and sales functions. Directors have also taken the opportunity to write-off carrying values associated with a number of non-core or discontinued research and development programs. The after tax impact of all non-operating items was a loss of $0.4 million. Final dividend Directors have declared a fully franked dividend of 15 cents per share (last year 13 cents per share) resulting in a full year dividend payment of 23 cents per share, an increase of three cents (15 per cent) on the previous year. The increased dividend encompasses a slightly higher payout ratio in respect of the 2004 results, but reﬂects the company’s conﬁdence that retained proﬁts will be used to help the continued proﬁtable expansion of the business. The dividend will be paid on 12 November 2004 to the holders of all fully paid shares in the company as at the close of business on 27 October 2004. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 13 13 managing director’s review focus + growth + results = value Subsequent events The company announced on 30 September that it has signed a memorandum of understanding to acquire 49.9 per cent of the share capital in the Brazilian crop protection company, Agripec. This investment will provide Nufarm with a strong future earnings stream tied to ongoing growth in one of the world’s largest markets for crop protection sales. Agripec is a leading locally owned supplier of agricultural chemicals in Brazil with extensive production facilities and a strong sales network. The proposed equity interest in Agripec involves a total consideration of USD120 million (approximately AUD170 million) and will be debt funded. The transaction is subject to ﬁnal due diligence and board approval and we expect it to be completed by the end of November. We have also signalled our intention to divest the pharmaceutical intermediates business (SEAC), and the Nufarm Specialty Products subsidiary. Discussions are at an advanced stage with prospective buyers of these businesses and we hope to ﬁnalise contracts by calendar year end. SEAC, based in France, provides contract synthesis and manufacturing services to major pharmaceutical companies. It generated sales of some $26 million in 2004 ($31 million in 2003). Nufarm Specialty Products is based in South Carolina, USA and manufactures a range of ﬁne and performance chemicals for other manufacturing companies. 2004 sales were approximately $50 million. These include the continued expansion of the product portfolio; the ability to successfully compete with other suppliers in large overseas markets; and a focus on driving further efﬁciencies and subsequent margin improvement in various parts of the business. While the business will need to absorb higher costs in raw materials in the 2005 reporting period, the company is conﬁdent of achieving further growth in sales in both existing markets and developing markets such as South America. There will be a continued focus on generating improved shareholder returns and on the efﬁcient use of capital employed in the business. The company targets a three-year average annual net proﬁt growth of approximately 10 per cent and this looks very achievable in the foreseeable future. Based on an assumption that the Agripec investment is completed and makes its forecast contribution in the current ﬁnancial year – and factoring in the expected loss of earnings from non-core businesses likely to be divested within the period – 2005 net proﬁt growth is forecast to be at least 15 per cent. Doug Rathbone Managing Director Melbourne, Australia 7 October 2004 Total proceeds from these divestments is expected to be in the order of $80 million and will be used to partially offset the borrowing costs associated with the proposed Agripec investment. Our people On behalf of the board of directors, I would like to take this opportunity to thank Nufarm employees around the world for the very signiﬁcant contribution they have made to the performance of the company during ﬁnancial year 2004. The commitment, loyalty and capabilities of our people – more than 60 per cent of whom are Nufarm shareholders – are a major strength of the business and an essential factor in our success. We have new management teams in place in several of our global businesses and I have every conﬁdence that these changes will help those businesses reach their full potential. Nufarm places the highest priority on the health and safety of our people and we must continue to push for further improvements in this area across every part of the business in all locations. Pleasingly, our performance in achieving ambitious safety targets has been very positive over the past 12 months. Board changes Since our last annual report, two new independent directors have been appointed to the Nufarm board. Both Donald McGauchie AO (appointed in December 2003) and Garry Hounsell (appointed in October 2004) bring a great deal of relevant experience and expertise to the company. Looking ahead Directors believe the 2004 results reﬂect a number of factors, which place the company in a strong position to achieve ongoing proﬁtable growth. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 15 15 LTIFR1 MTIFR2 Severity3 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 1 LTIFR or lost time injury frequency rate is the number of lost time injuries per million hours worked that need one or more day’s absence from work. 2 MTIFR or medical treatment injury rate is the number of lost time and medical treatment injuries per million hours worked. 3 Severity rate is the number of days lost per thousand hours worked. Sites with 100% environmental tests compliance � � � � � � � � � � � Environmental tests percentage compliance � � � � � � � � � � � � � � � Total number of environmental tests (’ooo) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 16 NUFARM LIMITED ANNUAL REPORT 2004 health safety and environment Nufarm sites free of lost time injuries in 2003 Agrow* Botlek, The Netherlands Calgary, Canada Chicago Heights, USA Chicago ofﬁce, USA Crop Care, Queensland Crop Care, Western Australia Croplands, Australia Croplands, New Zealand Deutschland GmbH, Germany Florigene, Australia* Houston, USA Indonesia Kemerton chlor alkali, Australia Kwinana chlor alkali, Australia Lobeco, USA Malaysia Manurewa, New Zealand New South Wales, Australia Nufarm New Zealand Nuturf, Australia Queensland, Australia South Australia * sold in 2004 Nufarm safety awards 2003 Agrow* Botlek, The Netherlands Calgary, Canada Chicago Heights, USA Chicago ofﬁce, USA Crop Care, Western Australia Croplands, Australia Croplands, New Zealand Gennevilliers, France Indonesia Laverton, Australia Lobeco, USA Manurewa, New Zealand Malaysia Nufarm New Zealand Nuturf, Australia Queensland, Australia South Australia * sold in 2004 focus + growth + results = value On the broader front, Nufarm continues to see strong growth in its various crop protection businesses. This has resulted in increased demand on production facilities and on the logistics of how efﬁciently we can move product to customers. Against this background, it is pleasing that the company met two out of three of the tough ‘headline’ safety targets we established in the HSE area during the 2003 calendar year and Nufarm was not ﬁned for any environmental breaches. We have set ambitious continuous improvement hurdles within Nufarm on the basis that no Nufarm employee should be injured at work. We must continue the push for further improvements across every part of the business and in all locations. It is disappointing that our European operations will not meet 2004 injury severity targets. Every member of the board and the management team is personally committed to seeing consistent improvements in all our safety performance measurements and to working towards an injury free workplace. We expect to see additional management attention and employee commitment to this area in Europe so that those operations quickly come into line with the general Nufarm performance. It is a joint responsibility – one taken very seriously from board level to factory ﬂoor. We need to ensure that the success we achieve on the ﬁnancial performance front is mirrored with ongoing progress towards minimising injuries, safeguarding the general health and wellbeing of all employees, and conducting business in a manner which poses no undue environmental impacts. Note: Nufarm HSE results are calendar year not ﬁnancial year. Nufarm operates in an industry in which attention to detail in areas such as safety and environmental management are embedded in the way we do business. Through a combination of various company speciﬁc operational procedures, industry self-regulation and a stringent government regulatory environment – all supported by regular training – Nufarm employees are intrinsically aware of and directly involved in the management of risks associated with health, safety and the protection of the environment. The agricultural chemical industry is, in relative terms, a safe industry. Ultimately, however, the test of how well we manage these critical areas comes down to the vigilance and response of individual employees. Despite the best procedures and the highest levels of regulation, circumstances will often result in having to use initiative and good judgment when faced with the unexpected. In February this year, when a team of Nufarm employees were visiting another company’s production facility in Germany, our Botlek production manager, Ton Herfst, unexpectedly collapsed. Thanks to the quick thinking of his colleagues and, in particular, the resuscitation techniques employed by Corina van Veen-Hermans, Ton survived the ordeal and is progressing well with his recovery. Such initiative is to be commended, and underlines the fact that individuals – not organisations – ultimately determine how well we manage and respond to the challenges of maintaining a safe and environmentally sound workplace. A ﬂash ﬁre in the Mulhouse facility in France (July 2003) could also have been more serious but for the immediate and professional response of employees and local authorities. This again underlines the value of regular emergency response training. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 17 17 2004 crop protection global sales �� Three factors drove the sales increase: strong organic growth in markets such as the United States, Germany and the UK; new products resulting from the company’s registration and acquisition activities; and new distribution arrangements. CROP PROTECTION 18 18 NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 crop protection focus + growth + results = value Total crop protection sales increased by 17 per cent to $1,441 million, with proﬁt before tax, interest and head ofﬁce charges up by 20 per cent at $161.9 million. Three factors drove the sales increase: strong organic growth in markets such as the United States, Germany and the UK; new products resulting the company’s registration and acquisition activities; and new distribution arrangements. Nufarm’s acquisition of the market leading phenoxy herbicide brands from BASF – acquired in January 2004 – contributed strongly to the performance of the crop protection business in a number of global markets. Australia and New Zealand Australia experienced mixed seasonal conditions, with parts of the country receiving good and timely rains while other areas – particularly in NSW and Queensland – remaining drought declared. Despite a later than usual autumn rain break in the southern regions, Australian winter crop plantings, overall, were at similar high levels to the year before. The company’s Australian crop protection sales increased by almost 15 per cent. This included some $24 million in sales associated with the BASF range of products, which transferred to Nufarm under a new distribution deal at the beginning of March and enhanced Nufarm’s market penetration in the higher value horticulture segment. The total Australian glyphosate market saw double-digit growth in the reporting period, with Nufarm maintaining its strong molecule share, in particular in the ‘Roundup’ branded product range. An increased share of sales under the premium ‘Roundup PowerMax’ brand – launched the previous year – contributed to stronger margins in the glyphosate business. Crop Care recorded its ﬁrst full 12 months of sales since being acquired from Orica in the 2003 ﬁnancial year (nine months of sales). Sales under the Crop Care brand were up by some 30 per cent year on year. Nufarm’s Croplands subsidiary, which supplies chemical application machinery, also generated a stronger sales and proﬁt performance, assisted by an expanded product range, improved brand awareness and broader dealership coverage. Agricultural chemical sales in New Zealand were also strong during the year, particularly in light of ﬂooding that had an adverse impact on crops and pastures in several regions. An unbudgeted order for a biological insecticide used in a major urban pest eradication program contributed to the better than expected outcome in this business. The New Zealand based health and sciences division – which contract manufactures products for major animal health companies – reported lower sales and earnings due to reduced livestock numbers in the wake of the Australian drought. Overall, Nufarm continued to consolidate its leadership position in the Australian market, with a number of new products helping sales in niche sectors and providing a platform for future growth. Asia Nufarm products achieved higher market shares in Indonesia and Malaysia and – together with additional sales to Japan – helped the Asian business deliver a stronger sales and proﬁt performance. Total Asian sales increased from $50 million to $71 million or ﬁve per cent of total crop protection revenues. Restricted supply of glyphosate from Chinese sources contributed to a substantial increase in Nufarm sales of glyphosate in Malaysia. Americas The US business performed very strongly, with total branded sales up by more than 37 per cent in local currency (up 25 per cent in Australian dollars) over the previous year. Seasonal conditions were generally favourable, although hot and dry weather in California reduced demand for fungicides. Sales of the company’s phenoxy herbicides continued to grow, in part driven by the increased use of these products in genetically modiﬁed (GM) crops. There was substantial growth in volume sales of glyphosate, however margins on a per unit basis were lower than the previous year due to reduced prices. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 19 19 20 NUFARM LIMITED ANNUAL REPORT 2004 crop protection focus + growth + results = value The Agripec acquisition will secure Nufarm a strong position in one of the world’s largest and fastest growing markets for crop protection products. In the US turf and vegetative management sector, Nufarm sales grew by more than 50 per cent. An expanding product portfolio was a key contributor to the very strong performance, as Nufarm increased its business with all existing distribution customers. Sales in Canada were ﬂat year on year, with seasonal conditions not conducive to heavy demand for herbicides. But a more proﬁtable product mix and close attention to cost controls resulted in an improved proﬁt performance. The key South American markets saw increased sales of Nufarm products. The company launched branded 2,4-D and glyphosate in the rapidly growing Brazilian market and generated increased sales in Argentina. To help capture future opportunities in the region, Nufarm has expanded its sales, registration and business development resources there. Europe The European businesses saw an overall increase in sales of 20 per cent. This was driven largely by very strong results in Germany, where the previous year’s sales increased by almost 70 per cent to just over $43 million, and in the UK. The German business added a number of new products to the portfolio, including several fungicides, which have been licensed from BASF, and the former BASF phenoxy herbicide brands. Portfolio expansion and strong seasonal pressures were the key drivers of the excellent performance of the UK branded business. Spain also recorded very good results. As expected, the reorganisation of the French business and a decision to move away from a predominantly third party sales structure held sales below the previous year. The reorganisation will improve efﬁciencies in the business and support the company’s objective to increase Nufarm’s direct distribution of branded products, particularly in the large cereals segment. Agripec investment On 30 September 2004, the company announced its intention to acquire 49.9 per cent of Agripec Quimica e Farmaceutica SA (Agripec), Brazil’s largest locally owned crop protection company. The acquisition will secure Nufarm a strong position in one of the world’s largest and fastest growing markets for crop protection products. The proposed US$120 million acquisition is expected to be completed within calendar year 2004 and will make a positive earnings contribution in Nufarm’s 2005 ﬁnancial year. Agripec was established in 1961 and employs 365 people. The company operates a major production facility in Fortaleza and has an extensive sales network that services all of Brazil’s major farming regions. The company’s sales grew strongly in recent years, reﬂecting the substantial growth in agricultural production in Brazil and the subsequent increase in crop protection sales. With total crop protection sales of USD3.1 billion in 2003, Brazil now ranks behind the United States and Japan as the third largest country market in the world. It is also one of very few markets in which crop area is expected to increase over the next 10 years. The equity interest in Agripec will be a key element of Nufarm’s expansion into South America. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 21 21 Industrial chemicals ■��■�� $m �� The industrial chemicals division generated revenues of just over $135 million (down 40 per cent on the previous year) during the 2004 financial reporting period, representing nine per cent of total group revenues. INDUSTRIAL CHEMICALS 22 22 NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 industrial chemicals focus + growth + results = value The West Australian based chlor alkali plants (80 per cent owned) were again the major proﬁt contributors in the industrial chemicals division. Sales in the SEAC pharmaceutical intermediates subsidiary (France) were again lower than in the previous period, with a project budgeted for the last quarter deferred until the new ﬁnancial year. Costs were also up last year. Proposed divestments On 30 September 2004, Nufarm announced that it intends to divest the pharmaceutical intermediates business (SEAC) and the Nufarm Specialty Products subsidiary, based in South Carolina, USA. At the date of writing, negotiations relating to the sale of both businesses are at an advanced stage and the divestments should be completed within the 2004 calendar year. The industrial chemicals division generated revenues of just over $135 million (down 40 per cent on the previous year) during the 2004 ﬁnancial reporting period, representing nine per cent of total group revenues. The lower sales reﬂected – in part – the divestment of the Fernz specialty chemicals business last year when it generated $51 million in sales for the three months before its divestment to Orica Ltd in November 2003. The West Australian based chlor alkali plants (80 per cent owned) were again the major proﬁt contributors in the industrial chemicals division. Both facilities performed well during the year, with stable caustic soda prices. As the ﬁrst 15-year contract for the Kemerton facility expired, a new long-term contract was negotiated. The chlor alkali plants use synthesis technology, which is also employed in Nufarm’s phenoxy herbicide manufacturing operations. Sales in the remaining industrial chemical businesses fell by just over 20 per cent. Pre-tax segment proﬁt declined to $15.3 million from $23.6 million in the previous year. Nufarm Specialty Products (South Carolina, USA) generated a lower proﬁt contribution – on slightly lower sales – than in 2003. The loss of a major tolling contract was offset partially by a number of new, smaller contracts. The French ﬁne and performance chemicals business had lower sales, with increased competition restricting prices and delivering an overall below expectation contribution. A reorganisation of the production facilities will improve future operating margins. NUFARM LIMITED NUFARM LIMITED ANNUAL REPORT 2004 ANNUAL REPORT 2004 23 23 Nufarm has an experienced hands-on management team Doug Rathbone Managing Director and Chief Executive John Allen Group General Manager Crop Protection Brian Benson Group General Manager Marketing Brian Benson joined Nufarm in 2000, bringing with him extensive experience in international marketing and strategy. He has degrees in agricultural science and business administration. Brian is responsible for Nufarm global marketing and strategy development ■ John Allen trained as an agronomist and then gained a post-graduate degree in marketing. He joined Nufarm in 1984 and has 30 years experience in the industry. John has held a variety of positions in the commercial side of the business, starting as a sales representative. He is now responsible for the commercial side of Nufarm’s crop protection activities ■ MANAGEMENT TEAM 26 NUFARM LIMITED ANNUAL REPORT 2004 Rodney Heath Group General Manager Corporate Services and Company Secretary Rod Heath is a bachelor of laws and joined the company in 1980, initially as legal ofﬁcer, later becoming assistant company secretary. In 1989, Rod moved from New Zealand to Australia to become company secretary of Nufarm Australia Limited. Upon migration of the company to Australia in 2000, Rod was appointed company secretary of Nufarm Limited ■ Kevin Martin Chief Financial Ofﬁcer Bob Ooms Group General Manager Chemicals David Pullan Group General Manager Operations Kevin is a chartered accountant, with over 25 years experience in the professional and commercial arena. After joining Nufarm in 1994, he was responsible initially for the ﬁnancial control of the crop protection business. Since migration in 2000, Kevin has been responsible for all ﬁnancial, treasury and taxation matters for the group ■ Bob Ooms joined the company in 1999. An industrial chemist by training, Bob has more than 40 years experience in the chemical industry working in a variety of positions, including many years in senior management. Bob is responsible for the group’s industrial chemical businesses and has executive management responsibility for global supply chain issues ■ David Pullan joined the company in 1985. A mechanical engineer, David has extensive experience in chemical synthesis and manufacturing, having held a variety of operational and management positions in the oil and chemical industries. He is responsible for all of Nufarm’s global manufacturing and production sites ■ Robert Reis Group General Manager Corporate Affairs A former journalist, political adviser and lobbyist, Robert joined Nufarm in 1991 and is responsible for global issues management, investor relations, media, government and stakeholder relations ■ NUFARM LIMITED ANNUAL REPORT 2004 27 Kerry Hoggard Chairman Doug Rathbone Managing Director and Chief Executive Doug Curlewis Bruce Goodfellow Garry Hounsell Kerry Hoggard, 62, 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, 58, joined the board in 1987. His background is chemical engineering and commerce and he has worked for Nufarm Australia Limited for over 30 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999 ■ GDW (Doug) Curlewis, 63, 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, National Foods Ltd, GUD Holdings Ltd and Remunerator Australia Pty Ltd.In the past three years Doug has been a director of Hamilton Island Ltd (5 years) ■ Dr WB (Bruce) Goodfellow, 52, 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 and ﬁnancial and commercial business management experience. He is a director of Sulkem Co Ltd, Refrigeration Engineering Co Ltd, SH Lock (NZ) Ltd and Cambridge Clothing Co. Ltd ■ GA (Garry) Hounsell, 49, was appointed to the board in October 2004. He has a bachelor of business (accounting) and is a former senior partner with Ernst & Young and a former Australian country managing partner with Arthur Andersen. He has extensive experience across a range of areas relating to management and corporate ﬁnance and has worked with some of Australia’s leading companies in consulting and audit roles, with a particular emphasis in the manufacturing sector. He is also a director of Orica Limited ■ BOARD OF DIRECTORS 28 NUFARM LIMITED ANNUAL REPORT 2004 Donald McGauchie Graeme McGregor John Stocker Dick Warburton DG (Donald) McGauchie AO, 54, joined the board in 2003. He has a farming background and has been extensively involved in agricultural trade, policy and market reform. He is currently chairman of Telstra Limited; a member of the board of the Reserve Bank of Australia; deputy chairman of Ridley Corporation and a director of National Foods Limited and James Hardie Industries NV. In the prior three years Donald has been a director of Graincorp Limited (8 years), Woolstock Australia Limited (3 years), Rural Finance Corporation (2 years) and Sinclair Knight Merz Management Ltd (2 years) ■ GW (Graeme) McGregor AO, 65, 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, WMC Resources Ltd and Goldman Sachs JB Were Managed Funds Ltd. Graeme is also on the board of Community Foundation Network Ltd and a past national president of CPA Australia and is a member of the Financial Reporting Council ■ Dr JW (John) Stocker AO, 59, 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. He is a director of Telstra Corporation Ltd, Cambridge Antibody Technology Group plc and Circadian Technologies Ltd ■ RFE (Dick) Warburton, 63, joined the board in 1993. He has a business management background and is chairman of Caltex Australia Ltd, HIH Claims Support Ltd and Tandou Ltd. He is a director of Tabcorp Holdings Ltd, Note Printing Australia Ltd, NM Rothschild & Sons ( Australia) Ltd and NM Rothschild Australia Holding Pty Ltd. Dick is chairman of the Board of Taxation and a past national president of the Australian Institute of Company Directors. In the prior three years Dick has been a director of Reserve Bank of Australia (10 years), David Jones Ltd (8 years), Aurion Gold Ltd (1 year), Southcorp Ltd (10 years) and Goldﬁelds Ltd (6 years) ■ NUFARM LIMITED ANNUAL REPORT 2004 29 CORPORATE GOVERNANCE STATEMENT Management and oversight of Nufarm The board The board is the governing body of the company and is responsible for overseeing the company’s operations, ensuring that Nufarm’s business is carried out in the best interests of all shareholders and with proper regard to the interests of all other stakeholders. The board charter has clearly defined policies detailing the board’s individual and collective responsibilities and describing those responsibilities delegated to senior management. The board’s specific responsibility is to: ratify strategic plans for the company and its business units; review the company’s accounts; approve and review operating budgets; approve major capital expenditure, acquisitions, divestments and corporate funding; oversee risk management and internal compliance; and control codes of conduct and legal compliance. 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. The board is also responsible for the appointment and remuneration of the managing director, ratifying the appointment of the chief financial officer and the company secretary, reviewing remuneration policy for senior executives and Nufarm’s general remuneration policy framework. Each year the board reviews the board composition and terms of reference for the board, chairman, board committees and managing director. Board committees At 31 July 2004, the board had three committees: audit; remuneration; and nomination. The board resolved to disband the scientific review committee in December 2003. The company chairman can only chair the nomination commitee. All directors are entitled to attend any committee meeting. Details of the attendances at meetings of board and committees are detailed on page 35 of this report. The manner in which the company is managed is consistent with the recommendations of ASX Principle 1. A summary of the board charter has been posted to the corporate governance section of the company’s website. Board of directors The board Composition The board has a majority of independent non-executive directors with an appropriate range of proficiencies, experience and skills to ensure that its responsibilities are discharged in a manner consistent with the best possible management of the company. The company’s constitution specifies that the number of directors may not be less than three, nor more than 11. 30 NUFARM LIMITED ANNUAL REPORT 2004 At present there are eight 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. Independence Directors are expected to bring independent views and judgment to the board. In determining the independence of directors, the board applies the tests set out in ASX Principle 2 and, in considering whether a director has a material relationship with the company that may compromise independence, the board considers all relevant circumstances. Having reviewed the ASX Principles and the circumstances of individual directors, the board does not believe it necessary to define any specific materiality limits, other than defining a substantial shareholder as one who holds or is associated directly with a shareholder controlling in excess of five per cent of the company’s equity. Tenure The board is aware of commentary relating to the tenure of directors and the relationship between length of service and independence. Ultimately, the board considers that the independence of directors, and justification for their positions in general, is determined by the manner in which they discharge their responsibilities and their contribution to the success of the company. However, the board has determined that any director who has served as a non-executive director on the board for a continuous 10 year period should seek only one further re-election and then voluntarily retire before the date scheduled for any subsequent re-election. Any variation to this policy would involve exceptional circumstances and require the unanimous support of the full board. Directors seeking to offer themselves for re-election at a company annual general meeting (AGM) are subjected to a performance review by the remaining directors before any such re-election. At the date of this statement, the board determined that the status of directors is characterised as follows: Independent non-executive directors GDW Curlewis GA Hounsell GW McGregor DG McGauchie Dr JW Stocker RFE Warburton Non-independent non-executive directors KM Hoggard Dr WB Goodfellow Executive director DJ Rathbone Graeme McGregor has advised the board of his intention to retire in July 2005. Garry Hounsell was appointed a director from 1 October 2004 and will replace Graeme McGregor, on his retirement, as chairman of the audit committee. Profiles of each board member are set out on page 28 of this report, including their terms in office. NUFARM LIMITED ANNUAL REPORT 2004 31 CORPORATE GOVERNANCE STATEMENT CONTINUED Access to independent advice With the prior approval of the chairman or by resolution of the board, any director can appoint legal, financial or other professional consultants, at the expense of the company, to assist directors in discharging their responsibilities. The board charter provides that non-executive directors may meet without management present. 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. Chairman of the board The chairman is elected annually at the directors’ meeting immediately following the company’s AGM. Our board chairman is Kerry Hoggard. Both Kerry and the board acknowledge that he is not an independent director in accordance with the tests set out in ASX Principle 2 . Notwithstanding, the board unanimously supports Kerry’s continuation as chairman, believing this to be in the best interests of all our stakeholders. Kerry joined the company in 1957 as office junior and, through a number of accounting, financial and commercial promotions, became chief executive officer in 1987 when he also joined the board. In the 1980s, Kerry played a major role in the restructure of the New Zealand fertiliser industry and was responsible for the acquisition of Nufarm Australia Ltd in 1983. In the 1990s, he recommended selling the group’s fertiliser operations and migrating Nufarm to Australia. On his retirement as chief executive officer in 1999, Kerry was appointed chairman of the board. He served as an executive director from 1987 to 1999 and as a non-executive director since 1999. Kerry’s accounting, financial and commercial background – and his intimate knowledge of the industry within which the company operates – provides him with unique skills and experience, which are invaluable to Nufarm. The board believes that Kerry has made the transition from chief executive officer to chairman by applying judgment independent of management in all decision-making and discharges his role with a strong commitment to considerations of governance and disclosure. The board has stipulated that the same person will not exercise the role of chairman and chief executive officer. The nomination committee The nomination committee was formed on 1 August 2003. The three members are Kerry Hoggard (chairman), Dick Warburton and Donald McGauchie. The committee has a majority of independent directors. The committee has a formal charter setting out its membership requirements and responsibilities. These responsibilities include: the assessment of competencies of board members; review of board succession plans; evaluation of board performance; and recommendations for appointment of new directors when appropriate. Save as to the independence of the chairman referred to above, the structure of the board is consistent with ASX Principle 2. A copy of the nomination committee charter and a summary of the policy and procedure for appointment of directors has been posted to the corporate governance section of the company’s website. Ethical and responsible decision-making Ethical standards All directors and employees shall adopt standards of business conduct that are ethical and comply with all legislation. Where there are no legislative requirements, the company endeavours to ensure appropriate standards by 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. During the course of the 2003–2004 financial year, the company established a formal code of conduct which has been posted to the corporate governance section of the company’s website. Purchase and sale of company shares The company has longstanding policies about the purchase and sale of company shares by directors and key executives. The current share trading policy prohibits directors and key executives from dealing in the company’s shares at any time the directors or employees are aware of unpublished, price-sensitive information. Subject to this prohibition, directors and key executives may buy or sell shares at any time except during the following periods: • six weeks before the release of the company’s half year results to the ASX, ending 24 hours after such release; • six weeks before the release of the company’s year end results to the ASX, ending 24 hours after such release; and • two weeks before the company’s AGM, ending 24 hours after the AGM. Before any trading in company shares, directors and key executives must complete an application form, which contains a declaration confirming they have no relevant knowledge pertaining to the company that is not available to the public. On receipt of the application form the company secretary will discuss the application with the chairman to obtain approval to trade. No trading can be undertaken before the application receives the written approval of the company secretary. A copy of the trading policy has been posted to the corporate governance section of the company’s website. The company’s code of conduct and share trading policy is consistent with ASX Principle 3. 30 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 31 CORPORATE GOVERNANCE STATEMENT CONTINUED Safeguard integrity in financial reporting Financial reports The board procedures to safeguard the integrity of the company’s financial reporting require the managing director and the chief financial officer to state, in writing to the board, that: • the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards; and Disclosure The company has a detailed written policy and procedure to ensure compliance with both the ASX Listing Rules and Corporations Act. This policy is reviewed regularly with the company’s legal advisers, in line with contemporary best practice. The company secretary prepares a schedule of compliance and disclosure matters for directors to consider at each board meeting. A copy of the disclosure policy has been posted to the corporate governance section of the company’s website. • the statement is founded on a sound system of risk management The company’s disclosure policy is consistent with ASX Principle 5. and internal compliance and control, which are operating efficiently and effectively. Audit committee The board audit committee has three members: Graeme McGregor (chairman); Doug Curlewis; and Kerry Hoggard. The committee has a majority of independent non-executive directors and is chaired by an independent director. Graeme McGregor is a bachelor of economics and former chief financial officer and executive director of BHP Co Ltd. He is a past national president of CPA Australia and is a member of the financial reporting council. In that capacity, Graeme has been closely associated with best practice recommendations relating to the provision of audit services, including CLERP 9. Kerry Hoggard has extensive accounting and financial experience, referred to earlier in this report, Doug Curlewis is a bachelor of arts and MBA and former managing director of National Consolidated Limited, chief executive (Europe) of ICI Paints and managing director of Dulux Australia. Doug is currently a director of National Foods Limited, GUD Holdings Limited and Pacifica Group Ltd. Doug is chairman of the Pacifica audit committee. The committee reviews the audit committee charter annually. The charter sets out membership requirements for the committee, its responsibilities and provides that the committee shall annually assess the external auditor’s actual or perceived independence by reviewing the services provided by the auditor. The charter identifies those services that the external auditor may provide, those that may not be supplied and those that require specific audit committee approval. The committee has further recommended that any former lead engagement partner of the firm involved in the company’s external audit should not be invited to fill a vacancy on the board and the lead engagement audit partners will be required to rotate off the audit after a maximum five years involvement and it will be at least three years before that partner can again be involved in the company’s audit. A copy of the audit committee charter, which includes procedures for the selection and appointment of the external auditors, has been posted to the corporate governance section of the company’s website. The financial reporting system of the company is consistent with ASX Principle 4. 32 NUFARM LIMITED ANNUAL REPORT 2004 Rights of shareholders Communication The company is mindful of the importance of maintaining effective communications with shareholders and, during the year, the company established a formal communications policy, which has been posted to the corporate governance section of the company’s website. External auditor The board requires the external auditor to attend the company’s AGM in order that shareholders may question the auditor about the conduct of the audit and the preparation and content of the auditor’s report. The company’s policy in relation to the rights of shareholders is consistent with ASX Principle 6. Identifying and managing risk The board is committed to identifying, assessing, monitoring, and managing its major business risks at a level appropriate to its global business activities. To support and maintain this objective, the audit committee has established detailed policies on risk oversight and management by approving a global risk management charter that specifies the responsibilities of the general manager, global risk management (which includes responsibility for the internal audit function). This charter also provides comprehensive global authority to conduct internal audits, risk reviews, and systems- based analyses of the internal controls in major business systems operating within all significant company entities worldwide. The general manager, global risk management reports directly to the managing director and provides a written report of his activities at each meeting of the audit committee. In doing so he will have direct and continual access to the chairman of the audit committee and its members. In addition, the company has implemented a range of global systems, programs, and policies with the objective of risk identification and management, which include the following: • a comprehensive occupational health, safety and environmental (HSE) program. The company publishes an annual HSE report on its performance across a range of environment, health and safety parameters, including specific targets for continuous improvement; • a comprehensive annual insurance program including external risk management surveys; NUFARM LIMITED ANNUAL REPORT 2004 33 CORPORATE GOVERNANCE STATEMENT CONTINUED • a board approved treasury policy to manage foreign exchange risks; • guidelines and limits for approval of capital expenditure and investments; • annual budgeting and monthly reporting systems for all business units which monitor performance against budget targets; • a planning process involving the preparation of five year strategic plans; • appropriate due diligence systems for acquisitions and divestments; and • risk self-assessment surveys of all major business units worldwide. Integrity of financial statements The procedures to safeguard the integrity of financial statements are set out on page 32 of this statement. A summary of the company’s risk management policy and internal compliance system has been posted to the corporate governance section of the company’s website. The management of risk is consistent with ASX Principle 7 Board and management performance The board The performance of the board, individual directors and key executives is reviewed annually. The board has adopted a process to facilitate its performance assessment and an evaluation of the performance of the board was completed in the 2003–2004 year. This process included the completion by directors of a detailed questionnaire, an individual interview of each director by an external consultant and discussion by the board. The board ensures that new directors are introduced to the company appropriately and acquainted with relevant industry knowledge, including visits to specific company operations and briefings by key executives. Remuneration of executives The board’s policy for determining the nature and amount of the remuneration of executives is set out in the remuneration report section of the directors’ report on pages 36 to 38. Under the company’s executive and employee share plans the number of shares provided to employees and executives in the preceding five years will not exceed five per cent of the company’s issued capital. The company has an employment contract with the managing director, which formalises the terms and conditions of appointment, including termination payments. Remuneration committee The three members of the remuneration committee are Dick Warburton (chairman), Donald McGauchie and Kerry Hoggard. The committee has a majority of independent directors. The committee’s formal charter includes responsibility to review and recommend to the board the remuneration packages and policies applicable to key executives and directors. The committee reports to the board on all matters and the board makes all decisions, except when power to act is delegated expressly to the committee. A copy of the remuneration committee charter has been posted to the company’s website. Remuneration of non-executive directors The board’s policy with regard to non-executive director remuneration is set out in the remuneration report section of the directors’ report on pages 36 to 38. The company’s remuneration policies are consistent with ASX Principle 9. Interests of stakeholders Code of conduct The company is politically impartial except when, because of a perceived major impact on the company, its business or any of its stakeholders, it is deemed to be obliged to make political statements. All directors may obtain independent professional advice (refer page 31) and have direct access to the company secretary. Nufarm operates in accordance with the social and cultural beliefs appropriate in each country of operation. The manner in which the performance of the board is assessed is consistent with ASX Principle 8. A summary of the process for performance evaluation has been posted to the corporate governance section of the company’s website. During the 2003–2004 financial year, Nufarm established a formal code of conduct, which has been posted to the corporate governance section of the company’s website. The manner in which the company recognises the interests of shareholders is consistent with ASX Principle 10. Remuneration The board has procedures to ensure that the level and structure of remuneration for executives and directors is appropriate. 32 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 33 DIRECTORS’ REPORT The board of directors of Nufarm Limited (Nufarm) submits its report for the period ended 31 July 2004. Directors’ interests Relevant interests of the directors in the shares or capital notes of the company and related bodies corporate are: Names of directors The names of the directors of the company in office during the period are: KM Hoggard (Chairman) DJ Rathbone (Managing Director) GDW Curlewis Dr WB Goodfellow DG McGauchie AO (appointed 19 December 2003) GW McGregor AO Sir Dryden Spring (retired 11 December 2003) Dr JW Stocker AO RFE Warburton Unless otherwise indicated, all directors held their position as a director throughout the entire period and up to the date of this report. The company secretary is R Heath. Details of the qualifications and experience of the directors and company secretary are set out on pages 26 to 29. Nufarm Ltd Ordinary shares Fernz Corporation (NZ) Ltd Capital notes KM Hoggard1,4 DJ Rathbone1,2 GDW Curlewis Dr WB Goodfellow4,5 DG McGauchie GW McGregor4 Sir Dryden Spring3 Dr JW Stocker4 RFE Warburton4 5,869,837 30,696,167 24,787 1,464,528 3,817 32,418 8,463 26,546 61,513 2,270,000 25,000 1 KM Hoggard and DJ Rathbone have a non-beneficial interest in 286,603 shares as trustees of the Nufarm Limited staff share plan. 2 The shareholding of DJ Rathbone includes his relevant interests in Falls Creek No 2 Pty Ltd. Refer substantial shareholder information on page 91 of this report. 3 Witham Trust, an entity controlled by an associate of Sir Dryden Spring, is the holder of 20,000 Capital Notes. 4 The shareholdings of KM Hoggard, Dr WB Goodfellow, GW McGregor, Dr JW Stocker and RFE Warburton include shares issued under the company’s non-executive director share plan and held by ASX Perpetual Registrars Limited as trustee of the plan. 5 The shareholding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (429,855 shares and 2,270,000 capital notes) – Dr Goodfellow is chairman of the trust board; (ii) three trusts of which he is a non beneficial trustee (807,039 shares); (iii) Waikato Investment Company Limited (113,616 shares). 34 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 35 DIRECTORS’ REPORT CONTINUED Directors meetings The number of directors’ meetings and meetings of committees of directors held in the financial year and the number of meetings attended by each director are shown in the table of directors’ meetings below. Directors’ meetings Director Board Audit KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow2 DG McGauchie GW McGregor Sir Dryden Spring Dr JW Stocker1 RFE Warburton A 8 8 8 8 5 8 2 8 8 B 8 8 8 8 3 8 2 7 8 A 4 2 4 2 B 4 2 1 4 2 Committees Remuneration B A 2 2 2 2 2 2 Nomination A 2 2 2 B 2 2 2 Column A Indicates the number of meetings held during the period the director was a member of the board and/or committee Column B Indicates the number of meetings attended during the period the director was a member of the board and/or committee. 1 Dr J Stocker tendered an apology for the meeting of directors held on 12 May 2004. On 12 May 2004 Dr Stocker attended a board meeting of a group subsidiary company in France. 2 All non-executive directors are entitled to attend any meetings of committees of directors. Where a director has attended a committee meeting, the attendance is noted in the relevant column in the table of directors’ meetings. Other meetings of committees of directors are convened as required to discuss specific issues or projects. The details of the functions and membership of the committees of the board are presented in the statement of corporate governance on pages 30 to 33. Results The net profit attributable to members of the consolidated entity for the 12 months to 31 July 2004 is $76.2 million. The comparable figure for the 12 months to 31 July 2003 was $77.1 million, which included a one-off taxation benefit of $12.8 million resulting from the company adopting the Australian consolidation taxation regime. Operating profit for the 12 months to 31 July 2003 was $64.3 million. Principal activities and changes Nufarm manufactures and supplies a range of products used by farmers to protect crops from damage caused by weeds, pests and disease. The company has production and marketing operations throughout the world and sells products in more than 100 countries. Nufarm’s crop protection products enjoy a reputation for high quality and reliability and are supported by strong brands, a commitment to innovation and a focus on close customer relationships. Nufarm also produces a range of other chemicals used in various manufacturing industries, including construction, explosives and fertilisers, as well as pharmaceuticals. Nufarm employs 2,613 people at its various locations in Australasia, Africa, the Americas and Europe. The company is listed on the Australian Stock Exchange (symbol NUF). Its head office is located at Laverton in Melbourne. 34 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 35 DIRECTORS’ REPORT CONTINUED Dividends The following dividends have been paid, declared or recommended since the end of the preceding financial year. The final dividend for 2002–2003 of 13 cents paid 7 November 2003 The interim dividend for 2003–2004 of 8 cents paid 28 April 2004 The final dividend for 2003–2004 of 15 cents as declared and recommended by the directors is payable 12 November 2004 $000 $20,470 $13,186 $25,160 Review of operations The review of the operations during the financial year and the results of those operations, are set out in the managing director’s review and the business review on pages 10 to 23. State of affairs The state of the company’s affairs are set out in the managing director’s review and the business review on pages 10 to 23. Events after end of financial year On 29 September 2004, Nufarm signed a memorandum of understanding, subject to due diligence and board approval, to acquire 49.9 per cent of Agripec, a Brazilian crop protection company. The consideration is expected to be USD120 million. The company is in advanced discussions relating to the sale of its pharmaceutical intermediate business (SEAC) and its Nufarm Specialty Products subsidiary. The expected proceeds will be in excess of their carrying values. Garry Hounsell was appointed a director from 1 October 2004 Future developments and results The directors believe that likely developments in the company’s operations and the expected results of those operations are contained in the managing director’s review and the business review on pages 10 to 23. Environmental performance Details of Nufarm’s performance in relation to environmental regulations are set out on pages 16 to 18. The company publishes an annual HSE report. This report can be viewed on the company’s website or a copy made available upon request to the company secretary. Remuneration report Group executive The Nufarm remuneration policy has been developed to ensure the company attracts and retains the calibre of people required to successfully manage a large diversified international company. 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. The company has adopted a remuneration policy based on total target reward (TTR), which comprises two components: • fixed reward (TEC) – cash and benefits that reflect local market conditions and individual contribution. The reward level is set relative to pertinent and prevailing executive employment market conditions for high calibre talent in the geographies where Nufarm operates. The company’s policy position for TEC for Australian executives is at the 50th percentile of the Mercer Survey of Australian Major Corporates, • an incentive program – the first half of the incentive program reflects achievement of specific business objectives over six monthly periods and is paid in cash. The second half is linked to meeting predetermined financial objectives for the full year and is delivered in a mixture of shares and options. The exception is the current managing director who is paid in cash because of the very substantial shareholding he currently controls in the company. For the remaining executives this payment is made in equity which ensures a longer term focus to achieve benefit consistent with increases in sustained shareholder value. Each year, the board establishes performance hurdles for the incentive program. These hurdles reflect targets for specific objectives and increasing company value, consistent with the company’s business and investment strategies. 36 NUFARM LIMITED ANNUAL REPORT 2004 DIRECTORS’ REPORT CONTINUED Non-executive directors The board’s policy with regard to non-executive director remuneration is to position board remuneration at the market median with comparable sized listed entities. The board determines the fees payable to non-executive directors within the aggregate amount approved from time to time by shareholders. At the company’s 2003 annual general meeting, shareholders approved an aggregate of $900,000. Set out below are details of the annual fees payable from 1 November 2004. Chairman Director board fee Chairman audit committee Chairman other board committees1,2 Member audit committee Member other board committees3 $ 240,000 $ 95,000 $ 15,000 $ 10,000 $ 5,000 $ 2,500 1 The chairman, KM Hoggard, receives no fees for either his role as chairman of the nomination committee and/or membership of other committees. 2 Dr J Stocker receives a fee of $10,000 for his role in providing scientific, research and development analysis for a group subsidiary company in France. 3 The members of the remuneration committee and nomination committee are common. Only one fee is paid for membership of these two committees. The board has created a non-executive director share plan whereby a director can elect to commit a proportion of director fees to acquire company shares. The number of shares available in the plan will be calculated quarterly, using the weighted average of the price at which shares were traded on the ASX in the five days up to and including the day when shares are allocated to a director. Shares in the plan will not vest until the earlier of three years or retirement. On 31 October 2003, directors resolved unanimously to discontinue the directors retirement benefit plan and benefits accrued under the plan were calculated and, at the option of the relevant director, have been converted into shares or have been paid to the director’s superannuation fund. If the financial objectives are achieved and the incentives are paid in full, the TTR will meet the company’s TTR policy position of the upper quartile of the Mercer Survey of Australian Major Corporates. In the case of the managing director, the incentives may represent 50 per cent of his total remuneration. For other group executives, it may represent 40 per cent of total remuneration. The performance hurdle for the incentive program is based on return on funds employed (ROFE) in the business. Return is calculated on the group’s earnings before interest and taxation and adjusted for any non-operating items. Funds employed are represented by shareholders funds plus total interest bearing debt. At the end of each financial year the board: • assesses company performance against the performance condition to determine the percentage of any offer to be made under the incentive program; and • reviews target ROFE for the incentive program for the following financial period. The remuneration committee and the board review the choice of the performance condition on an annual basis. The company believes ROFE is an appropriate performance condition for the following reasons. For many years the board has measured the company’s performance using ‘economic value added’ methodology. It is believed that if the company can consistently add economic value (a satisfactory margin above the cost of capital), then this will be recognised in share value. This measurement ensures management is focused on the efficient use of capital and the measure remains effective regardless of the mix of equity and debt which may change from time to time. Since migration of the company to Australia in January 2000, the ROFE hurdles have been increased progressively for the first half of the incentive program from 12 per cent to 13.25 per cent, and for the second half from 13.5 per cent to 14.25 per cent. Over that period the payment of total incentives has been: 2001 – 100 per cent; 2002 – 77.4 per cent; 2003 – 100 per cent; 2004 – 100 per cent. The ROFE hurdles for 2005 have been set at 14 per cent and 14.75 per cent respectivley. Shareholder returns comprising dividend and share value have been as follows. Year Dividend rate Share price at 31 July 2001 2002 2003 2004 18 18 20 23 $2.85 $3.35 $4.39 $6.09 NUFARM LIMITED ANNUAL REPORT 2004 37 DIRECTORS’ REPORT CONTINUED Details of the nature and amount of each element of the emoluments of each director of Nufarm Limited and each of the five officers of the company and the consolidated entity receiving the highest emoluments are set out in the following tables. Non-executive directors of Nufarm Limited Name KM Hoggard GDW Curlewis Dr WB Goodfellow DG McGauchie GW McGregor Sir Dryden Spring Dr JW Stocker RFE Warburton Fees $ Super- annuation $ 155,200 63,200 58,825 45,763 73,200 25,177 68,200 68,200 16,560 17,460 6,266 4,119 7,560 2,266 7,110 7,110 Equity Retirement Total benefit plan1 $ $ 28,8002 10,8002 10,8002 10,8002 10,8002 155,550 50,360 150,588 48,190 149,7923 68,500 150,500 $ 356,110 131,020 226,479 49,882 139,750 177,235 154,610 236,610 1 During the financial period directors resolved to discontinue the retirement benefit plan. Accrued benefits under the retirement benefit plan were calculated and paid to directors, as set out below. KM Hoggard GDW Curlewis WB Goodfellow GW McGregor Dr JW Stocker RFE Warburton Base fee Superannuation Equity Total 73109 50,360 82,441 150,588 48,190 68,500 150,500 155,550 50,360 150,588 48,190 68,500 150,500 2 During the course of the financial period the company created a non-executive director share plan, which enables directors to elect to sacrifice 20 per cent of base director fees to accquire company shares. The value of such shares is disclosed as equity. 3 Upon his retirement as a director, Sir Dryden Spring was paid a retirement benefit of $149,792. This was the amount accrued under the retirement benefit plan, which was discontinued on 31 October 2003. Executives of Nufarm Limited and the consolidated entity Name Managing Director DJ Rathbone Other executives DA Pullan RF Ooms KP Martin JA Allen B Benson Salary Cash bonus Non- Super- Equity Total $ $ monetary benefit1 $ annuation $ $ $ 832,769 953,140 69,995 12,075 1,867,979 351,219 349,717 346,140 318,394 311,865 159,000 149,000 146,468 92,832 119,999 46,331 11,716 25,327 21,758 15,529 65,373 63,574 38,318 102,000 38,676 151,200 141,736 141,736 150,000 109,989 773,123 715,743 697,989 684,984 596,058 1 Benefits include, where applicable, motor vehicle costs, allowances and FBT. 38 NUFARM LIMITED ANNUAL REPORT 2004 DIRECTORS’ REPORT CONTINUED Options and shares under option (1) The company’s executive share plan (ESP) provides for annual offers of ordinary shares, or a mix of both ordinary shares and options to senior executives. In the 2004 financial year, no options were granted to executives under the ESP. (2) A United Kingdom saving-related share options scheme (1997) enables the issue of ordinary share options to eligible staff in the United Kingdom who had completed two years service with the company. The scheme has two parts. Firstly, it is an agreement between the employee and a savings institution to save a fixed amount every month for five years. At the end of the period, the savings institution adds a tax free interest bonus to the employee’s savings. Secondly, the scheme provides the employee with an option to buy Nufarm’s shares from the proceeds of the amount with the savings institution. The share options are issued at a 10 per cent discount on market price at the date of the offer. Share options do not rank for dividends or carry voting rights. Two offers have been made under the scheme. No employee chose to exercise his/her option under the first offer and the options granted under that offer have now expired. At the date of this report unissued ordinary shares under option are: Number of options price $ Exercise Earliest exercise date Expiry date Indemnities and insurance for directors and officers The company has entered into insurance contracts, which indemnify directors and officers of the company and its controlled entities against liabilities. In accordance with normal commercial practices, under the terms of the insurance contracts, the nature of the liabilities insured against and the amount of premiums paid are confidential. An indemnity agreement has been entered into between the company and each of the directors named earlier in this report. Under the agreement, the company has agreed to indemnify the directors against any claim or for any expenses or costs, which may arise as a result of the performance of their duties as directors. There are no monetary limits to the extent of this indemnity. Rounding of amounts The parent entity is a company of the kind specified in Australian Securities and Investment Commission Class Order 98/0100. In accordance with that class order, amounts in the financial statements and the directors’ report have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. This report has been made in accordance with a resolution of directors. 77,5141 871,2492 566,4432 3.08 2.70 2.70 1 March 2005 1 March 2005 26 October 2011 26 October 2004 13 December 2004 13 December 2011 KM Hoggard Director 1 Options issued to eligible staff under the second offer under the United Kingdom savings-related share option scheme (1997). No further issues will be made under this scheme. 2 Options issued under the ESP, using the ‘black scholes’ methodology. Each option had a value of 0.447¢ per option. DJ Rathbone Director Melbourne 29 September 2004 NUFARM LIMITED ANNUAL REPORT 2004 39 STATEMENT OF FINANCIAL PERFORMANCE 12 MONTHS ENDED 31 JULY 2004 Consolidated Parent Note 31.7.2004 $000 31.7.2003 $000 31.7.2004 $000 31.7.2003 $000 Revenue from sale of goods Cost of sales Gross profit Interest income Other revenue from ordinary activities Expenses Depreciation and amortisation Borrowing costs Operating expenses Total expenses Share of net profits of associates Profit from ordinary activities before income tax expense Income tax (expense)/credit relating to ordinary activities 1,576,815 (890,003) 686,812 1,265 37,828 725,905 (64,807) (33,603) (521,013) (619,423) 106,482 3,415 109,897 (31,621) 2 2 2 2 2 9 6(a) 1,458,811 (822,614) 636,197 1,220 21,034 658,451 (67,264) (39,545) (461,787) (568,596) 89,855 3,797 93,652 (14,733) Net profit Net profit attributable to outside equity interest 78,276 (2,074) 78,919 (1,826) 70,085 (35,173) 34,912 20,645 40,871 96,428 (2,444) (21,451) (22,696) (46,591) 49,837 – 49,837 (3,691) 46,146 – 95,852 (54,972) 40,880 15,323 41,424 97,627 (2,454) (15,777) (31,601) (49,832) 47,795 – 47,795 7,592 55,387 – Net profit attributable to members of the parent entity 76,202 77,093 46,146 55,387 Net exchange differences arising on translation of opening net investment in foreign operations, net of related hedges Share issue costs Capital profit reserve decrease Decrease in retained profits on adoption of revised accounting standard AASB 1028: Employee benefits Total revenues, expenses and valuation adjustments attributable to members of the parent entity and recognised directly in equity Total changes in equity other than those resulting from transactions with owners as owners 20(a) (6,749) (450) (6) 3,460 – – – (450) – – (616) – (7,205) 2,844 (450) – – – (6) (6) 68,997 79,937 45,696 55,381 Earnings per share Statutory earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Operating earnings per share after excluding the non–recurring item described in note 5. Basic operating earnings per share (cents per share) Diluted operating earnings per share (cents per share) 3 3 47.1 46.7 47.1 46.7 49.5 49.0 41.3 40.9 The accompanying notes form an integral part of these financial statements 40 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 41 STATEMENT OF FINANCIAL POSITION AT 31 JULY 2004 Current assets Cash assets Receivables Inventories Tax assets Prepayments Total current assets Non–current assets Receivables Equity accounted investments Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Other Total non-current assets TOTAL ASSETS Current liabilities Payables Interest bearing liabilities Tax liabilities Provisions Total current liabilities Non–current liabilities Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity Reserves Retained profits Equity attributable to members of the parent entity Outside equity interest TOTAL EQUITY Consolidated Parent Note 31.7.2004 $000 31.7.2003 $000 31.7.2004 $000 31.7.2003 $000 56,826 232,518 432,139 6,858 7,951 736,292 28,507 311,607 356,943 6,625 7,774 711,456 38,535 24,953 3,713 376,632 34,302 196,021 21,130 695,286 1,431,578 37,775 18,281 6,172 382,266 36,632 144,551 20,681 646,358 1,357,814 397,939 112,411 15,401 25,111 550,862 287,180 22,673 10,369 320,222 871,084 560,494 210,530 17,854 324,401 552,785 7,709 560,494 336,460 126,850 25,711 17,904 506,925 353,670 25,347 9,551 388,568 895,493 462,321 149,219 25,671 280,793 455,683 6,638 462,321 7 8 6(b) 7 9 10 11 6(b) 12 13 14 15 16 15 6(c) 16 19 20 21 22 23 654 197,963 15,610 1,583 388 216,198 34,180 6,341 421,467 19,310 21,374 – – 502,672 718,870 71,045 19,645 – 544 91,234 212,969 2,018 50 215,037 306,271 412,599 210,530 40,074 161,995 412,599 – 412,599 507 129,837 15,455 – 325 146,124 27,792 – 421,961 20,166 28,106 – – 498,025 644,149 63,015 15,963 10,459 622 90,059 210,802 4,432 58 215,292 305,351 338,798 149,219 40,074 149,505 338,798 – 338,798 The accompanying notes form an integral part of these financial statements 40 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 41 STATEMENT OF CASH FLOWS 12 MONTHS ENDED 31 JULY 2004 Inflows/ (outflows) Cash flows from operating activities Receipts from customers Dividends received Interest received Payments to suppliers and employees Borrowing costs paid Income tax paid Net operating cash flows Cash flows from investing activities Proceeds from sale of non-current assets Proceeds from sale of businesses Payments for plant and equipment Payments for investments Payments for major project development expenditure, trademarks and technology rights Proceeds from foreign currency investment hedges (net) Purchase of businesses, net of cash acquired Net investing cash flows Cash flows from financing activities Proceeds from issue of shares Proceeds from call on partly paid shares Proceeds from borrowings Advances to controlled entities (net) Repayment of short term debt (net) Repayment of borrowings Repayment of finance lease principal Proceeds from foreign currency loans hedges (net) Dividends paid Net financing cash flows Net increase (decrease) in cash held Cash at the beginning of the period Exchange rate fluctuations on foreign cash balances Cash at the end of the period Consolidated Parent Note 31.7.2004 $000 31.7.2003 $000 31.7.2004 $000 31.7.2003 $000 1,747,974 3,099 1,182 (1,471,392) (33,603) (44,586) 202,674 1,565,431 2,979 6,064 (1,287,718) (44,871) (21,777) 220,108 18,399 6,692 (46,693) (6,399) (4,617) 4,894 (86,309) (114,033) 57,759 93 – – (41,089) (68,626) (1,080) (34,457) (87,400) 1,241 (15,880) (833) (15,472) 1,153 57,644 (49,305) (202) (636) 44,000 (108,812) (56,158) – 463 10,428 – (98,524) (23,103) (1,233) 342 (28,658) (140,285) 23,665 (40,228) 683 (15,880) 24(b) 24(c) 24(d) 24(a) 87,956 34,699 16,271 (68,807) (15,834) (5,509) 48,776 154 724 (1,626) (6,341) – – – (7,089) 57,759 93 – (69,257) – – – – (33,656) (45,061) (3,374) (15,456) (161) (18,991) 122,817 29,383 14,626 (99,067) (10,452) (2,385) 54,922 62 22,269 (4,056) – – – (4,952) 13,323 – 463 – (52,187) – – – – (27,976) (79,700) (11,455) (3,830) (171) (15,456) The accompanying notes form an integral part of these financial statements 42 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 43 NOTES NOTES TO THE FINANCIAL STATEMENTS 1 Statements of significant accounting policies payment. Dividend income is recognised when the entity acquires control of the right to receive the dividend payment. Basis of accounting The financial statements have been prepared as a general purpose financial report which complies with the requirements of the Corporations Act 2001, Australian Accounting Standards and Urgent Issues Group Consensus Views and other authoritative pronouncements. The financial statements have also been prepared on an historical cost basis. Changes in accounting policies The accounting policies adopted are consistent with those of the previous year. Principles of consolidation. The consolidated financial statements include the financial statements of the parent entity, Nufarm Limited, and its controlled entities, referred to collectively throughout these financial statements as the ‘Consolidated Entity’. All inter-entity balances and transactions have been eliminated. Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. Financial statements of foreign controlled entities presented in accordance with overseas accounting principles are, for consolidation purposes, adjusted to comply with group policy and generally accepted accounting principles in Australia. Foreign currency transactions Foreign currency items are translated to Australian currency on the following bases: • transactions are converted at exchange rates approximating those in effect at the date of each transaction; • amounts payable and receivable are translated at the exchange rates at the close of business at balance date. Revaluation gains and losses are brought to account as they occur; and • the financial statements of all foreign operations are translated using the current rate method as they are considered self-sustaining. Exchange differences relating to monetary items are included in the statement of financial performance, as exchange gains or losses, in the period when the exchange rates change, except where: • the exchange difference relates to hedging part of the net investment in a self-sustaining foreign operation, in which case the exchange difference is transferred to the foreign currency translation reserve on consolidation; or • the exchange difference relates to a transaction intended to hedge the purchase or sale of goods or services, in which the exchange difference is included in the measurement of the purchase or sale. The practice of hedging net investments in self-sustaining foreign operations was discontinued in June 2004. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Sales of goods occur when economic control of the goods has passed to the buyer. Interest income is recognised when the entity acquires control of the right to receive the interest Taxes • Income tax Tax-effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profit after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related taxation benefit or liability, calculated at current rates, is disclosed as a deferred tax asset or deferred tax liability. The benefit arising from estimated carry forward tax losses is recorded as a deferred tax asset where realisation of such benefit is considered to be virtually certain. • Indirect taxes (GST and VAT) Revenues, expenses and assets are recognised net of the amount of GST or VAT except: • where the indirect tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the indirect tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of indirect tax included. The net amount of indirect tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the indirect taxes component of cash flows arising from investing and financing activities are classified as operating cash flows. Cash and cash equivalents Cash on hand and in banks and short term deposits are stated at nominal values. For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks, and money market investments on call, net of outstanding bank overdrafts. Receivables Trade receivables are recognised and carried at original invoice amount less provisions for rebates and any other uncollectible debts. An estimate for doubtful debts is made when collection for the full amount is no longer probable. Bad debts are written off as incurred. Receivables from related parties are recognised and carried at the nominal amount due. Inventories Inventories are valued at the lower of cost and net realisable value. Raw materials cost is direct acquisition cost and is assigned on a first-in, first-out basis. For manufactured inventories, full absorption costing is used, taking into account raw material costs, direct manufacturing costs and all factory overheads, including depreciation. Due allowance is also provided for obsolete and slow moving inventories. NUFARM LIMITED ANNUAL REPORT 2004 43 42 NUFARM LIMITED ANNUAL REPORT 2004 NOTES NOTES TO THE FINANCIAL STATEMENTS 1 Statements of significant accounting policies continued In the statement of financial performance, the cost of sales is shown as a direct cost with overhead expenses included in the operating expenses on a gross basis in the financial performance disclosures note. Recoverable amounts of non-current assets The book values of all non-current assets are reviewed at least annually and, to the extent that they exceed the recoverable amounts, are written off to the statement of financial performance. In determining recoverable amount, the expected net cash flows have been discounted to their present value using a market determined risk adjusted discount rate of 9.0 per cent Equity accounted investments Interests in associated entities are included in non-current equity investments and brought to account using the equity method. Under this method the investment in associates is initially recognised at its cost of acquisition and its carrying value is subsequently adjusted for increases or decreases in the investor’s share of post-acquisition results and reserves of the associate. The investment in associated entities is decreased by the amount of dividends received or receivable. Joint ventures Interests in joint venture operations are brought to account by including in the respective financial statement categories: • the consolidated entity’s share in each of the individual assets employed in the joint venture; • liabilities incurred by the consolidated entity in relation to the joint venture including the consolidated entity’s share of any liabilities for which the consolidated entity is jointly and/or severally liable; and • the consolidated entity’s share of revenues and expenses of the joint venture. Interests in joint venture entities are carried at the lower of the equity-accounted amount and recoverable amount in the consolidated financial report. Other financial assets Interests in non-subsidiary, non-associated corporations are included in other financial assets at the lower of cost or recoverable amount. Leased assets Assets acquired under finance leases are capitalised and amortised over the life of the relevant lease or, where ownership is likely to be obtained on expiration of the lease, over the expected useful life of the asset. Lease payments are allocated between interest expense and reduction in the lease liability. Operating lease assets are not capitalised. Rental payments are charged against profit in the period in which they are incurred. Property, plant and equipment Land and buildings are carried at cost. 44 NUFARM LIMITED ANNUAL REPORT 2004 Property, plant and equipment, excluding freehold land, are depreciated over their useful economic lives using the straight line methods as follows: buildings leasehold improvements owned plant and equipment leased plant and equipment Life 15–20 years 5 years 3–20 years term of the lease Goodwill on acquisition On acquisition of a controlled entity, the difference between the purchase consideration plus related expenses and the fair value of identifiable net assets acquired is initially brought to account as goodwill on acquisition. Acquired goodwill is amortised on a straight line basis over the period, in which the benefits are expected to arise, of up to 20 years. The unamortised balance of goodwill is reviewed at each balance date and charged against profit to the extent that applicable future benefits are no longer probable. Patents and trademarks Costs associated with patents and trademarks, which provide a benefit for more than one financial year, are deferred and amortised over the period of expected benefits, of up to 15 years. The unamortised balance is reviewed each balance date and charged against profit to the extent that future benefits are no longer probable. Major projects development expenditure These costs relate to the development of major new business. Such research and development costs are deferred to future periods to the extent that future benefits are expected, beyond any reasonable doubt, to equal or exceed those costs and any future costs necessary to give rise to the benefits. Such deferred costs are amortised over future accounting periods not exceeding five years, in order to match the costs with related benefits on the basis of expected future sales, from the commencement of the commercial operations of the business. The unamortised deferred research and development costs are reviewed annually at each balance date and, to the extent that they exceed the recoverable amount, are written off to the statement of financial performance. Other non-current assets Deferred expenditure is included in other non-current assets. These expenditures are primarily of two categories: • Product development costs Product development costs are charged against profit as incurred, except where they relate to the development of new products, formulations or registrations. Such development costs are deferred to subsequent periods to the extent that future benefits are expected, beyond any reasonable doubt, to equal or exceed those costs and any future costs necessary to give rise to the benefits. NUFARM LIMITED ANNUAL REPORT 2004 45 NOTES NOTES TO THE FINANCIAL STATEMENTS Such deferred costs are amortised over future accounting periods not exceeding five years, in order to match the costs with related benefits on the basis of expected future sales, commencing with the commercial production of the product. Earnings per share Basic earnings per share is calculated as net profit attributable to members, divided by the weighted average number of ordinary shares. The unamortised deferred development costs are reviewed annually at each balance date and, to the extent that they exceed the recoverable amount, are written off to the statement of financial performance. Diluted earnings per share is calculated as net profit attributable to members, divided by the weighted average number of ordinary shares and the number of ordinary shares that may be issued upon the future exercising of options that have been granted. • Borrowing costs Borrowing costs are expensed as incurred, except where: (i) they relate to the financing of major projects under construction where they are capitalised to property, plant and equipment up to the date of commissioning; (ii) for large structured finance transactions where the costs are accounted for in deferred expenditure and amortised over the period of the structured finance, not exceeding five years. Payables Liabilities for trade payables and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods or services received, whether or not billed to the consolidated entity. Payables to related parties are carried at the principal amount. Interest bearing liabilities All loans are recorded at the principal amount, or in the case of the capital notes, at the face value of the note. Borrowing costs, including interest are charged as they accrue. Provisions • Provision for employee benefits Provision has been made in the financial statements for benefits accruing to employees in relation to annual leave, and long service leave. No provision is made for non-vesting sick leave as the anticipated pattern of future sick leave taken indicates that accumulated non-vesting leave will never be paid. All on-costs are included in the determination of provisions. Vested sick leave, annual leave and the current portion of long service leave and workers’ compensation provisions are measured at their nominal amounts, based on remuneration rates which are expected to be paid when the liability is settled. The non-current portions of long service leave provisions are measured at the present value of estimated future cash flows. In respect of defined benefits superannuation plans, any contributions made to the superannuation plans by entities within the consolidated entity are expensed. Other provisions include amounts for royalties, indirect taxes, real estate taxes, subsidiaries risk, social costs and other miscellaneous provisions. Contributed equity Issued and paid up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders. Employee share and option ownership schemes All employees are entitled to participate in share and option ownership schemes after a qualifying period. The remuneration costs associated with the new share plans (see note 32) are expensed as incurred. Derivative financial instruments The company uses financial instruments with off-balance sheet risks to reduce exposure to fluctuations in foreign exchange and interest rates. • Forward foreign exchange contracts, foreign currency swaps and option contracts are arranged to hedge major foreign currency sales and purchases, foreign currency loans and the translation of foreign currency earnings and investments. • Interest rate swap agreements, options and forward rate agreements (FRAs) are arranged to hedge against adverse movements in interest rates on both long term and short term loans. • Cross currency interest rate swaps agreements hedge the foreign currency, interest rate and cash flow exposures between the capital notes issued in New Zealand and the group funding to several jurisdictions to which the funds were advanced. Under the terms of the swap agreement, the company agrees with the counter-party banks to exchange the difference between the fixed interest rates of various currencies of advances made and to exchange the principal at an agreed rate of foreign currency conversion. Amounts receivable under the cross currency interest rate swap agreement are netted against interest expense as they accrue. • Financial instruments are used to hedge specific underlying positions only and are accounted for using the same basis as the underlying position. Counter-parties to financial instruments are several major international financial institutions with high credit ratings. The company does not request security to support financial instruments entered into. Possible losses arising from non- performance by these counter-parties are adequately provided. For interest rate swap agreements entered into in connection with the management of interest rate exposure, the differential to be paid or received quarterly is accrued as interest rate changes and is recognised as a component of interest income or expense over the pricing period. Premiums paid for interest rate options and net settlement on maturity of forward rate agreements, futures and options are amortised over the period of the underlying liability hedged by the instrument. Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. NUFARM LIMITED ANNUAL REPORT 2004 45 44 NUFARM LIMITED ANNUAL REPORT 2004 NOTES NOTES TO THE FINANCIAL STATEMENTS 2 Financial performance disclosures Profit from ordinary activities is after charging the following revenues Interest Income Interest Wholly owned controlled entities Other Total interest income Other revenue Dividends from Wholly owned controlled entities Total dividends Management fees from controlled entities Sundry income Gross proceeds from sale of businesses Gross proceeds from sale of non-current assets Total other revenue Profit from ordinary activities is after charging the following expenses Depreciation and amortisation Amortisation of Goodwill Technology rights and trademarks Accelerated amortisation of Fernz Specialty Chemicals intangibles Plant and equipment under lease Deferred expenditure Depreciation of Buildings and improvements Plant and equipment Total depreciation and amortisation Borrowing costs Interest paid or payable to Wholly owned controlled entities Other unrelated parties Costs of securitisation program Finance lease charges Total borrowing costs Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 – 1,265 1,265 – 1,220 1,220 14,544 6,101 20,645 15,282 41 15,323 – – – 5,138 11,672 21,018 37,828 – – – 3,708 – 17,326 21,034 34,699 34,699 4,125 1,893 – 154 40,871 29,383 29,383 2,665 384 – 8,992 41,424 (10,173) (6,692) – (274) (3,884) (3,771) (40,013) (64,807) (11,198) (2,956) (6,194) (330) (4,324) (6,520) (35,742) (67,264) – – – – – – – – – – (364) (2,080) (2,444) (1,433) (1,021) (2,454) – (29,766) (3,593) (244) (33,603) – (37,357) (1,829) (359) (39,545) (21,451) – – – (21,451) (21,084) 5,307 – – (15,777) 46 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 47 NOTES NOTES TO THE FINANCIAL STATEMENTS 2 Financial performance disclosures continued Operating expenses Carrying cost of disposed non-current assets Other costs associated with disposal of non-current assets Carrying cost of disposed businesses Staff expenses Occupancy expenses Plant related expenses Sales and distribution expenses Research and development costs Travel Insurance Operating lease expenses Provision for doubtful debts expense Other operating expenses Total operating expenses Expenses include Net foreign exchange gains (losses) from Hedges on foreign currency earnings for year Unhedged receivables and payables Customer bad debts written off Net charge to provision for stock obsolescence Donations Operating lease rentals Other disclosures Gain (loss) on disposal of non-current assets (see note 39) Gain (loss) on sale of businesses (see note 39) Gain (loss) on sale of investment Superannuation contributions – defined benefit fund Redundancy costs (see note 39) Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 (5,864) (3,566) (10,321) (223,032) (24,984) (61,992) (88,775) (14,132) (16,701) (22,872) (9,992) (4,060) (34,722) (521,013) 1,419 884 (724) 961 (92) (9,992) 11,588 1,351 – (2,913) (10,750) (19,727) – – (206,750) (24,640) (59,259) (68,113) (12,183) (16,545) (14, 843) (8,394) (983) (30,350) (461,787) 1,847 3,312 (657) (1,027) (59) (8,394) (2,022) (454) (379) (2,976) – (248) – – (8,788) (929) (1,900) (5,229) (1,038) (702) (1,181) – – (2,681) (22,696) – (444) 32 (80) – (18) (94) – – – – (9,633) – – (9,696) (1,656) (2,372) (5,073) (885) (931) (860) – – (495) (31,601) – 40 (11) – – (61) (641) 114 – – – 3 Earnings per share Net profit Net profit attributable to outside equity interest Earnings used in the calculations of basic and diluted earnings per share Subtract non-recurring item (refer note 5) Earnings excluding non-recurring item used in the calculations of operating earnings per share Consolidated 2004 $000 2003 $000 78,276 (2,074) 76,202 – 76,202 78,919 (1,826) 77,093 (12,824) 64,269 NUFARM LIMITED ANNUAL REPORT 2004 47 46 NUFARM LIMITED ANNUAL REPORT 2004 NOTES NOTES TO THE FINANCIAL STATEMENTS Number of shares 2004 2003 3 Earnings per share continued Weighted average number of ordinary shares used in calculation of basic earnings per share Weighted average number of shares options used in calculation of diluted earnings per share Weighted average number of ordinary shares used in calculation of diluted earnings per share 161,842,546 155,660,979 1,564,115 163,280,238 157,225,094 1,437,692 There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report. Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Operating earnings per share Basic earnings per share excluding non-recurring tax consolidation item (cents per shares) Diluted earnings per share excluding non-recurring tax consolidation item (cents per shares) 47.1 46.7 47.1 46.7 49.5 49.0 41.3 40.9 Crop protection $000 Industrial chemicals $000 Other Eliminations Consolidated $000 $000 $000 1,441,381 2,026 1,443,407 25,634 3,279 1,472,320 134,972 3,045 138,017 1,367 136 139,520 2004 462 – 462 10,827 – 11,289 – (5,071) (5,071) – – (5,071) 161,922 15,275 (7,282) – 1,172,433 161,470 24,098 – 385,472 37,482 5,354 – 24,000 953 – 122,223 34,732 18,851 9,918 15,898 8,844 488 1,930 318 208 1,684 4,070 – – – – – 1,576,815 – 1,576,815 37,828 3,415 1,618,058 1,265 1,619,323 169,915 (60,018) 109,897 (31,621) 78,276 1,358,001 73,577 1,431,578 428,308 442,776 871,084 24,953 138,439 43,784 21,023 15,918 4 Segments Business segments Revenue Sales to outside customers Inter-segment sales Sales revenue Other revenue Share of net profits of associates Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result Unallocated expenses Profit from ordinary activities before taxation Income tax expense Net profit Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other segment information Equity accounted investments included in segment assets Acquisition of property, plant and equipment, intangible assets and other non-current assets Depreciation Amortisation Other non-cash expenses 48 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 49 NOTES NOTES TO THE FINANCIAL STATEMENTS Australasia $000 Europe $000 Americas Consolidated $000 $000 4 Segments continued 2004 Geographic segments Revenue Sales to outside customers Interest and other revenue Total segment revenue Assets Segment assets Other segment information Acquisition of property, plant and equipiment, intangible assets and other non-current assets Business segments Revenue Sales to outside customers Inter-segment sales Sales revenue Other revenue Share of net profits of associates Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result Unallocated expenses Profit from ordinary activities before taxation Income tax expense Net profit Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other segment information Equity accounted investments included in segment assets Acquisition of property, plant and equipment, intangible assets and other non-current assets Depreciation Amortisation Other non-cash expenses 762,003 16,037 778,040 374,485 24,739 399,224 440,327 467 440,794 1,576,815 41,243 1,618,058 582,723 610,338 238,517 1,431,578 31,938 85,502 20,999 138,439 Crop protection $000 Industrial chemicals $000 Other Eliminations Consolidated $000 $000 $000 1,233,789 4,008 1,237,797 2,503 3,744 1,244,044 222,297 1,378 223,675 16,380 53 240,108 2003 2,725 – 2,725 2,151 – 4,876 – (5,386) (5,386) – – (5,386) 134,856 23,552 (1,821) – 1,076,835 178,336 26,996 – 311,437 42,370 4,987 – 16,854 1,427 – 87,350 33,145 15,276 9,201 16,797 8,949 8,080 3,914 10 168 1,646 420 – – – – – 1,458,811 – 1,458,811 21,034 3,797 1,483,642 1,220 1,484,862 156,587 (62,935) 93,652 14,733 78,919 1,282,167 75,647 1,357,814 358,794 536,699 895,493 18,281 104,157 42,262 25,002 13,535 48 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 49 NOTES NOTES TO THE FINANCIAL STATEMENTS Geographic segments Revenue Sales to outside customers Interest and other revenue Total segment revenue Assets Segment assets Other segment information Acquisition of property, plant and equipiment, intangible assets and other non-current assets Australasia $000 Europe $000 Americas Consolidated $000 $000 2003 729,423 19,639 749,062 358,432 4,727 363,159 370,956 465 371,421 1,458,811 24,831 1,483,642 533,304 524,694 299,816 1,357,814 49,988 48,067 6,102 104,157 The consolidated entity’s operating companies are largely organised and managed according to the nature of the products and services they provide, with each business segment offering different products and serving different markets. • The crop protection segment manufactures and distributes a range of herbicides, fungicides, insecticides and other products that are sold into the agricultural, turf and specialty markets. • The industrial chemicals segment manufactures and distributes a range of industrial, fine and performance chemicals which draw on Nufarm’s core strengths in chemical synthesis and formulation. • The other segment includes other minor businesses and investments which are separately managed from the above segments. Geographically the group operates globally with operations in many countries and sales being made in over 100 countries, which are split into three segments. Australasia covers Australia, New Zealand and Asia. The Americas cover North, South and Latin America. Europe covers United Kingdom, continental Europe and Africa. The geographic sales reflect the domicile of the company’s customers. All inter-segment sales are at market prices. The operating result shown in this note is operating profit before tax, interest and corporate cost allocations. Segment accounting policies are consistent with the consolidated entity’s policies described in note 1. 5 Non-recurring item Non-recurring items before tax Tax benefit arising from increased depreciation allowances upon entering into Australian tax consolidation regime Non-recurring items after tax Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 – – – – 12,824 12,824 – – – – 12,824 12,824 50 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 51 NOTES NOTES TO THE FINANCIAL STATEMENTS Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 6 Taxation a) Income tax expense Reconciliation to income tax expense provided in the financial statements Profit from ordinary activities Prima facie tax thereon at 30% 109,897 32,969 93,652 28,096 49,837 14,951 47,795 14,339 Tax effect of permanent and other differences Depreciation and amortisation not deductible Research and development allowances Other items not deductible Exempt dividends received Other non-assessible income Share of results of associates (net of tax) Amounts over-provided in prior years Unrecognised tax losses utilised Restatement of deferred tax balances due to income tax rate changes Permanent uplift for depreciation allowances upon entering into the tax consolidation regime Effect of different rates of tax on overseas income Income tax expense relating to ordinary activities 1,668 (138) 3,802 – (5) (1,025) (2,085) (3,767) 1,686 (117) 1,082 – (3,638) (1,139) (850) (1,799) – – 454 (10,410) – – (1,575) – – – 52 (8,815) (559) – – – (815) – – – – 1,017 31,621 (12,824) 4,236 14,733 – 271 3,691 (12,824) 215 (7,592) Tax consolidation Nufarm Limited and its wholly-owned Australian entities formed a consolidated tax group effective 1 August 2002 and formally notified the ATO when lodging its 2003 consolidated tax return. At 31 July 2003 this resulted in an increase in the taxable values of Australian depreciable assets, which has reversed an existing deferred tax liability and created a new future tax benefit. The resulting adjustment has been credited to income tax expense. This uplift in tax values has no impact on historical costs shown in the statement of financial position. The creation of the tax consolidation group was reflected in the 2003 year. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity, Nufarm Limited, default on its tax payment obligations. b) Tax assets Attributable to carry forward tax losses that have accumulated in several tax jurisdictions. These losses will be utilised against future profits in those jurisdictions. Tax losses offset against current tax liabilities and deferred tax liabilities Attributable to timing differences Depreciation Provision for employee entitlements Provision for doubtful debts Provision for stock obsolescence Balances of tax consolidation group entities transferred to parent entity Other Current portion Non-current portion 25,607 26,350 3,791 11,917 (9,718) 15,889 10,713 4,936 1,342 548 – 7,732 41,160 6,858 34,302 (8,219) 18,131 11,022 4,536 365 240 – 8,963 43,257 6,625 36,632 – 3,791 835 196 27 121 16,439 (35) 21,374 – 21,374 (5,039) 6,878 696 189 74 94 19,929 246 28,106 – 28,106 50 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 51 NOTES NOTES TO THE FINANCIAL STATEMENTS 6 Taxation continued Income tax losses Deferred tax benefits arising from tax losses of a controlled entity have not been recognised as realisation of the benefit is not considered virtually certain. c) Deferred tax Attributable to timing differences Depreciation and amortisation Prepayments and deferred expenses Balances of tax consolidation group entities transferred to parent entity Other Tax asset offset Total deferred tax 7 Receivables Trade debtors and other receivables are non-interest bearing and are generally for less than 90 day terms Trade debtors Provision for doubtful debts Other amounts owing by Wholly owned controlled entities Hedge receivables (refer notes 1 and 30) Other receivables owing by associated entities Other Proceeds receivable from sale of businesses and non-current assets Provision for non-collectibility of sale proceeds Total receivables Current portion Non-current portion 8 Inventories Raw materials Work in progress Finished goods Provision for obsolescence of finished goods Total inventories 52 NUFARM LIMITED ANNUAL REPORT 2004 Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 22,277 26,044 – 31,010 (70) – 1,451 (9,718) 22,673 25,540 2,656 – 2,475 (5,324) 25,347 – – 2,018 – – 2,018 – – – 4,432 – – 4,432 146,438 (3,237) 143,201 253,258 (3,142) 250,116 – 32,417 56,202 31,551 – 32,326 35,944 26,990 8,670 (82) 8,588 188,750 34,180 – 625 9,180 (224) 8,956 117,538 27,792 – 2,626 10,895 4,006 – 717 (3,213) 271,053 232,518 38,535 – 349,382 311,607 37,775 – 232,143 197,963 34,180 – 157,629 129,837 27,792 111,851 11,906 314,706 438,463 (6,324) 432,139 86,613 7,765 269,996 364,374 (7,431) 356,943 2,332 728 12,916 15,976 (366) 15,610 3,050 590 12,099 15,739 (284) 15,455 NUFARM LIMITED ANNUAL REPORT 2004 53 NOTES NOTES TO THE FINANCIAL STATEMENTS 9 Equity accounted investments Aggregate carrying amount of associates Balance at the beginning of the year Exchange adjustment Share of net result New investment Dividends received Balance at the end of the year Balance at the beginning of the year Exchange adjustment Share of net result New investment Investments in which a controlling interest was acquired Dividends received Balance at the end of the year Share of associates profits Operating profits before income tax Income tax expense Share of net profits of associates Financial summary of material associate Bayer CropScience Nufarm Limited Total assets Total liabilities Share of profits of associate Agchem Receivables Corp Total assets Total liabilities Share of profits of associate Retained earnings $000 Cost $000 Carrying value $000 15,365 452 3,415 – (3,469) 15,763 12,757 (1,897) 3,797 – 708 – 15,365 2004 2,916 (67) – 6,341 – 9,190 2003 15,248 (287) – 85 (9,151) (2,979) 2,916 18,281 385 3,415 6,341 (3,469) 24,953 28,005 (2,184) 3,797 85 (8,443) (2,979) 18,281 Consolidated 2004 $000 5,075 (1,660) 3,415 2003 $000 4,332 (535) 3,797 27,814 10,289 3,001 26,436 10,931 4,102 53,174 52,945 35 33,703 33,551 55 52 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 53 NOTES NOTES TO THE FINANCIAL STATEMENTS Balance date of associate Ownership and voting interest 2004 2003 Carrying amount 2004 $000 2003 $000 9 Equity accounted investments continued Details of material interests in associated entities are as follows: Bayer CropScience Nufarm Limited (formerly Aventis Nufarm Limited) UK agricultural chemical manufacturer Agchem Receivables Corp US Securitisation special purpose vehicle Timber Preservatives Sdn Bhd Malaysian timber preservative manufacturer SRFA LLC US agricultural chemical distributor Jiangxi–Fernz Timber Protection Ltd Chinese agricultural chemical distributor Excel Crop Care Ltd Indian agricultural chemical manufacturer 31.12.2003 25% 25% 17,158 16,629 31.7.2003 40% 40% 92 61 31.5.2003 49% 49% 433 846 31.12.2003 50% – 224 – 31.12.2003 50% 50% 519 581 31.3.2004 14% – 6,341 – Associated entities have the following commitments. Nufarm’s share of capital commitments is $nil (2003: $nil) and share of finance lease commitments is $nil (2003: $nil). There are no contingent liabilities. Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 – – – – – – 245,210 2,002 247,212 245,210 – 245,210 1,083 (10) 1,073 1,085 (2) 1,083 – – – – – – 5,089 (44) 58 – (2,463) 2,640 3,713 6,968 (2) 151 510 (2,538) 5,089 6,172 176,751 (2,496) – – – 174,255 421,467 192,111 (15,360) – – – 176,751 421,961 10 Other financial assets Investment in controlled entities Balance at the beginning of the year Transfer of subsidiary to parent entity Balance at the end of the year Investment in other companies (at cost) Balance at the beginning of the year Exchange adjustment Balance at the end of the year Other loans including loans to the staff share purchase schemes (refer note 32) Balance at the beginning of the year Exchange adjustment New investments during the year Reclassified from receivables Loans repaid during the year Balance at the end of the year Total other financial assets 54 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 55 NOTES NOTES TO THE FINANCIAL STATEMENTS Consolidated Freehold land and improvements $000 Buildings Plant and machinery $000 $000 Leased plant and machinery $000 Capital work in progess $000 Total $000 2004 556,312 (3,952) 11,907 (9,900) (4,030) 24,033 574,370 (319,436) 2,161 (39,819) 9,282 3,803 (45) (344,054) 230,316 2003 579,275 (26,305) 18,679 34,108 (47,430) (14,838) 12,823 556,312 (340,890) 13,134 (35,549) (11,152) 46,705 7,213 1,103 (319,436) 236,876 5,404 (64) 15 (81) – (68) 5,206 (2,086) 26 (274) – – 45 (2,289) 2,917 5,610 (216) 519 – – (509) – 5,404 (2,342) 77 (330) – – 509 – (2,086) 3,318 143,715 (3,042) 1,926 (16,823) (127) 14,670 140,319 (61,503) 1,044 (3,771) 14,626 31 – (49,573) 90,746 143,998 (8,749) 3,376 315 (208) (953) 5,936 143,715 (58,182) 3,035 (6,520) – 183 51 (70) (61,503) 82,212 35,153 (270) 182 (803) – 776 35,038 (1,381) (23) (194) – – – (1,598) 33,440 35,059 (1,754) 319 – – (370) 1,899 35,153 (178) 16 (193) – – 7 (1,033) (1,381) 33,772 26,088 (127) 32,663 – – (39,411) 19,213 – – – – – – – 19,213 23,342 (1,528) 25,551 – (619) – (20,658) 26,088 – – – – – – – – 26,088 766,672 (7,455) 46,693 (27,607) (4,157) – 774,146 (384,406) 3,208 (44,058) 23,908 3,834 – (397,514) 376,632 787,284 (38,552) 48,444 34,423 (48,257) (16,670) – 766,672 (401,592) 16,262 (42,592) (11,152) 46,888 7,780 – (384,406) 382,266 11 Property, plant and equipment Cost Balance at the beginning of the year Exchange adjustment Additions Disposals Disposals through sale of entities Transfers Balance at the end of the year Accumulated depreciation Balance at the beginning of the year Exchange adjustment Depreciated during the year Disposals Disposals through sale of entities Transfers Balance at the end of the year Total property, plant and equipment, net Cost Balance at the beginning of the year Exchange adjustment Additions Additions through acquisition of entities Disposals Disposals through sale of entities Transfers Balance at the end of the year Accumulated depreciation Balance at the beginning of the year Exchange adjustment Depreciated during the year Additions through acquisition of entities Disposals Disposals through sale of entities Transfers Balance at the end of the year Total property, plant and equipment, net Jones Lang LaSalle valued the land and buildings portfolio on an existing use valuation at $127.4 million at 31 July 2004. Assets pledged as security for finance leases $2.9 million (2003: $7.4 million ). 54 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 55 NOTES NOTES TO THE FINANCIAL STATEMENTS 11 Property, plant and equipment continued Cost Balance at the beginning of the year Exchange adjustment Additions Disposals Transfers Balance at the end of the year Accumulated depreciation Balance at the beginning of the year Exchange adjustment Depreciated during the year Disposals Transfers Balance at the end of the year Total property, plant and equipment, net Cost Balance at the beginning of the year Exchange adjustment Additions Disposals Transfers Balance at the end of the year Accumulated depreciation Balance at the beginning of the year Exchange adjustment Depreciated during the year Disposals Transfers Balance at the end of the year Total property, plant and equipment, net Freehold land and improvements $000 Buildings Parent Plant and machinery $000 $000 Capital work in progess $000 Total $000 1,809 19 – – 1,828 (13) – (18) – – (31) 1,797 43 1 1,809 (370) 326 1,809 – – (13) 7 (7) (13) 1,796 12,870 134 363 – – 13,367 (1,420) (15) (346) – – (1,781) 11,586 1,224 55 12,870 (953) (326) 12,870 (55) (3) (1,420) 51 7 (1,420) 11,450 2004 11,175 116 1,263 (431) 60 12,183 (4,455) (46) (2,080) 183 – (6,398) 5,785 2003 9,021 405 8,845 (8,150) 1,054 11,175 (3,102) (139) (1,021) (193) – (4,455) 6,720 200 2 – – (60) 142 – – – – – – 142 1,200 54 – – (1,054) 200 – – – – – – 200 26,054 271 1,626 (431) – 27,520 (5,888) (61) (2,444) 183 – (8,210) 19,310 11,488 515 23,524 (9,473) – 26,054 (3,157) (142) (2,454) (135) – (5,888) 20,166 56 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 57 NOTES NOTES TO THE FINANCIAL STATEMENTS 12 Intangible assets Goodwill Balance at the beginning of the year Exchange adjustment Acquired during the year Disposals during the year Amortised during the year Balance at the end of the period Intellectual property Balance at the beginning of the year Exchange adjustment Acquired during the year Disposals during the year Amortised during the year Balance at the end of the year Major projects development expenditure Balance at the beginning of the year Expenditure capitalised during the year Disposals during the year Balance at the end of the year Total intangible assets 13 Other non-current assets Deferred product development expenditure Balance at the beginning of the year Exchange adjustment Expenditure capitalised during the year Disposals during the year Amortised during the year Balance at the end of the year Borrowing costs Balance at the beginning of the year Exchange adjustment Expenditure capitalised during the year Amortised during the year Balance at the end of the year Total other non-current assets 14 Payables Trade creditors and other accruals are non-interest bearing and are generally for less than 90 day terms Trade creditors and accruals – unsecured Amounts owing to Wholly owned controlled entities Associated entities Total payables Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 103,835 (3,873) – (4,383) (10,173) 85,406 37,023 (163) 80,490 (43) (6,692) 110,615 3,693 240 (3,933) – 196,021 16,285 (283) 4,539 (38) (2,255) 18,248 4,396 37 78 (1,629) 2,882 21,130 126,844 (14,073) 8,478 (22) (17,392) 103,835 18,401 (1,178) 22,756 – (2,956) 37,023 3,056 637 – 3,693 144,551 11,702 (663) 10,604 (2,516) (2,842) 16,285 5,156 231 491 (1,482) 4,396 20,681 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 396,262 335,096 9,866 11,188 – 1,677 397,939 – 1,364 336,460 61,179 – 71,045 51,827 – 63,015 NUFARM LIMITED ANNUAL REPORT 2004 57 56 NUFARM LIMITED ANNUAL REPORT 2004 NOTES NOTES TO THE FINANCIAL STATEMENTS 15 Interest bearing liabilities Capital notes Face value NZD 225,000,000 (2003: NZD 225,000,000) Long term unsecured subordinated fixed interest debt security with an election date of 15 October 2006. On the election date, noteholders may elect to retain their capital notes for a further five year period on the terms and conditions which will be advised, or to convert some or all of their capital notes to ordinary shares in Nufarm Limited at 97.5% of the then current price of ordinary shares. On the relevant election date, the group may at its option purchase some or all of the capital notes for cash at their principal amount plus any accrued interest. Bank loans – unsecured Other loans – unsecured Subordinated loans from wholly owned controlled entities Finance lease liabilities – secured Less current portion Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured Total current interest bearing liabilities Total non-current interest bearing liabilities Repayment of borrowings (excluding finance leases) Periods ending 31 July, 2005 2006 2007 No specified repayment date The obligations with no specified repayment date are repayable upon certain contingent events, which the directors believe will not occur in the foreseeable future. Average interest rates Capital notes coupon Bank loans Other loans Subordinated loans from wholly owned controlled entities Finance lease liabilities – secured Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 203,620 201,523 – – 189,627 2,355 – 3,989 399,591 111,099 23 1,289 112,411 287,180 271,277 2,304 – 5,416 480,520 125,407 37 1,406 126,850 353,670 19,645 – 212,969 – 232,614 19,645 – – 19,645 212,969 15,963 – 210,802 – 226,765 15,963 – – 15,963 210,802 111,122 78,528 203,620 2,332 44,736 101,134 201,523 2,267 – 19,645 212,969 – – – 210,802 – % 8.6 3.5 3.1 – 7.7 % 8.6 4.5 3.1 – 7.7 % – 9.0 – 9.2 – % – 7.9 – 9.2 – All unsecured bank borrowings are provided by banks that are parties to the Group Negative Pledge Deed. The assets of all the entities included in the Negative Pledge Deed (Note 25) are in excess of their related borrowings. Finance lease liabilities are secured over relevant leased plant. 58 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 59 NOTES NOTES TO THE FINANCIAL STATEMENTS 16 Provisions Employee entitlements Restructuring Other Less current portion Employee entitlements Restructuring Other Total current provisions Total non-current provisions Other provisions Balance at the beginning of the year Exchange adjustment Additional provision Amounts utilised during the year Balance at the end of the year Provision for redundancy and restructuring costs Balance at the beginning of the year Exchange adjustment Additional provision Amounts utilised during the year Balance at the end of the year Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 26,352 7,025 2,103 35,480 15,983 7,025 2,103 25,111 10,369 3,148 (9) 1,843 (2,879) 2,103 – – 11,789 (4,764) 7,025 24,307 – 3,148 27,455 14,756 – 3,148 17,904 9,551 2,530 (74) 1,477 (785) 3,148 – – – – – 594 – – 594 544 – – 544 50 107 (1) – (106) – – – – – – 573 – 107 680 515 – 107 622 58 17 1 107 (18) 107 – – – – – 58 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 59 Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 NOTES NOTES TO THE FINANCIAL STATEMENTS 17 Contingent Liabilities The parent entity has entered into a deed of cross guarantee (refer note 25) in accordance with a class order issued by the Australian Securities and Investments Commission. The parent entity and all the Australian controlled entities, which are a party to the deed, have guaranteed the repayment of all current and future creditors in the event any of these companies are wound up. The parent entity together with all the material wholly owned controlled entities have entered into a negative pledge deed with the group’s lenders whereby all group entities which are a party to the deed have guaranteed the repayment of all liabilities in the event that any of these companies are wound up. Guarantee facility for Eastern European joint ventures. 5,379 – – – Receivables sold to financiers for which there is either partial or full recourse to the company in the event that the debt is not collected from the customer. Receivables sold that have come due for payment since year end have been collected by the financiers. The parent entity has guaranteed with the noteholders the issuers’ obligations under the capital notes. Environmental claim warranty Environmental guarantee given to the purchaser of land and buildings at Genneviliers for EUR 8.5 million. The guarantee will end 18 months after the expiry of the business tenancy contract. The directors do not believe that any material costs will be incurred as a result of this guarantee. Guarantee upon sale of a business limited to EUR 5.34 million on account of possible remediation costs for soil and groundwater contamination. This guarantee decreases from 2004 progressively to nil in 2011. The directors do not believe that any material costs will be incurred as a result of this guarantee. 5,490 – – – – – 203,620 201,523 14,552 – – – 9,142 34,563 10,550 10,550 – 203,620 – 201,523 60 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 61 NOTES NOTES TO THE FINANCIAL STATEMENTS 18 Commitments Capital expenditure Estimated cost of capital work covering buildings and plant authorised by the board of directors and contracted for but not yet provided for in the financial statements, together with capital work required to meet regulatory consents. All commitments are expected to be completed within 12 months. Investments The company owns 70% of the Australian and Malaysian chemical formulating businesses of Mastra Holdings, which are controlled entities. The company has a commitment to acquire the remaining shares by December 2007. The cost will be between USD 2.7 million and USD 4.5 million. The company was committed to buying 14% of the shares in Excel Crop Care Ltd, an Indian company listed on the Mumbai Stock Exchange. This transaction was completed for $6.3 million in April 2004. The company was committed to buying from Bayer product registration rights in Europe. This transaction was completed for €2.0 million in January 2004. Leases Operating leases are generally entered to access the use of shorter term assets such as motor vehicles, mobile plant and some office equipment. Rentals are fixed for the duration of these leases. There are also a small number of leases for office properties. These rentals have regular reviews based on market rentals at the time of review. Lease commitments for non-cancellable operating leases are payable as follows: Not later than one year Later than one year but not later than two years Later than two years but not later than five years Later than five years Finance leases are entered to fund the acquisition of minor items of plant and equipment, mainly by partly-owned entities of the group. Rentals are fixed for the duration of these leases. Lease commitments for capitalised finance leases are payable as follows: Not later than one year Later than one year but not later than two years Later than two years but not later than five years Later than five years Less future finance charges Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 17,224 9,999 – – min 3,845 max 6,408 4,615 – – 6,348 – 3,460 14,423 – – – – – – 7,195 6,306 11,073 6,936 31,510 5,725 4,811 7,101 2,651 20,288 330 301 280 – 911 890 777 1,939 1,170 4,776 1,392 1,736 1,180 – 4,308 (319) 3,989 1,636 1,363 2,908 – 5,907 (491) 5,416 – – – – – – – – – – – – – – NUFARM LIMITED ANNUAL REPORT 2004 61 60 NUFARM LIMITED ANNUAL REPORT 2004 NOTES NOTES TO THE FINANCIAL STATEMENTS 19 Contributed equity Ordinary shares issued and fully paid Balance at the beginning of the year Issue of shares Partly paid shares fully paid up during the year Balance at the end of the year Ordinary shares issued and partly paid to 1.0 cent Balance at the beginning of the year Partly paid shares fully paid up during the year Balance at the end of the year Total contributed equity Number of shares 2004 $000 2003 $000 155,823,293 11,758,999 153,475 167,735,767 149,216 60,662 650 210,528 147,328 1,423 465 149,216 386,800 (153,475) 233,325 167,969,092 3 (1) 2 210,530 5 (2) 3 149,219 On 21 January 2004, 7,692,308 ordinary shares were placed with institutional investors at $5.20 per share. On 25 February 2004, 3,501,712 ordinary shares were placed with existing shareholders at $5.20 per share. Other issues, totaling 564,979 fully paid ordinary shares at an average price of $5.14 per share, were made in accordance with the Nufarm executive share plan (2000) and the employee global share plan. Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 20 Reserves a) Foreign currency translation This reserve records exchange differences arising from the translation of the financial statements of self-sustaining foreign operations together with the net result of hedging the foreign currency exposures arising from the net investment in those foreign operations. Balance at the beginning of the year Exchange fluctuation on opening net investment in overseas controlled entities Hedging of net investment in overseas controlled entities Transferred to retained profits Balance at the end of the year b) Asset revaluation This reserve records increments in the value of land and buildings that were revalued prior to 1992 when the company implemented a policy of recording assets at cost unless there is a permanent diminution in carrying values. Balance at the beginning of the year Transferred to retained profits Balance at the end of the year c) Capital profits reserve This reserve is used to accumulate realised capital profits Balance at the beginning of the year Adjustment Balance at the end of the year Total reserves 62 NUFARM LIMITED ANNUAL REPORT 2004 (9,590) (10,942) (5,478) (1,271) – (16,339) (30,985) 34,445 (2,108) (9,590) 1,409 (1,061) 348 1,841 (432) 1,409 – – – – – – – – – – – – – – – – 33,852 (7) 33,845 17,854 33,852 – 33,852 25,671 40,074 – 40,074 40,074 40,074 – 40,074 40,074 NUFARM LIMITED ANNUAL REPORT 2004 63 NOTES NOTES TO THE FINANCIAL STATEMENTS 21 Retained profits Balance at the beginning of the year Increase in retained profits on adoption of revised accounting standards AASB 1028: Employee benefits AASB 1044: Provision for dividend Net profit attributable to members of the parent entity Aggregate amounts transferred from reserves Dividends paid Balance at the end of the year Franking credit balance The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the year at 30% (2003: 30%) Franking credits that will arise from the payment of income tax payable as at the end of the year Balance at the end of the year 22 Outside equity interests Balance at the beginning of the year Exchange adjustment Investments in which a controlling interest was disposed Share of operating profit Decrease in outside equity interests on adoption of revised accounting standards Dividends paid Balance at the end of the year 23 Equity Balance at the beginning of the year Total changes in equity recognised in the statement of financial performance Transactions with owners as owners Contributed equity Dividends Movement in outside equity interest Balance at the end of the year Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 280,793 212,670 149,505 105,018 – – 76,202 1,062 (33,656) 324,401 (616) 17,082 77,093 2,540 (27,976) 280,793 – – 46,146 – (33,656) 161,995 (6) 17,082 55,387 – (27,976) 149,505 17,436 2,285 17,436 2,285 (2,048) 15,388 3,076 5,361 (2,048) 15,388 3,076 5,361 6,638 (557) 356 2,074 – (802) 7,709 6,285 (735) – 1,826 (56) (682) 6,638 – – – – – – – – – – – – – – 462,321 391,039 338,798 292,425 68,997 79,937 45,696 55,381 61,761 (33,656) 1,071 560,494 1,886 (10,894) 353 462,321 61,761 (33,656) – 412,599 1,886 (10,894) – 338,798 62 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 63 NOTES NOTES TO THE FINANCIAL STATEMENTS 24 Statement of cash flows a) Reconciliation of cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and deposits at call, net of outstanding overdrafts. The statements of cash flows are reconciled to respective tems in the statement of financial position as follows: Cash assets Bank overdrafts b) Reconciliation of net profit (loss) after income tax to net operating cash flows Net profit (loss) after income tax Dividend from associated company Less cash profit on disposal of Fernz Specialty Chemicals Non-cash items: Amortisation Depreciation Losses on disposal of fixed assets Unrealised foreign currency gains Movement in provisions for: Deferred tax Tax assets Deferred product development expenses Exchange rate change on foreign controlled entities provisions Movements in working capital items: (Increase)/decrease in receivables (Increase)/decrease in inventories Increase/(decrease) in payables Increase/(decrease) in income tax payable Exchange rate change on foreign controlled entities working capital items Share of profits of associates net of tax Group tax setoff Movements in intercompany balances relating to cash transactions Net operating cash flows Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 56,826 (72,298) (15,472) 28,507 (44,387) (15,880) 654 (19,645) (18,991) 507 (15,963) (15,456) 78,276 3,099 – 20,749 44,058 (100) – (2,674) 119 72 (49) 62,175 63,228 (72,683) 88,007 (10,830) (5,183) (3,415) – – 59,124 202,674 78,919 2,979 (5,740) 24,672 42,592 2,401 – 2,372 (7,854) (8,578) 1,132 56,737 38,909 347 82,602 (3,346) (27,502) (3,797) – – 87,213 220,108 46,146 – – – 2,444 95 – 2,018 (9,357) – 83 (4,717) 2,361 (155) (1,471) 5,437 169 – – 1,006 7,347 48,776 55,387 – – – 2,454 641 (209) 3,727 (15,405) – 535 (8,257) 5,670 736 (6,930) 6,534 1,410 – 455 (83) 7,792 54,922 64 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 65 NOTES NOTES TO THE FINANCIAL STATEMENTS 24 Statement of cash flows continued c) Businesses sold Businesses sold during 2004 include the Florigene group, Agrow, MCFI, Pharma Pacific and the Wettasoil trademark. The 2003 business sold was the Fernz specialty chemical business in Australia and New Zealand. Net assets disposed of were: Receivables Inventory Property, plant and equipment Intangibles Cash assets Tax assets Payables Other Cash gain on disposal Amounts settled for businesses sold in prior years Total consideration Cash deferred Cash consideration received Cash paid for closure costs Cash included in assets sold Net cash effect Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 882 397 323 6,936 642 1,978 (1,724) 887 1,351 724 12,396 (5,062) 7,334 – (642) 6,692 – 41,165 8,890 – – – (403) – 8,200 2,252 60,104 – 60,104 (2,460) 57,644 – – – – – – – – – 724 724 – 724 – – 724 – 12,714 7,271 – – – (120) – 1,687 717 22,269 – 22,269 – – 22,269 64 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 65 NOTES NOTES TO THE FINANCIAL STATEMENTS 24 Statement of cash flows continued d) Businesses acquired The 2004 acquisitions include the BASF global phenoxy herbicide business, various cereal fungicides in Germany, Australian distribution rights to BASF products and antibiotics product rights from Syngenta for the USA. In 2003, the company acquired 100% of the share capital of Crop Care Australasia Pty Ltd, the German crop protection business and the 50% shareholding of Artfern Pty Ltd not already owned. The aggregate amounts of net assets acquired were Cash Receivables Inventory Tax assets Investments Property, plant and equipment Intangibles Bank overdraft Payables Tax liabilities Provisions Borrowings Outside equity interests Total consideration Amount paid for businesses acquired in prior years Cash deferred Cash consideration paid Cash included in net assets acquired Bank overdraft included in net assets acquired Net cash effect Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 – – 18,661 – – – 80,488 – – – – – – 99,149 – (12,840) 86,309 – – 86,309 8,464 10,395 65,303 2,252 (9,349) 23,271 31,569 – (20,629) – – – – 111,276 6,000 – 117,276 (8,464) – 108,812 – – – – – – – – – – – – – – – – – – – – 937 4,176 7,584 753 – 19,469 – – (5,523) (3,110) (399) (17,998) – 5,889 – – 5,889 (937) – 4,952 The deferred cash settlement represents the value of the remaining consideration payable. e) Non-cash financing and investing activities During the financial year plant and equipment with an aggregate value of $15,000 (2003: $519,000) was acquired by means of finance leases. During the financial year 564,979 ordinary shares were issued under the executive share plan, the global share plan and the non-executive directors share plan.The deemed value of the shares, $2,902,636 (2003: $1,423,000) was expensed in the statement of financial performance. 66 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 67 NOTES NOTES TO THE FINANCIAL STATEMENTS 25 Controlled entities The consolidated financial statements at 31 July 2004 include the following controlled entities. All controlled entities have the same financial year end as the parent entity. Abel Lemon and Company Pty Ltd Agcare Biotech Pty Ltd Agrow Australia Pty Ltd Agryl Holdings Limited Allrad No1 Pty Ltd Artfern Pty Ltd Australis Services Pty Ltd Bioclip NZ Pty Limited Biotech Innovations Pty Ltd Camper Vertriebs Captec (NZ) Limited Captec Pty Limited CFPI GmbH Chemicca Limited Chemicca Limited Chemturf Pty Ltd Chloral Investment Trust Chloral Unit Trust No1 Chloral Unit Trust No2 Compagnie D’Applications Chimiques a L’Industrie CNG Holdings BV Crop Care Australasia Pty Ltd Crop Care Holdings Limited Croplands Equipment Limited Croplands Equipment Pty Ltd Danestoke Pty Limited Davco New Zealand Limited Eltrick Pty Ltd Electronic Agriculture Limited Esorblue Pty Ltd Fchem (Aust) Limited Fchem Limited Fernz Canada Limited Fernz Corporation (NZ) Limited Fernz Singapore Pte Ltd Nufarm Technologies (M) Sdn Bhd (formerly Fernz Timber Protection (M) Sdn Bhd) Fidene Limited Finotech BV Florigene Europe BV Florigene Flowers Pty Ltd Florigene International BV Florigene Investments Pty Ltd Florigene Investments No2 Pty Ltd Florigene Limited Florigene Marketing Pty Ltd Notes Place of incorporation Percentage of shares held 2004 2003 (a) (a),(b) (a) (a) (b) (a) (a) (a) (a),(b) (b) (a),(b) (a) (a),(b) (b) (b) (b) (b) (b) Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Germany New Zealand Australia Germany Australia New Zealand Australia Australia Australia Australia France Netherlands Australia New Zealand New Zealand Australia Australia New Zealand Australia Australia Australia Australia New Zealand Canada New Zealand Singapore Malaysia New Zealand Netherlands Netherlands Australia Netherlands Australia Australia Australia Australia 100 70 – 100 – 100 100 100 – 100 100 100 100 100 – 100 80 80 80 100 100 100 100 100 100 80 – – 100 – 100 100 100 100 100 51 100 100 – – – – – – – 100 70 100 100 90 100 100 100 90 100 100 100 100 100 100 100 80 80 80 100 100 100 100 100 100 80 100 90 100 90 100 100 100 100 100 51 100 100 90 90 90 90 90 90 90 66 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 67 NOTES NOTES TO THE FINANCIAL STATEMENTS 25 Controlled entities continued Framchem SA Health & Sciences Limited Interferon Ltd Interferon NZ Limited International Flower Developments Pty Ltd Laboratoire Europeen de Biotechnologie Ladino NV Manaus Holdings Sdn Bhd Marman Holdings LLC Marman de Centroamerica Sociedad Animima Marman de Mexico Sociedad Anomima De Capital Variable Marman de Guatemala Sociedad Anomima Marman del Ecuador Sociedad Anomima Marman (Nufarm) Inc Mastra Corporation Pty Limited Mastra Corporation USA Pty Limited Mastra Corporation Sdn Bhd Mastra Holdings Sdn Bhd Mastra Industries Sdn Bhd MCFI International (SA) Pty Ltd Medisup Securities Limited Medisup International NV Mequab Pty Ltd Neuchatel Pty Ltd Nufarm Agriculture Inc Nufarm Agriculture (Pty) Ltd Nufarm Agriculture Zimbabwe (Pvt) Ltd Nufarm Americas Holding Company Nufarm Americas Inc Nufarm Argentina SRL Nufarm (Asia) Pte Ltd Nufarm Asia Sdn Bhd Nufarm Australia Limited Nufarm BV Nufarm Chile Limitada Nufarm Coogee Pty Ltd Nufarm Columbia Ltda Nufarm Crop Products UK Ltd Nufarm de Costa Rica Nufarm de Guatemala SA Nufarm de Mexico Sa de CV Nufarm del Ecuador SA Nufarm Deutschland GmbH Nufarm do Brazil LTDA Nufarm Energy Pty Ltd Nufarm Espana SA Nufarm GmbH Nufarm GmbH Nufarm GmbH & Co KG Nufarm Holdings BV 68 NUFARM LIMITED ANNUAL REPORT 2004 Notes Place of incorporation Percentage of shares held 2004 2003 (b) Egypt (b) New Zealand (a) Australia (b) New Zealand Australia France N. Antilles (b) Malaysia USA Costa Rica Mexico Guatemala Ecuador USA (b) Australia Australia (b) Malaysia (b) Malaysia (b) Malaysia South Africa (a),(b) Australia N. Antillies Australia (a) Australia (b) Canada South Africa Zimbabwe (b) USA (b) USA Argentina (b) Singapore Malaysia (a),(b) Australia (b) Netherlands Chile Australia Columbia UK Costa Rica Guatemala Mexico Ecuador (b) Germany Brazil (a) Australia (b) Spain (b) Germany (b) Austria (b) Austria (b) Netherlands 100 100 100 100 – 100 100 100 100 – 70 70 – 70 70 70 70 70 70 – 100 100 – 100 100 100 100 100 100 – 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 100 100 100 100 70 70 70 70 70 70 70 70 70 70 100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 100 80 100 – 100 100 100 – 100 100 100 100 100 100 100 100 NUFARM LIMITED ANNUAL REPORT 2004 69 NOTES NOTES TO THE FINANCIAL STATEMENTS 25 Controlled entities continued Nufarm Holdings (NZ) Limited Nufarm Inagro Manufacturing Sdn Bhd Nufarm Inc. Nufarm Insurance Pte Ltd Nufarm Investments Cooperatie WA Nufarm Ireland Limited Nufarm KK Nufarm Malaysia Sdn Bhd Nufarm Materials Ltd Nufarm NZ Limited Nufarm de Panama SA Nufarm Phillipines Inc Nufarm Platte Pty Ltd Nufarm Portugal LDA Nufarm SA Nufarm SA Nufarm SC Nufarm Specialty Products Inc Nufarm Technologies USA Nufarm Technologies USA Pty Limited Nufarm (Thailand) Ltd Nufarm Treasury Pty Ltd Nufarm UK Limited Nufarm USA Inc. Nufarm de Venezuela SA Nuturf Pty Ltd Opti–Crop Systems Pty Ltd Pacific Raw Materials Australia Pty Ltd Pacific Raw Materials Limited Pharma Pacific Pty Ltd PT Nufarm Indonesia Resfun Pty Ltd Rockmere Pty Ltd Safepak Industries Sdn Bhd Societe Civile Inpar Selchem Pty Ltd Societe d’Etudes et Applications Chimiques Societe Civile Mobiliere Clama Societe des Ecluses de la Garenne TPL Limited Notes Place of incorporation Percentage of shares held 2004 2003 (b) New Zealand Malaysia (b) USA Singapore Netherlands Ireland Japan (b) Malaysia (a),(b) Australia (b) New Zealand Panama Phillipines Australia Portugal Argentina France France (b) (b) (b) USA New Zealand Australia Thailand (a),(b) Australia (b) United Kingdom USA Venezuela (a),(b) Australia (b) Australia (a) Australia New Zealand (a) Australia Indonesia Australia (a) Australia Malaysia France (b) (a) Australia (b) France France France (b) New Zealand 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 – 100 100 – 100 100 75 100 100 100 70 – 100 70 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 80 100 100 – 100 100 100 100 100 100 100 100 100 – 100 75 100 100 100 70 90 100 70 100 100 100 100 100 100 68 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 69 Note (a). These entities have entered into a deed of cross guarantee dated 10 July 2000 with Nufarm Limited which provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on winding-up of that company. As a result of a class order issued by the Australian Securities and Investment Commission (dated 14 July 2000), these companies are relieved from the requirement to prepare financial statements. Note (b). These entities have entered into a deed of negative pledge dated 26th October 1996 with the group lenders which provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed. NOTES NOTES TO THE FINANCIAL STATEMENTS 26 Closed group The class order closed group consists of Nufarm Limited and wholly-owned Australian entities as designated with an (a) in note 25. Statement of financial performance Profit from ordinary activities before income tax expense Income tax expense relating to ordinary activities Net profit attributable to members of the closed group Retained profits at the beginning of the period Increase in retained profits on adoption of revised accounting standards AASB 1028: Employee benefits AASB 1044: Provision for dividend Include new members to the closed group Dividends paid Dividends provided Retained profits at the end of the period Statement of financial position Current Assets Cash assets Receivables Inventories Tax assets Prepayments Total current assets Non-current Assets Receivables Property, plant and equipment Related company investments Other financial assets Intangible assets Deferred tax assets Other Total non-current assets TOTAL ASSETS Consolidated 31.07.2004 $000 31.7.2003 $000 57,057 (17,993) 39,064 186,726 – – 6,549 (33,656) – 198,683 2,328 325,208 193,412 3,841 2,819 527,608 34,180 138,261 258,256 7,294 15,095 22,366 2,073 477,525 1,005,133 62,755 (4,317) 58,438 139,633 (451) 17,082 – (10,894) (17,082) 186,726 4,134 332,952 154,321 – 3,237 494,644 – 136,529 176,750 123,191 11,487 28,106 3,814 479,877 974,521 70 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 71 NOTES NOTES TO THE FINANCIAL STATEMENTS 26 Closed group continued Statement of financial position Current liabilities Payables Interest bearing liabilities Tax liabilities Provisions Total current liabilities Non-current liabilities Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity Reserves Retained profits TOTAL EQUITY 27 Interests in joint venture operations The company has an 80% interest in the Nufarm–Coogee Joint Venture representing its two chlor alkali plants in Western Australia. Assets employed Cash Receivables Inventory Prepayments Property, plant and equipment Total assets employed Capital expenditure commitments Group’s share of joint venture operations profit: Profit from ordinary activities before tax Income tax on ordinary activities Net profit after tax Consolidated 31.07.2004 $000 31.7.2003 $000 471,784 33,586 – 7,472 512,842 10,000 2,018 6,840 18,858 531,700 473,433 217,730 57,020 198,683 473,433 204,513 68,114 10,459 7,289 290,375 281,302 4,432 6,504 292,238 582,613 391,908 149,219 55,963 186,726 391,908 2004 $000 2003 $000 1,668 2,275 825 150 14,518 19,436 829 8,692 (2,608) 6,084 1,276 1,954 614 115 13,253 17,212 1,201 9,888 (2,969) 6,919 70 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 71 NOTES NOTES TO THE FINANCIAL STATEMENTS 28 Financing arrangements The consolidated entity has access to the following facilities with a number of financial institutions and vendors of acquired businesses. Bank loan facilities Other facilities Subordinated debt facility On-balance sheet financing facilities Off–balance sheet receivables securitisation-type facilities Total financing facilities Bank loan facilities Other facilities Subordinated debt facility On-balance sheet financing facilities Off–balance sheet receivables securitisation-type facilities Total financing facilities Consolidated Parent Accessible $000 Drawn down $000 Accessible $000 Drawn down $000 2004 2003 647,804 3,997 203,620 855,421 162,410 1,017,831 189,627 2,355 203,620 395,602 138,661 534,263 621,657 2,304 201,523 825,484 183,846 1,009,330 271,277 2,304 201,523 475,104 75,697 550,801 – – – – – – – – – – – – 19,645 – – 19,645 – 19,645 15,963 – – 15,963 – 15,963 Receivables Securitisation Receivables from Nufarm Australia Limited, Crop Care Australasia Pty Ltd, Nufarm Americas Inc and Nufarm Agriculture Inc are sold to an unrelated third party, in which the consolidated entity has no ownership interest. The consolidated entity does not have the capacity to control the unrelated third party and accordingly does not consolidate the entity. At 31 July 2004, $138.6 million of receivables sold to the third party remain uncollected (2003: $75.7 million). 29 Foreign currency exposures a) Current assets Amounts receivable in foreign currency which are not effectively hedged US dollars Euros Other b) Current liabilities Amounts payable in foreign currency which are not effectively hedged US dollars Euros British pounds Other Consolidated 2004 $000 2003 $000 11,898 5,693 1,343 18,934 20,299 12,946 3,669 36,914 30,893 17,445 2,703 169 51,210 43,482 5,089 4,479 2,718 55,768 During 2004, the company discontinued its previous practice of using balance sheet hedges to protect its net offshore investment from currency fluctuations. 72 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 73 NOTES NOTES TO THE FINANCIAL STATEMENTS 30 Financial instruments a) Objectives for holding derivative financial instruments The consolidated entity uses derivative financial instruments to manage specifically identified interest rate and foreign currency risks. The consolidated entity does not trade derivatives. The group is primarily exposed to the risk of movements in the value of the Australian dollar relative to certain foreign currencies, including the US dollar, the Euro and the British pound, and the movement in interest rates. The consolidated entity hedges a portion of its anticipated sales and purchases as well as forecast foreign currency earnings of controlled entities. A comprehensive board-approved treasury policy sets limits for management to hedge such exposures. b) Credit risk exposure The consolidated entity’s exposures to on balance sheet risk are as indicated by the carrying amounts of its financial assets as indicated in the statement of financial position. It does not have a significant exposure to any individual counterparty, as transactions are undertaken with a large number of customers in various markets. In relation to derivative financial instruments, whether recognised or unrecognised, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. Total derivatives are disclosed in note 30(d). c) Foreign exchange The following table summarises by currency the Australian dollar value of all forward foreign exchange agreements and foreign exchange options. Foreign currency amounts are translated at rates current at the reporting date. Currency 2004 2003 Buy $000 Sell $000 Average exchange rate 2004 2003 Buy $000 Sell $000 US dollars Less than 12 months Over 12 to 60 months Canadian dollars Less than 12 months Over 12 to 60 months Euros Less than 12 months Over 12 to 60 months British pounds Less than 12 months Over 12 to 60 months Others Less than 12 months 0.7046 0.7022 0.6394 0.6500 73,040 – 5,174 28,481 20,734 – 174,103 30,768 0.9234 0.9336 0.9123 0.9120 – – 992 8,569 2,280 – 33,591 8,772 0.5811 0.5841 0.5772 0.5780 26,694 – 15,408 111,282 25,113 – 121,626 112,454 0.3919 0.3858 0.4041 0.4040 666 – – 25,923 2,805 – 85,149 24,756 – – 4,278 104,678 1,097 196,926 504 51,436 9,303 600,522 72 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 73 NOTES NOTES TO THE FINANCIAL STATEMENTS Carrying amount 2004 $000 Consolidated Net fair value 2004 $000 Carrying amount 2003 $000 Net fair value 2003 $000 30 Financial instruments continued d) Net fair value of financial assets and liabilities The carrying amounts of financial assets and financial liabilities (including derivatives) are considered to equate to their fair values, except as disclosed in the table below. Net fair values are determined using market rates that existed at the end of the year for similar instruments with similar maturities. Financial liabilities Capital notes – one to five years Derivatives Forward exchange contracts are being used to hedge the following foreign currency exposures. Receivables – less than one year Receivables – more than one year Payables – less than one year Forward exchange contracts, currency options and cross currency interest rate swaps are being used to hedge the following foreign currency exposures. Foreign investments and advances – less than one year Interest rate swaps are being used to hedge the following interest rate exposures – one to five years Payable maturities – less than one year – one to five years 203,620 203,156 201,523 205,475 7,262 – 101,150 7,242 – 100,816 52,869 333 51,436 51,191 328 51,564 15,408 174,255 15,408 187,600 370,569 176,750 371,269 202,444 – 178,481 – 177,253 – 179,204 – 179,314 74 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 75 NOTES NOTES TO THE FINANCIAL STATEMENTS 30 Financial instruments continued e) Interest rate risk exposures The following table summarises interest rate risk for the consolidated entity. Interest rate swaps had an average effective interest rate of 4.2% (2003: 4.2%) Financial assets Cash on deposit Financial liabilities Capital notes Bank loans Other loans Finance leases Interest rate swaps Financial assets Cash on deposit Financial liabilities Capital notes Bank loans Other loans Finance leases Interest rate swaps Floating interest rate $000 Fixed interest maturing in Non-interest bearing 1 to 5 years $000 $000 < 1 year $000 Total $000 2004 31,534 – – – 189,627 2,355 – (178,481) 13,501 – – – 1,289 – 1,289 203,620 – – 2,700 178,481 384,801 2003 2,820 – – – 271,277 2,304 – (179,204) 94,377 – – – 1,406 – 1,406 201,523 – – 4,010 179,204 384,737 – – – – – – – – – – – – – – 31,534 203,620 189,627 2,355 3,989 – 399,591 2,820 201,523 271,277 2,304 5,416 – 480,520 The weighted average interest rate for cash on deposit was 2.6% (2003: 2.0%). All other assets and liabilities are non-interest bearing. f) Hedges of anticipated future transactions The following table summarises unrealised gains and losses on forward exchange contracts entered as hedges of future anticipated sales, purchases and foreign currency earnings of overseas controlled entities. Expected recognition period Less than one year More than one year 2004 2003 $000 Gains $000 Losses $000 Gains $000 Losses 35 – 1 – 254 – 166 – 74 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 75 NOTES NOTES TO THE FINANCIAL STATEMENTS 31 Director and executive disclosures b) Remuneration of specified directors and specified executives a) Details of specified directors and specified executives (i) Specified directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow DG Mc Gauchie GW McGregor Dr JW Stocker RFE Warburton Sir Dryden Spring Chairman Managing director and chief executive (Appointed 19 December 2003) (Retired 11 December 2003) (ii) Specified executives JA Allen B Benson KP Martin RF Ooms DA Pullan Group general manager crop protection Group general manager marketing Chief financial officer Group general manager chemicals Group general manager operations (i) Remuneration policy The board’s policy with regard to non-executive director remuneration is to position board remuneration at the market median with comparable sized listed companies. The board determines the fees payable to non-executive directors within the aggregate amount approved from time to time by shareholders. At the company’s 2003 AGM, shareholders approved an aggregate of $900,000. The board has created a non-executive share plan whereby a director can elect to commit a proportion of director’s fees to acquire company shares. The number of shares available in the plan will be calculated quarterly using the weighted average of the price at which shares traded on the ASX in the five days up to and including the day when shares are allocated to a director. Shares in the plan will not vest until the earlier of three years or retirement. The Nufarm remuneration policy has been developed to ensure the company attracts and retains the calibre of people required to successfully manage and create shareholder value from a large diversified internationally based company. 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. The company has adopted a remuneration policy based on total target reward (TTR) which comprises two components: • fixed reward (TEC) – cash and benefits that reflect local market conditions and individual contribution. The reward level is set relative to pertinent and prevailing executive employment market conditions for high calibre talent in the geographies where Nufarm operates. The company’s policy position for TEC for Australian executives is the 50th percentile of the Mercer Survey of Australian Major Corporates. • an incentive program – the first half of the incentive program reflects achievement of specific business objectives over six monthly periods and is paid in cash. The second half is linked to meeting predetermined financial objectives for the full year and is delivered in a mixture of shares and options. The exception is the current managing director who is paid in cash because of the very substantial shareholding he currently controls in the company. For the remaining executives, this payment is made in equity which ensures a longer term focus to achieve benefits consistent with increases in sustained shareholder value. Each year, the board establishes performance hurdles for the incentive program. These hurdles reflect targets for specific objectives and increasing company value, consistent with the company’s business and investment strategies. 76 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 77 NOTES NOTES TO THE FINANCIAL STATEMENTS Primary Salary and fees Cash bonus Non- monetary benefits Post- employment Super- annuation Equity Other Total Retirement benefit plan1 (ii) Remuneration of specified directors and specified executives Specified directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow DG Mc Gauchie GW McGregor Dr JW Stocker RFE Warburton Sir Dryden Spring 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 155,200 160,000 – – – – 832,769 789,524 953,140 372,210 69,995 51,459 63,200 62,500 58,825 62,500 45,763 – 73,200 70,000 68,200 70,000 68,200 70,000 25,177 62,500 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 16,560 14,400 12,075 11,323 17,460 5,625 6,266 5,625 4,119 – 7,560 6,300 7,110 6,300 7,110 6,300 2,266 5,625 28,8002 – 155,550 – 356,110 174,400 – 291,004 – – 1,867,979 1,515,520 – – 50,360 – 131,020 68,125 10,8002 – 150,588 – 226,479 68,125 – – – – 49,882 – 10,8002 – 48,190 – 139,750 76,300 10,8002 – 68,500 – 154,610 76,300 10,8002 – 150,500 – 236,610 76,300 – – 149,7923 – 177,235 68,125 Total remuneration: specified directors 2004 2003 1,390,534 1,347,024 953,140 372,210 69,995 51,459 80,526 61,498 72,000 291,004 773,480 – 3,339,675 2,123,195 1 During the financial period, directors resolved to discontinue its retirement benefit plan. Accrued benefits under the plan were calculated and paid to directors as set out below: KM Hoggard GDW Curlewis Dr WB Goodfellow GW McGregor Dr JW Stocker RFE Warburton Base fee 73,109 – – – – – Super- annuation – 50,360 – – – – Equity 82,441 – 150,588 48,190 68,500 150,500 Total 155,550 50,360 150,588 48,190 68,500 150,500 2 During the course of the financial period the company created a non-executive directors share plan, which enables directors to elect to sacrifice 20% of base director fees for the acquisition of company shares. The value of such shares is disclosed as equity. 3 Upon his retirement as a director, Sir Dryden Spring was paid a retirement benefit of $149,792. This was the amount accrued under the retirement benefit plan, which was discontinued on 31 October 2003. 76 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 77 NOTES NOTES TO THE FINANCIAL STATEMENTS Primary Cash bonus Non- monetary Post- employment Super- annuation plan Salary and fees benefits Equity Other Total Retirement benefit 31 Director and executive disclosures continued Specified executives DA Pullan RF Ooms KP Martin JA Allen B Benson 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 351,219 329,042 159,000 151,185 349,717 335,184 149,000 141,736 346,140 313,471 146,468 141,736 46,331 47,377 11,716 16,744 25,327 28,395 65,373 60,540 63,574 59,962 38,318 57,404 151,200 78,768 141,736 73,845 141,736 73,845 318,394 345,034 92,832 150,000 21,758 8,291 102,000 61,302 150,000 77,674 311,865 218,999 119,999 109,989 15,529 18,202 38,676 44,360 109,989 54,700 Total remuneration: specified executives 2004 2003 1,677,335 1,541,730 667,299 694,646 120,661 119,009 307,941 283,568 694,661 358,832 – – – – – – – – – – – – 773,123 666,912 715,743 627,471 697,989 614,851 684,984 642,301 596,058 446,250 3,467,897 2,997,785 (c) Remuneration options: granted and vested during the year During the year there were no options granted to directors or executives. There were also no options that vested during the year. (d) Shares issued on exercise of remuneration options During the year there were no options exercised by directors or executives. (e) Option holdings of specified directors and specified executives Granted as remuneration Options exercised Balance at beginning of period 1 Aug 2003 Net change other Balance at end of period 31 July 2004 Vested at 31 July 2004 Not exercisable Total Exercisable Specified directors DJ Rathbone 566,443 Specified executives JA Allen B Benson KP Martin RF Ooms DA Pullan Total 153,091 98,345 143,406 143,406 153,091 1,257,782 – – – – – – – – – – – – – – – 566,443 566,443 566,443 – – – – – – 153,091 98,345 143,406 143,406 153,091 1,257,782 153,091 98,345 143,406 143,406 153,091 1,257,782 153,091 98,345 143,406 143,406 153,091 1,257,782 – – – – – – – As described in note 32, the options can be exercised within the next twelve months. 78 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 79 NOTES NOTES TO THE FINANCIAL STATEMENTS Shares held in Nufarm Ltd Balance at 1 Aug 2003 Granted as remuneration Exercise of options Net change other Balance at 31July 2004 31 Director and executive disclosures continued (f) Shareholdings of specified directors and specified executives Specified Directors KM Hoggard1,2 DJ Rathbone GDW Curlewis Dr WB Goodfellow1,2,3 DG Mc Gauchie GW McGregor1,2 Dr JW Stocker1,2 RFE Warburton1,2 Sir Dryden Spring Specified Executives JA Allen B Benson KP Martin RF Ooms DA Pullan Total 5,848,181 31,709,739 10,000 80,000 – 20,000 10,000 28,300 9,676 307,415 61,392 207,026 148,173 296,962 38,736,864 4,900 – – 1,837 – 1,837 1,837 1,837 – 28,902 21,195 27,312 27,312 29,133 146,102 – – – – – – – – – – – – – – – 16,756 (1,013,572) 14,787 1,382,691 3,817 10,581 14,709 31,376 (1,213) 5,869,837 30,696,167 24,787 1,464,528 3,817 32,418 26,546 61,513 8,463 (140,000) 787 (5,000) (20,000) (140,000) 155,719 196,317 83,374 229,338 155,485 186,095 39,038,685 All equity transactions with specified directors and executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length 1 During the financial period directors resolved to discontinue the non-executive retirement benefit plan. Accrued benefits for Messrs Hoggard, Goodfellow, McGregor, Stocker and Warburton were converted into shares pursuant to rules of the non-executive directors share plan. The directors cannot deal in these shares before the earlier of 10 years after acquisition or when the director retires. 2 Messrs Hoggard, Goodfellow, McGregor, Stocker and Warburton are participants in the non-executive share plan which enables participants to sacrifice 20% of their base director fees to the acquisition of company shares. 3 The shareholding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (429,855 shares) – Dr Goodfellow is Chairman of the Trust Board; (ii) three trusts of which he is a non-beneficial trustee (807,039 shares); and (iii) Waikato Investment Company Limited (113,616 shares). 78 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 79 NOTES NOTES TO THE FINANCIAL STATEMENTS 31 Director and executive disclosures continued (g) Loans to specified directors and specified executives There were no loans to directors and specified executives at July 31 2004. (h) Other transactions and balances with specified directors and specified executives During the year there were no other transactions with specified directors and specified executives. 32 Employee share purchase schemes The Nufarm Limited Staff Share Purchase Scheme No.2 (1990) enabled the issue of partly paid ordinary shares to all staff who had completed two years service with the company, issued at a 10% discount on market price at the date of the offer. The shares have been issued partly paid with one cent per share paid on acceptance and the balance payable over four calls which are made at the end of the second, third, fourth and fifth years. Once the call is paid to the company, one quarter of the total shares allocated will vest directly to the employee as fully paid shares. Partly paid shares do not rank for dividends until fully paid and voting rights are exercised by the trustees in proportion to the amount paid up on the shares, while the shares remain partly paid. At 31 July 2004, the trustees of the Staff Share Purchase Scheme No.2 held 218,600 (2003: 386,800) ordinary shares paid to one cent per share, with $684,218 (2003: $1,265,000) remaining uncalled. The Nufarm Limited Executive Share Purchase Scheme (1984) enabled the issue of fully paid ordinary shares to executive directors and senior executives, issued at a price equal to 70% of the market price at the date of the offer. There is an eight year restrictive period during which time the allocated shares are held by the trustees and the consideration will be paid over the restrictive period with all dividends, net of tax, being applied in reduction of the advances by the company to the trustees which total $2,027,657 at 31 July 2004 (2003: $4,490,842). Each executive is entitled to exercise voting rights attached to the shares allocated. At 31 July 2004 the trustees of the Executive Share Purchase Scheme (1984) held 522,000 (2003: 2,116,200) ordinary shares, all of which were allocated. There are 72 participants (2003: 114 participants) in total in the above two schemes. A UK Savings Related Share Options Scheme (1997) enabled the issue of ordinary share options to eligible staff in the United Kingdom who had completed two years service with the company. The scheme has two parts. Firstly, it is an agreement between the employee and a savings institution to save a fixed amount every month for five years. At the end of the period, the savings institution adds a tax free interest bonus to the employee’s savings. Secondly, the scheme provides the employee with an option to buy Nufarm’s shares from the proceeds of the amount with the savings institution. The share options are issued at a 10% discount on market price at the date of offer. Share options do not rank for dividends or carry voting rights. No employee chose to exercise his/her option under the first offer and the options granted under that offer have now expired. At 31 July 2004, 77,514 (2003: 90,587) share options were outstanding allowing the 21 participants to exercise each option into one fully paid ordinary share. The above plans have been replaced by the plans below. The Nufarm Executive Share Plan (2000) offers shares at no cost to executives. The executives may select an alternative mix of shares (at no cost) and options at a cost determined under the ‘Black Scholes’ methodology. These benefits are only given when a predetermined return on capital employed is achieved over the relevant period. The shares and options are subject to forfeiture and dealing restrictions. The executive cannot deal in the shares or options for a period of between three and ten years without board approval. An independent trustee holds the shares and options on behalf of the executives. At 31 July 2004 there were 65 participants (2003: 57 participants) in the scheme and 1,572,401 shares (2003: 1,361,280) have been allocated, and 1,437,692 (2003: 1,437,692) options granted, under the plan. The 1,437,692 options were granted for a term of ten years, for 44.7 cents each, and are exercisable for $2.70 each from the third anniversary of the grant. The options will not be quoted on the ASX. The cost of issuing shares is expensed in the year of issue and the cost of granting options is expensed in the year they are exercised. The global share plan commenced in 2001 and is available to all permanent employees. Participants contribute a proportion of their salary to purchase shares. The company will contribute an amount equal to 10% of the number of the ordinary shares acquired with a participant’s contribution in the form of additional ordinary shares. Amounts over 10% of the participant’s salary can be contributed but will not be matched. For each year the shares are held, up to a maximum of five years, the company contributes a further 10% of the value of the shares acquired with the paricipant’s contribution. An independent trustee holds the shares on behalf of the participants. There are 761 participants at 31 July 2004 (2003: 764 participants). The cost of issuing shares is expensed in the year of issue. 80 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 81 NOTES NOTES TO THE FINANCIAL STATEMENTS Weighted average exercise price 2004 Number of options 2003 Weighted average exercise price 2003 Number of options 2004 32 Employee share purchase schemes continued The power of appointment and removal of the trustees for the share purchase schemes is vested in the company Balance at the beginning of the period Granted Expired Balance at the end of the period 1,528,279 – (13,073) 1,515,206 2.72 – 3.08 2.72 1,668,925 – (140,646) 1,528,279 2.79 – 3.46 2.72 Number of options Grant date Exercise date Expiry date 2004 77,514 871,249 566,443 31.01.2000 26.10.2001 3.12.2001 28.02.2005 26.10.2004 13.12.2004 1.3.2005 26.10.2011 13.12.2011 2003 90,587 871,249 566,443 31.01.2000 26.10.2001 3.12.2001 28.02.2005 26.10.2004 13.12.2004 1.3.2005 26.10.2011 13.12.2011 Weighted average exercise price 3.08 2.70 2.70 3.08 2.70 2.70 80 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 81 NOTES NOTES TO THE FINANCIAL STATEMENTS 33 Superannuation commitments The company operates a defined benefit pension scheme in the United Kingdom, where the benefits are based on estimates of final pensionable pay. Under this scheme, contributions to the scheme are charged to the statement of financial performance so as to spread the cost of pensions over employees’ working lives with the company. The contributions are determined by the scheme’s qualified actuaries on the basis of regular contributions. The pensions costs are determined with the advice of independent qualified actuaries using the projected unit method. Details of superannuation funds as extracted from their most recent financial report Accrued benefits Net market value of plan assets Deficit The above amounts were measured at 31 July 2004. 2004 $000 34,528 20,391 14,137 2003 $000 28,079 17,319 10,760 The company operates a defined benefit pension scheme in the Netherlands, where the benefits are based on pensionable salary. Under this scheme, contributions to the scheme are charged to the statement of financial performance so as to spread the cost of pensions over employees’ working lives with the company. The first full actuarial valuation of the scheme was completed as at 31 July 2004. Liabilities have been calculated using the projected unit method with the advice of independent qualified actuaries. Details of superannuation funds as extracted from their most recent financial report Accrued benefits Net market value of plan assets Deficit The above amounts were measured at 31 July 2004. 2004 $000 12,816 8,375 4,441 2003 $000 – – – In France, a payments system exists whereby the employees receive a payment upon retirement based on their final salary and years of service with their final employer. This system has some similarity to a defined benefit superannuation scheme. At July 2004, an actuarial assessment of the future potential liability was EUR 5.9 million (AUD$10.1 million) 82 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 83 NOTES NOTES TO THE FINANCIAL STATEMENTS 34 Related party disclosures a) Transactions with related parties in the wholly-owned group In addition to those transactions disclosed in note 2, the parent entity entered into the following transactions during the year with related parties in the wholly-owned group: • loans were advanced and repayments received on short term intercompany accounts • proceeds of the capital notes issue have been on-lent through the parent entity to fund group investments and working capital • market rates have been charged for these fixed term subordinated loans • management fees were received from several wholly-owned controlled entities These transactions were undertaken on commercial terms and conditions. b) Transactions with other related parties Bayer CropScience Nufarm Limited Agchem Receivables Corp SRFA LLC Consolidated 2004 $000 11,200 11,182 52,769 2,388 1,424 2003 $000 10,976 8,553 32,127 – – sales to purchases from loan payable sales to loan payable c) Ultimate controlling entity The ultimate controlling entity of the consolidated entity is Nufarm Limited (ABN 37 091 323 312). 35 Auditors’ remuneration Amounts received or due and receivable by Ernst & Young Australia for Audit services Tax compliance services IFRS conversion advice Tax – assistance Tax consolidation advice Receivables securitisation program review Total fees – Ernst & Young Australia Amounts received or due and receivable by Ernst & Young affiliates for Audit services Tax compliance services Receivables securitisation program review Corporate structure advice Other services Total fees – Ernst & Young affiliates Amounts received or due and receivable by other audit firms for Audit services Consolidated Parent 2004 $000 2003 $000 2004 $000 2003 $000 394 315 43 178 176 – 1,106 705 208 – 120 21 1,054 378 225 – – – 84 687 641 141 56 122 – 960 58 – – – – – 58 – – – – – – 148 117 – 96 34 – – – – 130 – – – – – – – 82 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 83 NOTES NOTES TO THE FINANCIAL STATEMENTS 36 Discontinuing operation Businesses sold during 2004 include the Florigene group (Oct 2003), Agrow (Mar 2004), MCFI (Aug 2003), Pharma Pacific (July 2004) and the Wettasoil trademark (July 2004). The Florigene business is included in the other product segment and Agrow and MCFI are in the Crop Protection segment. The 2003 business sold was the Fernz specialty chemical business in Australia and New Zealand. The disposal of fixed assets and inventories gave rise to the following items of revenue and expense during the year. Financial performance information Revenues from ordinary activities Expenses Profit from ordinary activities before income tax expense Income tax expense relating to ordinary activities Net profit Asset disposals Total assets Total liabilities Net assets Proceeds from divestment of business Carrying value of assets sold in divestment Amortisation of intellectual property Other costs of divestment Loss on divestment Related income tax Loss on divestment (net of income tax expense) Cash flows Operating Investing Financing Net cash flows 37 Subsequent events Consolidated 2004 $000 2003 $000 2,917 3,475 (558) (71) (487) 12,045 1,724 10,321 11,672 (10,321) – – 1,351 – 1,351 (411) (23) (1,310) (1,744) 50,922 51,445 (523) (287) (236) 50,055 403 49,652 57,852 (49,652) (6,194) (2,460) (454) 1,722 (2,176) 17,542 (134) (16,096) 1,312 On 29 September 2004, the directors declared a final dividend of 15 cents per share, fully franked, payable 12 November 2004. On 29 September, Nufarm signed a memorandum of understanding, subject to due diligence and board approval, to acquire 49.9% of Agripec, a Brazilian crop protection company. The consideration is expected to be USD 120 million. The company is in advanced discussions relating to the sale of its pharmaceutical intermediate business (SEAC) and its Nufarm Specialty Products subsidiary. The expected proceeds will be in excess of their carrying values. 84 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 85 NOTES NOTES TO THE FINANCIAL STATEMENTS 38 Impact of adopting AASB equivalents to IASB standards The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. This means that Nufarm will be required to prepare financial statements for the year ending 31 July 2006 that comply with Australian equivalents of IFRS and their related pronouncements as issued and recognised by the AASB. Nufarm will report its compliance with IFRS for the first time for the half-year ended 31 January 2006. The transitional rules for the first time adoption of IFRS require entities to restate their comparative financial statements using all Australian equivalents of IFRS. The majority of the adjustments required on transition will be made to opening retained earnings in the opening IFRS balance sheet as at 1 August 2004. Comparatives restated under IFRS will not be reported in the financial statements until 31 January 2006, being the first half year reported in compliance with IFRS. Nufarm has commenced transitioning its accounting policies and financial reporting from current Australian standards to Australian equivalents of IFRS. The company has allocated internal resources and engaged external consultants to perform diagnostics and conduct impact assessments to isolate key areas that will be impacted by the transition to IFRS. As a result of these procedures, Nufarm has graded the impact of each change in standard as either high, medium or low. Set out below are the key areas where accounting policies may change and have an impact on the financial reports of Nufarm. It should be noted that at this stage Nufarm has not fully quantified the impact of each area on the financial statements. Goodwill Under AASB 3 Business Combinations, goodwill will no longer be amortised but instead will be subject to annual impairment testing focusing on the cash flows of related cash generating units. This will result in a change in the group’s current accounting policy which amortises goodwill on a straight line basis over the period in which benefits are expected to arise, not exceeding 20 years. Impairment of assets Under AASB 136 Impairment of Assets, the recoverable amount of an asset is determined as the higher of net selling price and value in use. This will result in a change in the group’s current accounting policy which determines the recoverable amount of an asset on the basis of discounted cash flows. Under the new policy, if there is impairment of assets, it will likely be recognised sooner and the amount of write- downs will be greater. Employee benefits Nufarm does not currently recognise an asset or liability for the net position of the defined benefit schemes it sponsors. Under AASB 119 Employee Benefits, Nufarm will be required to recognise the net surplus or deficit in their employer sponsored defined benefit funds as an asset or liability, respectively, based on actuarial valuations of each scheme. The initial adjustment on transition will be recognised through retained earnings and subsequent adjustments will be to the statement of financial performance. Income taxes Under AASB112 Income Taxes, a new method of accounting for income taxes, known as the ‘balance sheet liability method’, will be adopted, replacing the current ‘tax effect income statement’ approach. The new method recognises deferred tax balances in the statement of financial position when there is a difference between the carrying value of an asset or liability and its tax base. Adoption of this new method may result in increased deferred tax assets and liabilities in the balance sheet. Hedging and financial instruments AASB 139 Financial Instruments: Recognition and Measurement, is required to be adopted by Nufarm prospectively from 1 August 2005. This standard requires all financial instruments to be recognised in the statement of financial position and most financial assets to be carried at fair value. AASB 139 recognises fair value hedge accounting, cash flow hedge accounting and hedges of investments in foreign operations. Fair value and cash flow hedge accounting can only be considered where effectiveness tests are met on both a prospective and retrospective basis. Ineffectiveness outside the prescribed range precludes the use of hedge accounting and may result in amounts recognised in the statement of financial performance, which had not been recognised previously. Intangible assets Under AASB 138 Intangible Assets, costs incurred in the research phase of the development of an internally generated intangible must be expensed. This will result in a change to the group’s current accounting policy which allows capitalisation of the research and development costs of major new businesses to the extent that future benefits are expected beyond reasonable doubt. Under the new policy all research costs will be expensed. 39 Significant non–operating items The company completed several transactions in 2004 which, collectively, did not have a material impact on the final results. 1. Intellectual property The intellectual property associated with several non-core and discontinued development projects was either sold or written off. The net impact was a loss of $0.7 million. 2. Sale of operations Florigene Limited, Nufarm’s South African operations and Agrow, a small importing business, were sold. The net impact was nil. 3. European structural changes The plant at Mulhouse (France) was closed, the Paris head office building was sold and a reorganisation of the French and English workforces was initiated in 2004. The net impact was a loss of $0.3 million. These initiatives combined to generate an after-tax loss of $1.0 million, which was further offset by an approximate $0.6 million taxation adjustment relating to prior years. 84 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 85 DIRECTORS’ DECLARATION The directors declare that the financial statements and associated notes: 1. comply with Accounting Standards and Corporations Regulations 2001; 2. give a true a fair view of the financial position as at 31 July 2004 and performance of the company and consolidated entity for the 12 months then ended; and 3. in the directors’ opinion: a) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable and the company and the entities which are party to the Deed of Cross Guarantee described in Note 26 will together be able to meet any obligations or liabilities to which they are or may become subject by virtue of that deed; and b) the financial statements and notes are in accordance with the Corporations Act (2001). Signed in accordance with a resolution of directors: KM Hoggard Director DJ Rathbone Director Melbourne 29 September 2004 86 NUFARM LIMITED ANNUAL REPORT 2003 NUFARM LIMITED ANNUAL REPORT 2004 89 TREND STATEMENT SUPPLEMENTARY INFORMATION 2004 $000 2003 $000 2002 $000 2001 $000 2000 $000 1999 $000 Operating results Sales revenue Operating profit after tax and minority interests Non-recurring item after tax Profit attributable to members of the parent entity Dividends paid and provided Retained profits Total equity Contributed equity Retained profits and reserves Represented by Current assets Current liabilities Net current assets Non-current assets Non-current liabilities Capital notes Net assets 1,576,815 76,202 – 1,458,811 64,269 12,824 1,429,275 56,834 – 1,323,232 51,138 (55,664) 1,213,042 51,984 4,206 1,122,597 43,949 8,778 76,202 33,656 42,546 77,093 10,894 66,199 56,834 27,952 28,882 (4,526) 27,808 (32,334) 56,190 26,818 29,372 52,727 21,834 30,893 210,530 349,964 560,494 149,219 313,102 462,321 147,333 243,706 391,039 145,593 207,208 352,801 145,066 243,446 388,512 129,150 224,980 354,130 736,292 550,862 185,430 695,286 880,716 116,602 203,620 320,222 560,494 711,456 506,925 204,531 646,358 850,889 187,045 201,523 388,568 462,321 710,976 590,050 120,926 615,246 736,172 152,248 192,885 345,133 391,039 618,179 454,309 163,870 573,702 737,572 246,323 138,448 384,771 352,801 560,170 420,088 140,082 578,766 718,848 197,524 132,812 330,336 388,512 524,826 374,035 150,791 532,540 683,331 189,121 140,080 329,201 354,130 Statistics Operating earnings after tax to average equity attributable to members of the parent entity Dividend rate per share Net tangible asset backing per share 15.1% 23.0c $2.17 15.3% 20.0c $2.05 15.4% 18.0c $1.57 13.8% 18.0c $1.42 14.0% 17.2c $1.62 13.2% 14.8c $1.61 NUFARM LIMITED ANNUAL REPORT 2004 89 SHAREHOLDER AND STATUTORY INFORMATION Details of shareholders, shareholdings and top 20 shareholders Listed securities – 8 October 2004 Fully paid ordinary shares Partly paid (unquoted) Twenty largest shareholders Falls Creek No 2 Pty Ltd Amalgamated Dairies Limited JP Morgan Nominees Australia National Nominees Limited Lawrence Holdings Limited ANZ Nominees Limited RBC Global Services Australia Grantali Pty Ltd Citicorp Nominees Pty Limited Westpac Custodian Nominees Challenge Investment Company The Avalon Investment Trust Suncorp Custodian Services Pty Limited AMP Life Limited Cogent Nominees Pty Limited Australian Foundation Investment Company Limited Trustee Nufarm Global Share Plan Trustee Nufarm Executive Share Plan RBC Global Services Australia Nominees Pty Limited First NZ Capital Custodians Limited Distribution of shareholders Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of holders 10,625 Number of Percentage held by securities top 20 64.72% 167,735,767 233,325 Ordinary shares as at 8.10.04 25,680,987 14,951,602 14,328,368 7,657,272 5,743,750 5,455,531 4,525,148 4,037,403 3,266,511 3,134,815 2,982,868 2,491,448 2,322,177 2,294,209 1,945,561 1,910,785 1,625,211 1,547,401 1,503,629 1,148,246 Number of Holders as at 8.10.04 3,181 5,349 1,224 793 78 Percentage of issued capital as at 8.10.04 15.31 8.91 8.54 4.57 3.42 3.25 2.70 2.41 1.95 1.87 1.78 1.49 1.38 1.37 1.16 1.14 0.97 0.92 0.90 0.68 Ordinary shares held as at 8.10.04 1,924,673 13,591,802 8,542,790 15,698,915 127,977,587 Of these, 80 shareholders held less than a marketable parcel of shares of $500 worth of shares (71 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 8 October 2004 was used to determine the number of shares in a marketable parcel. 90 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 91 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED Stock Exchanges on which Securities are Listed Ordinary shares: Australian Stock Exchange Limited. Substantial shareholders In accordance with section 671B of the Corporations Act, as at 8 October 2004, the substantial shareholders set out below have notified the company of their respective relevant interest in voting shares in the company shown adjacent to their respective names as follows: Amalgamated Dairies Ltd Khyber Pass Ltd1 Glade Building Ltd2 Hauraki Trading Ltd3 Oxford Trustees (Paul Gerard Keeling and Allan Cameron Rattray)4 Douglas John Rathbone5 ING Australia Holdings Ltd (and related companies) Date of notice 24 August 2000 24 August 2000 24 August 2000 24 August 2000 24 August 2000 25 February 2004 30 September 2004 Number and percentage of shares in which interest held at date of notice Number 14,950,815 14,968,110 15,329,898 15,685,712 Interest % 9.69 9.70 9.93 10.16 15,347,193 32,004,125 8,640,409 9.94 19.08 5.15 1 Khyber Pass Ltd has a relevant interest in Amalgamated Dairies Ltd and, as a result, the number of shares disclosed by it includes the shares held by Amalgamated Dairies Ltd. 2 Glade Building Ltd has a relevant interest in Amalgamated Dairies Ltd and, as a result, the number of shares disclosed by it includes the shares held by Amalgamated Dairies Ltd. 3 Hauraki Trading Ltd has a relevant interest in Amalgamated Dairies Ltd and, as a result, the number of shares disclosed by it includes the shares held by Amalgamated Dairies Ltd. 4 Oxford Trustees has a relevant interest in Glade Building Ltd, Khyber Pass Ltd and Amalgamated Dairies Ltd and, as a result, the number of shares disclosed by it includes the shares held by Glade Building Ltd, Khyber Pass Ltd and Amalgamated Dairies Ltd. 5 DJ Rathbone has a non-beneficial interest in 286,603 shares as trustee of the Nufarm Limited staff share plan. Voting rights Ordinary shares On a show of hands, every shareholder present in person or represented by a proxy or representative shall have one vote and on a poll every shareholder who is present in person or represented by a proxy or representative shall have one vote for every fully paid share held by the shareholder. Employee share scheme Partly paid ordinary shares These shares are held in trust by the scheme trustees and carry voting rights in proportion to the amount of the issue price paid up on each share only. Shareholder information Annual general meeting The annual general meeting of Nufarm Limited will be held on Thursday 9 December 2004 at 10.00am in the Ballroom at the Duxton Hotel, 328 Flinders Street, Melbourne, Victoria. Full details are contained in the Notice of Meeting sent to all shareholders. Voting rights Shareholders are encouraged to attend the annual general meeting. However, when this is not possible, they are encouraged to use the form of proxy by which they can express their views. Every shareholder, proxy or shareholder’s representative has one vote on a show of hands. In the case of a poll, each share held by every shareholder, proxy or representative is entitled to: (a) one vote for each fully paid share; and (b) voting rights in proportion to the paid up amount of the issue price for partly paid shares. Stock exchange listings Nufarm shares are listed under the symbol NUF on the ASX. The securities of the company are traded on the ASX under CHESS (Clearing House Electronic Sub-register System), which allows settlement of on-market transactions without having to rely on paper documentation. Shareholders seeking more information about CHESS should contact their stockbroker or the ASX. Share register and other enquiries Gain access to your shareholding information in a number of ways. The details are managed via our registrar, Computershare Investor Services and can be accessed as outlined below. Please note: Your Shareholder Reference Number (SRN) or Holder Identification Number (HIN) is required for access. 90 NUFARM LIMITED ANNUAL REPORT 2004 NUFARM LIMITED ANNUAL REPORT 2004 91 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED Internet account access Shareholders have been requesting the opportunity to have access to their details via the Internet. We have been able to provide two levels of access: read only and online portfolio updating capability. ■ View shareholding (read only access) Step 1 Go to www.computershare.com/au/investors Step 2 Select view shareholding and enter NUF or Nufarm Limited InvestorPhone (Australian shareholders only) InvestorPhone provides telephone access 24 hours a day seven days a week. Step 1 Call 1300 85 05 05 Step 2 Enter the company (ASX) code – NUF Step 3 Enter your securityholder reference number (SRN) or holder identification number (HIN) Step 3 Enter shareholder reference number (SRN) or holder identification number (HIN) Step 4 Step 4 Read only access to: – Account balance – Transaction history – Payment instructions – Payment history – Sign up for electronic securityholder communications ■ Investor Centre (online portfolio updating capability) Step 1 Go to www.computershare.com/au/investors Follow the prompts to gain secure, immediate access to your: - holding details - registration details - payment information Dividends A final dividend of 15 cents per share will be paid on 12 November 2004 to shareholders registered on 29 October 2004. For Australian tax purposes, the dividend will be 100 per cent franked at the 30 per cent tax rate. Step 2 Enter user ID and PIN or access the ‘register here’ button Step 3 Follow the prompts to register. For security purposes, Computershare will generate a PIN and mail it to your registered address. Australian and New Zealand shareholders can elect to have dividends paid directly into a bank account anywhere in Australia. Forms for this purpose are available on request from the share registry. Step 4 Enjoy the access to Investor Centre to view, evaluate and manage your portfolio Key dates • 29 October 2004 Record date (books closing) for 2003–2004 final dividend User you PIN and user ID to: Manage ■ view portfolio of all securities managed by Computershare ■ add securities not managed by Computershare to your portfolio ■ view and set up payment instructions ■ sign up for electronic securityholder communications ■ retrieve holding statement ■ request statements • 12 November 2004 Final dividend for 2003–2004 payable • 29 October 2004* Annual report sent to shareholders • 9 December 2004 Annual general meeting • 29 March 2005* Update ■ change of address (company or portfolio) ■ add/change Tax File Reference Number * View ■ view account balances and transaction history ■ view payment history Evaluate ■ company news, profiles and charts * Australian taxpayers who do not provide details of their tax file number will have dividends subjected to the top marginal personal tax rate plus Medicare levy. It may be in the interests of shareholders to ensure that tax file numbers have been supplied to the share registry. Announcement of profit result for half year ending 31 January 2005 • 31 July 2005 End of financial year * Subject to confirmation For enquiries relating to the operations of the company, please contact the Nufarm Corporate Affairs Office on: Telephone: (61) 3 9282 1177 Facsimile: (61) 3 9282 1111 email: robert.reis@au.nufarm.com Written correspondence should be directed to: Corporate Affairs Office Nufarm Limited PO Box 103 Laverton Victoria 3028 Australia 92 NUFARM LIMITED ANNUAL REPORT 2004 DIRECTORY Directors KM Hoggard – Chairman DJ Rathbone – Managing Director GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie AO GW McGregor AO Dr JW Stocker AO RFE Warburton Company secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Sylvia Miller & Associates Locked Bag 50 Toorak Victoria 3142 Australia Auditors Ernst & Young 120 Collins Street Melbourne Victoria 3000 Australia Trustee for capital note holders New Zealand Permanent Trustees Ltd Share registrar Australia Computershare Investor Services Pty Ltd GPO Box 2975EE Melbourne Victoria 3001 Australia Telephone: 1300 85 05 05 Outside Australia: 61 3 9415 4000 Capital notes registrar New Zealand Computershare Registry Services Limited Private Bag 92119 Auckland NZ 1020 Telephone: 64 9 488 8777 Registered ofﬁce 103-105 Pipe Road Laverton North Victoria 3026 Australia Telephone: 61 3 9282 1000 Facsimile: 61 3 9282 1001 NZ branch ofﬁce 2 Sterling Avenue Manurewa, Auckland NZ Telephone: 64 9 268 2920 Facsimile: 64 9 267 8444 WEBSITE: http://www.nufarm.com Nufarm Limited ACN 091 323 312 I I N G S E D T A O B E U L B Y B N G S E D D N A L T E E W S N A L L G Y B D E C U D O R P I I CONTENTS MANAGING DIRECTOR’S REVIEW HEALTH SAFETY AND ENVIRONMENT CROP PROTECTION INDUSTRIAL CHEMICALS MANAGEMENT TEAM BOARD OF DIRECTORS CORPORATE GOVERNANCE DIRECTORS’ REPORT 10 16 18 22 26 28 30 34 STATEMENT OF FINANCIAL PERFORMANCE STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT TREND STATEMENT 40 41 42 43 86 87 89 SHAREHOLDER AND STATUTORY INFORMATION 90 I I N U F A R M L M T E D 2 0 0 4 A N N U A L R E P O R T NUFARM LIMITED 2004 ANNUAL REPORT

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