Nufarm Limited Annual Report 2005

Plain-text annual report

Nufarm Limited 2005 Annual Report f N u a r m L m i i t e d 2 0 0 5 A n n u a l R e p o r t 1 Facts in brief 2 Managing director’s review 8 Strong brands = added value 16 Business review 16 Health, safety and environment 18 Crop protection 24 Management team 26 Board of directors 28 Corporate governance 33 Directors’ report 43 Statement of ﬁnancial performance 44 Statement of ﬁnancial position 45 Statement of cash ﬂows 46 Notes to ﬁnancial statements 90 Directors’ declaration 91 93 Independent audit report Trend statement 94 Shareholder and statutory information 97 Directory directory Directors KM Hoggard – Chairman DJ Rathbone – Managing Director GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie AO GW McGregor AO (retired 31 July 2005) Dr JW Stocker AO RFE Warburton AO Company Secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Sylvia Miller & Associates 131 Orrong Road Elsternwick Victoria 3185 Australia Auditors KPMG 161 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 850 505 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 key events Operating profit increases by 35% to $103.5 million Crop protection revenues up by 9%, operating profit by 17% Continued growth in major overseas markets New Brazil acquisition delivers significant profit contribution Divestment of non-core businesses complete 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 31.7.05 12 months ended 31.7.04 $000 103,474 1,671,029 616,645 1,548,422 61.2¢ 78% $2.66 $000 76,563 1,595,768 560,494 1,431,578 47.3¢ 61% $2.17 Annual dividend per ordinary share 26¢ 23¢ People Staff employed 2,279 2,613 n o i t a s i t r o m a d n a i n o i t a c e r p e d , x a t , t s e r e t n i f e r o e b s g n n r a E * i operating proﬁt +35.0% group sales +5.0% ebitda* +18.0% . 5 3 0 1 m $ 5 0 0 2 1 7 6 1 6 9 5 1 8 5 4 1 9 2 4 1 3 2 3 1 5 . 6 7 3 . 4 6 8 . 6 5 1 . 1 5 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 m $ 5 0 0 2 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 0 . 5 4 2 m $ 5 0 0 2 0 . 7 0 2 8 . 9 9 1 2 . 2 8 1 1 . 4 6 1 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 return on average funds employed 17.4% 4 . 7 1 7 . 5 1 0 . 4 1 5 . 3 1 5 . 3 1 % 5 0 0 2 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 net debt to equity earnings per share 78.0% 61.2¢ 2 5 1 6 4 1 8 9 1 6 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 8 7 % 5 0 0 2 2 . 1 6 ¢ 5 0 0 2 3 . 7 4 3 . 1 4 7 . 6 3 5 . 3 3 4 0 0 2 3 0 0 2 2 0 0 2 1 0 0 2 managing director’s review The 2005 proﬁt is another record result for the company and reﬂects a year in which Nufarm made substantial progress towards establishing its position as a leading growth-oriented player in the global crop protection industry. The company recorded a net proﬁt of $104.3 million for the year ended 31 July 2005. After allowing for non-operating items, the tax-paid operating proﬁt of $103.5 million represents an increase of 35 per cent on the previous year’s net operating proﬁt of $76.5m. Total group sales were $1.67 billion, up almost ﬁve per cent on the 2004 year, with core business crop protection revenues increasing nine per cent year on year and representing 95 per cent of total revenues. Nufarm’s 49.9 per cent equity interest in Brazilian crop protection company, Agripec, generated a net contribution after goodwill amortisation and funding costs of $19.1 million. This contribution is equity accounted and Agripec sales are not included in Nufarm’s revenue line. The remainder of the company’s crop protection business achieved higher sales and proﬁts, with strong sales performances in the United States, Germany and France. Despite challenging seasonal conditions and late winter rains, the Australian business performed strongly, although higher input costs and competitive pressures had an adverse impact on margins. Southern Europe and Brazil were also affected by adverse seasonal conditions, with other markets experiencing average conditions for the reporting period. Australasia accounted for 49 per cent of total sales, the Americas 28 per cent and Europe 23 per cent. A more detailed review of speciﬁc regional operations is included on pages 20 to 23 of this report. Earnings per share were 61.2 cents, an increase of 29 per cent on last year’s 47.3 cents. Net debt to equity increased from 61 per cent at end July 2004 to 78 per cent at end July 2005. As forecast, the increased use of borrowings associated with the Agripec acquisition moved the gearing level to 75 per cent. The additional increase related to higher working capital, driven by the late season in Australia and a fungicide-stocking program in the US business associated with the transition to an alternative manufacturing source. Cash ﬂows from operations were $62.6 million, down from $202.7 million the year before. After allowing for the $69 million impact of increased securitisation in the 2004 period, the remainder of the difference is increased working capital utilisation, as discussed above. Return on funds employed increased from 15.7 per cent to 17.4 per cent at the EBIT level and interest cover increased from 4.4 times to 4.6 times. Nufarm Limited 2005 Annual Report 3 LV Estercide 600 marketed in Australia managing director’s review continued Changes at Belvedere support a growing branded products business Non-operating items Final dividend The company booked a net proﬁt of $0.8 million from the combination of the sale of non-core businesses, costs associated with various restructuring initiatives and other non-operating items during the 2005 reporting period. These items are detailed in the notes to the accounts. A $15.4 million proﬁt was realised on the sale of several businesses. These divestments included the Nufarm Specialty Products business (based in the USA) and the SEAC pharmaceutical intermediates business (based in France). There was an $11.2 million write down of certain manufacturing assets in the UK as part of ongoing efforts to ensure maximum value is achieved on the capital employed in the business. The transfer of synthesis activity from the Belvedere plant in the UK to the Botlek facility in Holland will make more efﬁcient use of the company’s manufacturing assets and allows new ﬁlling and packaging lines commissioned at Belvedere to better support a growing branded products business and provide more ﬂexibility in managing the local supply chain. There were also write-downs of intangible assets and other restructuring costs, mainly in France. Directors have declared a fully franked ﬁnal dividend of 17 cents per share (last year 15 cents per share), which will be paid on 11 November to the holders of all fully paid shares in the company as at the close of business on 21 October. The resulting full year dividend payment of 26 cents per share is an increase of 3 cents (13 per cent) on the previous year. For dividend payout calculations, the board has elected to use operating proﬁt from controlled operations plus dividend returns from associated entities such as Agripec. Subsequent events In August 2005 the company announced that it had sold its Australian turf/speciality business, Nuturf Pty Ltd, to Hong Kong- based C K Life Sciences International Holdings Inc for $7.2 million. 2005 ﬁnancial year sales for Nuturf Pty Ltd were some $21 million and the business contributed net earnings of $1.1 million. This small wholesale business was not addressing a market where Nufarm has core competencies and had not achieved sufﬁcient scale to justify ongoing investment. Nufarm Limited 2005 Annual Report 5 managing director’s review continued Nufarm group revenues by geography $1.67 billion Nufarm business split 28% 23% Australasia Americas Europe 95% Crop protection Industrial chemicals 5% 31% Crop protection Industrial chemicals Fertilisers 58% 11% 2005 49% 2005 1997 The 2005 results reflect a focused and robust global business well positioned to achieve additional growth in both revenues and earnings. Our people Outlook Nufarm employees around the world have again made a very signiﬁcant contribution to the strong results of the company in the 2005 ﬁnancial year. Shareholders are fortunate that the company is served by such a committed and capable group of people, many of whom have been with Nufarm for a long time. The growth and success of Nufarm has helped the company attract a higher caliber of management, particularly in our expanding overseas markets As the organisation continues to grow and Nufarm establishes a presence in additional countries and regions, we must ensure that programs are in place to help develop and motivate employees as we bring together those different business cultures and welcome new people into the company. Long-serving senior executive John Allen retired from the company at the end of the 2005 ﬁnancial year. John, who was responsible for the global commercial operations, devoted more than 20 years to Nufarm. On behalf of all shareholders, I acknowledge his signiﬁcant contribution to the business. The 2005 results reﬂect a focused and robust global business well positioned to achieve additional growth in both revenues and earnings. Having established a strong operational presence in the major crop protection markets around the world, the company is now looking at accelerating the expansion of its product portfolio to take advantage of excellent growth opportunities in markets such as North and South America and Europe. The 2006 reporting period will see the introduction of a number of new products. While the company faces strong competitive pressures in many of its key markets, it has developed medium to long-term strategies aimed at capturing business efﬁciencies and growing margins. The outlook for the Agripec business over the key selling period in Brazil (September – December) is one of marginal sales growth in a ﬂat to declining market. Agripec’s growth will be driven by further market penetration and distributor/grower support. The company aims to generate annual net earnings growth of approximately 10 per cent. Given average seasonal conditions in Nufarm’s major markets, directors are very conﬁdent that this target can be achieved in 2006 and that the company is well positioned for strong, ongoing growth in the medium to long term. Doug Rathbone Managing Director 4 October 2005 Nufarm Limited 2005 Annual Report 7 strong brands=added value Chris Fazekas is global product manager of Nufarm’s phenoxy herbicides group, which includes the products 2,4-D and MCPA. In this role, Chris works with the various regional Nufarm businesses on the marketing of the phenoxy herbicide product range and associated product development, customer relations, supply and strategy issues. Chris joined Nufarm in 1992. Is Nufarm’s 2,4-D product essentially the same in each market around the world? What determines the particular formulation you will market in different countries? One of Nufarm’s major competitive strengths is our ability to position and manage brands. The key objective is to establish and broaden recognition of the core ‘Nufarm’ brand and the values associated with that brand – quality, ﬂexibility, innovation, strong customer relationships and ﬁrst class technical support. Nufarm also uses branding to position and differentiate speciﬁc products. In this year’s annual report, we are showcasing a cross section of our 2,4-D brands to demonstrate how Nufarm evaluates and exploits different product positioning opportunities in various markets around the world. Nufarm’s global product manager for phenoxy herbicides, Chris Fazekas, outlines the value of using good branding. 2,4-D is what we refer to as a chemical active or active ingredient. We use formulation skills to develop different forms or mixtures of the product to suit different needs or market opportunities. This involves adding special adjuvants, presenting it in either a liquid or granule form or even mixing 2,4-D with another active ingredient so that the end product has broader applications and can, for example, control additional weeds. We take a number of things into account. We might be looking to differentiate Nufarm’s 2,4-D offering from other competitive products or we might have received feedback from the product’s end users that a particular change will provide a speciﬁc beneﬁt, such as easier handling and application or a better outcome in terms of weed control. We also try to segment the market by having a variety of formulations available. This enables us to position premium brands that achieve stronger margins in certain markets. What constitutes the ‘brand’ ? The whole package. It’s a combination of how we formulate the product, where we position it and what we call it. And, of course, it’s the association these speciﬁc brands have with the core ‘Nufarm’ brand. In essence, it’s all about meeting customers’ needs. 10 Nufarm Limited 2005 Annual Report Navajo marketed in Argentina U 46 M Fluid 40 marketed in Spain How are these brands marketed? It varies from market to market. In Australia – where Nufarm has a clear leadership position – we use a combination of ‘push’ marketing by promoting the quality, technical support and beneﬁts of the product to our distribution customers and ‘pull’ marketing by working closely with growers so that they speciﬁcally request Nufarm product. Is this approach proving to be effective? Where Nufarm is a smaller player in some of our growth markets, such as the USA and Europe, we have concentrated on the ‘push’ approach – building excellent relationships with distributors and selling the beneﬁts of stocking the Nufarm brands. Yes. Nufarm’s 2,4-D products continue to win market share and Nufarm is now the world’s leading supplier of branded 2,4-D. Our ability to develop innovative formulations and to consistently deliver on quality and technical support is winning Nufarm business – and it’s an approach we can continue to roll-out in new markets for the company, such as South America and Eastern Europe. Our customers recognise and expect certain values and standards when they see the Nufarm brand. Our aim is to always meet those expectations – and exceed them whenever we can. 12 Nufarm Limited 2005 Annual Report Bimaster marketed in Indonesia U 46 D Fluid marketed in Brazil 2,4-D – a mainstay of crop protection Nufarm is the world’s leading supplier of branded phenoxy herbicides. The most commonly used phenoxy herbicide is a product called 2,4-D, used to control broad leaf weeds in a wide variety of crops. 2,4-D has been used for more than 50 years and is approved for use in more than 70 countries worldwide. The herbicide, which is absorbed by plant leaves, stems and roots and moves through the plant to accumulate in growing tips, is a plant- growth regulator that targets enzymes in plant cells and disrupts their normal chemical processes. Like all crop protection products, 2,4-D is subjected to stringent regulatory controls and approval processes. Regulatory bodies review the extensive data generated on health, safety and the environmental proﬁle of the product before approving it for use in speciﬁc crops. 2,4-D is the most thoroughly researched herbicide in the world and, in August 2005, the United Stated Environmental Protection Authority (EPA) announced that it had completed a comprehensive 17-year assessment of 2,4-D to facilitate the re-registration of the product. This included a review of more than 300 studies on the safety of 2,4-D and concluded that the product does not pose a risk when users follow label instructions. EPA’s ﬁndings are consistent with decisions of other authorities such as the World Health Organization, Health Canada, and the European Commission. 14 Nufarm Limited 2005 Annual Report U 46 D Fluid marketed in Brazil Desormon marketed in Kazakhstan Weedar/Weedone (USA) As the ﬁrst commercially branded phenoxy products in the United States, Weedar and Weedone pioneered the growth and development of the 2,4-D market. These current Nufarm brands have maintained their position as leaders through formulation innovation, label expansion and unfaltering performance in the ﬁeld. U 46 D Fluid (Brazil) In 2004, Nufarm acquired from BASF its global phenoxy herbicides brands. The U 46 2,4-D brand is a long-standing and recognised market leader in many parts of the world and has generated strong sales in Brazil. Nufarm has now transferred this brand to Agripec. Bimaster (Indonesia) Nufarm successfully developed and introduced a combination 2,4-D and glyphosate formulation under the Bimaster brand in Indonesia. Plantation managers and growers were quick to recognise the beneﬁts of this mixture product, including the innovative packaging, which promotes safe handling and easy storage. Navajo (Argentina) Navajo is uniquely positioned in Argentina as the only dry formulation of 2,4-D amine. This odourless, high concentration provides faster knockdown of weeds. Packaging innovations associated with the product have promoted more convenient warehousing, transportation and disposal. Desormon (Kazakhstan) Product stewardship is an important aspect of brand management. The Desormon brand is marketed in Kazakhstan, with formulation and packaging undertaken in Nufarm’s Linz facility in Austria. This ensures consistent quality in production. Desormon has been aligned with an exclusive distribution arrangement in Kazakhstan and is winning market share against competitive products. U 46 M Fluid 40 (Spain) Used to control broadleaf weeds in cereals, ‘U 46’ is again a market leader in this important segment in Spain. Under Nufarm’s management, the brand has been positioned to leverage the company’s recognised strengths in phenoxy herbicide synthesis and formulation. LV Estercide 600 (Australia) The ‘LV Estercide 600’ formulation provides farmers with the improved performance of an ester formulation along with a reduced risk of vapour drift. Low volatile ester formulations are used when environmental conditions favour vapour drift. 16 Nufarm Limited 2005 Annual Report Weedar/Weedone marketed in the USA ltifr1 mtifr2 severity3 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 4 0 0 2 t e g r a t � � � � � 4 0 0 2 t e g r a t 4 0 0 2 t e g r a t � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 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. global ltifr trend global mtifr trend global severity trend �� business review HEALTH, SAFETY AND ENVIRONMENT Nufarm aspires to carry out its business with no adverse effect on its people, the community and the environment, and to strive for sustainable development and continuous improvement. The company operates in accordance with its health, safety and environment management system. Each location has active committees working to continuously improve performance. Progress is monitored and a formal report on health, safety and environment matters is high on the agenda at each meeting of Nufarm Limited’s board of directors. Nufarm publishes its annual health, safety and environment report, which covers the company’s overall progress in the calendar year. Most manufacturing locations also publish annual site speciﬁc information and these, together with the Health, Safety and Environment Report 2005, are available for download from www.nufarm.com. The current report shows that while overall production volumes are relatively stable, Nufarm’s use of energy and water are declining steadily, as are emissions to air. The company conducts just below 20,000 environmental tests each year and has been in compliance with all relevant environmental regulations within the reporting period. Some of the health and safety data is reproduced here, showing the marked progress Nufarm has made in improving its rates for lost time injury frequency, severity and medical treatment injuries since 1999, as well as benchmarking data against Australian, French, UK and European chemical industries. While our company principles, policies and targets are global, Nufarm also recognises that it operates in countries with differing cultures, history and attitudes and that not all its plants are at the same stage of development. Nufarm management in each country or region is responsible for its own activities and measures local success by establishing key performance indicators, setting targets and measuring performance against them. Benchmarking against European and UK chemical industries, based on lost time injury being three day absence or greater. Severity data not available LTIFR Nufarm Americas Nufarm Australia Nufarm Europe Nufarm New Zealand Nufarm South East Asia Nufarm Global Europe CEFIC UK CIA 2004 0 1.30 9.23 0 0 3.59 2003 0 3.36 8.19 2.43 0 4.13 no data no data no data 2.5 2002 1.72 2.46 7.70 1.59 0 4.03 6.18 3.1 Benchmarking against Australian and French chemical industries, based on lost time injury being one day absence or greater. LTIFR Nufarm Americas Nufarm Australia Nufarm Europe Nufarm New Zealand Nufarm South East Asia Nufarm Global Australia PACIA France UIC Severity Nufarm Americas Nufarm Australia Nufarm Europe Nufarm New Zealand Nufarm South East Asia Nufarm Global Australia PACIA France UIC 2004 0 2.6 10.9 2.5 0 4.5 no data no data 2004 0 0.010 0.274 0.002 0 0.098 no data no data 2003 0 3.4 8.7 2.4 0 4.3 5.5 7.9 2003 0 0.048 0.190 0.017 0 0.084 0.055 0.380 2002 1.7 3.3 11.6 3.2 0 6.0 4.9 9.7 2002 0.052 0.047 0.112 0.008 0 0.069 0.060 0.370 Management – at all levels – will continue to focus on our European operations until they meet the same high standards expected of the company across the board. 2001 3.78 2.73 15.63 0 0 7.34 7.12 3.1 2001 7.6 4.6 25.1 1.5 2.6 12.5 8.7 10.2 2001 0.072 0.031 0.246 0.001 0.123 0.125 0.099 0.360 Nufarm Limited 2005 Annual Report 19 2005 Nufarm crop protection sales – regional split � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Nufarm crop protection sales – category split �� Branded sales Technical sales �� Herbicides Fungicides Insecticides �� Growth strategy ﬁrmly in place 2005 crop protection global sales – $1,581 million 2005 crop protection global operating proﬁt – $191.9 million (before tax, interest and head ofﬁce charges) Building the platform Expanding the portfolio Driving margin improvement Establishing the brand People/management structures business review continued The company achieved higher sales of branded products in all of its major markets. CROP PROTECTION Australasia Americas Total crop protection sales increased by nine per cent to $1,581 million, with operating proﬁt before tax, interest and head ofﬁce charges up by 17 per cent at $191.9 million. The overall crop protection gross margin fell from 41 per cent to 38 per cent, due principally to increased sales in lower margin markets, such as Argentina and some of the Asian countries, and to increased costs of some key inputs such as glyphosate technical active. The margin decline was offset by a reduction in business expenses as the company continued to focus on increased efﬁciencies. Taking into account one-off items and expenses associated with discontinued businesses, the cost base of the core ongoing business was reduced by some ﬁve per cent. The company achieved higher sales of branded products in all of its major markets. This ﬁnancial year covered a generally strong period for the global crop protection industry and Nufarm was – and remains – well placed to take advantage of positive industry trading conditions. Nufarm’s core products, including the phenoxy herbicides and glyphosate, continue to gain market share and provide a solid platform for the company’s growth in various markets around the world. Additional resources were employed to strengthen the company’s operational presence in key markets, and a number of new products were introduced as part of an ongoing program to broaden the product portfolio. The Australian season was generally characterised by a very good spring and early summer in late calendar year 2004, followed by a prolonged dry period (other than in Western Australia) and late-breaking rains in mid-June. This contributed to an excellent ﬁrst half, slow sales throughout most of the second half and a record sales month in July. Sales were slightly up year on year, assisted by an initial full 12 months contribution from the BASF product range (licensed to Nufarm in March of 2004,) and very good seasonal conditions in Western Australia. Total sales for the Australian businesses were $657 million. While the Australian market remains very competitive and there were limited opportunities to pass through higher raw material costs, management succeeded in reducing total expenses. Competition increased in the domestic glyphosate business and a dry autumn in the Eastern states provided limited sales opportunities during that period. Nufarm, however, was able to grow sales of its premium-branded products over the course of the ﬁnancial year, with the total glyphosate market recording similar volumes to the previous 12-month period. The Crop Care business beneﬁted from an improved product mix and achieved strong sales of grass herbicides and early protection fungicides. New Zealand sales ($69 million) were approximately the same as in the previous reporting period, reﬂecting a wet spring and dry autumn, which restricted farmer spending on pasture renewal programs. Asian-based sales were up by almost 6 per cent to $55 million but the earnings contribution from these businesses was affected by changes to the regulatory system in Indonesia that have the effect of facilitating increased competition from Chinese sourced generics. North American sales totaled $399 million for the period. Nufarm’s position in the USA – the world’s largest crop protection market – continued to strengthen during the 2005 ﬁnancial year. Sales were up some 15 per cent in local currency and this helped drive a stronger earnings contribution. The company achieved higher shares in an expanded market for both phenoxy herbicides and glyphosate, as well as increased sales of other products, including the herbicide bromoxynil, which is manufactured by Nufarm in a joint venture with Bayer CropScience. An expanded product range helped secure additional opportunities and stronger support from key distribution customers. While seasonal conditions were not ideal for the turf and specialty market, Nufarm sales grew strongly, driven by excellent results in the formulator (over-the-counter sales to consumers) and vegetation management segments. The Nufarm brand continues to gain support in Canada, where a better product mix, improved pricing and attention to cost controls resulted in a stronger performance. In South America, Nufarm invested in strengthening its operational presence in Argentina, Chile and a number of the Andean countries. Sales in Argentina were up by more than 50 per cent but the current low regulatory barriers make this a lower margin market and the company is adopting a long-term view on improved earnings opportunities. Nufarm’s branded sales business in Brazil was integrated into the Agripec business late in the reporting period. Sales of the former BASF phenoxy herbicide brands (transferred in Brazil in November 2004) helped drive a strong increase in sales and signiﬁcant improvement in the performance of this business. Nufarm Limited 2005 Annual Report 21 business review continued Agripec – Brazil Europe Nufarm completed a debt funded US$120 million acquisition of 49.9 per cent of Brazilian crop protection company, Agripec, in the ﬁrst half of the reporting period. The terms relating to this acquisition allowed Nufarm to capture a full 12 months of contributions from this investment. The equity accounted proﬁt of $19.1 million is Nufarm’s share of Agripec’s net proﬁt after tax and funding costs. This is below the contribution forecast at the half year ($22 to 24 million) and reﬂects deterioration in seasonal conditions and measures taken to ensure the collection of outstanding receivables. Drought conditions developed in the major soybean-growing region of southern Brazil, leading to an estimated 10 to 15 per cent reduction in industry sales for the ﬁrst half of calendar year 2005. The appreciation of the Real against the US dollar also had an impact on returns to farmers and contributed to higher levels of farmer debt. Like other crop protection suppliers, Agripec opted to retrieve or buy back product from those areas of the market where concerns existed about the collection of proceeds. The key European markets of France, Germany and the UK experienced varied/ average seasonal conditions. Drought conditions in Southern Europe had an impact on growth opportunities in Spain and Portugal. The beneﬁts of ongoing restructuring initiatives in France – aimed at transitioning Nufarm from a third-party sales business to a branded products business and reducing head ofﬁce costs – continue to be reﬂected in an improved sales performance. A stronger position in the important cereals segment complemented higher sales into vines and horticulture with the former BASF herbicide brands being strong contributors. Nufarm also consolidated its position in the non-crop business in France, with an expanded product range generating improved margins. The French business recorded total sales of $103 million, an 18 per cent increase on 2004 sales. Sales in Germany were $58 million and up by some 30 per cent year on year. The sales increase helped offset reduced margins on the company’s proprietary Ralon herbicide, which faced increased competition from alternative products. Sales of fungicides were up strongly aided by an estimated 10 per cent expansion of Germany’s cereal fungicides market. This business has developed excellent selling capabilities and strong technical support, contributing to improved access to the market. Higher branded sales in the UK ($52 million) were driven by the introduction of new products, with improved pricing power helping to achieve a solid earnings contribution. This was in spite of a dry spring and a resulting reduction in weed germination and fungal disease. The company increased its market share in glyphosate. Drought conditions in Spain saw industry sales contract by more than 15 per cent during the reporting period. Despite this, Nufarm managed to grow its business in Spain on both a sales (up three per cent to $38 million) and earnings contribution basis. Sales in the smaller adjoining market of Portugal – also badly affected by drought – were down on the previous year. Sales in other European regional markets were stronger, driven by new product registrations and more effective sales and distribution arrangements. Austria, Poland, Hungary, and the Nordic countries all made positive contributions and Nufarm is well positioned to take advantage of additional opportunities in these and other European markets. Industrial chemicals Industrial and specialty chemicals generated revenues of $90.2 million, some $52 million (36 per cent) less than in the previous period. The division generated a segment proﬁt of $9.5 million ($14.9m in 2004). The lower sales were attributable to the divestment of two non-core businesses: the Nufarm Specialty Products business (sale effective 31 December 2004); and the SEAC pharmaceutical intermediates business (sale effective 1 February 2005). These businesses were engaged in markets that did not exploit Nufarm’s core strengths and the capital tied up in those businesses has been redeployed into our crop protection activities where it will generate additional long-term value for shareholders. The company’s 80 per cent owned chlor alkali plants in Western Australia recorded an improved earnings contribution on slightly higher sales. These plants use similar synthesis technology as in our phenoxy herbicide manufacturing. Nufarm Limited 2005 Annual Report 23 management team Doug Rathbone Brian Benson Rodney Heath Kevin Martin Dale Mellody Managing Director and Chief Executive For background, see page 26 Group General Manager Agriculture Brian Benson joined Nufarm in 2000, bringing with him extensive experience in the crop protection industry in the areas of international marketing and strategy. He has degrees in agricultural science and business administration. Brian is responsible for Nufarm’s regional sales operations and commercial strategy. Group General Manager Corporate Services and Company Secretary Rod Heath is a bachelor of law and joined the company in 1980, initially as legal ofﬁ cer, later becoming assistant company secretary. In 1989, Rod moved from New Zealand to Australia to become company secretary of Nufarm Australia Limited. In 2000, Rod was appointed company secretary of Nufarm Limited. Chief Financial Ofﬁ cer Kevin Martin is a chartered accountant with over 25 years of experience in the professional and commercial arena. After joining Nufarm in 1994, he was responsible initially for the ﬁ nancial control of the crop protection business. Since 2000, Kevin has been responsible for all ﬁ nancial, treasury and taxtation matters for the group. Group General Manager Global Marketing Dale Mellody joined Nufarm as a territory manager in 1995 having completed his bachelor of agricultural science. Promoted to head ofﬁ ce in 1997, he has had various roles in the global marketing group and has assisted with a number of company acquisitions. Dale was promoted to the senior management group in July 2005 and is now responsible for Nufarm’s global marketing and product strategy development. 24 Nufarm Limited 2005 Annual Report Nufarm has an experienced hands-on management team Bob Ooms David Pullan Robert Reis Group General Manager Chemicals Bob Ooms joined the company in 1999. An industrial chemist by training, he has more than 40 years experience in the chemical industry in a variety of positions, including many years in senior management. Bob is responsible for the company’s industrial chemicals business and has executive management responsibility for global supply chain issues. Group General Manager Operations 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. 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. Robert also has executive management responsibility for human resources and organisational development. John Allen Group General Manager Crop Protection (Retired 31 August 2005) John Allen trained as an agronomist and then gained a post-graduate degree in marketing. He joined Nufarm in 1984 and has more than 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. Until his retirement, he was responsible for the commercial side of Nufarm’s Crop Protection activities. Nufarm Limited 2005 Annual Report 25 board of directors Kerry Hoggard Doug Rathbone Doug Curlewis Bruce Goodfellow Garry Hounsell Managing Director and Chief Executive Doug Rathbone, 59, joined the board in 1987. His background is chemical engineering and commerce and he has worked for Nufarm Australia Limited for 32 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999. Chairman Kerry Hoggard, 64, joined the board in 1987. He has a ﬁ nancial background, beginning his career with the company in 1957 as ofﬁ ce junior and rising through a number of accounting, ﬁ nancial and commercial promotions to be chief executive ofﬁ cer in 1987. On his retirement in October 1999, he was appointed chairman of the board. Kerry is a member of the audit and remuneration committees. GDW (Doug) Curlewis, 64, 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 Paciﬁ ca Group Ltd, GUD Holdings Ltd, Graincorp Limited and Remunerator Australia Pty Ltd. In the past three years Doug has been a director of National Foods Ltd (six years) and Hamilton Island Ltd (ﬁ ve years). Doug is chairman of the nomination committee and a member of the audit and remuneration committees. Dr WB (Bruce) Goodfellow, 53, 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 ﬁ nancial 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. Bruce was a member of the scientiﬁ c review committee until it was discontinued. GA (Garry) Hounsell, 50, joined 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 ﬁ nance 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 Qantas Airways Limited and Orica Ltd. Garry became chairman of the audit committee after the retirement of Graeme McGregor, having been a member of the audit committee since his appointment as a director of the company. 26 Nufarm Limited 2005 Annual Report Don McGauchie John Stocker Dick Warburton Dr JW (John) Stocker AO, 60, joined the board in 1998. He has a medical, scientiﬁ c 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. John is a member of both the remuneration and nomination committees and previously chaired the scientiﬁ c review committee until it was discontinued. DG (Donald) McGauchie AO, 55, 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; chairman of Australian Wool Testing Authority Limited and a director of James Hardie Industries NV. In the past three years Donald has been a director of Ridley Corporation (seven years), National Foods Ltd (ﬁ ve years), Woolstock Australia Limited (three years), Graincorp Limited (three years) and Rural Finance Corporation (two years). Donald is a member of both the remuneration and nomination committees. RFE (Dick) Warburton AO, 64, joined the board in 1993. He has a business management background and is chairman of Caltex Australia Ltd, and Tandou Ltd. He is a director of Tabcorp Holdings Ltd, Note Printing Australia Ltd and Citibank Pty Ltd. Dick is chairman of the board of Taxation and a past national president of the Australian Institute of Company Directors. In the past three years Dick has been a director of Reserve Bank of Australia (10 years), Southcorp Ltd (10 years), David Jones Ltd (eight years), Goldﬁ elds Ltd (six years), and Aurion Gold Ltd (one year). Dick is chairman of the remuneration committee and a member of the nomination committee. Graeme McGregor Graeme McGregor AO, retired from the Nufarm Board in July 2005 after more than ﬁ ve years of service to the company and shareholders. Graeme made a signiﬁ cant contribution at board level, in particular in his role as chairman of the audit committee. The company acknowledges that contribution and wishes Graeme well in the future. Nufarm Limited 2005 Annual Report 27 corporate governance statement Introduction Nufarm’s approach to corporate governance has been to implement systems to protect the interests of all stakeholders. Our recent history, including the relocation of the head ofﬁce from New Zealand to Australia in 2000, has meant that our board processes have been under constant review in accordance with best Australian practice. We have also taken into account the ‘Principles of Good Corporate Governance and Best Practice Recommendations‘ (‘the ASX principles‘) published in March 2003 by the Australian Stock Exchange Limited’s Corporate Governance Council and the amendments to the Corporations Act 2001 known as CLERP 9. In relation to both the ASX principles and CLERP 9 the company has practiced ‘early adoption‘ in advance of actual compliance dates. In accordance with the ASX principles we have posted copies of our corporate governance practices to the corporate governance section of our website at www.nufarm.com. Compliance with ASX Principles The ASX Listing Rules require us to include in our annual report a statement disclosing the extent to which we have adopted the 28 best practice recommendations during our reporting period and, where there is not compliance, to explain why not. We believe that we comply with all the ASX principles save the following: Recommendation 2.2 recommends that the chairman should be an independent director. Our chairman is elected annually at the directors’ meeting immediately following the annual general meeting (AGM). Kerry Hoggard is board chairman and will not be deemed an independent director in accordance with the tests set out in principle 2 of the ASX principles. This corporate governance report reafﬁrms the statements contained in our 2003 and 2004 governance reports that the board unanimously continues to support Kerry as chairman, believing this to be clearly in the best interest of all stakeholders. We believe: – Kerry’s history with the company, including his detailed knowledge of the industry within which the company operates, and his extensive accounting, ﬁnancial and commercial background, provide him with unique skills and experience which are invaluable to Nufarm; and – Kerry continues to apply judgment independent of management in all decision making and that he discharges his role with a strong commitment to considerations of governance and disclosure. Recommendation 9.4 recommends that companies seek shareholder approval of equity-based reward schemes for executives. We currently have one equity-based reward plan which was introduced in 2000, prior to the release of the ASX principles. The plan did not require shareholder approval under the Corporations Act or the Listing Rules and therefore was not put to shareholders for approval. However shareholders’ approval was sought to offers of shares to the managing director under the plan in each of 2000, 2001 and 2002. The notices of annual meeting and the annual reports for those years set out in some detail the nature of the plan and in each instance the issue of shares to the managing director under the plan was approved. 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 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’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 is also responsible for: the appointment and remuneration of the managing director; ratifying the appointment of the chief ﬁnancial ofﬁcer and the company secretary; and reviewing remuneration policy for senior executives and Nufarm’s general remuneration policy framework. Each year the board reviews board composition and terms of reference for the board, chairman, board committees and managing director. The board has seven scheduled meetings each year. When necessary, additional meetings will be convened to deal with speciﬁc issues that require attention before the next scheduled meeting. Each year the board will meet to review the strategic plan, which sets the strategic direction of the company. At 31 July 2005, the board had three committees: audit; remuneration; and nomination. All directors are entitled to attend any committee meeting. 28 Nufarm Limited 2005 Annual Report corporate governance statement continued Details of the attendances at meetings of board and committees are detailed on page 34 of this report. At the date of this report, the board has determined that the status of directors is characterised as follows: 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 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 be not less than three, nor more than 11. Following the retirement of Graeme McGregor on 31 July 2005 there are seven non-executive directors and one executive director. The board has currently determined that, apart from the incumbent managing director, no other company executive will be invited to join the board. 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 Having considered commentary on the relationship between length of service and independence, 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 AGM are subject to a performance review by the nomination committee, which will then make a recommendation to the board as to whether the board should continue to support the nomination of the retiring directors. Independent non-executive directors GDW Curlewis GA Hounsell GW McGregor (retired 31 July 2005) DG McGauchie Dr JW Stocker RFE Warburton Non-independent non-executive directors KM Hoggard Dr WB Goodfellow Executive director DJ Rathbone Proﬁles of each board member are set out on pages 26–27 of this report, including their terms in ofﬁce. Access to independent advice With the prior approval of the chairman, which may not be unreasonably withheld, 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 chairman, Kerry Hoggard, is not deemed an independent director in accordance with the tests set out in ASX Principle 2. The reasons why we unanimously support Kerry’s appointment are set out earlier in this statement. The board has stipulated that the same person will not exercise the role of the chairman and chief executive ofﬁcer. Save as to the independence of the chairman referred to above, the structure of the board is consistent with ASX Principle 2. The nomination committee The members of the nomination committee are Doug Curlewis, chairman (appointed effective 1 January 2005); Donald McGauchie, Dr John Stocker (appointed effective 1 January 2005) and Dick Warburton, and as such, comprises independent directors. Kerry Hoggard retired as a member of the committee effective 1 January 2005. Nufarm Limited 2005 Annual Report 29 corporate governance statement continued The committee has a formal charter setting out its membership requirements and responsibilities. These responsibilities include: The company’s code of conduct and share trading policy is consistent with ASX Principle 3. 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. 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 We require directors and employees to 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. Safeguard integrity in ﬁnancial reporting Financial reports The board procedures to safeguard the integrity of the company’s ﬁnancial reporting require the chief executive ofﬁcer 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 the statement is founded on a sound system of risk management and internal compliance and control, which is operating effectively. Audit committee Members of the board audit committee are: Graeme McGregor, (chairman until his retirement on 31 July 2005); Garry Hounsell (chairman from 31 July 2005); Doug Curlewis; and Kerry Hoggard. The committee has a majority of independent non-executive directors and is chaired by an independent director. The board endorses the principles of the Code of Conduct for Directors, issued by the Australian Institute of Company Directors. Details of attendances at meetings of the audit committee are set out on page 34. Our formal code of conduct has been posted to the corporate governance section of the company’s website. Purchase and sale of company shares We have had longstanding policies about the purchase and sale of company shares by directors and key executives. The current share trading policy prohibits directors and management from dealing in the company’s shares at any time the directors or employees are aware of unpublished, price-sensitive information. Subject to this prohibition, directors and senior 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 activity 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. 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. Garry Hounsell is 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 Qantas Airways Limited and Orica Limited. Kerry Hoggard has extensive accounting and ﬁnancial experience. Kerry began his career with the company in 1957 and, after a number of accounting, ﬁnancial and commercial promotions, became chief executive ofﬁcer in 1987. 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 GUD Holdings Limited, Graincorp 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 30 Nufarm Limited 2005 Annual Report corporate governance statement continued 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 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. 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 is posted to the corporate governance section of the company’s website. The company’s disclosure policy is consistent with ASX Principle 5. Rights of shareholders Communication We are committed to timely, open and effective communications with our shareholders and the general investment community. Our communications policy is aimed at: ensuring that shareholders and the ﬁnancial markets are provided with full and timely information about our activities; complying with our continuous disclosure obligations; ensuring equality of access to brieﬁngs, presentations and meetings for shareholders, analysts and media; and encouraging attendance and voting at shareholder meetings. Information is communicated to shareholders: through the distribution of half year and annual reports, notices of annual general meeting, and a summary of annual general meeting proceedings including the chairman’s and chief executive ofﬁcer’s addresses and voting results; and whenever there are other signiﬁcant developments to report, by electronic means as well as by post. Our formal communications policy is posted to the corporate governance section of the company’s website. External auditor We require the external auditor to attend the company’s AGM so 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 chief executive ofﬁcer and provides a written report of his activities at each meeting of the audit committee. In doing so he has direct and continual access to the chairman and members of the audit committee. 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; a board-approved treasury policy to manage exposure to foreign policy and exchange rate 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. Nufarm Limited 2005 Annual Report 31 corporate governance statement continued Integrity of ﬁnancial statements The procedures to safeguard the integrity of ﬁnancial statements are set out on page 30 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. In 2003–2004 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. In the current period the performance evaluation was conducted by the chairman. 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. All directors may obtain independent professional advice (refer page 29) and have direct access to the company secretary. 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. Remuneration The board has procedures to ensure that the level and structure of remuneration for executives and directors is appropriate. 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 on page 35. 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 chief executive ofﬁcer and this formalises the terms and conditions of appointment, including termination payments. Remuneration committee The members of the remuneration committee are Dick Warburton (chairman), Doug Curlewis (appointed effective 1 January 2005), Kerry Hoggard, Donald McGauchie and Dr John Stocker (appointed effective 1 January 2005) and as such is comprised of 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 directors’ remuneration is set out in the remuneration report on pages 35 to 40. Save as to compliance with recommendation 9.4, which is discussed on page 28, our remuneration policies are consistent with ASX Principle 9. Interests of stakeholders Code of conduct Nufarm seeks to conduct its business in a manner which recognises and adheres to all relevant laws and regulations and meets high standards with respect to honesty and integrity. In order to meet this commitment, we require all Nufarm directors, employees, contractors and consultants to be familiar with and uphold the company’s code of conduct in all business dealings. 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. Nufarm operates in accordance with the social and cultural beliefs appropriate in each country of operation. Our 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. 32 Nufarm Limited 2005 Annual Report directors’ report The board of directors of Nufarm Limited (Nufarm) submits its report for the period ended 31 July 2005. Directors’ interests in shares and capital notes 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 GA Hounsell (appointed 1 October 2004) DG McGauchie AO GW McGregor AO (retired 31 July 2005) Dr JW Stocker AO RFE Warburton AO 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, experience and responsibilities and other directorships of the directors are set out on pages 26 and 27. Details of the qualiﬁcations and experience of the Company Secretary are set out on page 24. Nufarm Ltd Ordinary shares Fernz Corporation (NZ) Ltd Capital notes KM Hoggard 1 2 DJ Rathbone 2 GDW Curlewis Dr WB Goodfellow 1 3 G A Hounsell 1 DG McGauchie 1 GW McGregor 1 Dr JW Stocker 1 RFE Warburton 1 2,374,749 29,912,610 40,787 1,466,446 11,452 8,269 33,879 28,464 63,431 2,270,000 1 The shareholdings of KM Hoggard, Dr WB Goodfellow, GA Hounsell, DG McGauchie, 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. 2 Messrs Hoggard and Rathbone also have a non-beneﬁcial interest in 218,725 fully paid shares as trustees of the Nufarm Limited Share Plan. 3 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. Dr Goodfellow does not have a beneﬁcial interest in these shares or capital notes; (ii) three trusts of which he is a non-beneﬁcial trustee (807,039 shares); and (iii) Waikato Investment Company Limited (113,616 shares). Nufarm Limited 2005 Annual Report 33 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. Director KM Hoggard 1 DJ Rathbone GDW Curlewis 2 Dr WB Goodfellow 5 GA Hounsell 3 DG McGauchie GW McGregor Dr JW Stocker 4 RFE Warburton Board A 9 9 9 9 7 9 9 9 9 B 9 9 9 9 6 9 8 8 9 Audit A 5 5 4 5 B 5 5 2 4 4 Committees Remuneration B A Nomination B A 2 2 2 2 2 2 1 2 2 2 1 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 KM Hoggard retired as a member of the nomination committee effective 1 January 2005. 2 GDW Curlewis was appointed chairman of the nomination committee and a member of the remuneration committee effective 1 January 2005. 3 GA Hounsell became a member of the audit committee effective 1 October 2004. 4 Dr JW Stocker became a member of both the remuneration and nomination committees effective 1 January 2005. 5 All non-executive directors are entitled to attend any committee meetings. Principal activities and changes Nufarm Limited manufactures and supplies a range of agricultural chemicals used by farmers to protect crops from damage caused by weeds, pests and disease. Nufarm employs 2,279 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. The company has production and marketing operations throughout the world and sells products in more than 100 countries. Results 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. The net proﬁt attributable to members of the consolidated entity for the 12 months to 31 July 2005 is $104.3 million. The comparable ﬁgure for the 12 months to 31 July 2004 was $76.2 million. Nufarm also operates two chlor alkali plants in an 80 per cent owned joint venture and produces a small range of industrial chemicals, mostly by-products of the company’s core crop protection manufacturing activity. 34 Nufarm Limited 2005 Annual Report directors’ report continued Dividends Environmental performance The following dividends have been paid, declared or recommended since the end of the preceding ﬁnancial year. Details of Nufarm’s performance in relation to environmental regulations are set out on page 19. The ﬁnal dividend for 2003–2004 of 15 cents paid 12 November 2004 The interim dividend for 2004–2005 of 9 cents paid 29 April 2005 The ﬁnal dividend for 2004–2005 of 17 cents as declared and recommended by the directors is payable 11 November 2005 $000 $25,293 $15,255 $28,844 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 on pages 2 to 7 and the business review on pages 18 to 23. State of affairs The state of the company’s affairs are set out in the managing director’s review on pages 2 to 7 and the business review on pages 18 to 23. Operations, ﬁnancial position, business strategies and prospects The directors believe that information on the company, which enables an informed assessment of its operations, ﬁnancial position, strategies and prospects, is contained in the managing director’s review and the business review. Events after end of ﬁnancial year The company announced in August 2005 that it had sold its Australian turf/specialty business, Nuturf Pty Ltd, to Hong Kong based C K Life Sciences International Holdings Inc for $7.2 million. 2005 ﬁnancial year sales for Nuturf Pty Ltd were some $21 million and the business contributed net earnings of $1.1 million. The directors believe that the business had not achieved sufﬁcient scale in the Australian market to justify ongoing investment. 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. The company did not incur any prosecutions or ﬁnes in the ﬁnancial period relating to environmental performance. The company publishes annually a health, safety and environment report. This report can be viewed on the company’s website or a copy made available upon request to the company secretary. Non-audit services During the year KPMG, the Company’s auditor, performed certain other services in addition to its statutory duties. Details of the audit fee and non-audit services are set out on page 84 of the ﬁnancial report. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit Committee, is satisﬁed that the provision of those non-audit services is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 for the reason that all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor. The auditor’s independence declaration as required under Section 307C of the Corporations Act forms part of the directors’ report and is included at page 41. Remuneration report Remuneration committee The remuneration committee reviews and makes recommendations to the board on remuneration policies and packages applicable to group executives and directors and ensures that remuneration policies and packages retain and motivate high calibre executives and that remuneration policies demonstrate a clear relationship between key executive remuneration and company performance. The remuneration levels of the managing director and other group executives are recommended by the remuneration committee and approved by the board, having taken advice from independent external advisors. Remuneration policy Group executive The Nufarm remuneration policy has been developed to ensure the company attracts and retains the highly skilled people required to successfully manage and create shareholder value from a large diversiﬁed internationally based company. The company has adopted a remuneration policy based on total target reward (TTR), which comprises two components: Nufarm Limited 2005 Annual Report 35 Whilst it believes ROFE is an appropriate performance condition for the company’s incentive program, the board also reviews the company’s total shareholder return (TSR) with relevant comparator groups. Each year, the board reviews and establishes the performance hurdles for each part of the incentive program. The hurdles reﬂect targets for speciﬁc objectives and increasing company value, consistent with the company’s business and investment strategies. Since migration of the company to Australia in January 2000, the ROFE hurdles (Target ROFE) for the ﬁrst part of the incentive program have been progressively increased from 12 per cent to 14 per cent and, for the second part of the incentive, from 13.5 per cent to 14.75 per cent for the 2005 ﬁnancial year. At the end of each ﬁnancial year the board: assesses company performance against the ROFE hurdles to determine the percentage of any offer to be made under each part of the incentive program; and reviews Target ROFE for each part of the incentive program for the following ﬁnancial period. For both parts of the incentives, 25 per cent of the incentives will be payable on achievement of 90 per cent of Target ROFE with a linear progression to 100 per cent of the incentives on achievement of Target ROFE and a maximum of 175 per cent of the incentives on achievement of 110 per cent of Target ROFE. If less than 90 per cent of Target ROFE is achieved, no incentives will be paid. The following table shows the proportion of incentives as a percentage of TTR. Managing director Group executive % target ROFE achieved <90 0 0 90 20 14 100 110 >110 50 40 64 54 64 54 directors’ report continued 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; and an incentive program -– the ﬁrst part of the incentive program reﬂects performance of speciﬁc business objectives over six monthly periods and is paid in cash. The second part of the incentive program is linked to meeting predetermined ﬁnancial objectives for the full year and is delivered in a mixture of shares or 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 group executives this payment is made in equity, which ensures a longer-term focus to achieve beneﬁts consistent with the delivery of sustained growth of shareholder value. If the ﬁnancial objectives are achieved and each part of the incentive program is paid at 100 per cent, the TTR will meet the company’s TTR policy position of the upper quartile of the Mercer Survey of Australian Major Corporates. Set out below are details of the maximum payment for each part of the incentive program where there has been above-target achievement of the incentive program performance condition. The performance condition 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. 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. ROFE 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. The remuneration committee and the board review the choice of the performance condition on an annual basis. 36 Nufarm Limited 2005 Annual Report directors’ report continued directors’ report continued Whilst it believes ROFE is an appropriate performance condition for the company’s incentive program, the board also reviews the company’s total shareholder return (TSR) with relevant comparator groups. Each year, the board reviews and establishes the performance hurdles for each part of the incentive program. The hurdles reﬂ ect targets for speciﬁ c objectives and increasing company value, consistent with the company’s business and investment strategies. Since migration of the company to Australia in January 2000, the ROFE hurdles (Target ROFE) for the ﬁ rst part of the incentive program have been progressively increased from 12 per cent to 14 per cent and, for the second part of the incentive, from 13.5 per cent to 14.75 per cent for the 2005 ﬁ nancial year. At the end of each ﬁ nancial year the board: assesses company performance against the ROFE hurdles to determine the percentage of any offer to be made under each part of the incentive program; and reviews Target ROFE for each part of the incentive program for the following ﬁ nancial period. For both parts of the incentives, 25 per cent of the incentives will be payable on achievement of 90 per cent of Target ROFE with a linear progression to 100 per cent of the incentives on achievement of Target ROFE and a maximum of 175 per cent of the incentives on achievement of 110 per cent of Target ROFE. If less than 90 per cent of Target ROFE is achieved, no incentives will be paid. The following table shows the proportion of incentives as a percentage of TTR. Managing director Group executive % target ROFE achieved <90 0 0 90 20 14 100 110 >110 50 40 64 54 64 54 ﬁ xed reward (TEC) – cash and beneﬁ ts that reﬂ ect 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; and an incentive program -– the ﬁ rst part of the incentive program reﬂ ects performance of speciﬁ c business objectives over six monthly periods and is paid in cash. The second part of the incentive program is linked to meeting predetermined ﬁ nancial objectives for the full year and is delivered in a mixture of shares or 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 group executives this payment is made in equity, which ensures a longer-term focus to achieve beneﬁ ts consistent with the delivery of sustained growth of shareholder value. If the ﬁ nancial objectives are achieved and each part of the incentive program is paid at 100 per cent, the TTR will meet the company’s TTR policy position of the upper quartile of the Mercer Survey of Australian Major Corporates. Set out below are details of the maximum payment for each part of the incentive program where there has been above-target achievement of the incentive program performance condition. The performance condition 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. 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. ROFE ensures management is focused on the efﬁ cient use of capital and the measure remains effective regardless of the mix of equity and debt, which may change from time to time. The remuneration committee and the board review the choice of the performance condition on an annual basis. The board believes the following table demonstrates: the consequences of the company’s performance on shareholder wealth; and the remuneration policy is generating the desired increase in shareholder wealth. Operating EBIT ROFE achieved EPS Dividend rate Share price Total 31 July shareholder return* $000 113,765 123,621 131,977 142,235 174,638 % 13.5 13.5 14.0 15.7 17.4 cents per share 18 18 20 23 26 33.1 36.7 41.3 47.1 61.7 $ 2.85 3.35 4.39 6.09 10.15 % (4) 32 21 54 63 2001 2002 2003 2004 2005 *Source: Goldman Sachs JB Were. The company has an employment contract with the managing director. This contract formalises the terms and conditions of employment. The contract is for an indeﬁ nite term. The company may terminate the contract upon 12 months notice, in which case a termination payment equivalent to 24 months total employment cost (base salary plus value of beneﬁ ts such as motor vehicle and superannuation and any fringe beneﬁ ts tax in relation to those beneﬁ ts,) will be paid. The company may terminate the contract immediately for serious misconduct. Non-executive directors The board’s policy with regard to non-executive directors’ 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 per year (excluding superannuation costs). Set out below are details of the annual fees payable at 31 July 2005. Chairman1 Director board fee Chairman audit committee Chairman other board committees Member audit committee Member other board committees 2 $ 240,000 $ 95,000 $ 15,000 $ 10,000 $ 5,000 $ 2,500 1 The chairman, KM Hoggard, receives no fees as a member of any committee. 2 There is some common membership on the remuneration committee and nomination committee. Only one fee is paid where a director is a member of both committees. The board has created a non-executive directors’ 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 ﬁ ve 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. Other than in this respect, non-executive director remuneration is paid in cash. No element of remuneration is performance related, i.e. linked to short-term or long-term incentives. On 31 October 2003, directors unanimously resolved to discontinue the directors retirement beneﬁ t plan, and beneﬁ ts accrued under the plan were calculated and, at the option of the relevant director, converted into shares or paid to the director’s superannuation fund. Remuneration of speciﬁ ed directors and speciﬁ ed executives Details of the nature and amount of each element of the emoluments of each director of Nufarm Limited and each of the ﬁ ve ofﬁ cers of the company and the consolidated entity receiving the highest emoluments are set out in the following tables. 36 Nufarm Limited 2005 Annual Report AR FINS 8.0.indd 36-37 Nufarm Limited 2005 Annual Report 37 19/10/05 11:33:32 AM directors’ report continued Primary Post employment Equity 1 Other Total Salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Retirement beneﬁt plan2 $ $ $ 182,400 155,200 – – – – 22,800 16,560 45,600 28,800 – 155,550 250,800 356,110 – – – – – – 2,284,205 1,867,979 – 50,360 110,091 131,020 890,011 832,769 1,322,500 953,140 58,834 69,995 12,860 12,075 82,233 63,200 71,400 58,825 67,166 – 77,500 45,763 91,150 73,200 77,025 68,200 81,400 68,200 – 25,177 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 27,858 17,460 9,175 4,119 10,425 7,560 9,487 7,110 9,925 7,110 – 2,266 8,925 6,266 17,850 10,800 – 150,588 98,175 226,479 8,141 – 14,250 – – – – – – 48,190 89,557 – 100,925 49,882 114,675 139,750 – 68,500 104,362 154,610 – 150,500 109,175 236,610 14,250 – 13,100 10,800 17,850 10,800 17,850 10,800 – – – 149,792 – 177,235 Speciﬁed directors KM Hoggard 2005 2004 DJ Rathbone 2005 2004 GDW Curlewis 2005 2004 Dr WB Goodfellow 2005 2004 GA Hounsell 2005 2004 DG McGauchie 2005 2004 GW McGregor 2005 2004 Dr JW Stocker 2005 2004 RFE Warburton 2005 2004 Sir Dryden Spring3 2005 2004 Total remuneration: speciﬁed directors 2005 2004 1,620,285 1,390,534 1,322,500 953,140 58,834 69,995 119,596 80,526 140,750 72,000 – 773,480 3,261,965 3,339,675 1 In 2003 the company created a non-executive directors share plan, which enables directors to elect to sacriﬁce 20 per cent of base director fees for the acquisition of company shares. The value of such shares is disclosed as equity. 2 On 31 October 2003, 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 – Total 155,550 50,360 150,588 150,588 48,190 68,500 48,190 68,500 150,500 150,500 3 Upon his retirement as a director on 11 December 2003, 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. 38 Nufarm Limited 2005 Annual Report directors’ report continued Primary Post employment Equity 1 Other Total Salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ $ $ $ Speciﬁed executives DA Pullan Group General Manager Operations 2005 2004 374,990 351,219 JA Allen Group General Manager Crop Protection 2005 2004 280,446 318,394 RF Ooms Group General Manager Chemicals 2005 2004 369,943 349,717 294,576 159,000 27,930 46,331 73,649 65,373 159,000 151,200 294,291 92,832 16,715 21,758 169,078 102,000 158,833 150,000 277,076 149,000 8,109 11,716 70,973 63,574 149,000 141,736 KP Martin Chief Financial Ofﬁcer 2005 2004 380,852 346,140 277,076 146,468 12,767 25,327 38,702 38,318 149,000 141,736 B Benson Group General Manager Agriculture 2005 2004 320,462 311,865 227,500 119,999 19,435 15,529 38,702 38,676 120,000 109,989 Total remuneration: speciﬁed executives 2005 2004 1,726,693 1,677,335 1,370,519 667,299 84,956 120,661 391,104 307,941 735,833 694,661 1 Shares issued under the incentive programme referred to on page 36. 930,145 773,123 919,363 684,984 875,101 715,743 858,397 697,989 726,099 596,058 4,309,105 3,467,897 – – – – – – Nufarm Limited 2005 Annual Report 39 directors’ report continued Remuneration options: granted and vested during the year During the year there were no options granted to directors or executives. Details of options vested and exercised by speciﬁed executives are set out in Note 31 on page 79 of the ﬁnancial statements. The value of options exercised by speciﬁed directors and speciﬁed executives are set out in the following table. Options exercised in the period Dollar value of options exercised in the period Speciﬁed directors 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. DJ Rathbone 566,443 1,529,396 Rounding of amounts Speciﬁed executives B Benson DA Pullan JA Allen KP Martin RF Ooms Total 98,345 153,091 153,091 143,406 143,406 265,531 413,346 413,346 387,196 387,196 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. 1,257,782 3,396,011 Shares issued as a result of the exercise of options Details of shares issued as a result of the exercise of options during the ﬁnancial year are as follows: (a) 1,437,692 shares issued to group executives at an exercise price of $2.70, which includes 1,257,782 shares issue to speciﬁed executives as set out in Note 31 of page 79 of the ﬁnancial statements; and (b) 61,336 shares issued to participants in the UK Savings Related Share Options Scheme (1997) at an exercise price of $3.66. Unissued shares under option There are no unissued shares under option. KM Hoggard Director DJ Rathbone Director Melbourne 4 October 2005 40 Nufarm Limited 2005 Annual Report Nufarm Limited 2005 Annual Report 41 international financial reporting standards Companies listed on the Australian Stock Exchange will formally adopt International Financial Reporting Standards (IFRS) for reporting periods commencing on or after 1 January 2005. All Australian entities preparing ﬁnancial reports under the Corporations Act 2001 must comply with the Australian equivalents to IFRS. Nufarm will adopt the Australian equivalent of International Financial Reporting Standards (AIFRS) for the year ending 31 July 2006. The change is aimed at introducing a greater degree of harmony in the reporting of company ﬁnancials in different countries. In particular, the implementation of the new standards will change the accounting treatment of intangible assets, stock options and superannuation. While the change will not have an impact on the underlying performance or cashﬂows of the company, it will have an effect on the value of certain assets on the balance sheet and on the reported proﬁt. The implications of the change are addressed in note 37 (pages 86 to 89) to the ﬁnancial statements. For the purpose of providing a comparative 2005 proﬁt estimate under the new standards, the company has reviewed its accounts and made a best estimate of the quantitative impact of the changes as at the time the 31 July 2005 ﬁnancial report was prepared. The actual effects of the transition to AIFRS may differ to these estimates due to potential amendments; interpretations and emerging accepted practice. The major estimated impacts can be summarised as follows: $ million Total equity at July 2005 Operating proﬁt after tax 2005 Reported net proﬁt 2005 (inc. non operating items) AGAAP $000 616.6 103.5 104.3 AIFRS $000 617.0 121.4 124.8 The major differential in the 2005 proﬁt is attributable to a greatly reduced amortisation of intangible assets and goodwill, which amounts to some $18.4 million in additional reported proﬁt under the new standards. 42 Nufarm Limited 2005 Annual Report statement of financial performance 12 MONTHS ENDED 31 JULY 2005 Revenue from ordinary activities Cost of sales Gross proﬁt Interest income Other revenue 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 relating to ordinary activities Consolidated Parent Notes 31.7.2005 $000 31.7.2004 $000 31.7.2005 $000 31.7.2004 $000 1,671,029 (1,019,105) 651,924 1,501 106,570 759,995 1,595,768 (908,956) 686,812 1,265 37,828 725,905 (61,199) (40,011) (545,222) (646,432) 113,563 25,617 139,180 (33,333) (64,807) (33,603) (521,013) (619,423) 106,482 3,415 109,897 (31,621) 2 2 2 2 2 9 6(a) 64,664 (32,972) 31,692 20,748 47,052 99,492 (2,140) (22,542) (22,077) (46,759) 52,733 – 52,733 (2,664) 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) Net proﬁt Net proﬁt attributable to outside equity interest 105,847 (1,550) 78,276 (2,074) 50,069 – 46,146 – 23 Net proﬁt attributable to members of the parent entity 104,297 76,202 50,069 46,146 Non-proﬁt related changes in equity Net exchange differences arising on translation of opening net investment in foreign operations, net of related hedges Share issue costs Capital proﬁt reserve decrease 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 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-operating proﬁt detailed in note 5. Basic operating earnings per share (cents per share) Diluted operating earnings per share (cents per share) 20(a) (11,983) – – (6,749) (450) (6) (77) – – – (450) – (11,983) (7,205) (77) (450) 92,314 68,997 49,992 45,696 3 3 61.7 61.7 61.2 61.2 47.1 46.7 47.3 46.9 The accompanying notes form an integral part of these ﬁnancial statements Nufarm Limited 2005 Annual Report 43 statement of financial position AT 31 JULY 2005 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 Notes 31.7.2005 $000 31.7.2004 $000 31.7.2005 $000 31.7.2004 $000 56,233 225,268 423,946 8,138 12,780 726,365 56,826 232,518 432,139 6,858 7,951 736,292 66,409 210,420 1,943 313,535 44,836 164,605 20,309 822,057 1,548,422 38,535 24,953 3,713 376,632 34,302 196,021 21,130 695,286 1,431,578 333,183 260,404 12,349 19,947 625,883 280,155 14,420 11,319 305,894 931,777 616,645 216,827 5,871 388,150 610,848 5,797 616,645 397,939 112,411 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 7 8 6(b) 7 9 10 11 6(b) 12 13 14 15 16 15 6(c) 16 19 20 21 23 24 4,265 212,830 15,924 – 307 233,326 207,390 – 253,355 20,733 22,648 – – 504,126 737,452 67,162 24,762 3,226 521 95,671 211,655 1,731 55 213,441 309,112 428,340 216,827 39,997 171,516 428,340 – 428,340 654 197,963 15,610 1,583 388 216,198 208,435 – 253,553 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 The accompanying notes form an integral part of these ﬁnancial statements 44 Nufarm Limited 2005 Annual Report statement of cash flows 12 MONTHS ENDED 31 JULY 2005 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 (net) Advances to controlled entities (net) Repayment of short term debt (net) Repayment of borrowings (net) Repayment of ﬁnance lease principal 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 Notes 31.7.2005 $000 31.7.2004 $000 31.7.2005 $000 31.7.2004 $000 1,836,426 2,964 2,680 (1,684,532) (40,011) (54,915) 62,612 1,747,974 3,099 1,182 (1,471,392) (33,603) (44,586) 202,674 772 75,066 (58,505) (162,469) (5,482) – (22,056) (172,674) 226 44 212,141 – – – (1,578) (41,044) 169,789 59,727 (15,472) 1,580 45,835 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) 25(b) 25(c) 25(d) 25(a) 84,506 40,713 14,802 (72,677) (15,417) (1,634) 50,293 238 247 (3,848) – – – – (3,363) 226 44 – (8,278) – – – (40,548) (48,556) (1,626) (18,991) 120 (20,497) 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) The accompanying notes form an integral part of these ﬁnancial statements Nufarm Limited 2005 Annual Report 45 notes NOTES TO THE FINANCIAL STATEMENTS Basis of accounting The ﬁnancial statements have been prepared as general-purpose ﬁnancial reports, which comply 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. 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 beneﬁts arising from estimated carry forward tax losses are recorded as a deferred tax asset where realisation of such beneﬁts 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. Foreign currency transactions Foreign currency items are translated to Australian currency on the following bases: 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. 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; 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; the exchange difference relates to a transaction intended to hedge the purchase or sale of goods or services, in which case 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. Sale of goods, net of rebates, returns, discounts and other allowances occurs 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 payment. Dividend income is recognised when the entity acquires control of the right to receive the dividend payment. 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. Tax consolidation The parent company is the head entity in the tax-consolidated group comprising all Australian wholly owned subsidiaries set out in note 26. The head entity recognises all of the current and deferred tax assets and liabilities of the tax-consolidated group (after elimination of intra-group transactions). The tax-consolidated group has entered into a tax funding agreement that requires wholly owned subsidiaries to make contributions to the head entity for current tax assets and liabilities and movements in deferred tax balances arising from external transactions during the year. Under the tax funding agreement, the contributions are calculated on a ‘stand-alone basis’. This means the contributions are equivalent to the tax balances generated by external transactions entered into by the wholly owned subsidiaries. The contributions are payable as set out in the agreement and they reﬂect the timing of the head entity’s obligations to make payments for tax liabilities to the relevant tax authorities. Cash and cash equivalents Cash on hand, 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. 46 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS 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 of the full amount is no longer probable. Bad debts are charged against proﬁt as incurred. Receivables from related parties are recognised and carried at the invoiced amount. Inventories Inventories are valued at the lower of cost and net realisable value. Raw material 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. In the Statement of Financial Performance, the cost of sales is shown as a direct cost. Overhead expenses are included in the operating expenses on a gross basis in the ﬁnancial performance disclosures note. Recoverable amounts of non-current assets The book value of all non-current assets is reviewed at least annually. To the extent that it exceeds the recoverable amount, the difference is charged against proﬁt in the Statement of Financial Performance. In determining the 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. 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; the consolidated entity’s share of revenues and expenses of the joint venture. Interests in joint venture entities are carried at either the lower of the equity-accounted amount or the 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. Property, plant and equipment, excluding freehold land, are depreciated over their useful economic lives using the straight-line methods as follows: buildings years leasehold improvements owned plant and equipment leased plant and equipment Life 15–20 5 years 3–20 years term of the lease These depreciation rates are the same as the rates used in the previous year. 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, which can be up to 15 years. The unamortised balance of goodwill is reviewed at each balance date, and is 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, which can be up to 15 years. The unamortised balance is reviewed each balance date, and is charged against proﬁt to the extent that future beneﬁts are no longer probable. Other non-current assets Deferred expenditure is included in other non current assets. This expenditure is primarily of two categories: Product development costs Product development costs are charged against proﬁt as incurred, except where they relate to the development of signiﬁcant 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. Such deferred costs are amortised over future accounting periods not exceeding ﬁve years. This is done in order to match the costs with related beneﬁts on the basis of expected future sales, commencing with the initial commercialisation of the product. The written down value is reviewed at each balance date and, to the extent that it exceeds the recoverable amount, the difference is charged against proﬁt. Nufarm Limited 2005 Annual Report 47 notes NOTES TO THE FINANCIAL STATEMENTS Borrowing costs Borrowing costs are charged against proﬁt as incurred, except where: (i) they relate to the ﬁnancing of major projects under construction, in which case they are capitalised to property, plant and equipment up to the date of commissioning; or (ii) they relate to large structured ﬁnance transactions, in which case 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 also carried at cost. 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 against proﬁt as they accrue. Provisions Provision for employee beneﬁts Provision is 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, the current portion of long service leave and workers’ compensation provisions are measured at their nominal amounts, based on remuneration rates that are expected to be paid when the liability is settled. The non-current portion of the long service leave provision is measured at the present value of estimated future cash ﬂows. In respect of deﬁned beneﬁt superannuation plans, all contributions are expensed when made. Other provisions include amounts for royalties, indirect taxes, real estate taxes, social costs and other miscellaneous provisions. Provisions for restructuring or termination beneﬁts are only recognised when a detailed plan has been approved and the restructuring or termination has either commenced or been publicly announced, or ﬁrm contracts related to the restructuring or termination beneﬁts have been entered into. 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 the income or capital entitlements of the shareholders. Earnings per share Basic earnings per share is calculated as net proﬁt attributable to members, divided by the weighted average number of ordinary shares. 48 Nufarm Limited 2005 Annual Report 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. 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 swap 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 counterparty 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 major international ﬁnancial institutions with excellent 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. 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 rates change, 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. notes NOTES TO THE FINANCIAL STATEMENTS 2 Financial performance disclosures Proﬁt from ordinary activities is after crediting the following revenues Interest income Interest Wholly owned controlled entities Other unrelated parties Total interest income Other revenue Dividends from wholly owned controlled entities Management fees from controlled entities Sundry income Gross proceeds from sale of businesses (refer note 25) 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 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 Notes Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 – 1,501 1,501 – 1,265 1,265 13,623 7,125 20,748 – – 10,573 95,225 772 106,570 – – 5,138 11,672 21,018 37,828 40,592 4,463 1,512 247 238 47,052 (7,890) (11,054) (245) (3,911) (3,265) (34,834) (61,199) (10,173) (6,692) (274) (3,884) (3,771) (40,013) (64,807) – – – – (387) (1,753) (2,140) 14,544 6,101 20,645 34,699 4,125 1,893 – 154 40,871 – – – – (364) (2,080) (2,444) – (36,461) (3,422) (128) (40,011) – (29,766) (3,593) (244) (33,603) (22,542) – – – (22,542) (21,451) – – – (21,451) Nufarm Limited 2005 Annual Report 49 notes NOTES TO THE FINANCIAL STATEMENTS 2 Financial performance disclosures continued Operating expenses Staff expenses Sales and distribution expenses Carrying cost of disposed businesses Plant related expenses Other operating expenses Occupancy expenses Insurance Write-down of non-current assets (refer note 5) Travel Research and development costs Operating lease expenses Other costs associated with disposal of non-current assets Provision for doubtful debts expense Carrying cost of disposed non-current assets Total operating expenses Operating 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 Other disclosures Gain (loss) on disposal of non-current assets Gain (loss) on sale of businesses (see note 36) Superannuation contributions – deﬁned beneﬁt fund Redundancy Costs (see note 5) 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 Add/subtract non-operating proﬁt/(loss) (refer note 5) Earnings excluding non-operating items used in the calculations of operating earnings per share 50 Nufarm Limited 2005 Annual Report Notes Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 (203,611) (70,476) (66,946) (56,473) (33,863) (25,871) (20,184) (19,059) (16,576) (15,812) (10,062) (5,219) (709) (361) (545,222) (223,032) (88,775) (10,321) (61,992) (34,722) (24,984) (22,872) – (16,701) (14,132) (9,992) (3,566) (4,060) (5,864) (521,013) – 5,394 (92) (270) (263) 1,419 884 (724) 961 (92) 411 23,060 (3,169) (2,761) 11,588 1,351 (2,913) (10,750) (9,723) (4,033) (4) (1,754) (2,767) (776) (1,146) – (647) (1,014) (8) – – (205) (22,077) – 330 1 (105) – 33 243 – – (8,788) (5,229) – (1,900) (2,681) (929) (1,181) – (702) (1,038) – – – (248) (22,696) – (444) 32 (80) – (94) – – – Consolidated 2005 $000 2004 $000 105,847 (1,550) 104,297 78,276 (2,074) 76,202 823 (361) 103,474 76,563 notes NOTES TO THE FINANCIAL STATEMENTS Number of Shares 2005 2004 3 Earnings per share continued Weighted average number of ordinary shares used in calculation of basic earnings per share Weighted average number of share options used in calculation of diluted earnings per share Weighted average number of ordinary shares used in calculation of diluted earnings per share 169,043,745 161,842,546 1,437,692 – 169,043,745 163,280,238 There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of 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-operating items (cents per share) Diluted earnings per share excluding non-operating items (cents per share) 61.7 61.7 61.2 61.2 47.1 46.7 47.3 46.9 4 Segments Business segments Revenue Sales to outside customers Inter segment sales Sales revenue Other revenue Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result – operating Segment result – non operating Segment result – total 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 Crop protection $000 Industrial chemicals $000 Corporate Eliminations Consolidated $000 $000 $000 1,580,789 1,216 1,582,005 31,271 1,613,276 90,240 2,979 93,219 73,138 166,357 2005 – – – 2,161 2,161 – (4,195) (4,195) – (4,195) 191,915 (13,100) 178,815 9,453 17,072 26,525 (1,854) (920) (2,774) – – – 1,307,283 71,616 14,723 – 335,366 18,425 5,567 – 209,399 1,021 – 227,097 31,946 21,467 7,789 7,645 5,879 308 1,340 30 274 1,325 805 – – – – – 1,671,029 – 1,671,029 106,570 1,777,599 1,501 1,779,100 199,514 3,052 202,566 (63,386) 139,180 (33,333) 105,847 1,393,622 154,800 1,548,422 359,358 572,419 931,777 210,420 234,772 38,099 23,100 9,934 The operating result shown in this note is operating proﬁt before tax, interest and corporate cost allocations. Nufarm Limited 2005 Annual Report 51 notes NOTES TO THE FINANCIAL STATEMENTS 4 Segments continued Geographic segments Revenue Sales to outside customers 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 Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result – operating Segment result – non operating Segment result – total 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 52 Nufarm Limited 2005 Annual Report Australasia $000 Europe $000 Americas Consolidated $000 $000 2005 822,159 17,120 839,279 389,680 49,438 439,118 459,190 40,012 499,202 1,671,029 106,570 1,777,599 625,588 504,454 418,380 1,548,422 44,277 24,190 166,305 234,772 Crop protection $000 Industrial chemicals $000 Corporate Eliminations Consolidated $000 $000 $000 1,452,861 2,026 1,454,887 25,634 1,480,521 142,445 3,045 145,490 1,367 146,857 2004 462 – 462 10,827 11,289 – (5,071) (5,071) – (5,071) 163,468 (1,546) 161,922 14,936 339 15,275 (7,092) (190) (7,282) – – – 1,121,169 158,079 21,927 – 385,472 37,482 5,354 – 1,595,768 – 1,595,768 37,828 1,633,596 1,265 1,634,861 171,312 (1,397) 169,915 (60,018) 109,897 (31,621) 78,276 1,301,175 130,403 1,431,578 428,308 442,776 871,084 24,000 953 – 122,223 34,732 18,851 9,918 15,898 8,844 488 1,930 318 208 1,684 4,070 – – – – – 24,953 138,439 43,784 21,023 15,918 notes NOTES TO THE FINANCIAL STATEMENTS 4 Segments continued Geographic segments Revenue Sales to outside customers 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 2004 762,437 15,866 778,303 392,981 21,719 414,700 440,350 243 440,593 1,595,768 37,828 1,633,596 582,723 610,338 238,517 1,431,578 31,938 85,502 20,999 138,439 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 covers 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-operating income and expenses Gain on sale of businesses (refer note 36) Gain on sale of building – France Write down of UK ﬁxed assets and remediation costs Write down of intangibles Restructuring costs – Europe Plant closure costs – France Net proceeds from insurance claim Non-operating proﬁt (loss) before tax Tax thereon Non-operating proﬁt (loss) after tax Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 23,060 – (15,967) (2,709) (2,761) – 1,429 3,052 (2,229) 823 2,008 14,801 – (2,930) (11,540) (3,736) – (1,397) (1,036) (361) 243 – – – – – – 243 – 243 – – – – – – – – – – The UK asset write down ($14.6 million pre-tax), has assumed a zero recoverable amount for the assets. Nufarm Limited 2005 Annual Report 53 notes NOTES TO THE FINANCIAL STATEMENTS 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% Tax effect of permanent and other differences Depreciation and amortisation not deductible Other items not deductible Exempt dividends received Share of results of associates (net of tax) Non-assessable gain on assets disposed Other non assessible income Research and development allowances Amounts over-provided in prior years Unrecognised tax losses utilised Unrecognised capital allowances utilised Income tax expense related to current and deferred tax transactions of wholly-owned subsidiaries in the tax-consolidated group Recovery of income tax expense under a tax funding agreement Restatement of deferred tax balances due to income tax rate changes Effect of different rates of tax on overseas income Income tax expense relating to ordinary activities 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 Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 139,180 41,754 109,897 32,969 52,733 15,820 49,837 14,951 1,808 2,325 (674) (7,599) (1,388) (257) (198) 9 (3,018) (2,413) – – (10) 2,994 33,333 1,668 3,802 – (1,025) – (5) (138) (2,085) (3,767) – – – (815) 1,017 31,621 11 – (12,178) – (80) (110) – (1,069) – – 25,029 (25,029) – 270 2,664 – 454 (10,410) – – – – (1,575) – – 7,637 (7,637) – 271 3,691 32,600 25,607 1,265 3,791 (8,323) 24,277 15,092 5,525 1,198 792 – 6,090 52,974 8,138 44,836 (9,718) 15,889 10,713 4,936 1,342 548 – 7,732 41,160 6,858 34,302 – 1,265 855 190 – 155 20,218 (35) 22,648 – 22,648 – 3,791 835 196 27 121 18,022 (35) 22,957 1,583 21,374 54 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS 6 Taxation continued b) Tax assets 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. The potential tax losses will only be utilised if: (a) the relevant company derives future assessable income of a nature and amount sufﬁcient to enable the beneﬁt to be realised; (b) the relevant company continues to comply with the conditions for deductibility imposed by the law; and (c) no changes in tax legislation adversely affect the relevant company in realising the beneﬁt. 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 Current Non current Hedge receivables 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 Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 7,156 12,128 – – 20,111 378 – 2,254 (8,323) 14,420 31,010 (70) – 1,451 (9,718) 22,673 – – 1,731 – – 1,731 – – 2,018 – – 2,018 130,680 (2,423) 128,257 146,438 (3,237) 143,201 – – 45,592 49,868 42,903 – – 32,417 56,202 31,551 9,180 – 9,180 202,974 161,798 45,592 – 676 8,670 (82) 8,588 188,750 174,255 34,180 – 625 28,262 10,895 – – (3,205) 291,677 225,268 66,409 (3,213) 271,053 232,518 38,535 – 420,220 212,830 207,390 – 406,398 197,963 208,435 Nufarm Limited 2005 Annual Report 55 notes NOTES TO THE FINANCIAL STATEMENTS 8 Inventories Raw materials Work in progress Finished goods Provision for obsolescence of ﬁnished goods Total inventories 9 Equity accounted investments Aggregate carrying amount of associates Balance at the beginning of the year Exchange adjustment Share of net proﬁt New investment Elimination of proﬁt in transaction with associate Dividends received Balance at the end of the year Balance at the beginning of the year Exchange adjustment Share of net proﬁt New investment 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 Share of proﬁt by major associate Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Ltd Excel Crop Care Ltd Others Share of net proﬁts of associates 56 Nufarm Limited 2005 Annual Report Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 105,062 6,492 318,005 429,559 (5,613) 423,946 111,851 11,906 314,706 438,463 (6,324) 432,139 3,464 708 12,220 16,392 (468) 15,924 2,332 728 12,916 15,976 (366) 15,610 Cost $000 Retained earnings $000 Carrying value $000 9,190 2,348 – 162,469 (2,812) – 171,195 2,916 (67) – 6,341 – 9,190 2005 15,763 809 25,617 – – (2,964) 39,225 2004 15,365 452 3,415 – (3,469) 15,763 24,953 3,157 25,617 162,469 (2,812) (2,964) 210,420 18,281 385 3,415 6,341 (3,469) 24,953 Consolidated 2005 $000 34,362 (8,745) 25,617 22,611 2,001 997 8 25,617 2004 $000 5,075 (1,660) 3,415 – 3,001 – 414 3,415 notes NOTES TO THE FINANCIAL STATEMENTS 9 Equity accounted investments continued Financial summary of material associates Agripec Quimica e Farmaceutica SA During the year the group acquired 49.9% of Agripec Quimica e Farmaceutica SA, a crop protection company based in Brazil. Acquisition cost of this investment was $161 million. Agripec’s contribution to proﬁt for the period is as follows: Group’s share of proﬁt from ordinary activities before tax Notional goodwill amortisation Income tax on ordinary activities Proﬁt share of associate in equity income Financing expense (after tax) Proﬁt share of associate in net proﬁt after tax Total assets Total liabilities 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 Consolidated 2005 $000 2004 $000 37,524 (7,814) (7,099) 22,611 (3,519) 19,092 136,533 64,608 18,644 3,967 2,001 20,266 20,147 29 – – – – – – – – 27,814 10,289 3,001 21,270 21,178 35 Balance date of associate Ownership and voting interest 2005 2004 Carrying amount 2005 $000 2004 $000 Details of material interests in associated entities are as follows: Agripec Quimica e Farmaceutica SA Brazilian crop protection company Bayer CropScience Nufarm Limited (formerly Aventis Nufarm Limited) UK agricultural chemical manufacturer Excel Crop Care Ltd Indian agricultural chemical manufacturer 31.12.2004 49.9% 0% 185,906 – 31.12.2004 25% 25% 14,509 17,158 31.3.2005 14% 14% 7,140 6,341 Nugrain Pty Ltd Plant breeding and seed commercialisation company 31.7.2005 50% 40% 1,348 – Associated entities have the following commitments. Nufarm’s share of capital commitments is $533,100 (2004: $nil) and share of ﬁnance lease commitments is $nil (2004: $nil). A contingent liability exists in Agripec relating to income tax. Nufarm’s share of the contingent liability is $954,000. Nufarm Limited 2005 Annual Report 57 notes NOTES TO THE FINANCIAL STATEMENTS 10 Other ﬁnancial assets Investment in controlled entities Balance at the beginning of the year Reinstatement 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 Pre-acquisition dividend Balance at the end of the year The investment above consists of three 50% joint ventures with FMC Corporation in Poland, Slovakia and the Czech Republic for the distribution of crop protection products. 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 Disposals Loans repaid during the year Balance at the end of the year Total other ﬁnancial assets Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 – – – 1,073 (60) – 1,013 – – – 247,212 – 247,212 245,210 2,002 247,212 1,083 (10) – 1,073 6,341 (77) (121) 6,143 6,341 – – 6,341 2,640 (46) 15 (481) (1,198) 930 1,943 5,089 (44) 58 – (2,463) 2,640 3,713 – – – – – – 253,355 – – – – – – 253,553 58 Nufarm Limited 2005 Annual Report 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 2005 574,370 (24,517) 11,098 621 (47,990) (66,595) 28,507 475,494 (344,054) 15,164 (34,834) 31,679 31,006 2,225 (298,814) 176,680 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 5,206 (333) 261 – (34) – (22) 5,078 (2,289) 146 (245) 20 – 2 (2,366) 2,712 5,404 (64) 15 (81) – (68) 5,206 (2,086) 26 (274) – – 45 (2,289) 2,917 140,319 (6,506) 1,033 – (6,553) (16,548) 12,120 123,865 (49,573) 2,923 (3,095) 4,738 7,959 (7,542) (44,590) 79,275 143,715 (3,042) 1,926 (16,823) (127) 14,670 140,319 (61,503) 1,044 (3,771) 14,626 31 – (49,573) 90,746 35,038 (1,881) 557 – (2,377) (3,819) 5,049 32,567 (1,598) 169 (170) – 316 – (1,283) 31,284 35,153 (270) 182 (803) – 776 35,038 (1,381) (23) (194) – – – (1,598) 33,440 19,213 (838) 45,556 – (8) – (40,339) 23,584 – – – – – – – 23,584 26,088 (127) 32,663 – – (39,411) 19,213 – – – – – – – 19,213 774,146 (34,075) 58,505 621 (56,962) (86,962) 5,315 660,588 (397,514) 18,402 (38,344) 36,437 39,281 (5,315) (347,053) 313,535 766,672 (7,455) 46,693 (27,607) (4,157) – 774,146 (384,406) 3,208 (44,058) 23,908 3,834 – (397,514) 376,632 11 Property, plant and equipment 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 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 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 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 $4.1 million (2004: $2.9 million). Nufarm Limited 2005 Annual Report 59 notes NOTES TO THE FINANCIAL STATEMENTS 11 Property, plant and equipment continued 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 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 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 2005 13,367 (84) 33 – – – 13,316 (1,781) 15 (359) – – (2,125) 11,191 2004 12,870 134 363 – – 13,367 (1,420) (15) (346) – (1,781) 11,586 12,183 (74) 893 (478) (8) 10 12,526 (6,398) 80 (1,753) 273 4 (7,794) 4,732 11,175 116 1,263 (431) 60 12,183 (4,455) (46) (2,080) 183 (6,398) 5,785 1,828 (12) – – – – 1,816 (31) – (28) – – (59) 1,757 1,809 19 – – 1,828 (13) – (18) – (31) 1,797 142 (1) 2,922 – – (10) 3,053 – – – – – – 3,053 200 2 – – (60) 142 – – – – – 142 27,520 (171) 3,848 (478) (8) – 30,711 (8,210) 95 (2,140) 273 4 (9,978) 20,733 26,054 271 1,626 (431) – 27,520 (5,888) (61) (2,444) 183 (8,210) 19,310 60 Nufarm Limited 2005 Annual Report 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 Transferred to intellectual property 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 Transferred from goodwill Transferred to deferred costs 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 Transferred from intangibles Disposals during the year Written-off 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 Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 85,406 (4,952) 5,448 (1,443) (14,944) (7,890) 61,625 110,615 (5,910) 3,717 (8,576) 14,944 (756) (11,054) 102,980 – – – – 164,605 18,248 (714) 5,482 756 (1,854) (575) (2,601) 18,742 2,882 (5) – (1,310) 1,567 20,309 103,835 (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 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Nufarm Limited 2005 Annual Report 61 notes NOTES TO THE FINANCIAL STATEMENTS Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 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 15 Interest bearing liabilities Capital notes Face value NZD 225,000,000 (2004: 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. Immediately prior to the 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) Period ending 31 July, 2006 Period ending 31 July, 2007 Period ending 31 July, 2008 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 331,896 – 1,287 333,183 396,262 – 1,677 397,939 7,816 59,346 – 67,162 9,866 61,179 – 71,045 202,338 203,620 – – 336,405 188 – 1,628 540,559 259,889 9 506 260,404 280,155 189,627 2,355 – 3,989 399,591 111,099 23 1,289 112,411 287,180 24,762 – 211,655 – 236,417 24,762 – – 24,762 211,655 19,645 – 212,969 – 232,614 19,645 – – 19,645 212,969 259,898 216,308 62,546 179 78,528 203,620 – 2,332 24,762 211,655 – – 19,645 212,969 – – % 8.6 4.8 3.2 – 5.8 % 8.6 3.5 3.1 – 7.7 % – – – 9.2 – % – – – 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 26) are in excess of their related borrowings. Finance lease liabilities are secured over relevant leased plant. 62 Nufarm Limited 2005 Annual Report 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 Employee beneﬁts The present values of employee entitlements not expected to be settled within twelve months of reporting date have been calculated using the following weighted averages: Assumed rate of increase in wage and salary rates Discount rate Settlement term (years) Number of employees at year end Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 25,969 3,014 2,283 31,266 15,196 3,014 1,737 19,947 11,319 2,103 (123) 2,076 (1,773) 2,283 7,025 (368) 3,346 (6,989) 3,014 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 4% 4% 5 2,279 4% 4% 5 2,613 576 – – 576 521 – – 521 55 – – – – – – – – – – – – – – 594 – – 594 544 – – 544 50 107 (1) – (106) – – – – – – – – – – Nufarm Limited 2005 Annual Report 63 notes NOTES TO THE FINANCIAL STATEMENTS 17 Contingent liabilities The parent entity has entered into a deed of cross guarantee (refer note 26) 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 with FMC Corporation. 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 4.57 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. Nufarm Limited has been named as one of 15 parties in proceedings ﬁled by the New Zealand Commerce Commission (NZCC) relating to alleged business practices in the timber treatment industry. The company is cooperating with this investigation and currently does not believe a material potential liability attaches to this issue. The company divested its timber treatment business in 2001. 64 Nufarm Limited 2005 Annual Report Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 7,827 5,379 16,241 5,490 – – – – – – 202,338 203,620 13,578 14,552 – – 7,300 9,142 – – – 44,946 – 34,563 – 202,338 – 203,620 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. 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 2005 $000 2004 $000 2005 $000 2004 $000 17,027 17,224 922 – min 3,553 min 3,845 max 5,921 max 6,408 – – 7,538 6,660 10,146 5,365 29,709 7,195 6,306 11,073 6,936 31,510 355 192 120 – 667 330 301 280 – 911 535 616 571 – 1,722 (94) 1,628 1,392 1,736 1,180 – 4,308 (319) 3,989 – – – – – – – – – – – – – – Nufarm Limited 2005 Annual Report 65 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 2005 $000 2004 $000 167,735,767 1,702,782 233,325 169,671,874 210,528 5,571 728 216,827 149,216 60,662 650 210,528 233,325 (233,325) – 169,671,874 2 (2) – 216,827 3 (1) 2 210,530 Issues totaling 203,754 fully paid ordinary shares at an average price of $7.19 per share were made to the Nufarm executive share plan (2000), the trustee of the employee global share plan and the trustee of the non- executive directors share plan. 1,437,692 shares were issued to group executives at an exercise price of $2.70 per share under the executive share plan. 61,336 shares were issued to participants in the UK Savings Related Share Options Scheme (1997) at an exercise prce of $3.66. 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 2005 $000 2004 $000 2005 $000 2004 $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 Balance at the end of the year (16,339) (11,983) – (28,322) (9,590) (5,478) (1,271) (16,339) 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 348 – 348 1,409 (1,061) 348 – (77) – (77) – – – – – – – – – – 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 66 Nufarm Limited 2005 Annual Report 33,845 – 33,845 5,871 33,852 (7) 33,845 17,854 40,074 – 40,074 39,997 40,074 – 40,074 40,074 notes NOTES TO THE FINANCIAL STATEMENTS 21 Retained proﬁts Balance at the beginning of the year Net proﬁt attributable to members of the parent entity Aggregate amounts transferred from reserves Dividends paid Balance at the end of the year 22 Dividends Dividends recognised in the current year by the company are: Final 2004 ordinary Interim 2005 ordinary Total amount Final 2003 ordinary Interim 2004 ordinary Total amount Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 324,401 104,297 – (40,548) 388,150 280,793 76,202 1,062 (33,656) 324,401 161,995 50,069 – (40,548) 171,516 149,505 46,146 – (33,656) 161,995 Cents per share 15.0 9.0 13.0 8.0 Total amount $000 2005 25,293 15,255 40,548 2004 20,470 13,186 33,656 Franked/ unfranked Payment date Franked Franked 15-Nov-04 29-Apr-05 Franked Franked 7-Nov-03 28-Apr-04 Dividends paid during the year were franked at the tax rate of 30%. Subsequent events On 29 September 2005, the directors declared a ﬁnal dividend of 17 cents per share, fully franked, payable 11 November 2005. The ﬁnancial effect of this dividend has not been brought to account in the ﬁnancial statements for the year ended 31 July 2005 and will be recognised in subsequent ﬁnancial reports. 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% (2004: 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 Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 19,647 17,436 19,647 17,436 5,881 25,528 (2,048) 15,388 5,881 25,528 (2,048) 15,388 23 Outside equity interests Balance at the beginning of the year Exchange adjustment Investments in which a minority interest was acquired Share of operating proﬁt Dividends paid Balance at the end of the year 7,709 (559) (2,407) 1,550 (496) 5,797 6,638 (557) 356 2,074 (802) 7,709 – – – – – – – – – – – – Nufarm Limited 2005 Annual Report 67 notes NOTES TO THE FINANCIAL STATEMENTS 24 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 25 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 items 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 Non-cash items: Amortisation Depreciation Losses on disposal of ﬁxed assets Write-down in non current assets Share of proﬁts of associates net of tax 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 Group tax setoff Movements in intercompany balances relating to cash transactions Net operating cash ﬂows 68 Nufarm Limited 2005 Annual Report Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 560,494 462,321 412,599 338,798 92,314 68,997 49,992 45,696 6,297 (40,548) (1,912) 616,645 61,761 (33,656) 1,071 560,494 6,297 (40,548) – 428,340 61,761 (33,656) – 412,599 56,233 (10,398) 45,835 56,826 (72,298) (15,472) 4,265 (24,762) (20,497) 654 (19,645) (18,991) 105,847 2,964 22,855 38,344 (393) 19,059 (25,617) (8,253) (11,815) – 432 34,612 (11,543) (7,433) (42,227) (3,053) (16,555) – – (80,811) 62,612 78,276 3,099 20,749 44,058 (100) – (3,415) (2,674) 119 72 (49) 58,760 63,228 (72,683) 88,007 (10,830) (5,183) – – 62,539 202,674 50,069 – 46,146 – – 2,140 (33) – – (286) 5,241 – (21) 7,041 (643) (313) (2,232) (1,706) (93) – – 2,444 95 – – 2,018 (9,357) – 83 (4,717) 2,361 (155) (1,471) 5,437 169 – (1,830) (6,817) 50,293 1,006 7,347 48,776 notes NOTES TO THE FINANCIAL STATEMENTS 25 Statement of cash ﬂows continued c) Businesses sold Businesses sold during 2005 include the Nufarm Specialty Products business, SEAC, Paciﬁc Raw Materials and the Nufarm Brazil business. Businesses sold during 2004 include the Florigene group, Agrow, MCFI, Pharma Paciﬁc intangibles and the Wettasoil trademark. Net assets disposed of were Receivables Inventory Property, plant and equipment Intangibles Cash assets Tax assets Payables Borrowings Other Cash gain on disposal Consideration Cost of disposal Total consideration Cash deferred Amounts settled for businesses sold in prior years Cash consideration received Cash included in assets sold Net cash effect d) Businesses acquired The 2005 acquisitions include the Ag-Seed Research business and the 30% minority shareholding in Nufarm Indonesia. 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. The aggregate amounts of net assets acquired were Inventory Property, plant and equipment Intangibles Payables Outside equity interests Total consideration Cash deferred Cash consideration paid Cash included in net assets acquired Net cash effect Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 11,677 15,626 47,681 7,309 164 – (8,181) (7,517) 187 23,060 90,006 5,219 95,225 (25,057) 5,062 75,230 (164) 75,066 882 397 323 6,936 642 1,978 (1,724) – 887 1,351 11,672 – 11,672 (5,062) 724 7,334 (642) 6,692 – 621 9,132 11,896 2,407 24,056 (2,000) 22,056 – 22,056 18,661 – 80,488 – – 99,149 (12,840) 86,309 – 86,309 – – 4 – – – – – – 243 247 – 247 – 247 – 247 – – – – – – – – – – – – – – – – – – – – – – – – 724 724 – 724 – – – – – – – – – – The deferred cash settlement represents the value of the remaining consideration payable. Nufarm Limited 2005 Annual Report 69 notes NOTES TO THE FINANCIAL STATEMENTS Notes Place of incorporation Percentage of shares held 2004 2005 25 Statement of cash ﬂows continued e) Non cash ﬁnancing and investing activities During the ﬁnancial year plant and equipment with an aggregate value of $261,000 (2004: $15,000) was acquired by means of ﬁnance leases. During the ﬁnancial year 1,702,782 ordinary shares were issued under the executive share plan, the global share plan and the non-executive directors share plan. The deemed fair value of the shares, $5,571,249 (2004: $2,902,636) was expensed in the statement of ﬁnancial performance. 26 Controlled entities The consolidated ﬁnancial statements at 31 July 2005 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 Agryl Holdings Limited Ag-seed Research Pty Ltd Artfern Pty Ltd Australis Services Pty Ltd Bioclip NZ Pty Limited (Sold) Camper Vertriebs (Liquidated) Captec (NZ) Limited Captec Pty Ltd CFPI GmbH Chemicca Limited Chemturf Pty Ltd Chloral Investment Trust Chloral Unit Trust No1 Chloral Unit Trust No2 Clama s.a.s (formerly Societe Civile Mobiliere Clama) CNG Holdings BV Compagnie d’Applications Chimiques a l’Industrie s.a.s (formerly Compagnie D’Applications Chimiques a L’Industrie) Crop Care Australasia Pty Ltd Crop Care Holdings Limited Croplands Equipment Limited Croplands Equipment Pty Ltd Danestoke Pty Ltd Electronic Agriculture Limited Fchem (Aust) Limited Fchem Limited Fernz Canada Limited Fernz Corporation (NZ) Limited Fernz Singapore Pte Ltd Fidene Limited Finotech BV Framchem SA Health & Science Limited Inpar s.a.s (formerly Societe Civile Inpar) Interferon Limited Interferon NZ Limited 70 Nufarm Limited 2005 Annual Report (a),(b) (a) (a) (a) (a) Australia Australia Australia Australia Australia Australia New Zealand Germany (b) New Zealand Australia (a) Germany Australia Australia Australia Australia Australia France Netherlands France (a) (a) (a),(b) (a),(b) (a) (a),(b) Australia New Zealand (b) New Zealand Australia Australia Australia Australia (b) New Zealand (b) Canada (b) New Zealand Singapore (b) New Zealand Netherlands (b) Egypt (b) (b) New Zealand France (b) (a) Australia (b) New Zealand 100 70 100 100 100 100 – – 100 100 100 100 100 80 80 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 100 – 100 100 100 100 100 100 100 100 100 80 80 80 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 notes NOTES TO THE FINANCIAL STATEMENTS 26 Controlled entities continued Laboratoire Europeen de Biotechnologie s.a.s (formerly Laboratoire Europeen de Biotechnologie) Ladino NV (liquidated) Le Moulin des Ecluses s.a (formerly Societe d’Etudes et Applications Chimiques) Les Ecluses de la Garenne s.a.s (formerly Societe des Ecluses de la Garenne) Manaus Holdings Sdn Bhd Marman (Nufarm) Inc Marman de Guatemala Sociedad Anomima Marman de Mexico Sociedad Anomima De Capital Variable Marman Holdings LLC Mastra Corporation Pty Ltd Mastra Corporation Sdn Bhd Mastra Corporation USA Pty Ltd Mastra Holdings Sdn Bhd Mastra Industries Sdn Bhd Medisup International NV Medisup Securities Limited Neuchatel Pty Ltd Nufarm (Asia) Pte Ltd Nufarm Agriculture (Pty) Ltd Nufarm Agriculture Inc Nufarm Agriculture Zimbabwe (Pvt) Ltd Nufarm Americas Holding Company Nufarm Americas Inc Nufarm Asia Sdn Bhd Nufarm Australia Limited Nufarm BV Nufarm Chile Limitada Nufarm Columbia Ltda Nufarm Coogee Pty Ltd Nufarm Crop Products UK Limited Nufarm de Costa Rica Nufarm de Guatemala SA Nufarm de Mexico Sa de CV Nufarm de Panama SA Nufarm de Venezuela SA 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 (NZ) Limited Nufarm Holdings BV Nufarm Holdings s.a.s (formerly Nufarm SC) Nufarm Inagro Manufacturing Sdn Bhd (liquidated) Nufarm Inc. Notes Place of incorporation Percentage of shares held 2004 2005 France 100 (a),(b) (a) (b) (a),(b) (b) N. Antilles France (b) France (b) (b) (b) (b) (b) (b) (b) (b) Malaysia USA Guatemala Mexico USA Australia Malaysia Australia Malaysia Malaysia N. Antillies Australia Australia Singapore South Africa Canada Zimbabwe USA USA Malaysia Australia Netherlands Chile Columbia Australia UK Costa Rica Guatemala Mexico Panama Venezuela Ecuador Germany Brazil Australia (a) Spain (b) Germany (b) Austria (b) (b) Austria (b) New Zealand Netherlands (b) France (b) Malaysia USA (b) (b) – 100 100 100 70 70 70 100 70 70 70 70 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 70 70 70 100 70 70 70 70 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Nufarm Limited 2005 Annual Report 71 notes NOTES TO THE FINANCIAL STATEMENTS 26 Controlled entities continued Nufarm Insurance Pte Ltd Nufarm Investments Cooperatie WA Nufarm Ireland Limited Nufarm KK Nufarm Malaysia Sdn Bhd Nufarm Materials Limited Nufarm NZ Limited Nufarm Platte Pty Ltd Nufarm Portugal LDA Nufarm s.a.s (formerly Nufarm SA) Nufarm SA Nufarm Specialty Products Inc Nufarm Technologies (M) Sdn Bhd Nufarm Technologies USA Nufarm Technologies USA Pty Ltd Nufarm Treasury Pty Ltd Nufarm UK Limited 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 Rockmere Pty Ltd Safepak Industries Sdn Bhd Selchem Pty Ltd TPL Limited Notes Place of incorporation Percentage of shares held 2004 2005 (b) (a),(b) (b) Singapore Netherlands Ireland Japan Malaysia Australia (b) New Zealand Australia Portugal France Argentina USA Malaysia New Zealand Australia Australia (b) (b) (b) (a),(b) (b) United Kingdom (a),(b) (b) (a) (a) Australia Australia Australia New Zealand Australia Indonesia Australia Malaysia Australia (a) (b) New Zealand (a) 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 75 100 100 100 100 100 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 75 100 100 100 70 100 70 100 100 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. 72 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS 27 Closed group The class order closed group consists of Nufarm Limited and wholly-owned Australian entities as designated with an (a) in note 26. 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 Include new members to the closed group Dividends paid 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 Current liabilities Payables Interest bearing liabilities ax 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 Consolidated 31.7.2005 $000 31.7.2004 $000 104,738 (28,039) 76,699 198,683 – (40,548) 234,834 5,997 296,807 196,854 – 5,215 504,873 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 45,592 150,918 266,929 125,727 12,649 22,161 3,602 627,578 1,132,451 34,180 138,261 258,256 7,294 15,095 22,366 2,073 477,525 1,005,133 476,131 84,286 4,898 7,985 573,300 31,000 1,732 7,659 40,391 613,691 518,760 471,784 33,586 – 7,472 512,842 10,000 2,018 6,840 18,858 531,700 473,433 224,027 59,899 234,834 518,760 217,730 57,020 198,683 473,433 Nufarm Limited 2005 Annual Report 73 notes NOTES TO THE FINANCIAL STATEMENTS 28 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 29 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 2005 $000 2004 $000 936 2,338 772 135 13,285 17,466 219 10,070 (3,177) 6,893 1,668 2,275 825 150 14,518 19,436 829 8,692 (2,608) 6,084 Consolidated Parent Accessible $000 Drawn down $000 Accessible $000 Drawn down $000 2005 857,685 188 202,338 1,060,211 161,579 1,221,790 336,405 188 202,338 538,931 133,130 672,061 2004 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 – – – – – – – – – – – – 24,762 – – 24,762 – 24,762 19,645 – – 19,645 – 19,645 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 2005, $133.1 million of receivables sold to the third party remain uncollected (2004: $138.7 million). 74 Nufarm Limited 2005 Annual Report 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. 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 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 Average exchange rate 2005 2004 2005 Buy $000 Sell $000 2004 Buy $000 Sell $000 0.7656 0.7600 0.7046 0.7022 114,701 – 14,111 26,314 73,040 – 5,174 28,481 0.9385 0.9360 0.9234 0.9336 19 – 20,234 8,547 – – 992 8,569 0.5998 0.6260 0.5811 0.5841 8,895 – 673 103,843 26,694 – 15,408 111,282 0.4141 0.4330 0.3919 0.3858 3,031 – – 23,094 666 – – 25,923 – – 1,767 128,413 149 196,965 4,278 104,678 1,097 196,926 Nufarm Limited 2005 Annual Report 75 notes NOTES TO THE FINANCIAL STATEMENTS 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 – one to ﬁve years Interest rate swaps are being used to hedge the following interest rate exposures Payable maturities – less than one year – one to ﬁve years Carrying Amount 2005 Consolidated Net fair value 2005 Carrying Amount 2004 Net fair value 2004 $000 $000 $000 $000 202,338 201,681 203,620 203,156 35,167 – 71,834 35,230 – 71,360 7,262 – 101,150 7,242 – 100,816 56,579 161,798 56,865 170,551 15,408 174,255 15,408 187,600 147,508 20,000 147,495 19,784 – 178,481 – 177,253 76 Nufarm Limited 2005 Annual Report 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% (2004: 4.2%). Financial assets Cash on deposit Financial liabilities Capital notes Bank loans Other loans Finance leases Interest rate swaps Employee beneﬁts Financial assets Cash on deposit Financial liabilities Capital notes Bank loans Other loans Finance leases Interest rate swaps Employee beneﬁts Floating interest rate Fixed Interest maturing in Non-interest bearing $000 < 1 year $000 1 to 5 years $000 $000 Total $000 2005 40,468 – – – 336,405 188 – (167,508) 25,969 195,054 – – – 506 147,508 – 148,014 202,338 – – 1,122 20,000 223,460 2004 31,534 – – – 189,627 2,355 – (178,481) 26,352 39,853 – – – 1,289 – 1,289 203,620 – – 2,700 178,481 – 384,801 – – – – – – – – – – – – – – 40,468 202,338 336,405 188 1,628 – 25,969 566,528 31,534 203,620 189,627 2,355 3,989 – 26,352 425,943 The weighted average interest rate for cash on deposit was 3.2% (2004: 2.6%) . 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 and purchases. Expected recognition period Less than one year More than one year 2005 2004 $000 Gains $000 Losses $000 Gains $000 Losses 65 – 126 – 35 – 1 – Nufarm Limited 2005 Annual Report 77 notes NOTES TO THE FINANCIAL STATEMENTS 31 Director and executive disclosures a) Details of speciﬁed directors and speciﬁed executives (I) Speciﬁed directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow GA Hounsell DG Mc Gauchie GW McGregor Dr JW Stocker RFE Warburton (ii) Speciﬁed executives B Benson DA Pullan JA Allen KP Martin RF Ooms Chairman Managing director and chief executive (appointed 1 October 2004) (retired 31 July 2005) Group general manager agriculture Group general manager operations Group general manager crop protection Chief ﬁnancial ofﬁcer Group general manager chemicals b) Remuneration of speciﬁed directors and speciﬁed executives Disclosures of remuneration policies, service contracts and details of remuneration are included in the remuneration report in the Director’s Report. e) Loans to speciﬁed directors and speciﬁed executives There were no loans to directors and speciﬁed executives at 31 July 2005. 78 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS Shares held in Nufarm Ltd Balance at 1 Aug 2004 Granted as remun- eration Exercise of options Net change other Balance at 31July 2005 31 Director and executive disclosures continued d) Shareholdings of speciﬁed directors and speciﬁed executives Speciﬁed directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow GA Hounsell DG Mc Gauchie GW McGregor Dr JW Stocker RFE Warburton 1 3 1 1 1 1 1 1 2 2 5,869,837 30,696,167 24,787 1,464,528 – 3,817 32,418 26,546 61,513 4,912 – – 1,918 1,452 1,452 1,461 1,918 1,918 – 566,443 – – – – – – – (3,500,000) (1,350,000) 16,000 – 10,000 3,000 – – – 2,374,749 29,912,610 40,787 1,466,446 11,452 8,269 33,879 28,464 63,431 Speciﬁed executives JA Allen B Benson KP Martin RF Ooms DA Pullan Total 196,317 83,374 229,338 155,485 186,095 39,030,222 22,094 16,692 20,726 20,726 22,117 117,386 153,091 98,345 143,406 143,406 153,091 1,257,782 (145,936) (46,266) (38,000) – (131,880) (5,183,082) 225,566 152,145 355,470 319,617 229,423 35,222,308 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 Messrs Hoggard, Goodfellow, Hounsell, McGauchie, 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. These shares do not vest until the earlier of three years or retirement. 2 Messrs Hoggard and Rathbone also have a beneﬁcial interest in 218,725 fully paid shares as trustees of the Nufarm Limited Share Plan. 3 The shareholding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (429,855 shares) – Dr Goodfellow, whilst Chairman of the Trust Board, has no beneﬁcial interest in the shares; (ii) three trusts of which he is a non-beneﬁcial trustee (807,039) shares; and (iii) Waikato Investment Company Limited (113,616 shares). St Kentigern Trust Board also hold 2,270,000 capital notes issued by Fernz Corporation (NZ) Ltd, a related body corporate. Balance at beginning of period 1 Aug 2004 Granted as remuner- ation Options exercised Balance at end of period 31 July 2005 $ value of options exercised in the period e) Remuneration options: granted and vested during the year Speciﬁed directors DJ Rathbone 566,443 – 566,443 – $1,529,396 Speciﬁed executives B Benson DA Pullan JA Allen KP Martin RF Ooms Total 98,345 153,091 153,091 143,406 143,406 1,257,782 – – – – – – 98,345 153,091 153,091 143,406 143,406 1,257,782 – – – – – – $265,531 $413,346 $413,346 $387,196 $387,196 $3,396,011 Details of shares issued as a result of the exercise of options during the ﬁnancial year are as follows: a) 1,437,692 shares issued to group executives at an exercise price of $2.70, which includes 1,257,782 shares issued to speciﬁed directors and executives as detailed above; and b) 61,336 shares issued to participants in the UK Savings Related Share Option Scheme (1997) at an exercise price of $3.66. There are no unissued shares under option. Nufarm Limited 2005 Annual Report 79 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 2005 there were 60 participants (2004: 65 participants) in the scheme and 1,492,327 shares (2004: 1,572,401) were allocated and held by the trustee on behalf of the participants. A further 1,437,692 (2004: 1,437,692) options had been granted under the plan, all of which were exercised during the year at an exercise price of $2.70 per share. 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 participant’s contrinution. An independent trustee holds the shares on behalf of the participants. There are 769 participants at 31 July 2005 (2004: 761 participants). The cost of issuing shares is expensed in the year of issue. The power of appointment and removal of the trustees for the share purchase schemes is vested in the company. 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. notes NOTES TO THE FINANCIAL STATEMENTS 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 2005, all partly paid shares had been fully paid and therefore, the trustee is holding no partly paid shares. The comparative partly paid share for 2004 were 218,600 ordinary shares paid to one cent per share, with $684,218 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 $149,748 at 31 July 2005 (2004: $2,027,657). Each executive is entitled to exercise voting rights attached to the shares allocated. At 31 July 2005 the trustees of the Executive Share Purchase Scheme (1984) held 100,000 (2004: 522,000) ordinary shares, all of which were allocated. There are six remaining participants (2004: 72 participants) in the scheme. 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 2005, all share options outstanding at 31 July 2004 (77,514) had been exercised or had expired. The shares exercised (61,336) were at a price of $3.66 per share. The above plans have been replaced by the plans below. 80 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS 32 Employee share purchase schemes continued Summary of share movements in the global share plan Balance at the beginning of the period Matching shares allocated – current period Matching shares allocated – prior period adjustment Loyalty shares allocated Shares held by trustee Balance at the end of the period The average issue price of the 444,366 shares to date is $5.88 per share. Number of shares 2005 275,169 41,213 (15,713) 85,521 58,176 444,366 Executive share option plan Weighted Weighted Number average of options exercise price 2005 2005 Number average of options exercise price 2004 2004 Balance at the beginning of the period Granted Exercised Expired Balance at the end of the period Number of options All outstanding options were exercised during 2005. 77,514 871,249 566,443 1,515,206 – (1,499,028) (16,178) – 2.72 – 2.72 3.66 – 1,528,279 – – (13,073) 1,515,206 2.72 – – 3.56 2.72 Grant date Exercise date 2005 Expiry Weighted average date exercise price – – – – 2004 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 3.56 2.70 2.70 Nufarm Limited 2005 Annual Report 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 Vested beneﬁts The above amounts were measured at 31 July 2005. 2005 $000 32,120 21,365 10,755 30,145 2004 $000 34,528 20,391 14,137 33,076 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 Vested beneﬁts 2005 $000 15,594 10,171 5,423 10,928 2004 $000 12,816 8,375 4,441 8,591 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 2005, an actuarial assessment of the future potential liability was EUR 6.4 million (AUD$10.2 million). The liability at July 2004 was EUR 5.9 million (AUD$10.1 million). 82 Nufarm Limited 2005 Annual Report 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. There were transactions with directors of the entity or their director-related entities which are considered trivial, domestic in nature, and were at market values. Therefore, the transactions have been excluded from the detailed related party disclosures. b) Transactions with other related parties Bayer CropScience Nufarm Limited Agchem Receivables Corp SRFA LLC Agripec Quimica e Farmaceutica SA sales to purchases from loan payable loan receivable interest paid sales to loan payable interest payable receivable sales to Consolidated 2005 $000 10,723 11,181 50,348 1,450 1,523 1,821 658 28 19,035 8,569 2004 $000 11,200 11,182 52,769 1,371 1,215 2,388 1,424 – – – c) Ultimate controlling entity The ultimate controlling entity of the consolidated entity is Nufarm Limited (ABN 37 091 323 312). Nufarm Limited 2005 Annual Report 83 notes NOTES TO THE FINANCIAL STATEMENTS 35 Auditors’ remuneration Audit services KPMG Australia (2004: Ernst & Young Australia) Audit and review of ﬁnancial reports Review of IFRS disclosures Overseas KPMG ﬁrms (2004: Overseas Ernst & Young ﬁrms) Audit and review of ﬁnancial reports Other auditors Audit and review of ﬁnancial reports Other services KPMG Australia (2004: Ernst & Young Australia) IFRS conversion advice Tax compliance services Tax – assistance Tax consolidation advice Accounting advice Overseas KPMG ﬁrms (2004: Overseas Ernst & Young ﬁrms) Tax compliance services Corporate structure advice Due diligence services Other assurance services Consolidated Parent 2005 $000 2004 $000 2005 $000 2004 $000 321 25 601 947 148 1,095 25 – – – 20 – – 31 – 76 394 – 705 1,099 148 1,247 43 315 178 176 – 208 120 – 21 1,061 49 – – 49 – 49 – – – – – – – – – – 58 – – 58 – 58 – – – – – – – – – – 84 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS 36 Discontinuing operation Businesses sold during 2005 include the Nufarm Specialty Products business (Dec 2004), the SEAC business (Feb 2005), Paciﬁc Raw Materials business in New Zealand (July 2005) and the Nufarm Brazil business (July 2005). 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. Financial performance information Revenues from ordinary activitie Expenses Proﬁt from ordinary activities before income tax expense Income tax expense relating to ordinary activities Net proﬁt Asset and liability 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 Proﬁt on divestment Related income tax Proﬁt on divestment (net of income tax expense) Cash ﬂows Operating Investing Financing Net cash ﬂows Consolidated 2005 $000 2004 $000 45,173 40,388 4,785 1,301 3,484 84,816 17,870 66,946 95,225 (66,946) – (5,219) 23,060 8,791 14,269 (8,669) (4,042) 4,602 (8,109) 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) Nufarm Limited 2005 Annual Report 85 notes NOTES TO THE FINANCIAL STATEMENTS 37 Impact of adopting AASB equivalents to IASB standards Nufarm Limited is in the process of transitioning its accounting policies and ﬁnancial reporting from current Australian Accounting Standards (AGAAP) to Australian equivalents of International Financial Reporting Standards (AIFRS), which will be applicable for the ﬁnancial year ending 31 July 2006. In 2004, the company allocated internal resources and engaged external resources to conduct impact assessments to identify key areas that would be impacted by the transition to AIFRS. As a result, Nufarm appointed an AIFRS manager to address each of the areas in order of priority. The AIFRS manager has reviewed each of the key areas and discussed their impact with management, external auditors and the audit committee. Priority has been given to the preparation of an opening balance sheet in accordance with AIFRS as at 1 August 2004, Nufarm’s transition date to AIFRS. This forms the basis of accounting under AIFRS in the future and is required when Nufarm prepares its ﬁrst fully AIFRS compliant ﬁnancial report for the year ending 31 July 2006. Set out below are the key areas where accounting policies are expected to change on adoption of AIFRS and the best estimate of the quantitative impact of the changes on total equity as at the date of transition and 31 July 2005 and on net proﬁt for the year ended 31 July 2005. The ﬁgures disclosed are management’s best estimates of the quantitative impact of the changes as at the date of preparing the 31 July ﬁnancial report based on AIFRS that are expected to be in place when completing the ﬁrst AIFRS ﬁnancial report. The actual effects of transition to AIFRS may differ from the estimates disclosed due to: (a) ongoing work being undertaken by the AIFRS manager; (b) potential amendments to AIFRS and interpretations thereof being issued by the standard-setters and IFRIC; and (c) emerging accepted practice in the interpretation and application of AIFRS and UIG interpretations. This note provides a summary of AIFRS impacts and further disclosure will be provided in the ﬁrst complete AIFRS ﬁnancial report for a true and fair view to be presented under AIFRS. (a) Reconciliation of equity as presented under AGAAP to that under AIFRS Total equity under AGAAP 616,645 560,494 428,340 412,599 Consolidated Notes 31.7.2005 $000 31.7.2004 $000 31.7.2005 $000 Parent 31.7.2004 $000 Adjustments to retained earnings (net of tax) Recognition of deﬁned beneﬁt pension deﬁcit Impairment of assets including goodwill Reversal of goodwill amortisation Increase in equity investment – Agripec Recognition of share-based payment expense Reversal of foreign currency translation reserve Reversal of asset revaluation reserve Recognition of net deferred tax asset Reversal of intangible amortisation Recognition of minority interest Adjustments to other reserves (net of tax) Reversal of foreign currency translation reserve Reversal of asset revaluation reserve Foreign currency translation impact of above entries Total equity under AIFRS Total assets under AIFRS Total liabilities under AIFRS Total net assets under AIFRS 86 Nufarm Limited 2005 Annual Report (i) (ii) (iii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (v) (vi) (17,945) – 5,736 7,753 654 16,339 (348) (517) 4,619 (178) 16,113 (16,339) 348 280 (15,711) 617,047 (19,569) (2,844) – – 373 16,339 (348) (511) – (143) (6,703) (16,339) 348 – (15,991) 537,800 – – – – 654 – – – – – 654 – (732) – – 373 – – – – – (359) – – – – 428,994 – – – – 412,240 1,715,204 (1,098,157) 617,047 1,578,830 (1,041,030) 537,800 738,106 (309,112) 428,994 718,511 (306,271) 412,240 notes NOTES TO THE FINANCIAL STATEMENTS Impact of adopting AASB equivalents to 37 IASB standards continued (i) Under AASB 119 Employee Beneﬁts, the group would recognise the net deﬁcit in its employer sponsored deﬁned beneﬁt pension funds as a liability. Under Australian GAAP, deﬁned beneﬁt plans are accounted for on a cash basis, with no deﬁned beneﬁt obligation or plan assets recognised in the balance sheet. At the date of transition, an amount of $27.7 million ($19.6 million after-tax) would be recognised as a liability of the consolidated entity with a consequential decrease in retained earnings. For the ﬁnancial year ended 31 July 2005, the adjustment in the consolidated entity to recognise the reduction in the pension liability for the year is expected to be $1.4 million, which is mainly the result of currency gains during the year. There was an increase in employer cost in the income statement of $0.1 million and actuarial losses direct to retained earnings of $0.1 million. (ii) AASB 136 Impairment of Assets prescribes requirements for assessing whether an asset is impaired and the accounting treatment for the recognition and measurement of impairment losses. For assets other than goodwill and intangibles with an indeﬁnite useful life, AASB 136 requires that, at each reporting date, the entity assesses whether there are any indicators that an asset may be impaired. Where there is an indication of impairment and for goodwill and intangibles with an indeﬁnite life, the asset’s recoverable amount must be calculated. Recoverable amount is the higher of the fair value less costs to sell and value in use. Fair value less costs to sell is best evidenced by a price in a binding sale agreement but may be based on best estimates of the amount the entity could obtain in disposing of the asset at the reporting date. Value in use is based on management’s best estimate of the future cash ﬂows the entity expects to derive from continued use of the asset in its current condition. The future cash ﬂows would be based on the individual asset or the cash generating unit level. Where an asset’s recoverable amount is less than that asset’s carrying amount, an impairment loss will be taken to the income statement to reduce the carrying amount to recoverable amount. All assets, including goodwill and intangibles with an indeﬁnite useful life, have been tested for impairment, based on their value in use, at transition date and at year-end. For the consolidated entity, at transition an impairment loss of $3.7 million has been taken against intangibles and recognised as a reduction in retained earnings due to the more rigorous impairment test under AIFRS. (iii) Under AASB 3 Business Combinations, goodwill would not be permitted to be amortised but instead is subject to impairment testing on an annual basis and on the occurrence of triggers which may indicate a potential impairment. Currently, the group amortises goodwill over its useful life but not exceeding 15 years. The group has not elected to apply AASB 3 retrospectively and hence, prior year amortisation would not be written-back as at the date of transition and the fair value of assets and liabilities acquired before transition have not been restated. (iv) Under AASB 2 Share Based Payments, the company would recognise the fair value of shares or options granted to employees as an expense on a pro-rata basis over the vesting period in the income statement with a corresponding adjustment to equity. Share-based payment costs are generally not recognised under AGAAP. At transition date, the consolidated entity did not have any options granted to employees that fall under the scope of the standard. However, the entity does have an employee share program whereby matching and loyalty shares are granted to employees over ﬁve years after a one year qualifying period. Under AIFRS, the expense of the matching and loyalty shares is recognised over the respective vesting period, rather than as the matching and loyalty shares are issued. (v) The AASB 1 election to reset existing foreign currency translation reserve balance to nil is expected to be adopted. The balance of foreign currency translation reserve at transition of $16.3 million has been offset to retained earnings. (vi) Property, plant and equipment will be measured at cost under AIFRS. However, as permitted by the election available under AASB 1, at transition date certain items of property, plant and equipment are expected to be recognised at deemed cost, being a revalued amount prior to transition date that approximates the fair value as at the date of transition. Any asset revaluation reserve balance relating to these assets will be derecognised at transition date and adjusted against retained earnings. (vii) On transition to AIFRS the balance sheet method of tax effect accounting will be adopted, rather than the liability method applied currently under Australian GAAP. Under the balance sheet approach, income tax in the proﬁt and loss statement for the year comprises current and deferred taxes. Current tax is the expected tax payable on the taxable income for the year. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amount of assets and liabilities for ﬁnancial reporting purposes and the amounts used for tax purposes. A deferred tax asset will be recognised only to the extent that future taxable proﬁts are probable. The expected impact on the consolidated entity at 1 August 2004 of the change in basis and the transition adjustments on the net deferred tax balances is an increase of $0.5 million and an adjustment to retained earnings of $0.5 million. (viii) Intangible assets acquired will be stated at cost less accumulated amortisation and impairment losses. On transition other intangible assets have been reviewed to ensure they are capable of recognition under AASB 138 Intangible Assets and tested for impairment. Amortisation will be recognised on a straight-line basis over the estimated useful lives of the intangible assets, unless such lives are indeﬁnite. Intangible assets with an indeﬁnite useful life will not be subject to amortisation but tested for impairment annually. The group is expected to have intangibles with indeﬁnite useful lives such as registrations, trade marks and brand names, which were previously amortised under AGAAP. Nufarm Limited 2005 Annual Report 87 notes NOTES TO THE FINANCIAL STATEMENTS Impact of adopting AASB equivalents to 37 IASB standards continued (ix) Under AIFRS expenditure on research activities will be expensed as incurred whereas under current AGAAP certain research costs are included within development projects and therefore capitalised. Under AIFRS, expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufﬁcient resources to complete the development. Capitalised development expenditure will be stated at cost less accumulated amortisation and impairment losses. At transition and at year-end, the group did not have any capitalised research expenditure and has not identiﬁed signiﬁcant development expenditure not already capitalised under AGAAP. (x) Under AIFRS, securitisation receivables and payables are expected to be brought back onto the balance sheet as AIFRS considers the probability of risks and beneﬁts in determining control, not just the possibility. This will apply to the group in the 31 July 2005 reporting year. At transition, the impact of this change will be to increase receivables by $138.7 million and increase payables by $138.7 million. At 31 July 2005 both receivables and payables will increase by $133.1 million. (xi) Under the AIFRS consolidation standard AASB127, the securitisation receivable entity is consolidated on the balance sheet. Previously, it had been equity accounted. This will apply for both the transitional balance sheet and the 31 July reporting year. The impact for the reporting period is an increase on total assets of $1.0 million, an increase in total liabilities of $1.2 million and a reduction in equity by $0.2 million. (xii) Management have applied the exemption provided in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, which permits entities not to apply the requirements of AASB 132 Financial Instruments: Presentation and Disclosures and AASB 139 Financial Instruments: Recognition and Measurement for the ﬁnancial year ended 31 July 2005. The standards will be applied from 1 August 2005. The AIFRS project manager is in the process of determining the impact that adopting the standards would have on the ﬁnancial statements of the group. The expected impact of adopting AASB 132 and AASB 139 is that all derivatives will be recognised at fair value on the balance sheet and cash ﬂow hedge accounting can only be considered where effectiveness test are met on a prospective and retrospective basis. Ineffectiveness outside the prescribe range precludes the used of hedge accounting and may result in amounts recognised in the income statement which had not previously been recognised. (xiii) Under AASB 138 Intangible Assets, computer software that is not integral to the operation of a manufacturing faciity should be classiﬁed as an intangible asset rather than property, plant and equipment. At transition, $2.8 million of software has been reclassiﬁed to intangibles from property, plant and equipment. At year-end, $3.1 million has been reclassiﬁed. (b) Reconciliation of net proﬁt under AGAAP to that under AIFRS Notes (i) (ii) (ii) (iii) (iv) (v) (vi) Consolidated 31.7.2005 $000 Parent 31.7.2005 $000 104,297 (53) 5,770 7,814 4,804 (656) 2,844 (33) 124,787 50,069 – – – – (656) – – 49,413 3,407 – 121,380 49,413 Net proﬁt as reported under AGAAP Movement in deﬁned beneﬁt pension deﬁcit Amortisation of goodwill Equity income – Agripec Amortisation of intangibles Share-based payment expense Reversal of impairment losses recognised in AGAAP Adjustment to income tax expense Net proﬁt under AIFRS Less non-operating proﬁt Operating net proﬁt under AIFRS 88 Nufarm Limited 2005 Annual Report notes NOTES TO THE FINANCIAL STATEMENTS Impact of adopting AASB equivalents to 37 IASB standards continued (i) The deﬁned beneﬁt pension deﬁcit for the group, which would be recognised under AASB 119 as at 31 July 2005, has decreased from 1 August 2004. However, an increase in employer costs of $0.1 million resulted in a decrease in AIFRS proﬁt for the year. Refer also to note 37 (a) (i) above. (ii) Under AASB 3 Business Combinations, goodwill is not permitted to be amortised but instead is subject to annual impairment testing. Currently, the group amortises goodwill over its useful life but not exceeding 20 years. Under the new policy, amortisation would no longer be charged but goodwill would be written down to the extent it is impaired. This results in an increase in AIFRS proﬁt of $5.8 miilion for the year. See also note 37 (a)(iii) above. The notional goodwill on the Agripec equity investment is no longer amortised resulting in an increase in equity income of $7.8 million for the year. (iii) Under AASB 138 Intangible Assets, intangible assets with indeﬁnite lives will no longer be amortised but instead is subject to annual impairment testing. Currently, the group amortises intangibles over their useful lives but not exceeding 15 years. Under the new policy, intangibles with an indeﬁnite life would be written down to the extent they are impaired. Intangibles with a ﬁnite life will continue to be amortised on a straight-line basis over their useful lives. This results in an increase to AIFRS proﬁt of $4.8 million for the year. See also note 37 (a)(viii) above. (iv) Under AASB 2 Share-based Payments, the company would recognise the fair value of share entitlements granted to employees as remuneration as an expense on a pro-rata basis in the income statement over the vesting period. Share-based payments are generally not recognised under AGAAP. This would result in a decrease in proﬁt from AGAAP to AIFRS. (v) Under AASB 136 Impairment of Assets, the group’s assets, including goodwill and intangible assets with indeﬁnite lives, would be tested for impairment as part of the cash generating unit to which they belong. Any impairment losses are recognised in the income statement. (vi) The adjustment to income tax expense relates to the above AIFRS adjustments as well as to the reversal of the deferred tax liability, which would be recognised as at the transition date under AIFRS in relation to revalued assets. (vii) Under AIFRS, revenue from the disposal of assets is recognised on a net basis as revenue or expense, rather than separately recognising the consideration received as revenue. Therefore, other revenue will no longer include the proceeds from sale of assets (2005: $95.2 million) but will be disclosed as a net gain on the sale of assets ($23.1 million). (c) Restated AIFRS Statement of Cash Flows for the year ended 31 July 2005 No material impacts are expected to the cash ﬂows presented under AGAAP on adoption of AIFRS. 38 Subsequent events The company announced in August 2005 that it had sold its Australian turf/specialty business, Nuturf Pty Ltd, to Hong Kong based C K Life Sciences International Holdings inc. for $7.2 million. 2005 ﬁnancial year sales for Nuturf Pty Ltd were some $21 million and the business contributed net earnings of $1.1 million. This small wholesale business had not achieved sufﬁcient scale in the Australian market to justify ongoing investment. Nufarm Limited 2005 Annual Report 89 director’s declaration 1. In the opinion of the directors of Nufarm Limited: (a) the ﬁnancial statements and associated notes including the remuneration disclosures that are contained in the attached Remuneration Report in the Directors’ Report are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the ﬁnancial position of the company and consolidated entity as at 31 July 2005 and of their performance, as represented by the results of their operations and their cash ﬂows, for the year ended on that date; and (ii) complying with Accounting Standards in Australia, including AASB 1046 Director and Executive Disclosures by Disclosing Entities and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the company and the controlled entities identiﬁed in note 26 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the deed of cross guarantee between the companyand those controlled entities pursuant to ASIC Class Order 98/ 1418. 3. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer for the ﬁnancial year ended 31 July 2005. Signed in accordance with a resolution of directors: KM Hoggard Director DJ Rathbone Director Melbourne 4 October 2005 90 Nufarm Limited 2005 Annual Report nnual Report 91 Nufarm Limited 2005 Annual Report 91 NNufarm Limited 2005 AAnnual Report ufarm Limited 2005 92 Nufarm Limited 2005 Annual Report trend statement SUPPLEMENTARY INFORMATION 2005 $000 2004 $000 2003 $000 2002 $000 2001 $000 2000 $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 1,671,029 103,474 823 1,595,768 76,563 (361) 1,458,811 64,269 12,824 1,429,275 56,834 – 1,323,232 51,138 (55,664) 1,213,042 51,984 4,206 104,297 40,548 63,749 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 29,372 216,827 399,818 616,645 210,530 349,964 560,494 149,219 313,102 462,321 147,333 243,706 391,039 145,593 207,208 352,801 145,066 243,446 388,512 726,365 625,883 100,482 822,057 922,539 103,556 202,338 305,894 616,645 736,292 550,862 185,430 695,286 880,716 116,602 203,620 320,222 560,494 711,456 506,925 204,531 646,358 850,889 187,045 201,523 388,568 462,321 710,976 590,050 120,926 615,246 736,172 152,248 192,885 345,133 391,039 618,179 454,309 163,870 573,702 737,572 246,323 138,448 384,771 352,801 560,170 420,088 140,082 578,766 718,848 197,524 132,812 330,33 388,512 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 17.8% 26.0c $2.66 15.6% 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 Nufarm Limited 2005 Annual Report 93 shareholder and statutory information Details of shareholders, shareholdings and top 20 shareholders Listed securities 4 October 2005 Fully paid ordinary shares Twenty largest shareholders Falls Creek No 2 Pty Ltd J P Morgan Nominees Australia Limited Amalgamated Dairies Limited ANZ Nominees Limited (Cash Income A/C) National Nominees Limited Westpac Custodian Nominees Limited Cogent Nominees Pty Limited Citicorp Nominees Pty Limited Challenge Investment Company Limited Grantali Pty Ltd AMP Life Limited The Avalon Investment Trust Limited Lawrence Holdings Limited Australian Foundation Investment Company Limited ASX Perpetual Registrars Ltd Citicorp Nominees Pty Limited (CFS Future Leaders Fund A/C) CPU Share Plans Pty Ltd Suncorp Custodian Services Pty Limited (AET) Cogent Nominees Pty Limited (SMP Accounts) Douglas Industries 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 of securities Number Percentage held by top 20 67.46 10203 169,671,874 Ordinary shares as at 4.10.05 25,680,987 18,069,172 15,110,737 12,325,881 7,161,529 5,840,999 3,744,492 3,602,540 2,982,868 2,887,403 2,512,124 2,491,448 2,243,750 1,910,785 1,761,454 1,494,177 1,382,352 1,337,297 996,440 916,565 Number of Holders as at 4.10.05 3,420 4,996 1,037 667 83 Percentage of issued capital as at 4.10.05 15.14 10.65 8.91 7.26 4.22 3.44 2.21 2.12 1.76 1.70 1.48 1.47 1.32 1.13 1.04 0.88 0.81 0.79 0.59 0.54 Ordinary shares held as at 4.10.05 2,043,436 12,388,963 7,218,079 13,701,943 134,319,453 Of these, 55 shareholders held less than a marketable parcel of shares of $500 worth of shares (45 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 4 October 2005 was used to determine the number of shares in a marketable parcel. 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 4 October 2005, 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: 94 Nufarm Limited 2005 Annual Report shareholder and statutory information continued Date of notice Number of shares Interest % Amalgamated Dairies Ltd Khyber Pass Ltd 1 Glade Building Ltd 2 Hauraki Trading Ltd 3 Oxford Trustees (Paul Gerard Keeling and Allan Cameron Rattray) 4 Douglas John Rathbone 5 Australia and New Zealand Banking Group Limited (ANZ) 6 ING Australia Holdings Ltd (and related companies) 24 August 2000 24 August 2000 24 August 2000 24 August 2000 24 August 2000 8 November 2004 6 December 2004 20 January 2005 14,950,815 14,968,110 15,329,898 15,685,712 15,347,193 29,346,867 12,057,012 16,844,059 9.69 9.70 9.93 10.16 9.94 17.38 7.14 9.94 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 218,725 shares as trustee of the Nufarm Limited staff share plan. 6 ANZ is taken under section 608(3)(a) of the Corporations Act to have the same relevant interests as ING Australia Limited and consequently has acquired relevant interests in the shares held by ING Australia Ltd. Voting rights 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. Shareholder information Annual general meeting The annual general meeting of Nufarm Limited will be held on Thursday 8 December 2005 at 10.00 am 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 one vote for each fully paid share. Stock exchange listing 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 reply on paper documentation. Shareholders seeking more information about CHESS should contact their stockbroker or the ASX. Electronic shareholder communication You can choose to receive shareholder information electronically. Register for this initiative at www.eTree.com.au/nufarm and a donation of $2 will go to Landcare Australia to support urgent reforestation projects in Australia and New Zealand. Printing and posting paper publications such as annual reports are costly. By electing to receive this information electronically you will help the environment and reduce our costs. This initiative is being run in conjunction with Computershare Investor Services. 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. 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 Click on “Access a single holding” under the Non Member Access heading Step 3 Enter NUF or Nufarm Limited Step 3 Enter shareholder reference number (SRN) or holder identiﬁcation number (HIN), postcode or country if outside Australia, and submit Step 4 Read only access to: – Account balance – Transaction history – Payment instructions – Payment history – Sign up for electronic securityholder communications Nufarm Limited 2005 Annual Report 95 shareholder and statutory information continued Investor Centre (online portfolio updating capability) Dividends Step 1 Go to www.computershare.com/au/investors Step 2 Step 3 Enter User ID and PIN or access the ‘Register here’ button Follow the prompts to register. For security purposes, Computershare will generate a PIN and mail it to your registered address. Step 4 Enjoy the access to Investor Centre to view, evaluate and manage your portfolio A ﬁnal dividend of 17 cents per share will be paid on 11 November 2005 to shareholders registered on 21 October 2005. For Australian tax purposes, the dividend will be 100 per cent franked at the 30 per cent tax rate. Australian and New Zealand shareholders can elect to have dividends paid directly into a bank account anywhere in Australia or New Zealand. Forms for this purpose are available on request from the share registry. User you PIN and user ID to: Manage Key dates View portfolio of all securities managed by Computershare Add securities not managed by Computershare to your portfolio 21 October 2005 Record date (books closing) for 2004/2005 ﬁnal dividend 11 November 2005 Final dividend for 2004/2005 payable 31 October 2005 * Annual report sent to shareholders 8 December 2005 Annual general meeting 23 March 2006* Announcement of proﬁt result for half year ending 31 January 2006 31 July 2006 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 Nufarm Limited View and set up payment instructions Sign up for electronic securityholder communications Retrieve holding statement Request statements 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. InvestorPhone (Australian shareholders only) InvestorPhone provides telephone access 24 hours a day 7 days a week. Step 1 Call 1300 85 05 05 Step 2 Enter the company (ASX) code – NUF Step 3 Step 4 Enter your securityholder reference number (SRN) or holder identiﬁcation number (HIN) Follow the prompts to gain secure, immediate access to your: – holding details – registration details – payment information 96 Nufarm Limited 2005 Annual Report 1 Facts in brief 2 Managing director’s review 8 Strong brands = added value 16 Business review 16 Health, safety and environment 18 Crop protection 24 Management team 26 Board of directors 28 Corporate governance 33 Directors’ report 43 Statement of ﬁnancial performance 44 Statement of ﬁnancial position 45 Statement of cash ﬂows 46 Notes to ﬁnancial statements 90 Directors’ declaration 91 93 Independent audit report Trend statement 94 Shareholder and statutory information 97 Directory directory Directors KM Hoggard – Chairman DJ Rathbone – Managing Director GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie AO GW McGregor AO (retired 31 July 2005) Dr JW Stocker AO RFE Warburton AO Company Secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Sylvia Miller & Associates 131 Orrong Road Elsternwick Victoria 3185 Australia Auditors KPMG 161 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 850 505 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 Nufarm Limited 2005 Annual Report f N u a r m L m i i t e d 2 0 0 5 A n n u a l R e p o r t

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