Nufarm Limited Annual Report 2006

Plain-text annual report

nufarm limited ANNUAL REPORT n u f a r m l i m i t e d 2 0 0 6 a n n u a l r e p o r t 1 KEY EVENTS 1 FACTS IN BRIEF 2 MANAGING DIRECTOR’S REVIEW 8 CORPORATE STRATEGY 14 BUSINESS REVIEW 14 HEALTH, SAFETY AND ENVIRONMENT 16 CROP PROTECTION 26 MANAGEMENT TEAM 28 BOARD OF DIRECTORS 30 CORPORATE GOVERNANCE 36 DIRECTORS’ REPORT 44 LEAD AUDITOR’S INDEPENDENCE DECLARATION 45 INCOME STATEMENT 46 BALANCE SHEET 47 STATEMENT OF CASH FLOWS 48 STATEMENT OF RECOGNISED INCOME AND EXPENSE 49 NOTES 104 DIRECTORS’ DECLARATION 105 INDEPENDENT AUDIT REPORT 107 SHAREHOLDER AND STATUTORY INFORMATION 112 DIRECTORY 1 key events • wholly owned businesses generate 26% net profit growth • challenging conditions in brazil have negative impact on agripec contribution • substantial benefits from reorganisation of manufacturing assets in europe • futher acquisitions consolidate position in australian seeds business facts in brief 12 months ended 31.07.06 12 months ended 31.07.05 $000 121,106 1,676,746 709,366 1,927,125 $000 121,660 1,573,988 617,314 1,748,731 Trading results Operating profit after tax Crop protection sales revenue Total equity Total assets Ratios Net debt to equity Net tangible assets per ordinary share 81% 2.41 78% 2.45 Distribution to shareholders Annual dividend per ordinary share 30 c 26 c People Staff employed 2,315 2,279 Front cover: Maize {corn} is the world’s largest crop. The top four producers are USA, China, Brazil and Mexico. nufarm limited 2006 operating profit group sales m 1 . 1 2 1 $ m 7 . 1 2 1 $ m 5 . 6 7 $ m 3 . 4 6 $ m 8 . 6 5 $ m 8 5 4 1 $ m 9 2 4 1 $ m 7 7 6 1 $ m 4 7 5 1 $ m 6 9 5 1 $ d e u n i t n o c s i d s n o i t a r e p o g n i d u l c x e d e u n i t n o c s i d s n o i t a r e p o g n i d u l c x e aifrs aifrs agaap agaap agaap aifrs aifrs agaap agaap agaap 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 ebitda return on funds employed m 0 . 2 5 2 $ m 0 . 5 4 2 $ m 0 . 7 0 2 $ m 8 . 9 9 1 $ m 2 . 2 8 1 $ % 8 . 9 1 % 8 . 7 1 % 7 . 5 1 % 0 . 4 1 % 5 . 3 1 aifrs aifrs agaap agaap agaap aifrs aifrs agaap agaap agaap 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 net debt to equity earnings per share – excluding discontinued operations % 2 5 1 % 8 9 % 1 8 % 8 7 % 1 6 Ç 3 . 0 6 Ç 5 . 0 6 Ç 3 . 7 4 Ç 3 . 1 4 Ç 7 . 6 3 d e u n i t n o c s i d s n o i t a r e p o g n i d u l c x e d e u n i t n o c s i d s n o i t a r e p o g n i d u l c x e aifrs aifrs agaap agaap agaap aifrs aifrs agaap agaap agaap 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 Nufarm made the transition to the new Australian Accounting Standards (AIFRS) in 2006 from the previous accounting standard known as AGAAP. For comparison, the 2005 data has been restated under AIFRS. Data relating to earlier years is according to AGAAP. � 3 managing director’s review The 2006 ﬁnancial year was challenging on a number of fronts for Nufarm and for the global crop protection industry in general. Despite those challenges, the company generated 26 per cent net proﬁt growth from its wholly owned businesses and is very well positioned to achieve additional growth over future years. The company achieved a net proﬁt of $121.2 million for the year ended 31 July, 2006. After allowing for non-operating items, the tax paid operating proﬁt of $121.1 million is slightly below the previous year’s net operating proﬁt of $121.7 million. Total group sales from continuing operations were $1.68 billion, up just over 6.5 per cent on the 2005 year. The excellent performance from Nufarm’s wholly owned crop protection businesses was offset by a substantially lower contribution from Nufarm’s 49.9 per cent equity interest in Brazilian crop protection company, Agripec. Negative farm sector economics in Brazil and a conservative risk management approach resulted in Agripec making a net proﬁt contribution of $1.9 million, after ﬁnancing costs of $9.7 million (2005: $5.1 million). This is well below the $26.9 million contribution booked from this investment in the 2005 year. Additional detail relating to the business conditions in Brazil and Agripec’s performance are contained in the business review section of this report. While conditions in Brazil remain uncertain in the immediate future, I remain very conﬁdent that our investment there will generate excellent returns over the medium to longer term. Nufarm’s North American and European operations posted strong growth in revenues and proﬁt, with the European businesses also beneﬁting from efﬁciency gains in several manufacturing locations. The company’s Australian business capitalised on sales of new products into higher margin segments and was able to achieve a solid performance despite very mixed seasonal conditions across Australia’s major cropping regions in the last few months of the ﬁnancial year. Australasia accounted for 45 per cent of total sales; the Americas 32 per cent and Europe 23 per cent. Nufarm’s interest in Agripec is equity accounted and the sales are therefore not included in the above revenue splits. Earnings per share (excluding discontinued operations) were 60.3 cents, in line with last year’s 60.5 cents. Net debt to equity was up slightly at year end (81 per cent versus 78 per cent at 31 July 2005), due to an increase of $108 million in working capital requirements. Opposite: Approximately 27% of the conventional crop protection market is for fruit and vegetables, grown for human consumption throughout the world. nufarm limited 2006 4 managing director’ s review crop pr o t c e t i o n sales by regio 38% n 2 0 0 6 32% t c e t crop pr o i o n sales by regio 41% n 2 0 0 5 28% australia americas europe asia new zealand 3% 4% 23% $1.677 mil l i o n australia americas europe asia new zealand 4% 4% 23% $1.574 mil l i o n rop pr o t e c o r y 2 0 0 6 i o n s ales by categ t c 4% 10% herbicides fungicides insecticides t c rop pr o t e c o r y 2 0 0 5 i o n s ales by categ 4% 8% herbicides fungicides insecticides 86% 88% nufarm limited 2006 5 managing director’s review Trading receivables were $42 million higher due to increased June/July sales in North America and Europe (June/July group sales up $61 million on the previous year). Trade creditors were some $59 million lower in 2006, associated with earlier purchasing of inventory to meet anticipated sales demand in Australia. Seasonal conditions meant that demand was lower than expected. Return on average funds employed was 17.8 per cent. Net interests costs increased from $38.3 million to $49.2 million due to a full year of interest on debt associated with the Agripec investment (an additional $5 million in interest) and a combination of higher debt utilisation for working capital and increased interest rates in the USA and Australia. While the overall tax rate was consistent with the previous year, total taxes were higher due to the increased proﬁtability of the wholly owned businesses. non-operating items The company booked a small net proﬁt ($47,000) from the combination of the sale of non-core businesses, costs associated with various restructuring initiatives and other non-operating items during the 2006 reporting period. final dividend Directors have declared a fully franked ﬁnal dividend of 20 cents per share (last year 17 cents per share), which will be paid on 10 November to the holders of all fully paid shares in the company as at the close of business on 20 October. The resulting full year dividend payment of 30 cents per share is an increase of four cents (15 per cent) on the previous year. subsequent events Acquisition of Roundup Ready® canola program The company announced on 6 September that it had acquired a licence to develop and commercialise Roundup Ready® canola in Australia. Nufarm paid Monsanto a total of $10 million for Monsanto’s Roundup Ready® canola germ plasm and a licence to the Roundup Ready® canola trait. The agreement complements Nufarm’s recent acquisitions of several seed businesses in Australia and allows Nufarm to accelerate the development and introduction of new seed technologies. Roundup Ready® is a genetic trait that allows farmers to use Roundup herbicide over the top of their crops, offering broad spectrum and efﬁcient weed control and simplifying production of those crops. Proposed divestment of chlor-alkali interests The company has reached agreement to sell its 80 per cent interest in the Nufarm Coogee joint venture to its joint venture partner, Coogee Chemicals Pty Ltd. Opposite: Cereal grains, such as barley, are grown in greater quantities world wide than any other type of crop. nufarm limited 2006 6 managing director’s review The joint venture operates two chlor-alkali plants in Western Australia, supplying chlorine as a feedstock for the manufacture of titanium dioxide. In the 2006 period, this business generated an operating proﬁt contribution to Nufarm of $9.1 million (reported as proﬁt on discontinued operations in the proﬁt and loss statement), up from $6.9 million in the previous year. The improvement was attributable to higher sales of chlorine and an increase in the world indicator price for caustic soda. The transaction involves the sale of Nufarm’s interest, with completion scheduled for 31 July 2007. Nufarm will book a full 12 months earnings contribution from the joint venture in 2007, albeit with lower proﬁt expectations due to an expected downturn in caustic soda prices. The consideration on the sale will be at least $48 million, with the ﬁnal price determined as at completion date. The proﬁt on sale will be approximately $24 million. Acquisition in Italy The company announced on 28 September that it has reached agreement to acquire a crop protection business in Italy for €6.4 million. This will provide Nufarm with an operational base from which to grow our sales in this important West European market. Replacement of capital notes The company has announced a public offer of a new hybrid security. The proposed offer is for A$250 million of Nufarm Step-up Securities (‘NSS’), with the ability to accept oversubscriptions of up to A$50 million. This offer will effectively ‘replace’ the capital notes that are currently on issue. our people Nufarm’s employees continue to demonstrate tremendous loyalty and commitment to the company and have again worked very hard to drive proﬁtable growth in the various businesses around the world. Directors and the senior management team would like to acknowledge those efforts. The company has developed and nurtured a strong culture that empowers employees and recognises that the people in our organisation are fundamental to Nufarm’s overall success. During the 2006 ﬁnancial year, we have progressed our talent development programs and worked with managers to ensure future leaders are identiﬁed and encouraged. As the company continues to expand, there will be an ongoing need to ensure we retain and attract quality people in all areas of the business. nufarm limited 2006 7 managing director’s review outlook The company will continue to pursue proﬁtable growth via the expansion of its geographic platform and an accelerated program of new product introductions. Nufarm remains in a strong position to achieve ongoing revenue and proﬁt growth in established overseas markets such as North America and Western Europe and will be adding to its product portfolio in those markets during the current ﬁnancial year. While seasonal conditions remain challenging in Australia, the business is anticipating some growth in certain segments and further progress with the recently established seeds business. Additional expansion into emerging growth markets such as Eastern Europe will be approached with a high regard for appropriate risk management. The immediate outlook for the farm sector in Brazil remains uncertain. Nufarm’s focus will be to work with Agripec management to further expand the product range and continue the diversiﬁcation of selling opportunities into new crop segments. This will ensure that Agripec is well positioned to take advantage of any improvement in trading conditions in Brazil. Despite a substantial reduction in the earnings contribution from Agripec in 2006, Nufarm is conﬁdent of some growth in the Agripec contribution in the current year. However, management remains cautious and forecasts have again been prepared on a very conservative basis. More broadly, the company continues to evaluate additional acquisition opportunities on both a market speciﬁc and regional basis. On a like-for-like basis, the company is forecasting net proﬁt growth of approximately eight per cent in 2007, with that forecast taking due regard to the current outlook for unfavourable seasonal conditions in Australia, the uncertainty in the Brazilian farm sector, and a competitive international market for our products. The long-term objective of achieving an average of 10 per cent growth in net operational earnings has been maintained and the directors are of the opinion that the future of the company remains positive. Doug Rathbone Managing Director 29 September 2006 nufarm limited 2006 8 corporate strategy a consistent strategy in 2000, nufarm adopted a number of clear strategic objectives and set about ensuring that the direction and management of the business reflected those objectives: • to be a focused crop protection company • to build a strong geographic platform • to expand the product portfolio nufarm limited 2006 9 corporate strategy focused on crop protection With a continuing requirement for improved efﬁciencies in global food production and new growth drivers – such as the emerging bio- fuels sector – we see signiﬁcant future opportunities in the crop protection business. Above left: Australian subsidiary Crop Care launched suSCon Maxi granules in 2006, using patented sustained release technology to control grubs in newly planted sugar cane. Above right: Application of Regalis, Nufarm’s new Australian bio-regulator, helps orchardists manage the correct balance between apple production and tree growth. Opposite: The world’s major commercial citrus growing areas include southern China, the Mediterranean region, South Africa, Australia, the United States and South America. For more than 50 years Nufarm has been manufacturing and supplying crop protection products. While it has also owned – and proﬁtably operated – businesses in other industry segments, it recognised that the greatest potential to create sustainable growth in shareholder value was to be a focused crop protection company. In the past ﬁve years, Nufarm has divested a number of businesses – in a way that maximised the returns on the sale of those assets – and redeployed the capital realised into the core crop protection business. Nufarm is now one of the world’s top 10 crop protection companies, with leadership positions in a number of markets and products. As well as competing with other global crop protection companies in various markets around the world, Nufarm also has supply arrangements, joint ventures and other commercial relationships that combine to form a valuable network with detailed market knowledge. nufarm limited 2006 10 corporate strategy Nufarm has manufacturing and marketing operations throughout Australia, New Zealand, Asia, the Americas and Europe and sells products in more than 100 countries around the world Nufarm has a clear leadership position in the crop protection industry in Australia and New Zealand Nufarm is achieving strong growth in the USA – the world’s largest crop protection market – with important new products being introduced With an operational presence now established in the major markets of Western Europe, Nufarm is looking at future expansion opportunities in Eastern Europe Some emerging markets – such as Brazil – have proven to be more volatile in terms of business conditions, but have the potential for excellent medium to long term growth nufarm limited 2006 11 corporate strategy building a strong geographic platform Nufarm’s geographic diversiﬁcation reduces the company’s exposure to adverse impacts from poor seasonal conditions in any one market, and provides new proﬁtable growth opportunities. Nufarm’s crop protection business was founded in Melbourne more than 50 years ago. After establishing a strong position in the Australian and New Zealand markets, the company set about building a global platform in key agricultural markets around the world. This geographic diversiﬁcation reduces the company’s exposure to adverse impacts from poor seasonal conditions in any one market, and provides new proﬁtable growth opportunities. While Nufarm has a clear leadership position in crop protection in Australia and New Zealand, the company is still a relatively small ‘player’ in many larger overseas markets. However, with an operational presence now in place in North America, South America and the major markets of Western Europe, Nufarm is well placed to secure additional business within these regions. In the USA – the world’s largest crop protection market – Nufarm is achieving strong growth and is now recognised as an important and reputable supplier. Emerging markets in Asia and Eastern Europe are also being addressed, with Nufarm building relationships and investing in countries like India and the newer European Union accession countries such as Hungary, Poland and Romania. In 2006, Nufarm acquired a crop protection business in Colombia and will use this as a base for further expansion into nearby Andean Region markets. And – on September 28 – the company announced the acquisition of a business in Italy. From left to right: Grapes are grown in almost every part of Italy, the world’s oldest wine producing region and an emerging market for Nufarm. Soybean or soya bean is an annual legume grown for its oil and protein. Soybean products appear in a variety of processed food. One of Nufarm’s emerging target markets is India, which plants nine million hectares of cotton each year. The top soybean producers in 2005 were USA, Brazil, Argentina, China, India, Paraguay, Canada, Bolivia and Italy. nufarm limited 2006 12 corporate strategy nufarm’s new products come from internal registration activities, access to products coming off patent, partnering and co-marketing arrangements with other suppliers and from specific product and business acquisitions. nufarm limited 2006 13 corporate strategy expanding product portfolio With most of the geographic platform in place, the key emphasis is now to generate additional sales opportunities by expanding Nufarm’s product portfolio in markets around the world. As an Australian-based company, Nufarm’s product range is dominated by herbicides (by far the major category of crop protection products used in Australian agriculture). Development programs are in place to diversify the product range by achieving strong positions in both fungicides and insecticides. This will facilitate Nufarm’s entry into additional crops and markets where these products are more important. Nufarm is a global leader in the manufacture and supply of branded phenoxy herbicides and is the world’s second largest supplier of glyphosate (the world’s largest selling crop protection product). These positions have been instrumental in Nufarm achieving access to distribution in markets around the world. During the 2006 ﬁnancial year, the company also achieved registration approvals in the USA for the world’s largest selling insecticide, imidacloprid. This product will provide a platform for Nufarm’s insecticide portfolio. Important fungicide positions are also being established, particularly in the European markets where these products command a valuable part of the total business. New products will be generated via Nufarm’s internal registration efforts; by securing access to products coming off patent; by entering into partnering and co-marketing arrangements with other suppliers; and from speciﬁc product and business acquisitions. From left to right: Recently released Nufarm products include Roundup Transorb (a premium glyphosate formulation, New Zealand), Olando Set (cereal herbicide combination, Germany), Sherpa (broad spectrum insecticide, France), Hornet (fungicide, Australia) and Razorburn (differentiated glyphosate formulation, USA) Opposite: Nufarm’s formulation laboratory at Research Triangle Park in North Carolina is developing new products for the US business and elsewhere. nufarm limited 2006 14 business review - health, safety and environment ltifr 1999-2005 mtifr 1999-2005 nufarm severity 1999-2005 2006 target 3.07 2006 target 7.14 2006 target 0.043 �� LTIFR or lost time injury frequency rate is the number of lost time injuries per million hours worked that results in one or more day’s absence from work. MTIFR or medical treatment injury frequency rate is the number of lost time and medical treatment injuries per million hours worked. SEVERITY is the number of days lost per thousand hours worked. product volume tonnes 1999-2005 water use 1999-2005 co2 released 1999-2005 �� nufarm limited 2006 15 business review - health, safety and environment nufarm group unusual incident report/ injury report (uri/ir) vs ltifr 2000 – 2005 � � � � � �� Generating sustainable value from a business means more than just proﬁt on sales. Just as Nufarm sets ambitious targets in terms of annual ﬁnancial performance and shareholder returns, we also strive to achieve continuous improvement across a wide range of health, safety and environmental (HSE) parameters. Our performance in calendar year 2005 (all other data in the annual report is for the 2006 ﬁnancial year) is explained in detail in the Nufarm Limited Health, Safety and Environment Report 2006, together with site speciﬁc HSE reports. The corporate HSE report and the site reports are available on request by mail or by download from www.nufarm.com The graphs of our performance on lost time injuries (LTI), medical treatment injuries (MTI) and severity clearly show that we are making progress against the ambitious targets we set each year. Those health and safety targets for 2006 are LTIFR: 3.07, MTIFR: 7.14 and Severity: 0.043. One powerful tool that is driving HSE improvement where it is used is unusual incident reporting (UIR). This system of identifying and addressing potential causes of injury before it occurs has resulted in signiﬁcant reductions in LTIs, MTIs and severity. By encouraging employees at all levels of the company to recognise and report these incidents – so the system is ﬁxed early and no blame is attached to those who report the incident – we are reinforcing the fact that all Nufarm people have an important role to play in helping us meet and exceed our performance targets. The UIR system has been operating for some years in Australia where it has already led to major improvements. Nufarm’s European operations have made a concerted effort to use this tool and already there is a steady drop in the number of major injuries and a steady rise in the reporting of minor injuries that previously slipped through the net or went unnoticed. Despite production increases, our long term focus on waste minimisation has meant that the total quantities of waste generated in recent years have changed little. The number of environmental complaints the company receives continues to fall and, due to extensive conservation programs, both water use and overall energy use continue to decline. nufarm limited 2006 16 business review - crop protection nufarm limited 2006 17 business review - crop protection overview Total crop protection sales increased by 6.5 per cent to $1,676 million, with operating proﬁt before tax, interest and head ofﬁce charges up by just over 23 per cent to $215.7 million. Excluding Brazil, Nufarm’s crop protection businesses generated net proﬁt growth of some 26 per cent. This was achieved via a combination of increased revenues and a strengthening in gross margins in the company’s major markets. Price increases were implemented in an effort to recover margin lost in the 2005 ﬁnancial year, brought about by the limited ability to pass through higher costs due to late seasonal factors. An ongoing program aimed at improving the efﬁciency of Nufarm’s manufacturing operations and reducing costs in other parts of the business also contributed to improved margins and helped the company absorb additional cost increases in some areas. Business conditions for the crop protection industry during the 12 months were challenging in a number of markets. Despite a contraction in total industry sales in several key regions, Nufarm has achieved revenue growth and continued to win market share gains. Increased sales of core products, including phenoxy herbicides and glyphosate, have been complemented with the introduction of a number of new products and improved penetration into distribution channels. australasia Seasonal conditions in Australia were mixed. Summer cropping conditions were positive, generating very good sales in the period up until Christmas 2005. Early rains in Western Australia also resulted in large sales of pre-emergent and knockdown herbicides. After some encouraging rainfalls in early May, however, conditions remained very dry until mid July, with distribution customers then taking the opportunity to stock up on post emergent products. Full year sales for the Australian businesses were slightly down on the previous year. Dry autumn conditions had an adverse impact on sales into broadacre cereal crops and strong competition for sales in this segment also constrained margins. The businesses generated an excellent performance in the horticulture segment – assisted by the introduction of several new products – and increased sales of higher margin products into forestry and industrial segments. Initial sales of seed treatments, through the Crop Care business, were also positive. General operating expenses were contained and a number of other initiatives led to increased manufacturing efﬁciencies. Export sales of 2,4-D were higher and generated stronger margins than in the previous year. Opposite: Cereal crops, an important part of the economy of Eastern Europe, are machine- harvested, typically using a combine harvester, which cuts, threshes and winnows the grain during a single pass across the ﬁeld. nufarm limited 2006 18 business review - crop protection nufarm limited 2006 19 business review - crop protection During the year, Nufarm made two acquisitions aimed at consolidating its position in the Australian seeds business. The purchase of Australia’s leading canola seed production and marketing company, Dovuro Seeds, and the specialty canola seed breeding company, Nutrihealth Pty Ltd, gives Nufarm a leadership position in canola. The seed business is a logical extension of Nufarm’s strong position in the Australian crop protection market whereby the company is able to utilise its existing distribution channels and achieve linkages with the company’s chemistry business via seed treatment solutions and the herbicide tolerant ‘Clearﬁeld’ system (BASF technology distributed in Australia by Nufarm). Total New Zealand sales were in line with the previous year. After a positive ﬁrst half, seasonal conditions deteriorated in the second six months – an early cold snap slowed down sales. The New Zealand apple industry was adversely affected by low prices, with many orchards removed or left unmanaged, reducing Nufarm’s sales to that key segment. The launch of ‘Roundup Transorb’ – a new premium formulation of glyphosate – was very successful and several other herbicide products performed strongly. The company sold its New Zealand based animal health toll manufacturing business to Argenta Manufacturing Limited. This animal health business was a division of Nufarm Health & Sciences, located at Manurewa, near Auckland. The business manufactured animal health products on behalf of leading animal health companies. Sales in the Asian based businesses were up by 10 per cent (to $96 million). Together with lower expenses, and an improved gross margin in markets such as Japan, this contributed to a stronger proﬁt performance overall. Indonesia, in particular, performed above expectations, with both sales and proﬁt growth in a very competitive market. Additional sales were also made to a number of smaller, but expanding, Asian markets. americas Nufarm’s crop protection businesses in North America recorded strong revenue growth, up some 20 per cent on the previous year. Net proﬁt was also up strongly, driven by new higher margin product introductions, price rises on key products, and further improvements in manufacturing efﬁciencies. Seasonal inﬂuences in the USA were varied, with good growing conditions in the mid-west, dry conditions in Texas and Kansas, and wet weather (with relatively low disease pressure) in coastal regions. Total industry sales in the USA are estimated to have fallen by more than ﬁve per cent during the year, highlighting Nufarm’s excellent performance in this market. Opposite: Sugar cane is grown in 200 countries to produce sugar, molasses, rum and ethanol. Brazil is the world’s largest producer of sugar cane, followed by India. nufarm limited 2006 20 20 business review - crop protection managing director’s review nufarm limited 2006 nufarm limited 2006 21 business review - crop protection Glyphosate volumes were higher, due in part to increased penetration of Monsanto’s Roundup Ready® corn. Nufarm achieved market share gains in a bigger overall market. Price increases on phenoxy herbicides improved the proﬁtability of those products despite no signiﬁcant increase in sales volumes. The business successfully launched a number of new products, reinforcing Nufarm’s strong relationships with key US distributors. The copper fungicide market was unsettled, with historically high input costs. Nufarm USA achieved several registration approvals for new products based on the industry leading insecticide, imidacloprid. An initial sale of product was also made prior to year-end. Imidacloprid is the world’s largest selling insecticide and provides Nufarm with a platform position in this important product category. Trading conditions in the US turf, forestry and industrial vegetative management segments were challenging, however, an expanded product portfolio enabled Nufarm to generate a solid result for the full year in those markets. Sales in Canada were up by almost 50 per cent over the previous year, following the acquisition of the selective grass herbicide ‘Assert’ from BASF. Nufarm achieved an overall market share gain against a backdrop of below average seasonal conditions and downward pressure on margins as the market adjusts to lower US pricing across a range of products. In South America, strong top line growth was driven by Nufarm’s new acquisition in Colombia, Agroquímicos Genéricos SA (Agrogen) in December 2005. Sales in Colombia increased from approximately $2 million to almost $20 million in the 12 months and the business achieved strong gross margins. Five new products were introduced and the integration of Nufarm’s existing operations with the Agrogen business was well executed, with positive support from the customer base. Increased sales in Argentina were offset by continued margin pressure on core products such as glyphosate. Sales of differentiated products achieved stronger margins, however, and good progress was made on expanding the product portfolio. While sales in Chile were also up on the previous year, the business did not meet its budgeted result due to delays in the registration approvals of several products. agripec – brazil Nufarm’s 49.9 per cent interest in Agripec generated an equity accounted net proﬁt of $1.9 million in the 2006 ﬁnancial year. This is signiﬁcantly below the contribution booked from this investment in 2005 ($26.9 million) and also below Nufarm’s most recent guidance on Agripec issued in early August ($5 –$7 million). Net Agripec sales for the period were down some 18 per cent in local currency. Opposite: Canola is widely cultivated throughout the world for the production of vegetable oil for human consumption, as well as biodiesel. The leading producers include the European Union, North America and Australia. nufarm limited 2006 22 managing director’s review nufarm limited 2006 � 23 business review - crop protection The Brazilian farm sector has experienced extremely difﬁcult conditions during the period spanning Nufarm’s 2006 ﬁnancial year. Adverse currency impacts, tighter availability of credit, issues relating to collection of payments and lower prices generated by stronger competition for reduced sales have all contributed to a lower proﬁt outcome for crop protection companies and other suppliers of agricultural inputs. Nufarm and Agripec management responded to these challenges with measures to reduce exposure to future bad debts. Some sales have been retrieved (reversed) from the market; incentives have been offered to ensure outstanding payments are received; and Agripec has elected to not make sales to certain customers until accounts have been fully settled. In July, Agripec also increased provisions for doubtful debts and recognised some discounts. This decision resulted in a lower ﬁnal result but is consistent with Nufarm’s conservative risk management policies relating to current business conditions in Brazil. While the market conditions have been very tough, with a subsequent negative impact on the business results, Agripec continues to make progress towards expanding its product portfolio. New registrations and co-marketing arrangements with other suppliers have provided increased opportunities to s ell into sugar, citrus and corn segments as opposed to the badly affected soybean crop. Given the continued uncertainty relating to business conditions in Brazil, the company is forecasting only marginal earnings growth from the Agripec investment within the 2007 ﬁnancial year. europe Europe experienced a long winter, leading to both a delay and reduction in overall crop protection selling activity. Parts of Spain were again affected by drought, as were important cropping regions in Southern France. Industry sales in most of the key Western European markets dropped from the previous year. Nufarm European crop protection sales were up by some ﬁve per cent on last year. Operating proﬁt rose sharply as a result of improved margins in most markets and the positive impact of restructuring initiatives in manufacturing operations. The reorganisation of manufacturing activities associated with Nufarm’s industry leading methyls business resulted in strong gains in production and logistics efﬁciencies. Synthesis activity was consolidated at the company’s Botlek facility in Holland, improving overhead recoveries at that plant. This facilitated an expansion of formulation and packaging of ﬁnished products at the UK plant at Belvedere. This reorganisation program was initiated two years ago and has involved Opposite: Over 70 per cent of the world’s grapes are used to make wine. Spain has the largest area devoted to vineyards, followed by France and Italy. nufarm limited 2006 24 24 business review - crop protection managing director’s review nufarm limited 2006 nufarm limited 2006 25 business review - crop protection Drought conditions affected industry sales in Spain for the second consecutive year. The negative impact on cereal crops and depressed fruit and vegetable prices also reduced sales opportunities in that segment. In challenging circumstances, Nufarm generated a solid result with good sales of the U-46 phenoxy herbicide brands, insecticides, and copper fungicides. There was additional sales growth in a number of Eastern European markets and Nufarm continues to pursue new product registrations to develop closer relationships with the local distribution base in markets such as Poland, Hungary, Ukraine and Romania, where a new marketing operation has recently been established. Opposite: Wheat is the world’s most important human food grain and ranks second in total production behind maize. It is used to make ﬂour and can be fermented into alcohol or biofuel. signiﬁcant non-operating charges (last year $16.2 million). We will continue to evaluate further efﬁciencies but the major elements of the program are complete and proﬁt gains of some $12.7 million have been achieved in the 2006 ﬁnancial year, reﬂected in the improved European results. In France, the prolonged winter was followed by generally hot and dry conditions, which had an impact on sales opportunities in the major segments of cereals and vines. Nufarm achieved slightly higher sales in a falling market. The French specialty and industrial business generated good sales growth. Sales in Germany were up by 15 per cent on the previous year. This was mainly attributable to higher sales of fungicides and several new product registrations. Seasonal conditions were not positive for herbicide sales, but Nufarm increased its position in corn herbicides with new bromoxynil mixtures. Price increases for glyphosate and a number of growth regulator products also improved proﬁtability. Branded sales in the UK were again strong, with Nufarm continuing to win market share. Again, growth was driven by the introduction of new products in a number of crop segments and strong support from the customer base and market. nufarm limited 2006 26 management team DOUG RATHBONE BRIAN BENSON RODNEY HEATH KEVIN MARTIN managing director and chief executive group general manager agriculture Doug Rathbone AM, 60, joined the board in 1987. His background is chemical engineering and commerce and he has worked for Nufarm for 32 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999. Brian Benson joined Nufarm in 2000 and has degrees in agricultural science and business administration. Brian has extensive experience in the crop protection industry in the areas of international marketing and strategy and 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 ofﬁcer, 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 officer Kevin Martin is a chartered accountant with over 26 years of experience in the professional and commercial arena. After joining Nufarm in 1994, he was responsible initially for the ﬁnancial control of the crop protection business. Since 2000, Kevin has been responsible for all ﬁnancial, treasury and taxation matters for the group. { management team } nufarm limited 2006 27 management team DALE MELLODY BOB OOMS DAVID PULLAN ROBERT REIS group general manager global marketing group general manager chemicals group general manager operations group general manager corporate affairs Dale Mellody joined Nufarm as a territory manager in 1995, having completed his bachelor of agricultural science. Promoted to head ofﬁce 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 strategy development and implementation. 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. 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. David is responsible for all of Nufarm’s global manufacturing and production sites. A former journalist, political adviser and lobbyist, Robert joined Nufarm in 1991. Robert is responsible for global issues management, investor relations, media, government and stakeholder relations. He also has executive management responsibility for human resources and organisational development. nufarm limited 2006 28 board of directors KERRY HOGGARD DOUG CURLEWIS DOUG RATHBONE BRUCE GOODFELLOW chairman deputy chairman Kerry Hoggard, 65, joined the board in 1987. He has a ﬁnancial background, beginning his career with the company in 1957 as ofﬁce junior and rising, through a number of accounting, ﬁnancial and commercial promotions to be chief executive ofﬁcer in 1987. On his retirement in October 1999, he was appointed chairman of the board. Kerry is a member of the audit and remuneration committees. GDW (Doug) Curlewis, 65, joined the board in January 2000. He has a master of business administration and was formerly managing director of National Consolidated Ltd. He is also a director of Paciﬁca Group Ltd, GUD Holdings Ltd and Graincorp Limited. In the past three years Doug has been a director of National Foods Ltd (six years) and Hamilton Island Ltd (ﬁve years). Doug is deputy chairman of the board, chairman of the nomination committee, and a member of the audit and remuneration committees. managing director and chief executive Doug Rathbone AM, 60, joined the board in 1987. His background is chemical engineering and commerce and he has worked for Nufarm Australia Limited for 33 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999. Dr WB (Bruce) Goodfellow, 54, joined the board representing the holders of the ‘C’ shares in 1991. Following the conversion of the ‘C’ shares into ordinary shares, he was elected a director in 1999. He has a doctorate in chemical engineering and experience in the chemical trading business and ﬁnancial and commercial business management experience. He is a director of Sanford Ltd, Sulkem Co Ltd, Refrigeration Engineering Co Ltd, SH Lock (NZ) Ltd and Cambridge Clothing Co. Ltd. { board of directors } nufarm limited 2006 29 board of directors GARRY HOUNSELL DON MCGAUCHIE JOHN STOCKER DICK WARBURTON GA (Garry) Hounsell, 51, joined the board in October 2004. DG (Donald) McGauchie AO, 56, joined the board in 2003. Dr JW (John) Stocker AO, 61, joined the board in 1998. RFE (Dick) Warburton AO, 65, joined the board in 1993. He has a medical, scientiﬁc and management background and was formerly chief scientist of the Commonwealth of Australia. He is a principal of Foursight Associates Pty Ltd and chairman of Sigma Pharmaceuticals Ltd. He is a director of Telstra Corporation Ltd and Circadian Technologies Ltd. In the past three years John has been a director of Sigma Company Limited (eight years) and Cambridge Antibody Technology Group plc (11 years). John is a member of both the remuneration and nomination committees. 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 Southcorp limited (10 years). Dick is chairman of the remuneration committee and a member of the nomination committee. He has a bachelor of business (accounting) and is a former senior partner with Ernst & Young and a former Australian country managing partner with Arthur Andersen. He has extensive experience across a range of areas, relating to management and corporate ﬁnance and has worked with some of Australia’s leading companies in consulting and audit roles, with a particular emphasis in the manufacturing sector. He is chairman of e-mitch Ltd and a director of Qantas Airways Limited and Orica Ltd. Garry is chairman of the audit committee He has wide commercial experience within the food processing, commodity trading, ﬁnance and telecommunication sectors. He also has extensive public policy experience, having previously held several high- level advisory positions to the government including the Prime Minister’s Supermarket to Asia Council, the Foreign Affairs Council and the Trade Policy Advisory Council. He is currently chairman of Telstra Limited, a member of the Board of the Reserve Bank of Australia, and a director of James Hardie Industries NV. In the past three years Donald has been a director of National Foods Ltd (ﬁve years), Ridley Corporation Limited (six years) and Graincorp Limited (four years). Donald is a member of both the remuneration and nomination committees. nufarm limited 2006 30 corporate governance statement introduction Nufarm’s board processes are under constant review to ensure our systems protect the interests of all stakeholders. As part of this review, we consider 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, and practice early adoption before actual compliance is required. Copies of our corporate governance practices are publicly available in the corporate governance section of our website: www.nufarm.com compliance with asx principles The ASX Listing Rules require Nufarm to disclose in our annual report the extent to which we have adopted the 28 best practice recommendations during our reporting period and, where we do not comply, to explain why not. Nufarm believes it complies with all the ASX principles with two exceptions: • 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 is not 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 governance reports since 2003 that the board unanimously continues to support Kerry as chairman, believing this to be clearly in the best interest of all stakeholders. Kerry’s history with the company, including his detailed knowledge of the industry where the company operates and his extensive accounting, ﬁnancial and commercial background, brings invaluable experience and unique skills to Nufarm. Kerry continues to apply judgement independent of management in all decision making. He discharges his role with a strong commitment to considerations of governance and disclosure. Doug Curlewis, an independent director, has been appointed deputy chairman of the board. • Recommendation 9.4 recommends that companies seek shareholder approval of equity based reward schemes for executives. We currently have one equity based reward plan, introduced in 2000 before the release of the ASX principles. The plan did not need shareholder approval under the Corporations Act or the Listing Rules and therefore was not put to shareholders for approval. However, in 2000, 2001 and 2002 shareholders’ approval was sought for offers of shares to the managing director under the plan. The notices of the annual general meetings and the annual reports for those years detail the nature of the plan. Each year shareholders approved the issue of shares to the managing director under the plan. No shares have issued to the managing director under the plan since 2002. management and oversight of nufarm the board The governing body of the company is the board of directors. Its clear responsibility is to oversee the company’s operations and ensure that Nufarm carries out its business in the best interests of all shareholders and with proper regard to the interests of all other stakeholders. The board charter clearly deﬁnes the board’s individual and collective responsibilities and describes those 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. 31 corporate governance statement cont 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. The board annually reviews its composition and terms of reference for the board, chairman, board committees and managing director. There are seven scheduled meetings each year. When necessary, additional meetings are convened to deal with speciﬁc issues that require attention before the next scheduled meeting. Each year the board also reviews the strategic plan and direction of the company. At 31 July 2006, there are three board committees: audit; remuneration; and nomination. All directors are entitled to attend any committee meeting. Details of the attendances at meetings of board and committees during the reporting period appear on page 37 of this report. The company is managed according to the recommendations of ASX Principle 1. A summary of the board charter is available from the corporate governance section of the company’s website. board of directors composition There are eight members of the board with a majority of independent non-executive directors who have an appropriate range of proﬁciencies, experience and skills to ensure that it discharges its responsibilities with the best possible management of the company in mind. The company’s constitution speciﬁes that the number of directors may be neither less than three, nor more than 11. At present there are seven non-executive directors and one executive director, namely the managing director, and the board has decided at this time that no other company executive will be invited to join the board. independence Directors are expected to bring independent views and judgement to the board. The board applies the tests set out in ASX Principle 2 to determine the independence of directors. To decide whether a director has a material relationship with the company that may compromise independence, the board considers all relevant circumstances. The board reviewed the ASX principles and the circumstances of individual directors and believes it is unnecessary to deﬁne any speciﬁc materiality limits, except that a substantial shareholder is deﬁned as one who holds or is associated directly with a shareholder controlling in excess of ﬁve per cent of the company’s equity. tenure The board believes that the way directors discharge their responsibilities and their contribution to the success of the company determines their independence and justiﬁes their positions. However, in accordance with best Australian practice, the board has determined that any director who has served on the board as a non-executive director for 10 continuous years 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. The nomination committee reviews the performance of directors who seek to offer themselves for re-election at the company’s AGM. That committee then recommends to the board whether or not it should continue to support the nomination of the retiring directors. At the date of this report, the board has determined that the status of directors is as follows: Independent non-executive directors GDW Curlewis GA Hounsell 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, including terms in ofﬁce, are on pages 28 to 29 of this report. access to independent advice To help directors discharge their responsibilities, any director can appoint legal, ﬁnancial or other professional consultants, at the expense of the company with the chairman’s prior approval, which may not be unreasonably withheld. 32 corporate governance statement cont The board charter provides that non-executive directors may meet without management present. ethical and responsible decision-making conflicts of interest Board members must identify any conﬂict of interest they may have in dealing with the company’s affairs and then refrain from participating in any discussion or voting on these matters. Directors and senior executives must disclose any related party transactions in writing. chairman of the board The chairman is elected annually at the directors’ meeting immediately following the company’s annual general meeting. According to the tests set out in ASX Principle 2, Nufarm’s chairman, Kerry Hoggard, is not an independent director. The reasons why we unanimously support Kerry’s appointment are set out on page 30 of this report. Doug Curlewis, an independent director, has been appointed deputy chairman. The Nufarm board has stipulated that the role of the chairman and chief executive ofﬁcer may not be ﬁlled by the same person. With the exception of the independence of the chairman, the board structure is consistent with ASX Principle 2. the nomination committee Doug Curlewis is chairman of the nomination committee and Donald McGauchie, John Stocker and Dick Warburton are members. All are independent directors. The formal charter setting out the committee’s membership requirements includes the responsibilities to: ethical standards We require directors and employees to adopt standards of business conduct that are ethical and in compliance with all legislation. Where there are no legislative requirements, the company develops policy statements relating to the business stakeholders and carefully selects and promotes employees to ensure appropriate standards. The board endorses the principles of the Code of Conduct for Directors, issued by the Australian Institute of Company Directors. Our formal code of conduct is available on the corporate governance section of the company’s website. purchase and sale of company shares The Nufarm board has 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 the release; • six weeks before the release of the company’s year end results to the ASX, ending 24 hours after the release; and • assess competencies of board members; • two weeks before the company’s AGM, ending • review board succession plans; • evaluate board performance; and • recommend the 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 is available on the corporate governance section of the company’s website. 24 hours after the AGM. Before any trading activity in company shares, directors and senior 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 approval of the company secretary. A copy of the trading policy is available on the corporate governance section of the company’s website. The company’s code of conduct and share trading policy is consistent with ASX Principle 3. 33 corporate governance statement cont 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 Garry Hounsell is chairman of the board audit committee with Doug Curlewis and Kerry Hoggard as members. The committee has a majority of independent non-executive directors and is chaired by an independent director. Details of attendances at meetings of the audit committee are set out on page 37. Garry Hounsell has a bachelor of business (accounting) and is a former senior partner with Ernst & Young and a former Australian country managing partner with Arthur Andersen. He has extensive experience across a range of areas relating to management and corporate ﬁnance and has worked with some of Australia’s leading companies in consulting and audit roles, with a particular emphasis on the manufacturing sector. He is chairman of emitch Limited and a director of Qantas Airways Limited and Orica Limited. Gary is also chairman of the audit committee at Qantas. 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, was chief executive ofﬁcer from 1987 to 1999. 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. The committee reviews its 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 also identiﬁes those services that: • the external auditor may and may not provide; and • 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, is available on 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 available on 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 communication with our shareholders and the general investment community. Our communication policy aims to: • ensure that shareholders and the ﬁnancial markets are provided with full and timely information about our activities; • comply with our continuous disclosure obligations; • ensure equality of access to brieﬁngs, presentations and meetings for shareholders, analysts and media; and • encourage attendance and voting at shareholder meetings. 34 corporate governance statement cont Postal and electronic communication with shareholders includes: • half year and annual reports; • notices of AGM; • a summary of AGM proceedings, including the chairman’s and chief executive ofﬁcer’s addresses and voting results; and • information whenever there are signiﬁcant developments to report. Our formal communications policy is available on the corporate governance section of the company’s website. external auditor Nufarm requires 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 identify, assess, monitor and manage 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 to identify and manage risk. These include: • a comprehensive occupational health, safety and environmental 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 approval limits for capital expenditure and investments. • annual budgeting and monthly reporting systems for all business units to monitor performance against budget targets; • a planning process involving the preparation of ﬁve year strategic plans; • appropriate due diligence systems for acquisitions and divestments; and • risk self-assessment surveys of all major business units worldwide. integrity of financial statements The procedures to safeguard the integrity of ﬁnancial statements are set out on page 33 of this statement. A summary of the company’s risk management policy and internal compliance system is available on 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. To facilitate the performance assessment, in 2003– 2004, the board directors completed a detailed questionnaire, an external consultant interviewed each director individually and there was a general board discussion. In the year under review, the chairman conducted the performance evaluation. The board ensures that new directors are introduced to the company appropriately, including relevant industry knowledge, visits to speciﬁc company operations and brieﬁngs by key executives. All directors may obtain independent professional advice (page 31) and have direct access to the company secretary. A summary of the performance evaluation process is available on the corporate governance section of the company’s website. The manner in which the performance of the board is assessed is consistent with ASX Principle 8. 35 corporate governance statement cont interests of stakeholders code of conduct Nufarm seeks to conduct its business in a way that recognises and adheres to all relevant laws and regulations and meets high standards of honesty and integrity. 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 the board believes it is necessary to comment due to a perceived major impact on the company, its business or any of its stakeholders. As Nufarm operates in many countries, it does so in accordance with the each country’s social and cultural beliefs. Our formal code of conduct is available on the corporate governance section of the company’s website. Nufarm’s recognition of the interests of stakeholders is consistent with ASX Principle 10. remuneration The board has procedures to ensure that the level and structure of remuneration for executives and directors is appropriate. 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 39-43. 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. This formalises the terms and conditions of appointment, including termination payments. remuneration committee Dick Warburton is chairman of the remuneration committee and Doug Curlewis, Kerry Hoggard, Donald McGauchie and John Stocker are members, with 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 is available on the corporate governance section of the company’s website. remuneration of non-executive directors The board’s policy with regard to non-executive director remuneration is set out in the remuneration report on page 41. Except for compliance with recommendation 9.4, which is discussed on page 30, our remuneration policies are consistent with ASX Principle 9. 36 directors’ report The directors present their report together with the ﬁnancial report of Nufarm Limited (‘the company’) and of the consolidated entity, being the company and its controlled entities, for the ﬁnancial year ended 31 July 2006 and the auditor’s report thereon. directors The directors of the company at any time during or since the end of the ﬁnancial year are: KM Hoggard (chairman) GDW Curlewis (deputy chairman) DJ Rathbone, AM (managing director) Dr WB Goodfellow GA Hounsell DG McGauchie, AO Dr JW Stocker, AO RFE Warburton, AO All directors held their position as a director throughout the entire period and up to the date of this report. Details of the qualiﬁcations, experience and responsibilities and other directorships of the directors are set out on pages 28 and 29. company secretary The company secretary is R Heath. Details of the qualiﬁcations and experience of the company secretary are set out on page 26. directors’ interests in shares and capital notes Relevant interests of the directors in the shares or capital notes issued by the company and related bodies corporate are, at the date of this report, as notiﬁed by the directors to the Australian Stock Exchange in accordance with S205G(1) of the Corporations Act 2001, as follows: nufarm ltd Nufarm Finance (NZ) Ltd3 capital notes KM Hoggard1 GDW Curlewis DJ Rathbone Dr WB Goodfellow 1 2 G A Hounsell1 DG McGauchie1 Dr JW Stocker1 RFE Warburton1 ordinary shares 2,379,426 42,787 29,912,610 1,468,296 60,302 14,719 30,314 65,281 2,270,000 1 The shareholdings of KM Hoggard, Dr WB Goodfellow, GA Hounsell, DG McGauchie, Dr JW Stocker and RFE Warburton include shares issued under the company’s non- executive director share plan and held by Paciﬁc Custodians Pty Ltd as trustee of the plan. 2 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). 3 Nufarm Finance (NZ) Ltd was formerly Fernz Corporation (NZ) Ltd 37 directors’ report cont directors’ meetings The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the company during the ﬁnancial year are: director board KM Hoggard2 GDW Curlewis DJ Rathbone9 Dr WB Goodfellow2 GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton1 a 9 9 9 9 9 9 9 9 committees audit remuneration nomination B a b 2 2 9 2 2 9 - - 9 2 - 9 - - 8 2 2 9 2 2 8 a 5 5 - - 5 - - b 5 5 - 4 5 - - b 2 2 - 2 - 2 2 a - 2 - - - 2 2 6 - - 2 1 2 1 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. Other meetings of committees of directors are convened as required to discuss speciﬁc issues or projects. 1 During the ﬁnancial year, two unscheduled board meetings were convened. RFE Warburton was unable to attend either of these unscheduled meetings because of prior commitments. 2 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. The company has production and marketing operations throughout the world and sells products in more than 100 countries. Nufarm’s crop protection products enjoy a reputation for high quality and reliability and are supported by strong brands, a commitment to innovation and a focus on close customer relationships. Nufarm employs 2,315 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. results The net proﬁt attributable to members of the consolidated entity for the 12 months to 31 July 2006 is $121.2 million. The comparable ﬁgure for the 12 months to 31 July 2005 was $125.0 million. 38 directors’ report cont reconciliation of statutory profit to operating profit The following table is provided to enable a proper comparison of the operating proﬁt, which excludes material non-operating items. The restructuring items in 2006 primarily related to structural reorganisation in France, whilst the prior year’s ﬁgures primarily relate to costs associated with closing parts of our manufacturing operations in the United Kingdom. reconciliation of statutory profit to operating profit consolidated – 2006 Proﬁt after tax but before proﬁt and loss of discontinued operation and gain on sale of discontinued operation Discontinued businesses Other restructuring items Proﬁt for the year Minority interest Operating proﬁt attributable to equity holders of the parent Proﬁt after tax but before proﬁt and loss of discontinued operation and gain on sale of discontinued operation Discontinued businesses Other restructuring items Proﬁt for the year Minority interest Operating proﬁt attributable to equity holders of the parent dividends The following dividends have been paid, declared or recommended since the end of the preceding ﬁnancial year: The ﬁnal dividend for 2004/2005 of 17 cents paid 11 November 2005 $000 $28,885 The interim dividend for 2005/2006 of 10 cents paid 28 April 2006 $16,994 The ﬁnal dividend for 2005/2006 of 20 cents as declared and recommended by the directors is payable 10 November 2006. $34,298 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 14 to 25. 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 14 to 25. operating $000 103,165 10,152 8,368 121,685 (579) 121,106 $000 103,822 10,076 9,351 123,249 (1,589) 121,660 material (non- operating) items $000 – 8,415 (8,368) 47 – 47 consolidated – 2005 $000 – 12,736 (9,351) 3,385 – 3,385 total $000 103,165 18,567 – 121,732 (579) 121,153 $000 103,822 22,812 – 126,634 (1,589) 125,045 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 subsequent to reporting date Nufarm has reached agreement to sell its 80 per cent interest in the Nufarm Coogee joint venture to its joint venture partner, Coogee Chemicals Pty Ltd. The joint venture operates two chlor-alkali plants in Western Australia. The transaction involves the sale of Nufarm’s interest, with completion scheduled for 31 July 2007. The consideration on the sale will be approximately $48 million, with the ﬁnal price determined at completion date. The proﬁt on sale will be approximately $24 million. On 29 September 2006, the directors declared a ﬁnal dividend of 20 cents per share, fully franked, payable 10 November 2006. On 6 September 2006, Nufarm acquired a license to develop and commercialise Roundup Ready® 39 directors’ report cont canola in Australia. Nufarm has paid Monsanto a total of $10 million for Monsanto’s Roundup Ready® canola germplasm and a licence to the Roundup Ready® canola trait. On 28 September, Nufarm announced it had reached agreement to acquire a crop protection business in Italy for €6.4 million. Nufarm Finance (NZ) Limited (the ‘issuer’ and formerly Fernz Corporation (NZ) Limited), a wholly owned subsidiary of Nufarm Limited (‘Nufarm’), intends to make a public offer of a new hybrid security. The proposed offer is for A$250 million of Nufarm Step-up Securities (‘NSS’), with the ability to accept oversubscriptions of up to A$50 million. A prospectus in relation to the proposed offer will be made available once it has been lodged with the Australian Securities and Investments Commission (‘ASIC’). If you wish to acquire NSS, you will need to complete the application form that will be in or will accompany the prospectus. Once the prospectus has been lodged with ASIC, Nufarm will make an announcement to the ASX. You may obtain a copy of the prospectus on Nufarm’s Australian corporate website: www.nufarm.com NSS are perpetual, subordinated, unsecured, redeemable, exchangeable notes and offer semi-annual, ﬂoating rate, non-cumulative distribution payments, based on the six month bank bill swap rate plus a margin. likely developments 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. environmental performance Details of Nufarm’s performance in relation to environmental regulations are set out on pages 14 to 15. 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 will be made available upon request to the company secretary. non-audit services During the year KPMG, the company’s auditor, has performed certain other services in addition to their statutory duties. Details of the audit fee and non-audit services are set out on page 60 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 during the year by the auditor is compatible with, and did 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 on page 44. remuneration report remuneration committee The remuneration committee reviews and makes recommendations to the board on remuneration policies and packages applicable to key management personnel and directors and ensures that remuneration policies and packages retain and motivate high calibre executives and that remuneration policies demonstrate a clear relationship between executive remuneration and company performance. Key management personnel includes the ﬁve most highly remunerated executives in accordance with S300A of the Corporations Act. The remuneration levels of the managing director and key management personnel are recommended by the remuneration committee and approved by the board, having taken advice from independent external advisors. principles of compensation – audited Executives 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: • ﬁxed reward (TEC) – cash and beneﬁts that reﬂect local market conditions and individual contribution. The reward level is set relative to pertinent and 40 directors’ report cont 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 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. • 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 key management personnel 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%, 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 average 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 net 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 recognized 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. 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. 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 the current 16.5 per cent, and for the second part of the incentive, from 13.5 per cent to 17.25 per cent. 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. % target rofe achieved <90 Managing director 0 90 20 100 50 110 64 >110 64 Key management personnel 0 14 40 54 54 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. Consequences of performance on shareholders’ wealth In considering the consolidated entity’s performance and beneﬁts for shareholders’ wealth, the remuneration committee have regard to the following indices in respect of the current ﬁnancial year and the previous four ﬁnancial years. 41 directors’ report cont operating ebit* rofe achieved* eps* dividend rate dividends paid change in share price** total share holder 31 july return*** share price $M % cents per share $000 $ $ % 2002 2003 2004 2005 2006 123.6 131.9 142.2 196.6 211.2 13.5 14.0 15.7 19.8 17.8 36.7 41.3 47.1 60.5 60.3 18 20 23 26 27 27,952 27,976 33,656 40,548 45,879 0.45 0.99 1.72 4.08 (1.37) 3.35 4.39 6.09 10.15 8.80 32 21 54 63 (2.3) *Numbers for 2005 and 2006 calculated in accordance with AIFRS. Numbers for 2002–2004 calculated in accordance with AGAAP. ** This column reﬂects the change in share price from 1 August to 31 July in the relevant ﬁnancial year. *** Source: Goldman Sachs JB Were: Total Shareholder Return as at 30 June. Service contracts The company has an employment contract with the managing director. This contract formalises the terms and conditions of employment. The contract is for an indeﬁnite 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 beneﬁts such as motor vehicle and superannuation and any fringe beneﬁts tax in relation to those beneﬁts) will be paid. The company may terminate the contract immediately for serious misconduct. Non-executive directors (NED) The board’s policy with regard to NED 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 AGM, 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 2006 (excluding superannuation costs) Chairman1 Deputy chairman 1,2 Director board fee Chairman audit committee $ 240,000 $140,000 $ 95,000 $ 15,000 Chairman other board committees $ 10,000 Member audit committee Member other board committees 3 $ 5,000 $ 2,500 The board has created a non-executive share plan whereby a director can elect to commit a proportion of director fees to acquire company shares. The number of shares available in the plan will be calculated quarterly, using the weighted average of the price at which shares were traded on the ASX in the ﬁve days up to and including the day when shares are allocated to a director. Shares in the plan will not vest until the earlier of three years or retirement. 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 beneﬁt plan and beneﬁts 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. 1 The chairman, KM Hoggard and the deputy chairman, GDW Curlewis, receive no fees as members of any committee. 2 GDW Curlewis was appointed deputy chairman with effect from 1 February 2006. 3 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. 42 directors’ report cont remuneration of directors and executives Details of the nature and amount of each major element of remuneration of each director of the company and each of the ﬁve named company executives and relevant group executives who receive the highest remuneration are: short term non- salary cash bonus monetary beneffits & fees (vested) $ $ $ post- employment share based payments total super- total annuation $ $ $ $ directors non-executive KM Hoggard (Chairman) GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie GW McGregor Dr JW Stocker RFE Warburton executive DJ Rathbone (Managing Director) DA Pullan (Group General Manager Operations) RF Ooms (Group General Manager Chemicals) KP Martin, (Chief Financial Officer) BF Benson (Group General Manager Agriculture) RG Reis (Group General Manager Corporate Affairs) R Heath (Company Secretary) DA Mellody (Group General Manager Global Marketing) Total compensation: key management personnel (consolidated) Total compensation: key management personnel (company) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 192,000 182,400 101,500 82,233 76,000 71,400 91,000 67,166 78,500 77,500 – 91,150 39,250 77,025 86,000 81,400 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 192,000 182,400 101,500 82,233 76,000 71,400 91,000 67,166 78,500 77,500 – 91,150 39,250 77,025 86,000 81,400 24,000 22,800 36,000 27,858 9,500 8,925 11,000 8,141 9,750 9,175 – 10,425 49,000 9,487 10,500 9,925 48,000 45,600 – – 19,000 17,850 19,000 14,250 19,000 14,250 – 13,100 19,000 17,850 19,000 17,850 264,000 250,800 137,500 110,091 104,500 98,175 121,000 89,557 107,250 100,925 – 114,675 107,250 104,362 115,500 109,175 950,797 890,011 1,598,540 1,322,500 35,880 58,834 2,585,217 2,271,345 13,804 12,860 – 2,599,021 – 2,284,205 2006 2005 410,156 374,990 258,710 294,576 2006 2005 2006 2005 393,103 369,943 389,262 380,852 241,840 277,076 240,392 277,076 2006 2005 337,265 320,462 211,977 227,500 2006 2005 2006 2005 2006 2005 272,367 256,260 202,470 196,136 198,642 109,350 164,317 185,500 129,520 151,666 130,488 20,776 38,414 27,930 32,067 8,109 22,501 12,767 11,467 19,435 49,230 57,035 28,639 25,925 17,437 8,703 707,280 697,496 80,970 73,649 294,585 159,000 1,082,835 930,145 667,010 655,128 652,155 670,695 560,709 567,397 485,914 498,795 360,629 373,727 346,567 138,829 76,992 70,973 63,325 38,702 277,084 149,000 277,084 149,000 1,021,086 875,101 992,564 858,397 39,405 38,702 227,497 120,000 827,611 726,099 36,554 31,670 39,854 37,729 10,577 11,596 185,500 100,013 151,665 83,346 707,968 630,478 552,148 494,802 28,578 17,975 385,722 168,400 2006 3,818,312 2005 3,628,278 2,975,784 2,756,670 235,635 218,738 7,029,731 6,603,686 511,231 422,617 1,584,993 9,125,955 919,084 7,945,387 2006 2005 664,250 730,274 – – – – 664,250 730,274 149,750 106,736 143,000 140,750 957,000 977,760 43 directors’ report cont remuneration options: granted and vested during the year During the year there were no options granted to directors or executives nor were any options vested and exercised by the speciﬁed executives. shares issued as a result of the exercise of options There were no shares issued as a result of the exercise of options during the year. In the prior ﬁnancial year (a) 1,437,692 shares were issued to group executives at an exercise price of $2.70, and (b) 61,336 shares were issued to participants in the UK Savings Related Share Options Scheme (1997) at an exercise price of $3.66. This scheme is now discontinued. unissued shares under option There are no unissued shares under option. 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. lead auditor’s independence declaration The lead auditor’s independence declaration is set out on page 44 and forms part of the directors’ report for the ﬁnancial year ended 31 July 2006. rounding of amounts The company is of a kind referred to in Australian Securities and Investment Commission Class Order 98/100 dated 10 July 1998 and in accordance with that class order, amounts in the ﬁnancial statements and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. This report has been made in accordance with a resolution of directors. KM Hoggard Director DJ Rathbone Director Melbourne 29 September 2006 44 directors’ report cont Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Nufarm Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the ﬁnancial year ended 31 July 2006 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Paul J McDonald Partner Melbourne 29 September 2006 KPMG, an Australian partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative. 45 45 income statement for the year ended 31 july 2006 consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 note Revenue Cost of sales Gross Proﬁt Other income Other operating expenses Proﬁt from operating activities Financial income Financial expenses Net ﬁnancing costs 1,676,746 (1,049,849) 626,897 1,573,988 (1,003,762) 570,226 9,914 (460,486) 176,325 8,366 (443,407) 135,185 34,313 (15,837) 18,476 47,803 (8,865) 57,414 35,752 (16,475) 19,277 44,764 (11,938) 52,103 7,995 (57,241) (49,246) 8,278 (46,579) (38,301) 20,215 (21,796) (1,581) 20,592 (22,386) (1,794) 4 5 7 7 Share of net proﬁts of associates 15 10,545 33,402 1,013 997 Proﬁt before tax Income tax expense Proﬁt after tax but before proﬁt and loss of discontinued operations and gain on sale of discontinued operations Proﬁt and loss of discontinued operations and gain on sale of discontinued operations (after tax) Proﬁt for the year Attributable to: Equity holders of the parent Minority interest Proﬁt for the year 137,624 130,286 56,846 51,306 8 (34,459) (26,464) (2,710) (2,051) 103,165 103,822 54,136 49,255 9 18,567 22,812 6,624 992 121,732 126,634 60,760 50,247 121,153 579 125,045 1,589 60,760 – 50,247 – 121,732 126,634 60,760 50,247 Earnings per share attributable to the ordinary equity holders of the company Statutory earnings per share Basic earnings per share from continuing operations Diluted earnings per share from continuing operations 10 10 60.3 60.3 60.5 60.5 The income statement is to be read in conjunction with the attached notes. 46 balance sheet at 31 july 2006 consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 note current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets classiﬁed as held for sale Total current assets non-current assets Receivables Equity accounted investments Other investments Deferred tax assets Property, plant and equipment Intangible assets Other Total non-current assets TOTAL ASSETS current liabilities Bank overdraft Trade and other payables Interest bearing loans and borrowings Employee beneﬁts Income tax payable Provisions Liabilities classiﬁed as held for sale Total current liabilities non-current liabilities Interest bearing loans and borrowings Deferred tax liabilities Employee beneﬁts Payables Total non-current liabilities TOTAL LIABILITIES NET ASSETS equity Issued capital Reserves Retained earnings Equity attributable to equity holders of the parent Minority interest TOTAL EQUITY 11 12 13 14 9 12 15 17 18 19 20 21 11 22 23 24 14 25 9 23 18 24 25 26 26 26 26 26 51,269 524,164 432,023 6,172 23,909 1,037,537 55,791 402,473 421,438 8,425 5,480 893,607 10,739 452,112 13,598 377 – 476,826 4,265 216,462 15,924 175 – 236,826 17,738 228,130 503 61,073 285,738 296,406 – 889,588 1,927,125 19,940 474,762 495,807 14,389 9,999 3,700 13,425 1,032,022 107,012 28,088 38,738 11,899 185,737 1,217,759 709,366 240,760 23,891 443,707 708,358 1,008 709,366 66,409 218,057 1,943 55,479 310,138 201,531 1,567 855,124 1,748,731 10,398 498,847 250,006 14,964 12,348 4,752 1,408 792,723 280,155 20,124 37,870 545 338,694 1,131,417 617,314 219,049 23,395 368,904 611,348 5,966 617,314 – 7,724 247,213 1,137 3,892 17 – 259,983 736,809 207,390 7,140 247,213 1,818 20,693 40 – 484,294 721,120 23,574 62,357 190,258 358 8,199 – – 284,746 24,762 64,065 – 521 4,359 – – 93,707 – 56 31 – 87 284,833 451,976 211,655 120 56 – 211,831 305,538 415,582 240,760 39,799 171,417 451,976 – 451,976 219,049 39,997 156,536 415,582 – 415,582 The balance sheet is to be read in conjunction with the attached notes. 47 statement of cash flows for the year ended 31 july 2006 consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 note cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash from operating activities cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from business sale Payments for plant and equipment Purchase of businesses, net of cash acquired Payments for investments in associates Payments for acquired intangibles and major product development expenditure Net investing cash ﬂows cash flows from financing activities Proceeds from issue of shares Proceeds from call on partly paid shares Proceeds from borrowings Repayment of borrowings Advances to controlled entities Repayment of ﬁnance lease principal Dividends paid Net ﬁnancing cash ﬂows Net increase (decrease) in cash and cash equivalents Cash at the beginning of the year Exchange rate ﬂuctuations on foreign cash balances Movement in cash reclassiﬁed as assets held for sale Cash and cash equivalents at the end of the year 1,750,257 (1,605,543) 144,714 8,132 2,599 (57,325) (35,221) 62,899 1,836,426 (1,683,511) 152,915 8,469 2,964 (46,821) (54,915) 62,612 41,066 (23,565) 17,501 20,215 46,042 (21,796) 1,410 63,372 84,506 (72,677) 11,829 14,802 40,713 (15,417) (1,634) 50,293 34 573 8,797 (40,156) (37,408) – 772 75,066 (58,505) (21,715) (162,469) 96 – (2,416) – – 238 247 (3,848) – – (44,583) (112,777) (5,823) (172,674) – (2,320) – (3,363) – – 402,539 (318,858) – (897) (46,429) 36,355 (13,523) 45,393 426 (967) 31,329 226 44 490,293 (278,152) – (1,578) (41,044) 169,789 59,727 (15,472) 1,594 (456) 45,393 – – – – (9,582) – (45,879) (55,461) 5,591 (20,497) 2,071 – (12,835) 226 44 – – (8,278) – (40,548) (48,556) (1,626) (18,991) 120 – (20,497) 11 The statement of cash ﬂows is to be read in conjunction with the attached notes. 48 statement of recognised income and expense for the year ended 31 july 2006 consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 note items recognised directly in equity Foreign exchange translation differences Actuarial gains (losses) on deﬁned beneﬁt plans Cash ﬂow hedges: Amounts taken to equity Foreign exchange movement taken to income statement 26 26 26 26 693 (11,008) (248) (77) (713) 568 (594) 574 – – – (8) 58 – – – Net expense recognised directly in equity (40) (10,440) (198) (77) Proﬁt for the year 121,732 126,634 60,760 50,247 Total recognised income and expense for the year Attributable to: Equity holders of the parent Minority interest Total recognised income and expense for the year Effects of change in accounting policy – ﬁnancial instruments: Equity holders of the parent Minority interest 121,692 116,194 60,562 50,170 121,154 538 115,163 1,031 60,562 – 50,170 – 121,692 116,194 60,562 50,170 574 – 574 – – – 58 – 58 – – – Other movements in equity arising from transactions with owners as owners are set out in note 26. The amounts recognised directly in equity are disclosed net of tax – see note 8 for tax effect. The statements of recognised income and expense are to be read in conjunction with the attached notes. 49 notes to the financial statements 1 significant accounting policies Nufarm Limited (the ‘company’) is domiciled in Australia. The consolidated ﬁnancial report of the company for the ﬁnancial year ended 31 July 2006 comprises the company and its subsidiaries (together referred to as the ‘consolidated entity’) and the consolidated entity’s interest in associates and jointly controlled entities. The consolidated ﬁnancial report was authorised for issue by the directors on 29 September 2006. (a) statement of compliance The ﬁnancial report is a general purpose ﬁnancial report which has been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. International Financial Reporting Standards (‘IFRS’) form the basis of the Australian Accounting Standards adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS (‘AIFRS’) to distinguish from previous Australian GAAP. The ﬁnancial reports of the consolidated entity and the company comply with IFRS and interpretations adopted by the International Accounting Standards Board. This is the consolidated entity’s ﬁrst annual ﬁnancial report prepared in accordance with Australian Accounting Standards, being AIFRS and IFRS, and AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied. An explanation of how the transition to AIFRS has affected the reported ﬁnancial position, ﬁnancial performance and cash ﬂows of the consolidated entity and the company is provided in note 38. (b) basis of preparation The ﬁnancial report is presented in Australian dollars. The entity has elected to early adopt the following accounting standards and amendments as at transition date: • AASB 119 Employee Benefits (December 2004); • AASB 2004-3 Amendments to Australian Accounting Standards (December 2004), amending AASB 1First Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), AASB 101 Presentation of Financial Statements and AASB 124 Related Party Disclosures; • AASB 2005-1 Amendments to Australian Accounting Standards (May 2005), amending AASB 139 Financial Instruments: Recognition and Measurement; • AASB 2005-3 Amendments to Australian Accounting Standards (June 2005), amending AASB 119 Employee Benefits (either July or December 2004); • AASB 2005-4 Amendments to Australian Accounting Standards (June 2005), amending AASB 139 Financial Instruments: Recognition and Measurement, AASB 132 Financial Instruments: Disclosure and Presentation, and AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004); • AASB 2005-5 Amendments to Australian Accounting Standards (June 2005), amending AASB 1 First- Time Adoption AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards (July 2004), and AASB 139 Financial Instruments: Recognition and Measurement; and • AASB 2005-6 Amendments to Australian Accounting Standards (June 2005), amending AASB 3 Business Combinations. Issued standards not early adopted The following standards and amendments were available for early adoption but have not been applied by the consolidated entity in these ﬁnancial reports: • AASB 7 Financial Instruments: Disclosure (August 2005), replacing the presentation requirements of ﬁnancial instruments in AASB 132. AASB 7 is applicable for annual reporting periods beginning on or after 1 January 2007; • AASB 2005-9 Amendments to Australian Accounting Standards (September 2005) requires that liabilities arising from the issue of ﬁnancial guarantee contracts are recognised in the balance sheet. AASB 2005-9 is applicable for annual reporting periods beginning on or after 1 January 2006; • AASB 2005-10 Amendments to Australian Accounting Standards (September 2005) makes consequential amendments to AASB 132 Financial Instruments: Disclosures and Presentation, AASB 101 Presentation of Financial Statements, AASB 114 Segment Reporting, AASB 117 Leases, AASB 133 Earnings per Share, AASB 139 Financial Instruments: Recognition and Measurement, AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts, arising from the release of AASB 7. AASB 2005-10 is applicable for annual reporting periods beginning on or after 1 January 2007. 50 notes to the financial statements cont 1 significant accounting policies (cont) The consolidated entity plans to adopt AASB 7, AASB 2005-9 and AASB 2005-10 in the 2007 ﬁnancial year. The initial application of AASB 7 and AASB 2005-10 is not expected to have an impact on the ﬁnancial results of the company and the consolidated entity as the standard and the amendment are concerned with disclosures only. The initial application of AASB 2005-9 could have an impact on the ﬁnancial results of the company and the consolidated entity as the amendment could result in liabilities being recognised for ﬁnancial guarantee contracts that have been provided by the company and the consolidated entity. However, quantiﬁcation of the impact is not known or reasonably estimable in the current ﬁnancial year as an exercise to quantify the ﬁnancial impact has not been undertaken by the company and the consolidated entity to date. The following standards and amendments have been issued and are available for early adoption at reporting date. However, they have not been early adopted as they are not applicable to the company and the consolidated entity and have no impact on their ﬁnancial results: • AASB 2006-1 Amendments to Australian Accounting Standards (January 2006) amending AASB 121 The Effects of Changes in Foreign Exchange Rates (July 2004); • AASB 2006-2 Amendments to Australian Accounting Standards (March 2006); • UIG 4 Determining whether an Arrangement contains a Lease; • UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds; • UIG 6 Liabilities arising from participating in a Specific Market-Waste Electrical & Electronic Equipment; • UIG 7 Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies; • UIG 8 Scope of AASB 2; and • UIG 9 Assessing Embedded Derivatives. The ﬁnancial report is prepared on the historical cost basis, except for derivative ﬁnancial instruments, which are stated at their fair value. The company is a kind referred to in ASIC Class Order 98/ 100 dated 10 July 1998 and in accordance with the Class Order, amounts in the ﬁnancial report and directors’ report have been rounded off to the nearest thousand dollars,unless otherwise stated. The preparation of a ﬁnancial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. These accounting policies have been consistently applied by each entity in the consolidated entity. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of Australian Accounting Standards that have a signiﬁcant effect on the ﬁnancial report and estimates with a signiﬁcant risk of material adjustment in the next year are discussed in note (x). The accounting policies set out below have been applied consistently to all periods presented in the consolidated ﬁnancial report and in preparing an opening AIFRS balance sheet at 1 August 2004 for the purposes of the transition to Australian Accounting Standards – AIFRS, except for the adoption of AASB 132 Financial Instruments: Disclosure and AASB 139 Financial Instruments: Recognition and Measurement. The company and the consolidated entity have applied the AASB 1.36A exemption and elected not to apply AASB 132 and AASB 139 to the comparative period. A reconciliation of opening balances impacted by AASB 132 and AASB 139 at 1 July 2005 has been provided in Note 39. (c) basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁts from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The ﬁnancial statements of subsidiaries are included in the consolidated ﬁnancial statements from the date that control commences until the date that control ceases. (ii) Associates Associates are those entities for which the consolidated entity has signiﬁcant inﬂuence, but not control, over the ﬁnancial and operating policies. The consolidated ﬁnancial statements include the consolidated entity’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that signiﬁcant inﬂuence commences until the date that signiﬁcant inﬂuence ceases. When the consolidated entity’s share of losses exceeds its interest in an associate, the consolidated entity’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations or made payments on behalf of an associate. (iii) Joint ventures Joint ventures are those entities over whose activities the consolidated entity has joint control, established by contractual agreement. The interest of the company and of the consolidated entity in unincorporated joint ventures and jointly controlled assets are brought to account by recognising in its ﬁnancial statements the assets it controls, the liabilities that it incurs, the expenses it incurs and its share of income that it earns from the sale of goods and services by the joint venture. 51 notes to the financial statements cont 1 significant accounting policies (cont) (iv) Transactions eliminated on consolidation Intra-group balances, and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated entity’s ﬁnancial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the consolidated entity’s interest in the entity with adjustments made to the ‘Investment in associates’ and ‘Share of associates net proﬁt’ accounts. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised as the contributed assets are consumed or sold by the associates and jointly controlled entities or, if not consumed or sold by the associate or jointly controlled entity, when the consolidated entity’s interest in such entities is disposed of. (d) foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenue and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the date of the transactions. (iii) Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations are taken to translation reserve. They are released into the income statement upon disposal. In respect of all foreign operations, any differences that have arisen after 1 August 2004, the date of transition to AIFRS, are presented as a separate component of equity. (e) derivative financial instruments Current accounting policy The consolidated entity uses derivative ﬁnancial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, ﬁnancing and investment activities. In accordance with its treasury policy, the consolidated entity does not hold derivative ﬁnancial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative ﬁnancial instruments are initially recognised at fair value. Subsequent to initial recognition, derivative ﬁnancial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in proﬁt or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy (f)). The fair value of interest rate swaps is the estimated amount that the consolidated entity would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. Comparative accounting policy The consolidated entity is exposed to changes in interest rates and foreign exchange rates from its activities. The consolidated entity uses the following derivative ﬁnancial instruments to hedge these risks: interest rate swaps, forward rate agreements and forward foreign exchange contracts. Derivative ﬁnancial instruments are not held for speculative purposes. The quantitative effect of the change in accounting policy is set out in note 39. Cross currency interest rate swap agreements hedge the foreign currency, interest 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. 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. (f) hedging Current accounting policy On entering into a hedging relationship, the consolidated entity formally designates and documents the hedge relationship and the risk management objective and strategy for undertaking the hedge. The documentation includes identiﬁcation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash ﬂows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash ﬂows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the ﬁnancial reporting periods for which they are designated. 52 notes to the financial statements cont 1 significant accounting policies (cont) (i) Cash ﬂow hedges Where a derivative ﬁnancial instrument is designated as a hedge of the variability in cash ﬂows of a recognised asset or liability, or a highly probably forecasted transaction, the effective part of any gain or loss on the derivative ﬁnancial instrument is recognised directly in equity. When the forecasted transaction subsequently results in the recognition of a non-ﬁnancial asset or non- ﬁnancial liability, or the forecast transaction for a non-ﬁnancial asset or non-ﬁnancial liability becomes a ﬁrm commitment for which fair value hedge accounting is applied, the associated cumulative gain or loss is removed from equity and recognised in the initial cost or other carrying amount of the non-ﬁnancial asset or liability. If a hedge of a forecasted transaction subsequently results in the recognition of a ﬁnancial asset or a ﬁnancial liability, the associated gains and losses that were recognised directly in equity are reclassiﬁed into proﬁt or loss in the same period or periods during which the asset acquired or liability assumed affects proﬁt or loss. For cash ﬂow hedges, other than those described above, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects proﬁt or loss. The ineffective part of any gain or loss is recognised immediately in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship, but the hedged forecast transaction is still expected to occur, the cumulative gain or loss to that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement. (ii) Hedge of monetary assets and liabilities Where a derivative ﬁnancial instrument is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the income statement. The quantitative effect of the change in accounting policy is set out in note 39. Comparative period policy Derivative ﬁnancial instruments The company uses the following ﬁnancial instruments with ‘off balance sheet’ risks to reduce exposure to ﬂuctuations in foreign exchange and interest rates: • forward foreign exchange contracts are arranged to hedge major foreign currency sales and purchases, foreign currency loans and the translation of foreign currency earnings and investments; and • interest rate swap agreements are arranged to hedge against adverse movements in interest rates on both long term and short term loans. Financial instruments are used to hedge speciﬁc underlying positions only and are accounted for using the same basis as the underlying position. For interest rate swap agreements entered into in connection with the management of interest rate exposures, 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. (i) Cash ﬂow hedges Where a hedge transaction is terminated early and the anticipated transaction is still expected to occur as designated, the deferred gains or losses that arose on the hedge prior to its termination continue to be deferred and are included in the measurement of the purchase or sale or interest transaction when it occurs. Where a hedge transaction is terminated early because the anticipated transaction is no longer expected to occur as designated, deferred gains and losses that arose on the hedge prior to its termination are included in the income statement for the period. Where a hedge is redesignated as a hedge of another transaction, gains or losses arising on the hedge prior to its redesignation are only deferred where the original anticipated transaction is still expected to occur as designated. Any gains or losses relating to the hedge instrument are included in the income statement for the period. Gains or losses that arise prior to and upon the maturity of transactions entered into under hedge rollover strategies are deferred and included in the measurement of the hedged anticipated transaction if the transaction is still expected to occur as designated. If the anticipated transaction is no longer expected to occur as designated, the gains or losses are recognised immediately in the income statement. (ii) Hedge of monetary assets and liabilities All other hedge transactions are initially recorded at the relevant rate at the date of the transaction. Hedges at reporting date are valued at the rates ruling on that date and any gains or losses are brought to account in the income statement. Gains or losses arising at the time of entering into the hedge are deferred and amortised over the life of the hedge. (g) property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy (l)). Certain items of property, plant and equipment that had been revalued to fair value on or prior to 1 August 2004, the date of transition to AIFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. 53 notes to the financial statements cont 1 significant accounting policies (cont) (ii) Leased assets Leases in terms of which the consolidated entity assumes substantially all of the risks and rewards of ownership are classiﬁed as ﬁnance leases. The property acquired by way of a ﬁnance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (see below) and impairment losses (see accounting policy (l)). Lease payments are accounted for as described in accounting policy (s). (iii) Subsequent costs The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic beneﬁts embodied within the item will ﬂow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. (iv) Depreciation Depreciation is charged to the income statement on a straight- line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows: • buildings • leasehold improvements • plant and equipment • leased plant and 15–20 years 5 years 10–15 years over the term of the lease equipment 5 years • motor vehicles • computer equipment 3 years The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. (h) intangibles assets (i) Goodwill Business combinations Business combinations prior to 1 August 2004 Goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous AGAAP. The classiﬁcation and accounting treatment of business combinations that occurred prior to 1 August 2004 has not been reconsidered in preparing the consolidated entity’s opening AIFRS balance sheet at 1 August 2004 (see note 38). Business combinations since 1 August 2004 All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identiﬁable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is no longer amortised but is tested annually for impairment (see accounting policy (l)). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in associate. Negative goodwill arising on an acquisition is recognised directly in proﬁt or loss. (ii) Research costs Expenditure on research activities, undertaken with the prospect of gaining new scientiﬁc or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. (iii) Development costs Expenditure on development activities, whereby research ﬁndings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the consolidated entity has sufﬁcient resources to complete development. The expenditure capitalised includes the cost of materials and direct labour. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation (see accounting policy h(vi)) and impairment losses (see accounting policy (l)). (iv) Intellectual property Intellectual property consists of product registrations, product access rights, trademarks, task force seats, product distribution rights and product licences acquired from third parties. Generally, product registrations, product access rights, trademarks and task force seats, if purchased outright, are considered to have an indeﬁnite life as there are minimal annual fees to maintain the assets. Other items of acquired intellectual property are considered to have a ﬁnite life in accordance with the terms of the acquisition agreement. Intellectual property intangibles acquired by the consolidated entity are stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy (l)). Expenditure on internally generated goodwill and brands is expensed as incurred. (v) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic beneﬁts embodied in the speciﬁc asset to which it relates. All other expenditure is expensed as incurred. (vi) Amortisation For those intangibles with a ﬁnite life, amortisation is charged to the income statement on a straight-line basis over the estimated useful live of the asset. Goodwill and intangible assets with an indeﬁnite life are not subject to amortisation, but are systematically tested for impairment at each annual balance sheet date. The estimated useful life for intangible assets with a ﬁnite life, in the current and comparative periods, are as follows: • capitalised development costs • intellectual property - 5 years over the useful life in accordance with the acquisition agreement terms 3 to 7 years ﬁnite life • computer software 54 notes to the financial statements cont 1 significant accounting policies (cont) (i) trade and other receivables Trade and other receivables are stated at face value, less a discount for the time value of money where applicable. (j) inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the ﬁrst-in ﬁrst-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (k) cash and cash equivalents Cash and cash equivalents comprises cash balances, short term bills and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash ﬂows. (l) impairment The carrying amounts of the consolidated entity’s assets, other than inventories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill, assets that have an indeﬁnite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated semi-annually. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash- generating units are allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Goodwill and indeﬁnite-life intangible assets were tested for impairment at 1 August 2004, the date of transition to AIFRS, even though no indication of impairment existed. (i) Calculation of recoverable amount The recoverable amount of the consolidated entity’s receivables, carried at face value, is calculated as the present value of estimated future cash ﬂows, discounted at the original effective interest rate. Receivables with a short duration are not discounted. Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties. For most of Nufarm’s assets, the fair value less costs to sell, is not obtainable or applicable. Therefore, the value in use is utilised to calculate the recoverable amount. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. For an asset that does not generate largely independent cash inﬂows, the recoverable amount is determined for the cash- generating unit to which the asset belongs. (ii) Reversals of impairment Impairment losses, other than in respect to goodwill, are reversed when there is an indication that the impairment loss no longer exists and there has been a change in the estimate used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (iii) Derecognition of ﬁnancial assets and liabilities Current accounting policy A ﬁnancial asset is derecognised when: • the rights to receive cash ﬂows from the asset have expired; • the consolidated entity retains the right to receive cash ﬂows from the asset, but has assumed an obligation to pay them in full without material delay to a third party; or • the consolidated entity has transferred its rights to receive cash ﬂows from the asset and either (a) has transferred all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A ﬁnancial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. When an existing ﬁnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modiﬁed, such an exchange or modiﬁcation is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in proﬁt and loss. (m) share capital (i) Ordinary capital Issued and paid up capital is recognised at the fair value of the consideration received by the company. Ordinary share capital bears no special terms or conditions affecting the income or capital entitlements of the shareholders. (ii) Dividends Dividends on ordinary capital are recognised as a liability in the period in which they are declared. 55 notes to the financial statements cont 1 significant accounting policies (cont) (iii) Transaction costs Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax beneﬁt. (n) interest-bearing borrowings Current accounting policy Interest-bearing borrowings are initially recognised at the principal amount less attributable transaction costs. Comparative period policy Bank loans are recorded at the principal amount, or in the case of capital notes, at the face value of the notes. Borrowing costs, including interest at the contracted rate, are charged against proﬁt as they accrue. (o) employee benefits (i) Deﬁned contribution superannuation funds Obligations for contributions to deﬁned contribution pension plans are recognised as an expense in the income statement as incurred. (ii) Deﬁned beneﬁt plans The consolidated entity’s net obligation in respect of deﬁned beneﬁt pension plans, is calculated separately for each plan by estimating the amount of future beneﬁt that employees have earned in return for their service in the current and prior periods; that beneﬁt is discounted to determine its present value, and the fair value of any fund assets is deducted. The discount rate is the yield at the balance sheet date on government bonds that have maturity dates approximating the terms of the consolidated entity’s obligations. The calculation is performed by a qualiﬁed actuary using the projected unit credit method. When the beneﬁts of a fund are improved, the portion of the increased beneﬁt relating to past service by employees is recognised as an expense in the income statement on a straight- line basis over the average period until the beneﬁts become vested. To the extent that the beneﬁts vest immediately, the expense is recognised immediately in the income statement. All actuarial gains and losses are recognised directly in retained earnings. Where the calculation results in a beneﬁt to the consolidated entity, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the fund or reductions in future contributions to the fund. Past service cost is the increase in the present value of the deﬁned beneﬁt obligation for employee services in prior periods, resulting in the current period from the introduction of, or changes to, post- employment beneﬁts or other long-term employee beneﬁts. (iii) Long-term service beneﬁts The consolidated entity’s net obligation in respect of long-term service beneﬁts, other than deﬁned beneﬁt superannuation funds, is the amount of future beneﬁt that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating the terms of the consolidated entity’s obligations. (iv) Wages, salaries, annual leave, sick leave and non- monetary beneﬁts Liabilities for employee beneﬁts for wages, salaries, annual leave and sick leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at undiscounted amounts based on remuneration salary rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as, workers compensation insurance and payroll tax. (v) Share-based payment transactions The consolidated entity has a global share plan for employees whereby matching and loyalty shares are granted to employees. The value of matching and loyalty shares granted is recognised as personnel expenses in the income statement over the respective service period with a corresponding increase in equity, rather than as the matching and loyalty shares are issued. Refer note 24 for details of the global share plan. (p) provisions A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outﬂow of economic beneﬁts will be required to settle the obligation. Provisions are determined by discounting the expected future cash ﬂows at a pre-tax rate that reﬂects current market assessments of the time value of money and, where appropriate, the risks speciﬁc to the liability. (i) Restructuring A provision for restructuring is recognised when the consolidated entity has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. (q) trade and other payables Trade and other payables are stated at face value, less a discount for the time value of money where applicable.Trade payables are non-interest bearing and are normally settled on an average of 60-day terms. 56 notes to the financial statements cont 1 significant accounting policies (cont) (r) revenue Goods sold Revenue from the sale of goods is recognised in the income statement when the signiﬁcant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there are signiﬁcant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, or there is continuing management involvement with the goods. (s) expenses (i) Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense and spread over the lease term. (ii) Finance lease payments Minimum lease payments are apportioned between the ﬁnance charge and the reduction of the outstanding liability. The ﬁnance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (iii) Net ﬁnancing costs Net ﬁnancing costs comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested, foreign exchange gains and losses and losses on hedging instruments that are recognised in the income statement. Borrowing costs are expensed as incurred and included in net ﬁnancing costs. Interest income is recognised in the income statement as it accrues, using the effective interest method. The interest expense component of ﬁnance lease payments is recognised in the income statement using the effective interest method. (t) income tax Income tax on the proﬁt or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for tax purposes. The following temporary differences are not provided for: initial recognition of goodwill; the initial recognition of assets and liabilities that affect neither accounting or taxable proﬁt; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable proﬁts will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend. Tax consolidation The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 August 2002 and are therefore taxed as a single entity from that date. The head entity within the tax consolidated group is Nufarm Limited. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate ﬁnancial statements of the members of the tax- consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate ﬁnancial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the company as an equity contribution or distribution. The company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable proﬁts of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head entity only. Nature of tax funding arrangements and tax sharing agreements The head entity, in conjunction with other members of the tax- consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax- consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) equal in amount to the tax liability (asset) assumed. The inter- entity receivable (payable) are at call. 57 notes to the financial statements cont Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash ﬂows are included in the statement of cash ﬂows on a gross basis. The GST components of cash ﬂows arising from investing and ﬁnancing activities which are recoverable from, or payable to, the ATO are classiﬁed as operating cash ﬂows. (x) accounting estimates and judgements Management discussed with the audit committee the development, selection and disclosure of the consolidated entity’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements that have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. Impairment of goodwill and intangibles with indeﬁnite useful lives Semi-annually the consolidated entity assesses whether the goodwill and intangible assets with indeﬁnite lives are impaired. These calculations involved estimating the recoverable amount of the cash-generating units (CGUs) to which the goodwill and intangible assets with indeﬁnite lives are allocated. The assumptions used in the estimation of recoverable amount and the carrying amount of goodwill and intangibles with indeﬁnite useful lives are discussed in note 20. Deﬁned beneﬁt fund assumptions Various actuarial assumptions are utilised in the determination of the consolidated entities deﬁned beneﬁt fund obligations. These assumptions are disclosed in note 24. Provision for doubtful debts A provision for doubtful debts is only recognised when it is considered unlikely that the full amount of the receivable will be collected. No general provision for doubtful debts is recognised due to the tight credit control procedures and the history of very low bad debt write offs. 1 significant accounting policies (cont) Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reﬂect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. The head entity, in conjunction with other members of the tax- consolidated group, has also entered a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of the income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the ﬁnancial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. (u) segment reporting A segment is a distinguishable component of the consolidated entity that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographic segment), which is subject to risks or rewards that are different from those of other segments. The consolidated entity’s primary reporting segment is by geography. (v) non-current assets held for sale and discontinued operations Immediately before classiﬁcation as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up to date in accordance with applicable accounting standards. Then, on initial classiﬁcation as held for sale, non-current assets and disposal groups are recognised at the lower of carrying value and fair value less costs to sell. Impairment losses on initial classiﬁcation as held for sale are included in proﬁt or loss, even when there is a revaluation.The same applies to gains or losses on subsequent remeasurement. A discontinued operation is a component of the consolidated entity’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Classiﬁcation as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classiﬁed as held for sale, if earlier. A disposal group that is to be abandoned may also qualify. (w) goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. 58 notes to the financial statements cont 2 segment reporting Segment information is presented in respect of the consolidated entity’s business and geographic segments. The primary format, geographic segments, is based on the consolidated entity’s management and internal reporting structure. The consolidated entity operates predominantly in one business segment, being the crop protection industry. The business is managed on a worldwide basis, with the major geographic segments for reporting being Australasia, Europe and Americas. In presenting information on the basis of geographic segments, segment revenue is based on the geographic location of customers. Segment assets are based on the geographic location of the assets. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Inter-segment pricing is determined on an arm’s length basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. geographic segments revenue Total segment revenue results Segment result Unallocated corporate expenses Proﬁt from operating activities Net ﬁnancing costs Share of proﬁt of associates Income tax expense Proﬁt/(loss) of discontinued operations and gain on sale of discontinued operations Proﬁt for the year assets Segment assets Investment in associates Unallocated assets Total assets liabilities Segment liabilities Unallocated liabilities Total liabilities other segment information Capital expenditure Depreciation Amortisation Other non-cash expenses australasia $000 europe $000 americas consolidated $000 $000 2006 749,558 392,947 534,241 1,676,746 122,023 35,056 48,058 731,226 8,784 499,792 14,168 331,334 205,178 266,551 132,173 158,188 205,137 (28,812) 176,325 (49,246) 10,545 (34,459) 18,567 121,732 1,562,352 228,130 136,643 1,927,125 556,912 660,847 1,217,759 74,883 14,855 3,179 5,817 17,286 14,562 6,081 6,078 50,698 4,409 527 45 142,867 33,826 9,787 11,940 59 notes to the financial statements cont 2 segment reporting (continued) revenue Total segment revenue results Segment result Unallocated corporate expenses Proﬁt from operating activities Net ﬁnancing costs Share of proﬁt of associates Income tax expense Proﬁt/(loss) of discontinued operations and gain on sale of discontinued operations Proﬁt for the year assets Segment assets Investment in associates Unallocated assets Total assets liabilities Segment liabilities Unallocated liabilities Total liabilities other segment information Capital expenditure Depreciation Amortisation Other non-cash expenses australasia $000 europe $000 americas consolidated $000 $000 2005 753,852 375,192 444,944 1,573,988 122,458 1,055 37,048 661,705 7,907 459,921 13,448 243,762 196,702 291,457 131,767 130,069 31,938 13,709 2,445 6,025 85,502 12,366 5,449 2,083 20,999 3,811 470 553 160,561 (25,376) 135,185 (38,301) 33,402 (26,464) 22,812 126,634 1,365,388 218,057 165,286 1,748,731 553,293 578,124 1,131,417 138,439 29,886 8,364 8,661 3 items of material income and expense the following material items were included in the period result: Gain on sale of businesses – after tax Other restructuring items – after tax Material items after tax consolidated 2005 2006 $000 $000 8,415 (8,368) 47 12,736 (9,351) 3,385 consolidated the company 2006 $000 2005 $000 2006 $000 2005 $000 4 other income Dividends from wholly owned controlled entities Management fees from controlled entities Sundry income Total other income – – 9,914 9,914 – – 8,366 8,366 45,861 1,733 209 47,803 40,592 3,134 1,038 44,764 60 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 5 other operating expenses Personnel expenses Sales and distribution expenses Plant related expenses Other operating expenses Occupancy expenses Insurance expense Depreciation and amortisation Closure costs UK property, plant & equipment Travel expense Research and development expense Operating lease expenses Total operating expenses other expenses included above Impairment loss on trade receivables Movement in stock obsolescence provision (increase)/decrease Restructuring costs Superannuation contributions – deﬁned beneﬁt fund (increase)/decrease 6 auditors’ remuneration audit services KPMG Australia Audit and review of ﬁnancial reports Audit of AIFRS disclosures Overseas KPMG ﬁrms Audit and review of ﬁnancial reports other auditors Audit and review of ﬁnancial reports other services KPMG Australia AIFRS conversion advice Accounting advice Other assurance services Overseas KPMG ﬁrms Due diligence services (190,103) (78,160) (47,881) (37,377) (28,818) (18,973) (18,827) – (16,982) (14,615) (8,750) (460,486) (181,973) (68,870) (47,806) (30,847) (23,571) (18,020) (16,512) (15,967) (15,486) (14,962) (9,393) (443,407) (823) 631 (8,990) (921) (215) (2,761) 1,679 (1,404) 377 43 823 1,243 105 1,348 10 – 96 – 106 301 25 563 889 111 1,000 25 20 – 31 76 (2,644) (3,790) (224) (469) (414) (392) (319) – (381) (226) (6) (8,865) (4,037) (3,965) (281) (1,647) (470) (480) (322) – (466) (262) (8) (11,938) – – – – 56 – – 56 – 56 – – – – – 1 (79) – – 49 – – 49 – 49 – – – – – 61 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 7 net financing costs Interest income – controlled subsidiaries Interest income – external Financial income Interest expense – controlled entities Interest expense – external Costs of securitisation program Finance lease charges Financial expenses – (7,995) (7,995) – 52,756 4,476 9 57,241 – (8,278) (8,278) – 43,132 3,422 25 46,579 (14,023) (6,192) (20,215) (13,623) (6,969) (20,592) 21,695 101 – – 21,796 22,386 – – – 22,386 Net ﬁnancing costs 49,246 38,301 1,581 1,794 8 income tax expense recognised in the income statement current tax expense Current year Adjustments for prior years deferred tax expense Origination and reversal of temporary differences Reduction in tax rates Beneﬁt of tax losses recognised 41,499 (976) 40,523 46,898 257 47,155 2,940 (120) 2,820 3,654 (1,069) 2,585 4,142 585 (7,434) (2,707) (1,716) 16 (7,149) (8,849) 620 – – 620 (41) – – (41) Total income tax expense in income statement 37,816 38,306 3,440 2,544 Attributable to: Continuing operations Discontinuing operations numerical reconciliation between tax expense and pre-tax net profit Proﬁt before tax – continuing operations Proﬁt before tax – discontinuing operations Proﬁt before tax 34,459 3,357 37,816 26,464 11,842 38,306 2,710 730 3,440 2,051 493 2,544 137,624 21,924 159,548 130,286 34,654 164,940 56,846 7,354 64,200 51,306 1,485 52,791 62 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 8 income tax expense (continued) Income tax using the local corporate tax rate of 30% Increase in income tax expense due to: Non-deductible expenses Effect on tax rate in foreign jurisdictions Effect of changes in the tax rate Decrease in income tax expense due to: Effect of tax losses derecognised/recognised Tax exempt income Tax incentives not recognised in the income statement Under/(over) provided in prior years 47,864 49,482 19,260 15,837 2,718 983 585 (4,383) (8,078) (897) 38,792 (976) 2,205 3,523 16 (4,801) (11,547) (829) 38,049 257 190 136 – 201 212 – – (16,026) – 3,560 (120) – (12,638) – 3,612 (1,068) Income tax expense on pre–tax net proﬁt 37,816 38,306 3,440 2,544 Deferred tax recognised directly in equity Relating to actuarial gains on deﬁned beneﬁt plans Relating to cost of issuing equity (29) – (29) (876) – (876) – – – – – – 9 non-current assets held for sale and discontinued operations discontinued operations Effective 1 August 2005, the consolidated entity sold the Nuturf turf/specialty business. On 30 June 2006, Nufarm sold the CACI business. CACI manufactured and sold industrial chemical products in France. Effective 31 July 2006, Nufarm sold its New Zealand based animal health toll manufacturing business to Argenta Manufacturing Ltd. The Nufarm-Coogee joint venture, which owns and operates two industrial chlor-alkali plants in Western Australia, has been classiﬁed as assets held for sale and a discontinued business at 31 July as Nufarm is in advanced negotiations for the sale of its stake in the joint ventures. Also included in the assets held for sale is the land and buildings at the Granollers site in Spain, as Nufarm is currently negotiating the sale of this site. The comparative year assets held for sale related to the Nuturf business. In the prior period, the group sold the Nufarm Specialty Products business, SEAC, Paciﬁc Raw Materials, Biological Wool Harvesting and the Nufarm Brazil business. The Nufarm Brazil business was sold to the associated company Agripec. effect of the disposals on the income statement of the consolidated entity Revenue Cost of sales Gross proﬁt Other income Depreciation and amortisation expense Operating expense Proﬁt before ﬁnancing costs Financial income Financial expense Net ﬁnancing costs Proﬁt before tax Income tax expense Proﬁt after tax of discontinued operations consolidated 2006 $000 2005 $000 67,777 (32,470) 35,307 1,829 (2,750) (19,966) 14,420 137 (83) 54 111,552 (52,019) 59,533 3,246 (7,313) (41,409) 14,057 192 (241) (49) 14,474 (4,322) 10,152 14,008 (3,932) 10,076 63 notes to the financial statements cont consolidated 2006 $000 2005 $000 9 non-current assets held for sale and discontinued operations (continued) effect of the disposals on the balance sheet of the consolidated entity Receivables Inventories Property, plant and equipment Intangibles Deferred tax asset Other assets Trade payables Employee beneﬁts Borrowings Finance lease liability Deferred tax liability Net identiﬁable assets and liabilities 2,330 3,317 19,735 499 1,948 – (2,640) (731) – (881) (397) 23,180 Consideration received, satisﬁed in cash Deferred consideration Cash disposed of Net cash (inﬂow) Other costs associated with disposal Gain on sale of discontinued operations after tax Income tax beneﬁt/(expense) Gain on sale of discontinued operations after tax Proﬁt after tax of discontinued operations Gain on sale of discontinued operations after tax Proﬁt and loss of discontinued operations (per income statement) net cash flows attributable to discontinuing operations Operating Investing Financing Net cash ﬂows attributable to discontinuing operations assets held for sale Included in the assets held for sale at 31 July 2006 are the chlor-alkali joint ventures and the land and buildings at the Granollers site in Spain ($1,137,076). 11,677 15,626 47,677 755 – 703 (9,180) (1,173) (7,517) – – 58,568 69,921 11,900 (164) 81,657 8,138 25,061 (418) 32,781 (2,151) (2,443) 7,450 965 8,415 10,152 8,415 18,567 12,809 (3,892) (3,510) 5,407 20,646 (7,910) 12,736 10,076 12,736 22,812 16,920 (8,979) (8,270) (329) 64 notes to the financial statements cont consolidated 2006 $000 2005 $000 456 2,087 2,508 66 218 – 145 5,480 925 483 – – 1,408 9 non-current assets held for sale and discontinued operations (continued) assets classified as held for sale Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Property, plant and equipment Intangible assets Deferred tax asset 1,423 3,510 523 – 14,681 – 3,772 23,909 liabilities classified as held for sale Trade and other payables Employee entitlements Provision for tax Deferred tax liability 10 earnings per share Net proﬁt Net proﬁt attributable to minority interest Earnings used in the calculations of basic and diluted earnings per share Earnings from continuing operations Earnings from discontinuing operations Add/subtract material items of proﬁt/(loss) (refer note 3) Earnings excluding material items used in the calculation of operating earnings per share Weighted average number of ordinary shares used in calculation of basic earnings per share Weighted average number of ordinary shares used in calculation of diluted earnings per share 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. earnings per share for continuing and discontinued operations Basic earnings per share From continuing operations From discontinuing operations Diluted earnings per share From continuing operations From discontinuing operations Earnings per share (excluding material items of proﬁt/loss – see note 3) Basic earnings per share Diluted earnings per share 7,881 816 4,175 553 13,425 121,732 (579) 121,153 126,634 (1,589) 125,045 102,586 18,567 121,153 102,233 22,812 125,045 47 3,385 121,106 121,660 number of shares 2005 2006 170,224,284 169,043,745 170,224,284 169,043,745 cents per share 2005 2006 60.3 10.9 71.2 60.3 10.9 71.2 71.1 71.1 60.5 13.5 74.0 60.5 13.5 74.0 72.0 72.0 65 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 11 cash and cash equivalents Bank balances Call deposits Cash and cash equivalents Bank overdrafts repayable on demand Cash and cash equivalents in the statement of cash ﬂows 12 trade and other receivables current Trade receivables Provision for impairment losses Receivables due from controlled entities Loans due from controlled entities Receivables due from associates Receivables due from securitisation program Hedge receivables Proceeds receivable from sale of businesses Other trade receivables and prepayments non-current Receivables due from associates Loans due from controlled entities Hedge receivables Other receivables Proceeds receivable from sale of businesses Provision for non-collectibility of sale proceeds 12,483 38,786 51,269 (19,940) 31,329 15,323 40,468 55,791 (10,398) 45,393 10,739 – 10,739 (23,574) (12,835) 4,265 – 4,265 (24,762) (20,497) 371,898 (3,243) 368,655 – – 444 52,836 18,286 33,763 50,180 524,164 602 – – 754 19,850 (3,468) 17,738 296,072 (2,423) 293,649 – – 121 48,828 – 13,157 46,718 402,473 – – 45,592 8,917 15,105 (3,205) 66,409 8,379 – 8,379 9,180 – 9,180 228,937 170,618 – – 18,048 25,061 1,069 452,112 203,494 2,805 – – – – 983 216,462 – – – – – – – – 161,798 45,592 – – – 207,390 Total trade and other receivables 541,902 468,882 452,112 423,852 13 inventories Raw materials Work in progress Finished goods 82,421 21,563 332,177 436,161 105,062 6,492 315,497 427,051 – 323 13,480 13,803 3,464 708 12,220 16,392 Provision for obsolescence of ﬁnished goods Total inventories (4,138) 432,023 (5,613) 421,438 (205) 13,598 (468) 15,924 14 current tax assets and liabilities The current tax asset for the consolidated entity of $6,171,517 (2005: $8,424,506) and for the company of $376,750 (2005: $174,464) represent the amount of income taxes recoverable in respect of prior periods and that arise from payments in excess of the amounts due to the relevant tax authority. The current tax liability for the consolidated entity of $9,999,276 (2005: $12,348,260) and the company of $8,198,985 (2005: $4,359,189) represent the amount of income taxes payable in respect of current and prior ﬁnancial periods. In accordance with the tax consolidation legislation, the company as the head entity of the Australian tax- consolidated group has assumed the current tax liability (asset) initially recognised by the members in the tax-consolidated group. 66 notes to the financial statements cont 15 investments accounted for using the equity method The consolidated entity accounts for investments in associates using the equity method. The consolidated entity has the following investments in associates: Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Limited Excel Crop Care Ltd Crop protection company Agricultural chemicals manufacturer Agricultural chemicals manufacturer ownership and balance date voting interest 2005 49.9% 2006 49.9% country of associate 31.12.2005 Brazil UK 31.12.2005 25% 25% India 31.3.2006 14.69% 14.69% The 14.69% investment in Excel Crop Care Ltd is equity accounted as Nufarm has two directors on the board and, together with an unrelated partner, has signiﬁcant inﬂuence over nearly 35% of the shares of the company. The relationship also extends to manufacturing and marketing collaborations. financial summary of material associates revenues (100%) profit after tax (100%) total assets (100%) net assets share of as reported associates’ by net assets equity (100%) accounted associates total liabilities (100%) 2006 Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Limited Excel Crop Care Ltd 2005 Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Limited Excel Crop Care Ltd carrying value by major associate Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Ltd Excel Crop Care Ltd Others Carrying value of associates share of associates profits Proﬁt before income tax Income tax beneﬁt/(expense) Share of net proﬁts of associates 229,282 86,289 123,777 439,348 249,616 94,477 126,521 470,614 17,146 2,130 6,898 26,174 313,088 77,970 74,983 466,041 114,275 17,167 48,993 180,435 198,813 60,803 25,990 285,606 99,208 15,201 3,818 118,227 60,970 8,286 6,787 76,043 273,614 74,575 79,154 427,343 129,474 15,868 57,035 202,377 144,140 58,707 22,119 224,966 71,925 14,677 3,249 89,851 consolidated 2006 $000 2005 $000 204,875 13,998 7,724 1,533 228,130 193,659 14,509 7,140 2,749 218,057 4,771 5,774 10,545 42,125 (8,723) 33,402 67 notes to the financial statements cont consolidated 2006 $000 2005 $000 15 investments accounted for using the equity method (continued) 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 8,556 863 1,013 113 10,545 30,424 2,001 997 (20) 33,402 financial summary of material associate agripec quimica e farmaceutica sa Group’s share of proﬁt from ordinary activities before tax 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 1,726 6,830 8,556 (6,673) 1,883 37,523 (7,099) 30,424 (3,519) 26,905 Associated entities have the following commitments. Nufarm’s share of capital commitments is $226,672 (2005: $533,100) and share of ﬁnance lease commitments is $303,933 (2005: $nil). Nufarm’s share of contingent liabilities is $3,025,110 (2005: $954,000). 16 interest in joint venture operation At 31 July 2006, Nufarm is in advanced negotiations for the sale of its interest in the chlor-alkali joint ventures. Therefore, the assets and liabilities have been classiﬁed as held for sale at 31 July 2006. Details of the assets and liabilities classiﬁed as held for sale are included in note 9. consolidated 2006 $000 2005 $000 the company 2006 $000 2005 $000 17 other investments investment in controlled entities Balance at the beginning of the year Balance at the end of the year investment in other companies (at cost) Balance at the beginning of the year Exchange adjustment Reclassiﬁcation to other receivables Balance at the end of the year other investments including loans to the staff share purchase schemes 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 investments – – – – 247,213 247,213 247,213 247,213 1,013 36 (816) 233 930 5 100 – (765) 270 503 1,073 (60) – 1,013 2,640 (46) 15 (481) (1,198) 930 1,943 – – – – – – – – – – – – – – 247,213 – – – – – – 247,213 68 notes to the financial statements cont 18 deferred tax assets and liabilities recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: assets 2006 $000 liabilities 2006 $000 2005 $000 2005 $000 net consolidated Property, plant and equipment Intangibles assets Other investments Employee beneﬁts Provisions Other items Tax value of losses carried forward Tax assets/(liabilities) Set off of tax Net tax assets/(liabilities) the company Property, plant and equipment Intangibles assets Other investments Employee beneﬁts Provisions Other items Tax value of losses carried forward Tax assets/(liabilities) Set off of tax Net tax assets/(liabilities) 12,403 6,370 – 14,543 3,872 1,505 32,391 71,084 (10,011) 61,073 2 – – 121 67 947 – 1,137 – 1,137 14,802 6,385 – 14,349 3,225 639 24,403 63,803 (8,324) 55,479 819 – – 190 155 654 – 1,818 – 1,818 (12,780) (18,991) (41) – (45) (6,242) – (38,099) 10,011 (28,088) (12,813) (11,600) (177) – (136) (3,722) – (28,448) 8,324 (20,124) (52) (4) – – – – – (56) – (56) – – (120) – – – – (120) – (120) 2006 $000 (377) (12,621) (41) 14,543 3,827 (4,737) 32,391 32,985 – 32,985 (50) (4) – 121 67 947 – 1,081 – 1,081 2005 $000 1,989 (5,215) (177) 14,349 3,089 (3,083) 24,403 35,355 – 35,355 819 – (120) 190 155 654 – 1,698 – 1,698 At 31 July 2006, a deferred tax liability of $9,813,599 (2005: $7,749,675) relating to investments in subsidiaries has not been recognised because the company controls whether the liability will be incurred and it is satisﬁed that it will not be incurred in the foreseeable future. unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: consolidated Deductible temporary differences Tax losses 2006 $000 1,292 2,878 4,170 the company 2006 $000 – – – 2005 $000 – – – 2005 $000 3,650 3,614 7,264 The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable proﬁt will be available against which the consolidated entity can utilise the beneﬁts from. 69 notes to the financial statements cont 0 0 0 $ e c n a l a b 6 0 - l u J - 1 3 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ 0 0 0 $ r e h t o y c n e r r u c d e s i n g o c e r d e s i n g o c e r e c n a l a b r e h t o y c n e r r u c d e s i n g o c e r d e s i n g o c e r e c n a l a b t n e m e v o m t n e m t s u j d a y t i u q e n i e m o c n i n i 5 0 - l u J - 1 3 t n e m e v o m t n e m t s u j d a y t i u q e n i e m o c n i n i 4 0 - g u A - 1 ) 7 7 3 ( ) 3 6 0 , 3 ( ) 1 7 3 ( ) 1 2 6 , 2 1 ( ) 2 1 3 ( ) 2 5 2 ( ) 1 4 ( – 3 4 5 , 4 1 7 2 8 , 3 ) 7 3 7 , 4 ( 7 4 ) 5 6 2 ( 0 9 5 – 8 6 4 3 2 ) 9 9 1 ( 1 9 3 , 2 3 5 8 9 , 2 3 ) 7 9 5 ( ) 0 0 6 , 3 ( 8 9 7 8 7 2 ) 4 ( ) 0 5 ( – 1 2 1 7 6 7 4 9 – 1 8 0 , 1 – – – – – – – – ) 3 8 ( – – ) 9 1 ( ) 6 1 ( – – ) 8 1 1 ( – – – – – 0 9 – 0 9 – – – – – – – – 8 6 0 , 1 9 8 9 , 1 ) 3 9 9 , 3 ( 2 3 7 , 1 ) 2 4 8 , 6 ( ) 5 1 2 , 5 ( ) 4 0 1 , 2 ( 3 4 3 6 3 1 ) 7 7 1 ( 5 3 9 ) 5 4 0 , 2 ( ) 7 7 1 ( – 9 4 3 , 4 1 9 8 0 , 3 ) 3 8 0 , 3 ( – 8 3 6 7 4 5 , 1 – ) 4 ( ) 9 3 ( ) 7 3 4 ( 2 6 8 7 8 7 , 7 3 0 4 , 4 2 5 5 3 , 5 3 ) 0 3 2 ( 2 8 6 , 3 1 6 5 ) 4 3 0 , 1 ( ) 6 8 7 ( ) 4 ( 0 2 1 ) 0 5 ( ) 2 7 ( 3 9 2 – ) 9 9 4 ( – 9 1 8 ) 0 2 1 ( 0 9 1 5 5 1 4 5 6 – 8 9 6 , 1 – – – – – – – – – – – – – – – – – – – – – – ) 6 7 8 ( ) 6 7 8 ( – – – – – – – – 3 3 5 , 8 ) 3 8 2 , 4 ( ) 5 6 0 , 2 ( ) 9 8 3 , 1 ( ) 8 8 ( ) 9 8 ( 5 9 9 ) 6 6 1 ( ) 7 7 0 , 3 ( 1 3 6 , 3 1 9 5 2 , 3 ) 6 1 1 , 1 ( 8 6 1 , 6 0 0 3 , 0 1 7 8 5 , 5 1 0 0 6 , 5 2 d e t a d i l o s n o c , y t r e p o r P d n a t n a l p t n e m p i u q e s e l b i g n a t n I s t e s s a r e h t O s t n e m t s e v n i e e y o l p m E s t ﬁ e n e b s n o i s i v o r P s m e t i r e h t O d e i r r a c s e s s o l f o e u l a v x a T d r a w r o f 8 1 – ) 0 2 1 ( ) 6 ( ) 8 2 ( 6 1 3 ) 1 4 ( 9 3 1 – – 1 0 8 6 9 1 3 8 1 8 3 3 1 4 9 5 5 , 1 s t n e m t s e v n i r e h t O s t ﬁ e n e b e e y o l p m E s t e s s a s e l b i g n a t n I y n a p m o c e h t t n a l p , y t r e p o r P t n e m p i u q e d n a s e s s o l f o e u l a v x a T d r a w r o f d e i r r a c s m e t i r e h t O s n o i s i v o r P ) d e u n i t n o c ( s e i t i l i b a i l d n a s t e s s a x a t d e r r e f e d 8 1 r a e y e h t g n i r u d s e c n e r e f f i d y r a r o p m e t n i t n e m e v o m 70 notes to the financial statements cont plant and land and machinery leased plant and machinery $000 $000 buildings $000 19 property, plant, and equipment consolidated 2006 cost Balance at 1 August 2005 Additions Additions through business combinations Disposals Disposals through sale of entities Transfer to assets held for sale Other transfers Exchange adjustment Balance at 31 July 2006 depreciation and impairment losses Balance at 1 August 2005 Depreciation charge for the year Depreciation transfer to discontinued businesses Additions through business combinations Disposals Disposals through sale of entities Transfer to assets held for sale Other transfers Exchange adjustment Balance at 31 July 2006 156,416 627 1,940 – (13,460) (2,702) 7,679 1,290 151,790 (45,868) (4,912) (323) (203) 91 2,909 1,420 949 (1,021) (46,958) 464,818 6,892 1,587 (6,863) (14,991) (45,638) 27,272 7,542 440,619 (291,524) (28,728) (2,254) (441) 7,832 8,072 33,855 (921) (4,836) (278,945) 5,078 – 527 – (4,350) – 95 186 1,536 (2,366) (186) (156) (268) – 2,304 – (28) (76) (776) capital work in progress $000 total $000 23,584 31,873 – (464) – (1,616) (35,046) 141 18,472 649,896 39,392 4,054 (7,327) (32,801) (49,956) – 9,159 612,417 – – – – – – – – – – (339,758) (33,826) (2,733) (912) 7,923 13,285 35,275 – (5,933) (326,679) Net property, plant and equipment at 31 July 2006 104,832 161,674 760 18,472 285,738 cost Balance at 1 August 2004 Additions Additions through business combinations Disposals Disposals through sale of entities Transfer to assets held for sale Other transfers Exchange adjustment Balance at 31 July 2005 depreciation and impairment losses Balance at 1 August 2004 Depreciation charge for the year Depreciation transfer to discontinued businesses Disposals Disposals through sale of entities Transfer to assets held for sale Other transfers Exchange adjustment Balance at 31 July 2005 175,357 1,590 – (8,930) (20,367) (16) 17,169 (8,387) 156,416 (51,171) (2,384) (881) 4,738 8,275 5 (7,542) 3,092 (45,868) 564,824 9,431 621 (47,990) (66,595) (519) 29,255 (24,209) 464,818 (337,337) (27,429) (6,177) 31,679 31,006 312 1,477 14,945 (291,524) 2005 5,206 261 – (34) – – (22) (333) 5,078 (2,289) (73) (172) 20 – – 2 146 (2,366) 19,213 45,556 – (8) – – (40,339) (838) 23,584 764,600 56,838 621 (56,962) (86,962) (535) 6,063 (33,767) 649,896 – – – – – – – – – (390,797) (29,886) (7,230) 36,437 39,281 317 (6,063) 18,183 (339,758) Net property, plant and equipment at 31 July 2005 110,548 173,294 2,712 23,584 310,138 Assets pledged as security for ﬁnance leases $0.8 million (2005: $2.7 million). There were no impairment losses in the consolidated entity in the current ﬁnancial year or the comparative year. 71 notes to the financial statements cont plant and land and machinery leased plant and machinery $000 $000 capital work in progress $000 total $000 buildings $000 19 property, plant, and equipment (continued) the company 2006 cost Balance at 1 August 2005 Additions Disposals Disposals through sale of entities Other transfers Exchange adjustment Balance at 31 July 2006 depreciation and impairment losses Balance at 1 August 2005 Depreciation charge for the year Depreciation transferred to discontinued businesses Disposals Disposals through sale of entities Exchange adjustment Balance at 31 July 2006 15,132 3 (2) (11,394) – (1,530) 2,209 (2,184) (53) (298) 2 2,084 251 (198) 11,529 737 (134) (11,926) 4,134 (1,162) 3,178 (6,837) (264) (853) 79 5,502 790 (1,583) – – – – – – – – – – – – – – 3,053 1,676 – – (4,134) (309) 286 29,714 2,416 (136) (23,320) – (3,001) 5,673 – – – – – – – (9,021) (317) (1,151) 81 7,586 1,041 (1,781) Net property, plant and equipment at 31 July 2006 2,011 1,595 – 286 3,892 cost Balance at 1 August 2004 Additions Disposals Disposals through sale of entities Other transfers Exchange adjustment Balance at 31 July 2005 depreciation and impairment losses Balance at 1 August 2004 Depreciation charge for the year Depreciation transferred to discontinued businesses Disposals Disposals through sale of entities Exchange adjustment Balance at 31 July 2005 15,195 33 – – – (96) 15,132 (1,812) (29) (358) – – 15 (2,184) 11,213 860 (478) (8) 10 (68) 11,529 (5,473) (294) (1,421) 273 4 74 (6,837) 2005 – – – – – – – – – – – – – – 142 2,922 – – (10) (1) 3,053 26,550 3,815 (478) (8) – (165) 29,714 – – – – – – – (7,285) (323) (1,779) 273 4 89 (9,021) Net property, plant and equipment at 31 July 2005 12,948 4,692 – 3,053 20,693 There were no impairment losses in the company in the current ﬁnancial year or the comparative year. 72 notes to the financial statements cont consolidated intellectual property capitalised definite development costs $000 indefinite life $000 life $000 goodwill $000 computer software $000 total $000 20 intangible assets cost Balance at 1 August 2005 Additions Additions through business combinations Disposals Disposals through sale of entities Other transfers Exchange adjustment Balance at 31 July 2006 amortisation and impairment losses Balance at 1 August 2005 Amortisation charge for the year Transferred to discontinued businesses Disposals Disposals through sale of entities Other transfers Exchange adjustment Balance at 31 July 2006 130,360 – 28,581 – – 1,473 1,531 161,945 (60,945) – – – – 63 (1,035) (61,917) 94,928 34,513 19,808 – – 428 950 150,627 (8,545) – – – – (1,964) (97) (10,606) 2006 41,050 1,652 1,150 – – (547) 2,051 45,356 (17,166) (3,207) – – – 547 (1,237) (21,063) 25,467 7,771 – – – 884 799 34,921 (6,726) (3,408) – – – (884) (279) (11,297) 10,905 7,315 – (349) (830) (748) 251 16,544 302,710 51,251 49,539 (349) (830) 1,490 5,582 409,393 (7,797) (1,896) (17) 210 827 748 (179) (8,104) (101,179) (8,511) (17) 210 827 (1,490) (2,827) (112,987) Intangibles carrying amount at 31 July 2006 cost Balance at 1 August 2004 Additions Disposals Other transfers Exchange adjustment Balance at 31 July 2005 amortisation and impairment losses Balance at 1 August 2004 Amortisation charge for the year Disposals Disposals through sale of entities Other transfers Exchange adjustment Balance at 31 July 2005 Intangibles carrying amount at 31 July 2005 100,028 140,021 24,293 23,624 8,440 296,406 2005 29,155 89,456 88 295 (3,457) – 14,261 12,466 (659) (5,627) 41,050 94,928 (5,784) – (2,368) – (840) 447 (8,545) (3,796) (3,056) – – (10,573) 259 (17,166) 158,195 8,791 (2,336) (24,417) (9,873) 130,360 (74,870) – 483 755 8,346 4,341 (60,945) 22,279 5,482 (2,528) 1,297 (1,063) 25,467 (4,311) (2,477) 345 – (540) 257 (6,726) 9,546 1,667 – – (308) 10,905 308,631 16,323 (8,321) 3,607 (17,530) 302,710 (6,717) (1,201) – – – 121 (7,797) (95,478) (6,734) (1,540) 755 (3,607) 5,425 (101,179) 69,415 86,383 23,884 18,741 3,108 201,531 The amortisation and impairment charge for the year of $8,511,000 (2005: $6,734,000) is included in the depreciation and amortisation line in the income statement. The major intangibles with an indeﬁnite economic life are the product registrations that Nufarm owns. These registrations are considered to have an indeﬁnite life because, based on past experience, there is no evidence that they will not be renewed by the relevant regulatory authorities. There is no evidence that the company will not satisfy all of the conditions necessary for renewal and the cost of renewal is minimal. In determining that the registrations have indeﬁnite useful life, the principal factor that inﬂuenced this determination is the expectation that the existing registration will not be subject to signiﬁcant amendment in the foreseeable future. 73 notes to the financial statements cont 20 intangible assets (continued) The consolidated entity has determined that legal entity by country is the appropriate method for determining the cash-generating units (CGU) of the business. This level of CGU aligns with the cash ﬂows of the business and with the management structure of the group. The goodwill and intellectual property with an indeﬁnite life are CGU speciﬁc, as the acquisitions generating goodwill and the product registrations that are the major indeﬁnite intangible are country speciﬁc in nature. There is no allocation of goodwill between CGUs. There are two signiﬁcant items included in the indeﬁnite life intangibles: the Assert product registrations acquired from BASF in September 2005 and the phenoxy business of BASF acquired in January 2004. The Assert intangible is included in the Canada CGU at a value of $22 million and the phenoxy intangibles is included in the methyls business CGU at a value of $46 million. For the impairment testing of these assets, the carrying amount of the asset is compared to its recoverable amount at a CGU level. The consolidated entity uses the value-in-use method to estimate the recoverable amount. In assessing value-in-use, the estimated future cash ﬂows are derived from the ﬁve year plan for each cash-generating unit with a growth factor applied to extrapolate a cash ﬂow over a 20 year period. The 20 year period has been selected on the basis that this period most closely aligns with the product registration life in most geographies. The growth rate assumed for each CGU is the average growth achieved over the last ﬁve years, with a cap of 10%. The 10% growth cap is the average growth achieved by the group over its recent history. The cash ﬂow is then discounted to a present value using a discount rate of 11.4%. At 31 July 2006, the recoverable amount exceeded the carrying amount for all CGUs. the company goodwill $000 intellectual property capitalised definite development costs $000 2006 indefinite life $000 life $000 cost Balance at 1 August 2005 Disposals through sale of entities Exchange adjustment Balance at 31 July 2006 Amortisation and impairment losses Balance at 1 August 2005 Amortisation charge for the year Disposals through sale of entities Exchange adjustment Balance at 31 July 2006 Intangibles carrying amount at 31 July 2006 cost Balance at 1 August 2004 Additions Exchange adjustment Balance at 31 July 2005 amortisation and impairment losses Balance at 1 August 2004 Amortisation charge for the year Exchange adjustment Balance at 31 July 2005 Intangibles carrying amount at 31 July 2005 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2005 – – – – – – – – – computer software $000 total $000 997 (830) (101) 66 (957) (17) 828 97 (49) 997 (830) (101) 66 (957) (17) 828 97 (49) 17 17 970 33 (6) 997 (925) (38) 6 (957) 970 33 (6) 997 (925) (38) 6 (957) 40 40 74 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 21 other non-current assets borrowing costs Balance at the beginning of the year Offset against borrowings on initial application of AASB 132 and AASB 139 Amortisation charge for the year Exchange adjustment Balance at the end of the year 22 trade and other payables Trade creditors and other accruals are non–interest bearing and are generally for less than 90 day terms Trade creditors and accruals – unsecured Payables due to controlled entities Loans due to controlled entities Payables due to associated entities Securitisation payables Total payables 1,567 (1,567) – – – 2,882 – (1,297) (18) 1,567 – – – – – – – – – – 287,031 – – 850 186,881 474,762 330,989 – – 438 167,420 498,847 9,253 19,396 33,708 – – 62,357 7,816 18,752 37,497 – – 64,065 The group sells receivables to an unrelated third party for which Nufarm acts as the collection agent. The securitisation payables above represent the sum payable in respect of those sales and are offset by an amount in trade receivables that is expected to be collected on their behalf. 23 interest-bearing loans and borrowings consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 This note provides information about the contractual terms of the consolidated entity’s interest-bearing loans and borrowings. current liabilities Bank loans – unsecured Other loans – unsecured Subordinated loans from controlled entities Capital notes Finance lease liabilities – secured non–current liabilities Bank loans – unsecured Other loans – unsecured Subordinated loans from controlled entities Capital notes Finance lease liabilities – secured 313,898 – – 181,649 260 495,807 106,539 248 – – 225 107,012 249,491 9 – – 506 250,006 76,695 – – 202,338 1,122 280,155 – – 190,258 – – 190,258 – – – – – – – – – – – – – – 211,655 – – 211,655 75 notes to the financial statements cont consolidated the company accessible $000 utilised $000 accessible $000 utilised $000 23 interest-bearing loans and borrowing (continued) financing facilities The consolidated entity has access to the following facilities with a number of ﬁnancial institutions. Bank loan facilities Other facilities Subordinated debt facility Receivables securitisation-type facilities Total ﬁnancing facilities 931,353 248 181,649 227,800 1,341,050 Bank loan facilities Other facilities Subordinated debt facility Receivables securitisation-type facilities Total ﬁnancing facilities 857,685 188 202,338 220,694 1,280,905 2006 440,377 248 181,649 132,564 754,838 2005 336,405 188 202,338 133,130 672,061 23,574 – – – 23,574 23,574 – – – 23,574 24,762 – – – 24,762 24,762 – – – 24,762 financing arrangements Capital notes The capital notes have a face value NZD$225,000,000 (2005: NZD$225,000,000). They are long term unsecured subordinated ﬁxed interest debt security with an election date of 15 October 2006. On the election date, note holders 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 All unsecured bank borrowings, including bank overdraft facilities, 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 32) are in excess of their related borrowings. Finance leases Finance lease liabilities are secured over the relevant leased plant. consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 repayment of borrowings (excluding finance leases) Period ending 31 July, 2006 Period ending 31 July, 2007 Period ending 31 July, 2008 Period ending 31 July, 2009 No speciﬁed repayment date – 515,730 44,847 61,692 248 259,898 221,507 57,347 – 179 – – – – – 24,762 211,655 – – – The obligations with no speciﬁed repayment date are repayable upon certain contingent events, which the directors believe will not occur in the foreseeable future. 76 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 23 interest-bearing loans and borrowing (continued) finance lease liabilities 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 Less future ﬁnance charges average interest rates Capital notes coupon Bank loans Other loans Subordinated loans from controlled entities Finance lease liabilities – secured 24 employee benefits current Liability for annual leave non-current Present value of wholly unfunded obligations Present value of wholly funded obligations Fair value of fund assets – funded Recognised liability for deﬁned beneﬁt obligations Liability for long service leave Total employee beneﬁts 280 200 42 522 (37) 485 % 8.6 5.2 3.0 – 7.8 535 616 571 1,722 (94) 1,628 % 8.6 4.8 3.2 – 5.8 14,389 14,389 14,964 14,964 8,543 54,044 (35,477) 27,110 11,628 38,738 53,127 10,167 47,714 (30,534) 27,347 10,523 37,870 52,834 – – – – – – % – – – 9.2 – 358 358 – – – – 31 31 389 – – – – – – % – – – 9.2 – 521 521 – – – – 56 56 577 (a) liability for defined benefit obligation The consolidated entity makes contributions to deﬁned beneﬁt pension funds, in the UK, Holland and France, that provide deﬁned beneﬁt amounts for employees upon retirement. The company has no deﬁned beneﬁt pension plans. movements in the net liability for defined benefit obligations recognised in the balance sheet Net liability for deﬁned beneﬁt obligations at 1 August Contributions received Expense recognised in the income statement Actuarial (gains)/losses Liability in disposed entity Exchange adjustment Net liability for deﬁned beneﬁt obligations at 31 July defined benefit pension funds Amounts in the balance sheet Liabilities Net liability consolidated 2006 $000 2005 $000 27,347 (3,483) 1,804 346 (196) 1,292 27,110 28,773 (3,601) 5,005 (275) – (2,555) 27,347 27,110 27,110 27,347 27,347 77 notes to the financial statements cont 24 employee benefits (continued) amounts for the current and previous periods are as follows: Deﬁned beneﬁt obligation Fund assets Surplus/(deﬁcit) consolidated 2006 $000 2005 $000 2004 $000 (62,587) 35,477 (27,110) (57,881) 30,534 (27,347) (56,466) 27,693 (28,773) The consolidated entity has used the AASB 1.20A exemption and disclosed amounts under AASB 1.20A(p) above for each annual reporting period prospectively from the transition date. This exemption allows the disclosure of the fund assets and obligations since transition to AIFRS, rather then the four periods required by AASB 119. changes in the present value of the defined benefit obligation are as follows: Opening deﬁned beneﬁt obligation Service cost Interest cost Actuarial losses/(gains) Plan changes Past service cost Losses/(gains) on curtailment Contributions Beneﬁts paid Liability in disposed business Exchange differences on foreign funds Closing deﬁned beneﬁt obligation changes in the fair value of fund assets are as follows: Opening fair value of fund assets Expected return Actuarial gains Contributions by employer Distributions Exchange differences on foreign funds Closing fair value of fund assets The actual return on plan assets is the sum of the expected return and the actuarial gain. the major categories of fund assets as a percentage of total fund assets are as follows: European equities European bonds Property Cash consolidated 2006 $000 57,881 2,726 2,657 932 (631) – (1,261) (1,253) (1,219) (196) 2,951 62,587 30,534 1,687 586 1,404 (393) 1,659 35,477 2005 $000 56,466 1,949 2,878 3,550 – 1,858 – (1,084) (2,229) – (5,507) 57,881 27,693 1,680 3,825 1,761 (1,473) (2,952) 30,534 consolidated 2006 % 60.8 30.1 2.8 6.3 2005 % 57.7 40.0 2.3 – 78 notes to the financial statements cont expense recognised in the income statement Current service costs Interest on obligation Expected return on fund assets Past service cost Plan changes Losses/(gains) on curtailment consolidated 2006 $000 2,726 2,657 (1,687) – (631) (1,261) 1,804 2005 $000 1,949 2,878 (1,680) 1,858 – – 5,005 The expense is recognised under personnel expenses (see note 5) and is included in other operating expense in the income statement. The cumulative loss taken to retained earnings from actuarial gains/losses is $145,484 (2005: $567,812 gain). Principal actuarial assumptions at the balance sheet date (as weighted averages): Discount rate at 31 July Expected return on fund assets at 31 July Future salary increases Future pension increases consolidated 2006 % 4.9 6.0 3.4 2.8 2005 % 4.6 5.2 3.1 2.5 The overall expected long-term rate of return on assets is 6.0%. The expected rate of return on plan assets reﬂects the average rate of earnings expected on the funds invested to provide for the beneﬁts included in the projected beneﬁt obligation. (b) surplus/(deficit) for each defined benefit pension fund on a funding basis funds sponsored by entities in the consolidated entity UK deﬁned beneﬁt plan Holland deﬁned beneﬁt plan France unfunded plan fund assets accrued benefit $000 $000 consolidated 2006 excess con- fund tribution recomm- (deficit) endations (pa) $000 $000 25,385 10,092 – 37,366 16,678 8,543 (11,981) (6,586) (8,543) 1,544 1,360 – Total for funds sponsored by the consolidated entity 35,477 62,587 (27,110) 2,904 UK deﬁned beneﬁt plan Holland deﬁned beneﬁt plan France unfunded plan CACI unfunded plan consolidated 2005 21,365 9,169 – – 32,120 15,594 9,971 196 (10,755) (6,425) (9,971) (196) 1,308 1,184 – – Total for funds sponsored by the consolidated entity 30,534 57,881 (27,347) 2,492 The fund assets have been measured as at 31 July for each year. Contribution recommendations are based on a funding methodology that will result in adequate funding for payments expected to be made over the next ﬁve years. The level of the contributions to the funds is reassessed annually. Accrued beneﬁts are beneﬁts which the funds are presently obliged to pay at some future date, as a result of the membership of the funds and calculated in accordance with AAS 25. 79 notes to the financial statements cont 24 employee benefits (continued) The consolidated entity has a legal liability to make up the deﬁcit in the funds but no legal right to beneﬁt from any surplus in the funds. the principal economic assumptions used in making the recommendations above include: Expected return on fund assets Future salary increases consolidated 2006 2005 6.0% 3.4% 5.2% 3.1% (c) defined contribution pension funds The consolidated entity makes contributions to deﬁned contribution pension funds. The amount recognised as an expense was $5,638,000 for the ﬁnancial year ended 31 July 2006 (2005: $5,899,000). (d) share based payments 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 $65,341 at 31 July 2006 (2005: $149,748). Each executive is entitled to exercise voting rights attached to the shares allocated. At 31 July 2006 the trustees of the Executive Share Purchase Scheme (1984) held 50,000 (2005: 100,000) ordinary shares, all of which were allocated. There are four remaining participants (2005: six participants) in the scheme. 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 2006 there were 58 participants (2005: 60 participants) in the scheme and 1,512,224 shares (2005: 1,492,327) were allocated and held by the trustee on behalf of the participants. The cost of issuing shares is expensed in the year of issue. 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 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 contribution. An independent trustee holds the shares on behalf of the participants. At 31 July 2006 there were 824 participants (2005: 769 participants) in the scheme and 1,703,775 shares (2005: 1,492,327) were allocated and held by the trustee on behalf of the participants. The cost of issuing shares is expensed in the year of issue and for the year ended 31 July 2006 was $2,647,798 (2005: $2,016,074). The power of appointment and removal of the trustees for the share purchase schemes is vested in the company. Balance at the beginning of the period Exercised Expired Balance at the end of the period weighted average exercise price 2006 weighted average exercise price 2005 number of options 2005 number of options 2006 – – – – – – – – 1,515,206 (1,499,028) (16,178) – 2.72 2.72 3.66 – 80 notes to the financial statements cont 24 employee benefits (continued) number of options All outstanding options were exercised during 2005. 77,514 871,249 566,443 25 provisions current Restructuring Other non-current Other Total provisions movement in provisions Balance at 1 August 2005 Provisions made during the year Provisions used during the year Provisions reversed during the year Provisions disposed with sold businesses Exchange adjustment Balance at 31 July 2006 grant date exercise date 2006 – – 2005 31.01.2000 28.02.2005 26.10.2001 26.10.2004 13.12.2004 3.12.2001 weighted average exercise price expiry date – – 1.03.2005 26.10.2011 13.12.2011 3.56 2.70 2.70 consolidated the company 2006 $000 3,700 – 3,700 11,899 11,899 15,599 2005 $000 3,014 1,738 4,752 545 545 5,297 2006 $000 – – – – – – consolidated restructuring provisions $000 $000 3,014 6,766 (6,211) – – 131 3,700 2,283 11,898 (1,535) (590) (194) 37 11,899 2005 $000 – – – – – – other total $000 5,297 18,664 (7,746) (590) (194) 168 15,599 The restructuring provision relates to the French operations and includes redundancy provisions from the French social plan ($1.6 million) and the remaining provision for the closure of the Mulhouse manufacturing site ($2.1 million). The other provision consists of deferred payments for business acquisitions. the company 26 capital and reserves share capital Balance at 1 August Issue of shares Share options exercised Partly paid shares fully paid up during the year Balance at 31 July number number of ordinary of ordinary shares 2005 shares 2006 169,671,874 1,820,377 – – 171,492,251 167,735,767 265,090 1,437,692 233,325 169,671,874 On 19 October 2005 185,439 fully paid ordinary shares at an average price of $10.39 per share, were issued in accordance with the Nufarm executive share plan (2000), the employee global share plan and the non-executive directors share plan. On 1 May 2006, 1,634,938 fully paid ordinary shares were issued at an average price of $10.99 as partial consideration for the purchase of the Nutrihealth specialty canola business. Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company. 81 notes to the financial statements cont 26 capital and reserves (continued) reconciliation of movements in capital and reserves attributable to equity holders of parent share capital $000 trans- lation reserve $000 capital profit hedging reserve $000 reserve $000 other retained minority reserve earnings interest $000 $000 $000 total equity $000 consolidated Balance at 1 August 2004 Foreign exchange translation differences Actuarial gains/(losses) on defined benefit plans Share issued to employees Shares issued under employee global share plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders Minority interest acquired 211,801 – 33,603 – (10,450) – 5,192 2,016 40 – – – – – – – – – – – – – – – – – – Balance at 31 July 2005 219,049 (10,450) 33,603 Balance at 1 August 2005 219,049 (10,450) 33,603 Foreign exchange translation differences Change in accounting policy for financial instruments Foreign exchange movement taken to hedging reserve Actuarial gains/(losses) on defined benefit plans Share issued to employees Shares issued under employee global share plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Transfer to current year income statement Transfer to/from reserves Profit for the period Dividends paid to shareholders Minority interest acquired – – – – 1,065 2,647 17,972 27 – – – – – 734 – – – – – – – – – – – – – – – – – – – – 24 – – – – – – – – – – – – – – – – 574 (594) – – – – – – – – – – 242 283,866 7,838 537,350 – – – – – – – – – (558) (11,008) 568 (27) – – 568 5,165 – – 125,045 (40,548) – – – 1,589 (496) (2,407) 2,016 40 126,634 (41,044) (2,407) 242 368,904 5,966 617,314 242 368,904 5,966 617,314 – – – – – – – – – – – (713) – – – – (41) – – – – – – – 693 574 (594) (713) 1,065 2,647 17,972 27 – (242) – – – – 242 121,153 (45,879) – – – 579 (551) (4,945) 24 – 121,732 (46,430) (4,945) Balance at 31 July 2006 240,760 (9,716) 33,627 (20) – 443,707 1,008 709,366 82 notes to the financial statements cont reconciliation of movements in capital and reserves attributable to equity holders of parent share capital $000 trans- lation reserve $000 capital profit hedging reserve $000 reserve $000 26 capital and reserves (continued) the company Balance at 1 August 2004 211,801 – 40,074 Foreign exchange translation differences Share issued to employees Shares issued under employee global share plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders – 5,192 2,016 40 – – (77) – – – – – – – – – – – Balance at 31 July 2005 219,049 (77) 40,074 Balance at 1 August 2005 219,049 (77) 40,074 Foreign exchange translation differences Change in accounting policy for financial instruments Foreign exchange movement taken to hedging reserve Share issued to employees Shares issued under employee global share plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Profit for the period Dividends paid to shareholders – – – 1,065 2,647 17,972 27 – – (248) – – – – – – – – – – – – – – – – – – – – – – – – – – – 58 (8) – – – – – – Balance at 31 July 2006 240,760 (325) 40,074 50 other retained minority reserve earnings interest $000 $000 $000 total equity $000 – 146,864 – 398,739 – – – – – – – – – – – – – – – – – – – (27) – – 50,247 (40,548) 156,536 156,536 – – – – – – – 60,760 (45,879) – – – – – – – – – – – – – – – – – (77) 5,165 2,016 40 50,247 (40,548) 415,582 415,582 (248) 58 (8) 1,065 2,647 17,972 27 60,760 (45,879) 171,417 – 451,976 translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the ﬁnancial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity. capital profit reserve This reserve is used to accumulate realised capital proﬁts. hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash ﬂow hedging instruments related to hedged transactions that have not yet occurred. 83 notes to the financial statements cont 26 capital and reserves (continued) dividends Dividends recognised in the current year by the company are: 2006 Interim 2006 Ordinary Final 2005 Ordinary Total Amount 2005 Interim 2005 Ordinary Final 2004 Ordinary Total Amount cents per share 10.0 17.0 9.0 15.0 total amount franked/ $000 unfranked payment date 16,994 28,885 45,879 15,255 25,293 40,548 Franked 28.Apr.06 11.Nov.05 Franked Franked 29.Apr.05 15.Nov.04 Franked Dividends paid during the year were franked at the tax rate of 30%. subsequent events On 29 September 2006, the directors declared a ﬁnal dividend of 20 cents per share, fully franked, payable 10 November 2006. The ﬁnancial effect of this dividend has not been brought to account in the ﬁnancial statements for the year ended 31 July 2006 and will be recognised in subsequent ﬁnancial reports. consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 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% (2005: 30%) Franking credits that will arise from the payment of income tax payable as at the end of the year Balance at 31 July 22,800 19,647 22,800 19,647 3,893 26,693 5,881 25,528 3,893 26,693 5,881 25,528 The ability to utilise the franking credits is dependent upon there being sufﬁcient available proﬁts to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it by $14,699,336 (2005: $12,375,000). In accordance with the tax consolidation legislation, the company as the head entity in the tax- consolidated group has also assumed the beneﬁt of $26,693,000 (2005: $25,528,000) franking credits. 84 notes to the financial statements cont 27 financial instruments Exposure to credit, interest rate and currency risks arises in the normal course of the consolidated entity’s business. Derivative ﬁnancial instruments are used to hedge exposure to ﬂuctuations in foreign exchange rates and interest rates. credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or better than the consolidated entity. Transactions involving derivative ﬁnancial instruments are with counterparties who have sound credit ratings. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. At the balance sheet date, there were no signiﬁcant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each ﬁnancial asset, including derivative ﬁnancial instruments, in the balance sheet. interest rate risk The consolidated entity uses derivative ﬁnancial instruments to manage speciﬁcally identiﬁed interest rate risks. Interest rate swaps, denominated in AUD, have been entered into to achieve an appropriate mix of ﬁxed and ﬂoating rate exposures. The swaps mature over the next 12 months following the maturity of the related loans and have ﬁxed swap rates ranging from 4.76 per cent to 4.98 per cent. The consolidated entity measures interest rate swaps at fair value, with the movements in fair value reﬂected in the income statement. At 31 July 2006, the consolidated entity had interest rate swaps with a notional contract amount of $20,000,000 (2005: $167,508,000). The net fair value of swaps at 31 July 2006 recognised as fair value derivatives was $238,000 (2005: nil). In respect of income-earning ﬁnancial assets and interest-bearing ﬁnancial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice. consolidated financial assets Cash and cash equivalents financial liabilities Unsecured debt Bank overdrafts Bank loans – unsecured Other loans – unsecured Interest rate swaps Capital notes Finance lease liabilities – secured financial assets Cash and cash equivalents Financial liabilities Unsecured debt Bank overdrafts Bank loans – unsecured Other loans – unsecured Interest rate swaps Capital notes Finance lease liabilities – secured effective interest rate note total $00o less than 1 year $000 2006 1–2 more than 2 years $000 years $000 11 4.4% 51,269 51,269 – – 11 23 23 23 23 5.4% 5.2% 3.0% 5.0% 8.6% 7.8% 19,940 400,437 248 20,000 181,649 485 622,759 19,940 293,898 – 20,000 181,649 260 515,747 2005 – 44,847 – – – 186 45,033 – 61,692 248 – – 39 61,979 11 3.2% 55,791 55,791 – – 11 23 23 23 23 7.6% 4.8% 3.2% 4.5% 8.6% 5.8% 10,398 158,499 188 167,508 202,338 1,628 540,559 10,398 101,983 9 147,508 – 506 260,404 – (831) – 20,000 202,338 582 222,089 – 57,347 179 – – 540 58,066 85 notes to the financial statements cont effective interest rate note total $00o less than 1 year $000 1–2 more than 2 years $000 years $000 27 financial instruments (continued) the company financial assets Cash and cash equivalents financial liabilities Bank overdrafts Subordinated loans from controlled entities financial assets Cash and cash equivalents financial liabilities Bank overdrafts Subordinated loans from controlled entities 11 11 23 11 11 23 2006 7.25% 10,739 10,739 9.5% 23,574 23,574 9.2% 190,258 213,832 190,258 213,832 2005 6.75% 4,265 4,265 24,762 24,762 9.5% 9.2% 211,655 236,417 – 24,762 211,655 211,655 – – – – – – – – – – – – – foreign currency risk The consolidated entity uses derivative ﬁnancial instruments to manage speciﬁcally identiﬁed foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than AUD. The currencies giving rise to this risk are primarily the US Dollar, the Euro and the British Pound. The consolidated entity uses forward exchange contracts to hedge its foreign currency risk. Most of the forward exchange contracts have maturities of less than three months after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity. The consolidated entity uses cross currency interest rate swap agreements to hedge the foreign currency, interest rate and cash ﬂow exposures between the capital notes issued in New Zealand and the group funding to several jurisdictions to which the funds were advanced. Under the terms of the swap agreement, the company agrees with the counter-party banks to exchange the difference between the ﬁxed interest rates of various currencies of advances made and the principal at an agreed rate of foreign currency conversion. forecasted transactions The consolidated entity classiﬁes its forward exchange contracts hedging forecasted transactions as cash ﬂow hedges and states them at fair value. The net fair value of forward exchange contracts in the consolidated entity used as hedges of forecast transactions at 31 July 2006 was $353,309 comprising assets of $194,164 and liabilities of $547,472 that were recognised as derivatives measured at fair value. The net fair value of forward exchange contracts in the company used as hedges of forecast transactions at 31 July 2006 was $194,164 comprising assets of $194,164 that were recognised as derivatives measured at fair value. fair values The fair values together with the carrying amounts shown in the balance sheet are as follows: 86 notes to the financial statements cont 27 financial instruments (continued) consolidated Cash and cash equivalents Trade and other receivables Interest rate swaps: Payable maturities – less than one year Forward exchange contracts: Receivables – less 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 advances – less than one year – one to ﬁve years Bank overdraft Unsecured bank loans Other loans Capital notes – one to ﬁve years Finance leases Unrecognised (losses)/gains the company Cash and cash equivalents Trade and other receivables Receivables due from controlled entities Loans due from controlled entities Forward exchange contracts: Receivables – 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 advances – less than one year – one to ﬁve years Bank overdraft Subordinated loans from controlled entities Unrecognised (losses)/gains carrying amount 2006 $000 fair value 2006 $000 carrying amount 2005 $000 fair value 2005 $000 note 11 12 12 12 12 11 23 23 23 23 11 12 12 12 12 12 11 23 51,269 523,616 51,269 523,616 55,791 423,290 55,791 423,290 238 238 194 (547) 194 (547) – – – – – – 17,854 – (19,940) (420,437) (248) (181,649) (485) (30,135) 17,854 – (19,940) (420,437) (248) (181,351) (485) (29,837) (298) – 45,592 (10,398) (326,007) (188) (202,338) (1,628) (15,886) – 45,592 (10,398) (326,007) (188) (201,681) (1,628) (15,229) (657) 10,739 34,509 228,937 170,618 10,739 34,509 228,937 170,618 4,265 10,163 203,494 164,603 4,265 10,163 203,494 164,603 194 194 – – 17,854 – (23,574) (190,258) 249,019 17,854 – (23,574) (190,258) 249,019 – – 45,592 (24,762) (211,655) 191,700 – 45,592 (24,762) (211,655) 191,700 – estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of ﬁnancial instruments reﬂected in the table. derivatives Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price and deducting the current spot rate. For interest rate swaps broker quotes are used. These quotes are back tested using pricing models or discounted cash ﬂow techniques. The fair value for the capital notes is determined using a year end forward rate to maturity compared to the ﬁxed coupon rate of the note. interest-bearing loans and borrowings Fair value is calculated based on discounted expected future principal and interest cash ﬂows. 87 notes to the financial statements cont 27 financial instruments (continued) finance lease liabilities The fair value is estimated as the present value of future cash ﬂows, discounted at market interest rates for homogenous lease agreements. The estimated fair values reﬂect change in interest rates. trade and other receivables/payables For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reﬂect the fair value. All other receivables/payables are discounted to determine the fair value. interest rates used for determining fair value The average interest rates used for determining fair value are: Derivatives Capital notes 28 operating leases Non-cancellable operating lease rentals are payable as follows: 2006 5.0% 9.43% 2005 4.5% 8.86% consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 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 7,390 5,133 9,520 10,415 32,458 7,538 6,660 10,146 5,365 29,709 214 104 92 – 410 355 192 120 – 667 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. 29 capital and other commitments consolidated 2006 $000 the company 2006 $000 2005 $000 2005 $000 capital expenditure commitments Plant and equipment Contracted but not provided for and payable: Within one year joint venture commitments Share of capital commitments of the chlor–alkali joint ventures: Within one year 10,005 17,027 – 922 267 219 – – 88 notes to the financial statements cont 30 contingencies The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacriﬁce of economic beneﬁts will be required or the amount is not capable of reliable measurement. 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 repayment of all liabilities in the event that any of these companies are wound up. consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 Guarantee facility for Eastern European joint ventures with FMC Corporation. 7,312 7,827 – – 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. For 2006, these receivables remain on balance sheet under the ﬁnancial instruments standard AASB 139. – 16,241 – – The parent entity has guaranteed with the note holders the issuers’ obligations under the capital notes. – – 181,892 202,338 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. Guarantee upon sale of a business limited to EUR 3.51 million on account of possible remediation costs for soil and groundwater contamination.This guarantee decreases from 2004 progressively to nil in 2011. A non-trading subsidiary of Nufarm Limited, Fchem (Aust.) Limited, is one of a number of parties served with an application and statement of claim on behalf of the ACCC. The application relates to alleged price ﬁxing and other activities involving the timber protection industry in the period 1998 – 2000. The Nufarm group is no longer involved in the timber protection industry, having sold its timber treatment business in 2001. Nufarm and its legal advisers are examining the application and statement of claim and will conduct a thorough investigation of the allegations made. 14,167 13,578 – – 5,850 7,300 – – – 27,329 – 44,946 – 181,892 – 202,338 31 deed of cross guarantee Pursuant to ASIC Class Order 98/1418 dated 13 August 1998, the wholly-owned subsidiaries referred to in note 32 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of ﬁnancial reports and directors reports. It is a condition of the Class Order that the company and each of the subsidiaries enter into a deed of cross guarantee. The parent entity and all the Australian controlled entities have entered into a deed of cross guarantee dated 10 July 2000 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. 89 notes to the financial statements cont 31 deed of cross guarantee (continued) A consolidated income statement and consolidated balance sheet, comprising the company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the deed of cross guarantee, at 31 July 2006 is set out as follows: summarised income statement and retained profits Proﬁt before income tax expense Income tax expense 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 and cash equivalents Trade and other receivables Inventories Income tax receivable Assets classiﬁed as held for sale Total current assets non-current assets Receivables Equity accounted investments Other investments Deferred tax assets Property, plant and equipment Intangible assets Other Total non-current assets TOTAL ASSETS current liabilities Bank overdraft Trade and other payables Interest bearing loans and borrowings Employee beneﬁts Income tax payable Provisions Liabilities classiﬁed as held for sale Total current liabilities non-current liabilities Interest bearing loans and borrowings Deferred tax liabilities Employee beneﬁts Payables Total non–current liabilities TOTAL LIABILITIES NET ASSETS Equity Issued capital Reserves Retained earnings TOTAL EQUITY consolidated 2006 $000 102,431 (18,014) 84,417 2005 $000 104,871 (24,038) 80,833 244,102 1,020 (45,879) 283,660 202,108 1,709 (40,548) 244,102 11,480 417,592 182,392 2,094 22,772 636,330 1,240 173,424 263,334 21,372 128,351 70,728 – 658,449 1,294,779 26,794 500,290 116,068 7,662 3,533 – 13,425 667,772 31,607 3,562 7,844 – 43,013 710,785 583,994 247,960 52,374 283,660 583,994 5,570 409,800 194,346 1,564 5,480 616,760 48,096 125,827 258,849 23,226 150,406 26,066 – 632,470 1,249,230 35,986 592,796 48,300 7,718 3,805 58 1,408 690,071 31,000 3,239 7,438 545 42,222 732,293 516,937 228,418 44,417 244,102 516,937 90 notes to the financial statements cont 32 consolidated entities parent entity Nufarm Limited – ultimate controlling entity subsidiaries Abel Lemon and Company Pty Ltd Access Genetics Pty Ltd Agcare Biotech Pty Ltd Agchem Receivables Corporation Agroquimicos Genericos S.A. (Agrogen) Agryl Holdings Limited Ag–seed Research Pty Ltd Artfern Pty Ltd Australis Services Pty Ltd 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 CNG Holdings BV Compagnie d’Applications Chimiques a l’Industrie s.a.s (sold June 2006) Crop Care Australasia Pty Ltd Crop Care Holdings Limited Croplands Equipment Limited Croplands Equipment Pty Ltd Danestoke Pty Ltd Electronic Agriculture Limited Fada S.A. Fchem (Aust) Limited Fchem Limited Fernz Canada Limited Fernz Corporation (NZ) Limited Fernz Singapore Pte Ltd Fidene Limited Finotech BV Framchem SA Frost Technology Corporation Health & Science Limited Inpar s.a.s Interferon Limited Interferon NZ Limited Laboratoire European de Biotechnologie s.a.s Le Moulin des Ecluses s.a Les Ecluses de la Garenne s.a.s Manaus Holdings Sdn Bhd Marman (Nufarm) Inc notes (a) (a),(b) (a) (a) (a) (b) (a) (a) (a) (a),(b) (b) (a),(b) (a) (a),(b) (b) (b) (b) (b) (b) (b) (b) (b) (a) (b) (b) (b) percentages place of of shares held 2005 2006 incorporation Australia Australia Australia USA Colombia Australia Australia Australia Australia New Zealand Australia Germany Australia Australia Australia Australia Australia France Netherlands France Australia New Zealand New Zealand Australia Australia Australia Colombia Australia New Zealand Canada New Zealand Singapore New Zealand Netherlands Egypt USA New Zealand France Australia New Zealand France France France Malaysia USA 100 100 70 40 100 100 100 100 100 100 100 100 100 100 80 80 80 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 20 70 40 – 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 – 100 100 100 100 100 100 100 100 70 91 notes to the financial statements cont percentages 32 consolidated entities (continued) 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 Inc (USA) Nufarm Agriculture Zimbabwe (Pvt) Ltd Nufarm Americas Holding Company Nufarm Americas Inc Nufarm Asia Sdn Bhd Nufarm Australia Limited Nufarm BV Nufarm Chemical (Shanghai) Co Ltd Nufarm Chile Limitada Nufarm Colombia 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 Nufarm Inc Nufarm Insurance Pte Ltd Nufarm Investments Cooperatie WA Nufarm Ireland Limited (Liquidated) Nufarm KK Nufarm Labuan Pte Ltd Nufarm Malaysia Sdn Bhd Nufarm Materials Limited Nufarm NZ Limited notes (b) (b) (b) (b) (a),(b) (a) (b) (b) (b) (b) (a),(b) (b) (b) (b) (a) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (a),(b) (b) place of of shares held 2005 2006 incorporation Guatemala Mexico USA Australia Malaysia Australia Malaysia Malaysia N. Antillies Australia Australia Singapore South Africa Canada USA Zimbabwe USA USA Malaysia Australia Netherlands China Chile Colombia Australia UK Costa Rica Guatemala Mexico Panama Venezuela Ecuador Germany Brazil Australia Spain Germany Austria Austria New Zealand Netherlands France USA Singapore Netherlands Ireland Japan Malaysia Malaysia Australia New Zealand 100 100 100 70 70 70 70 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 70 70 100 70 70 70 70 70 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 92 notes to the financial statements cont percentages notes place of of shares held 2005 2006 incorporation 32 consolidated entities (continued) Nufarm Platte Pty Ltd Nufarm Portugal LDA Nufarm s.a.s 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 Nugrain Pty Ltd Nuseed Pty Ltd Nutrihealth Pty Ltd Nutrihealth Grains Pty Ltd Nuturf Pty Ltd Opti–Crop Systems Pty Ltd Paciﬁc Raw Materials Australia Pty Ltd Paciﬁc Raw Materials Limited Pharma Paciﬁc Pty Ltd PT Crop Care PT Nufarm Indonesia Rockmere Pty Ltd Safepak Industries Sdn Bhd Selchem Pty Ltd TPL Limited (b) (b) (b) Australia Portugal France Argentina USA Malaysia New Zealand Australia (a),(b) Australia (b) United Kingdom Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Indonesia Indonesia Australia Malaysia Australia New Zealand (a),(b) (b) (a) (a) (b) (a) (a) 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 75 100 100 100 100 100 100 70 100 100 100 100 100 100 100 51 100 100 100 100 40 40 – – 100 75 100 100 100 – 70 100 70 100 100 Note (a). These entities have entered into a deed of cross guarantee date 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. 93 notes to the financial statements cont 33 acquisition of subsidiaries Acquisitions during the year include: • the remaining 50% of Nugrain was acquired in September 2005. Nugrain is involved in canola seed breeding. • the remaining 50% of Access Genetics was acquired in December 2005. Access Genetics is involved in wheat seed breeding. • Agrogen and FADA crop protection businesses in Colombia were acquired in December 2005. • The Nutrihealth business was acquired in May 2006. Nutrihealth specialises in the development, ﬁeld production and marketing of specialty canola oils. • The Dovuro business was acquired in May 2006. Dovuro is Australia’s leading canola seed production and marketing company. In the period to 31 July 2006, these businesses contributed proﬁts of $431,029 to the consolidated group after tax proﬁt. If the above acquisitions had occurred on 1 August 2005, their full-year contribution to group revenues would have been $35,205,000 and to the consolidated entity’s proﬁt after tax of $794,000, on a pro-rata basis. acquiree’s net assets at acquisition date Cash and cash equivalents Receivables Inventory Property, plant and equipment Other assets Trade and other payables Employee beneﬁts Finance lease liability Interest bearing loans and borrowings Net identiﬁable assets and liabilities Reversal of equity investment Prior period investment Intangibles acquired on acquisition Goodwill on acquisition Consideration paid, satisﬁed in cash Consideration satisﬁed by issue of shares Deferred consideration Cash (acquired) Net cash outﬂow recognised values $000 145 10,682 7,411 3,142 2,461 (9,415) (74) (175) (8,892) 5,285 1,244 (2,000) 20,558 29,570 54,657 (17,971) (99) (179) 36,408 fair value adjust- ments $000 – – 702 – – – – – – 702 – – – (702) – – – – – carrying amounts $000 145 10,682 8,113 3,142 2,461 (9,415) (74) (175) (8,892) 5,987 1,244 (2,000) 20,558 28,868 54,657 (17,971) (99) (179) 36,408 Goodwill has arisen on the acquisitions above, mainly resulting from the synergies that these acquisitions bring to the Nufarm group. These synergies do not meet the criteria for recognition as a separately identiﬁable intangible asset at the date of acquisition. 94 notes to the financial statements cont consolidated the company 2005 $000 2006 $000 2006 $000 2005 $000 121,732 2,599 9,806 36,556 (512) 219 (10,545) 34 reconciliation of cash flows from operating activities cash flows from operating activities Proﬁt for the period Dividend from associated company Non-cash items: Amortisation Depreciation Gain on disposal of non current assets Write-down of 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 Operating proﬁt before changes in working capital and 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 Movements in intercompany balances relating to cash transactions (36,583) (3,804) (59,479) 1,826 8,914 (8,852) – 348 160,265 674 – (97,366) 62,899 Net operating cash ﬂows 126,634 2,964 60,760 181 50,247 121 8,447 37,116 (393) 21,693 (33,402) (8,253) (11,815) – 432 – 319 (359) – (1,013) (64) 479 – (136) – 322 (33) – (997) (286) 5,241 – (21) 143,423 60,167 54,594 (184) (7,433) (55,186) (3,053) 5,538 165 (4,357) 3,840 (643) (313) (2,410) (1,706) (14,955) (1,981) (93) – (80,811) 62,612 – 3,205 63,372 864 (4,301) 50,293 35 key management personnel disclosures The following were key management personnel of the consolidated entity at any time during the reporting period and were key management personnel for the entire period. non-executive directors KM Hoggard (Chairman) GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton executive directors DJ Rathbone executives BF Benson R Heath KP Martin DA Mellody RF Ooms DA Pullan RG Reis Group general manager agriculture Group general manager corporate services and company secretary Chief ﬁnancial ofﬁcer Group general manager global marketing Group general manager chemicals Group general manager operations Group general manager corporate affairs Managing director and chief executive 95 notes to the financial statements cont 35 key management personnel disclosures (continued) key management personnel compensation The key management personnel compensation included in personnel expenses (see note 5) are as follows: Short term employee beneﬁts Other long term beneﬁts Post employment beneﬁts Termination beneﬁts Equity compensation beneﬁts consolidated the company 2005 $ 6,603,686 – 422,617 – 919,084 7,945,387 2006 $ 7,029,731 – 511,231 – 1,584,993 9,125,955 2006 $ 664,250 – 149,750 – 143,000 957,000 2005 $ 730,274 – 106,736 – 140,750 977,760 individual directors and executives compensation disclosures Information regarding individual directors and executives compensation is provided in the remuneration report section of the directors’ report on pages 42 to 43. Apart from the details disclosed in this note, no director has entered into a material contract with the company or the consolidated entity since the end of the previous ﬁnancial year and there were no material contracts involving director’s interest existing at year-end. loans to key management personnel and their related parties There were no loans to key management personel at July 31 2006. other key management personnel transactions with the company or its controlled entities A number of key management persons, or their related parties, hold positions in other entities that result in them having control or signiﬁcant inﬂuence over the ﬁnancial or operating policies of those entities. A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with management persons and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arms- length basis. In May 2006, Nufarm acquired the shares of Nutrihealth Pty Ltd (see note 33). Dr John Stocker, a director of Nufarm, was a minority shareholder of Nutrihealth. In accordance with the purchase agreement, Dr Stocker has been allocated 9,002 ordinary shares in respect of his Nutrihealth shares. The issue of the shares will only take place after it is approved by the shareholders at the company’s 2006 annual general meeting. The allocation of the Nufarm shares as consideration for Dr Stocker’s Nutrihealth holding was in accordance with the same terms and conditions as other shareholders of Nutrihealth. From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase goods from the consolidated entity. These purchases are on the same terms and conditions as those entered into by other consolidated entity employees or customers and are trivial or domestic in nature. Any other transactions with key management persons are considered trivial or domestic in nature and are on terms and conditions no more favourable than other third parties. options and rights over equity instruments granted as compensation No options or other equity instruments were granted to key management personnel during the reporting period as compensation. movements in shares The movement during the reporting period in the number of ordinary shares in Nufarm Limited held, directly, indirectly or beneﬁcially, by each key management person, including their related parties, is as follows: 96 notes to the financial statements cont shares held in nufarm ltd balance at 1 august granted as 2005 remunation exercise of options 35 key management personnel disclosures (continued) net balance change at 31 july 2006 other directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton executive BF Benson R Heath KP Martin DA Mellody RF Ooms DA Pullan RG Reis Total directors KM Hoggard DJ Rathbone GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie GW McGregor Dr JW Stocker RFE Warburton executives BF Benson R Heath KP Martin DA Mellody RF Ooms DA Pullan RG Reis former executive JA Allen Total 1 1 2 1 1 1 1 2,374,749 29,912,610 40,787 1,466,446 11,452 8,269 28,464 63,431 152,145 223,482 355,470 2,500 319,617 229,423 188,596 4,677 – – 1,850 1,850 1,850 1,850 1,850 21,462 14,308 26,140 2,696 26,140 27,791 17,500 35,377,441 149,964 1 1 2 1 1 1 1 5,869,837 30,696,167 24,787 1,464,528 – 3,817 32,418 26,546 61,513 83,374 188,826 229,338 – 155,485 186,095 77,840 4,912 – – 1,918 1,452 1,452 1,461 1,918 1,918 16,692 11,592 20,726 2,500 20,726 22,117 13,910 2006 – – – – – – – – – – – – – – – – 2005 – 2,379,426 – 29,912,610 42,787 1,468,296 60,302 14,719 30,314 65,281 2,000 – 47,000 4,600 – – (15,913) (40,000) – – (10,000) (25,082) (40,000) 157,694 197,790 381,610 5,196 335,757 232,132 166,096 (77,395) 35,450,010 566,443 – – – – – (3,500,000) 2,374,749 (1,350,000) 29,912,610 40,787 1,466,446 11,452 8,269 33,879 28,464 63,431 16,000 – 10,000 3,000 – – – – – 98,345 83,064 143,406 – 143,406 153,091 96,846 (46,266) (60,000) (38,000) – – (131,880) – 152,145 223,482 355,470 2,500 319,617 229,423 188,596 196,317 22,094 153,091 (145,936) 225,566 39,296,888 145,388 1,437,692 (5,243,082) 35,636,886 All equity transactions with key management personnel 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 The shareholding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (429,855 shares) – Dr Goodfellow is chairman of the Trust Board; (ii) three trusts of which he is a non-beneﬁcial trustee (807,039 shares); and 97 notes to the financial statements cont 35 key management personnel disclosures (continued) (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. 36 non-key management personnel disclosures a) transactions with related parties in the wholly-owned group The parent entity entered into the following transactions during the year with subsidiaries of the group: • loans were advanced and repayments received on short term intercompany accounts (see note 22) • proceeds of the capital notes issue have been on-lent through the parent entity to fund group investments and working capital (see note 23). Market rates have been charged for these ﬁxed term subordinated loans. • management fees were received from several wholly-owned controlled entities These transactions were undertaken on commercial terms and conditions. b) transactions with associated parties Bayer CropScience Nufarm Limited SRFA LLC Agripec Quimica e Farmaceutica SA These transactions were undertaken on commercial terms and conditions. consolidated sales to purchases from trade receivable trade payable sales to loan receivable i nterest received trade payable trade receivable sales to 2006 $000 8,309 11,517 740 2,704 326 754 20 110 20,939 17,079 2005 $000 10,723 11,181 835 3,681 1,821 658 28 – 19,035 8,569 37 subsequent events Nufarm has reached agreement to sell its 80% interest in the Nufarm-Coogee joint venture to its joint venture partner, Coogee Chemicals Pty Ltd. The joint venture operates two chlor-alkali plants in Western Australia. The transaction involves the sale of Nufarm’s interest, with completion scheduled for 31 July 2007. The consideration on the sale will be approximately $48 million, with the ﬁnal price determined at completion date. The proﬁt on sale will be approximately $24 million. On 29 September 2006, the directors declared a ﬁnal dividend of 20 cents per share, fully franked, payable 10 November 2006. On 6 September 2006, Nufarm acquired a license to develop and commercialise Roundup Ready canola in Australia. Nufarm has paid Monsanto a total of $10 million for Monsanto’s Roundup Ready canola germ plasm and a licence to the Roundup Ready canola trait. On 28 September, Nufarm announced it had reached agreement to acquire a crop protection business in Italy for €6.4 million. Nufarm Finance (NZ) Limited (the’issuer’ and formerly Fernz Corporation (NZ) Limited), a wholly owned subsidiary of Nufarm Limited (‘Nufarm’), intends to make a public offer of a new hybrid security. The proposed offer is for A$250 million of Nufarm Step-up Securities (‘NSS’), with the ability to accept oversubscriptions of up to A$50 million. A prospectus in relation to the proposed offer will be made available once it has been lodged with the Australian Securities and Investments Commission (‘ASIC’). If you wish to acquire NSS, you will need to complete the application form that will be in or will accompany the Prospectus. Once the Prospectus has been lodged with ASIC, Nufarm will make an announcement to the ASX. You may obtain a copy of the Prospectus on Nufarm’s Australian corporate website www.nufarm.com NSS are perpetual, subordinated, unsecured redeemable, exchangeable notes and offer semi-annual, ﬂoating rate, non-cumulative distribution payments, based on the six month bank bill swap rate plus a margin. 98 notes to the financial statements cont 38 explanation of transition to aifrs As stated in signiﬁcant accounting policies note 1(a), these are the consolidated entity’s ﬁrst consolidated ﬁnancial statements prepared in accordance with AIFRS. The policies set out in the signiﬁcant accounting policies section of this report have been applied in preparing the ﬁnancial statements for the ﬁnancial year ended 31 July 2006, the comparative information presented in these ﬁnancial statements for the year ended 31 July 2005 and in the preparation of an opening AIFRS balance sheet at 1 August 2004 (the consolidated entity’s date of transition). In preparing its opening AIFRS balance sheet, the consolidated entity has adjusted amounts reported previously in ﬁnancial statements prepared in accordance with its old basis of accounting (previous GAAP). An explanation of how the transition from previous GAAP to AIFRS has affected the consolidated entity’s ﬁnancial position, ﬁnancial performance and cash ﬂows is set out in the following tables and the notes that accompany the tables. reconciliation of equity consolidated $000 assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets classiﬁed as held for sale Total current assets Receivables Equity accounted investments Other ﬁnancial assets Deferred tax assets Property, plant and equipment Intangible assets Other Total non– current assets TOTAL ASSETS liabilities Bank overdraft Trade and other payables Interest bearing loans and borrowings Employee beneﬁts Income tax payable Provisions Liabilities classiﬁed as held for sale Total current liabilities note previous agaap effect of transition to aifrs aifrs previous agaap effect of transition to aifrs aifrs 1 august 2004 31 july 2005 a a,b a c a c f, g a, d a, d, e a 56,826 (922) 55,904 56,233 (442) 55,791 240,469 432,139 6,858 168,706 (13,067) (491) 409,175 419,072 6,367 238,048 423,946 8,138 164,425 (2,508) 287 402,473 421,438 8,425 – 78,344 78,344 – 5,480 5,480 736,292 232,570 968,862 726,365 167,242 893,607 – 38,535 66,409 – 66,409 38,535 24,953 3,713 34,302 (85) (522) 10,799 24,868 3,191 45,101 376,632 196,021 21,130 (52,254) (836) (280) 324,378 195,185 20,850 210,420 1,943 44,836 313,535 164,605 20,309 7,637 – 10,643 (3,397) 36,926 (18,742) 218,057 1,943 55,479 310,138 201,531 1,567 695,286 (43,178) 652,108 822,057 33,067 855,124 1,431,578 189,392 1,620,970 1,548,422 200,309 1,748,731 a a, b 72,298 397,939 (4,553) 173,160 67,745 571,099 10,398 333,183 – 165,664 10,398 498,847 a a a a 40,113 15,983 15,401 9,128 (1,221) (1,254) 156 (27) 38,892 14,729 15,557 9,101 250,006 15,196 12,348 4,752 – (232) – – 250,006 14,964 12,348 4,752 – 550,862 22,004 188,265 22,004 739,127 – 625,883 1,408 166,840 1,408 792,723 99 notes to the financial statements cont note previous agaap effect of transition to aifrs aifrs previous agaap effect of transition to aifrs aifrs 38 explanation of transition to aifrs (continued) Interest bearing loans and borrowings Deferred tax liabilities Employee beneﬁts Provisions Total non-current liabilities TOTAL LIABILITIES a f g 287,180 22,673 10,369 – 320,222 871,084 (896) (3,173) 28,340 – 24,271 212,536 286,284 19,500 38,709 – 344,493 1,083,620 280,155 14,420 10,774 545 305,894 931,777 - 5,704 27,096 – 32,800 199,640 280,155 20,124 37,870 545 338,694 1,131,417 NET ASSETS 560,494 (23,144) 537,350 616,645 669 617,314 equity Issued capital Reserves Retained earnings Equity attributable to equity holders of the parent Minority interest TOTAL EQUITY the company assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets classiﬁed as held for sale Total current assets Receivables Equity accounted investments Other ﬁnancial assets Deferred tax assets Property, plant and equipment Intangible assets Other Total non-current assets h i, j g, i, j 210,530 17,854 324,401 1,271 15,991 (40,535) 211,801 33,845 283,866 216,827 5,871 388,150 2,222 17,524 (19,246) 219,049 23,395 368,904 c 552,785 7,709 (23,273) 129 529,512 7,838 610,848 5,797 560,494 (23,144) 537,350 616,645 500 169 669 611,348 5,966 617,314 1 august 2004 31 july 2005 a a,b a c a c f, g a, d a, d, e a 654 – 654 4,265 – 4,265 198,351 15,610 1,583 – 216,198 350 – 640 – 990 198,701 15,610 2,223 – 217,188 213,137 15,924 – – 233,326 3,325 – 175 216,462 15,924 175 – 3,500 – 236,826 208,435 – 208,435 207,390 – 207,390 – 253,553 21,374 19,310 – – 502,672 6,341 (6,341) (19,815) (46) 45 – (19,816) 6,341 247,212 1,559 19,264 45 – 482,856 – 253,355 22,648 20,733 – – 504,126 7,140 (6,142) (20,830) 7,140 247,213 1,818 (40) 40 – (19,832) 20,693 40 – 484,294 TOTAL ASSETS 718,870 (18,826) 700,044 737,452 (16,332) 721,120 100 notes to the financial statements cont note previous agaap effect of transition to aifrs aifrs previous agaap effect of transition to aifrs aifrs a a, b 38 explanation of transition to aifrs (continued) liabilities Bank overdraft Trade and other payables Interest bearing loans and borrowings Employee beneﬁts Income tax payable Provisions Liabilities classiﬁed as held for sale – – 2,359 – – 544 – – – (5,293) 19,645 71,045 a a – – a a 19,645 65,752 24,762 67,162 – (3,097) 24,762 64,065 – 544 2,359 – – 521 3,226 – – – 1,133 – – 521 4,359 – – – – – Total current liabilities 91,234 (2,934) 88,300 95,671 (1,964) 93,707 Interest bearing loans and borrowings Deferred tax liabilities Employee beneﬁts Provisions Total non–current liabilities TOTAL LIABILITIES a f g NET ASSETS Equit Issued capital Reserves Retained earnings Equity attributable to equity holders of the parent Minority interest TOTAL EQUITY 212,969 2,018 50 – 215,037 306,271 – (2,018) – – (2,018) (4,952) 212,969 – 50 – 213,019 301,319 211,655 1,731 55 – 213,441 309,112 – (1,611) 1 – 211,655 120 56 – (1,610) 211,831 (3,574) 305,538 412,599 (13,874) 398,725 428,340 (12,758) 415,582 h i, j g, i, j 210,530 40,074 161,995 1,257 – (15,131) 211,787 40,074 146,864 216,827 39,997 171,516 2,222 – (14,980) 219,049 39,997 156,536 c 412,599 – (13,874) – 398,725 – 428,340 – (12,758) – 415,582 – 412,599 (13,874) 398,725 428,340 (12,758) 415,582 notes to the reconciliation of equity (a) Consistent with AIFRS, the assets and liabilities associated with discontinued businesses have been reclassiﬁed to assets and liabilities held for sale. At July 2004, the group disclosed as a subsequent event that it was in advanced negotiations relating to the sale of its pharmaceutical intermediate business (SEAC) and its Nufarm Specialty Products (NSP) business. The NSP business was sold in December 2004 and the SEAC business was sold effective February 2005. Both businesses were classiﬁed as discontinued at July 2004. At July 2005, the Nuturf business has been classiﬁed as a discontinued business. The assets and liabilities of this business have been reclassiﬁed to assets and liabilities held for sale. Under AIFRS, the discontinued businesses classiﬁcation has affected the income statement whereby the discontinued businesses proﬁt or loss for the current year has been reclassiﬁed to show a net proﬁt or loss on the discontinued operations and the sale of such businesses below the operating results of the group. (b) Under AIFRS, securitised receivables and payables are brought back onto the balance sheet as AIFRS considers the probability of risks and beneﬁts in determining control, not just the possibility. The effect is to increase receivables and payables by $182.7 million at July 2004 and $167.4 million at July 2005. Under the AIFRS consolidation standard AASB127, the securitisation receivable entity is consolidated on the balance sheet. Previously, it had been equity accounted. The impact of this change is an increase in net assets of $130,546 at 31 July 2005. (d) Under the AIFRS Intangible Assets standard, computer software that is not integral to the operation of a manufacturing facility is classiﬁed as an intangible asset rather than property, plant and equipment. This change resulted in a reduction to property, plant and equipment of $3.1 million at 31 July 2005, with a corresponding increase in intangibles. (c) 101 notes to the financial statements cont 38 explanation of transition to aifrs (continued) (e) Under AIFRS, goodwill and intangible assets with an indeﬁnite life are not amortised but instead are subject to impairment testing on a semi-annual basis. The impairment testing conﬁrms that the future cash ﬂows derived from these assets exceeds their carrying values. The amortisation of goodwill and indeﬁnite intangibles under previous AGAAP amounted to $15.4 million for the full year ending 31 July 2005. The notional goodwill amortisation on the equity-accounted investment in Agripec acquisition also ceases under AIFRS. This amount is reﬂected in the equity income and increases equity income by $7.8 million in the year to 31 July 2005. (f) Under AIFRS, the balance sheet method of tax effect accounting is 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 impact of this change at 31 July 2005 is an increase in deferred tax assets of $10.6 million and an increase in deferred tax liabilities of $5.7 million, with an offsetting adjustment to retained earnings. (g) Under AIFRS, the group recognises the net deﬁcit in its employer sponsored deﬁned beneﬁt pension funds as a liability. Under Australian GAAP, deﬁned beneﬁt plans were accounted for on a cash basis, with no deﬁned beneﬁt obligation or plan assets recognised in the balance sheet. This change has resulted in an increase in liabilities of $28.8 million at 31 July 2004 and $27.3 million at 31 July 2005. The recognition of the liability has resulted in an increase in deferred tax assets as a tax deduction will result when the liability is incurred. The deferred tax asset recognised is $9.1 million at 31 July 2004 and $9.3 million at 31 July 2005. The net after-tax amount in each period has been taken as a reduction in earnings in the income statement. (h) Under AIFRS, the group recognises 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 were generally not recognised under previous AGAAP. At transition date, the group did not have any options granted to employees that fall under the scope of the standard. However, the group does have a global 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 vesting period, rather than as the matching and loyalty shares are issued. This has resulted in a increase to issued capital of $2.0 million and an expense to the income statement for $2.0 million for the full year ending 31 July 2005. On the transition to AIFRS, the group has taken the option to reset the existing foreign currency translation reserve balance to zero. This has resulted in an increase to reserves of $16.3 million and a reduction to retained earnings of the same amount. On the transition to AIFRS, the group has taken the option to recognise property, plant and equipment at deemed cost, being the revalued amount prior to transition date that approximates the fair value as at the date of transition. This has resulted in the asset revaluation reserve balance of $0.3 million being reclassiﬁed to retained earnings. (i) (j) (k) Under AIFRS, revenue from the disposal of non-current assets is recognised on a net basis as income or expense, rather than separately recognising the consideration received on sale as revenue. This has resulted in a reduction to other operating income of $96.0 million at 31 July 2005, with an offsetting reduction in operating expenses. 102 notes to the financial statements cont reconciliation of profit note previous agaap effect of transition to aifrs aifrs previous agaap effect of transition to aifrs aifrs consolidated the company for the year ended 31 july 2005 for the year ended 31 july 2005 38 explanation of transition to aifrs (continued) a Revenue Cost of sales a Gross proﬁt 1,671,029 (1,019,105) 651,924 (97,041) 15,343 (81,698) 1,573,988 (1,003,762) 570,226 64,664 (32,972) 31,692 (28,912) 16,497 (12,415) 35,752 (16,475) 19,277 Other income Depreciation and amortisation expense Other operating expenses Proﬁt before ﬁnancing costs Financial income Financial expenses Net ﬁnancing costs Share of net proﬁts/ (losses) of associates Proﬁt before tax Income tax expense/(beneﬁt) Proﬁt after tax but before proﬁt and loss of discontinued operation and gain on sale of discontinued operation Proﬁt and loss of discontinued operation and gain on sale of discontinued operation k 106,570 (98,204) 8,366 47,052 (2,288) 44,764 e a, k (61,199) (545,222) 61,199 101,815 – (443,407) (2,140) (22,077) 2,140 10,139 – (11,938) 152,073 (16,888) 135,185 54,527 (2,424) 52,103 a a 1,501 (40,011) (38,510) 6,777 (6,568) 209 8,278 (46,579) (38,301) 20,748 (22,542) (1,794) (156) 156 – 20,592 (22,386) (1,794) a, c 25,617 7,785 33,402 – 997 997 139,180 (8,894) 130,286 52,733 (1,427) 51,306 a, e 33,333 (6,869) 26,464 2,664 (613) 2,051 105,847 (2,025) 103,822 50,069 (814) 49,255 a – 22,812 22,812 – 992 992 Proﬁt for the period 105,847 20,787 126,634 50,069 178 50,247 Attributable to: Equity holders of the parent Minority interest 104,297 1,550 20,748 39 125,045 1,589 50,069 – 178 – 50,247 – Proﬁt for the period 105,847 20,787 126,634 50,069 178 50,247 Statutory earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 61.7 61.7 12.3 12.3 74.0 74.0 103 notes to the financial statements cont 39 change in accounting policy In the current ﬁnancial year the consolidated entity adopted AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139: Financial Instruments: Recognition and Measurement. This change in accounting policy has been adopted in accordance with the transition rules contained in AASB 1, which does not require the restatement of comparative information for ﬁnancial instruments within the scope of AASB 132 and AASB 139. The adoption of AASB 139 has resulted in the consolidated entity recognising all derivative ﬁnancial instruments as assets or liabilities at fair value. This change has been accounted for by adjusting the opening balance of equity (hedging reserve and fair value reserve) at 1 August 2005. The impact on the balance sheet in the comparative period is set out below as an adjustment to the opening balance sheet at 1 August 2005. The impact on the income statement of the comparative period would have been to increase ﬁnancial expenses and decrease proﬁt for the period to the extent that cash ﬂow hedges were not 100% effective. The transitional provisions will not have any effect in future reporting periods. Under AASB 139, the deferred borrowing costs ($1.567 million) associated with the capital notes program have been reclassiﬁed from non-current assets and netted against the capital notes debt. Under AASB 139, the receivables sold to ﬁnanciers for which there is recourse to the company, have been reclassiﬁed from receivables to securitised payables as at 1 August 2005 ($16.2 million). In the prior year, the receivables sold reduced trade receivables directly and was disclosed as a contingent liability. application of aasb 132 and aasb 139 prospectively from 1 august 2005 $000 consolidated Fair value derivatives – asset Fair value derivatives – liability Hedging reserve the company Fair value derivatives – asset Hedging reserve impact of change in previous account- ing policy agaap aifrs 45,592 – – 1,348 (92) (574) 46,940 (92) (574) 45,592 – 159 (58) 45,751 (58) 104 104 directors’ declaration 1 In the opinion of the directors of Nufarm Limited (‘the company’): (a) the ﬁnancial statements and notes, including the remuneration disclosures that are contained in the remuneration report in the directors’ report, are in accordance with the Corporations Act, including: (i) giving a true and fair view of the ﬁnancial position of the company and consolidated entity as at 31 July 2006 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 Australian Accounting Standards and the Corporations Regulations 2001; and (b) the remuneration disclosures that are contained in the Remuneration report in the directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures: (c) 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 32 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 company and 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 2006. Signed in accordance with a resolution of the directors: KM Hoggard Director DJ Rathbone Director Melbourne 29 September 2006 105 independent audit report Independent audit report to members of Nufarm Limited Scope The ﬁnancial report, remuneration disclosures and directors’ responsibilities The ﬁnancial report comprises the income statements, statements of recognised income and expense, balance sheets, statements of cash ﬂows, accompanying notes 1 to 39 to the ﬁnancial statements and the directors’ declaration for both Nufarm Limited (the ‘company’) and the consolidated entity (the ‘Nufarm group’), for the year ended 31 July 2006. The Nufarm group comprises both the company and the entities it controlled during that year. As permitted by the Corporations Regulations 2001, the company has disclosed information about the remuneration of directors and executives (‘remuneration disclosures’), required by Australian Accounting Standard AASB 124 Related Party Disclosures, under the heading ‘remuneration report’ on pages 39 to 43 of the directors’ report and not in the ﬁnancial report. The remuneration report also contains information on pages 39 to 43 not required by Australian Accounting Standard AASB 124, which is not subject to our audit. The directors of the company are responsible for the preparation and true and fair presentation of the ﬁnancial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the ﬁnancial report. The directors are responsible for preparing the relevant reconciling information regarding adjustments required under the Australian Accounting Standard AASB 1 First-time Adoption of Australian equivalents to International Financial Reporting Standards. The directors are also responsible for the remuneration disclosures contained in the directors’ report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the ﬁnancial report is free of material misstatement and that the remuneration disclosures comply with AASB 124. The nature of an audit is inﬂuenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the ﬁnancial report presents fairly, in accordance with the Corporations Act 2001, Australian Accounting Standards and other mandatory ﬁnancial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the Nufarm group’s ﬁnancial position, and of their performance as represented by the results of their operations and cash ﬂows and whether the remuneration disclosures comply with Australian Accounting Standard AASB 124. KPMG, an Australian partnership, is part of the KPMG International network. KPMG International is a Swiss cooperative. 106 independent audit report cont We formed our audit opinion on the basis of these procedures, which included: • • examining on a test basis, information to provide evidence supporting the amounts and disclosures in the ﬁnancial report; and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of signiﬁcant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over ﬁnancial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. Audit opinion In our opinion: (1) the ﬁnancial report of Nufarm Limited is in accordance with: a) the Corporations Act 2001, including: i) giving a true and fair view of the company’s and Nufarm group’s ﬁnancial position as at 31 July 2006 and of their performance for the ﬁnancial year ended on that date; and ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b) other mandatory ﬁnancial reporting requirements in Australia; and (2) the remuneration disclosures that are contained on pages 39 to 43 of the remuneration report in the directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures. KPMG Paul J McDonald Partner Melbourne 29 September 2006 107 shareholder and statutory information details of shareholders, shareholdings and top 20 shareholders listed securities – 2 october 2006 number of holders number of securities held by top 20 171,492,251 9,826 percentage 70.64 Fully paid ordinary shares twenty largest shareholders ordinary percentage of issued capital as at 02.10.06 Falls Creek No 2 Pty Ltd J P Morgan Nominees Australia Limited Amalgamated Dairies Limited National Nominees Limited Westpac Custodian Nominees ANZ Nominees Limited Citicorp Nominees Pty Limited AMP Life Limited Cogent Nominees Pty Limited Challenge Investment Company Limited Grantali Pty Limited Citicorp Nominees Pty Limited Mr Edgar William Preston & Mr Paul Gerard Keeling RAM Custodian Limited & GBH Trustee Services Limited Queensland Investment Corporation Australian Foundation Investment Company Limited ASX Perpetual Registrars Ltd CPU Share Plans Pty Ltd Cogent Nominees Pty Limited 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 shares as at 02.10.06 25,680,987 17,512,606 15,110,737 10,841,573 10,182,360 8,873,807 4,349,541 3,071,709 3,050,210 2,982,868 2,887,403 2,768,697 2,491,448 2,243,750 1,967,699 1,910,785 1,863,529 1,502,306 941,842 916,565 14.98 10.21 8.81 6.32 5.94 5.17 2.54 1.79 1.78 1.74 1.68 1.61 1.45 1.31 1.15 1.11 1.09 0.88 0.55 0.53 number of holders as at ordinary shares held 02.10.06 as at 02.10.06 3,462 4,696 970 622 76 2,039,466 11,710,813 6,787,993 12,686,511 138,267,468 Of these, 85 shareholders held less than a marketable parcel of shares of $500 worth of shares (51 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 2 October 2006 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. 108 shareholder and statutory information cont substantial shareholders In accordance with section 671B of the Corporations Act, as at 2 October 2006, the substantial shareholders set out below have notiﬁed the company of their respective relevant interest in voting shares in the company shown adjacent to their respective names as follows: Amalgamated Dairies Ltd Khyber Pass Ltd1 Glade Building Ltd2 Hauraki Trading Ltd3 Oxford Trustees (Paul Gerard Keeling and Edgar William Preston)4 Douglas John Rathbone Wallara Asset Management Pty Ltd Australia and New Zealand Banking Group Limited (ANZ) 5 IOOF Holdings Limited ING Australia Holdings Ltd (and related companies) date of notice 24 August 2000 24 August 2000 24 August 2000 24 August 2000 24 August 2000 8 November 2004 8 May 2006 1 August 2006 11 August 2006 18 September 2006 number and percentage of shares in which interest held at date of notice interest % 9.69 9.70 9.93 10.16 number 14,950,815 14,968,110 15,329,898 15,685,712 15,347,193 29,346,867 8,607,017 10,309,215 9,563,350 11,773,337 9.94 17.38 5.02 6.01 5.577 6.87 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 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. 109 shareholder and statutory information cont shareholder information annual general meeting The annual general meeting of Nufarm Limited will be held on Thursday 7 December 2006 at 10.00 am in the Ballroom at the Rendezvous 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. Proxy voting can be done online via www.nufarm.com or via post by completing the proxy form and sending it back in the return envelope. Every shareholder, proxy or shareholder’s representative has one vote on a show of hands. In the case of a poll, each share held by every shareholder, proxy or representative is entitled to: (a) one vote for each fully paid share; and (b) voting rights in proportion to the paid up amount of the issue price for partly paid shares. stock exchange 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. 110 shareholder and statutory information cont Internet Account Access Shareholders can access their details via the Internet by following the below prompts. Step 1 Step 2 Go to www.computershare.com / au / investors Enter User ID and Password Please Note – If you are not a current member of Investor Centre, then click on register now to become a member. Step 3 Enjoy the access to Investor Centre to view, evaluate and manage your portfolio. Investor Phone (Australian shareholders only) Investor Phone provides telephone access 24 hours a day 7 days a week. Step 1 Step 2 Step 3 Step 4 Call 1300 85 05 05 Enter the company (ASX) code – NUF 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 dividends A ﬁnal dividend of 20 cents per share will be paid on 10 November 2006 to shareholders registered on 20 October 2006. 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 and New Zealand. Forms for this purpose are available on request from the share registry. 111 shareholder and statutory information cont key dates • 20 October 2006 Record date (books closing) for 2005/2006 ﬁnal dividend • 10 November 2006 Final dividend for 2005/2006 payable • 2 November 2006 * Annual report sent to shareholders • 7 December 2006 Annual general meeting • 26 March 2007* Announcement of proﬁt result for half year ending 31 January 2007 • 31 July 2007 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 This report is printed, using soy-based inks, on environmentally responsible paper manufactured using elemental chlorine free pulp sourced from sustainable, well-managed forests. 112 112 directory directors KM Hoggard – Chairman GDW Curlewis – Deputy Chairman DJ Rathbone AM – Managing Director Dr WB Goodfellow GA Hounsell DG McGauchie AO 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 6 Manu Street Otahuhu, Auckland NZ Telephone: 64 9 270 4157 Facsimile: 64 9 267 8444 website http://www.nufarm.com nufarm limited ACN 091 323 312 produced by gillian sweetland, design by blue boat 1 KEY EVENTS 1 FACTS IN BRIEF 2 MANAGING DIRECTOR’S REVIEW 8 CORPORATE STRATEGY 14 BUSINESS REVIEW 14 HEALTH, SAFETY AND ENVIRONMENT 16 CROP PROTECTION 26 MANAGEMENT TEAM 28 BOARD OF DIRECTORS 30 CORPORATE GOVERNANCE 36 DIRECTORS’ REPORT 44 LEAD AUDITOR’S INDEPENDENCE DECLARATION 45 INCOME STATEMENT 46 BALANCE SHEET 47 STATEMENT OF CASH FLOWS 48 STATEMENT OF RECOGNISED INCOME AND EXPENSE 49 NOTES 104 DIRECTORS’ DECLARATION 105 INDEPENDENT AUDIT REPORT 107 SHAREHOLDER AND STATUTORY INFORMATION 112 DIRECTORY nufarm limited ANNUAL REPORT n u f a r m l i m i t e d 2 0 0 6 a n n u a l r e p o r t

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