Nufarm Limited | Annual Report 2007 FOOD, FEED AND FUEL – SEIZING OUR OPPORTUNITIES IN A GROWING GLOBAL INDUSTRY CONTENTS 01 01 02 06 Key events Facts in brief Food, feed and fuel Seeds of growth 08 Managing director’s review 16 Business review 41 Directors’ report 53 54 55 56 57 Lead auditor’s independence declaration Income statements Balance sheets Statements of cash flows Statements of recognised income and expense 17 22 Crop protection 58 Notes to the financial statements Health, safety and environment 128 Directors’ declaration 26 Management team 28 32 Board of directors Corporate governance 129 Independent audit report 131 Shareholder and statutory information 136 Directory KEY EVENTS – Group reports flat operating profit, year on year – Drought in Australia has a significant impact on results – North American operations continue to generate positive sales and profit growth – Acquisition of 100 per cent of Agripec in Brazil – Good progress on expansion into central and eastern Europe FACTS IN BRIEF Trading results $000 Operating profit after tax Sales revenue Total equity Total assets Ratios Earnings per ordinary share Net debt to equity Net tangible assets per ordinary share Distribution to shareholders Annual dividend per ordinary share People Staff employed 12 months ended 31 July 2007 12 months ended 31 July 2006 120,861 1,764,384 1,029,151 2,438,911 121,106 1,676,746 702,189 1,919,948 59.2c 36% 2.61 32c 2,488 60.3c 81% 2.41 30c 2,315 Nufarm Limited – Annual Report 2007 1 NUFARM IS IDEALLY PLACED TO LEVERAGE ITS STRONG MARKETING SKILLS AND VALUABLE BRAND POSITIONS 2 Nufarm Limited – Annual Report 2007 FOOD, FEED AND FUEL Strong global demand for agricultural products is driving major changes in the level of technology invested in cropping systems throughout the world. Food for people, feed for stock and fuel for transport are the future for agriculture. A growing world population can increasingly afford to eat a higher protein diet and aggressive, mandated targets for crop-based biofuels – the use of crops to make energy – are creating competing needs for agricultural production. Improved living standards in developing economies, such as China, India and eastern Europe, mean a higher demand for animal based protein and this increased meat, dairy and egg consumption is lifting the need to produce grains for animal feed substantially and often from the same crop sources used for food or food products. More recently, there has been a surge in the demand for biofuels such as ethanol and biodiesel. Ambitious government production targets are creating a relatively new – but competing – demand on the crops that provide feedstock for these fuels, predominantly corn, sugarcane and palm oil. The area of land available for farming continues to decline per head of population with the result that there is a greater need to produce healthy crops and maximise yields. Global stocks of many grains have also run down to historically low levels. In this demand driven environment, farmers are receiving good prices for their crops, with some soft commodities trading at or near record levels. All these pressures are combining to create a positive business environment for agricultural input companies. As a leading global supplier of value-added off-patent crop protection products, Nufarm is pursuing a strategy to realise the benefits of these opportunities. We have established an operating presence in the major global agricultural markets and are developing and introducing additional products across that platform. Some regions are well placed to meet increased demand for agricultural products and Nufarm has made important strategic investments in South America – in particular Brazil – and continues to expand its business in central and eastern Europe. Brazil is uniquely positioned to bring additional land into production. With generally reliable seasonal conditions and good soils, continued medium to long-term growth is forecast in crops such as soybeans, corn, wheat, cotton and sugar. And in central and eastern Europe, there is substantial scope to improve yields by increasing use of agricultural inputs and technology. As the global crop protection industry continues to see more products move into the off patent segment of the market, Nufarm is ideally placed to leverage its strong marketing skills and valuable brand positions to seize growth opportunities and create more value for the company’s shareholders. Nufarm Limited – Annual Report 2007 3 THE AREA OF LAND AVAILABLE FOR FARMING CONTINUES TO DECLINE PER HEAD OF POPULATION RESULTING IN A GREATER NEED TO PRODUCE HEALTHY CROPS AND MAXIMISE YIELDS 4 Nufarm Limited – Annual Report 2007 Nufarm Limited – Annual Report 2007 5 NEW BREEDING TECHNIQUES ARE ACCELERATING THE DEVELOPMENT OF HYBRID AND SPECIALTY SEEDS 6 Nufarm Limited – Annual Report 2007 SEEDS OF GROWTH The selection of a new variety and the purchase of seed is becoming an increasingly important decision for farmers and one that involves a greater number of options. New breeding techniques are accelerating the development of hybrid and specialty seeds and biotechnology is delivering a variety of value-adding traits that can be incorporated into seeds. Seed purchase now represents a large investment for the farmer and incorporates decisions relating to how the crop will be managed, the specific properties or features of the end product and the market segments into which it can be sold. Crop protection companies are extending their reach from the chemistry associated with protecting crops, increasing yields and achieving maximum value, to the biology involved in determining those same outcomes. The emerging opportunities relating to the development and marketing of varieties – and seed treatments – provide important new growth platforms for Nufarm. In Australia, Nufarm has established a seeds business, under the NuSEED brand and now has a market leading position in canola, as well as development programs involving wheat, beans and a variety of other crops. The NuSEED business encompasses the value chain in seed and varieties from plant breeding through to the post-farmgate use of finished commodities, giving the business control over its own destiny. Relationships have also been established with several overseas breeding programs and research efforts, with a view to expanding Nufarm’s seed interests into other markets. Ongoing development of a portfolio of seed treatment products is also allowing Nufarm to compete in what is a fast growing, high value segment of the market. Nufarm’s strengths in market driven innovation, its access to distribution and our regulatory and marketing skills can all be leveraged to develop an exciting and valuable growth opportunity. Nufarm Limited – Annual Report 2007 7 NUFARM HAS ESTABLISHED OPERATIONS IN THE MAJOR GLOBAL AGRICULTURAL MARKETS 8 Nufarm Limited – Annual Report 2007 MANAGING DIRECTOR’S REVIEW Severe drought conditions in Australia had a significant impact on the company’s overall result in financial year 2007. Given these conditions, the result is satisfactory. Nufarm generated a net profit of $148.8 million for the year ended 31 July 2007. This included $27.9 million in non-operating items, resulting in the operating profit of $120.9 million after tax gains. The operating result is slightly below last year’s net operating profit of $121.1 million and some seven per cent below the company’s previous guidance. We had expected to recover the position in Australia during the second half but, while climatic conditions improved in some areas of the country, this improvement was not sufficient to deliver on previous guidance. Seasonal conditions – and registration issues in the UK – also had an adverse impact on the profitability of the European businesses. Nufarm’s North American operations again performed very strongly and the company’s continued expansion into the growing markets of central and eastern Europe has shown excellent early progress. Total group sales were $1.76 billion, an increase of five per cent on last year’s revenues of $1.68 billion. This included some $60 million in sales recorded by Agripec in Brazil in June and July after Nufarm assumed 100 per cent control of that business. Australasia generated $685 million in sales (39 per cent of total sales) and remains the company’s largest region both for revenues and profit contribution. The Americas recorded $640 million in sales (36 per cent of total) and Europe $440 million (25 per cent). Earnings per share (on an operating basis, excluding discontinued operations,) were 59.2 cents, compared with last year’s 60.3 cents. Nufarm Limited – Annual Report 2007 9 Doug Rathbone AM Managing director and chief executive MANAGING DIRECTOR’S REVIEW CONTINUED Operating profit Group sales 121.7 121.1 120.9 76.5 64.3 1,764 1,677 1,596 1,574 1,458 n o i l l i m $ n o i l l i m $ 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 EBITDA 199.8 207.0 260.0 252.0 245.0 Return on funds employed 19.8 17.8 16.6 15.7 14.0 n o i l l i m $ e g a t n e c r e P 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 e g a t n e c r e P Net debt to equity 98 78 81 61 36 Earnings per share 60.5 60.3 59.2 47.3 41.3 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 s t n e C 10 Nufarm Limited – Annual Report 2007 MANAGING DIRECTOR’S REVIEW CONTINUED Non-operating items The company’s total net profit of $148.8 million included some $27.9 million associated with non-operating items. The previously announced sale of Nufarm’s 80 per cent interest in the Nufarm Coogee chlor alkali plants in Western Australia was completed on 31 July with the result of an after tax gain of $32.6 million. A small profit was also booked on the closure and sale of a warehouse facility in Spain. The non-operating profit was offset by some restructuring costs and one off legal expenses. Upon Nufarm’s move to 100 per cent ownership of Agripec, a detailed review was undertaken of previous years’ debtors. Following this review, additional provisions were made, consistent with Nufarm’s conservative policy relating to the treatment of doubtful debts. Final dividend Directors declared a fully franked final dividend of 21 cents per share, resulting in a full year dividend of 32 cents. This is seven per cent or two cents higher than the dividend paid in the previous year. The final dividend will be paid on 9 November 2007 to the holders of all fully paid shares in the company as at the close of business on 10 October 2007. Treasury Net debt to equity was 36 per cent, compared with 81 per cent at July 31, 2006. The lower gearing level largely results from the issue of a hybrid equity instrument (Nufarm Step-up Securities) in place of capital notes. The debt associated with the acquisition of the balance of Agripec is not reflected in the 2007 accounts as settlement did not take place until mid August. Had it been incurred before 31 July, the impact of this additional debt would have been a gearing level of 57 per cent. Net working capital, after allowing for the acquisition of Agripec, increased $67 million over the previous year. June and July sales in 2007 (excluding Agripec) were some $65 million higher than in 2006, leading to a substantial increase in receivables. Inventories were some $12 million higher, offset by increased trade payables of nearly $40 million. Agripec had approximately $137 million in trade working capital, which was offset by recording the purchase price of the business ($218 million) in August 2007 as a current liability in the July 31 accounts. The high level of relatively late sales in the 2007 financial year had a significant impact on cash generated from operations in the period. As a consequence, the cash flow outcome was similar to that recorded in 2006. Interest costs were up on the previous year due to the higher levels of working capital and increases in base interest rates in various markets around the world. Nufarm Step-up Securities Nufarm issued $251 million of Nufarm Step-up Securities in November 2006. These securities are recorded as a component of equity and replaced the capital notes that had been issued over the past 10 years. The Nufarm Step-up Securities have a floating distribution rate, being 190 points above the 180 day BBSW on the 15 October and 15 April each year. The distributions, net of the applicable tax benefit, are recorded in equity, and are not included in the calculation of profit. Our people A critical component of Nufarm’s success is its people: the board of directors and senior management appreciate their loyalty, commitment and hard work. These people are spread across every continent in the world and, as we Nufarm Limited – Annual Report 2007 11 DEMAND DRIVERS IN GLOBAL AGRICULTURE ARE STRONG AND THE COMPANY BELIEVES THAT THESE WILL BE SUSTAINED 12 Nufarm Limited – Annual Report 2007 MANAGING DIRECTOR’S REVIEW CONTINUED continue to grow, there will be new challenges to our culture, behaviour and way of working as we extend our reputation for innovation, first class marketing, quality products and technical support. Dick Warburton AO will retire from the Nufarm board in December 2007 after more than 14 years of service to the company and shareholders. Dick has made a significant contribution at board level, not only in his role as chairman of the remuneration committee and member of the nomination committee but also as the company has expanded internationally. Dick has been very supportive of management and its business development plans and the company acknowledges that contribution and wishes him well in the future. Outlook Given normal climatic conditions in the major markets, the outlook for Nufarm’s business in financial year 2008 is positive. Demand drivers in global agriculture are strong and the company believes that these factors will be sustained for the medium to long term as competing uses for food crops maintain their impact on commodity prices, planting intentions and pressure to improve yields. Glyphosate supply will continue to be tight globally, maintaining pressure on raw material costs. The company is confident, however, of being able to pass through those cost increases in the form of higher prices to maintain margins in this important product. Management is actively securing access to additional glyphosate capacity. Nufarm has established operations in the major global agricultural markets and, in the 2008 financial year, will deliver a number of important new products to those businesses. A continued strong performance is anticipated in the USA; margin improvement is forecast in a number of European markets; and the Australian business is positioned to take full advantage of any improvement in climatic conditions. Business conditions in Brazil are expected to keep strengthening, with predictions of increased soybean and corn plantings and a higher spending capacity for Brazilian farmers. New products will also be introduced in a number of key crop segments. The company’s first full year of 100 per cent ownership of Agripec is expected to generate between $25 million and $30 million in operating profit. In the 2008 financial year, Nufarm is forecasting a group operating profit of approximately $145 million. Comparing this to 2007 and excluding the net $9.2 million profit from the divested chlor alkali interests, this represents profit growth of almost 30 per cent for the company’s ongoing crop protection businesses. This forecast profit growth assumes that seasonal conditions in Australia will remain difficult. Directors remain confident in the ability of the company to take advantage of new growth opportunities. Doug Rathbone AM Managing Director Nufarm Limited – Annual Report 2007 13 IT IS A CREDIT TO THE INNOVATION AND HARD WORK OF OPERATIONAL EMPLOYEES THAT NUFARM HAS INCREASED PRODUCTION CONTINUOUSLY 14 Nufarm Limited – Annual Report 2007 Nufarm Limited – Annual Report 2007 15 BUSINESS REVIEW 16 Nufarm Limited – Annual Report 2007 CROP PROTECTION The company’s 12 month reporting period was characterised by a number of adverse weather effects, particularly in Australia. Some European markets also experienced seasonal conditions that had a negative impact on sales, with warm, dry conditions reducing fungicide applications. The second half of the year saw demand drivers strengthen in global agriculture and increases in many soft commodity prices. This provided a positive environment for crop protection sales, particularly in North America. The farm economy strengthened in Brazil, with adverse currency impacts offset by higher commodity prices and a good harvest. Nufarm acquired the balance of Agripec and fully consolidated the final two months (June and July) of results from the Agripec business. Agrosol, the newly purchased business in Italy, also made an initial contribution this year. Australasia The Australasian business generated $685 million in sales and a segment profit of $103.7 million in the 2007 financial year. Widespread and severe drought conditions had a severe impact on the business in Australia during the first eight months of the year: this was only partly recovered in the next four months. While there were good and early season opening rains in South Australia, Victoria and parts of New South Wales, important cropping regions in Queensland, northern New South Wales and Western Australia remained dry throughout autumn and early winter. Water allocations for irrigators were very restricted with subsequent sales in higher value market segments such as horticulture, cotton and rice, markedly lower. Strong global demand for glyphosate increased raw material costs dramatically and, while a number of price increases were implemented in Australia during the 2007 financial year, the difficult climatic conditions restricted our ability to maintain margins on glyphosate sales. Glyphosate is Nufarm’s largest selling product in Australia, and globally. Australian sales were more than seven per cent down on the previous year. Limited demand, lower sales of higher value products and pricing pressure all had a negative impact on margins and, combined with higher costs in some areas, there were repercussions on profitability. New Zealand crop protection sales were slightly up on the previous year but increased competition affected margins adversely, resulting in a slightly lower profit contribution. Sales in Asia were also higher than in the previous year, with the company’s Indonesian business performing strongly. Less competition from Chinese sourced glyphosate products and several new product registrations provided additional selling opportunities for Nufarm in a number of Asian markets. Americas The Americas region recorded $640 million in total sales – a 20 per cent increase on the previous year – and a segment profit of $80 million, up more than 65 per cent on 2006. Excluding the impact of Agripec in Brazil, regional profit increased by 39 per cent. Seasonal conditions in both North America and South America were generally favourable. Nufarm Limited – Annual Report 2007 17 CROP PROTECTION CONTINUED In the USA, agricultural producers saw relatively high moisture levels maintained for most of the season. Unseasonably cool and wet conditions – and a late freeze in April – affected the turf segment, while dry conditions in parts of the southeast were not conducive to strong forestry sales. New mandated production targets for crop based biofuels drove very strong corn plantings and contributed to a generally buoyant agriculture sector. While sales and pricing competition remained strong, Nufarm’s US business grew revenues by some 20 per cent in local currency. An improved product mix, plus the introduction of new higher margin products such as ‘Nuprid’ (imidacloprid), helped generate an excellent profit performance. In Canada, sales increased by approximately 18 per cent (local currency), with gross margins also improving. Early and dry spring conditions meant a higher than average use of pre-plant herbicides but subsequent in crop treatments were reduced. Argentina had an excellent year with sales increasing some 22 per cent (local currency). Gross margins were also up on the previous period. Nufarm introduced a number of new higher value formulations and strong corn and soybean prices encouraged increased use of crop protection products. Chile also generated an improved performance. Despite some ongoing delays in the local regulatory system, several new products were launched, contributing to good growth in sales. Europe Total European sales were $440 million (2006: $393 million). Excluding the impact of non-operating items, the 2007 profit generated in Europe was $34.4 million, some $9 million lower than in the previous year. Nufarm’s European businesses achieved target results in most markets despite mixed seasonal and business conditions throughout the region. A generally mild winter and early spring provided good early planting conditions across the continent. In the northern European markets, unseasonably warm and dry weather led to lower fungicide applications in the early cereal growing period, with later rains also affecting cereal herbicide sales. Southern Europe experienced a return to colder weather patterns and this led to crop damage and lower yields in a number of markets. Nufarm’s German business generated a 15 per cent increase in revenues but gross margins were affected by reduced sales opportunities for the company’s proprietary spring herbicides. Both France and Spain also increased sales and profit, however the UK business suffered from the withdrawal of a product registration and delays in the introduction of planned new products. These happened very late in the financial year and had a substantial negative impact on the UK results. Lower MCPA sales from the company’s Botlek (the Netherlands) facility also had a negative impact on the European results. Nufarm’s acquisition of the Agrosol business in Italy (completed in October 2006,) provided a platform for significant sales growth in that market. The company’s expansion into central and eastern Europe also saw very positive progress, with the new business in Romania generating excellent first year sales (and eight new product registrations) plus new opportunities emerging in other regional markets. 18 Nufarm Limited – Annual Report 2007 CROP PROTECTION CONTINUED Crop protection sales by region 2007 Crop protection sales by region 2006 32% 36% 3% 4% 25% Australia Americas Europe Asia New Zealand 38% 32% 3% 4% 23% Australia Americas Europe Asia New Zealand 2007 total revenue $1.76 billion 2006 total revenue $1.68 billion Seeds Nufarm continued its expansion into the growing seeds segment in Australia with the September 2006 acquisition of Monsanto’s Roundup Ready® canola germ plasm and a licence to the Roundup Ready® canola trait. Business conditions in Brazil improved as the year progressed with a more stable currency and higher commodity prices helping to ease the credit related issues that had a negative impact the previous year. The full benefit of these improved conditions will not be seen until the 2008 financial year. The acquisition strengthens Nufarm’s existing position in seeds and allows the company 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 thus simplifying production of those crops. Australia’s adverse seasonal conditions in the reporting period had a negative impact on the seed business, with lower canola plantings and a restricted capacity to bulk up new seed varieties. Agripec – Brazil An agreement to acquire the outstanding 50.1 per cent of Agripec was announced in May 2007, with Nufarm moving to 100 per cent control on 1 June. Nufarm’s 2007 results include 10 months of Agripec earnings calculated on an equity accounted basis (49.9 per cent owned subsidiary) and two months of consolidated results (June and July). Agripec generated a total profit contribution – before financing costs and including the impact of additional provisioning for doubtful debts – of $17.2 million ($8.5 million in 2006). This was made up of a $7.8 million equity accounted profit for the ten months to the end of May and a $9.4 million profit for the final two months of the financial year, fully consolidated. Agripec implemented a more restricted credit policy over the past year and, as part of its risk management policy, increased its use of barter trading. Collections relating to the most recent selling season have met target but a number of outstanding payments remain from 2006 and 2005. The introduction of new products helped the business increase its penetration in the horticulture, cotton and corn segments and a strong sales campaign for Agripec’s insecticides portfolio was a major contributor to the high overall sales outcome. For the full year, Agripec net sales were R$459 million, compared to R$383 million the previous year, an increase of 20 per cent. Nufarm Limited – Annual Report 2007 19 AGRIPEC WAS ESTABLISHED SOME 40 YEARS AGO AND HAS BUILT STRONG CUSTOMER RELATIONSHIPS 20 Nufarm Limited – Annual Report 2007 As a developing economy, business in Brazil is not without risk. Appropriate credit controls and other risk management policies are in place. Agripec was established some 40 years ago and has built strong customer relationships. As the business makes the transition to the Nufarm brand, care will be taken to preserve and enhance those relationships. CROP PROTECTION CONTINUED Brazil in focus Recognising the substantial growth opportunities in Brazil, Nufarm reached agreement during the 2007 financial year to acquire the balance of locally based crop protection company, Agripec Quimica e Farmaceutica S.A. and assumed management control on 1 June. Nufarm’s initial investment in Agripec (49.9 per cent equity stake) was made in August 2004 after a comprehensive review of suitable acquisition opportunities in the world’s fastest growing – and second largest – crop protection market. Agripec’s manufacturing operations are located in Fortaleza, in the northeast of Brazil and the company has an administrative base in Sao Paolo, with an extensive sales network extending into the key farming regions. The company generated net sales of some R$460 million in Nufarm’s 2007 financial year, giving it an approximate five to seven per cent market share. Brazil is an increasingly important agricultural market and is ranked as the leading global producer of a number of important agricultural commodities. With a large arable landmass, generally reliable climatic conditions and good soils, Brazil is uniquely placed to take advantage of strong global demand for crops to meet food, animal feed and energy (biofuels) needs. The market in Brazil is also seeing change as technology and agricultural inputs are used to maximise production. Increased adoption of genetically modified crops is leading to changes in the use patterns of certain crop protection products. Following its acquisition of Agripec, Nufarm has a strong platform to take advantage of the opportunities that will flow from these changes. The company is now developing new products to access a variety of crop segments and broaden its sales base. The global product development resources of Nufarm and its strategic relationships, will add strength and value to the business. Nufarm Limited – Annual Report 2007 21 HEALTH, SAFETY AND ENVIRONMENT Achieving industry-leading growth in the global crop protection business means a dedication to always improving our health, safety and environment performance. Nufarm continues to emphasise the proper management of these issues and its annual calendar year health, safety and environment corporate and site reports contain the detailed data. The reports are available at www.nufarm.com/healthsafetyreports In the 2006 calendar year, the lost time injury frequency rate did not meet the improvement target but the unusual incident reporting system continues to show improvement. This system is being expanded throughout the company and behavioural training has been rolled out across Australasia. Fifteen sites that achieved 200,000 hours work or five years – or both – received safety awards during the year and 20 locations operated without recording any injuries serious enough to require one or more days away from work. In the reporting period, Nufarm was neither fined nor prosecuted for any breaches of environment regulations at its 21 manufacturing sites plus offices and regional centres. Eleven of its sites achieved 100 per cent compliance in environmental testing and, due to demonstrated continual compliance, reduced testing has been authorised at some sites. Greenhouse gas reduction and water conservation initiatives are underway at most sites. It is a credit to the innovation and hard work of operational employees that Nufarm has increased production continuously while making substantial decreases in energy use and developing transforming water efficiency measures. One of the environmental challenges Nufarm now faces is due to its basic chlorine chemistry synthesis and production: the bi-product is salt. Even though production has increased substantially in recent years, the increase in the amount of salt to be treated and discharged is marginal. The search continues for new technical advances to capture salt for re-use. 22 Nufarm Limited – Annual Report 2007 HEALTH, SAFETY AND ENVIRONMENT CONTINUED Nufarm Limited – Annual Report 2007 23 ACHIEVING INDUSTRY-LEADING GROWTH IN THE GLOBAL CROP PROTECTION BUSINESS MEANS A DEDICATION TO ALWAYS IMPROVING OUR HEALTH, SAFETY AND ENVIRONMENT PERFORMANCE 24 Nufarm Limited – Annual Report 2007 Nufarm Limited – Annual Report 2007 25 MANAGEMENT TEAM Doug Rathbone AM Brian Benson Rodney Heath Kevin Martin Managing director and chief executive Group general manager agriculture Brian Benson joined Nufarm in 2000, bringing with him extensive experience in the crop protection industry in the areas of international marketing and strategy. He has degrees in agricultural science and business administration. Brian is responsible for Nufarm’s regional sales operations and commercial strategy. Doug Rathbone’s background is chemical engineering and commerce and he has worked for Nufarm Australia Limited for 32 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999. He joined the board of directors in 1987. He was appointed to the board of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in 2007. 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. 26 Nufarm Limited – Annual Report 2007 MANAGEMENT TEAM CONTINUED Dale Mellody Bob Ooms David Pullan Robert Reis Group general manager chemicals Group general manager operations Bob Ooms joined the company in 1999. David Pullan joined the company in 1985. 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. 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. Group general manager corporate strategy and external affairs 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. Robert also has executive management responsibility for corporate strategy, human resources and organisational development. Group general manager marketing and product development 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 responsible for Nufarm’s global marketing and product development group. Now based in the USA, Dale also heads Nufarm’s North American regional operations. Nufarm Limited – Annual Report 2007 27 BOARD OF DIRECTORS Kerry Hoggard Chairman Doug Curlewis Deputy chairman Kerry Hoggard, 66, joined the board in 1987. GDW (Doug) Curlewis, 66, joined the board in January 2000. 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. He has a master of business administration and was formerly managing director of National Consolidated Ltd. He is also a director of GUD Holdings Ltd, Graincorp Limited and Sigma Pharmaceuticals Limited. In the past three years Doug has been a director of Pacifica Group Ltd (nine years), National Foods Ltd (six years) and Remunerator Australia Pty Ltd (seven years). Doug is deputy chairman of the board, chairman of the nomination committee and a member of the audit and remuneration committees. Doug Rathbone AM Bruce Goodfellow Managing director and chief executive Doug Rathbone AM, 61, joined the board in 1987. His background is chemical engineering and commerce and he has worked for Nufarm Australia Limited for 32 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Limited in October 1999. He was appointed to the board of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in 2007. Dr WB (Bruce) Goodfellow, 55, 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. Bruce is a director of Sanford Ltd, Sulkem Co Ltd, Refrigeration Engineering Co Ltd and Cambridge Clothing Co Ltd. 28 Nufarm Limited – Annual Report 2007 BOARD OF DIRECTORS CONTINUED Garry Hounsell Donald McGauchie AO John Stocker AO Dick Warburton AO GA (Garry) Hounsell, 52, joined the board in October 2004. DG (Donald) McGauchie AO, 57, joined the board in 2003. Dr JW (John) Stocker AO, 62, joined the board in 1998. 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. Garry is deputy chairman of Mitchell Communications Ltd and a director of Qantas Airways Limited and Orica Ltd. Garry is chairman of the audit committee. He has a medical, scientific and management background and was formerly chief scientist of the Commonwealth of Australia and is now the chairman of the Australian Commonwealth Scientific and Research Organisation. 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 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) and Ridley Corporation Limited (six years). Donald is a member of both the remuneration and nomination committees. RFE (Dick) Warburton AO, 66, joined the board in 1993. He has a business management background and is chairman of Tandou Ltd and Magellan Flagship Fund Limited. He is a director of Caltex Australia 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 Tabcorp Holdings Limited (six years). Dick is chairman of the remuneration committee and a member of the nomination committee. After more than 14 years as a member of the board of directors, Dick will retire at the annual general meeting in December. In a critical phase of our development, his contribution to and support of Nufarm has been substantial and we wish him well. Nufarm Limited – Annual Report 2007 29 THE COMPANY’S EXPANSION INTO CENTRAL AND EASTERN EUROPE ALSO SAW VERY POSITIVE PROGRESS 30 Nufarm Limited – Annual Report 2007 Nufarm Limited – Annual Report 2007 31 CORPORATE GOVERNANCE Introduction Nufarm’s board processes are under constant review to ensure our systems protect the interests of all stakeholders. 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. 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 provisions of the Corporations Act 2001. We practice early adoption before actual compliance is required. This report is referable to the ASX Principles as published in 2003. We intend to report against the recent amendments to the ASX Principles in our 2008 annual report. 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. 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 been issued to the managing director under the plan since 2002. Management and oversight of Nufarm Nufarm believes it complies with all the ASX principles with two exceptions. 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. • 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. The board unanimously continues to support Kerry as chairman, believing this to be clearly in the best interest of all stakeholders. 32 Nufarm Limited – Annual Report 2007 CORPORATE GOVERNANCE CONTINUED 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 company is managed according to the recommendations of ASX Principle 1. The board’s specific responsibility is to: • ratify strategic plans for the company and its business units; • review the company’s accounts; • approve and review operating budgets; • approve major capital expenditure, acquisitions, divestments and corporate funding; • oversee risk management and internal compliance; and • control codes of conduct and legal compliance. The board is also responsible for: • the appointment and remuneration of the managing director; • ratifying the appointment of the chief financial officer and the company secretary; and • reviewing remuneration policy for senior executives and Nufarm’s general remuneration policy framework. 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 2007, 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 42 of this report. 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. Nufarm Limited – Annual Report 2007 33 CORPORATE GOVERNANCE CONTINUED 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 a company 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 may 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. The board charter provides that non-executive directors may meet without management present. 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 32 of this report. Doug Curlewis, an independent director, has been appointed deputy chairman. The Nufarm board has stipulated that the same person may not fill the roles of the chairman and chief executive officer. 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: • assess competencies of board members; • review board succession plans; • evaluate board performance; and • recommend the appointment of new directors when appropriate. 34 Nufarm Limited – Annual Report 2007 CORPORATE GOVERNANCE CONTINUED 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. Ethical and responsible decision-making 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 to ensure appropriate standards and carefully selects and promotes employees. 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 • two weeks before the company’s AGM, ending 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. 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 42. Nufarm Limited – Annual Report 2007 35 CORPORATE GOVERNANCE CONTINUED 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 deputy chairman of Mitchell Communications Group 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 Sigma Pharmaceuticals Limited. The committee reviews its charter annually. The charter sets out membership requirements for the committee, its responsibilities and provides that the committee shall assess the external auditor’s actual or perceived independence annually by reviewing the services provided by the auditor. The charter also identifies those services that: • the external auditor may and may not provide; and 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. • require specific audit committee approval. Our communication policy aims to: 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 • ensure that shareholders and the financial markets are provided with full and timely information about our activities; • comply with our continuous disclosure obligations; 36 Nufarm Limited – Annual Report 2007 CORPORATE GOVERNANCE CONTINUED • ensure equality of access to briefings, presentations and meetings for shareholders, analysts and media; and • encourage attendance and voting at shareholder meetings. Postal and electronic communication with shareholders includes: • half year and annual reports; • notices of AGM; 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 summary of AGM proceedings, including the • a comprehensive occupational health, safety and chairman’s and chief executive officer’s addresses and voting results; and • information whenever there are significant developments to report. environmental program. The company publishes an annual health, safety and environment report on its performance across a range of environment, health and safety parameters, including specific targets for continuous improvement; Our formal communications policy is available on the corporate governance section of the company’s website. • a comprehensive annual insurance program including external risk management surveys; 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. • 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 pages 35 to 36 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. Nufarm Limited – Annual Report 2007 37 CORPORATE GOVERNANCE CONTINUED Board and management performance Remuneration of executives The board The performance of the board, individual directors and key executives is reviewed annually. The board’s policy for determining the nature and amount of the remuneration of executives is set out in the remuneration report on pages 45 to 47. In 2003–2004, directors completed a detailed questionnaire, an external consultant interviewed each director individually and there was a general board discussion. The chairman conducted the subsequent performance evaluation and, in the current reporting period, the board completed a purpose-designed questionnaire, the results of which were discussed with the chairman, the chairman of the nomination committee and then by the board as a team. 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 34) 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. Remuneration The board has procedures to ensure that the level and structure of remuneration for executives and directors is appropriate. 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, Don 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 pages 45 to 52. 38 Nufarm Limited – Annual Report 2007 CORPORATE GOVERNANCE CONTINUED Except for compliance with recommendation 9.4, which is discussed on page 32, our remuneration policies are consistent with ASX Principle 9. 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 shareholders is consistent with ASX Principle 10. Nufarm Limited – Annual Report 2007 39 40 Nufarm Limited – Annual Report 2007 DIRECTORS’ REPORT The directors present their report together with the financial report of Nufarm Limited (‘the company’) and of the group, being the company and its subsidiaries and the group’s interests in associates and jointly controlled entities, for the financial year ended 31 July 2007 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 Mr R Heath. Details of the qualifications and experience of the company secretary are set out on page 26. Directors’ interests in shares and step-up securities Relevant interests of the directors in the shares or step-up securities 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: KM Hoggard1 GDW Curlewis DJ Rathbone Dr WB Goodfellow1, 2 G A Hounsell1 DG Mc Gauchie1 Dr JW Stocker1 RFE Warburton1 Nufarm Ltd Ordinary shares Nufarm Finance (NZ) Ltd Step-up securities 2,383,614 43,787 29,912,610 662,914 61,959 16,376 40,973 66,938 _ _ _ 45,189 _ _ _ _ 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 holding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (429,855 shares and 19,727 step-up securities) – Dr Goodfellow is Chairman of the Trust Board. Dr Goodfellow does not have a beneficial interest in these shares or step-up securities; (ii) Sulkem Company Limited (113,616 shares); (iii) Auckland Medical Research Foundation (25,462 step-up securities). Dr Goodfellow does not have a beneficial interest in these step-up securities. Nufarm Limited – Annual Report 2007 41 DIRECTORS’ REPORT CONTINUED 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 Audit Remuneration Nomination Committees KM Hoggard 1, 2 GDW Curlewis DJ Rathbone 2 Dr WB Goodfellow 2 GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton A 7 7 7 7 7 7 7 7 B 6 7 7 7 7 7 7 6 A 4 4 – – 4 – – – B 4 4 3 1 3 – – – A 3 3 – – – 3 3 3 B 3 3 3 1 – 3 3 3 A – 3 – – – 3 3 3 B 3 3 3 1 – 3 3 3 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 Due to illness, KM Hoggard was unable to attend the 2006 Annual General Meeting of the company and the meeting of directors held in December 2006. 2 All 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 2,488 people at its various locations in Australasia, Asia, 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. 42 Nufarm Limited – Annual Report 2007 DIRECTORS’ REPORT CONTINUED Results The net profit attributable to members of the consolidated entity for the 12 months to 31 July 2007 is $148.8 million. The comparable figure for the 12 months to 31 July 2006 was $117.2 million. 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 main significant item in the current year is the impairment loss associated with old Brazilian receivables as a result of applying Nufarm’s more conservative approach to provisioning. The 2006 number is primarily related to structural reorganisation in France. Profit from continuing operations Discontinued operations Other significant items Profit for the year Minority interest Operating profit attributable to equity holders of the parent Profit from continuing operations Discontinued operations Other restructuring items Profit for the year Minority interest Operating profit attributable to equity holders of the parent Consolidated – 2007 material (non-operating) items $000 – 32,675 (4,740) 27,935 – 27,935 Consolidated – 2006 material (non-operating) items $000 – 4,482 (8,368) (3,886) – (3,386) Operating $000 107,323 9,165 4,740 121,228 (367) 120,861 Operating $000 103,165 10,152 8,368 121,685 (579) 121,106 Total $000 107,323 41,840 – 149,163 (367) 148,796 Total $000 103,165 14,634 – 117,799 (579) 117,220 Nufarm Limited – Annual Report 2007 43 DIRECTORS’ REPORT CONTINUED Dividends The following dividends have been paid, declared or recommended since the end of the preceding financial year: The final dividend for 2005–06 of 20 cents paid 10 November 2006 The interim dividend for 2006–07 of 11 cents paid 27 April 2007 The final dividend for 2006–07 of 21 cents as declared and recommended by the directors is payable 9 November 2007 Nufarm Step-up Securities distribution payment The following Nufarm Step-up Securities distribution payment has been paid since the end of the preceding financial year: Distribution payment for the period 24 November 2006 – 15 April 2007 at the rate of 8.35 per cent per annum paid 16 April 2007 $000 34,251 18,894 36,015 8,184 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 8 to 13 and the business review on pages 16 to 23. State of affairs The state of the company’s affairs are set out in the managing director’s review on pages 8 to 13 and the business review on pages 16 to 23. Operations, financial position, business strategies and prospects The directors believe that information on the company, which enables an informed assessment of its operations, financial position, strategies and prospects, is contained in the managing director’s review and the business review. Events subsequent to reporting date On 26 September 2007 the directors declared a final dividend of 21c per share, fully franked, payable 9 November 2007. 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 22 to 23. 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. 44 Nufarm Limited – Annual Report 2007 DIRECTORS’ REPORT CONTINUED 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 in note 42 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 as the final page of this report. 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 include 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. Since 2000, the company has adopted a remuneration policy based on total target reward (TTR), which comprises two components: • fixed reward (TEC) – cash and benefits that reflect local market conditions and individual contribution. The reward level is set relative to pertinent and prevailing executive employment market conditions for high calibre talent in the geographies where Nufarm operates. The company’s policy position for TEC for Australian executives, is at the 50th percentile of the Mercer Survey of Australian Major Corporates; and • an incentive program – the first part of the incentive program reflects performance of specific business objectives over six monthly periods and is paid in cash. The second part of the incentive program is linked to meeting predetermined financial objectives for the full year and is delivered by way of shares under the Nufarm Executive Share Plan (2000). The exception is the managing director who is paid in cash because of the very substantial shareholding he currently controls in the company. Nufarm Limited – Annual Report 2007 45 DIRECTORS’ REPORT CONTINUED For the remaining executives this payment is made in shares, which ensures a longer term focus to achieve benefits consistent with the delivery of sustained growth of shareholder value. Share issues under the Nufarm Executive Share Plan (2000) are subject to forfeiture and dealing restrictions. Executives cannot deal on the shares for the period of between three and 10 years without board approval. An independent trustee holds the shares on behalf of the executives. Executives are not permitted to hedge any shares issued to them under the incentive program whilst they remain held in trust. If the financial objectives are achieved and each part of the incentive program is paid at 100 per cent, the TTR will meet the company’s TTR policy position of the upper quartile of the Mercer Survey of Australian Major Corporates. Set out below are details of the maximum payment for each part of the incentive program where there has been above target achievement of the incentive program performance condition. The performance condition for the incentive program is based on return on funds employed (ROFE) in the business. Return is calculated on the group’s earnings before interest and taxation and adjusted for any non-operating items. Funds employed are represented by shareholders’ funds plus total interest bearing debt. The company believes ROFE is an appropriate performance condition for the following reasons: • for many years the board has measured the company’s performance using ‘economic value added’ methodology. It is believed that if the company can consistently add economic value (a satisfactory margin above the cost of capital), then this will be recognised in share value; and • 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 level 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 with relevant comparator groups. Each year, the board reviews and establishes the performance hurdles for each part of the incentive program. The hurdles reflect targets for specific objectives and increasing company value, consistent with the company’s business and investment strategies. Since migration of the company to Australia in January 2000, the ROFE hurdles (target ROFE) for the first part of the incentive program have been progressively increased from 12 per cent to the current 16.5 per cent and, for the second part of the incentive, from 13.5 per cent to 17.25 per cent. 46 Nufarm Limited – Annual Report 2007 DIRECTORS’ REPORT CONTINUED At the end of each financial year the board: • assesses company performance against the ROFE hurdles to determine the percentage of any offer to be made under each part of the incentive program; and • reviews target ROFE for each part of the incentive program for the following financial period. For both parts of the incentives, 25 per cent of the incentives will be payable on achievement of 90 per cent of target ROFE with a linear progression to 100 per cent of the incentives on achievement of target ROFE and a maximum of 175 per cent of the incentives on achievement of 110 per cent of target ROFE. If less than 90 per cent of target ROFE is achieved, no incentives will be paid. The following table shows the proportion of incentives as a percentage of TTR. Managing director Key management personnel Percentage (%) target ROFE achieved <90 0 0 90 20 14 100 50 40 110 64 54 >110 64 54 Consequences of performance on shareholders’ wealth The board believes the following table demonstrates: • the consequences of the company’s performance on shareholder wealth; and • that the remuneration policy is generating the desired increase in shareholder wealth. In considering the consolidated entity’s performance and benefits for shareholders’ wealth, the remuneration committee and the board have regard to the following indices in respect of the current financial year and the previous four financial years. *Operating EBIT $m *ROFE achieved *EPS cents % per share rate Dividends paid $000 cents per share Dividend **Change in share price $ Share price 31 July ***Total shareholder return % 2003 2004 2005 2006 2007 131.9 142.2 196.6 211.2 217.8 14.0 15.7 19.8 17.8 16.6 41.3 47.1 60.5 60.3 59.2 20 23 26 27 31 27,976 33,656 40,548 45,879 53,145 0.99 1.72 4.08 (1.37) 4.31 4.39 6.09 10.15 8.80 13.10 21 54 63 (2.3) 40 * Numbers for 2005, 2006 and 2007 calculated in accordance with AIFRS. Numbers for 2003 and 2004 calculated in accordance with previous AGAAP. ** This column reflects the change in share price from 1 August to 31 July in the relevant financial year. *** Source: Goldman Sachs JBWere – Total Shareholder Return as at 30 June. Nufarm Limited – Annual Report 2007 47 DIRECTORS’ REPORT CONTINUED 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 2006 AGM, shareholders approved an aggregate of $1,200,000 per year (excluding superannuation costs). Set out below are details of the annual fees payable at 31 July 2007 (excluding superannuation costs). Chairman1 Deputy chairman1 Director board fee Chairman audit committee Chairman other board committees Member audit committee Member other board committees2 $240,000 $140,000 $ 95,000 $ 25,000 $10,000 $5,000 $2,500 1 The chairman, KM Hoggard and the deputy chairman, GDW Curlewis, receive no fees as members of any committee. 2 There is some common membership on the remuneration committee and nomination committee. Only one fee is paid where a director is a member of both committees. 48 Nufarm Limited – Annual Report 2007 DIRECTORS’ REPORT CONTINUED 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. Remuneration of directors and executives Details of the nature and amount of each major element of remuneration in respect of key management personnel, which includes each director of the company and each of the five named company executives and relevant group executives who receive the highest remuneration are: Nufarm Limited – Annual Report 2007 49 DIRECTORS’ REPORT CONTINUED In AUD Directors Non-executive KM Hoggard (Chairperson) GDW Curlewis (Deputy chairman) Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton Executive Director DJ Rathbone (Managing director) Executive Officers DA Pullan (Group general manager operations) RF Ooms (Group general manager chemicals) KP Martin (Chief financial officer) B Benson (Group general manager marketing) RG Reis (Group general manager corporate strategy and external affairs) R Heath (Company secretary) DA Mellody (Group general manager global marketing) Total compensation: key management personnel (consolidated) Total compensation: key management personnel (company) 50 Nufarm Limited – Annual Report 2007 Salary and fees $ Short term Cash bonus (vested) $ 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 192,000 192,000 112,000 101,500 76,000 76,000 94,333 91,000 78,500 78,500 – 39,250 21,500 86,000 1,015,250 950,797 435,450 410,156 416,483 393,103 398,928 389,262 406,158 337,265 300,405 272,367 209,086 202,470 246,350 198,642 4,002,443 3,818,312 574,333 664,250 – – – – – – – – – – – – – – 992,920 1,598,540 70,439 258,710 66,396 241,840 66,067 240,392 63,710 211,977 45,979 164,317 34,610 129,520 37,529 130,488 1,377,650 2,975,784 – – DIRECTORS’ REPORT CONTINUED Short term Non-monetary benefits $ Post-employment Share based payments Other long term Total Total $ Superannuation $ Equity settled $ $ $ – – – – – – – – – – – – – – 33,077 35,880 39,552 38,414 10,704 32,067 14,750 22,501 16,998 11,467 39,931 49,230 24,396 28,639 21,026 17,437 200,434 235,635 – – 192,000 192,000 112,000 101,500 76,000 76,000 94,333 91,000 78,500 78,500 – 39,250 21,500 86,000 2,041,247 2,585,217 545,441 707,280 493,583 667,010 479,745 652,155 486,866 560,709 386,315 485,914 268,092 360,629 304,905 346,567 5,580,527 7,029,731 574,333 664,250 24,000 24,000 42,000 36,000 9,500 9,500 11,333 11,000 9,750 9,750 88,250 49,000 75,000 10,500 14,709 13,804 85,960 80,970 67,919 76,992 74,530 63,325 40,852 39,405 39,102 36,554 41,151 39,854 23,557 10,577 647,613 511,231 259,833 149,750 48,000 48,000 – – 19,000 19,000 19,000 19,000 19,000 19,000 19,000 19,000 19,000 19,000 – – – – – – – – – – – – – – 264,000 264,000 154,000 137,500 104,500 104,500 124,666 121,000 107,250 107,250 107,250 107,250 115,500 115,500 – – 65,311 59,625 2,121,267 2,658,646 219,451 294,585 206,414 277,084 206,414 277,084 196,780 227,497 139,386 185,500 109,869 151,665 110,689 28,578 1,332,003 1,584,993 143,000 143,000 19,530 22,478 14,790 13,104 9,568 15,899 25,344 7,537 16,842 10,796 8,357 7,928 10,482 15,891 170,224 153,257 – – 870,382 1,105,313 782,706 1,034,190 770,257 1,008,463 749,842 835,148 581,645 718,764 427,469 560,076 449,633 401,613 7,730,367 9,279,212 977,166 957,000 Nufarm Limited – Annual Report 2007 51 DIRECTORS’ REPORT CONTINUED 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. 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 53 and forms part of the directors’ report for the financial year ended 31 July 2007. 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 26 September 2007 52 Nufarm Limited – Annual Report 2007 LEAD AUDITOR’S INDEPENDENCE DECLARATION U N D E R S E C T I O N 3 0 7 C O F T H E C O R P O R AT I O N S A C T 2 0 0 1 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 2007 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 26 September 2007 KPMG, an Australian partnership and a member firm of the KPMG network of independent member films affiliated with KPMG International, a Swiss cooperative. Nufarm Limited – Annual Report 2007 53 INCOME STATEMENTS F O R T H E Y E A R E N D E D 3 1 J U LY 2 0 0 7 Consolidated Company Note 2007 $000 2006 $000 2007 $000 2006 $000 Continuing operations Revenue Cost of sales Gross profit Other income Sales, marketing and distribution expenses General and administrative expenses Research and development expenses Results from operating activities Financial income Financial expenses Net financing costs Share of net profits of associates Profit before income tax Income tax expense 7 10 10 19 11 1,764,384 (1,268,723) 495,661 1,676,746 (1,193,455) 483,291 8,567 (186,019) (93,357) (30,000) 194,852 5,336 (59,770) (54,434) 9,914 (188,482) (95,835) (32,563) 176,325 7,995 (57,241) (49,246) 46,209 (31,018) 15,191 60,065 (5,502) (3,516) (529) 65,709 6,801 (8,736) (1,935) 34,313 (15,837) 18,476 47,803 (5,164) (3,196) (505) 57,414 20,215 (21,796) (1,581) 8,056 10,545 788 1,013 148,474 137,624 64,562 56,846 (41,151) (34,459) (1,448) (2,710) Profit from continuing operations 107,323 103,165 63,114 54,136 Discontinued operations Profit and loss of discontinued operations and gain on sale of discontinued operations (after tax) 12 41,840 14,634 – 6,624 Profit for the year 149,163 117,799 63,114 60,760 Attributable to: Equity holders of the parent Minority interest 148,796 367 117,220 579 63,114 – 60,760 – Profit for the year 149,163 117,799 63,114 60,760 Earnings per share Basic earnings per share Diluted earnings per share Continuing operations Basic earnings per share Diluted earnings per share 31 31 31 31 83.6 83.6 59.2 59.2 68.9 68.9 60.3 60.3 The income statements are to be read in conjunction with the attached notes. 54 Nufarm Limited – Annual Report 2007 BALANCE SHEETS A S AT 3 1 J U LY 2 0 0 7 Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets 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 Current 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 Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Share capital Reserves Retained earnings Equity attributable to equity holders of the company Nufarm Step-up Securities Minority interest TOTAL EQUITY Consolidated Company Note 2007 $000 2006 $000 2007 $000 2006 $000 15 16 17 18 13 16 19 20 21 23 24 22 15 25 26 27 18 29 13 26 21 27 29 30 30 30 30 30 30 92,377 787,909 477,404 27,348 – 1,385,038 51,269 524,164 432,023 6,172 23,909 1,037,537 15,336 22,966 271 93,577 333,777 580,721 7,225 1,053,873 2,438,911 12,716 812,336 360,061 15,328 23,956 11,983 – 1,236,380 92,092 34,893 31,742 14,653 173,380 1,409,760 1,029,151 240,886 9,192 531,124 781,202 246,932 1,017 1,029,151 17,738 224,886 503 57,140 285,738 296,406 – 882,411 1,919,948 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 1,217,759 702,189 240,760 23,891 436,530 701,181 – 1,008 702,189 15,034 235,182 14,721 11,651 – 276,588 – 8,341 307,214 1,079 5,034 24 – 321,692 598,280 2,667 119,217 – 317 14,096 – – 136,297 – 2 52 – 54 136,351 461,929 240,886 39,657 181,386 461,929 – – 461,929 10,739 452,112 13,598 377 – 476,826 – 7,724 247,213 1,137 3,892 17 – 259,983 736,809 23,574 62,357 190,258 358 8,199 – – 284,746 – 56 31 – 87 284,833 451,976 240,760 39,799 171,417 451,976 – – 451,976 The balance sheets are to be read in conjunction with the attached notes. Nufarm Limited – Annual Report 2007 55 STATEMENTS OF CASH FLOWS F O R T H E Y E A R E N D E D 3 1 J U LY 2 0 0 7 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 acquired intangibles and major product development expenditure Net cash from investing activities Cash flows from financing activities Proceeds from issue of Nufarm Step-up Securities (NSS) Proceeds from borrowings Repayment of borrowings Repayment of capital notes Advances to controlled entities Payment for interest rate cap on NSS Distribution to NSS holders Repayment of finance lease principal Dividends paid Net cash from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents 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 Consolidated Company Note 2007 $000 2006 $000 2007 $000 2006 $000 1,692,095 (1,539,715) 152,380 5,336 171 (59,770) (35,519) 62,598 1,750,257 (1,605,543) 144,714 8,132 2,599 (57,325) (35,221) 62,899 38 1,378 67,327 (63,231) 37,106 573 8,797 (40,156) (37,408) (22,866) 19,714 (44,583) (112,777) 244,915 409,977 (426,383) (195,228) – (3,755) (8,184) – (53,451) (32,109) – 402,539 (318,858) – – – – (897) (46,429) 36,355 79,130 (47,314) 31,816 6,801 53,335 (8,736) (6,766) 76,450 133 25,061 (1,433) – – 23,761 – – – – (20,498) – – – (53,145) (73,643) 41,066 (23,565) 17,501 20,215 46,042 (21,796) 1,410 63,372 96 – (2,416) – – (2,320) – – – – (9,582) – – – (45,879) (55,461) 50,203 (13,523) 26,568 5,591 31,329 45,393 (12,835) (20,497) (1,871) – 426 (967) (1,366) 2,071 – – 15 79,661 31,329 12,367 (12,835) The statements of cash flows are to be read in conjunction with the attached notes. 56 Nufarm Limited – Annual Report 2007 STATEMENTS OF RECOGNISED INCOME AND EXPENSE F O R T H E Y E A R E N D E D 3 1 J U LY 2 0 0 7 Items recognised directly in equity Foreign exchange translation differences for foreign operations Actuarial gains (losses) on defined benefit plans Cash flow hedges: Amounts taken to equity Foreign exchange movements taken to income statement Income tax on income and expense recognised directly in equity Income and expense recognised directly in equity Consolidated Company Note 2007 $000 2006 $000 2007 $000 2006 $000 30 30 30 30 30 (14,680) 693 (1) (248) 4,093 (713) – 20 27 (594) 574 – – – (50) – – (8) 58 – (10,540) (40) (51) (198) Profit for the year 149,163 117,799 63,114 60,760 Total recognised income and expense for the year 138,623 117,759 63,063 60,562 Attributable to: Equity holders of the parent Minority interest Total recognised income and expense for the year Prior period adjustment Impact of correction of prior period error on retained earnings Effects of change in accounting policy – financial instruments Equity holders of the parent Minority interest 138,308 315 117,221 538 63,063 – 60,562 – 138,623 117,759 63,063 60,562 43 – (7,177) – – – 574 – 574 – – – – – 58 – 58 Other movements in equity arising from transactions with owners are set out in note 30. The amounts recognised directly in equity are disclosed net of tax – see note 11 for tax effect. The statements of recognised income and expense are to be read in conjunction with the attached notes. Nufarm Limited – Annual Report 2007 57 NOTES TO THE FINANCIAL STATEMENTS 1. Reporting entity Nufarm Limited (the ‘company’) is domiciled in Australia. The consolidated financial statements of the company as at and for the year ended 31 July 2007 comprise the company and its subsidiaries (together referred to as the ‘group’) and the group’s interest in associates and jointly controlled entities. 2. Basis of preparation (a) Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASBs) (including Australian interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the group also complies with IFRS and interpretations adopted by the International Accounting Standards Board. The company’s financial report does not comply with IFRS as the company has elected to apply the relief provided to parent entities by AASB 132 Financial Instruments: Presentation and Disclosure in respect of certain disclosure requirements. The financial statements were approved by the board of directors on 26 September 2007. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • derivative financial instruments are measured at fair value; and • financial instruments at fair value through profit or loss are measured at fair value. The methods used to measure fair values are discussed further in note 4. (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the company’s functional currency. The company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 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. 58 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2. Basis of preparation continued (d) Use of estimates and judgements continued In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: • note 14 – business combinations; • note 21 – utilisation of tax losses; • note 24 – measurement of the recoverable amounts of cash-generating units and impairment of goodwill and indefinite life intangibles; and • notes 29 and 35 – provisions and contingencies. 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by group entities. The entity has elected to early adopt the following accounting standards and amendments: • AASB 101 Presentation of Financial Statements (October 2006); and • AASB 2007-4 Australian Additions to, and Deletions from, IFRS. In the prior year the group adopted AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139: Financial Instruments: Recognition and Measurement in accordance with the transitional rules of AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards. The change has been accounted for by adjusting the opening balance of retained earnings and reserves at 1 August 2005, as disclosed in the reconciliation of movements in equity (note 30). Certain comparative amounts have been reclassified to conform with the current year’s presentation. In addition, the comparative income statement has been re-presented as if an operation discontinued during the current period has been discontinued from the start of the comparative period (see note 12). (a) Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the group. Control exists when the group has the power 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 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. In the company’s financial statements, investments in subsidiaries are carried at cost. Nufarm Limited – Annual Report 2007 59 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (a) Basis of consolidation continued Associates Associates are those entities for which the group has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method. The consolidated financial statements include the group’s share of the income and expenses of associates, after adjustments to align the accounting policies with those of the group, from the date that significant influence commences until the date that significant influence ceases. When the group’s share of losses exceeds its interest in an associate, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the group has an obligation or has made payments on behalf of the associate. Joint controlled operations Joint ventures are those entities over whose activities the group has joint control, established by contractual agreement. The interest of the company and of the group in unincorporated joint ventures is 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. 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 financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated against the investment to the extent of the group’s interest in the entity. 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 when 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 group’s interest in such entities is disposed of. (b) Foreign currency 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 reporting 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. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency translation differences are recognised directly in equity. Since 1 August 2004, the group’s date of transition to AASBs, such differences have been recognised in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in FCTR is transferred to profit or loss. 60 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (b) Foreign currency continued Hedge of net investment in foreign operation Foreign currency differences arising on the re-translation of a financial liability designated as a hedge of a net investment in foreign operation are recognised directly in FCTR, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedge net investment is disposed of, the cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal. (c) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus any directly attributable transaction costs, except as described below. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial instrument is recognised if the group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the group’s contractual rights to the cash flows from the financial assets expire or if the group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date (i.e. the date the group commits itself to purchase or sell the asset). Financial liabilities are derecognised if the group’s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for finance income and expense is discussed in note 3(n). Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. Derivative financial instruments The group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. Nufarm Limited – Annual Report 2007 61 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (c) Financial instruments continued If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss. Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss as part of foreign currency gains and losses. Share capital Ordinary shares 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. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit. Hybrid securities The group has on issue a hybrid security called Nufarm Step-up Securities (NSS). The NSS are classified as equity instruments and distributions thereon are recognised as distributions within equity. Dividends Dividends on ordinary capital are recognised as a liability in the period in which they are declared. (d) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. The cost of property, plant and equipment at 1 August 2004, the date of transition to AIFRS, was determined on the basis of deemed cost, being the revalued amount at the date of that revaluation. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. 62 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (d) Property, plant and equipment continued Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Lease assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows: Buildings 15–20 years Leasehold improvements 5 years Plant and equipment 10–15 years Motor vehicles Computer equipment 5 years 3 years Depreciation methods, useful lives and residual values are reassessed at each reporting date. (e) Intangible assets Goodwill Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Acquisitions prior to 1 August 2004 As part of its transition to AASBs, the group elected not to restate those business combinations that occurred prior to 1 August 2004. In respect of acquisitions prior to 1 August 2004, goodwill represents the amount recognised under the group’s previous accounting framework, Australian GAAP. Acquisitions since 1 August 2004 For acquisitions since 1 August 2004, goodwill represents the excess of the cost of the acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. In respect of equity investments, the carrying amount of goodwill is included in the carrying amount of the investment. Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement when incurred. Nufarm Limited – Annual Report 2007 63 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (e) Intangible assets continued Research and development continued 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 group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials and direct labour. Other development expenditure is recognised in profit or loss when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. 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 group are measured at cost less accumulated amortisation and impairment losses. Expenditure on internally generated goodwill and brands is expensed when incurred. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss when incurred. Amortisation For those intangibles with a finite life, amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the assets. The estimated useful life for intangible assets with a finite life, in the current and comparative periods, are as follows: Capitalised development costs 5 years Intellectual property – finite life Over the useful life in accordance with the acquisition agreement terms Computer software 3 to 7 years (f) Leased assets Leases in terms of which the group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and, except for investment property, the leased assets are not recognised on the group’s balance sheet. (g) Inventories Inventories are measured at the lower of cost and net realisable value. 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. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 64 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (h) Impairment Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. Non-financial assets The carrying amounts of the group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. A cash generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of other assets in the unit on a pro-rata basis. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. 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. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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. Nufarm Limited – Annual Report 2007 65 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (i) Non-current assets held for sale Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the group’s accounting policies. Thereafter the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to inventories, financial assets, employee benefit assets and investment property, which continue to be measured in accordance with the group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. (j) Employee benefits Defined contribution superannuation funds Obligations for contributions to defined contribution superannuation plans are recognised as an expense in profit or loss when they are due. Defined benefit superannuation plans The group’s net obligation in respect of defined benefit superannuation 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 then reduced by any unrecognised past service costs and the fair value of any plan assets. The discount rate is the yield at the balance sheet date on government bonds that have maturity dates approximating the terms of the group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the group, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the fund. When the benefits of a fund are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss 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 profit or loss. All actuarial gains and losses are recognised directly in retained earnings. Other long term employee benefits The group’s net obligation in respect of long term employee 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 plus related on costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the group’s obligations. 66 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (j) Employee benefits continued Termination benefits Termination benefits are recognised as an expense when the group is demonstrably committed, without a realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted and the number of acceptances can be estimated reliably. Short term benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the group expects to pay as at reporting date including related on-costs, such as, workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services are expensed based on the net marginal cost to the group as the benefits are taken by employees. An accrual is recognised for the amount expected to be paid under short term cash bonus or profit sharing plans if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payment transactions The group has a global share plan for employees whereby matching and loyalty shares are granted to employees. The fair value of matching and loyalty shares granted is recognised as personnel expenses in the profit or loss over the respective service period, with a corresponding increase in equity, rather than as the matching and loyalty shares are issued. Refer note 28 for details of the global share plan. (k) Provisions A provision is recognised if, as a result of a past event, the group has a present legal or constructive obligation that can be estimated reliably, 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. A provision for restructuring is recognised when the group 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. (l) Revenue Goods sold Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. Nufarm Limited – Annual Report 2007 67 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (m) Lease payments Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense in the income statement and are spread over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense 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. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (n) Finance income and expense Finance income comprises interest income on funds invested, dividend income, available-for-sale financial assets, changes in the fair value of financial assets, changes in the fair value of financial assets classified as fair value through profit or loss, foreign exchange gains, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the group’s right to receive payment is established. Finance expense comprises interest expense on borrowings, unwinding of the discount on provisions, foreign currency losses, changes in the fair value of financial assets classified as fair value through profit or loss, impairment losses recognised on financial assets and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method. (o) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss 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 substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantially enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 68 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (o) Income tax continued 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 receivables/(payables) are at call. 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. (p) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST or equivalent), 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. Nufarm Limited – Annual Report 2007 69 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (p) Goods and services tax continued 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 relevant tax authorities are classified as operating cash flows. (q) Discontinued operations A discontinued operation is a component of the group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, 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. When an operation is classified as a discontinued operation, the comparative income statement is restated as if the operation had been discontinued from the start of the comparative period. (r) Earnings per share The group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potential dilutive ordinary shares, which comprise convertible notes and share options granted to employees. (s) Segment reporting A segment is a distinguishable component of the group that is engaged either in providing related 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 group’s primary format for reporting segment is based on geographic segments. (t) New standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 31 July 2007, but have not been applied in preparing this financial report: • 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 and will require additional disclosures with respect to the group’s financial instruments and share capital. 70 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. Significant accounting policies continued (t) New standards and interpretations not yet adopted continued • 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 and is expected to only impact disclosures contained within the consolidated financial report. • AASB 8 Operating Segments replaces the presentation requirements of segment reporting in AASB 114 Segment Reporting. AASB 8 is applicable for annual reporting periods beginning on or after 1 January 2009 and is not expected to have an impact on the financial results of the company and the group as the standard is only concerned with disclosures. • AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 makes amendments to AASB 5 Non-current Assets Held for Sale and Discontinued Operations, AASB 6 Exploration for and Evaluation of Mineral Resources, AASB 102 Inventories, AASB 107 Cash Flow Statements, AASB 119 Employee Benefits, AASB 127 Consolidated and Separate Financial Statements, AASB 134 Interim Financial Reporting, AASB 136 Impairment of Assets, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 2007-3 is applicable for annual reporting periods beginning on or after 1 January 2009 and must be adopted in conjunction with AASB 8 Operating Segments. This standard is only expected to impact disclosures contained within the financial report. • Interpretation 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. Interpretation 10 will become mandatory for the group’s 2008 financial statements, and will apply to goodwill, investments in equity instruments and financial assets carried at cost prospectively from the date that the group first applied the measurement criteria of AASB 136 and AASB 139 respectively. The adoption of Interpretation 10 will not impact the group’s financial statements as no impairment losses have been recorded to date. • Interpretation 11 AASB 2 Share-based payment – Group and Treasury Share Transactions addresses the classification of a share-based payment transaction (as equity or cash settled), in which equity instruments of the parent or another group entity are transferred, in the financial statements of the entity receiving the services. Interpretation 11 will become mandatory for the group’s 2008 financial report. Interpretation 11 is not expected to have any impact on the financial report. The potential effect of the Interpretation on the company’s financial report has not yet been determined. • AASB 2007-1 Amendments to Australian Accounting Standards arising from AASB Interpretation 11 amends AASB 2 Share-based Payments to insert the transitional provisions of IFRS 2, previously contained in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. AASB 2007-1 is applicable for annual reporting periods beginning on or after 1 March 2007 and is not expected to have any impact on the consolidated financial report. The potential impact on the company has not yet been determined. • Revised IAS 1 has been issued by the IASB but not by the AASB, and for the purposes of compliance is a standard on issue but not yet adopted. The impact of revised IAS 1 is not reasonably estimable at the reporting date. Nufarm Limited – Annual Report 2007 71 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4. Determination of fair values A number of the group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (i) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items. (ii) Intangibles assets The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. (iii) Inventories The fair value of inventory acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on effort required to complete and sell the inventory. (iv) Investments in equity securities The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date. The fair value of held-to-maturity investments is determined for disclosure purposes only. (v) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. A provision for impairment of trade receivables 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 low bad debts write-offs. 72 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4. Determination of fair values continued (vi) Derivatives The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. (vii) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements. (viii) Financial guarantees For financial guarantee contract liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. This method takes into account the probability of default by the guaranteed party over the term of the contract, the loss given default (being the proportion of the exposure that is not expected to be recovered in the event of default) and exposure at default (being the maximum loss at time of default). 5. Segment reporting Segment information is presented in respect of the group’s geographic segments. This the primary format of segment reporting based on the group’s management and internal reporting structure. The group 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, corporate assets and expenses and income tax assets and liabilities. Inter-segment pricing is determined on an arm’s length basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. Nufarm Limited – Annual Report 2007 73 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. Segment reporting continued Geographic segments 2007 Revenue Total segment revenue Results Segment result Unallocated corporate expenses Results 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 (net of tax) 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 Australasia $000 Europe $000 Americas $000 Consolidated $000 685,043 439,615 639,726 1,764,384 103,731 37,325 80,150 797,017 9,407 556,272 13,207 834,240 352 276,168 154,006 455,867 56,533 15,983 2,742 26,989 13,114 5,044 265,391 4,495 831 221,206 (26,354) 194,852 (54,434) 8,056 (41,151) 41,840 149,163 2,187,529 22,966 228,416 2,438,911 886,041 523,719 1,409,760 348,913 33,592 8,617 Capital expenditure includes the goodwill and intangibles resulting from the Agripec acquisition. These are included in the Americas region. 74 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. Segment reporting continued Geographic segments 2006 Revenue Total segment revenue Results Segment result Unallocated corporate expenses Results 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 Australasia $000 Europe $000 Americas $000 Consolidated $000 749,558 392,947 534,241 1,676,746 122,023 35,056 48,058 731,226 8,784 495,859 14,168 331,334 201,934 266,551 132,173 158,188 74,883 14,855 3,179 17,286 14,562 6,081 50,698 4,409 527 205,137 (28,812) 176,325 (49,246) 10,545 (34,459) 14,634 117,799 1,558,419 224,886 136,643 1,919,948 556,912 660,847 1,217,759 142,867 33,826 9,787 Nufarm Limited – Annual Report 2007 75 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 6. Items of material income and expense The following material items, net of tax,were included in the period result: Gain on sale of businesses Agripec impairment loss on trade receivables Other items, including restructuring CACI prior period tax Material items 7. Other income Dividends from wholly owned controlled entities Management fees from controlled entities Sundry income Total other income 8. Other expenses The following expenses were included in the period result: Depreciation and amortisation Impairment gain/(loss) on trade receivables Movement in stock obsolescence provision (increase)/decrease Restructuring costs 9. Personnel expenses Wages and salaries Other associated personnel expenses Contributions to defined contribution superannuation funds Expenses related to defined benefit superannuation funds Increase in liability for annual leave Increase in liability for long-service leave Consolidated 2007 $000 2006 $000 35,547 (4,606) (3,006) – 27,935 8,415 – (8,368) (3,933) (3,886) Consolidated Company 2007 $000 – – 8,567 8,567 2006 $000 – – 9,914 9,914 2007 $000 53,164 6,194 707 60,065 2006 $000 45,861 1,733 209 47,803 (42,209) 251 (43,613) (823) (138) (412) 631 (8,990) (595) – – – (319) – – – (146,156) (26,424) (151,167) (26,064) (4,474) (333) (2,065) (188) (6,133) (5,637) (604) (311) (3,122) (4,513) (1,891) (188,239) (1,804) (3,596) (1,835) (190,103) – (119) – (5,530) – (59) (21) (2,644) 76 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 10. 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 Consolidated Company 2007 $000 – 5,336 5,336 – (54,666) (5,103) (1) (59,770) 2006 $000 – 7,995 7,995 – (52,756) (4,476) (9) (57,241) 2007 $000 4,485 2,316 6,801 (8,727) (9) – – (8,736) 2006 $000 14,023 6,192 20,215 (21,695) (101) – – (21,796) Net financing costs (54,434) (49,246) (1,935) (1,581) 11. 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 73,187 306 73,493 (10,135) (1,341) (12,427) (23,903) 41,499 2,957 44,456 4,142 585 (7,434) (2,707) 1,428 1 1,429 19 – – 19 2,940 (120) 2,820 620 – – 620 Total income tax expense in income statement 49,590 41,749 1,448 3,440 Attributable to: Continuing operations Discontinued operations 41,151 8,439 49,590 34,459 7,290 41,749 1,448 – 1,448 2,710 730 3,440 Nufarm Limited – Annual Report 2007 77 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 11. Income tax expense continued Numerical reconciliation between tax expense and pre-tax net profit Profit before tax – continuing operations Profit before tax – discontinued operations Profit before tax Income tax using the local corporate tax rate of 30 per cent 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 Income tax expense on pre-tax net profit Income tax recognised directly in equity Relating to actuarial gains on defined benefit plans Relating to cost of issuing equity NSS distribution Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 148,474 50,279 198,753 137,624 21,924 159,548 64,562 – 64,562 56,846 7,354 64,200 59,626 47,864 19,369 19,260 3,302 1,171 (1,064) (3,489) (9,602) (660) 49,284 306 49,590 1,157 (1,928) (2,700) (3,471) 2,718 983 585 (4,383) (8,078) (897) 38,792 2,957 41,749 (29) – – (29) (139) 101 – – (17,884) – 1,447 1 1,448 – – – – 190 136 – – (16,026) – 3,560 (120) 3,440 – – – – 12. Discontinued operations Effective 31 July 2007, the group sold its stake in the Nufarm Coogee joint venture, which owns and operates two industrial chlor alkali plants in Western Australia. In the prior period, the group sold the Nuturf turf/specialty business, the French CACI industrial chemical business and the New Zealand based animal health business. 78 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 12. Discontinued operations continued Results of discontinued operation Revenue Expenses Results from operating activities Income tax expense Results from operating activities, net of income tax Gain on sale of discontinued operation Income tax expense Gain on sale of discontinued operations after tax Profit and loss of discontinued operations (per income statement) Cash flows from discontinuing operations Operating Investing Financing Net cash flows attributable to discontinuing operations Effect of the disposals on the financial position of the group Receivables Inventories Property, plant and equipment Intangibles Deferred tax asset Trade payables Employee benefits Income tax payable Finance lease liability Deferred tax liability Net identifiable assets and liabilities Consideration received, satisfied in cash Deferred consideration Cash disposed of Net cash (inflow) Other costs associated with disposal Gain on sale of discontinued operations before tax Consolidated 2007 $000 2006 $000 29,806 (16,703) 13,103 (3,938) 9,165 37,176 (4,501) 32,675 67,777 (53,303) 14,474 (4,322) 10,152 7,450 (2,968) 4,482 41,840 14,634 9,165 (384) (934) 7,847 2,824 403 13,917 – 3,914 (1,449) (742) (5,285) – (328) 13,254 51,000 – (489) 50,511 (81) 37,176 12,809 (3,892) (3,510) 5,407 2,330 3,317 19,735 499 1,948 (2,640) (731) – (881) (397) 23,180 8,138 25,061 (418) 32,781 (2,151) 7,450 Nufarm Limited – Annual Report 2007 79 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 13. Non-current assets held for sale There were no assets held for sale at the end of the financial period. The prior year included the chlor alkali business and the land and buildings at the Granollers site in Spain ($1,137,076). Assets classified as held for sale Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Deferred tax asset Liabilities classified as held for sale Trade and other payables Employee entitlements Provision for tax Deferred tax liability 14. Acquisition of subsidiaries Consolidated 2007 $000 2006 $000 – – – – – – – – – – – 1,423 3,510 523 14,681 3,772 23,909 7,881 816 4,175 553 13,425 Acquisitions during the year include the Agrosol crop protection business in Italy for 6.4 million (19 October 2006), and the remaining 50.1 per cent of Agripec Quimica e Farmaceutica SA (1 June 2007), a crop protection company based in Brazil. Agripec had previously been accounted for as an equity investment. In the period to 31 July 2007, these businesses contributed profits of $11,427,736 to the consolidated group after tax profit. If the above acquisitions had occurred on 1 August 2006, their full-year contribution to group revenues would have been $306,151,363 and to the consolidated entity’s profit after tax would have been $25,984,871. 80 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14. Acquisition of subsidiaries continued Recognised values $000 Fair value adjustments $000 Carrying amounts $000 Acquiree’s net assets at acquisition date 50,540 150,586 41,613 21,384 14,842 37,290 11,707 (88,927) (583) (34,585) (16,714) 187,153 Cash and cash equivalents Receivables Inventory Property, plant and equipment Intangibles Deferred taxes Other assets Trade and other payables Employee benefits Interest bearing loans and borrowings Other liabilities Net identifiable assets and liabilities Reversal of equity investment Acquisition costs Identifiable intangibles (registrations and trademarks) acquired on acquisition Goodwill on acquisition Consideration satisfied in cash Deferred consideration at balance date Cash (acquired) Net cash outflow/(inflow) 2007 – (448) 1,209 6,451 (29) – – – (19) – (5,488) 1,676 50,540 150,138 42,822 27,835 14,813 37,290 11,707 (88,927) (602) (34,585) (22,202) 188,829 (216,331) (570) 128,488 128,768 229,184 (218,750) (50,540) (40,106) Pre-acquisition carrying values were determined based on applicable accounting standards immediately before the acquisition. The value of assets, liabilities and contingent liabilities recognised on acquisition are their estimated fair values (see note 4 for methods used in determining fair values). 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 assets at the date of acquisition. Acquisitions during the prior year include: the remaining 50 per cent of Nugrain Pty Ltd, the remaining 50 per cent of Access Genetics Ltd, the Agrogen and FADA crop protection businesses in Colombia, the Nutrihealth business and the Dovuro business. Nufarm Limited – Annual Report 2007 81 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14. Acquisition of subsidiaries continued 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 at balance date Cash (acquired) Net cash outflow 15. 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 Recognised values $000 Fair value adjustments $000 2006 Carrying amounts $000 145 10,682 7,411 3,142 2,461 (9,415) (74) (175) (8,892) 5,285 – – 702 – – – – – – 702 145 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 Consolidated Company 2007 $000 8,704 83,673 92,377 (12,716) 2006 $000 12,483 38,786 51,269 (19,940) 2007 $000 15,034 – 15,034 (2,667) 2006 $000 10,739 – 10,739 (23,574) 79,661 31,329 12,367 (12,835) 82 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 16. Trade and other receivables Consolidated Company 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 Other receivables Proceeds receivable from sale of businesses Provision for non-collectibility of sale proceeds Total trade and other receivables 17. Inventories Raw materials Work in progress Finished goods Provision for obsolescence of finished goods Total inventories 2007 $000 2006 $000 666,617 (21,806) 644,811 – – 375 57,338 15,114 3,210 67,061 787,909 344 5,909 12,387 (3,304) 15,336 803,245 112,473 15,714 350,971 479,158 (1,754) 477,404 371,898 (3,243) 368,655 – – 444 52,836 18,286 33,763 50,180 524,164 602 754 19,850 (3,468) 17,738 541,902 82,421 21,563 332,177 436,161 (4,138) 432,023 2007 $000 4,877 – 4,877 50,390 177,256 – – – – 2,659 235,182 – – – – – 235,182 – 271 14,459 14,730 (9) 14,721 2006 $000 8,379 – 8,379 228,937 170,618 – – 18,048 25,061 1,069 452,112 – – – – – 452,112 – 323 13,480 13,803 (205) 13,598 18. Current tax assets and liabilities The current tax asset for the group of $27,347,565 (2006: $6,171,517) and for the company of $11,650,621 (2006: $376,750) 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 group of $23,955,941 (2006: $9,999,276) and the company of $14,096,247 (2006: $8,198,985) 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. Nufarm Limited – Annual Report 2007 83 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 19. Investments accounted for using the equity method The group accounts for investments in associates using the equity method. Effective 1 June 2007, Nufarm acquired the remaining 50.1 per cent of Agripec. Agripec’s results have been equity accounted from August 2006 through to May 2007, and are consolidated in the group results for the months of June and July 2007. The group had the following significant investments in associates during the year: Agripec Quimica e Farmaceutica SA Crop protection company Bayer CropScience Nufarm Limited Agricultural chemicals manufacturer Agricultural chemicals manufacturer Excel Crop Care Ltd Country Balance date of associate Ownership and voting interest 2007 2006 Brazil UK 31.12.2006 31.12.2006 100.0% 25% 49.9% 25% India 31.3.2007 14.69% 14.69% The 14.69 per cent 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 per cent of the shares of the company. The relationship also extends to manufacturing and marketing collaborations. Financial summary of material associates 2007 Bayer CropScience Nufarm Limited Excel Crop Care Ltd 2006 Agripec Quimica e Farmaceutica SA Bayer CropScience Nufarm Limited Excel Crop Care Ltd Revenues (100%) Profit after tax (100%) Total assets (100%) Total liabilities (100%) Net assets as reported by associates (100%) Share of associate’s net assets equity accounted 92,556 125,821 218,377 (3,876) 5,584 1,708 105,264 86,311 191,575 39,059 55,669 94,728 66,205 30,642 96,847 16,551 4,501 21,052 229,282 86,289 123,777 439,348 17,146 2,130 6,898 26,174 313,088 77,970 74,983 466,041 120,776 17,167 48,993 186,936 192,312 60,803 25,990 279,105 95,964 15,201 3,818 114,983 84 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 19. Investments accounted for using the equity method continued Consolidated 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 profit by major associate Agripec Quimica e Farmaceutica SA (to 31 May 2007) Bayer CropScience Nufarm Ltd Excel Crop Care Ltd Others Share of net profits of associates 20. Other investments 2007 $000 2006 $000 – 12,640 8,341 1,985 22,966 7,799 (969) 788 438 8,056 201,631 13,998 7,724 1,533 224,886 8,556 863 1,013 113 10,545 Investment in controlled entities Balance at the beginning of the year New investments during the year Balance at the end of the year Investment in other companies (at cost) Balance at the beginning of the year Exchange adjustment Disposals Reclassification to equity investment Reclassification to other receivables Balance at the end of the year Other investments Share purchase schemes Balance at the beginning of the year Exchange adjustment Movements in investments during the year Loans repaid during the year Balance at the end of the year Total other investments Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 – – – 233 (3) (167) (63) – – 270 – 1 – 271 271 – – – 1,013 36 – – (816) 233 930 5 100 (765) 270 503 247,213 60,001 307,214 247,213 – 247,213 – – – – – – – – – – – – – – – – – 307,214 – – – – – 247,213 Nufarm Limited – Annual Report 2007 85 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 21. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: 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) 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) Assets Liabilities Net 2007 $000 15,731 8,829 – 11,917 3,977 17,576 43,970 102,000 (8,423) 93,577 2006 $000 12,403 6,370 – 14,543 3,872 1,505 28,458 67,151 (10,011) 57,140 2007 $000 (11,376) (22,296) – – (69) (9,575) – (43,316) 8,423 (34,893) 2006 $000 (12,780) (18,991) (41) – (45) (6,242) – (38,099) 10,011 (28,088) 2007 $000 4,355 (13,467) – 11,917 3,908 8,001 43,970 58,684 – 58,684 Assets Liabilities Net 2007 $000 – – – 369 9 701 – 1,079 – 1,079 2006 $000 2 – – 121 67 947 – 1,137 – 1,137 2007 $000 2006 $000 (2) – – – – – – (2) – (2) (52) (4) – – – – – (56) – (56) 2007 $000 (2) – – 369 9 701 – 1,077 – 1,077 2006 $000 (377) (12,621) (41) 14,543 3,827 (4,737) 28,458 29,052 – 29,052 2006 $000 (50) (4) – 121 67 947 – 1,081 – 1,081 86 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 21. Deferred tax assets and liabilities continued Movement in temporary differences during the year Consolidated 2007 Property, plant and equipment Intangible assets Other investments Employee benefits Provisions Other items Tax value of losses carried forward Consolidated 2006 Property, plant and equipment Intangible assets Other investments Employee benefits Provisions Other items Tax value of losses carried forward Company 2007 Property, plant and equipment Intangible assets Employee benefits Provisions Other items Company 2006 Property, plant and equipment Intangible assets Other investments Employee benefits Provisions Other items Balance Recognised Recognised in income 31.07.06 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 (377) (12,621) (41) 14,543 3,827 (4,737) 28,458 29,052 3,785 (182) 41 (1,472) (291) 7,042 16,766 25,689 – – – (1,157) – 1,928 – 771 555 1,283 – (255) (127) 81 (985) 552 392 (1,947) – 258 499 3,687 (269) 2,620 Balance Recognised Recognised in income 31.07.05 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 1,989 (5,215) (177) 14,349 3,089 (3,083) 24,403 35,355 1,068 (6,842) 136 (177) 935 (2,045) 3,854 (3,071) – – – 90 – – – 90 (371) (252) – 234 68 (199) 798 278 (3,063) (312) – 47 (265) 590 (597) (3,600) Balance Recognised Recognised in income 31.07.06 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 (50) (4) 121 67 947 1,081 53 4 214 (59) (230) (18) – – – – – – (5) – 34 1 (16) 14 – – – – – – Balance Recognised Recognised in income 31.07.05 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 819 – (120) 190 155 654 1,698 (786) (4) 120 (50) (72) 293 (499) – – – – – – – (83) – – (19) (16) – (118) – – – – – – – Balance 31.07.07 $000 4,355 (13,467) – 11,917 3,908 8,001 43,970 58,684 Balance 31.07.06 $000 (377) (12,621) (41) 14,543 3,827 (4,737) 28,458 29,052 Balance 31.07.07 $000 (2) – 369 9 701 1,077 Balance 31.07.06 $000 (50) (4) – 121 67 947 1,081 Nufarm Limited – Annual Report 2007 87 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 21. Deferred tax assets and liabilities continued At 31 July 2007, a deferred tax liability of $23,789,596 (2006: $9,813,599) 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: Deductible temporary differences Tax losses Consolidated Company 2007 $000 – – – 2006 $000 1,292 2,878 4,170 2007 $000 2006 $000 – – – – – – 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. 22. Other non-current assets Balance at the beginning of the year Offset against borrowings on initial application of AASB 132 and AASB 139 Other Hedge asset Balance at the end of the year Consolidated Company 2007 $000 2006 $000 – 1,567 – 9 7,216 7,225 (1,567) – – – 2007 $000 2006 $000 – – – – – – – – – – The hedge asset is the market value of the interest rate cap relating to the NSS distribution base rate. 88 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23. Property, plant and equipment Consolidated Cost Balance at 1 August 2006 Additions Additions through business combinations Disposals Other transfers Exchange adjustment Balance at 31 July 2007 Depreciation and impairment losses Balance at 1 August 2006 Depreciation charge for the year Additions through business combinations Disposals Other transfers Exchange adjustment Balance at 31 July 2007 Land and Leased plant and Plant and buildings machinery machinery $000 $000 $000 151,790 1,080 22,408 (846) 15,466 (4,742) 185,156 (46,958) (4,952) (3,274) 340 (329) 1,587 (53,586) 440,619 10,226 9,647 (8,501) 30,389 (10,535) 471,845 (278,945) (28,650) (3,781) 8,692 162 5,118 (297,404) 2007 1,536 360 – – (548) 13 1,361 (776) (153) 167 – 167 (35) (630) Capital work in progress $000 18,472 51,565 2,668 – (45,307) (363) 27,035 – – – – – – – Total $000 612,417 63,231 34,723 (9,347) – (15,627) 685,397 (326,679) (33,755) (6,888) 9,032 – 6,670 (351,620) Net property, plant and equipment at 31 July 2007 131,570 174,441 731 27,035 333,777 Nufarm Limited – Annual Report 2007 89 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23. Property, plant and equipment continued Land and Leased plant and Plant and buildings machinery machinery $000 $000 $000 Consolidated 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) 2006 5,078 – 527 – (4,350) – 95 186 1,536 (2,366) (186) (156) (268) – 2,304 – (28) (76) (776) Capital work in progress $000 23,584 31,873 – (464) – (1,616) (35,046) 141 18,472 – – – – – – – – – – Total $000 649,896 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 Assets pledged as security for finance leases $0.7 million (2006: $0.8 million). There were no impairment losses in the consolidated entity in the current financial year or the comparative year. 90 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23. Property, plant and equipment continued Land and Leased plant and Plant and buildings machinery machinery $000 $000 $000 Company Cost Balance at 1 August 2006 Additions Disposals Other transfers Exchange adjustment Balance at 31 July 2007 Depreciation and impairment losses Balance at 1 August 2006 Depreciation charge for the year Disposals Other transfers Exchange adjustment Balance at 31 July 2007 2,209 564 (6) 131 235 3,133 (198) (74) 6 13 (22) (275) 3,178 550 (549) 187 338 3,704 (1,583) (511) 434 (13) (173) (1,846) Net property, plant and equipment at 31 July 2007 2,858 1,858 2007 – – – – – – – – – – – – – Land and Leased plant and Plant and buildings machinery machinery $000 $000 $000 Company 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) Net property, plant and equipment at 31 July 2006 2,011 1,595 2006 – – – – – – – – – – – – – – – Capital work in progress $000 286 319 – (318) 31 318 – – – – – – Total $000 5,673 1,433 (555) – 604 7,155 (1,781) (585) 440 – (195) (2,121) 318 5,034 Capital work in progress $000 3,053 1,676 – – (4,134) (309) 286 – – – – – – – Total $000 29,714 2,416 (136) (23,320) – (3,001) 5,673 (9,021) (317) (1,151) 81 7,586 1,041 (1,781) 286 3,892 There were no impairment losses in the company in the current financial year or the comparative year. Nufarm Limited – Annual Report 2007 91 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. Intangible assets Consolidated Cost Balance at 1 August 2006 Additions Additions through business combinations Disposals Other transfers Exchange adjustment Balance at 31 July 2007 Goodwill $000 Indefinite life $000 161,945 376 150,627 13,158 128,768 – 15,625 (7,426) 299,288 128,488 (5) (431) (6,087) 285,750 Amortisation and impairment losses Balance at 1 August 2006 Amortisation charge for the year Additions through business combinations Disposals Other transfers Exchange adjustment Balance at 31 July 2007 (61,917) – (10,606) – – – (15,194) 2,863 (74,248) – 1 – 342 (10,263) Intellectual Property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 2007 45,356 10 10,682 – 839 (1,014) 55,873 (21,063) (3,448) – – (1,004) 498 (25,017) 34,921 16,062 6,512 (1,582) – (1,207) 54,706 (11,297) (2,585) – 793 67 456 (12,566) 16,544 868 409,393 30,474 82 (74) 131 (421) 17,130 274,532 (1,661) 16,164 (16,155) 712,747 (8,104) (2,162) (112,987) (8,195) (55) 54 (33) 368 (9,932) (55) 848 (16,164) 4,527 (132,026) Intangibles carrying amount at 31 July 2007 225,040 275,487 30,856 42,140 7,198 580,721 92 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. Intangible assets continued Intellectual Property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 Consolidated 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 Goodwill $000 Indefinite life $000 130,360 – 94,928 34,513 28,581 – – 1,473 1,531 161,945 19,808 – – 428 950 150,627 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 (60,945) – – – – 63 (1,035) (61,917) (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 7,315 302,710 51,251 – (349) (830) (748) 251 16,544 (7,797) (1,896) (17) 210 827 748 (179) (8,104) 49,539 (349) (830) 1,490 5,582 409,393 (101,179) (8,511) (17) 210 827 (1,490) (2,827) (112,987) Intangibles carrying amount at 31 July 2006 100,028 140,021 24,293 23,624 8,440 296,406 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, they will be renewed by the relevant regulatory authorities and the underlying products will continue to be commercialised and available for sale in the foreseeable future. The company will 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. Nufarm Limited – Annual Report 2007 93 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. Intangible assets continued The group 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 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. The most significant item in goodwill and indefinite life intangibles relates to the Agripec business and amounts to $250 million. The balance of goodwill and indefinite life intangibles is spread across multiple CGUs, with no individual amount being material relative to the total intangibles at balance date. For the impairment testing of these assets, the carrying amount of the asset is compared to its recoverable amount at a CGU level. The group 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 per cent. The 10 per cent growth cap is the average growth achieved by the group in recent years. The cash flow is then discounted to a present value using a discount rate of 11.4 per cent. At 31 July 2007, the recoverable amount exceeded the carrying amount for all CGUs. Intellectual Property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 2007 – – – – – – – – – – – – – – – – 66 16 2 84 (49) (11) (60) 66 16 2 84 (49) (11) (60) 24 24 Goodwill $000 Indefinite life $000 Company Cost Balance at 1 August 2006 Additions Exchange adjustment Balance at 31 July 2007 Amortisation and impairment losses Balance at 1 August 2006 Amortisation charge for the year Balance at 31 July 2007 Intangibles carrying amount at 31 July 2007 – – – – – – – – – – – – – – – – 94 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. Intangible assets continued Goodwill $000 Indefinite life $000 Intellectual Property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 Company 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 25. 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 Payable in respect of Agripec acquisition Payables due to associated entities Hedge payables Securitisation payables Total payables 2006 – – – – – – – – – – – – – – – – – – – – 997 (830) (101) 66 (957) (17) 828 97 (49) 997 (830) (101) 66 (957) (17) 828 97 (49) 17 17 – – – – – – – – – – Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 386,950 – – 218,750 961 2,274 203,401 812,336 287,031 – – – 850 – 186,881 474,762 8,310 4,228 106,339 – – 340 – 119,217 9,253 19,396 33,708 – – – – 62,357 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. Amount that are to be collected on their behalf are included as part of trade receivables. Refer note 16. Nufarm Limited – Annual Report 2007 95 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 26 . Interest-bearing loans and borrowings This note provides information about the contractual terms of the group’s and the company’s interest-bearing loans and borrowings. Current liabilities Bank loans – unsecured Subordinated loans from controlled entities Capital notes Finance lease liabilities – secured Non-current liabilities Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured 2007 Financing facilities The group has access to the following facilities with a number of financial institutions. Bank loan facilities Other facilities Receivables securitisation-type facilities Total financing facilities 2006 Bank loan facilities Other facilities Subordinated debt facility Receivables securitisation-type facilities Total financing facilities Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 359,662 – – 399 360,061 313,898 – 181,649 260 495,807 90,955 854 283 92,092 106,539 248 225 107,012 – – – – – – – – – – 190,258 – – 190,258 – – – – Consolidated Company Accessible $000 Utilised $000 Accessible $000 Utilised $000 1,266,860 208 203,401 1,470,469 463,333 208 203,401 666,942 931,353 248 181,649 227,800 1,341,050 440,377 248 181,649 186,881 809,155 2,667 – – 2,667 23,574 – – – 23,574 2,667 – – 2,667 23,574 – – – 23,574 96 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 26 . Interest-bearing loans and borrowings continued Financing arrangements Capital notes The capital notes, with a face value of NZD$225,000,000 (2006: NZD$225,000,000), were repaid on 24 November 2006. The capital notes were repaid from the proceeds of the Nufarm Step-up Securities (see note 30). 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 36) are in excess of their related borrowings. Repayment of borrowings (excluding finance leases) Period ending 31 July, 2007 Period ending 31 July, 2008 Period ending 31 July, 2009 Period ending 31 July, 2010 No specified repayment date Consolidated Company 2007 $000 – 372,661 62,748 27,924 208 2006 $000 515,730 44,847 61,692 – 248 2007 $000 2006 $000 – – – – – – – – – – The obligations with no specified repayment date are repayable upon certain contingent events, which the directors believe will not occur in the foreseeable future. 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 Consolidated Company 2007 $000 452 302 19 773 (91) 682 2006 $000 280 200 42 522 (37) 485 2007 $000 2006 $000 – – – – – – – – – – – – Finance lease liabilities are secured over the relevant leased plant. Nufarm Limited – Annual Report 2007 97 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 26 . Interest-bearing loans and borrowings continued Average interest rates Capital notes coupon Nufarm Step-up Securities Bank loans Other loans Subordinated loans from controlled entities Finance lease liabilities – secured 27. 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 fund obligations Liability for long-service leave Total employee benefits Consolidated Company 2007 % 2006 % 2007 % 2006 % – 8.35 6.6 3.0 – 13.2 8.6 – 5.2 3.0 – 7.8 – – – – – – – – – – 9.2 – $000 $000 $000 $000 15,328 15,328 14,389 14,389 8,440 50,847 (39,732) 19,555 12,187 31,742 47,070 8,543 54,044 (35,477) 27,110 11,628 38,738 53,127 317 317 – – – – 52 52 369 358 358 – – – – 31 31 389 The consolidated entity makes contributions to defined benefit pension funds, in the UK, Holland, France and Indonesia, that provide defined benefit amounts for employees upon retirement. The company has no defined benefit pension funds. Historical information Present value of defined benefit obligation Fair value of plan assets Surplus/(deficit) Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets Consolidated 2007 $000 (59,287) 39,732 (19,555) 321 1,687 2006 $000 (62,587) 35,477 (27,110) 961 586 2005 $000 (57,881) 30,534 (27,347) 3,640 4,086 2004 $000 (56,466) 27,693 (28,773) 58 (433) 98 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. Employee benefits continued Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation Indonesia defined benefit plan inclusion 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 Consolidated 2007 $000 2006 $000 62,587 382 2,696 3,109 (5,087) 404 6 (932) (808) (1,166) – (1,904) 59,287 35,477 2,161 1,687 2,018 (409) (1,202) 39,732 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 The actual return on plan assets is the sum of the expected return and the actuarial gain. Nufarm Limited – Annual Report 2007 99 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. Employee benefits continued Expense recognised in profit or loss Current service costs Interest on obligation Expected return on fund assets Past service cost Plan changes Losses/(gains) on curtailment The expense is recognised in the following line items in the income statement: Cost of sales Sales, marketing and distribution expenses General and administrative expenses Research and development expenses Actuarial gains/(losses) recognised directly in equity (net of tax) Cumulative amount at 1 August Recognised during the period Cumulative amount at 31 July The major categories of fund assets as a percentage of total fund assets are as follows: European equities European bonds Property Cash Consolidated 2007 $000 2006 $000 2,696 3,109 (2,161) 6 404 (932) 3,122 1,776 617 583 146 3,122 (713) 4,093 3,380 2,726 2,657 (1,687) – (631) (1,261) 1,804 911 455 382 56 1,804 – (713) (713) 58.7% 31.3% 2.8% 7.2% 60.8% 30.1% 2.8% 6.3% 100 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. Employee benefits continued Principal actuarial assumptions at the reporting date (expressed as weighted averages): Discount rate at 31 July Expected return on fund assets at 31 July Future salary increases Future pension increases Consolidated 2007 % 2006 % 5.5% 6.6% 3.4% 2.9% 4.9% 6.0% 3.4% 2.8% The overall expected long term rate of return on assets is 6.6 per cent. 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. The group expects to pay $3,273,000 in contributions to defined benefit plans in 2008. 28. 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 per cent 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 $21,740 at 31 July 2007 (2006: $65,341). Each executive is entitled to exercise voting rights attached to the shares allocated. At 31 July 2007 the trustees of the Executive Share Purchase Scheme (1984) held 25,000 (2006: 50,000) ordinary shares, all of which were allocated. There are four remaining participants (2006: four 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 2007 there were 63 participants (2006: 58 participants) in the scheme and 1,635,832 shares (2006: 1,512,224) were allocated and held by the trustee on behalf of the participants. The cost of issuing shares is expensed in the year of issue. Nufarm Limited – Annual Report 2007 101 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 28. Share-based payments continued 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 per cent of the number of ordinary shares acquired with a participant’s contribution in the form of additional ordinary shares. Amounts over 10 per cent 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 per cent 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 2007 there were 751 participants (2006: 824 participants) in the scheme and 1,527,135 shares (2006: 1,703,775) were allocated and held by the trustee on behalf of the participants. The cost of the Global Share Plan expensed for the year ended 31 July 2007 was $1,241,729 (2006: $2,647,798). The power of appointment and removal of the trustees for the share purchase schemes is vested in the company. 102 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED – – – – – – – Total $000 15,599 8,751 (4,228) (1,746) – 9,350 (1,090) 26,636 29. Provisions Current Restructuring Other Provision for dividends Non-current Other Total provisions Consolidated Company 2007 $000 2006 $000 2007 $000 128 7,083 4,772 11,983 14,653 14,653 26,636 2006 $000 3,700 – – 3,700 11,899 11,899 15,599 – – – – – – – Movement in provisions Balance at 1 August 2006 Provisions made during the year Provisions used during the year Provisions reversed during the year Transfer Provisions acquired through business combinations Exchange adjustment Balance at 31 July 2007 Consolidated Dividends Restructuring $000 $000 Other provisions $000 – – – – – 4,772 – 4,772 3,700 2,751 (4,228) – (1,958) – (137) 128 11,899 6,000 – (1,746) 1,958 4,578 (953) 21,736 The provision for dividends is for Agripec dividends declared prior to the purchase of the remaining 50.1 per cent. The restructuring provision relates to taxes to be paid on the sale of the Granollers site in Spain. The other provisions consist of deferred payments for business acquisitions ($15.2 million), contingent liabilities recognised with the Agripec acquisition ($4.6 million) and provisions for employee litigation in France ($1.9 million). Nufarm Limited – Annual Report 2007 103 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves Reconciliation of movements in capital and reserves attributable to equity holders of the parent Share capital $000 Translation reserve $000 Capital profit reserve $000 219,049 (10,450) 33,603 Consolidated Balance at 1 August 2005 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 – – – – – – – – – – – – Balance at 31 July 2006 240,760 (9,716) Balance at 1 August 2006 240,760 (9,716) Foreign exchange translation differences Foreign exchange movement taken to hedging reserve Actuarial gains/(losses) on defined benefit plans Share issued to employees Accrual and issue of shares under 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 Issue of Nufarm Step-up Securities Distributions to Nufarm step-up security holders – – – – – 99 27 – – – – – – (14,628) – – – – – – – – – – – – – – – – – – – – 24 – – – – 33,627 33,627 – – – – – – – – – – – – – Balance at 31 July 2007 240,886 (24,344) 33,627 104 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued Hedging reserve $000 Other reserve $000 Retained earnings $000 Nufarm Step-up Securities $000 – – 574 (594) – – – – – – – – – – (20) (20) – 20 – – – – – – – – – – – – 242 – – – – – – – – – (242) – – – – – – – – – (91) – – – – – – – – 365,660 – – – (713) – – – – – 242 117,220 (45,879) – 436,530 436,530 – – 4,093 – – – – – 334 148,796 (53,145) – (5,484) – – – – – – – – – – – – – – – – – – – – – – – – – – – 246,932 – Minority interest $000 Total equity $000 5,966 614,070 (41) – – – – – – – – – 693 574 (594) (713) 1,065 2,647 17,972 27 24 – 579 117,799 (551) (4,945) (46,430) (4,945) 1,008 702,189 1,008 702,189 (52) – – – – – – – – (14,680) 20 4,093 – (91) 99 27 – 334 367 149,163 (306) – – (53,451) 246,932 (5,484) (91) 531,124 246,932 1,017 1,029,151 Nufarm Limited – Annual Report 2007 105 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued Reconciliation of movements in capital and reserves attributable to equity holders of the parent Company Balance at 1 August 2005 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 Balance at 31 July 2006 Balance at 1 August 2006 Foreign exchange translation differences Change in accounting policy for financial instruments Foreign exchange movement taken to hedging reserve Share issued to employees Accrual and issue of shares under global share plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Profit for the period Dividends paid to shareholders Share capital $000 219,049 – – – 1,065 2,647 17,972 27 – – 240,760 240,760 – – – – – 99 27 – – Translation reserve $000 (77) (248) – – – – – – – – (325) (325) (1) – – – – – – – – Capital profit reserve $000 40,074 – – – – – – – – – 40,074 40,074 – – – – – – – – – Balance at 31 July 2007 240,886 (326) 40,074 106 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued Hedging reserve $000 Other reserve $000 Retained earnings $000 Nufarm Step-up Securities $000 Minority interest $000 – – 58 (8) – – – – – – 50 50 – – (50) – – – – – – – – – – – – – – – – – – – – – – – (91) – – – – 156,536 – – – – – – – 60,760 (45,879) 171,417 171,417 – – – – – – – 63,114 (53,145) (91) 181,386 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total equity $000 415,582 (248) 58 (8) 1,065 2,647 17,972 27 60,760 (45,879) 451,976 451,976 (1) – (50) – (91) 99 27 63,114 (53,145) 461,929 Nufarm Limited – Annual Report 2007 107 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued Share capital Balance at 1 August Issue of shares Balance at 31 July Company Number of ordinary shares 2007 Number of ordinary shares 2006 171,492,251 169,671,874 1,820,377 171,492,251 9,002 171,501,253 In May 2006, Nufarm acquired the shares of Nutrihealth Pty Ltd. Dr John Stocker, a director of Nufarm, was a minority shareholder of Nutrihealth. In accordance with the purchase agreement, Dr Stocker was allocated 9,002 ordinary shares in respect of his Nutrihealth shares. These shares were issued on 8 December 2006, after the issue was approved by the shareholders at the company’s 2006 annual general meeting. 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. 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. Nufarm Step-up Securities In the year ended 31 July 2007 Nufarm Finance (NZ) Limited, a wholly owned subsidiary of Nufarm Limited, issued a new hybrid security called Nufarm Step-up Securities (NSS). The NSS are perpetual step up securities and on 24 November 2006, 2,510,000 NSS were allotted at an issue price of $100 per security raising $251 million. The NSS are listed on the ASX under the code ‘NFNG’ and on the NZDX under the code ‘NFFHA’. The after-tax costs associated with the issue of the NSS, totalling $4.1 million, have been deducted from the proceeds. Distributions on the NSS are at the discretion of the directors and are floating rate, unfranked, non-cumulative and subordinated. However, distributions of profits and capital by Nufarm Limited are restricted if distributions to NSS holders are not made, until such time that Nufarm Finance (NZ) Limited makes up the arrears. The first distribution date for the NSS was 16 April 2007 and on a six-monthly basis after this date. The floating rate is the average mid-rate for bills with a term of six months plus a margin of 1.90 per cent. The step-up date is five years from issue date, and provides the issuer with the following options: (a) keep the NSS on issue whereby the margin will be reset or step up by the step-up margin; or (b) redeem the NSS for face value, or exchange them for a number of ordinary shares in Nufarm. The exchange ratio is calculated based on the average market price of Nufarm ordinary shares for 20 business days prior to exchange date less a 2.5 per cent discount. 108 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued 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. Dividends Dividends recognised in the current year by the company are: 2007 Interim 2007 ordinary Final 2006 ordinary Total amount 2006 Interim 2006 ordinary Final 2005 ordinary Total amount Cents per share Total amount $000 Franked/ unfranked Payment date 11.0 20.0 10.0 17.0 18,894 34,251 53,145 16,994 28,885 45,879 Franked Franked 27-Apr-07 10-Nov-06 Franked Franked 28-Apr-06 11-Nov-05 Dividends paid on ordinary shares during the year were franked at the tax rate of 30 per cent. Distributions recognised in the current year by Nufarm Finance (NZ) Ltd on the Nufarm Step-up Securities are: Distribution rate Total amount $000 Payment date Nufarm Step-up Securities distribution 8.35% 8,184 16-Apr-07 The distribution on the Nufarm Step-up Securities reported on the equity movement schedule has been reduced by the tax benefit on the gross distribution, giving an after-tax amount of $5.484 million. Nufarm Limited – Annual Report 2007 109 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30. Capital and reserves continued 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 per cent (2006: 30 per cent) Franking credits that will arise from the payment of income tax payable as at the end of the year Balance at 31 July 2007 Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 13,163 22,800 13,163 22,800 (2,769) 10,394 3,893 26,693 (2,769) 10,394 3,893 26,693 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 $15,435,113 (2006: $14,699,336). In accordance with the tax consolidation legislation, the company as the head entity in the tax consolidated group has also assumed the benefit of $10,394,000 (2006: $26,693,000) franking credits. 31. Earnings per share Net profit for the year Net profit attributable to minority interest Net profit attributable to equity holders of the parent Nufarm Step-up Securities distribution Earnings used in the calculations of basic and diluted earnings per share Earnings from continuing operations Earnings from discontinued operations Consolidated 2007 $000 149,163 (367) 148,796 (5,484) 2006 $000 117,799 (579) 117,220 – 143,312 117,220 101,472 41,840 143,312 102,586 14,634 117,220 Subtract items of material income/(expense) (refer note 6) Earnings excluding items of material income/(expense) used in the calculation of operating earnings per share 27,935 (3,886) 115,377 121,106 For the purposes of determining basic and diluted earnings per share, the after tax distributions on NSS are deducted from net profit. 110 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 31. Earnings per share continued 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 Number of shares 2007 2006 171,498,071 170,224,284 171,498,071 170,224,284 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 discontinued operations Diluted earnings per share From continuing operations From discontinued operations Earnings per share (excluding items of material income/expense – see note 6) Basic earnings per share Diluted earnings per share Cents per share 2007 2006 59.2 24.4 83.6 59.2 24.4 83.6 67.3 67.3 60.3 8.6 68.9 60.3 8.6 68.9 71.1 71.1 32. Financial instruments Exposure to credit, interest rate and currency risks arises in the normal course of the group’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 group. 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 derivatives in the balance sheet. Nufarm Limited – Annual Report 2007 111 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 32. Financial instruments continued In Brazil, Agripec uses barter transactions to partially offset the customer credit risk by allowing settlement through the delivery of soybeans from the customer’s crop. Options are taken out on the soybean price to hedge movements in the soybean price between the date of sale and the date of settlement. Interest rate risk The group 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. There were no interest rate swaps in place at 31 July 2007. The group measures interest rate swaps at fair value, with the movements in fair value reflected in the profit or loss. At 31 July 2007, the group had no interest rate swaps in place (2006: $20,000,000). The net fair value of swaps at 31 July 2006, recognised as fair value derivatives, was $238,000. Cash flow risk on Nufarm Step-up Securities The group uses interest rate caps to protect the cash flow impact of a movement in the distribution base rate. The distribution rate is the average mid-rate for bank bills with a term of six months plus a margin of 1.90 per cent. 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 Effective interest rate % Note Total $000 Less than 1 year $000 1–2 years $000 More than 2 years $000 2007 15 6.8 92,377 92,377 – – Financial liabilities Unsecured debt Bank overdrafts Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured 15 26 26 26 7.3 6.6 3.0 13.2 12,716 450,617 854 682 464,869 12,716 359,662 – 399 372,777 – 62,748 – 266 63,014 – 28,207 854 17 29,078 112 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 32. Financial instruments continued Consolidated Financial assets Cash and cash equivalents Effective interest rate % Note Total $000 Less than 1 year $000 1–2 years $000 More than 2 years $000 2006 15 4.4 51,269 51,269 – – Financial liabilities Unsecured debt Bank overdrafts Bank loans – unsecured Other loans – unsecured Interest rate swaps Capital notes Finance lease liabilities – secured 15 26 26 26 26 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 – 44,847 – – – 186 45,033 – 61,692 248 – – 39 61,979 Effective interest rate % Note Total $000 Less than 1 year $000 1–2 years $000 More than 2 years $000 Company Financial assets Cash and cash equivalents Financial liabilities Bank overdrafts 15 15 2007 8.25 15,034 15,034 9.5 2,667 2,667 2,667 2,667 – – – – – – Effective interest rate % Note Total $000 Less than 1 year $000 1–2 years $000 More than 2 years $000 Company Financial assets Cash and cash equivalents Financial liabilities Bank overdrafts Subordinated loans from controlled entities 15 15 26 2006 7.25 10,739 10,739 9.5 23,574 23,574 9.2 190,258 213,832 190,258 213,832 – – – – – – – – Nufarm Limited – Annual Report 2007 113 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 32. Financial instruments continued Foreign currency risk The group 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 reporting date. The group uses foreign exchange contracts to hedge the foreign currency exposures between the Nufarm Step-up Securities issued in Australia and New Zealand, and related group funding to several jurisdictions to which the funds were advanced. The foreign exchange contracts cover the exposure on the principal advanced to group companies in US Dollars, the Euro, the British Pound and the Canadian Dollar. In the current year, the group discontinued cash flow hedging with all movements in fair value recognised in profit or loss during the period. The net fair value of forward exchange contracts in the group used as hedges of forecasted transactions at 31 July 2007 was $2,187,491 (2006: $353,309) comprising assets of $95,294 (2006: $194,164) and liabilities of $2,282,785 (2006: $547,472) that were recognised as derivatives measured at fair value. The net fair value of forward exchange contracts in the company at 31 July 2007 was $340,150 (2006: $194,164) comprising liabilities of $340,150 (2006: $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: Consolidated Cash and cash equivalents Trade and other receivables Interest rate cap: Carrying amount 2007 $000 Note Fair value 2007 $000 15 16 92,377 788,131 92,377 788,131 Payable maturities – one to five years 22 7,225 7,225 Forward exchange contracts: Receivables – less than one year Payables – less than one year Forward exchange contracts 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 114 Nufarm Limited – Annual Report 2007 16 25 86 (2,274) 86 (2,274) 16 15 26 26 26 26 – 15,028 (12,716) (450,617) (854) – (683) 435,703 – 15,028 (12,716) (450,617) (854) – (683) 435,703 – Carrying amount 2006 $000 51,269 523,616 238 194 (547) 17,854 – (19,940) (420,437) (248) (181,649) (485) (30,135) Fair value 2006 $000 51,269 523,616 238 194 (547) 17,854 – (19,940) (420,437) (248) (181,351) (485) (29,837) (298) NOTES TO THE FINANCIAL STATEMENTS CONTINUED 32. Financial instruments continued Company Note Cash and cash equivalents Trade and other receivables Receivables due from controlled entities Loans due from controlled entities Forward exchange contracts: 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 Bank overdraft Subordinated loans from controlled entities Unrecognised (losses)/gains Estimation of fair values 15 16 16 16 25 16 15 26 Carrying amount 2007 $000 15,034 7,536 50,390 177,256 Fair value 2007 $000 15,034 7,536 50,390 177,256 Carrying amount 2006 $000 10,739 34,509 228,937 170,618 Fair value 2006 $000 10,739 34,509 228,937 170,618 (340) (340) 194 194 – (2,667) – 247,209 – (2,667) – 247,209 – 17,854 (23,574) (190,258) 249,019 17,854 (23,574) (190,258) 249,019 – The methods used in determining the fair values of financial instruments are discussed in note 4. Interest rates used for determining fair value The average interest rates used for determining fair value are: Derivatives Capital notes 33. Operating leases Non-cancellable operating lease rentals are payable as follows: Not later than one year Later than one year but not later than two years Later than two years but not later than five years Later than five years 2007 6.0% – 2006 5.0% 9.4% Consolidated Company 2007 $000 5,726 4,560 9,801 4,664 24,751 2006 $000 7,390 5,133 9,520 10,415 32,458 2007 $000 – – – – – 2006 $000 214 104 92 – 410 Nufarm Limited – Annual Report 2007 115 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 33. Operating leases continued 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. 34. Capital and other commitments Capital expenditure commitments Plant and equipment Contracted but not provided for and payable: Within one year 35. Contingencies Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 17,717 10,005 – – The directors are of the opinion that provisions are not required in respect of the following 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. Guarantee facility for Eastern European joint ventures with FMC Corporation. 5,680 7,312 – – Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 The parent entity has provided a guarantee to note holders in respect of the issuers’ obligations under the capital notes. Environmental claim warranty: Environmental guarantee given to the purchaser of land and buildings at Genneviliers for EUR 8.5 million. The guarantee expires in 2014, 18 months after the expiry of the business tenancy contract. Guarantee upon sale of a business limited to EUR 2.74 million on account of possible remediation costs for soil and groundwater contamination. This guarantee decreases from 2004 progressively to nil in 2011. – – – 181,892 13,710 14,167 4,419 23,809 5,850 27,329 – – – – – 181,892 116 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 36. Group entities Parent entity Nufarm Limited – ultimate controlling entity Subsidiaries Abel Lemon and Company Pty Ltd (liquidated) Access Genetics Pty Ltd ACN000425927 Pty Ltd (formerly Nuturf Pty Ltd) Agcare Biotech Pty Ltd Agchem Receivables Corporation Agripec Quimica e Farmaceutica SA Agrogen Nufarm de Colombia S.A. (formerly Nufarm Colombia Ltda) Agroquimicos Genericos S.A. (merged into Agrogen Nufarm de Colombia S.A.) Agryl Holdings Limited Ag-seed Research Pty Ltd Artfern Pty Ltd Australis Services Pty Ltd Bestbeech Pty Ltd (formerly Captec Pty Ltd) CFPI GmbH (liquidated) Germany Chemicca Limited Chemturf Pty Ltd (liquidated) Chloral Investment Trust (sold July 2007) Chloral Unit Trust No1 (sold July 2007) Chloral Unit Trust No2 (sold July 2007) Clama s.a.s (merged into Nufarm Holdings s.a.s) CNG Holdings BV CNZL Limited (formerly Captec (NZ) Limited and later amalgamated into Nufarm Holdings (NZ) Limited) Crop Care Australasia Pty Ltd Crop Care Holdings Limited Croplands Equipment Limited Croplands Equipment Pty Ltd CSRPAR Participacoes LTDA Danestoke Pty Ltd Electronic Agriculture Limited (liquidated) Fada S.A. (merged into Agrogen Nufarm de Colombia S.A.) Fchem (Aust) Limited Fchem Limited (amalgamated into Nufarm Holdings (NZ) Limited) Fernz Canada Limited Notes Place of incorporation Percentage of shares held 2006 2007 (a) (a),(b) (b) (a),(b) (a) (a) (a) (a) (a) (a) (b) (a),(b) (b) (a),(b) (a) (a),(b) (b) (b) Australia Australia Australia Australia USA Brazil Colombia Colombia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia France Netherlands New Zealand Australia New Zealand New Zealand Australia Brazil Australia Australia Colombia Australia New Zealand Canada – 100 100 70 40 100 100 – 100 100 100 100 100 – 100 – – – – – 100 – 100 100 100 100 100 100 – – 100 – 100 100 100 100 70 40 49.9 100 100 100 100 100 100 100 100 100 100 80 80 80 100 100 100 100 100 100 100 – 100 100 100 100 100 100 Nufarm Limited – Annual Report 2007 117 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 36. Group entities continued Fernz Singapore Pte Ltd Fidene Limited Finotech BV Framchem SA Frost Technology Corporation Health & Science Limited (amalgamated into Nufarm Holdings (NZ) Limited) Inpar s.a.s (merged into Nufarm Holdings s.a.s) Interferon Limited (liquidated) Interferon NZ Limited (amalgamated into Nufarm Holdings (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 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 N. Medisup Securities Limited Neuchatel Pty Ltd (liquidated) 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 Coogee Pty Ltd (sold July 2007) Nufarm Crop Products UK Limited 118 Nufarm Limited – Annual Report 2007 Notes Place of incorporation Percentage of shares held 2006 2007 (b) (b) (b) (b) (b) (a) (b) (b) (b) (b) (b) (b) (b) (a),(b) (a) (b) (b) (b) (b) (a),(b) (b) (b) Singapore New Zealand Netherlands Egypt USA New Zealand France Australia New Zealand France France France Malaysia USA Guatemala Mexico USA Australia Malaysia Australia Malaysia Malaysia Antillies Australia Australia Singapore South Africa Canada USA Zimbabwe USA USA Malaysia Australia Netherlands China Chile Australia UK 100 100 100 100 100 – – – – 100 100 100 100 100 100 100 100 70 70 70 70 70 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 70 70 70 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 36. Group entities continued Notes Place of incorporation Percentage of shares held 2006 2007 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 (liquidated) Nufarm Espana SA Nufarm Finance (NZ) Limited (formerly Fernz Corporation (NZ) Limited) 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 Italia srl Nufarm Italia Holding srl Nufarm KK Nufarm Labuan Pte Ltd Nufarm Malaysia Sdn Bhd Nufarm Materials Limited Nufarm NZ Limited Nufarm Platte Pty Ltd Nufarm Portugal LDA Nufarm s.a.s Nufarm SA Nufarm Specialty Products Inc (liquidated) Nufarm Srl 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 Grains Pty Ltd (b) (a) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (a),(b) (b) (b) (b) (b) (b) (a),(b) (b) Costa Rica Guatemala Mexico Panama Venezuela Ecuador Germany Brazil Australia Spain New Zealand Germany Austria Austria New Zealand Netherlands France USA Singapore Netherlands Italy Italy Japan Malaysia Malaysia Australia New Zealand Australia Portugal France Argentina USA Romania Malaysia New Zealand Australia Australia United Kingdom Australia Australia Australia 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 100 100 100 100 100 100 100 – 51 100 100 100 100 100 100 100 Nufarm Limited – Annual Report 2007 119 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 36. Group entities continued Nutrihealth Pty Ltd Opti-Crop Systems Pty Ltd Pacific Raw Materials Australia Pty Ltd (liquidated) Pacific Raw Materials Limited (liquidated) Pharma Pacific Pty Ltd PT Crop Care PT Nufarm Indonesia Rockmere Pty Ltd (liquidated) Safepak Industries Sdn Bhd Selchem Pty Ltd TPL Limited Notes Place of incorporation Percentage of shares held 2006 2007 (b) (a) (a) (b) (a) (a) (b) Australia Australia Australia New Zealand Australia Indonesia Indonesia Australia Malaysia Australia New Zealand 100 75 – – 100 100 100 – 70 100 100 100 75 100 100 100 100 100 100 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 24 October 1996 (as amended on 26 April 1999, 26 January 2000 and 9 October 2003) 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. 37. Deed of cross guarantee Pursuant to ASIC Class Order 98/1418 dated 13 August 1998, the wholly owned subsidiaries referred to in note 37 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and director’s 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. 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 2007 is set out as follows: 120 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 37. Deed of cross guarantee continued 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 Current tax assets 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 Current tax payable Liabilities classified as held for sale Total current liabilities Non-current liabilities Interest bearing loans and borrowings Deferred tax liabilities Employee benefits Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Share capital Reserves Retained earnings TOTAL EQUITY Consolidated 2007 $000 2006 $000 81,236 (12,021) 69,215 283,660 – (53,145) 299,730 12,543 238,460 185,590 23,677 – 460,270 102,431 (18,014) 84,417 244,102 1,020 (45,879) 283,660 11,480 417,592 182,392 2,094 22,772 636,330 – 9,408 620,190 25,028 154,244 85,296 – 894,166 1,354,436 1,240 173,424 263,334 21,372 128,351 70,728 – 658,449 1,294,779 5,584 611,963 57,800 7,674 28,294 – 711,315 23,500 7,918 8,605 6,000 46,023 757,338 597,098 248,086 49,282 299,730 597,098 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 Nufarm Limited – Annual Report 2007 121 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 38. 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 Gain on sale of discontinued operation 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 Net operating cash flows Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 149,163 171 121,732 2,599 63,114 171 60,760 181 8,454 33,755 (1,063) (37,176) – (8,056) 6,804 (16,390) – 9,806 36,556 (512) – 219 (10,545) 8,914 (8,852) – 10 585 (18) – – (788) (53) (11,216) – – 319 (359) – – (1,013) (64) 479 – 589 348 54 (136) 136,251 160,265 51,859 60,167 (136,362) (2,559) 56,848 14,742 (36,583) (3,804) (59,479) 1,826 19,911 (1,123) (578) 5,897 5,538 165 (4,357) 3,840 (6,322) 674 484 (1,981) – (73,653) 62,598 – (97,366) 62,899 – 24,591 76,450 – 3,205 63,372 122 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 39. 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 Executives BF Benson – Group general manager agriculture R Heath – Group general manager corporate services and company secretary KP Martin – Chief financial officer DA Mellody – Group general manager global marketing RF Ooms – Group general manager chemicals DA Pullan – Group general manager operations RG Reis – Group general manager corporate strategy and external affairs Executive directors DJ Rathbone – Managing director and chief executive Key management personnel compensation The key management personnel compensation included in personnel expenses (see note 9) are as follows: Short term employee benefits Post employment benefits Equity compensation benefits Other long term benefits Consolidated Company 2007 $ 2006 $ 5,580,527 647,613 1,332,003 170,224 7,730,367 7,029,731 511,231 1,584,993 153,257 9,279,212 2007 $ 574,333 259,833 143,000 – 977,166 2006 $ 664,250 149,750 143,000 – 957,000 Individual directors and executives compensation disclosures Information regarding individual directors and executives compensation is provided in the remuneration report section of the director’s report. 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 personnel at July 31 2007. Nufarm Limited – Annual Report 2007 123 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 39. Key management personnel disclosures continued 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. From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase goods from the group. These purchases are on the same terms and conditions as those entered into by other group employees or customers and are trivial or domestic in nature. 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: Shares held in Nufarm Ltd 2007 Directors KM Hoggard1 GDW Curlewis DJ Rathbone Dr WB Goodfellow1, 2 GA Hounsell1 DG McGauchie1 Dr JW Stocker1 RFE Warburton1 Executives BF Benson R Heath KP Martin DA Mellody RF Ooms DA Pullan RG Reis Total Balance at 1 August 2006 Granted as remuneration Exercise of options Net change other Balance at 31 July 2007 2,379,426 42,787 29,912,610 1,468,296 60,302 14,719 30,314 65,281 157,694 197,790 381,610 5,196 335,757 232,132 166,096 35,450,010 4,188 – – 1,657 1,657 1,657 1,657 1,657 20,080 11,211 21,063 11,295 21,063 22,393 14,223 133,801 – – – – – – – – – – – – – – – – – 1,000 – (807,039) – – 9,002 – (18,345) – – – – (29,133) – (844,515) 2,383,614 43,787 29,912,610 662,914 61,959 16,376 40,973 66,938 159,429 209,001 402,673 16,491 356,820 225,392 180,319 34,739,296 124 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 39. Key management personnel disclosures continued Shares held in Nufarm Ltd 2006 Directors KM Hoggard1 GDW Curlewis DJ Rathbone Dr WB Goodfellow1, 2 GA Hounsell1 DG McGauchie1 Dr JW Stocker1 RFE Warburton1 Executives BF Benson R Heath KP Martin DA Mellody RF Ooms DA Pullan RG Reis Total Balance at 1 August 2005 Granted as remuneration Exercise of options Net change other Balance at 31 July 2006 2,374,749 40,787 29,912,610 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 35,377,441 4,677 – – 1,850 1,850 1,850 1,850 1,850 21,462 14,308 26,140 2,696 26,140 27,791 17,500 149,964 – – – – – – – – – – – – – – – – – 2,000 – – 47,000 4,600 – – (15,913) (40,000) – – (10,000) (25,082) (40,000) (77,395) 2,379,426 42,787 29,912,610 1,468,296 60,302 14,719 30,314 65,281 157,694 197,790 381,610 5,196 335,757 232,132 166,096 35,450,010 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, Stocker and Warburton are participants in the non-executive share plan which enables participants to sacrifice 20 per cent 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 and 19,727 Nufarm Step-up Securities) – Dr Goodfellow is Chairman of the Trust Board. Dr Goodfellow does not have a beneficial interest in these shares or step-up securities. (ii) Sulkem Company Limited (113,616 shares). (iii) Auckland Medical Research Foundation (25,462 step-up securities). Dr Goodfellow does not have a beneficial interest in the step-up securities. Nufarm Limited – Annual Report 2007 125 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 40. 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; and – management fees were received from several wholly owned controlled entities. These transactions were undertaken on commercial terms and conditions. (b) Transactions with associated parties Consolidated Bayer CropScience Nufarm Limited SRFA LLC Excel Crop Care Ltd sales to purchases from trade receivable trade payable sales to loan receivable interest received trade payable trade receivable purchases from trade payable 2007 $000 11,734 14,342 41 3,949 2,159 582 19 – 60 2,610 573 2006 $000 8,309 11,517 740 2,704 326 754 20 110 – – – These transactions were undertaken on commercial terms and conditions. 41. Subsequent events On 26 September 2007, the directors declared a final dividend of 21 cents per share, fully franked, payable 9 November 2007. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 31 July 2007 and will be recognised in the subsequent financial reports. The declaration and subsequent payment of dividends has no income tax consequences for the company. 126 Nufarm Limited – Annual Report 2007 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 42. Auditors’ remuneration Audit services KPMG Australia Audit and review of group financial report Audit of superannuation fund Audit of AIFRS disclosures Overseas KPMG firms Audit and review of group financial report Audit and review of local statutory reports Other auditors Audit and review of financial reports Other services KPMG Australia AIFRS conversion advice Transaction due diligence services Other assurance services Overseas KPMG firms Other assurance services 43. Correction of error Consolidated Company 2007 $000 2006 $000 2007 $000 2006 $000 384 65 – 670 166 1,285 87 1,372 – 120 6 46 172 377 – 43 823 – 1,243 105 1,348 10 – 96 – 106 – – – 44 47 91 – 91 – – – 9 9 – – – 56 – 56 – 56 – – – – – In the current period, two errors have been detected requiring adjustments to prior period comparatives. The first error is in respect of the calculation of the tax impact of the sale of the French CACI business in the year ended 31 July 2006. The prior period error was caused by a misinterpretation of the tax position in respect of the CACI sale. The amount of the error is 2.42 million ($3.93 million), and has been reflected in the financial report as an increase in income tax expense on discontinued operations and a reduction in deferred tax assets. The second error relates to a revaluation gain on foreign currency denominated payables accrued in July 2005, that had not been reversed when the gains were realised. The amount of the error is $3.24 million, and has been reflected in the financial report as a decrease in prior period retained earnings and a reduction in the equity accounted investment. Nufarm Limited – Annual Report 2007 127 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 2001 including: (i) giving a true and fair view of the company’s and the group’s financial position as at 31 July 2007 and of their performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a); (c) the remuneration disclosures contained in the remuneration report in the directors’ report comply with Australian Accounting Standard 124 Related Party Disclosures; and (d) 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 group entities identified in note 38 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 group 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 2007. Signed in accordance with a resolution of the directors: Dated at Melbourne this 26th day of September 2007 KM Hoggard Director DJ Rathbone Director 128 Nufarm Limited – Annual Report 2007 INDEPENDENT AUDIT REPORT Independent auditor’s report to the members of Nufarm Limited Report on the financial report and AASB 124 remuneration disclosures contained in the directors’ report We have audited the accompanying financial report of Nufarm Limited (the ‘company’), which comprises the balance sheets as at 31 July 2007, and the income statements, statements of recognised income and expense and cash flow statements for the year ended on that date, a description of significant accounting policies and other explanatory notes I to 43 and the directors’ declaration of the group comprising the company and the entities it controlled at the year’s end or from time to time during the financial 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 45 to 52 of the directors’ report and not in the financial report. We have audited these remuneration disclosures. Directors’ responsibility for the financial report and the AASB 124 remuneration disclosures contained in the directors’ report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report of the group, comprising the financial statements and notes, complies with International Financial Reporting Standards but that the financial report of the company does not comply. The directors of the company are also responsible for the remuneration disclosures contained in the directors’ report. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is also to express an opinion on the remuneration disclosures contained in the directors’ report based on our audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the remuneration disclosures contained in the directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Nufarm Limited – Annual Report 2007 129 INDEPENDENT AUDIT REPORT CONTINUED An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our understanding of the company’s and the group’s financial position and of their performance and whether the remuneration disclosures are in accordance with Australian Accounting Standard AASB 124. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s opinion on the financial report In our opinion: (a) the financial report of Nufarm Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and the group’s financial position as at 31 July 2007 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial report of the group also complies with International Financial Reporting Standards as disclosed in note 2(a). Auditor’s opinion on AASB 124 remuneration disclosures contained in the directors’ report In our opinion the remuneration disclosures that are contained on pages 45 to 52 of the directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures. KPMG Paul J McDonald Partner Melbourne 26 September 2007 KPMG, an Australian partnership and a member firm of the KPMG network of independent member films affiliated with KPMG International, a Swiss cooperative. 130 Nufarm Limited – Annual Report 2007 SHAREHOLDER AND STATUTORY INFORMATION Details of shareholders, shareholdings and top 20 shareholders Listed securities – 28 September 2007 Number of holders Number Percentage held by top 20 of securities Fully paid ordinary shares 10,040 171,501,253 70.38 Twenty largest shareholders Ordinary shares as at 28.09.07 Percentage of issued capital as at 28.09.07 Falls Creek No 2 Pty Ltd JP Morgan Nominees Australia Limited Amalgamated Dairies Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited ANZ Nominees LimitedCiticorp Nominees Pty Limited AMP Life Limited Challenge Investment Company Limited Grantali Pty Ltd Cogent Nominees Pty Limited Mr Edgar William Preston and Mr Paul Gerard Keeling Ram Custodian Limited Australian Foundation Investment Company Limited Pacific Custodians Pty Ltd CPU Share Plans Pty Ltd UBS Nominees Pty Ltd Cogent Nominees Pty Ltd Citicorp 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 25,680,987 18,073,332 15,110,737 12,233,593 11,028,703 7,227,295 5,496,783 3,142,890 2,982,868 2,887,403 2,674,222 2,491,448 2,243,750 1,910,785 1,741,754 1,616,275 1,126,894 1,092,398 1,042,397 916,565 14.97 10.54 8.81 7.13 6.43 4.21 3.21 1.83 1.74 1.68 1.56 1.45 1.31 1.11 1.02 0.94 0.66 0.64 0.61 0.53 Number of holders as at 28.09.07 Ordinary shares held as at 28.09.07 3,758 4,634 938 634 76 2,148,164 11,498,204 6,625,537 13,215,115 138,014,233 Of these, 52 shareholders held less than a marketable parcel of shares of $500 worth of shares (38 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 28 September 2007 was used to determine the number of shares in a marketable parcel. Nufarm Limited – Annual Report 2007 131 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED Stock exchanges on which securities are listed Ordinary shares: Australian Stock Exchange Limited. Substantial shareholders In accordance with section 671B of the Corporations Act, as at 28 September 2007, 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: Date of notice Number Interest % Number and percentage of shares in which interest held at date of notice 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 IOOF Holdings Ltd 24 August 2000 24 August 2000 24 August 2000 24 August 2000 24 August 2000 8 November 2004 4 July 2007 14,950,815 14,968,110 15,329,898 15,685,712 15,347,193 29,346,867 11,758,813 9.69 9.70 9.93 10.16 9.94 17.38 6.856 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. Voting rights On a show of hands, every shareholder present in person or represented by a proxy or representative shall have one vote and on a poll every shareholder who is present in person or represented by a proxy or representative shall have one vote for every fully paid share held by the shareholder. Shareholder information Annual general meeting The annual general meeting of Nufarm Limited will be held on Wednesday 5 December 2007 at 10.00am 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 completed online via www.nufarm.com/annualgeneralmeeting or via post by completing the proxy form and sending it back in the return envelope. 132 Nufarm Limited – Annual Report 2007 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED 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. Investor centre access Shareholders can access their details via the Internet by following the below prompts. Step 1 Go to www.computershare.com/au/investors Step 2 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 InvestorPhone (Australian shareholders only) InvestorPhone provides telephone access 24 hours a day 7 days a week. Step 1 Call the Nufarm shareholder information line on 1300 652 479 Step 2 Follow the prompts to gain secure, immediate access to your: – holding details – registration details – payment information Nufarm Limited – Annual Report 2007 133 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED Dividends A final dividend of 21 cents per share will be paid on 9 November 2007 to shareholders registered on 19 October 2007. For Australian tax purposes, the dividend will be 100 per cent franked at the 30 per cent tax rate. Australian and New Zealand shareholders may elect to have dividends paid directly into a bank account anywhere in Australia and New Zealand. Forms for this purpose can be obtained on www.computershare.com.au or by request from the share registry. Key dates – 19 October 2007 Record date (books closing) for 2006–07 final dividend – 9 November 2007 Final dividend for 2006–07 payable – 29 October 2007* Annual report sent to shareholders – 5 December 2007 Annual general meeting – 27 March 2008* Announcement of profit result for half year ending 31 January 2008 – 31 July 2008 End of financial year * Subject to confirmation. 134 Nufarm Limited – Annual Report 2007 SHAREHOLDER AND STATUTORY INFORMATION CONTINUED 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 Nufarm Limited – Annual Report 2007 135 DIRECTORY Directors Share registrar 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 147 Collins Street Melbourne Victoria 3000 Australia Australia Computershare Investor Services Pty Ltd GPO Box 2975EE Melbourne Victoria 3001 Australia Telephone: 1300 850 505 Outside Australia: 61 3 9415 4000 Step-up securities registrar New Zealand Computershare Registry Services Limited Private Bag 92119 Auckland New Zealand 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 New Zealand Telephone: 64 9 270 4157 Facsimile: 64 9 267 8444 Trustee for Nufarm Step-up Securities Website Permanent Trustee Company Ltd 35 Clarence Street Sydney NSW 2000 http://www.nufarm.com Nufarm Limited ACN 091 323 312 136 Nufarm Limited – Annual Report 2007 Produced by Gillian Sweetland. Designed by MDM Design Associates. Photographers include: Christoph Buquet, Alex Craig, Melissa Powell and Doug Wilson.