Nufarm Limited
Annual Report 2009

Plain-text annual report

NUFARM LIMITED ANNUAL REPORT 20 09 CONTENTs 01 Facts in brief 03 Managing director’s review 08 Business review 14 Health, safety and environment 16 Management team 18 Board of directors 21 Corporate governance Income statements 29 Directors’ report 39 Lead auditor’s independence declaration 40 41 Balance sheets 42 Statements of cash flows 43 Statements of recognised income and expense 44 Notes to the financial statements 115 Directors’ declaration 116 Independent auditor’s report 118 Shareholder and statutory information 124 Directory KEy EvENTs – Global glyphosate market issues make significant impact on profit result – Conservative approach to risk management in Brazil – Growth in sales revenues and new product introductions – European businesses generate strong sales and margin growth – Expansion of seeds business FacTs in bRieF Trading results Profit attributable to shareholders Material items gain/(loss) 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 2009 $000 12 months ended 31 July 2008 $000 79,877 (79,755) 159,632 2,677,083 1,631,939 3,251,597 33.5¢ 57% $3.59 137,915 (25,961) 163,876 2,492,458 1,305,218 3,213,880 69.7¢ 69% $2.60 27¢ 35¢ 3,155 3,112 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 01 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 02 Managing diRecTOR’s Review Doug Rathbone AM Managing director and chief executive ThE 2009 fiNANciAL yEAR hAS PRoDucED A DiSAPPoiNTiNg PRofiT RESuLT foR ThE coMPANy. ThE RESuLT REfLEcTS A vERy chALLENgiNg SEcoND hALf, PARTicuLARLy wiTh RESPEcT To ouR gLyPhoSATE buSiNESS. gLyPhoSATE SuffERED A ShARP DEcLiNE iN PRofiTAbiLiTy DuE To A RANgE of iSSuES ThAT hAD A NEgATivE iMPAcT oN ALL of ThE woRLD’S LEADiNg gLyPhoSATE SuPPLiERS iN ThE fiNAL quARTER. ThESE iMPAcTS ARE DiScuSSED iN MoRE DETAiL LATER iN ThiS REPoRT. Net profit after tax for the year ended 31 July 2009 was $79.9 million. The reported profit includes the impact of material items totalling $79.8 million. group revenues increased seven per cent to $2.68 billion and operating earnings before interest and tax (EbiT) was down 44 per cent to $151 million. Earnings per share were 33.5 cents, compared with last year’s 69.7 cents. inventory largely held in the uS as at 31 July 2009. The adjusted value of that inventory places the company in a position to generate profits in the 2010 year while selling glyphosate at market competitive prices. The dramatic fall in glyphosate prices in the final six weeks of the financial year meant that the book value of inventory could not be recovered through sales made in the period. Losses of $22.7 million after tax have been classified as an inventory adjustment material item. The balance of $16.0 million in material items mainly relates to charges associated with restructuring of manufacturing activities in Europe and costs relating to regulatory enquiries dealing with competition impacts of the Ah Marks acquisition. There was also a small net non-cash foreign exchange loss of $0.3 million at 31 July relating to the company’s Step-up Securities (NSS). The foreign exchange exposure on the funding utilisation from the NSS has been hedged over the term of the securities and will guarantee a cash gain of $19.6 million on maturity in the 2012 financial year. Material items Final dividend The company recorded a $79.8 million after tax loss associated with material items. The significant material items related to adjustments associated with the company’s glyphosate business. The company booked a $40.8 million after tax write-down on the value of glyphosate Directors declared a final unfranked dividend of 15 cents per share, resulting in a full year dividend of 27 cents. The final dividend (which will be classified as 100 per cent conduit foreign income) will be paid on 13 November 2009 to the holders of all fully paid shares in the company as at the close of business on 16 october 2009. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 03 Managing diRecTOR’s Review cOnTinued The Dividend Reinvestment Plan will not operate with respect to this dividend. Treasury Net debt to equity improved from 69 per cent in 2008 to 57 per cent at July 2009, despite net debt marginally increasing by $38 million to $938 million. The increase in working capital – driven by a decrease in payables at year-end – utilised the cash raised from the new equity issue undertaken in May. The reduction in payables reflected a decrease in purchasing activity in the last two months of the year as it became apparent that sales would be below earlier expectations. A significant decrease in working capital is expected in 2010 in response to more normal patterns of sales and purchasing. The group recorded a foreign exchange loss of $27.5 million, primarily in brazil. Approximately half of this loss is a non-cash mark-to-market adjustment on a uS dollar banking facility due to be renewed in the 2011 financial year. cash from operations has marginally improved to $76 million, constrained by the working capital increase. Net operating cash outflow was $53 million, a $74 million improvement on the prior year. subsequent events Acquisition of Richardson Seeds and MMR genetics on 5 August 2009, Nufarm acquired Texas based Richardson Seeds Ltd and MMR genetics Ltd. Richardson Seeds is a major producer and marketer of sorghum seed hybrids, with a leading market share in the uS and expanding market positions in Mexico, South America, Europe, Japan and the Middle East. The company was founded over 50 years ago and has processing capabilities of 10,000 bags of sorghum seeds per day. MMR genetics – previously 47 per cent owned by Richardson Seeds – is a global leader in the development of elite sorghum germ plasm, used by many of the world’s top seed companies. The additional scale and reach resulting from the acquisitions will deliver significant growth to Nufarm’s seeds business and will be complementary to the company’s existing sorghum operations that were secured via last year’s acquisition of queensland based Lefroy seeds. Ah Marks on 10 September 2009, the uK competition commission notified Nufarm that the company had fulfilled its obligations in relation to remedies associated with the Ah Marks acquisition (completed March 2008). The resolution of this matter allows the company to proceed with the full integration of the Ah Marks business. belvedere closure uK-based manufacturing activities are to be consolidated at the company’s wyke facility. The belvedere plant will cease production in october 2009. The closure of the belvedere site is not expected to result in any significant net gains or losses. Outlook while market conditions remain challenging in certain areas of the company’s business, management expects to see growth in group profitability in the 2010 financial year, with an improved operating environment in brazil; a more competitive position in glyphosate; and continued revenue and margin expansion across other product positions being the major contributors to that growth. Seasonal conditions in key markets such as Australia and the uS saw reduced demand for crop protection products in the 2009 period. if seasonal influences return to more average conditions in 2010, grower demand is expected to improve. Similarly, credit pressures impacted the buying patterns of distribution 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 04 Managing diRecTOR’s Review cOnTinued customers in 2009, with many of those customers not prepared, or not able, to purchase and carry average levels of inventory. An improvement in the credit environment is likely to result in a re-stocking of distribution channels as the major selling seasons approach. New, higher margin product introductions and increased sales in higher value segments (insecticides, fungicides, seed treatment, seeds) together with expanded market penetration in a number of regional locations will also generate higher earnings in the current financial year. in summary, the directors are confident that the 2010 year will see an improvement in the quality of earnings and believe the company is well positioned to resume its strong profit growth. Doug Rathbone AM Managing Director 28 September 2009 The 2010 year will also see the beginning of integration- related benefits associated with the Ah Marks acquisition and improved manufacturing efficiencies resulting from the rationalization of some production activities in Europe. while the 2009 year saw a substantial reduction in group profitability, the company was able to generate strong sales revenues and maintain or grow market share positions on both a geographic and product basis. with the expected improvements in earnings in a number of areas of the business – and more favourable market conditions – there is confidence that Nufarm’s 2010 financial year will generate much improved results. credit restrictions in brazil have eased and the company expects to generate higher sales and stronger margins in this market over the 12 month period. while risk management will continue to be given close attention, the business is forecast to generate a positive operating result. The company has taken measures to ensure its glyphosate business will be competitive and profitable in 2010. inventory levels at the manufacturing level (total industry) are estimated to be high, especially in the uS market, and this will result in aggressive competition and relatively low prices. with an adjusted cost base and strong market access, Nufarm is well placed to capture an appropriate share of glyphosate sales across its regional businesses. The company is forecasting a return to acceptable profitability in its glyphosate business in 2010. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 05 Managing diRecTOR’s Review cOnTinued 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 06 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 07 business Review AfTER A buoyANT 2008 iN which AgRicuLTuRAL iNDuSTRiES wERE chARAcTERiSED by STRoNg DEMAND, ExPANDED PRoDucTioN AND RiSiNg PRicES, buSiNESS coNDiTioNS foR ThE cRoP PRoTEcTioN iNDuSTRy wERE vERy chALLENgiNg iN 2009. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 08 following a solid first six months – in which the company achieved its budgeted profit performance – pressures in the second half relating to the global credit crisis and climate-related declines in demand for various products had a negative impact on Nufarm’s financial year. however, the principal negative impact on the company’s 2009 profitability involved a range of issues that led to significant deterioration in the volume and profitability of glyphosate sales. These impacts were especially obvious in the company’s South American, uS and Australian businesses. Nufarm’s European business – which accounts for relatively low sales of glyphosate – performed very strongly during the period. Nufarm generated sales of $2.68 billion in the 12 months to 31July, representing a seven per cent increase on the previous year’s total revenues. Australasia generated $850 million in sales (32 per cent of total sales); North America recorded $775 million in sales (29 per cent of total); South America generated total sales of $415 million (15 per cent); and Europe $637 million (24 per cent). Total glyphosate sales were $833 million – representing about 31 per cent of group revenues – and generating a 14.9 per cent gross margin (before the impact of adjustments included in material items). This compares with glyphosate sales in the previous year of $909 million (36 per cent of total sales) and a gross margin contribution of 31 per cent. business Review cOnTinued Nufarm commenced the 2009 financial year with higher than average glyphosate inventory as it transitioned to new supply arrangements. Much of that inventory had been purchased at a high point in the pricing cycle for the key raw material (glyphosate ‘technical’). After a period of strong demand and pricing in 2008, substantial additional capacity of glyphosate ‘technical’ was brought into production in china towards the end of the 2008 period. This surplus of product and low seasonal demand saw prices decline in 2009, with severe price discounting in the final two months of Nufarm’s financial year, particularly in the uS. The company’s non-glyphosate revenues increased by 16 per cent to $1.84 billion. Total herbicide sales were down on the previous year, but when glyphosate is excluded from that calculation there was an increase in other herbicide sales of almost 14 per cent to $1.08 billion. Phenoxy herbicide sales, in which Nufarm is a global leader, were $554 million and similar to the previous year. The company generated increased sales of insecticides (up 21 per cent) and fungicides (up 10 per cent) in 2009, reflecting product development and portfolio expansion activity focused on those segments. A number of new seed treatment products were introduced in 2009, providing a strong platform for future growth in this high value segment. australasia 2009 2008 $ million $ million Revenue Segment profit 850 118 875 148 The Australasian business generated $850 million in sales and a segment profit (segment earnings before interest and tax) of $118 million in the 2009 financial year. This represents a drop in revenue of about three per cent on the previous year and a 20 per cent decline in segment profit. glyphosate represented approximately 31 per cent of total sales in this region. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 09 business Review cOnTinued Despite average crop plantings and reasonable climatic conditions following the planting activity in most parts of Australia, demand for crop protection products was unusually low with Nufarm’s major distribution customers looking to de-stock and growers only purchasing minimum requirements. crops in many regions were planted in relatively dry conditions reducing the need for herbicide applications, particularly glyphosate. volume sales of glyphosate in Australia were substantially down on the previous year and – combined with weaker pricing and lower margins – were the major contributor to a poorer profit performance from the Australian business. Seasonal conditions improved in many regions after crops were sown and this generated strong sales of a number of products other than glyphosate, with phenoxy herbicide sales and sales into segments such as horticulture generating an improved return on the previous year. Nufarm’s croplands division (manufacturer and supplier of spray equipment) increased sales to $46.6 million, an improvement of more than 30 per cent on the previous year. New Zealand crop protection sales were down by some 16 per cent, with a depressed dairy sector and lower margin glyphosate sales having an impact. Nufarm’s Asian sales grew strongly in 2009, with the company’s businesses in Malaysia, indonesia and Japan all posting higher revenues driven by additional product registrations and improved access to local distribution. The company’s first full year of ‘Roundup’ brand distribution rights in indonesia also boosted sales. north america 2009 2008 $ million $ million Revenue Segment profit 775 8 631 84 North American sales increased by almost 23 per cent on the previous year ($775 million versus $631 million). Segment profit ($8.4 million) was substantially down, with a significant decline in uS glyphosate earnings being the major contributor. glyphosate represented 42 per cent of sales in the North American region. uS sales were up in Australian dollars but were similar to the previous year’s sales when reported in local currency. This is despite uS glyphosate sales being 20 per cent down. Excluding the glyphosate business, uS sales increased by more than 17 per cent. The gross profit generated by uS glyphosate sales dropped by $77 million from the previous year, with 2009 sales recording a loss of $22 million. Excess supply, additional competition and lower seasonal demand for glyphosate saw prices soften throughout the year, with a very sharp deterioration in pricing towards the end of the season. Nufarm’s cost position and high starting inventory resulted in glyphosate sales generating losses as the business sought to retain market share positions. These impacts were also felt by other major suppliers of glyphosate in the uS market. in other areas of the business, Nufarm was able to grow revenues by some 17 per cent and gross margins by 32 per cent (both calculated in local currency). Non-glyphosate sales into the crop segment grew approximately six per cent, despite a relatively poor season for phenoxy herbicides. insecticides, fungicides and seed treatment products were all stronger. Nufarm’s position in the uS turf and ornamental segment and the industrial vegetative management segment improved on both a revenue and gross margin basis, helped in part by the contribution of the Etigra business, which was acquired in May 2008. Additional product registrations and new product introductions in these segments helped strengthen the company’s distribution relationships. in canada, Nufarm benefited from a broader product portfolio to record a 30 per cent increase in sales. colombia (also reported as part of the North American segment) saw a small increase in sales but margins were down on the previous year. south america 2009 2008 $ million $ million Revenue Segment profit 414 (41) 431 59 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 10 business Review cOnTinued South American sales in 2009 were $414 million, down four per cent on the previous year’s $431 million. The region recorded a loss of $41 million as a segment operating result. The global credit crisis had a dramatic impact on business in brazil with many growers unable to source credit or provide acceptable security to cover purchases of crop inputs. competition between suppliers for lower risk business was intense with margins dramatically impacted. Nufarm took a conservative position in response to these pressures and did not fill sales orders considered to involve an unacceptable credit risk. Discounts were also offered to secure earlier collections. Nufarm’s sales revenues in brazil were down by 13 per cent on the previous year when reported in local currency. while glyphosate sales were similar to the previous year, margins generated from those sales were substantially lower. glyphosate represented approximately 42 per cent of total sales in South America in 2009. in other product segments, the brazil business performed strongly on a revenue basis with new offerings in pasture and sugar cane strengthening Nufarm’s position in those important markets. on an operating basis brazil generated a small EbiT loss for the full year, with second half overheads and relatively low sales eroding the $25 million EbiT posted at 31 January. This was consistent with expectations and guidance provided at the half year. Argentina sales were slightly higher in 2009 but credit related pressures and lower glyphosate margins made an impact on the profitability of the business. Drought conditions also persisted throughout the year, with cereal plantings down by some 40 per cent. in chile, where Nufarm has a more balanced portfolio not dominated by glyphosate, the business generated an above budget profit result. europe 2009 2008 $ million $ million Revenue Segment profit 637 101 555 56 European sales were up by 15 per cent year on year to $637 million, with a substantial improvement in segment profit ($100.6 million versus $56.2 million in 2008). glyphosate represented 14 per cent of total European sales in the period. Nufarm’s uK branded business improved margins on sales which were in line with the previous year, despite poor autumn weather and a sharp decline in demand for glyphosate. Again, new product introductions helped offset lower sales of some existing products. The Ah Marks business – acquired in March of the previous year – performed strongly and delivered an earnings contribution ahead of assumptions made at the time of the acquisition. This business was operated on an independent basis to the local Nufarm business due to ongoing enquiries by the uK regulatory authority. This meant that anticipated synergies could not be realised in the 2009 period. Sales in france were up five per cent on the previous year. while seasonal conditions were generally not favourable, the company generated excellent results from its corn herbicide campaign and made important gains in the amenities (non-crop applications) market. A rationalisation of production activity in france was also instigated during the year and this will result in improved efficiencies in future years. The german business was slightly down on the previous year with sales into the spring market for wheat herbicides down by some 20 per cent due to seasonal conditions. This was offset, however, by the successful introduction of several new products. Nufarm’s businesses in italy, Spain, Portugal and the relatively new operations in Romania and hungary all generated very strong results. when reported in local currencies, these results were even stronger. A new subsidiary was also established in greece with important product registrations already secured in a number of market segments. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 11 business Review cOnTinued nufarm sales by geography 2009 nufarm sales by geography 2008 nufarm sales by key products 2009 nufarm sales by key products 2008 * Other – includes PGR’s, adjuvants, seed treatments, seeds, spray machinery, industrial sales. seeds Nufarm made substantial strides in the expansion of the seed and traits business within the past year. The business finished ahead of budget with a small operating profit despite challenging environmental conditions prior to the canola season in Australia. The Nufarm seed business, branded as Nuseed, has expanded its product range to offer sunflower and sorghum hybrids to both the Australian and global markets. This expansion has been facilitated by the acquisition of queensland based Lefroy Seeds in September of 2008. Lefroy Seeds specialises in hybrid breeding, production and commercialisation activities in sunflower and sorghum. The acquisition delivered established registrations, sales and commercial partnerships in Australia, Argentina, South Africa, china, Pakistan, Thailand, and various countries in Europe. New South wales and victoria planted their second year of biotech canola (using Roundup Ready® canola) with a four-fold expansion in the sown area. The Monola® specialty canola business continued to gain momentum as consumers in Australia and overseas increased their demand for healthier foods. Monola® delivers a functional, healthy alternative to high saturated and trans-fats. Nuseed collaborates with the supply chain from breeding to final oil customer. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 12 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 13 HealTH, saFeTy and enviROnMenT AgAiNST A bAcKDRoP of chALLENgiNg MARKET coNDiTioNS, NufARM coNTiNuES To PAy cLoSE ATTENTioN To ThE cRiTicAL AREAS of SAfETy AND ENviRoNMENTAL coMPLiANcE AND To MAKE PRogRESS iN ouR EffoRTS To AchiEvE coNTiNuouS iMPRovEMENT AcRoSS A RANgE of hEALTh, SAfETy AND ENviRoNMENTAL MEASuRES. in 2008 we lowered our injury rates, achieved a reduction in total energy use and secured production efficiencies while further minimizing our waste. The 10th annual health, safety and environment report covers the 2008 calendar year, during which Nufarm acquired the Ah Marks phenoxy herbicide manufacturing business, located in wyke, uK. The need to clear a number of regulatory requirements relating to that transaction deferred the full integration of the business and has delayed a number of planned improvements in occupational health, safety and environment areas. Also, the addition of the wyke plant – and its attendant energy, water and waste profiles – has led to a number of our group measurements not showing the overall improvement that would otherwise have been evident. for the first time in eight years, our annual global consumption of water increased and water use efficiency decreased, due largely to the inclusion of the Ah Marks business. however, we are committed to resuming the downward trend so well demonstrated over the preceding nine years. Nufarm has also signed up to the Australian chemical industry’s ‘Sustainability Leadership Program’, under the banner of the PAciA Sustainability framework. This also contains the long running industry initiative, Responsible care. Many of the framework’s . principles are already reflected in how Nufarm operates and the framework will help us to more formally integrate our improvement efforts and to embed sustainability initiatives within our business. The framework is being introduced first into the Australian business and will flow across the global operations as we progress. A large number of Nufarm sites are investing in additional safety training. New courses are being implemented regularly, particularly in our European operations. All Nufarm employees have a responsibility to ensure that our work places are safe. increasing numbers of employee groups are becoming involved in site specific initiatives aimed at achieving improvements in areas such as water and waste minimisation. This reflects a culture within the company that must be encouraged. Nufarm’s 10th annual health, safety and environment report may be downloaded from the corporate website, together with separate reports from manufacturing sites around the world. The report covers 2008 calendar year data collected from 16 manufacturing sites and 19 offices and regional centres. Data from the recently acquired operation of Ah Marks in wyke, uK, is included. The health and safety data includes permanent and casual employees, as well as contractors. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 14 HealTH, saFeTy and enviROnMenT cOnTinued LTifR or lost time injury frequency rate is the number of lost time injuries per million hours worked that results in one or more days of absence from work. MTifR or medical treatment injury frequency rate is the number of lost time and medical treatment injuries per million hours worked. Severity is the number of days lost per thousand hours worked. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 15 ManageMenT TeaM Brian Benson Rodney Heath Doug Rathbone AM Kevin Martin Dale Mellody doug Rathbone aM Rodney Heath dale Mellody group general manager marketing and president North America 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. Now based in the uS, Dale also heads Nufarm’s North American regional operations. Managing director and chief executive Doug Rathbone’s background is chemical engineering and commerce and he has worked for Nufarm Australia Ltd for 36 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Ltd in october 1999. he joined the board of directors in 1987. he was appointed to the board of cSiRo in 2007. brian benson group general manager agriculture brian benson joined Nufarm in 2000, bringing with him extensive experience in the crop protection industry in the areas of international marketing and strategy. he has degrees in agricultural science and business administration. brian is responsible for Nufarm’s regional sales operations and commercial strategy. group general manager corporate services and company secretary Rod heath has 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 Ltd. in 2000, Rod was appointed company secretary of Nufarm Ltd. Kevin Martin 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 16 ManageMenT TeaM cOnTinued Mike Pointon David Pullan Bob Ooms Robert Reis bob Ooms david Pullan group general manager chemicals group general manager operations bob ooms joined the company in 1999. An industrial chemist by training, he has more than 40 years experience in the chemical industry in a variety of positions, including many years in senior management. bob has executive management responsibility for global supply chain issues. Mike Pointon group general manager innovation and development Mike Pointon joined Nufarm in 2001 and was responsible for Nufarm’s southern European business based in france. he has a degree in agricultural science and over 25 years experience in the crop protection industry. Most recently based in Melbourne with responsibility for Nufarm’s global glyphosate business, Mike was appointed to the executive team in July 2008. he is responsible for the group’s product development and regulatory affairs activities. David Pullan joined the company in 1985. A mechanical engineer, David has extensive experience in chemical synthesis and manufacturing, having held a variety of operational and management positions in the oil and chemical industries. David is responsible for all of Nufarm’s global manufacturing and production sites. Robert Reis 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 17 bOaRd OF diRecTORs Pictured from left to right: Donald McGauchie AO, Bob Edgar, John Stocker AO, Kerry Hoggard (Chairman), Doug Rathbone AM (Managing director and chief executive), Doug Curlewis (Deputy chairman), Bruce Goodfellow, Garry Hounsell. Kerry Hoggard chairman doug curlewis Deputy chairman Kerry hoggard, 68, joined the board in 1987. gDw (Doug) curlewis, 68, 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 and Sigma Pharmaceuticals Ltd. in the past three years Doug has been a director of Pacifica group Ltd (nine years), Remunerator Australia Pty Ltd (seven years) and graincorp Ltd (three years). Doug is deputy chairman of the board, chairman of the remuneration and nomination committees and a member of the audit committee. doug Rathbone aM Managing director and chief executive Doug Rathbone AM, 63, joined the board in 1987. his background is chemical engineering and commerce and he has worked for Nufarm Australia Ltd for 36 years. Doug was appointed managing director of Nufarm Australia in 1982 and managing director of Nufarm Ltd in october 1999. he was appointed to the board of the cSiRo in 2007. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 18 bOaRd OF diRecTORs cOnTinued bob edgar garry Hounsell John stocker aO Dr RJ (bob) Edgar, 63, joined the board on 1 June 2009. gA (garry) hounsell, 54, joined the board in october 2004. Dr Jw (John) Stocker Ao, 63, joined the board in 1998. he has a medical, scientific and management background and was formerly chief scientist of the commonwealth of Australia and is now the chairman of cSiRo. he is a principal of foursight Associates Pty Ltd and chairman of Sigma Pharmaceuticals Ltd and The Australian wine institute Ltd. he is a director of Telstra corporation Ltd. in the past three years John has been a director of Sigma company Ltd (eight years), cambridge Antibody Technology group plc (11 years) and circadian Technologies Ltd (12 years). John is a member of the audit committee. he has a bachelor of economics (hons) from university of Adelaide and a PhD from ohio State university. he recently retired from the ANZ banking group where he was deputy chief executive officer. in a 25 year career at ANZ, he also held the positions of chief operating officer, managing director institutional financial services and chief economist. bob is a director of Transurban holdings Ltd, Transurban infrastructure Management Ltd and Asciano Ltd. he is also chairman of the Prince henry’s institute of Medical Research. bruce goodfellow Dr wb (bruce) goodfellow, 57, 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 chairman of Refrigeration Engineering co Ltd and a director of Sanford Ltd, Sulkem co Ltd, and cambridge clothing co Ltd. bruce is a member of the nomination committee. he has a bachelor of business (accounting) and is a former senior partner with Ernst & young and a former Australian country-managing partner with Arthur Andersen. he has extensive experience across a range of areas relating to management and corporate finance and has worked with some of Australia’s leading companies in consulting and audit roles, with a particular emphasis in the manufacturing sector. garry is chairman of Pan Aust Ltd, deputy chairman of Mitchell communication group Ltd and a director of qantas Airways Ltd and orica Ltd. garry is chairman of the audit committee. donald Mcgauchie aO Dg (Donald) Mcgauchie Ao, 59, joined the board in 2003. 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 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 Telstra Ltd (11 years). Donald is a member of both the remuneration and nomination committees. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 19 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 20 cORPORaTe gOveRnance introduction Nufarm’s board processes are under constant review to ensure our systems protect the interests of all stakeholders. As part of this review, we consider the corporate governance Principles and Recommendations (‘the ASx principles’) 2nd Edition, published by the Australian Securities Exchange Limited’s (ASx) corporate governance council. 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 27 best practice recommendations during our reporting period and, where we do not comply, to explain why not. Nufarm believes it complies with all the ASx principles with the following exception: Recommendation 2.2 recommends that the chairman should be an independent director. our chairman is elected annually at the directors’ meeting immediately following the annual general meeting (AgM). Kerry hoggard is board chairman, and is not deemed an independent director in accordance with the tests set out in Principle 2 of the ASx principles. This corporate governance report reaffirms the statements contained in our governance reports since 2003 that the board unanimously continues to support Kerry as chairman, believing this to be clearly in the best interest of all stakeholders. Kerry’s history with the company, including his detailed knowledge of the industry where the company operates and his extensive accounting, financial and commercial background, bring invaluable experience and unique skills to Nufarm. Kerry continues to apply judgment independent of management in all decision making. he discharges his role with a strong commitment to considerations of governance and disclosure. Doug curlewis, an independent director, is deputy chairman of the board. Management and oversight of nufarm The board The governing body of the company is the board of directors. its clear responsibility is to oversee the company’s operations and ensure that Nufarm carries out its business in the best interests of all shareholders and with proper regard to the interests of all other stakeholders. The board charter clearly defines the board’s individual and collective responsibilities and describes those delegated to the managing director and senior executives. The board has set specific limits to management’s ability to incur expenditure, enter contracts or acquire or dispose of assets or businesses without full board approval. The board’s specific responsibility is to: • ratify, monitor and review strategic plans for the company and its business units; • approve financial and dividend policy; • 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 21 cORPORaTe gOveRnance cOnTinued There are seven scheduled board 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 2009, 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 30 of this report. Evaluating the performance of senior executives Nufarm’s senior executive team comprises a group of long serving career Nufarm or crop protection executives. The performance of the senior executive team is reviewed by the managing director, and then the remuneration committee and the board, as part of the annual remuneration review. in the case of the managing director, the remuneration committee and the board conduct his review. A key consideration for the board is the company’s return on funds employed (RofE) performance. RofE is, and has been for some 20 years, a core feature of Nufarm’s culture, involving many aspects of the company’s financial management. RofE provides the senior executive with guidance as to how shareholder value can be increased by improving operating income and using capital more efficiently. we believe that if management concentrates on improving RofE, then sustained shareholder value will result. The board believes RofE is the appropriate performance condition for the company’s senior executive incentive program. however, the board also reviews the company’s total shareholder return (TSR) performance with that of other peer group companies. in the reporting period, a performance evaluation of the senior executive was undertaken in accordance with this process. The company is managed according to the recommendations of ASx Principle 1. A summary of the board charter is available in 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 judgment to the board. The board applies the framework 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 22 cORPORaTe gOveRnance cOnTinued The nomination committee reviews the performance of directors who seek to offer themselves for re-election at a company annual general meeting (AgM). That committee then recommends to the board whether or not it should continue to support the nomination of the retiring directors. The board conducts an annual review of the independence of directors and, at the date of this report, it has determined that the status of directors is as follows. independent non-executive directors gDw curlewis Dr RJ Edgar gA hounsell Dg Mcgauchie Dr Jw Stocker Non-independent non-executive directors KM hoggard Dr wb goodfellow Executive director (chief executive officer) DJ Rathbone Profiles of each board member, including terms in office, are on pages 18 and 19 of this report. Access to independent advice To help directors discharge their responsibilities, any director can appoint legal, financial or other professional consultants, at the expense of the company with the chairman’s prior approval, which may not be unreasonably withheld. The board charter provides that non-executive directors may meet without management present. The committee is chaired by an independent director. 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 21 of this report. Doug curlewis, an independent director, is deputy chairman. The Nufarm board has stipulated that the role of the chairman and chief executive officer may not be filled by the same person. with the exception of the independence of the chairman, the board structure is consistent with ASx Principle 2. The nomination committee Doug curlewis is chairman of the nomination committee and Donald Mcgauchie and bruce goodfellow are members, with a majority of 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. The performance of the board, its committees and individual directors is reviewed annually and the board has utilised a variety of review processes, including a review by external consultants and a review by the chairman. for the last three reporting periods, the board has completed a purpose-designed questionnaire, the results of which were discussed with the chairman and 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 and have direct access to the company secretary, who is appointed by, and accountable to, the board on all governance matters. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 23 cORPORaTe gOveRnance cOnTinued Save for the fact that the chairman is not independent, the operation of the board is in accordance with the recommendations of ASx Principle 2. our formal code of conduct is available in the corporate governance section of the company’s website. A copy of the nomination committee charter and a summary of the policy and procedure for appointment of directors is available in the corporate governance section of the company’s website. ethical and responsible decision-making Ethical standards Nufarm operates in many countries and does so in accordance with the social and cultural beliefs of each country. it is politically impartial except where the board believes it is necessary to comment due to any perceived major impact on the company, its business or any of its stakeholders. we require directors, senior executives and all 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. 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 in 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 company has put in place a structure of review and authorisation to independently verify and safeguard the integrity of financial reporting. The audit committee reviews the company’s financial statements and the independence of the external auditors. Audit committee garry hounsell is chairman of the board audit committee with Doug curlewis, John Stocker 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 30. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 24 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 in the manufacturing sector. he is chairman of PanAust Ltd, deputy chairman of Mitchell communication group Ltd and a director of qantas Airways Ltd and orica Ltd. garry is also chairman of the audit committee at qantas. Doug curlewis has an MbA and is a former managing director of National consolidated Ltd, chief executive (Europe) of ici Paints and managing director of Dulux Australia. Doug is currently a director of guD holdings Ltd and Sigma Pharmaceuticals Ltd. John Stocker has a medical, scientific and management background and was formerly chief scientist of the commonwealth of Australia and is now the chairman of cSiRo. he is a principal of foursight Associates Pty Ltd and chairman of Sigma Pharmaceuticals Ltd and The Australian wine institute Ltd. he is a director of Telstra corporation Ltd. 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. The committee reviews its charter annually. The charter sets out membership requirements for the committee, its responsibilities and provides that the committee shall annually assess the external auditor’s actual or perceived independence by reviewing the services provided by the auditor. The charter also identifies those services that: • the external auditor may and may not provide; and • require specific audit committee approval. The committee has recommended that any former lead engagement partner of the firm involved in the company’s external audit should not be invited to fill a vacancy on the board and the lead engagement audit partners will be required to rotate off the audit after a maximum five years involvement and it will be at least two years before that partner can again be involved in the company’s audit. A copy of the audit committee charter and its duties is available in 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 best practice. The company secretary prepares a schedule of compliance and disclosure matters for directors to consider at each board meeting. A summary of the disclosure policy is available in the corporate governance section of the company’s website. The company’s disclosure policy is consistent with ASx Principle 5. Rights of shareholders communication we are committed to timely, open and effective communication with our shareholders and the general investment community. our communication policy aims to: • ensure that shareholders and the financial markets are provided with full and timely information about our activities; • comply with our continuous disclosure obligations; • ensure equality of access to briefings, presentations and meetings for shareholders, analysts and media; and • encourage attendance and voting at shareholder meetings. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 25 cORPORaTe gOveRnance cOnTinued Postal and electronic communication with shareholders includes: • half year and annual reports; • proxy voting; • notice of AGM; • relevant market announcements and related information; and • copies of webcasts and teleconferences. our formal communications policy is available in the corporate governance section of the company’s website. The company’s policy in relation to the rights of shareholders is consistent with ASx Principle 6. identifying and managing risk The board is committed to identifying, assessing, monitoring and managing its material business risks. Nufarm’s policies and procedures relating to the management and oversight of risk provide effective management of material risks at a level appropriate to Nufarm’s global business. The board annually, at its strategy review meeting, comprehensively reviews the material risks faced by the company. in so doing, it considers the interests of all relevant stakeholders. in addition, at each board meeting, management report on specific issues of risk and compliance, including legal compliance, health safety and environmental compliance and financial reporting. The board has retained responsibility for the oversight of the company’s risk management system. The board ensures that appropriate policies are in place to ensure compliance with risk management controls and requires management to monitor, manage and report on business risks. The board has delegated the oversight of financial and treasury risk, including credit, liquidity and market risks, to the audit committee which will refer any relevant matters to the full board. The year end exposure to these risks is described in Note 31 of the financial statements. The audit committee has approved a global risk management charter that specifies the responsibilities of the general manager global risk management (which includes the internal audit function). The charter provides authority to conduct internal audits, risk reviews and system-based analyses of the internal controls in major business systems. The general manager, global risk management reports directly to the managing director and provides a written report of his activities at each meeting of the audit committee. in so doing he has continual access to the chairman and members of the audit committee. The internal audit function is independent of the external auditor. All board committees report to the board on risk management issues within their areas of responsibility. The company recognises a number of operational risks related to its crop protection business including: • climate conditions and seasonality; • regulatory, freedom to operate, product registration, product use and sustainability; • relationships with key suppliers and customers; and • licences and operating permits for manufacturing facilities. The managing director and the company’s senior management (group general managers [ggMs] who report directly to the managing director) are responsible for the management of material risks in their respective areas of responsibility. The managing director’s and ggMs’ regular reports, submitted for review to each board meeting, will include relevant commentary on any material risk. The board also requires the managing director and ggMs to provide the board, for its annual strategy meeting, with a report and assurance that all material risks are being effectively managed. Such a report was received in the current reporting period. Local and regional financial controllers complete half yearly certificates, which are reviewed by the chief financial officer and the audit committee as part of the company’s half year reporting to the market and to achieve compliance with section 295A of the corporations Act. in accordance with Section 295A, 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 26 cORPORaTe gOveRnance cOnTinued 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 in all material respects in relation to financial reporting risks. The board received in the current reporting period an assurance from the chief executive officer and chief financial officer that the declaration relating to the company’s financial reports has been made with due regard to appropriate risk management controls. A summary of the company’s policies on risk oversight and management of material business risks is available in the corporate governance section of the company’s website. Nufarm’s management of risk is consistent with ASx Principle 7. Remuneration The board has procedures to ensure that the level and structure of remuneration for executives and directors is appropriate. Remuneration committee Doug curlewis is chairman of the remuneration committee and Kerry hoggard and Donald Mcgauchie are members, with a majority of independent directors. The committee is chaired by an independent director. 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; and • ensure remuneration packages and policies attract, retain and motivate high calibre executives. 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. Remuneration of non-executive directors The board’s policy with regard to non-executive directors remuneration is set out in the remuneration report on pages 32 to 38. A copy of the remuneration committee charter and the company policy on prohibiting senior executives from hedging any shares offered under the executive share plan are available in the corporate governance section of the company’s website. Nufarm’s remuneration policies are consistent with ASx Principle 8. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 27 Financial sTaTeMenTs 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 28 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 2009 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 RJ Edgar (appointed 1 July 2009) Dr WB Goodfellow GA Hounsell DG McGauchie AO Dr JW Stocker AO Unless otherwise indicated, 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 18 and 19. Company secretary The company secretary is R Heath. Details of the qualifications and experience of the company secretary are set out on page 16. Directors’ interests in shares and Step-up Securities Relevant interests of the directors in the shares and 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 Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, as follows: Nufarm Ltd ordinary shares Nufarm Finance (NZ) Ltd Step-up Securities KM Hoggard1 GDW Curlewis1 DJ Rathbone Dr RJ Edgar Dr WB Goodfellow1, 2 GA Hounsell1 DG McGauchie1 Dr JW Stocker1 2,383,614 48,280 24,162,610 – 708,018 46,720 20,038 43,780 – – – – 47,723 – – – 1 The shareholdings of KM Hoggard, GDW Curlewis, Dr WB Goodfellow, GA Hounsell, DG McGauchie and Dr JW Stocker 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 (430,186 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 (117,628 shares). (iii) Auckland Medical Research Foundation (26,558 Step-up Securities). Dr Goodfellow does not have a beneficial interest in these Step-up Securities. (iv) Trustees of the Goodfellow Foundation (35,698 shares and 1,338 Step-up Securities). Dr Goodfellow is chairman of the Trust Board and does not have a beneficial interest in these shares or Step-up Securities. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 29 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: Committees Director Board Audit KM Hoggard1 GDW Curlewis DJ Rathbone1 Dr RJ Edgar2 Dr WB Goodfellow1 GA Hounsell1 DG McGauchie Dr JW Stocker1 A 8 8 8 1 8 8 8 8 B 8 8 8 1 8 8 8 8 A 3 3 – – – 3 – 3 B 3 3 3 – – 3 – 3 Remuneration B A Nomination B A 4 4 – – – – 4 – 4 4 4 – 2 2 4 1 – 3 – – 3 – 3 – 3 3 3 – 3 1 3 1 Column A: indicates the number of meetings held during the period the director was a member of the board and/or committee. Column B: indicates the number of meetings attended during the period the director was a member of the board and/or committee. Other meetings of committees of directors are convened as required to discuss specific issues or projects. 1 Attended meeting although not a member of the committee. All directors are entitled to attend any committee meetings. 2 Dr RJ Edgar was appointed a director on 1 July 2009. Principal activities and changes Nufarm 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 3,155 people at its various locations in Australasia, Africa, the Americas and Europe. The company is listed on the Australian Securities Exchange (symbol NUF). Its head office is located at Laverton in Melbourne. Results The net profit attributable to members of the consolidated entity for the 12 months to 31 July 2009 is $79.9 million. The comparable figure for the 12 months to 31 July 2008 was $137.9 million. Dividends The following dividends have been paid, declared or recommended since the end of the preceding financial year: The final dividend for 2007–08 of 23 cents paid 17 November 2008 The interim dividend for 2008–09 of 12 cents paid 8 May 2009 The final dividend for 2008–09 of 15 cents as declared and recommended by the directors is payable 13 November 2009 $000 42,828 22,469 32,709 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 30 DIRECTORS’ REPORT CONTINuED Nufarm Step-up Securities distribution payment The following Nufarm Step-up Securities distribution payments have been paid since the end of the preceding financial year: Distribution payment for the period 15 April 2008 – 15 October 2008 at the rate of 9.97 per cent per annum paid 15 October 2008 Distribution payment for the period 16 October 2008 – 15 April 2009 at the rate of 7.48 per cent per annum paid 15 April 2009 $000 12,547 9,361 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 3 to 6 and the business review on pages 8 to 12. State of affairs The state of the company’s affairs are set out in the managing director’s review on pages 3 to 6 and the business review on pages 8 to 12. 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 financial accounts, managing director’s review and the business review. Events subsequent to reporting date On 28 September 2009, the directors declared a final unfranked dividend of 15 cents per share, payable 13 November 2009. With the UK Competition Commission inquiry now finalised, plans are advancing for the consolidation of the business activities in the UK at the Wyke location. The plant at Belvedere will cease production in October 2009. No material gain or loss is expected from the closure of the site. On 5 August 2009, Nufarm acquired two US based sorghum companies, Richardson Seeds Ltd and MMR Genetics Ltd. Richardson Seeds is a leading producer and marketer of sorghum seed hybrids, with a leading market share in the US and expanding positions internationally. MMR Genetics is a global leader in the development of elite sorghum germplasm, used by many of the world’s top seed companies. Combined sales of Richardson Seeds and MMR in 2008 totaled approximately US$22 million. Likely developments The directors believe that likely developments in the company’s operations and the expected results of those operations are contained in the managing director’s review and the business review. Environmental performance Details of Nufarm’s performance in relation to environmental regulations are set out on pages 14 to 15. The company incurred the following prosecutions or fines in the financial period relating to environmental performance, namely the Chicago Heights facility was fined US$450 for three small violations of the permit limits for discharge of trade waste to sewer. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 31 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 41 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. Remuneration report – audited 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. In light of the company’s performance for the financial year ended 31 July 2009, the board has resolved: • at the 31 January 2009 half year, performance conditions for applicable cash incentive payments had been met. Notwithstanding, only half of the entitlement was paid at that time; • the company did not achieve the performance condition for the share component of the incentive program and therefore no shares will be delivered to executives for the period ended 31 July 2009; and • there will be no increases in directors’ fees for the period ending 31 July 2010. 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 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 company with extensive international operations. 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 benchmarked with reference to the 62nd percentile of similar sized companies within Mercer’s executive remuneration database; and 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 32 DIRECTORS’ REPORT CONTINuED • an incentive program – upon achievement of the performance condition over six monthly periods, 50 per cent of the incentive will be paid in cash. Upon achievement of the performance condition for the full year, 50 per cent of the incentive will be delivered by way of shares, which, for the key management personnel, ensures a longer-term focus to achieve benefits consistent with the delivery of sustained growth of shareholder value. The exception is the current managing director who is paid in cash because of the very substantial shareholding he currently controls in the company. Management personnel are not permitted to hedge any shares issued to them under the incentive program whilst they remain held in trust. If the company’s financial objectives are achieved and the incentive program is paid at 100 per cent, the TTR will meet the company’s TTR policy position of the upper quartile of similar sized companies within Mercer’s executive remuneration database. Set out below are details of the maximum payment for 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 an ‘economic value added’ methodology. It is believed that if the company can consistently add economic value (a satisfactory margin above the cost of capital), then this will be recognized in share value; 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 (TSR) with relevant comparator groups. Each year, the board reviews and establishes the performance hurdle for the incentive program. The hurdle reflects targets for specific objectives and increasing company value, consistent with the company’s business and investment strategies. The current target ROFE hurdle for the incentive program is 17.25 per cent. At the end of each half year and financial year the board assesses company performance against target ROFE to determine the percentage of any offer to be made under the cash component of the incentive program. At the end of each financial year, the board: • assesses company performance against the target ROFE hurdle to determine the percentage of any offer to be made under the share component of the incentive program; and • reviews target ROFE for the incentive program for the following financial period. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 33 DIRECTORS’ REPORT CONTINuED For the incentive program, 25 per cent of the incentive will be payable on achievement of 90 per cent of target ROFE with a linear progression to 100 per cent of the incentive on achievement of target ROFE and a maximum of 175 per cent of the incentive on achievement of 110 per cent of target ROFE. If less than 90 per cent of target ROFE is achieved, no incentive will be paid. The following table shows the proportion of incentive as a percentage of TTR. Managing director Key management personnel other than non-executive directors Percentage (%) target ROFE achieved <90 0 0 90 20 14 100 110 50 40 64 54 Consequences of performance on shareholders’ wealth The executive remuneration policy is designed to align remuneration with the creation of shareholder wealth. The incentive program links executive reward with company performance. In light of the company’s performance for the financial year ended 31 July 2009, target ROFE for the incentive program was not achieved for the year ended 31 July 2009. Therefore, as set out in total B in the table of key management personnel remuneration on page 37 of this report, for the period ended 31 July 2009, executives will receive 25 per cent of the cash component of the incentive program (referable to the half year ended 31 January 2009) and no shares under the share component of the incentive program. Set out below is a table which summarises the company’s performance and shareholder wealth statistics over the last five years. 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 ROFE achieved EPS **Total Dividend Dividends *Change in Share price shareholder return paid share price 31 July rate $m % cents per share $000 $ $ 2005 2006 2007 2008 2009 196.6 211.2 217.8 311.2 280.3 19.8 17.8 16.6 17.2 11.7 60.5 60.3 59.2 69.7 33.5 26 27 31 33 35 40,548 45,879 53,145 58,332 65,297 4.08 (1.37) 4.31 4.05 (5.86) 10.15 8.80 13.10 16.85 10.84 * 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. % 63 (2.3) 40 17 (41) Service contracts The company has employment contracts with the managing director and the key management personnel. These contracts formalise the terms and conditions of employment. The contracts are for an indefinite term. The company may terminate the contracts upon, in the case of the managing director, 12 months, and in the case of key management personnel, six months notice, in which case a termination payment equivalent to, in the case 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 34 DIRECTORS’ REPORT CONTINuED of the managing director, 24 months, and in the case of key management personnel, 12 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 employment contracts 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 (including superannuation costs). Set out below are details of the annual fees payable at 31 July 2009 (excluding superannuation costs). Chairman1 Deputy chairman1 Director board fees Chairman audit committee Chairman other board committees Member audit committee Member other board committees2 $ 290,000 170,000 115,000 25,000 10,000 5,000 2,500 The board has resolved that there will be no increases in these fees for the period ending 31 July 2010. 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. The board has created a non-executive share plan (NED 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. The NED plan has been suspended pending resolution of the changes to taxation of share plans introduced by the Federal Government. 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 most highly remunerated executives and relevant group executives who receive the highest remuneration are: 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 35 Short term Short term employment Post- Share based payments Other long term Salary Cash bonus Non-monetary benefits $ (vested3) $ and fees $ DIRECTORS’ REPORT CONTINuED In AuD Directors non-executive KM Hoggard (Chairperson) GDW Curlewis (Deputy chairman) Dr RJ Edgar5 Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton6 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 290,000 228,000 116,500 112,000 – – 100,250 86,750 122,750 110,500 117,500 92,750 102,750 89,750 – 57,911 – – – – – – – – – – – – – – – – Executive director DJ Rathbone (Managing director) Executive officers DA Pullan (Group general manager operations) KP Martin (Chief financial officer) B Benson (Group general manager marketing) RF Ooms (Group general manager chemicals) RG Reis (Group general manager corporate strategy and external affairs) DA Mellody (Group general manager global marketing) MJ Pointon (Group general manager innovation and development) R Heath (Company secretary) 2009 2008 1,251,350 1,124,760 923,000 1,525,244 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 539,456 476,138 508,708 447,447 511,820 462,264 470,017 443,781 452,278 387,152 482,846 324,688 246,643 200,031 228,780 219,309 57,500 535,051 55,000 502,077 55,000 498,387 49,583 500,386 45,833, 377,168 38,922 330,815 53,534 61,648 25,417 257,650 1 Total A represents total remuneration paid in the financial year. 2 Total B represents total remuneration referable to the financial period ended 31 July. The difference between Total A and Total B reflects the timing of incentive payments being accrued and settled. 3 All cash bonuses were fully vested. 4 Other than to MJ Pointon, who was promoted to the role of group general manager innovation and development in 2008, no share based offers were made to executives for the period ended 31 July 2008 because of the ChemChina takeover offer. Payments were made in cash. 5 Dr RJ Edgar was appointed a director on 1 July 2009. 6 RFE Warburton retired as a director on 5 December 2007. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 36 – – – – – – – – – – – – – – – – 64,029 37,587 25,890 43,010 27,063 25,713 29,859 36,191 13,595 10,423 39,401 36,049 – 23,919 28,761 26,046 26,630 32,519 Total Superannuation Equity settled4 $ $ Total A Total B Total Remuneration remuneration1 relative to year2 290,000 228,000 116,500 112,000 – – 100,250 86,750 122,750 110,500 117,500 92,750 102,750 89,750 – 57,911 2,238,379 2,687,591 622,846 1,054,199 590,771 975,237 596,679 996,842 533,195 954,590 537,512 800,369 521,768 679,422 328,938 287,725 280,827 509,478 29,000 24,000 45,000 42,000 – – 11,750 9,625 14,000 12,000 11,750 9,750 12,000 9,875 – 6,266 18,332 15,286 94,104 93,339 94,006 87,171 94,866 83,419 90,010 87,901 46,897 44,692 47,430 42,150 44,853 34,015 44,983 42,653 $ – – – – 12,000 25,500 17,250 9,500 17,250 9,500 – 4,750 17,250 9,500 – 4,750 – – – – – – – – 208,333 200,000 200,000 188,333 166,667 150,000 74,866 47,045 96,667 – $ – – – – – – – – – – – – – – – – 23,943 29,892 27,007 32,841 19,813 24,085 15,865 15,872 21,282 47,215 15,074 27,999 15,409 4,471 9,408 11,353 $ – – 319,000 264,000 187,000 154,000 129,250 105,875 154,000 132,000 129,250 107,250 132,000 109,125 – 68,927 949,226 1,177,430 911,784 1,095,249 911,358 1,104,346 827,403 1,058,363 772,358 892,276 734,272 749,571 464,066 373,256 431,885 563,484 $ – – 319,000 264,000 187,000 154,000 129,250 105,875 154,000 132,000 129,250 107,250 132,000 109,125 – 68,927 740,893 1,059,046 711,784 1,018,172 711,358 1,005,959 639,070 934,644 605,691 848,441 584,272 718,756 389,200 448,122 335,218 499,167 114,567 105,538 2,371,278 2,808,415 1,591,278 2,583,171 Short term Salary Cash bonus Non-monetary and fees (vested3) benefits $ $ In AuD Directors non-executive KM Hoggard (Chairperson) GDW Curlewis (Deputy chairman) Dr RJ Edgar5 Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker RFE Warburton6 Executive director DJ Rathbone (Managing director) Executive officers DA Pullan (Group general manager operations) KP Martin (Chief financial officer) B Benson (Group general manager marketing) RF Ooms (Group general manager chemicals) RG Reis (Group general manager corporate strategy and external affairs) DA Mellody (Group general manager global marketing) MJ Pointon (Group general manager innovation and development) R Heath (Company secretary) $ – – – – – – – – – – – – – – – – 57,500 535,051 55,000 502,077 55,000 498,387 49,583 500,386 45,833, 377,168 38,922 330,815 53,534 61,648 25,417 257,650 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 290,000 228,000 116,500 112,000 – – 100,250 86,750 122,750 110,500 117,500 92,750 102,750 89,750 – 57,911 539,456 476,138 508,708 447,447 511,820 462,264 470,017 443,781 452,278 387,152 482,846 324,688 246,643 200,031 228,780 219,309 2009 2008 1,251,350 1,124,760 923,000 1,525,244 – – – – – – – – – – – – – – – – 64,029 37,587 25,890 43,010 27,063 25,713 29,859 36,191 13,595 10,423 39,401 36,049 – 23,919 28,761 26,046 26,630 32,519 2 Total B represents total remuneration referable to the financial period ended 31 July. The difference between Total A and Total B 1 Total A represents total remuneration paid in the financial year. reflects the timing of incentive payments being accrued and settled. 3 All cash bonuses were fully vested. 4 Other than to MJ Pointon, who was promoted to the role of group general manager innovation and development in 2008, no share based offers were made to executives for the period ended 31 July 2008 because of the ChemChina takeover offer. Payments were made in cash. 5 Dr RJ Edgar was appointed a director on 1 July 2009. 6 RFE Warburton retired as a director on 5 December 2007. DIRECTORS’ REPORT CONTINuED Short term Post- employment Share based payments Other long term Total Superannuation $ $ Equity settled4 $ 290,000 228,000 116,500 112,000 – – 100,250 86,750 122,750 110,500 117,500 92,750 102,750 89,750 – 57,911 2,238,379 2,687,591 622,846 1,054,199 590,771 975,237 596,679 996,842 533,195 954,590 537,512 800,369 521,768 679,422 328,938 287,725 280,827 509,478 29,000 24,000 45,000 42,000 – – 11,750 9,625 14,000 12,000 11,750 9,750 12,000 9,875 – 6,266 18,332 15,286 94,104 93,339 94,006 87,171 94,866 83,419 90,010 87,901 46,897 44,692 47,430 42,150 44,853 34,015 44,983 42,653 Total A Total B Total Remuneration remuneration1 relative to year2 $ $ 319,000 264,000 187,000 154,000 – – 129,250 105,875 154,000 132,000 129,250 107,250 132,000 109,125 – 68,927 319,000 264,000 187,000 154,000 – – 129,250 105,875 154,000 132,000 129,250 107,250 132,000 109,125 – 68,927 $ – – – – – – – – – – – – – – – – – 12,000 25,500 – – – 17,250 9,500 17,250 9,500 – 4,750 17,250 9,500 – 4,750 – – 114,567 105,538 2,371,278 2,808,415 1,591,278 2,583,171 208,333 – 200,000 – 200,000 – 188,333 – 166,667 – 150,000 – 74,866 47,045 96,667 – 23,943 29,892 27,007 32,841 19,813 24,085 15,865 15,872 21,282 47,215 15,074 27,999 15,409 4,471 9,408 11,353 949,226 1,177,430 911,784 1,095,249 911,358 1,104,346 827,403 1,058,363 772,358 892,276 734,272 749,571 464,066 373,256 431,885 563,484 740,893 1,059,046 711,784 1,018,172 711,358 1,005,959 639,070 934,644 605,691 848,441 584,272 718,756 389,200 448,122 335,218 499,167 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 37 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 or 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 39 and forms part of the directors’ report for the financial year ended 31 July 2009. 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 28 September 2009 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 38 LEAD AuDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 To: the directors of Nufarm Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 July 2009 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 28 September 2009 KPMG, an Australian partnership and a member firm of the KPMG network of independent member films affiliated with KPMG International, a Swiss cooperative. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 39 INCOmE STATEmENTS FOR THE yEAR ENDED 31 JULy 2009 Consolidated Company Note 2009 $000 2008 $000 2009 $000 2008 $000 Continuing operations Revenue Cost of sales Gross profit Other income Sales, marketing and distribution expenses General and administrative expenses Research and development expenses Share of net profits of associates Operating result Barter trade loss realised on option contracts – Brazil Net non-cash revaluation profit/(loss) on proceeds from Nufarm Step-up Securities financing Profit before net financing costs and income tax Financial income Financial expenses Net financing costs 7 19 6 6 6 10 10 2,677,083 (2,121,446) 2,492,458 (1,747,965) 555,637 744,493 11,054 (210,914) (162,018) (45,375) 3,080 151,464 5,519 (263,878) (138,378) (41,585) 2,698 308,869 – (34,259) (431) (4,119) 48,584 (36,184) 12,400 55,249 (3,846) (5,057) (860) 1,090 58,976 – – 57,919 (39,910) 18,009 63,060 (4,784) (7,076) (515) 1,237 69,931 – – 151,033 270,491 58,976 69,931 8,177 (100,253) (92,076) 3,202 (83,397) (80,195) 698 (3,160) (2,462) 119 (3,183) (3,064) Profit before income tax 58,957 190,296 56,514 66,867 Income tax (expense)/benefit 11 21,585 (52,176) (1,165) (2,169) Profit for the period from continuing operations 6 80,542 138,120 55,349 64,698 Attributable to: Equity holders of the company Minority interest 79,877 665 137,915 205 55,349 – 64,698 – Profit for the period 80,542 138,120 55,349 64,698 Earnings per share Basic earnings per share Diluted earnings per share Continuing operations Basic earnings per share Diluted earnings per share 30 30 30 30 33.5 33.5 33.5 33.5 69.7 69.7 69.7 69.7 The income statements are to be read in conjunction with the attached notes. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 40 BALANCE ShEETS AS AT 31 JULy 2009 Assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Total current assets Non-current assets Receivables Equity accounted investments Other investments Deferred tax assets Property, plant and equipment Intangible assets Other financial assets Total non-current assets TOTAL ASSETS Current liabilities Bank overdraft Trade and other payables Loans and borrowings Employee benefits Current tax payable Provisions Total current liabilities Non-current liabilities Payables Loans and borrowings Deferred tax liabilities Employee benefits 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 2009 $000 2008 $000 2009 $000 2008 $000 15 16 17 18 16 19 20 18 22 23 21 15 24 25 26 18 28 24 25 18 26 29 29 29 29 29 29 84,312 787,760 797,383 48,973 59,143 839,963 843,544 61,185 1,856 790,324 17,734 93 3,308 467,536 17,318 12,860 1,718,428 1,803,835 810,007 501,022 33,125 12,468 7,442 194,960 435,468 848,739 967 29,041 24,264 354 93,270 433,112 821,500 8,504 – 9,803 306,331 2,921 4,864 971 – – 9,206 300,769 1,603 5,283 49 – 1,533,169 1,410,045 324,890 316,910 3,251,597 3,213,880 1,134,897 817,932 35,669 407,421 584,692 20,671 17,772 26,091 20,841 778,060 587,612 18,222 12,461 6,184 – 107,397 – 432 5,804 – – 133,671 – 342 7,227 – 1,092,316 1,423,380 113,633 141,240 17,695 402,327 64,215 43,105 527,342 39,842 351,456 57,239 36,745 485,282 – – – – – – – 74 52 126 1,619,658 1,908,662 113,633 141,366 1,631,939 1,305,218 1,021,264 676,566 812,844 (13,006) 584,348 456,870 6,822 593,558 812,844 36,027 172,393 1,384,186 246,932 821 1,057,250 246,932 1,036 1,021,264 – – 456,870 37,355 182,341 676,566 – – 1,631,939 1,305,218 1,021,264 676,566 The balance sheets are to be read in conjunction with the attached notes. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 41 STATEmENTS OF CASh FLOwS FOR THE yEAR ENDED 31 JULy 2009 Consolidated Company Note 2009 $000 2008 $000 2009 $000 2008 $000 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 Payment for barter trade loss realised on option contracts – Brazil 2,874,917 (2,799,092) 2,580,996 (2,523,981) 75,825 8,177 423 (100,252) (37,298) 57,015 3,202 373 (83,397) (70,336) 53,928 (54,180) (252) 698 52,700 (3,160) 8,827 65,692 (55,281) 10,411 119 59,817 (3,183) (10,921) – (34,259) – – Net cash from operating activities 37 (53,125) (127,402) 58,813 56,243 Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of businesses and investments Payments for plant and equipment Payment for investments Purchase of businesses, net of cash acquired Payments for acquired intangibles and major product development expenditure 284 8,086 – 70 12,821 (54,317) (8,321) (14,454) 3,306 (69,509) – (374,256) – (191) – – – (1,524) – – (48,257) (61,211) (989) (62) Net investing cash flows (112,244) (493,584) (1,180) (1,516) Cash flows from financing activities Shares issued under private placement (net of costs) Shares issued under share purchase plan Proceeds from borrowings Repayment of borrowings Repayment of receivables securitisation program Advances to controlled entities Distribution to NSS holders Dividends paid 294,764 35,691 56,022 (43,799) (94,728) – (21,908) (53,208) 197,755 10,791 600,774 (148,272) – – (22,036) (58,422) 294,764 35,691 – – – (337,008) – (52,592) 197,755 10,791 – – – (212,452) – (58,264) 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 42 Net financing cash flows 172,834 580,590 (59,145) (62,170) Net increase (decrease) in cash and cash equivalents Cash at the beginning of the year Exchange rate fluctuations on foreign cash balances Cash and cash equivalents at 31 July 15 7,465 38,302 2,876 48,643 (40,396) 79,661 (1,512) 3,308 (963) 60 38,302 1,856 (7,443) 12,367 (1,616) 3,308 The statements of cash flows are to be read in conjunction with the attached notes. STATEmENTS OF RECOGNISED INCOmE AND ExPENSE FOR THE yEAR ENDED 31 JULy 2009 Consolidated Company Note 2009 $000 2008 $000 2009 $000 2008 $000 Items recognised directly in equity Foreign exchange translation differences for foreign operations Actuarial gains/(losses) on defined benefit plans Income tax on share issue costs recognised directly in equity 29 (19,788) (2,491) (1,328) (7,871) 29 (8,454) (2,451) – – 29 1,683 699 1,683 699 Income and expense recognised directly in equity (26,559) (4,243) 355 (7,172) Profit for the year 80,542 138,120 55,349 64,698 Total recognised income and expense for the year 53,983 133,877 55,704 57,526 Attributable to: Equity holders of the parent Minority interest 53,895 88 133,702 175 55,704 – 57,526 – Total recognised income and expense for the year 53,983 133,877 55,704 57,526 Other movements in equity arising from transactions with owners are set out in note 29. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 43 NOTES TO ThE FINANCIAL STATEmENTS 1. Reporting entity Nufarm Limited (the ‘company’) is domiciled in Australia. The address of the company’s registered office is 103–105 Pipe Road, Laverton North, Victoria, 3026. The consolidated financial statements of the company as at and for the year ended 31 July 2009 comprise the company and its subsidiaries (together referred to as the ‘group’ and individually as ‘group entities’) and the group’s interest in associates and jointly controlled entities. The group is primarily involved in the manufacture and sale of crop protection products used by farmers to protect crops from damage caused by weeds, pests and disease. 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 and the financial report of the company comply with International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board (IASB). (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments which 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 accounting policies and the 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 and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant impact on the amount recognised in the financial statements are described below. (i) Business combinations Fair valuing assets and liabilities acquired in a business combination involves making assumptions about the timing of cash inflows and outflows, growth assumptions, discount rates and cost of debt. Refer to note 14 for details of acquisitions made during the period. (ii) Impairment testing The group determines whether goodwill and intangibles with indefinite useful lives are impaired on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units, using a value in use discounted cash flow methodology. The estimation of future cash flows requires management to make significant estimates and judgements concerning the identification of impairment indicators, earnings before interest and tax, growth rates, applicable discount rates and useful lives. Further details can be found in note 23 on intangibles. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 44 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 2. Basis of preparation (continued) (d) Use of estimates and judgements (continued) (iii) Income taxes The group is subject to income taxes in Australia and overseas jurisdictions. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts initially recorded, such differences will impact the current and deferred tax provisions in the period in which the tax determination is made. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. (iv) Defined benefit plans A liability in respect of defined benefit pension plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date less the fair value of the pension plan’s assets. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund at the reporting date, calculated annually by independent actuaries. Consideration is given to expected future salary levels, experience of employee departures and periods of service. Refer note 26 for details of the key assumptions used in determining the accounting for these plans. (v) Valuation of inventories Inventories of finished goods, raw materials and work in progress are valued at lower of cost and net realisable value. The net realisable value of inventories is the estimated market price at the time the product is expected to be sold. (vi) Valuation of receivables Nufarm and a major supplier are currently in dispute with respect to a claim that the supplier is liable for a relevant share of losses attributable to the sale of product during the 2009 financial year. The parties entered into an Agreement in 2002 that provides for the sharing of costs and proceeds associated with Nufarm’s sale of products. Nufarm’s claim, for approximately $37 million, is being contested by the supplier. Nufarm is confident it will recover all of this amount and will vigorously pursue its claim. 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. Certain comparative amounts have been reclassified to conform with the current year’s presentation. (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. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the group. In the company’s financial statements, investments in subsidiaries are carried at cost. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 45 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (a) Basis of consolidation (continued) Associates and jointly controlled entities (equity accounted investments) Associates are those entities in which the group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the group holds between 20 and 50 per cent of the voting power of another entity. Jointly controlled entities are those entities over whose activities the group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and jointly controlled entities are accounted for using the equity method (equity accounted investments) and are initially recognised at cost. The group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the group’s share of losses exceeds its interest in an equity accounted investment, 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 investee. Transactions eliminated on consolidation Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the group’s interest in the investee. 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 equity accounted investee or, if not consumed or sold by the equity accounted investee, when the group’s interest in such entities is disposed of. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. Non- monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Foreign currency gains and losses are included in cost of sales as they mostly relate to the purchase of raw materials from overseas suppliers. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 46 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (b) Foreign currency (continued) Foreign operations (continued) Foreign currency translation differences are recognised directly in equity. Since 1 August 2004, the group’s date of transition to Australian equivalents to IFRS, 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. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign subsidiary, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign subsidiary and are recognised directly in equity in FCTR. (c) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise 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. Subsequent to initial recognition non-derivative financial instruments are measured as described below. 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 statement of cash flows. Accounting for finance income and expense is discussed in note 3(n). Financial assets at fair value through profit or loss An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the group manages such investments and makes purchases and sale decisions based on their fair value in accordance with the group’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit and loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. Other 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 manage its foreign currency and interest rate risk exposures. Derivatives are recognised initially at fair value, with attributable transaction costs recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives continue to be measured at fair value, with changes therein accounted for in profit or loss. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 47 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (c) Financial instruments (continued) Derivative financial instruments (continued) Cash flow hedges The group has not entered into any cash flow hedging transactions in the current or comparative periods. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit. Dividends on ordinary shares are recognised as a liability in the period in which they are declared. Hybrid securities The group has on issue a hybrid security called Nufarm Step-up Securities (NSS). The NSS are classified as equity instruments and after-tax distributions thereon are recognised as distributions within equity. (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 by reference to its fair value at that date. 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. Borrowing costs related to the acquisition or construction of qualifying assets are recognised in profit or loss as incurred. 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. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within ‘other income’ in profit or loss. 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 carrying amount of the replaced part is derecognised. 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, unless it is reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 48 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (d) Property, plant and equipment (continued) Recognition and measurement (continued) Depreciation (continued) The estimated useful lives for the current and comparative periods are as follows: • buildings 15–50 years • leasehold improvements 5 years • plant and equipment 10–15 years • motor vehicles 5 years • computer equipment 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 jointly controlled entities. Acquisitions prior to 1 August 2004 As part of its transition to IFRS, 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. When the excess is negative, it is recognised immediately in profit or loss. Acquisitions of minority interests Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of acquisition. 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 profit or loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the group has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are recognised in profit or loss as incurred. Development expenditure that does not meet the above criteria is recognised in profit or loss as incurred. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 49 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (e) Intangible assets (continued) Research and development (continued) 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. Other intangible assets Other intangible assets that are acquired by the group, which have finite useful lives, are measured at cost less accumulated amortisation and impairment losses. 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 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, production or conversion costs and other costs incurred in 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 50 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (h) Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. 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. 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. 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, the reversal is recognised in profit or loss. 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. 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 and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash flows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. 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. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 51 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 generally 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, deferred tax assets and employee benefit assets, 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 plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The group’s net obligation in respect of defined benefit 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. Any unrecognised past service costs and the fair value of any plan assets are 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 and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually 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. An economic benefit is available to the group if it is realisable during the life of the plan, or on settlement of the plan liabilities. 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. The group recognises all actuarial gains and losses arising from the defined benefit plans directly in equity immediately. Other long term employee benefits The group’s net obligation in respect of long term employee benefits, other than defined benefit plans, is the amount of 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. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 52 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 either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense 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 Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability 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 expense 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 27 for details of the global share plan. When the company grants options over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity. (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 and the risks specific to the liability. 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, 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, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 53 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, 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, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss 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, changes in the fair value of financial assets at fair value through profit or loss, dividends on preference shares classified as liabilities, 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 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. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. 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 substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 54 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (o) Income tax (continued) Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. Tax consolidation The company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax-consolidated group are 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 of assets and liabilities 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 are assumed by the head entity in the tax-consolidated group and are recognised by the company 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 55 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (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. 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 re-presented 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. The geographic segments are determined based on the group’s management and internal reporting structure. Inter-segment pricing is determined on an arms length basis. 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 loans and borrowings and related expenses, corporate assets and head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets other than goodwill. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 56 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (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 2009, but have not been applied in preparing this financial report: • Revised AASB 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the group’s operations: – the definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations; – contingent consideration will be measured at fair value, with subsequent changes recognised in profit or loss; – transaction costs, other than share and debt issue costs, will be expensed as incurred; – any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss; and – any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Revised AASB 3, which becomes mandatory for the group’s 31 July 2010 financial statements, will be applied prospectively and therefore, there will be no impact on prior periods. • AASB 8 Operating Segments introduces the ‘management approach’ to segment reporting. AASB 8, which becomes mandatory for the group’s 31 July 2010 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the group’s chief operating decision maker in order to assess each segment’s performance and to allocate resources to them. Currently, the group presents segment information in respect of its geographical segments (see note 5). This is not expected to change under AASB 8. • Revised AASB 101 Presentation of Financial Statements (2007) introduces the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement) or, in an income statement and a separate statement of comprehensive income. Revised AASB 101, which becomes mandatory for the group’s 31 July 2010 financial statements, is not expected to have a significant impact, as the group already presents a separate statement of recognised income and expense that reports all non-owner changes in equity. • Amended AASB 127 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by the group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to AASB 127, which become mandatory for the group’s 31 July 2010 financial statements, are not expected to have a significant impact on the consolidated financial statements. • Revised AASB 123 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised AASB 123 will become mandatory for the group’s 31 July 2010 financial statements and will constitute a change in accounting policy for the group, as the group currently expenses all borrowing costs. In accordance with the transitional provisions the group will apply the revised AASB 123 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. Therefore, there will be no impact on prior periods in the group’s 31 July 2010 financial statements. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 57 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 3. Significant accounting policies (continued) (t) New standards and interpretations not yet adopted (continued) • AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payment: Vesting Conditions and Cancellations clarifies the definition of vesting, introduces the concept of non-vesting conditions, requires non-vesting conditions to be reflected in grant-date fair value and provides the accounting treatment for non-vesting conditions and cancellations. The amendments to AASB 2 will be mandatory for the group’s 31 July 2010 financial statements, with retrospective application. The group has not yet determined the potential effect of the amendment. • AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Process and AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the group’s 31 July 2010 financial statements, are not expected to have a significant impact on the financial statements. • AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate changes the recognition and measurement of dividend receipts as income and addresses the accounting of a newly formed parent entity in the separate financial statements. The amendments become mandatory for the group’s 31 July 2010 financial statements. The group has not yet determined the potential effect of the amendment. • AI 16 Hedges of a Net Investment in a Foreign Operation clarifies that net investment hedging can only be applied when the net assets of the foreign operation are recognised in the entity’s consolidated financial statements. AI 16 will become mandatory for the group’s 31 July 2010 financial statements. The interpretation is not expected to have any impact on the financial statements. 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. When 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 58 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 4. Determination of fair values (continued) (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) 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. (v) 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. (vi) 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. 5. Segment reporting Segment information is presented in respect of the group’s geographic segments. This is 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, North America and South America. The North America region includes Canada, USA, Mexico, the Central American countries and the Andean region. The South America region includes Brazil, Argentina, Chile, Uruguay, Paraguay and Bolivia. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 59 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 5. Segment reporting (continued) Geographic segments 2009 Revenue Total segment revenue Results Segment result before associate profit Share of profit of associates Segment result Unallocated corporate expenses Operating result Net non-cash revaluation profit/(loss) on proceeds from Nufarm Step-up Securities financing Net financing costs Income tax benefit Profit for the period 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 North America $000 South America $000 Consolidated $000 850,211 636,928 775,375 414,569 2,677,083 117,366 1,100 98,652 1,934 118,466 100,586 8,305 46 8,351 (40,880) – (40,880) 808,444 10,656 852,219 1,812 580,115 – 653,988 – 162,760 221,321 55,593 75,310 183,443 3,080 186,523 (35,059) 151,464 (431) (92,076) 21,585 80,542 2,894,766 12,468 344,363 3,251,597 514,984 1,104,674 1,619,658 32,408 18,960 5,360 45,163 21,177 8,338 21,570 5,841 2,558 6,541 2,434 1,294 105,682 48,412 17,550 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 60 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 5. Segment reporting (continued) Geographic segments 2008 Revenue Total segment revenue Australasia $000 Europe $000 North America $000 South America $000 Consolidated $000 874,992 554,661 631,383 431,422 2,492,458 Results Segment result before associate profit Share of profit of associates 146,364 1,228 54,908 1,336 84,336 134 59,301 – Segment result 147,592 56,244 84,470 59,301 344,909 2,698 347,607 (38,738) 308,869 (34,259) (4,119) (80,195) (52,176) 138,120 2,949,071 24,264 240,545 3,213,880 879,052 1,029,610 1,908,662 802,727 10,182 823,279 13,628 599,214 454 723,851 – 311,133 266,017 221,504 80,398 Unallocated corporate expenses Operating result Barter trade loss realised on option contracts – Brazil Net non-cash revaluation profit/(loss) on proceeds from Nufarm Step-up Securities financing Net financing costs Income tax expense Profit for the period Assets Segment assets Investment in associates Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation Amortisation 61,400 17,253 2,388 173,120 12,889 5,929 119,661 4,182 1,399 27,628 2,256 1,184 381,809 36,580 10,900 Capital expenditure includes the fixed assets, goodwill and intangibles resulting from the AH Marks and Etigra acquisitions. The AH Marks’ values are included in Europe and Etigra is included in North America. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 61 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 6. Items of material income and expense The following material items of income/(expense) were included in the period result: Cost of sales items Net realisable value adjustment – year end inventories Net realisable value adjustment – product sold Restructuring – French business General and administrative expense items Competition inquiries (AH Marks) Provision for non-collectability of sale proceeds Due diligence costs Restructuring – French business and sale of equity investment Disclosed on face of income statement Barter trade loss realised on option contracts – Brazil Net non-cash revaluation profit/(loss) on proceeds from Nufarm Step-up Securities financing 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 receivables1 Movement in stock obsolescence provision Exchange gains/(losses) 1 Excludes items set out in Note 6. Consolidated Consolidated 2009 $000 Pre-tax 2009 $000 After-tax 2008 $000 Pre-tax 2008 $000 After-tax (67,611) (37,770) (16,421) (121,802) (10,567) (2,564) (1,859) 9,593 (5,397) (40,794) (22,662) (10,989) (74,445) (10,182) (1,709) (1,364) 8,247 (5,008) – – – – (66) – (1,000) – (1,066) – – – – (66) – (524) – (590) – – (34,259) (22,611) (431) (302) (4,119) (2,760) (127,630) (79,755) (39,444) (25,961) Consolidated Company 2009 $000 – – 11,054 11,054 2008 $000 – – 5,519 5,519 2009 $000 52,700 2,038 511 55,249 2008 $000 59,444 3,240 376 63,060 (65,962) (4,241) (648) (27,528) (47,480) (533) (828) 2,337 (698) – – 326 (646) (43) (50) (281) 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 62 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 9. Personnel expenses Wages and salaries Other associated personnel expenses Contributions to defined contribution superannuation funds Expenses related to defined benefit superannuation funds Annual leave expense Long-service leave expense Restructuring expense – French social plan Consolidated Company 2009 $000 2008 $000 (203,969) (37,214) (177,724) (30,023) 2009 $000 (4,005) (488) 2008 $000 (4,278) (309) (10,847) (8,590) (550) (521) (457) (6,319) (1,886) (23,403) (3,290) (7,106) (2,180) – – (396) – – – (323) – – (284,095) (228,913) (5,439) (5,431) The restructuring expense in France represents the redundancy costs associated with the shut down of two manufacturing units at the Gaillon plant. The restructuring costs are included in the material items in note 6. 10. Finance income and expense Interest income – controlled subsidiaries Interest income – external Financial income Interest expense – controlled entities Interest expense – external Lease expense – finance charges Costs of securitisation program Financial expenses Consolidated Company 2009 $000 – 8,177 8,177 – (98,796) (1,887) 430 (100,253) 2008 $000 – 3,202 3,202 – (75,553) – (7,844) (83,397) 2009 $000 364 334 698 (3,093) (67) – – (3,160) 2008 $000 – 119 119 (3,129) (54) – – (3,183) Net financing costs (92,076) (80,195) (2,462) (3,064) 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 63 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 11. Income tax expense/(benefit) 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 Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 6,161 (247) 5,914 (10,228) 2,604 (19,875) (27,499) 43,941 (1,663) 42,278 12,717 283 (3,102) 9,898 414 314 728 437 – – 437 2,016 87 2,103 58 8 – 66 Total income tax expense/(benefit) in income statement (21,585) 52,176 1,165 2,169 Attributable to: Continuing operations (21,585) (21,585) 52,176 52,176 1,165 1,165 2,169 2,169 Numerical reconciliation between tax expense/(benefit) and pre-tax net profit Profit before tax – continuing 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 Other taxable income Effect of changes in the tax rate Effect of tax losses derecognised/(recognised) Decrease in income tax expense due to: Effect on tax rate in foreign jurisdictions Tax exempt income Tax incentives not recognised in the income statement Under/(over) provided in prior years Income tax expense/(benefit) on pre-tax net profit 58,957 58,957 190,296 190,296 56,514 56,514 66,867 66,867 17,687 57,089 16,954 20,060 3,175 1,383 2,604 1,015 (38,850) (1,225) (7,127) (21,338) (247) (21,585) 3,601 – (459) – (2,206) (300) (3,886) 53,839 (1,663) 52,176 3 – – – – (16,106) – 851 314 1,165 281 – 8 – (63) (18,204) – 2,082 87 2,169 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 64 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 11. Income tax expense/(benefit) (continued) Income tax expense/(benefit) recognised directly in equity Relating to actuarial gains on defined benefit plans Relating to cost of issuing equity Nufarm Step-up Securities distribution Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 (3,363) (1,683) (6,572) (11,618) 221 (699) (7,272) (7,750) – (1,683) – (1,683) – (699) – (699) 12. Discontinued operation There were no discontinued operations in the current or prior year. 13. Non-current assets held for sale There were no assets held for sale at the end of the current or prior financial periods. 14. Acquisition of subsidiaries On 1 October 2008, the group acquired the shares in Lefroy Seeds Pty Ltd. Lefroy Seeds specialises in hybrid breeding, production and commercialisation activities in sunflower and sorghum with facilities located in Toowoomba, Queensland, Australia. In the period to 31 July 2009, this business contributed profit of $169,257 to the consolidated group after tax profit. If the above acquisition had occurred on 1 August 2008, the full-year contribution to group revenues would have been $2,578,172 and to the consolidated entity’s profit after tax would have been $203,108. Pre-acquisition carrying amounts $000 Preliminary fair value adjustments $000 Recognised values on acquisition $000 Acquiree’s net assets at acquisition date Cash and cash equivalents Receivables Inventory Property, plant and equipment Intangibles Other assets Trade and other payables Employee benefits Other liabilities Net identifiable assets and liabilities Acquisition costs Identifiable intangibles acquired on acquisition Goodwill on acquisition Consideration paid Cash acquired Consideration satisfied by issue of shares Net cash outflow 175 353 236 167 8 621 (113) (21) (68) 1,358 2009 – – 102 – (8) – – (85) – 9 175 353 338 167 – 621 (113) (106) (68) 1,367 (46) 5,074 5,075 11,470 (175) (7,975) 3,320 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 65 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 14. Acquisition of subsidiaries (continued) Pre-acquisition carrying values were determined based on applicable AASBs 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 acquisition above, mainly resulting from the synergies that this acquisition brings to the Nufarm group. Acquisitions during the prior year included the AH Marks (5 March 2008) and Etigra (31 March 2008) businesses. AH Marks is a manufacturer and supplier of crop protection and industrial products. The company is based at Wyke, UK and the purchase price was £74.6 million, consisting of cash consideration of £46.5 million with £28.1 million in assumed debt. Etigra is a supplier of crop protection products, specialising in the US turf and specialty markets. It is based in North Carolina and the assets of Etigra were acquired for US$65 million. Recognised values $000 Fair value adjustments $000 Carrying amounts $000 Acquiree’s net assets at acquisition date Cash and cash equivalents Receivables Inventory Property, plant and equipment Intangibles Deferred taxes Trade and other payables Employee benefits Interest bearing loans and borrowings Other liabilities Net identifiable assets and liabilities 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 (935) 57,877 11,905 75,561 4,059 (6,391) (49,277) (6,771) (40,303) (10,457) 35,268 2008 – – – – (3,471) 11,199 3,887 2,111 – – 13,726 (935) 57,877 11,905 75,561 588 4,808 (45,390) (4,660) (40,303) (10,457) 48,994 2,407 82,023 35,139 168,563 (11,135) 935 158,363 The provisional accounting for the AH Marks and Etigra acquisitions was adjusted during the current year. The AH Marks goodwill was adjusted for the recognition of previously unrecognised tax losses ($11.2 million). The Etigra identified intangibles was adjusted following the finalisation of the valuation of certain intangible assets. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 66 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 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 16. Trade and other receivables Current Trade receivables Provision for impairment losses Receivables due from controlled entities Loans due from controlled entities Receivables due from associates Receivables due from securitisation program Derivative financial instruments Proceeds receivable from sale of businesses Other receivables and prepayments Non-current Receivables due from associates Other receivables Proceeds receivable from sale of businesses Provision for non-collectability of sale proceeds Consolidated Company 2009 $000 48,502 35,810 84,312 (35,669) 2008 $000 12,611 46,532 59,143 (20,841) 2009 $000 669 1,187 1,856 – 2008 $000 3,308 – 3,308 – 48,643 38,302 1,856 3,308 Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 680,573 (25,087) 685,316 (23,339) 655,486 661,977 – – 475 – 16,118 6,230 109,451 – – 362 52,176 26,946 3,306 95,196 4,681 – 4,681 6,637 778,111 – – – – 895 4,713 (43) 4,670 939 461,389 – – 375 – 163 787,760 839,963 790,324 467,536 38 9,319 27,101 (3,333) 33,125 – 22,656 9,491 (3,106) 29,041 – – – – – – – – – – Total trade and other receivables 820,885 869,004 790,324 467,536 Nufarm and a major supplier are currently in dispute with respect to a claim that the supplier is liable for a relevant share of losses attributable to the sale of product during the 2009 financial year. The parties entered into an Agreement in 2002 that provides for the sharing of costs and proceeds associated with Nufarm’s sale of products. Nufarm’s claim, for approximately $37 million, is being contested by the supplier. Nufarm is confident it will recover all of this amount and will vigorously pursue its claim. The $37 million claim is included in other receivables and prepayments. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 67 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 17. Inventories Raw materials Work in progress Finished goods Provision for obsolescence of finished goods Consolidated Company 2009 $000 223,461 7,932 571,003 802,396 (5,013) 2008 $000 285,340 18,560 543,804 847,704 (4,160) 2009 $000 3,324 116 14,294 17,734 – 17,734 2008 $000 – 336 17,041 17,377 (59) 17,318 Total inventories 797,383 843,544 The finished goods and raw material values above are net of the net realisable value adjustment referred to in note 6. 18. Tax assets and liabilities Current tax assets and liabilities The current tax asset for the group of $48,973,455 (2008: $61,185,329) and for the company of $93,012 (2008: $12,860,431) represents the amount of income taxes recoverable in respect of prior periods and that arise from the payment of tax in excess of the amounts due to the relevant tax authority. The current tax liability for the group of $17,771,673 (2008: $12,461,369) and the company of $5,804,378 (2008: $7,226, 722) represent the amount of income taxes payable in respect of current and prior financial periods. The company liability includes the income tax payable by all members of the tax consolidated group. 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 Employee benefits Provisions Other items Tax value of losses carried forward Assets Liabilities Net 2009 $000 9,467 6,545 14,889 14,500 35,541 2008 $000 11,478 6,428 11,956 5,044 18,501 2009 $000 2008 $000 2009 $000 (12,338) (52,275) – – (8,578) (17,010) (39,528) – – (9,406) (2,871) (45,730) 14,889 14,500 26,963 2008 $000 (5,532) (33,100) 11,956 5,044 9,095 122,994 48,568 – – 122,994 48,568 Tax assets/(liabilities) Set off of tax 203,936 (8,976) 101,975 (8,705) (73,191) 8,976 (65,944) 8,705 130,745 – 36,031 – Net tax assets/(liabilities) 194,960 93,270 (64,215) (57,239) 130,745 36,031 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 68 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 18. Tax assets and liabilities (continued) Company Property, plant and equipment Employee benefits Provisions Other items Net tax assets/(liabilities) Assets Liabilities Net 2009 $000 15 106 – 2,800 2,921 2008 $000 – 118 31 1,454 1,603 2009 $000 2008 $000 – – – – – (73) – – (1) (74) 2009 $000 15 106 – 2,800 2,921 2008 $000 (73) 118 31 1,453 1,529 movement in temporary differences during the year Balance Recognised Recognised in income 31.07.08 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 (5,532) (33,100) 11,956 5,044 9,095 4,429 (12,202) (2,601) 9,654 14,517 48,568 36,031 24,750 38,547 – – 3,363 – 1,683 – 5,046 Balance 31.07.09 $000 (2,871) (45,730) 14,889 14,500 26,963 78 (428) (293) (198) 1,624 (1,846) – 2,464 – 44 (2,092) (1,309) 51,768 122,994 52,430 130,745 Consolidated 2009 Property, plant and equipment Intangibles assets Employee benefits Provisions Other items Tax value of losses carried forward Consolidated 2008 Balance Recognised Recognised in income 31.07.07 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 Property, plant and equipment Intangibles assets Employee benefits Provisions Other items Tax value of losses carried forward 4,355 (13,467) 11,917 3,908 8,001 (10,160) (20,130) 404 984 1,459 43,970 2,956 58,684 (24,487) – – (221) – – – (221) 250 497 (144) (163) 880 1,642 2,962 23 – – 315 (1,245) – (907) Balance 31.07.08 $000 (5,532) (33,100) 11,956 5,044 9,095 48,568 36,031 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 69 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 18. Tax assets and liabilities (continued) Deferred tax assets and liabilities movement in temporary differences during the year Company 2009 Balance Recognised Recognised in income 31.07.08 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 Property, plant and equipment Employee benefits Provisions Other items (73) 118 31 1,453 1,529 88 (12) (31) 1,347 1,392 – – – – – – – – – – – – – – – Company 2008 Balance Recognised Recognised in income 31.07.07 $000 $000 Other Currency in equity adjustment movement $000 $000 $000 Property, plant and equipment Employee benefits Provisions Other items (2) 369 9 701 1,077 (71) (235) 26 226 (54) – – – – – – (16) (4) – (20) – – – 526 526 Balance 31.07.09 $000 15 106 – 2,800 2,921 Balance 31.07.08 $000 (73) 118 31 1,453 1,529 Unrecognised deferred tax liability At 31 July 2009, a deferred tax liability of $18,450,432 (2008: $25,024,580) 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: Tax losses Consolidated Company 2009 $000 – – 2008 $000 8,979 8,979 2009 $000 – – 2008 $000 – – There were no unrecognised tax losses at 31 July 2009. The prior year tax losses were for AH Marks which have subsequently been recognised as an adjustment to the provisional acquisition accounting. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 70 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. The group had the following significant investments in associates during the year: Bayer CropScience Nufarm Ltd Excel Crop Care Ltd F&N joint ventures Agricultural chemicals manufacturer Agricultural chemicals manufacturer Agricultural chemicals distributor Country Balance date of associate Ownership and voting interest 2009 2008 UK 31.12.2008 0.00% 25% India 31.3.2009 14.69% 14.69% Eastern Europe 31.12.2008 50.00% 50.00% Effective 31 July 2009, Nufarm sold its 25 per cent share in Bayer CropSciences Nufarm Limited to Bayer CropSciences Limited. 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. The F&N joint ventures represents the group’s interest in three joint ventures with FMC Corporation, which operate in Poland, Czech Republic and Slovakia. The joint ventures sell Nufarm and FMC products within their country. Financial summary of material associates (at reporting date) Revenues (100%) $000 Profit after tax (100%) $000 Total assets (100%) $000 Net Share of assets as associate’s Total reported by net assets equity (100%) accounted $000 (100%) $000 $000 liabilities associates 2009 Excel Crop Care Ltd F&N joint ventures 2008 Bayer CropScience Nufarm Ltd Excel Crop Care Ltd F&N joint ventures 196,112 77,347 9,558 649 110,292 70,070 72,306 66,429 37,986 3,641 273,459 10,207 180,362 138,735 41,627 5,580 1,821 7,401 77,918 144,498 81,039 (6,760) 6,567 1,910 101,873 99,559 76,356 37,273 67,161 71,959 64,600 32,398 4,397 16,150 4,759 2,199 303,455 1,717 277,788 176,393 101,395 23,108 The financial summary information is from the financial statements as per the balance dates above. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 71 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 19. Investments accounted for using the equity method (continued) Carrying value by major associate Bayer CropScience Nufarm Ltd Excel Crop Care Ltd F&N joint ventures Others Carrying value of associates Share of profit by major associate Bayer CropScience Nufarm Ltd Excel Crop Care Ltd F&N joint ventures Others Share of net profits of associates Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 – 9,803 1,812 853 12,468 1,837 1,090 97 56 3,080 11,471 9,206 2,157 1,430 24,264 (242) 1,237 1,578 125 2,698 – 9,803 – – 9,803 – 1,090 – – 1,090 – 9,206 – – 9,206 – 1,237 – – 1,237 The share of net profits has been derived from the latest management reports as at 31 July 2009 for Bayer CropSciences and the F&N joint ventures. The Excel Crop Care share of net profits is from the 30 June 2009 management accounts. 20. Other investments Investment in controlled entities Balance at the beginning of the year New investments during the year Exchange adjustment Balance at the end of the year Investments – available-for-sale Balance at the beginning of the year New investments during the year Exchange adjustment Balance at the end of the year Other investments Other investments Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 – – – – – 6,829 179 7,008 – – – – – – – – 434 354 300,769 5,562 – 307,214 1,394 (7,839) 306,331 300,769 – – – – – – – – – – Total other investments 7,442 354 306,331 300,769 The group’s investment in an unlisted entity is classified as available-for-sale. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 72 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 21. Other non-current assets Derivative financial instrument Consolidated Company 2009 $000 967 967 2008 $000 8,504 8,504 2009 $000 – – 2008 $000 – – The derivative financial instrument is the market value of the interest rate cap relating to the NSS distribution base rate. 22. Property, plant and equipment Land and Leased Plant and plant and buildings machinery machinery $000 $000 $000 Consolidated Cost Balance at 1 August 2008 Additions Additions through business combinations Disposals Other transfers Exchange adjustment 201,006 3,039 – (4,030) 4,795 2,583 646,118 12,196 280 (28,022) 32,684 622 2009 15,156 166 – (80) (104) (669) Capital work in progress $000 Total $000 30,395 44,437 – (1,380) (37,375) (201) 892,675 59,838 280 (33,512) – 2,335 Balance at 31 July 2009 207,393 663,878 14,469 35,876 921,616 Depreciation and impairment losses Balance at 1 August 2008 Depreciation charge for the year Additions through business combinations Disposals Other transfers Exchange adjustment (58,689) (7,460) – 2,223 (33) (1,144) (399,701) (40,525) (113) 20,591 (7) 159 (1,173) (427) – 55 40 56 Balance at 31 July 2009 (65,103) (419,596) (1,449) – – – – – – – (459,563) (48,412) (113) 22,869 – (929) (486,148) Net property, plant and equipment at 31 July 2009 142,290 244,282 13,020 35,876 435,468 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 73 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 22. Property, plant and equipment (continued) Land and Leased Plant and plant and buildings machinery machinery $000 $000 $000 Consolidated Cost Balance at 1 August 2007 Additions Additions through business combinations Disposals Other transfers Exchange adjustment 185,156 3,503 1,581 (5,109) 15,977 (102) 471,845 9,684 144,132 (15,447) 37,254 (1,350) 2008 1,361 258 14,237 (359) (315) (26) Capital work in progress $000 Total $000 27,035 56,064 – – (52,916) 212 685,397 69,509 159,950 (20,915) – (1,266) Balance at 31 July 2008 201,006 646,118 15,156 30,395 892,675 Depreciation and impairment losses Balance at 1 August 2007 Depreciation charge for the year Additions through business combinations Disposals Other transfers Exchange adjustment (53,586) (6,332) (90) 1,187 (92) 224 (297,404) (30,241) (83,658) 11,421 (48) 229 (630) (248) (641) 191 140 15 Balance at 31 July 2008 (58,689) (399,701) (1,173) – – – – – – – (351,620) (36,821) (84,389) 12,799 – 468 (459,563) Net property, plant and equipment at 31 July 2008 142,317 246,417 13,983 30,395 433,112 Assets pledged as security for finance leases $13.02 million (2008: $13.983 million). There were no impairment losses in the consolidated entity in the current financial year or the comparative year. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 74 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 22. Property, plant and equipment (continued) Company Cost Balance at 1 August 2008 Additions Disposals Other transfers Exchange adjustment Balance at 31 July 2009 Depreciation and impairment losses Balance at 1 August 2008 Depreciation charge for the year Disposals Exchange adjustment Balance at 31 July 2009 Net property, plant and equipment at 31 July 2009 Company Cost Balance at 1 August 2007 Additions Disposals Other transfers Exchange adjustment Balance at 31 July 2008 Depreciation and impairment losses Balance at 1 August 2007 Depreciation charge for the year Disposals Exchange adjustment Balance at 31 July 2008 Net property, plant and equipment at 31 July 2008 Land and Leased Plant and plant and buildings machinery machinery $000 $000 $000 3,555 – – (650) 61 2,966 (352) (129) – (8) (489) 3,630 – (176) 800 61 4,315 (1,902) (488) 132 (18) (2,276) 2009 – – – – – – – – – – – Capital work in progress $000 352 191 – (150) (45) 348 – – – – – Total $000 7,537 191 (176) – 77 7,629 (2,254) (617) 132 (26) (2,765) 2,477 2,039 – 348 4,864 Land and Leased Plant and plant and buildings machinery machinery $000 $000 $000 3,133 – – 828 (406) 3,555 (275) (123) – 46 (352) 3,704 – (207) 622 (489) 3,630 (1,846) (489) 153 280 (1,902) 2008 – – – – – – – – – – – Capital work in progress $000 318 1,524 – (1,450) (40) 352 – – – – – Total $000 7,155 1,524 (207) – (935) 7,537 (2,121) (612) 153 326 (2,254) 3,203 1,728 – 352 5,283 There were no impairment losses in the company in the current financial year or the comparative year. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 75 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 23. Intangible assets Goodwill $000 Indefinite life $000 Intellectual property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 Consolidated 2009 Cost Balance at 1 August 2008 Additions Additions through business combinations Disposals Other transfers Exchange adjustment 360,327 9,109 441,333 10,339 75,941 818 75,586 24,847 18,164 3,565 971,351 48,678 5,075 (10,824) – (5,117) 5,074 (13,467) – 11,303 – (35) – 7,823 – (3,425) – 1,134 – (4) – 20 10,149 (27,755) – 15,163 Balance at 31 July 2009 358,570 454,582 84,547 98,142 21,745 1,017,586 Amortisation and impairment losses Balance at 1 August 2008 Amortisation charge for the year Additions through business combinations Disposals Other transfers Exchange adjustment (73,303) (10,207) (29,354) (25,243) (11,744) (149,851) – – (8,776) (6,386) (2,388) (17,550) – – – 1,041 – – – (261) – – – (1,834) – – – (379) – – – (13) – – – (1,446) Balance at 31 July 2009 (72,262) (10,468) (39,964) (32,008) (14,145) (168,847) Intangibles carrying amount at 31 July 2009 286,308 444,114 44,583 66,134 7,600 848,739 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 76 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 23. Intangible assets (continued) Goodwill $000 Indefinite life $000 Intellectual property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 Consolidated 2008 Cost Balance at 1 August 2007 Additions Additions through business combinations Disposals Other transfers Exchange adjustment 299,288 13,359 285,750 38,643 55,873 30,111 54,706 16,679 17,130 1,206 712,747 99,998 41,386 – – 6,294 94,775 (2,402) 15,696 8,871 – – (11,666) 1,623 1,268 (1,594) 3,894 633 25 (3) – (194) 137,454 (3,999) 7,924 17,227 Balance at 31 July 2008 360,327 441,333 75,941 75,586 18,164 971,351 Amortisation and impairment losses Balance at 1 August 2007 Amortisation charge for the year Transferred to discontinued businesses Disposals Other transfers Exchange adjustment (74,248) (10,263) (25,017) (12,566) (9,932) (132,026) – – (4,000) (4,685) (1,973) (10,658) – – – 945 – – – 56 – – 360 (697) (705) 1,201 (8,284) (204) – – – 161 (705) 1,201 (7,924) 261 Balance at 31 July 2008 (73,303) (10,207) (29,354) (25,243) (11,744) (149,851) Intangibles carrying amount at 31 July 2008 287,024 431,126 46,587 50,343 6,420 821,500 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. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 77 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 23. Intangible assets (continued) The major CGUs and their intangible value is as follows: Brazil $297 million, USA $178 million, seeds business $70 million, UK and Holland $65 million, AH Marks business $44 million, Australia $42 million and France $28 million. The balance of 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 forecast growth over the next 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, which is the company’s weighted average cost of capital. At 31 July 2009, the recoverable amount exceeded the carrying amount for all CGUs. Sensitivity analysis on the impairment testing was performed assuming a zero growth rate for all CGUs. There were no impairment issues under this scenario. Sensitivity analysis was also done around the discount rate, assuming a one per cent increase and one per cent decrease in the discount rate. Again, no impairment issues arose. Finally, specific impairment testing was done for the Brazil CGU, assuming a zero growth rate and discount factors of 15 per cent and 20 per cent. Under all scenarios, the Brazil CGU recoverable amount was higher than the carrying value. Goodwill $000 Indefinite life $000 Intellectual property Capitalised Definite development costs $000 life $000 Company 2009 Cost Balance at 1 August 2008 Additions Transfer Exchange adjustment Balance at 31 July 2009 Amortisation and impairment losses Balance at 1 August 2008 Amortisation charge for the year Transfer Exchange adjustment Balance at 31 July 2009 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Computer software $000 140 989 – 2 Total $000 140 989 – 2 1,131 1,131 (91) (69) – – (91) (69) – – (160) (160) Intangibles carrying amount at 31 July 2009 – – – – 971 971 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 78 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 23. Intangible assets (continued) Intellectual property Capitalised Definite development costs $000 life $000 Computer software $000 Total $000 Company Cost Balance at 1 August 2007 Additions Transfer Exchange adjustment Balance at 31 July 2008 Amortisation and impairment losses Balance at 1 August 2007 Amortisation charge for the year Transfer Exchange adjustment Balance at 31 July 2008 Goodwill $000 Indefinite life $000 – – – – – – – – – – – – – – – – – – – – Intangibles carrying amount at 31 July 2008 – – 24 . Trade and other payables Current payables – unsecured Trade creditors and accruals – unsecured Payables due to controlled entities Loans due to controlled entities Payables due to associated entities Derivative financial instruments Payables – acquisitions Securitisation payables Non-current payables – unsecured Creditors and accruals Payables – acquisitions 2008 – – – – – – – – – – – – – – – – – – – – – 84 62 6 (12) 140 (60) (34) (6) 9 (91) 84 62 6 (12) 140 (60) (34) (6) 9 (91) – 49 49 Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 376,432 – – 608 9,250 21,131 – 619,525 – – 829 90 – 157,616 4,184 3,122 100,041 – 50 – – 11,324 8,310 114,037 – – – – 407,421 778,060 107,397 133,671 9,452 8,243 17,695 13,283 26,559 39,842 – – – – – – 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. The securitisation program, under which the receivables were collected, was closed on 12 June 2009. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 79 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 25. 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. Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 583,961 314 417 587,171 – 441 584,692 587,612 387,048 1,522 13,757 335,962 1,028 14,466 402,327 351,456 – – – – – – – – – – – – – – – – Consolidated Company Accessible $000 utilised Accessible $000 $000 utilised $000 1,773,580 1,836 – 1,006,678 1,836 – 1,775,416 1,008,514 1,614,589 1,028 157,616 943,974 1,028 157,616 1,773,233 1,102,618 – – – – – – – – – – – – – – – – Current liabilities Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured Non-current liabilities Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured Financing facilities The group has access to the following facilities with a number of financial institutions. 2009 Bank loan facilities Other facilities Receivables securitisation-type facilities Total financing facilities 2008 Bank loan facilities Other facilities Receivables securitisation-type facilities Total financing facilities Financing arrangements 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 35) are in excess of their related borrowings. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 80 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 25. Interest-bearing loans and borrowings (continued) Repayment of borrowings (excluding finance leases) Period ending 31 July 2009 Period ending 31 July 2010 Period ending 31 July 2011 Period ending 31 July 2012 Period ending 31 July 2013 or later Finance lease liabilities Consolidated Company 2009 $000 – 619,944 172,191 137,571 78,808 2008 $000 2009 $000 2008 $000 608,011 100,040 235,923 1,028 – – – – – – – – – – – Finance leases are entered into to fund the acquisition of plant and equipment. Lease commitments for capitalised finance leases are payable as follows: Not later than one year Later than one year but not later than two years Later than two years but not later than five years Later than five years Less future finance charges Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 1,854 1,704 4,618 113,111 121,287 (107,113) 1,925 1,666 4,810 120,425 128,826 (113,919) 14,174 14,907 – – – – – – – – – – – – – – Finance lease liabilities are secured over the relevant leased plant. Average interest rates Nufarm Step-up Securities Bank loans Other loans Finance lease liabilities – secured Consolidated Company 2009 % 8.73 5.03 6.00 11.69 2008 % 8.78 7.32 9.25 11.57 2009 % 2008 % – – – – – – – – 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 81 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 26. Employee benefits Consolidated Company 2009 $000 2008 $000 2009 $000 Current Liability for annual leave Liability for long service leave Non-current Present value of wholly unfunded obligations Present value of wholly funded obligations Fair value of fund assets – funded 13,069 7,602 20,671 11,597 6,625 18,222 5,114 116,543 (89,829) 8,201 110,487 (93,786) Recognised liability for defined benefit fund obligations 31,828 24,902 Liability for annual leave Liability for long service leave Total employee benefits 4,046 7,231 43,105 63,776 5,252 6,591 36,745 54,967 378 54 432 – – – – – – – 432 2008 $000 342 – 342 – – – – – 52 52 394 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 Consolidated 2009 $000 2008 $000 2007 $000 2006 $000 2005 $000 (121,657) 89,829 (118,688) 93,786 (59,287) 39,732 (62,587) 35,477 (57,881) 30,534 Surplus/(deficit) (31,828) (24,902) (19,555) (27,110) (27,347) Experience adjustments arising on plan liabilities Experience adjustments arising on plan assets (1,223) 700 321 961 3,640 (8,058) (10,088) 1,687 586 4,086 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 82 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 26. Employee benefits (continued) Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation Liability assumed with AH Marks business Service cost Interest cost Actuarial gains Past service cost Losses/(gains) on curtailment Contributions Benefits paid Exchange differences on foreign funds Consolidated 2009 $000 2008 $000 118,688 – 3,692 7,768 5,516 5 (4,301) 414 (5,901) (4,224) 59,287 65,017 2,952 4,609 (6,617) 5 – 355 (3,508) (3,412) Closing defined benefit obligation 121,657 118,688 Changes in the fair value of fund assets are as follows: Opening fair value of fund assets Assets assumed with AH Marks business Expected return Actuarial gains/(losses) Contributions by employer Distributions Exchange differences on foreign funds Closing fair value of fund assets The actual return on plan assets is the sum of the expected return and the actuarial gain/(loss). Expense recognised in profit or loss Current service costs Interest on obligation Expected return on fund assets Past service cost Losses/(gains) on curtailment 93,786 – 6,707 (7,017) 4,928 (5,126) (3,449) 89,829 39,732 60,286 4,276 (9,079) 3,964 (2,674) (2,719) 93,786 3,692 7,768 (6,707) 5 (4,301) 457 2,952 4,609 (4,276) 5 – 3,290 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 83 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 26. Employee benefits (continued) 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 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 2009 $000 2008 $000 (1,134) 754 449 388 457 2,044 577 450 219 3,290 929 (8,454) (7,525) 3,380 (2,451) 929 Consolidated 2009 % 2008 % 58.7 39.3 1.6 0.4 6.0 6.6 3.5 3.1 60.7 36.9 2.3 0.1 6.4 6.9 3.5 3.3 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 $4,463,000 in contributions to defined benefit plans in 2010. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 84 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 27. Share-based payments The Nufarm Executive Share Plan (2000) offers shares 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 10 years without board approval. An independent trustee holds the shares and options on behalf of the executives. At 31 July 2009 there were 77 participants (2008: 58 participants) in the scheme and 1,714,045 shares (2008: 1,522,934) were allocated and held by the trustee on behalf of the participants. The cost of issuing shares is expensed in the year of issue. The Global Share Plan commenced in 2001, and is available to all permanent employees. Participants contribute a proportion of their salary to purchase shares. The company will contribute an amount equal to 10 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 2009 there were 763 participants (2008: 749 participants) in the scheme and 1,710,550 shares (2008: 1,604,742) 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 2009 was $306,865 (2008: $1,037,967). The power of appointment and removal of the trustees for the share purchase schemes is vested in the company. 28. Provisions Current Restructuring Other Consolidated movement in provisions Balance at 1 August 2008 Provisions made during the year Provisions used during the year Exchange adjustment Balance at 31 July 2009 Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 21,958 4,133 26,091 – 6,184 6,184 – – – – – – Restructuring $000 Other provisions $000 Total $000 6,184 21,958 (1,954) (97) – 21,958 – – 21,958 6,184 – (1,954) (97) 4,133 26,091 The provision for restructuring in France ($21.96 million) relates to the shutdown of two manufacturing units and the associated redundancy costs. The other provision consists of contingent liabilities recognised with the Agripec acquisition ($4.1 million). 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 85 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves Reconciliation of movements in capital and reserves 29. Capital and reserves (continued) Consolidated Share capital $000 Translation reserve $000 Capital profit reserve $000 Other reserve $000 Retained earnings $000 Nufarm Step-up Securities $000 minority interest $000 Balance at 1 August 2007 240,886 (24,344) 33,627 531,124 246,932 1,017 1,029,151 Foreign exchange translation differences Actuarial gains/(losses) on defined benefit plans Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Transfer to/from reserves Profit for the period Dividends paid to shareholders Distributions to Nufarm Step-up Security holders – – 1,805 948 197,755 10,791 3,986 699 – – – – (2,461) – – – – – – – – – – – – – – – – – – – – – – – Balance at 31 July 2008 456,870 (26,805) 33,627 593,558 246,932 1,036 1,305,218 Balance at 1 August 2008 456,870 (26,805) 33,627 593,558 246,932 1,036 1,305,218 Foreign exchange translation differences Actuarial gains/(losses) on defined benefit plans Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Dividend reinvestment plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders Distributions to Nufarm Step-up Security holders Minority interest acquired – – 3,078 78 294,764 35,691 7,975 12,705 1,683 – – – – (19,828) – – – – – – – – – – – – – – – – – – – – – – – – – Balance at 31 July 2009 812,844 (46,633) 33,627 584,348 246,932 821 1,631,939 Total equity $000 (2,491) (2,451) 1,805 1,039 197,755 10,791 3,986 699 56 138,120 (58,478) (14,764) (19,788) (8,454) 3,078 78 294,764 35,691 7,975 12,705 1,683 79,925 (65,297) (15,336) (303) – – – – – – – – – – – – – – – – – – – – – – – – – (30) – – – – – – – – 205 (156) – 40 – – – – – – – – 48 – – (303) (91) – – – 91 – – – – – – – – – – – – – – – – – – – – – – – – (2,451) – – – – – – – 56 137,915 (58,322) (14,764) (8,454) – – – – – – – – 79,877 (65,297) (15,336) – 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 86 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves Reconciliation of movements in capital and reserves 29. Capital and reserves (continued) Consolidated Share capital $000 Translation Capital profit reserve $000 reserve $000 Other reserve $000 Retained earnings $000 Nufarm Step-up Securities $000 minority interest $000 Total equity $000 Balance at 1 August 2007 240,886 (24,344) 33,627 Foreign exchange translation differences Actuarial gains/(losses) on defined benefit plans Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Transfer to/from reserves Profit for the period Dividends paid to shareholders Distributions to Nufarm Step-up Security holders – – 1,805 948 197,755 10,791 3,986 699 – – – – – – 3,078 78 35,691 7,975 12,705 1,683 – – – – (2,461) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Balance at 31 July 2008 456,870 (26,805) 33,627 Balance at 1 August 2008 456,870 (26,805) 33,627 Foreign exchange translation differences Actuarial gains/(losses) on defined benefit plans Shares issued to employees Accrual and issue of shares under global share plan (19,828) Shares issued under private placement (net of costs) 294,764 Shares issued under share purchase plan Shares issued as consideration for business acquisition Dividend reinvestment plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders Distributions to Nufarm Step-up Security holders Minority interest acquired Balance at 31 July 2009 812,844 (46,633) 33,627 (91) – – – 91 – – – – – – – – – – – – – – – – – – – – – – – – 531,124 246,932 1,017 1,029,151 – (2,451) – – – – – – 56 137,915 (58,322) (14,764) – – – – – – – – – – – – (30) – – – – – – – – 205 (156) – (2,491) (2,451) 1,805 1,039 197,755 10,791 3,986 699 56 138,120 (58,478) (14,764) 593,558 246,932 1,036 1,305,218 593,558 246,932 1,036 1,305,218 – (8,454) – – – – – – – 79,877 (65,297) (15,336) – – – – – – – – – – – – – – 40 – – – – – – – – 48 – – (303) (19,788) (8,454) 3,078 78 294,764 35,691 7,975 12,705 1,683 79,925 (65,297) (15,336) (303) 584,348 246,932 821 1,631,939 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 87 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves (continued) Reconciliation of movements in capital and reserves (continued) Share capital $000 Company Translation reserve $000 Capital profit reserve $000 Balance at 1 August 2007 240,886 5,152 40,074 Foreign exchange translation differences Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Transfer to/from reserves Profit for the period Dividends paid to shareholders – 1,805 948 197,755 10,791 3,986 699 – – – (7,871) – – – – – – – – – – – – – – – – – – – Balance at 31 July 2008 456,870 (2,719) 40,074 Balance at 1 August 2008 456,870 (2,719) 40,074 Foreign exchange translation differences Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Dividend reinvestment plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders – 3,078 78 294,764 35,691 7,975 12,705 1,683 – – (1,328) – – – – – – – – – – – – – – – – – – – Balance at 31 July 2009 812,844 (4,047) 40,074 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 88 29. Capital and reserves (continued) Nufarm Step-up Securities $000 minority interest $000 Other reserve $000 (91) – – 91 – – – – – – – – – – – – – – – – – – – – Retained earnings $000 175,908 64,698 (58,322) 182,341 182,341 – – – – – – – 57 – – – – – – – – 55,349 (65,297) 172,393 Total equity $000 461,929 (7,871) 1,805 1,039 197,755 10,791 3,986 699 57 64,698 (58,322) 676,566 676,566 (1,328) 3,078 78 294,764 35,691 7,975 12,705 1,683 55,349 (65,297) 1,021,264 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 29. Capital and reserves (continued) Reconciliation of movements in capital and reserves (continued) Company Share capital $000 Translation Capital profit reserve $000 reserve $000 Balance at 1 August 2007 240,886 5,152 40,074 Foreign exchange translation differences Shares issued to employees Accrual and issue of shares under global share plan Shares issued under private placement (net of costs) Shares issued under share purchase plan Shares issued as consideration for business acquisition Tax benefit on share issue costs Transfer to/from reserves Profit for the period Dividends paid to shareholders – 1,805 948 197,755 10,791 3,986 699 – – – – 3,078 78 35,691 7,975 12,705 1,683 – – (7,871) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Balance at 31 July 2008 456,870 (2,719) 40,074 Balance at 1 August 2008 456,870 (2,719) 40,074 Foreign exchange translation differences Shares issued to employees Accrual and issue of shares under global share plan (1,328) Shares issued under private placement (net of costs) 294,764 Shares issued under share purchase plan Shares issued as consideration for business acquisition Dividend reinvestment plan Tax benefit on share issue costs Profit for the period Dividends paid to shareholders Balance at 31 July 2009 812,844 (4,047) 40,074 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves (continued) Other reserve $000 (91) – – 91 – – – – – – – – – – – – – – – – – – – – Retained earnings $000 175,908 – – – – – – – 57 64,698 (58,322) 182,341 182,341 – – – – – – – – 55,349 (65,297) 172,393 Nufarm Step-up Securities $000 minority interest $000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Total equity $000 461,929 (7,871) 1,805 1,039 197,755 10,791 3,986 699 57 64,698 (58,322) 676,566 676,566 (1,328) 3,078 78 294,764 35,691 7,975 12,705 1,683 55,349 (65,297) 1,021,264 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 89 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves (continued) Company Share capital Balance at 1 August Issue of shares Balance at 31 July Number of ordinary shares 2009 Number of ordinary shares 2008 185,882,333 32,178,866 171,501,253 14,381,080 218,061,199 185,882,333 The company does not have authorised capital or par value in respect of its issued shares. On 1 October 2008, 527,585 shares at $15.12 were issued as part of the acquisition cost of Lefroy Seeds Pty Ltd. On 20 October 2008, 198,450 shares at a price of $15.51 were issued under the executive share plan. On 17 November 2008, 805,960 shares at a price of $10.35 were issued under the dividend reinvestment plan. On 19 December 2008, 82,000 shares at a price of $9.56 were issued under the global share plan. On 8 May 2009, 358,866 shares at a price of $12.16 were issued under the dividend reinvestment plan. On 21 May 2009, 26,700,000 shares were issued at a price of $11.25 under an institutional placement to provide the group with enhanced financial flexibility and to strengthen the balance sheet. On 30 June 2009, 3,506,005 shares were issued at $10.18 under a share purchase plan to existing shareholders. On 15 October 2007, 131,000 shares at a price of $13.78 were issued under the executive share plan. On 13 December 2007, 65,000 shares at a price of $14.60 were issued under the global share plan. On 12 March 2008, 13,245,034 were issued at a price of $15.10 under a private placement to fund the AH Marks and Etigra acquisitions. On 9 April 2008, 714,614 share were issued at $15.10 under a share placement plan to existing shareholders on the same terms as the private placement. On 7 May 2008, 225,432 shares at $17.68 were issued as part of the acquisition cost of Etigra. 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 curtailed 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 stepped up by the step-up margin; or (b) redeem the NSS for face value, or (c) change them for a number of ordinary shares in Nufarm Limited. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 90 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. 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. Dividends Dividends recognised in the current year by the company are: 2009 Interim 2009 ordinary Final 2008 ordinary Total amount 2008 Interim 2008 ordinary Final 2007 ordinary Total amount Cents per share Total amount $000 Franked/ unfranked Payment date 12.0 23.0 12.0 21.0 22,469 42,828 65,297 22,279 36,043 58,322 Unfranked Franked 8 May 2009 17 Nov 2008 Franked Franked 2 May 2008 9 Nov 2007 The interim 2009 dividend was unfranked. The final 2008 dividend was fully franked at a rate of 30 per cent. Distributions recognised in the current year by Nufarm Finance (NZ) Ltd on the Nufarm Step-up Securities are: 2009 Distribution Distribution 2008 Distribution Distribution Distribution Total amount $000 rate Payment date 7.48% 9.97% 8.95% 8.56% 9,361 12,547 21,908 11,263 10,772 22,035 15 Apr 2009 15 Oct 2008 15 Apr 2008 15 Oct 2007 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 $15.336 million (2008: $14.764 million). 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 91 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 29. Capital and reserves (continued) Franking credit/(debit) 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 (2008: 30 per cent) Franking credits/(debits) that will arise from the payment of income tax payable/(refund) as at the end of the year Balance at 31 July Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 (1,374) 7,742 (1,374) 7,742 6,452 5,078 (2,721) 5,021 6,452 5,078 (2,721) 5,021 The impact on the dividend franking account of dividends proposed after the balance sheet date is zero as the proposed dividend is unfranked (2008: $17,526,048). In accordance with the tax consolidation legislation, the company as the head entity in the tax-consolidated group has also assumed the benefit of $5,078,270 (2008: $5,021,081) franking credits. 30. 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 Subtract items of material income/(expense) (refer note 6) Earnings excluding items of material income/ (expense) used in the calculation of earnings per share excluding material items Consolidated 2009 $000 80,542 (665) 79,877 (15,336) 2008 $000 138,120 (205) 137,915 (14,764) 64,541 123,151 64,541 – 123,151 – 64,541 123,151 (79,755) (25,961) 144,296 149,112 For the purposes of determining basic and diluted earnings per share, the after-tax distributions on NSS are deducted from net profit. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 92 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 30. 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 2009 2008 192,664,368 177,021,657 192,664,368 177,021,657 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. Cents per share 2009 2008 33.5 0.0 33.5 33.5 0.0 33.5 74.9 74.9 69.7 0.0 69.7 69.7 0.0 69.7 84.3 84.3 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 31. Financial risk management The group and the company have exposure to the following financial risks: • credit risk; • liquidity risk; and • market risk. This note presents information about the group and company’s exposure to each type of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The board of directors has responsibility to identify, assess, monitor and manage the material risks facing the group and to ensure that adequate identification, reporting and risk minimisation mechanisms are established and working effectively. 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 system-based analyses of the internal controls in major business systems operating within all significant company entities worldwide. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 93 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) The general manager global risk management reports 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. Credit risk Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the group’s receivables from customers and other financial assets. For the company, it primarily arises from receivables due from subsidiaries. Exposure to credit risk The group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the group’s customer base, including the default risk of the industry and country in which the customers operate, has less of an influence on credit risk. The group has credit policies in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers before the group’s standard payment and delivery terms and conditions are offered. Purchase limits are established for each customer, which represents the maximum open amount without requiring further management approval. The group and company’s maximum exposure to credit risk at the reporting date was: Carrying amount Trade and other receivables Receivables due from controlled entities Loans due from controlled entities Cash and cash equivalents Interest rate cap: Assets Forward exchange contracts: Assets The group and company’s maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Carrying amount Australasia Europe North America South America Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 804,767 – – 84,312 842,058 – – 59,143 5,576 6,637 778,111 1,856 4,833 939 461,389 3,308 967 8,504 16,118 26,946 – – – 375 906,164 936,651 792,180 470,844 276,653 238,432 44,284 245,398 164,988 263,754 130,177 283,139 804,767 842,058 5,576 – – – 5,576 4,833 – – – 4,833 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 94 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) The group’s top five customers account for $139.4 million of the trade receivables carrying amount at 31 July 2009 (2008: $116.4 million). These top five customers represent 19 per cent (2008: 17 per cent) of the total receivables balance. Impairment losses The ageing of the group’s trade receivables at the reporting date was: Receivables ageing Current Past due – 0 to 90 days Past due – 90 to 180 days Past due – 180 to 360 days Past due – more than one year Provision for impairment Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 504,313 130,284 6,405 11,877 27,694 680,573 (25,087) 593,034 53,372 12,454 5,775 20,681 685,316 (23,339) 655,486 661,977 4,361 280 40 – – 4,681 – 4,681 3,978 523 212 – – 4,713 (43) 4,670 Some of the past due receivables are secured by collateral such as directors guarantees, bank guarantees and charges on fixed assets. The past due receivables not impaired relate to customers that have a good credit history with the group. Historically, the bad debt write-off from trade receivables has been very low. Over the past seven years, the bad debt write-off amount has averaged 0.02 per cent of sales, with no greater than 0.50 per cent of sales written off in any one year. In the crop protection industry, it is normal practice to vary the terms of sales depending on the climatic conditions experienced in each country. The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 August Provisions made during the year Provisions used during the year Provisions reversed during the year Provisions acquired through business combinations Exchange adjustment Balance at 31 July Consolidated Company 2009 $000 23,339 12,201 (9,139) – – (1,314) 25,087 2008 $000 21,806 522 (534) – – 1,545 23,339 2009 $000 2008 $000 43 – (43) – – – – – 43 – – – – 43 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 95 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) The allowance account for trade receivables is used to record the impairment losses unless the group is satisfied that no recovery of the amount owing is possible: at that point the amount is considered irrecoverable and is written off against the receivable directly. Liquidity risk Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation. Most group entities have entered into a deed of negative pledge dated 24 October 1996 (last amendment dated 30 January 2009) 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. See note 35 for listing of entities who are a party to the deed. The deed of negative pledge allows all borrowings with group lenders to be on an unsecured basis. The following are the contractual maturities of the group’s financial liabilities: Consolidated 2009 Carrying Contractual cash flows amount $000 $000 Less than 1 year $000 1–2 more than 2 years $000 years $000 Non-derivative financial liabilities Bank overdrafts Trade and other payables Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured Derivative financial liabilities Forward exchange contracts: Outflow Inflow Derivative financial assets Forward exchange contracts: Outflow Inflow 35,669 415,866 971,009 1,836 14,174 35,669 415,866 971,009 1,836 14,174 – 35,669 398,171 8,243 583,961 171,605 586 186 314 417 – 9,452 215,443 936 13,571 9,250 – 111,290 (102,040) 111,290 (102,040) – – – – – (16,118) 295,046 (311,164) 40,021 (40,488) – – 255,025 (270,676) 1,431,686 1,431,686 1,027,315 180,620 223,751 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 96 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Liquidity risk (continued) Consolidated 2008 Carrying Contractual cash flows amount $000 $000 Less than 1 year $000 1–2 more than 2 years $000 years $000 Non-derivative financial liabilities Bank overdrafts Trade and other payables Bank loans – unsecured Other loans – unsecured Finance lease liabilities – secured Derivative financial liabilities Forward exchange contracts: Outflow Inflow Derivative financial assets Forward exchange contracts: Outflow Inflow 20,841 817,812 923,133 1,028 14,907 20,841 817,812 923,133 1,028 14,907 – 20,841 2,000 777,970 587,171 100,040 – 213 – 441 – 37,842 235,922 1,028 14,253 90 – 73,872 (73,782) 73,872 (73,782) – – – – – (26,946) 269,391 (296,337) 24,003 (25,661) – – 245,388 (270,676) 1,750,865 1,750,865 1,384,855 102,253 263,757 The following are the contractual maturities of the company’s financial liabilities: Company 2009 Carrying Contractual cash flows amount $000 $000 Less than 1 year $000 1–2 more than 2 years $000 years $000 Non-derivative financial liabilities Trade and other payables Derivative financial liabilities Forward exchange contracts: Outflow Inflow 107,347 107,347 107,347 – – 50 – 1,211 (1,161) 1,211 (1,161) 107,397 107,397 107,397 – – – – – – 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 97 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Liquidity risk (continued) Company 2008 Carrying Contractual cash flows amount $000 $000 Less than 1 year $000 1–2 more than 2 years $000 years $000 Non-derivative financial liabilities Trade and other payables Derivative financial assets Forward exchange contracts: Outflow Inflow 133,671 133,671 133,671 – – – (375) 9,594 (9,969) 9,594 (9,969) 133,296 133,296 133,296 – – – – – – Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the group. This provides an economic hedge and no derivatives are entered into. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The consolidated entity uses derivative financial instruments to manage specifically identified foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the individual group entity. The currencies giving rise to this risk are primarily the US Dollar, the Euro, the British Pound and the Brazilian Real. 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 consolidated entity uses foreign exchange contracts to manage 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 primarily cover the exposure on the principal advanced to group companies in US Dollars, the Euro and the British Pound. The consolidated entity does not have any cash flow hedges 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 2009 was $6,867,549 (2008: $26,856,120) comprising assets of $16,118,071 (2008: $26,946,301) and liabilities of $9,250,522 (2008: $90,181) that were recognised as derivatives measured at fair value. The net fair value of forward exchange contracts in the company at 31 July 2009 was $50,030 (2008: $374,991) comprising assets of $ Nil (2008: $374,991) and liabilities of $50,030 (2008: $ Nil) that were recognised as derivatives measured at fair value. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 98 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Currency risk (continued) Exposure to currency risk The consolidated entity’s exposure to major foreign currency risks at balance date was as follows, based on notional amounts: Consolidated 31 July 2009 Cash and cash equivalents Trade and other receivables Bank overdraft Trade and other payables Loans and borrowings AuD $000 uSD $000 80 275 – (1,122) – 7,328 88,947 (4,431) (28,936) (86,521) Euro €000 2,263 4,477 – (10,408) (5,914) Gross balance sheet exposure (767) (23,613) (9,582) GBP £000 – 194 (64) (435) – (305) Forward exchange contracts Net exposure Consolidated 31 July 2008 Cash and cash equivalents Trade and other receivables Bank overdraft Trade and other payables Loans and borrowings (558) 84,577 (17,732) – (1,325) 60,964 (27,314) (305) AuD $000 uSD $000 357 1,034 – (3,588) – 5,764 139,893 (3,935) (74,543) (114,168) Euro €000 1,152 4,956 (23) (14,701) (4,555) GBP £000 – – (113) (277) – (390) Gross balance sheet exposure (2,197) (46,989) (13,171) Forward exchange contracts Net exposure 786 37,826 (2,015) (1,411) (9,163) (15,186) 1,756 1,366 The company’s exposure to major foreign currency risks at balance date was as follows, based on notional amounts: Company 31 July 2009 Cash and cash equivalents Trade and other receivables Trade and other payables Gross balance sheet exposure Forward exchange contracts Net exposure AuD $000 80 84 (25) 139 – 139 uSD $000 18 – (352) (334) 312 (22) Euro €000 4 – (587) (583) 387 (196) GBP £000 – – – – – – 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 99 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Currency risk (continued) Exposure to currency risk (continued) Company 31 July 2008 Cash and cash equivalents Trade and other receivables Trade and other payables Gross balance sheet exposure Forward exchange contracts Net exposure The following significant exchange rates applied during the year: AuD US dollar Euro GBP BRL Sensitivity analysis AuD $000 uSD $000 357 180 (3,441) 205 – (3,438) (2,904) (3,233) – (2,904) 9,627 6,394 Euro €000 150 – (591) (441) – (441) GBP £000 – – – – – – Average rate Reporting date 2009 2008 2009 2008 0.737 0.541 0.465 1.524 0.911 0.608 0.454 1.578 0.835 0.585 0.500 1.558 0.944 0.605 0.476 1.478 A 10 per cent strengthening or weakening of the Australian dollar against the following currencies at 31 July would have increased/(decreased) profit or loss by the amounts shown below. This analysis assumes all other variables, including interest rates, remain constant. The analysis also assumes that any increases in raw material costs arising from changes in exchange rates are not passed on to customers in their selling prices. In the market place, nearly all raw material cost increases are passed onto customers and therefore, the profit or loss impact below is not truly reflective of the full profit or loss impact of changes in exchange rates. The analysis is performed on the same basis for 2008. 10 per cent strengthening 10 per cent weakening Consolidated Company Consolidated Company profit or loss $000 profit or loss $000 profit or loss $000 profit or loss $000 31 July 2009 US dollar Euro GBP 31 July 2008 US dollar Euro GBP 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 100 (6,637) 4,245 55 2 30 – 882 2,282 (261) (616) 66 – 7,301 (4,669) (61) (971) (2,510) 287 (3) (34) – 677 (73) – NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Interest rate risk The group has the ability to use 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. However, at 31 July 2009 and at 31 July 2008, there were no interest rate swaps in place. 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. Profile At the reporting date the interest rate profile of the group and company’s interest-bearing financial instruments was: Variable rate instruments Financial assets Financial liabilities Consolidated Carrying amount Company Carrying amount 2009 $000 2008 $000 2009 $000 2008 $000 35,810 (1,022,688) 46,532 (959,909) (986,878) (913,377) 1,187 – 1,187 – – – There were no fixed interest rate instruments during the year ended 31 July 2009. Sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The sensitivity is calculated on the debt at 31 July. Due to the seasonality of the crop protection business, debt levels can vary during the year. This analysis is performed on the same basis for 2008. 31 July 2009 Variable rate instruments Total sensitivity 31 July 2008 Variable rate instruments Total sensitivity Profit or loss 100bp increase $000 100bp decrease $000 (9,869) (9,869) 9,869 9,869 (9,134) (9,134) 9,134 9,134 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 101 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 31. Financial risk management (continued) Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: Consolidated Note Cash and cash equivalents Trade and other receivables Interest rate cap: Payable maturities – one to five years Forward exchange contracts: Assets Liabilities Bank overdraft Unsecured bank loans Other loans Finance leases 15 16 21 16 24 15 25 25 25 Company Cash and cash equivalents Trade and other receivables Receivables due from controlled entities Loans due from controlled entities Forward exchange contracts: Asset/(liabilities) Bank overdraft Note 15 16 16 16 16/24 15 Carrying amount 2009 $000 Fair value 2009 $000 Carrying amount 2008 $000 Fair value 2008 $000 84,312 804,767 84,312 804,767 59,143 842,058 59,143 842,058 967 967 8,504 8,504 16,118 (9,250) (35,669) (971,009) (1,836) (14,174) 16,118 (9,250) (35,669) (971,009) (1,836) (14,174) 26,946 (90) (20,841) (923,133) (1,028) (14,907) 26,946 (90) (20,841) (923,133) (1,028) (14,907) (125,774) (125,774) (23,348) (23,348) Carrying amount 2009 $000 1,856 5,576 6,637 778,111 Fair value 2009 $000 1,856 5,576 6,637 778,111 Carrying amount 2008 $000 3,308 4,833 939 461,389 Fair value 2008 $000 3,308 4,833 939 461,389 (50) – (50) – 375 – 375 – 792,130 792,130 470,844 470,844 Capital management The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The board of directors monitors the group’s return on funds employed (ROFE). Return is calculated on the group’s earnings before interest and tax and adjusted for any non-operating items. Funds employed is defined as shareholder’s funds plus total interest bearing debt. The board of directors determines the level of dividends to ordinary shareholders. The board also reviews the group’s total shareholder return with relevant comparator groups. The board believes ROFE is an appropriate performance condition as it 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 group’s target ROFE is 17.25 per cent; during the year ended 31 July 2009 the return was 11.7 per cent (2008: 17.2 per cent). There were no changes in the group’s approach to capital management during the year. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 102 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 32. 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 Consolidated Company 2009 $000 10,793 9,479 20,290 180,300 2008 $000 6,763 6,526 18,232 183,339 220,862 214,860 2009 $000 126 22 22 – 170 2008 $000 – – – – – Operating leases are generally entered to access the use of shorter term assets such as motor vehicles, mobile plant and office equipment. Rentals are fixed for the duration of these leases. There is a small number of leases for office properties. These rentals have regular reviews based on market rentals at the time of review. 33. Capital and other commitments Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 Capital expenditure commitments Plant and equipment Contracted but not provided for and payable: Within one year 12,021 14,078 – – 34. Contingencies 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 103 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 34. Contingencies (continued) Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 Guarantee facility for Eastern European joint ventures with FMC Corporation. 10,276 4,222 – – 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 2.29 million on account of possible remediation costs for soil and groundwater contamination. This guarantee decreases from 2004 progressively to nil in 2011. Insurance bond for EUR 2.717 million established to make certain capital expenditures at Gaillon plant in France. The insurance bond is for a three year term. 14,530 14,050 – – 3,915 3,785 – 4,644 4,463 – – – Bank guarantee for Holland defined benefit pension plan to ensure coverage ratios. 342 – 33,707 26,520 – – 35. Group entities Parent entity Nufarm Limited – ultimate controlling entity Subsidiaries Access Genetics Pty Ltd ACN000425927 Pty Ltd Agcare Biotech Pty Ltd Agchem Receivables Corporation Agryl Holdings Limited Ag-seed Research Pty Ltd AH Marks (New Zealand) Limited AH Marks Australia Pty Ltd AH Marks Holdings Limited Artfern Pty Ltd Australis Services Pty Ltd Bestbeech Pty Ltd Notes Place of incorporation Percentage of shares held 2009 2008 (a),(b) (a),(b) (b) (a) (a) (a) Australia Australia Australia USA Australia Australia New Zealand Australia United Kingdom Australia Australia Australia 100 100 70 100 100 100 100 100 100 100 100 100 100 100 70 40 100 100 100 100 100 100 100 100 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 104 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 35. Group entities (continued) Chemicca Limited CNG Holdings BV Crop Care Australasia Pty Ltd Crop Care Holdings Limited Croplands Equipment Limited Croplands Equipment Pty Ltd Danestoke Pty Ltd Edgehill Investments Pty Ltd Fchem (Aust) Limited Fernz Canada Limited Fernz Singapore Pte Ltd Fidene Limited Finotech BV First Classic Pty Ltd Framchem SA Frost Technology Corporation Greenfarm Hellas Chemicals SA Growell Limited Laboratoire European de Biotechnologie s.a.s Le Moulin des Ecluses s.a Lefroy Seeds Pty Ltd 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 Medisup Securities Limited 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 Notes (a) (a),(b) (b) (a),(b) (a),(b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (a),(b) (b) (b) (b) (b) (a),(b) (b) Place of incorporation Australia Netherlands Australia New Zealand New Zealand Australia Australia Australia Australia Canada Singapore New Zealand Netherlands Australia Egypt USA Greece United Kingdom France France Australia France Malaysia USA Guatemala Mexico USA Australia Malaysia Australia Malaysia Malaysia N. Antillies Australia Singapore South Africa Canada USA Zimbabwe USA USA Malaysia Australia Netherlands Percentage of shares held 2009 2008 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 70 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 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 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 105 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 35. Group entities (continued) Nufarm Chemical (Shanghai) Co Ltd Nufarm Chile Limitada Nufarm Colombia S.A. Nufarm Crop Products UK Limited Nufarm de Costa Rica Nufarm de Guatemala SA Nufarm de Mexico Sa de CV Nufarm de Panama SA Nufarm de Venezuela SA Nufarm del Ecuador SA Nufarm Deutschland GmbH Nufarm do Brazil LTDA Nufarm Espana SA Nufarm Finance (NZ) Limited Nufarm GmbH Nufarm GmbH Nufarm GmbH & Co KG Nufarm Holdings (NZ) Limited Nufarm Holdings BV Nufarm Holdings s.a.s Nufarm Hungaria Kft Nufarm Inc. Nufarm Industria Quimica e Farmaceutica SA (formerly Agripec Quimica e Farmaceutica SA) Nufarm Insurance Pte Ltd Nufarm Investments Cooperatie WA Nufarm Italia Holding srl (merged into Nufarm Italia srl) Nufarm Italia srl Nufarm KK Nufarm Labuan Pte Ltd Nufarm Limited Nufarm Malaysia Sdn Bhd Nufarm Materials Limited Nufarm NZ Limited Nufarm Peru SAC Nufarm Platte Pty Ltd Nufarm Portugal LDA Nufarm Romania SRL (formerly Nufarm Srl) Nufarm s.a.s Nufarm SA Nufarm Suisse Sarl (formerly Nufarm Switzerland LLC) Nufarm Technologies (M) Sdn Bhd Notes (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) (a),(b) (b) (b) (b) (b) (b) (b) Place of incorporation China Chile Colombia United Kingdom Costa Rica Guatemala Mexico Panama Venezuela Ecuador Germany Brazil Spain New Zealand Germany Austria Austria New Zealand Netherlands France Hungary USA Brazil Singapore Netherlands Italy Italy Japan Malaysia United Kingdom Malaysia Australia New Zealand Peru Australia Portugal Romania France Argentina Switzerland Malaysia Percentage of shares held 2009 2008 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 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 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 – 100 100 100 100 100 100 51 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 106 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 35. Group entities (continued) 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 Nutrihealth Pty Ltd Opti-Crop Systems Pty Ltd Pharma Pacific Pty Ltd PT Crop Care PT Nufarm Indonesia Selchem Pty Ltd Notes (a),(b) (b) (b) (a) (b) (a) Place of incorporation New Zealand Australia Australia United Kingdom Australia Australia Australia Australia Australia Australia Indonesia Indonesia Australia Percentage of shares held 2009 2008 100 100 100 100 100 100 100 100 75 100 100 100 100 100 100 100 100 100 100 100 100 75 100 100 100 100 Note (a). These entities have entered into a deed of cross guarantee dated 10 July 2000 with Nufarm Limited which provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on winding-up of that company. As a result of a class order issued by the Australian Securities and Investment Commission, 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 (last amendment dated 30 January 2009) with 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. 36. Deed of cross guarantee Under ASIC Class Order 98/1418, the Australian wholly-owned subsidiaries referred to in note 35 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 2009 is set out as follows: 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 107 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 36. Deed of cross guarantee (continued) Consolidated 2009 $000 2008 $000 Summarised income statement and retained profits Profit before income tax expense Income tax expense 60,239 (16,149) Net profit attributable to members of the closed group 44,090 Retained profits at the beginning of the period Amendments 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 Total current assets Non-current assets Equity accounted investments Other investments Deferred tax assets Property, plant and equipment Intangible assets Total non-current assets TOTAL ASSETS Statement of financial position Current liabilities Bank overdraft Trade and other payables Interest bearing loans and borrowings Employee benefits Current tax payable 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 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 108 65,100 (20,201) 44,899 299,730 – (58,322) 286,307 3,632 216,307 281,801 19,265 521,005 12,749 527,716 23,687 162,959 91,039 818,150 286,307 2,122 (65,297) 267,222 4,326 470,871 192,403 1,823 669,423 10,365 588,586 23,274 162,553 43,909 828,687 1,498,110 1,339,155 – 195,705 105,875 3,471 7,130 312,181 32,350 4,185 2,863 11,277 50,675 3,680 386,779 84,500 8,509 11,169 494,637 14,000 13,090 9,173 4,000 40,263 362,856 534,900 1,135,254 804,255 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 36. Deed of cross guarantee (continued) Equity Share capital Reserves Retained earnings TOTAL EQuITY Consolidated 2009 $000 2008 $000 812,844 55,188 267,222 456,870 61,078 286,307 1,135,254 804,255 37. 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 Loss on sale of investment Gain on disposal of non current assets Net realisable value inventory adjustment Write-down of non current assets Share of profits of associates net of tax Movement in provisions for: Deferred tax Tax assets 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 Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 80,542 423 138,120 373 55,349 – 64,698 373 16,361 48,412 3,813 (284) 67,611 – (3,080) 10,900 36,580 – (135) – 165 (2,698) 69 617 – 44 – – (1,091) 6,976 (78,655) 15,956 (33,530) (74) 11,450 34 612 – (16) – – (1,237) 71 (1,734) 2,511 1,851 39 (220) 144,630 167,582 66,403 62,581 58,862 46,499 (349,585) 11,883 (8,728) (354,235) 68,583 (4,223) 34,586 3,619 (197,755) (294,984) (377) (416) (7,044) (1,422) 1,669 (7,590) 2,286 (2,597) 2,742 (6,869) (1,901) (6,339) Net operating cash flows (53,125) (127,402) 58,813 56,242 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 109 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 38. 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. Executives BF Benson – Group general manager agriculture R Heath – Group general manager corporate services and company secretary Non-executive directors KM Hoggard (Chairman) GDW Curlewis Dr RJ Edgar (appointed 1 July 2009) KP Martin – Chief financial officer Dr WB Goodfellow GA Hounsell DG McGauchie Dr JW Stocker DA Mellody – Group general manager global marketing RF Ooms – Group general manager chemicals MJ Pointon – Group general manager innovation and development DA Pullan – Group general manager operations RG Reis – Group general manager corporate strategy and external affairs Executive director 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 2009 $ 2008 $ 2009 $ 2008 $ 6,320,665 698,981 77,250 262,368 9,723,114 644,142 97,045 299,266 849,750 123,500 77,250 – 777,661 113,516 50,000 – 7,359,264 10,763,567 1,050,500 941,177 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 2009. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 110 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 38. Key management personnel disclosures (continued) Other key management personnel transactions with the company or its controlled entities continued 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 current or prior year 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 2009 Directors KM Hoggard1 DJ Rathbone GDW Curlewis Dr WB Goodfellow1, 2 Dr RJ Edgar GA Hounsell1 DG McGauchie1 Dr JW Stocker1 Executives BF Benson R Heath KP Martin DA Mellody RF Ooms MJ Pointon DA Pullan RG Reis Total Balance at 1 August 2008 Granted as Exercise remuneration of options Net change other Balance at 31 July 2009 2,383,614 25,912,610 44,533 665,846 – 45,170 17,038 41,522 149,760 209,001 402,673 16,491 331,155 32,756 138,184 128,569 30,518,922 – – 2,293 1,550 – 1,550 – 1,550 12,895 6,233 12,895 9,671 12,143 4,827 13,432 10,746 89,785 – – – – – – – – – – – – – – – – – (1,750,000) 1,454 40,622 – – 3,000 708 2,383,614 24,162,610 48,280 708,018 – 46,720 20,038 43,780 (88,154) – 64 (5,196) – (20,000) – (20,000) 74,501 215,234 415,632 20,966 343,298 17,583 151,616 119,315 – (1,837,502) 28,771,205 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 111 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 38. Key management personnel disclosures (continued) Movements in shares (continued) Shares held in Nufarm Ltd 2008 Directors KM Hoggard1 DJ Rathbone GDW Curlewis 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 2007 Granted as Exercise remuneration of options Net change other Balance at 31 July 2008 2,383,614 29,912,610 43,787 662,914 61,959 16,376 40,973 66,938 159,429 209,001 402,673 16,491 356,820 225,392 180,319 – – 415 549 549 – 549 – – – – – – – – – – – – – – – – – – – – – – – – (4,000,000) 331 2,383 (17,338) 662 – 662 2,383,614 25,912,610 44,533 665,846 45,170 17,038 41,522 67,600 (9,669) – – – (25,665) (87,208) (51,750) 149,760 209,001 402,673 16,491 331,155 138,184 128,569 34,739,296 2,062 – (4,187,592) 30,553,766 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 The shareholdings of KM Hoggard, GDW Curlewis, Dr WB Goodfellow, GA Hounsell, DG McGauchie and Dr JW Stocker include shares issued under the company’s non-executive director share plan and are held by Pacific Custodians Pty Ltd as trustee of the plan. 2 The shareholding of Dr WB Goodfellow includes his relevant interest in: (i) St Kentigern Trust Board (430,186 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 (117,628 shares). (iii) Auckland Medical Research Foundation (26,558 Step-up Securities). Dr Goodfellow does not have a beneficial interest in these Step-up Securities. (iv) Trustees of the Goodfellow Foundation (35,698 shares and 1,338 Step-up Securities). Dr Goodfellow does not have a beneficial interest in these shares or Step-up Securities. 39. 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 112 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 39. Non-key management personnel disclosures (continued) (b) Transactions with associated parties Consolidated Bayer CropScience Nufarm Limited Sales to SRFA LLC Excel Crop Care Ltd F&N joint ventures Purchases from Trade receivable Trade payable Sales to Commissions received Interest received Trade receivable Purchases from Trade payable Sales to Trade payable Trade receivable 2009 $000 17,069 18,938 – – 3,682 57 3 – 978 – 68,450 – 36,028 2008 $000 13,859 13,875 1,651 5,930 2,238 – 16 486 1,015 247 65,087 248 29,140 These transactions were undertaken on commercial terms and conditions. 40. Subsequent events On 28 September 2009, the directors declared a final unfranked dividend of 15 cents per share, payable 13 November 2009. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 31 July 2009 and will be recognised in the subsequent financial reports. The declaration and subsequent payment of dividends has no income tax consequences for the company. With the UK Competition Commission inquiry now finalised, plans are advancing for the consolidation of the business activities in the UK at the Wyke location. The plant at Belvedere will cease production in October. No material gain or loss is expected from the closure of the site. On 5 August 2009, Nufarm acquired two US based sorghum companies, Richardson Seeds Ltd and MMR Genetics Ltd. Richardsons Seeds is a leading producer and marketer of sorghum seed hybrids, with a leading market share in the US and expanding positions internationally. MMR Genetics is a global leader in the development of elite sorghum germplasm, used by many of the world’s top seed companies. Combined sales of Richardsons Seeds and MMR in 2008 totalled approximately US$22 million. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 113 NOTES TO ThE FINANCIAL STATEmENTS CONTINuED 41. Auditors’ remuneration Audit services KPMG Australia Consolidated Company 2009 $000 2008 $000 2009 $000 2008 $000 Audit and review of group financial report 409 385 – – 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 Transaction due diligence services Other assurance services Overseas KPMG firms Other assurance services 947 286 941 188 1,642 1,514 122 1,764 155 1,669 15 – 48 63 12 14 35 61 118 23 141 – 141 – – – – 63 64 127 – 127 – – – – 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 114 DIRECTORS’ DECLARATION 1. In the opinion of the directors of Nufarm Limited (the company): (a) the financial statements and notes, and 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 2009 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); and (c) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 2. There are reasonable grounds to believe that the company and the group entities identified in note 36 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 2009. Signed in accordance with a resolution of the directors: Dated at Melbourne this 28th day of September 2009 KM Hoggard Director DJ Rathbone Director 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 115 INDEPENDENT AuDITOR’S REPORT TO THE MEMBERS OF NUFARM LIMITED Report on the financial report We have audited the accompanying financial report of Nufarm Limited (the company), which comprises the balance sheets as at 31 July 2009, and the income statements, statements of recognised income and expense and cash flow statements for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 41 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. Directors’ responsibility for the financial 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, comprising the financial statements and notes, complies with International Financial Reporting Standards. 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. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial 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 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. 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. 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 116 INDEPENDENT AuDITOR’S REPORT CONTINuED TO THE MEMBERS OF NUFARM LIMITED Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion 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 2009 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 also complies with International Financial Reporting Standards as disclosed in note 2(a). Material uncertainty regarding revenue recognised and valuation of accounts receivable relating to a claim made on a supplier Without qualification to the opinion expressed above, attention is drawn to the following matter. As stated in notes 2(d)(vi) and 16, the consolidated entity has recorded revenue and an amount receivable of $37.8 million under an Exclusive Distribution Agreement with a major supplier. The matter is the subject of a commercial dispute between the parties which may result in a negotiated settlement or legal proceedings, the outcome of which cannot be predicted with certainty. No provision has been made for any shortfall in recovery of the amount. Report on the remuneration report We have audited the remuneration disclosures included under the heading ‘remuneration report’ in the directors’ report for the year ended 31 July 2009. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Nufarm Limited for the year ended 31 July 2009, complies with Section 300A of the Corporations Act 2001. KPMG Paul J McDonald Partner Melbourne 28 September 2009 KPMG, an Australian partnership and a member firm of the KPMG network of independent member films affiliated with KPMG International, a Swiss cooperative. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 117 ShAREhOLDER AND STATuTORY INFORmATION Details of shareholders, shareholdings and top 20 shareholders Listed securities – 25 September 2009 Number of holders Number of securities Percentage held by top 20 Fully paid ordinary shares 16,583 218,061,199 67.68 Ordinary shares as at 25.09.09 Percentage of issued capital as at 25.09.09 10.81 10.38 9.09 8.04 6.93 5.67 2.51 2.43 1.93 1.37 1.23 1.14 1.08 1.05 1.03 0.77 0.66 0.57 0.54 0.45 Twenty largest shareholders HSBC Custody Nominees (Australia) Limited Falls Creek No 2 Pty Ltd National Nominees Limited JP Morgan Nominees Australia Limited Amalgamated Dairies Limited ANZ Nominees Limited Citicorp Nominees Pty Limited Cogent Nominees Pty Limited HSBC Custody Nominees (Australia) Limited – A/C 3 Challenge Investment Company Limited Australian Foundation Investment Company Limited Mr Edgar William Preston + Mr Paul Gerard Keeling AMP Life Limited 23,581,546 22,630,987 19,824,214 17,536,331 15,112,542 12,374,673 5,467,815 5,306,386 4,211,876 2,984,673 2,675,980 2,493,253 2,345,665 RBC Dexia Investor Services Australia Nominees Pty Limited 2,283,206 RAM Custodian Limited + GBH Trustee Services Ltd Pacific Custodians Pty Ltd CPU Share Plans Pty Ltd Queensland Investment Corporation UBS Wealth Management Australia Nominees Pty Ltd Credit Suisse Securities (Europe) Ltd 2,243,750 1,668,332 1,444,468 1,235,461 1,174,188 990,000 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 118 ShAREhOLDER AND STATuTORY INFORmATION CONTINuED Distribution of shareholders Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number of holders as at 25.09.09 Ordinary shares held as at 25.09.09 7,112 7,320 1,288 772 91 3,725,228 18,022,190 9,110,903 16,940,707 170,262,171 Of these, 287 shareholders held less than a marketable parcel of shares of $500 worth of shares (45 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 25 September 2009 was used to determine the number of shares in a marketable parcel. Stock exchanges on which securities are listed Ordinary shares: Australian Securities Exchange Limited. Substantial shareholders In accordance with section 671B of the Corporations Act, as at 25 September 2009, 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: Number and percentage of shares in which interest held at date of notice Date of notice Number Interest % 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 21 May 2009 21 May 2009 21 May 2009 21 May 2009 21 May 2009 21 May 2009 15,111,068 15,129,481 15,491,269 15,847,083 15,509,682 24,162,610 7.04 7.05 7.22 7.39 7.23 11.26 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. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 119 ShAREhOLDER AND STATuTORY INFORmATION CONTINuED Shareholder information Annual general meeting The annual general meeting of Nufarm Limited will be held on Thursday 3 December 2009 at 10.00am in the Ballroom, Rendezvous Hotel, 328 Flinders Street, Melbourne, Victoria, Australia. 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. Every shareholder, proxy or shareholder’s representative has one vote on a show of hands. In the case of a poll, each share held by every shareholder, proxy or representative is entitled to one vote for each fully paid share. Stock exchange listing Nufarm shares are listed under the symbol NUF on the ASX. The securities of the company are traded on the ASX under CHESS (Clearing House Electronic Sub-register System), which allows settlement of on-market transactions without having to reply on paper documentation. Shareholders seeking more information about CHESS should contact their stockbroker or the ASX. Shareholder details The Nufarm Limited Share Register is managed by Computershare Investor Services. you can gain access to your shareholding information in the following ways. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 120 ShAREhOLDER AND STATuTORY INFORmATION CONTINuED Online via Investor Centre Step 1 Go to www.computershare.com/au/investors Step 2 Select ‘Holding Enquiry’ Step 3 Enter NUF or Nufarm Limited Step 4 Enter your Securityholder Reference Number (SRN) or Holder Identification Number (HIN), postcode or country if outside Australia Step 5 Enter the security code that appears and agree to the terms and conditions Step 6 Select ‘Submit’ Alternatively, manage your portfolio by becoming a member of Investor Centre and register for a username and password at www.computershare.com/au/investors By telephone via InvestorPhone (Australian shareholders only) InvestorPhone provides telephone access 24 hours a day seven 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 Shareholder communications you can choose to receive shareholder communications electronically. Register for this initiative at www.eTree.com.au/nufarm and a donation of $1 will go to Landcare to support urgent reforestation projects in Australia and New Zealand. The default for receiving the annual report is now via the company’s website – www.nufarm.com 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 121 ShAREhOLDER AND STATuTORY INFORmATION CONTINuED Shareholder enquiries Contact: Computershare Investor Services yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 GPO Box 2975 Melbourne Victoria 3001 Telephone: 1300 652 479 (within Australia) +61 3 9415 4360 (outside Australia) Email: web.queries@computerhsare.com.au Dividends A final unfranked dividend of 15 cents per share will be paid on 13 November 2009 to shareholders registered on 16 October 2009. 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 16 October 2009 Record date (books closing) for 2008–09 final dividend 13 November 2009 Final dividend for 2008–09 payable 30 October 2009* Annual report sent to shareholders 3 December 2009 Annual general meeting 30 March 2010* Announcement of profit result for half year ending 31 January 2010 31 July 2010 End of financial year * Subject to confirmation. 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 122 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 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 123 DIRECTORY Directors Share registrar KM Hoggard – Chairman GDW Curlewis – Deputy Chairman DJ Rathbone AM – Managing Director Dr RJ Edgar Dr WB Goodfellow GA Hounsell DG McGauchie AO Dr JW Stocker 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 8700 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 Australia http://www.nufarm.com Nufarm Limited ACN 091 323 312 9 0 0 2 t r o p e R l a u n n A – d e t i i m L m r a f u N 124 Produced by Gillian Sweetland. Designed by MDM Design. Photographers include: Dawn Arts, Danielle Moore, Louis Petrucelli and Melissa Powell. 

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