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Scotts Miracle-GroANNUAL
REPORT
2016
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CONTENTS
ABOUT NUFARM
Nufarm is an established global agricultural inputs
company, competing worldwide in crop protection and
seed technologies. We are seen around the world as a
supplier of quality products, supported by high standards
of service and strong customer relationships.
We leverage our deep expertise in five core crops and
focus our sales in four geographies where we have the
greatest opportunity – North America, Latin America,
Europe, Australia and New Zealand.
Our mission is to grow a better tomorrow through the
products and services we provide that support the success
of our distributors and growers. This mission also reflects
our commitment to the communities in which we operate,
the ambition we have for our people and our collective
approach to success.
M
O N E NUFAR
US T O M E R EXCEL
L
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P
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T
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XCELL E N C E
SUPP L Y C
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PEOPLE | VALUES | CULTURE
E
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03 Our One Nufarm strategy
03 Facts in brief
04 Managing director’s review
11 Business review
14 Sustainability
16 Board of directors
18 Executive management
19 Corporate governance
20
Information on the company
22 Financial report
23 Directors’ report
41
Lead auditor’s independence declaration
42
Income statement
43
Statement of comprehensive income
44 Balance sheet
45 Statement of cash flows
46 Statement of changes in equity
48 Notes to the financial statements
109 Directors’ declaration
110 Independent auditor’s report
112 Shareholder and statutory information
117 Directory
We are proud to be celebrating our centenary year.
Nufarm Limited was born in 1916 – 100 years
ago – under the original name The New Zealand
Farmers Fertiliser Company Limited (NZFF).
In 1982 NZFF acquired 65 per cent of Nufarm and
then the balance in 1987. Nufarm in Australia began
in the mid-50’s and has its own history like many
of our operations around the globe. The parent
company name, NZFF, was changed to Fernz in
1984 and then to Nufarm Limited in January 2000
when the head office was moved to Melbourne.
100 years ago, a small group of enterprising
New Zealanders realised their goal of establishing
an enterprise that would serve the needs of the
farming community, helping growers improve
yields and providing an unparalleled level of
customer service.
Today, that legacy continues to drive the company’s
philosophy and remains a steadfast commitment
as we look confidently to the future. Nufarm has a
well-known brand and is known for our high-quality
products in crop protection and seeds. We provide
products and services to farmers in more than
100 countries and have over 3,000 employees.
With a new strategic plan, Nufarm is strongly
positioned to continue to take advantage of
the many opportunities in global agriculture
and to growing a better tomorrow.
NUFARM LIMITED ABN 37 091 323 312
CUSTOMEREXPERIENCEEveryone has a role to play in serving the customer.
Building a better Nufarm
We have committed to a substantial
change program aimed at improving the
long term performance of our business
and increasing shareholder returns.
We are now halfway through this program and have made good progress in lowering our cost base and delivering on systems
and processes to help us become more efficient and more competitive.
An important achievement during the year was the completion of our strategic review. As a result of this review, we launched
our One Nufarm strategy, defining how we will become a stronger and more competitive global company. Our strategy
leverages our global strength and puts our customers at the centre of our business so that we can deliver a superior customer
experience. Our focus is deeper, rather than broader: we are prioritising our investments on a smaller number of important
crops in four geographical regions.
The improvements that we are making puts Nufarm in a strong position to deliver sustainable earnings growth and improved
shareholder returns.
Poland
Germany
France
Europe
Serviced by hubs in Germany,
France and Poland
North America
Serviced by
a hub in the
United States
United States
of America
Brazil
Latin America
Serviced by a
hub in Brazil
Plant locations
Australia
Australia/New Zealand
Serviced by a hub in Australia
01
NUFARM LIMITED ANNUAL REPORT 2016 WE ARE PRIORITISING OUR
INVESTMENTS ON A SMALLER
NUMBER OF IMPORTANT CROPS
IN FOUR GEOGRAPHICAL REGIONS.
02
NUFARM LIMITED ANNUAL REPORT 2016 OUR ONE NUFARM STRATEGY
We are delivering on our plan:
• An accelerated contribution from the performance improvement program.
• A more cost-competitive business that is winning share in some of our target markets.
• A lower cost base that supports strong margin expansion.
• Better capital management and a strengthening balance sheet.
• A stronger platform to support continued and profitable growth.
FACTS IN BRIEF
Trading results
Profit attributable to shareholders
Abnormal (gain)/loss
Underlying net profit after tax
Sales revenue
Total equity
Total assets
Ratios
Earnings per ordinary share (cents)
Earnings per ordinary share excluding abnormals (cents)
Gearing ratio (%)
Net tangible assets per ordinary share ($)
Distribution to shareholders
Annual dividend per ordinary share (cents)
12 months ended
31 July 2016
$000
12 months ended
31 July 2015
$000
27,519
81,399
108,918
2,791,217
1,550,228
3,461,138
6.1
36.7
28.7
2.55
11.0
43,220
73,839
117,059
2,737,163
1,636,795
3,574,188
11.7
39.6
25.0
2.58
10.0
People
Staff employed
3,256
3,349
The financial information contained within our financial statements has been prepared in accordance with IFRS. Refer to page 8 for definitions of the non-IFRS
measures used in the annual report. All references to the prior period are to the year end 31 July 2015 unless otherwise stated. Non-IFRS measures have not
been subject to audit or review.
03
NUFARM LIMITED ANNUAL REPORT 2016 MANAGING DIRECTOR’S REVIEW
The 2016 full year results demonstrate we are delivering on the
objective that we outlined at the beginning of the year. We have
driven our costs lower and improved our competitive position,
and we are seeing a continuation of margin expansion that
is driving EBIT growth. Despite low commodity prices and
industry headwinds, Nufarm grew revenue and improved
our underlying earnings.
Earnings per share (excluding material
items) were 36.7 cents (2015: 39.6 cents).
Despite challenging market conditions
which negatively impacted the global
crop protection sector, the group
generated a higher underlying gross
profit margin of 29.6 per cent. This
was a significant improvement on the
prior year (28 per cent), and reflected a
strong focus on higher margin product
sales and the benefit of cost savings
and restructuring initiatives.
Net debt at 31 July was $625 million,
up on the $547 million in 2015,
however both year end and
average leverage were lower.
Final dividend
Directors declared an unfranked
final dividend of seven cents per
share, resulting in a full year dividend
of 11 cents. This represents a one cent
per share increase on the full year
dividend of 10 cents per share
(unfranked) paid in the previous year.
The final dividend will be paid on
11 November 2016 to the holders
of all fully paid shares in the
company as at the close of business
on 14 October 2016. The final
dividend will be 100 per cent
conduit foreign income.
The company is midway through the
business improvement program and
has now delivered $75 million of savings
against our target of $116 million of net
benefits by July 2018.
At the end of 2014, the company
committed to reducing working capital
requirements and set a target of driving
down average net working capital to
sales below 40 per cent by the end of
the 2016 financial year. This has been
achieved by eliminating approximately
$200 million if inefficient capital for
the business.
The company generated a statutory
profit after tax of $27.5 million for
the 12 months to 31 July 2016. This
included $81.4 million in one-off
costs associated with restructuring
initiatives and asset rationalisation,
and compares to a statutory profit
after tax of $43.2 million in the
previous financial year.
Group revenues increased by
two per cent to $2.79 billion (2015:
$2.74 billion), while underlying earnings
before interest and tax (EBIT) increased
by 21 per cent to $286.7 million
(2015: $236.9 million).
Underlying net profit after tax was
$108.9 million, down seven per cent
on the $117.1 million reported in the
prior period. The underlying net profit
was impacted by a higher cost of doing
business in Latin America, where strong
growth and structural market changes
resulted in higher interest expense
and significantly higher foreign
exchange losses.
04
Greg Hunt
Managing director and
chief executive officer
The dividend reinvestment plan (DRP)
will be made available to shareholders
for the final dividend. Directors have
determined that the issue price will
be calculated on the volume weighted
average price of all shares sold
on the ASX over the 10-day period
commencing 17 October 2016.
The last election date for shareholders
who are not yet participants in the
DRP is 17 October 2016.
Material items
The company has implemented a
performance improvement program
to reduce the fixed cost base, lift
the profitability of the business and
enhance competitiveness. During
the year, the company completed
manufacturing footprint and product
portfolio reviews associated with
the program.
The resulting changes to the business
have resulted in one-off, pre-tax
costs of $126.2 million in the period.
Offsetting these costs is the profit on
the reclassification of the Excel Crop
Care equity investment to an available-
for-sale financial asset, which resulted
in a gain of $27.1 million.
NUFARM LIMITED ANNUAL REPORT 2016 GROUP REVENUES INCREASED
BY TWO PER CENT TO $2.79 BILLION
(2015: $2.74 BILLION).
05
NUFARM LIMITED ANNUAL REPORT 2016 MANAGING DIRECTOR’S REVIEW continued
In the current year, the net cash outflow
associated with material items was
$52 million. In contrast, the 2017
financial year cash flow impact from
material items, already booked in
financial year 2016, is expected to be
a net cash outflow of approximately
$15 million. This is more than offset by
an expected inflow from the potential
sale of the Excel Crop Care investment
and the ex-manufacturing properties,
which should total near $50 million.
The majority of the performance
improvement costs are related to the
product portfolio review. Nufarm is
developing a product portfolio that
better meets the needs of customers
in select crops and key markets, where
stronger margins can be generated.
The company also made the decision
during the year to assign a useful
life of no longer than 30 years to
all product-related intangible assets.
This accounting estimate change
resulted in $6 million higher
amortisation costs in the financial
year 2016. As the change was
implemented as at 31 January 2016,
the full year impact in financial year
2017 will be $12 million.
The manufacturing footprint
rationalisation costs in 2016 involve
the closure of the Calgary plant in
Canada and costs related to the
implementation of the manufacturing
efficiencies initiatives. Other costs are
related to various redundancy and
consulting costs.
Excel Crop Care is an Indian crop
protection business, in which Nufarm
has a 14.69 per cent interest. During
June 2016, Sumitomo Chemical
Company Limited acquired a 45 per
cent stake in Excel Crop Care and
declared an open market offer for
an additional 30 per cent of the
company’s shares. At this date, Nufarm
concluded that its ability to exert
significant influence was relinquished.
Subsequently, the company ceased
to account for its investment in Excel
Crop Care as an equity accounted
investment, and reclassified its
investment as ‘available-for-sale’.
This reclassification resulted in
a one-off gain of $27.1 million to
account for the difference between
the carrying value of the equity
investment and the fair value.
Sumitomo’s open market offer for an
additional 30 per cent of Excel Crop
Care closed on 9 September. Nufarm
has registered to participate in the
open market offer as proposed by
Sumitomo. Nufarm is awaiting
confirmation from the Bombay Stock
Exchange regarding the sale of its
interest in Excel Crop Care and if
successful, the expected proceeds
would be approximately $40 million.
The material items also include the
net impact of the Argentina peso
devaluation that occurred in December
2015. The impact is break even at year
end, with the exchange loss resulting
from the devaluation ($15.5 million)
offset by an increased gross margin
from the inventory held at the time
of the devaluation ($15.5 million).
Interest/tax/cash flow
Total net financing costs were
$153.4 million, compared to
$75.2 million in the prior year.
Net external interest expense was
$96.4 million, which is $21.5 million
higher than the previous period. The
higher interest expense is primarily
driven by Brazil, and is caused by
higher base rates, more Brazilian real
denominated debt and the increased
funding requirements of the business.
Foreign exchange losses were
$57 million, compared to $0.3 million
of exchange losses recorded in the
2015 year. The one-off devaluation
of the Argentine peso, which occurred
in December 2015, accounts for
$15.5 million of the exchange losses.
The underlying foreign exchange loss
of $41.5 million mainly relates to the
volatility of the Brazilian real and the
Argentinean peso in the period, and
the high cost of hedging the resulting
exposure between the those currencies
and the US dollar. The exchange loss
was exacerbated by the Brazilian
market’s structural switch to real
invoicing in the period.
The underlying effective tax rate
was 26.8 per cent, compared to
27.7 per cent in the prior period.
The business generated underlying
net operating cash inflows of
$189.1 million.
Balance sheet management
Net debt at 31 July was $625 million
versus $547 million in the prior year.
Net debt was negatively impacted
by the material one-off items in the
period, the higher interest expense and
foreign exchange losses. The group’s
capital expenditure was higher due
to construction of the new insecticides
and fungicides facility at Laverton
and higher technology investment,
especially on the supply chain
improvement program and Omega 3.
Average net debt was higher than the
previous period ($912 million versus
$865 million). The leverage ratio (net
debt at 31 July 2016 divided by the
12 month rolling earnings before
interest, taxes, depreciation and
amortisation (EBITDA)) improved
to 1.68x (2015: 1.72x). The average
leverage across the year was 2.45x,
06
NUFARM LIMITED ANNUAL REPORT 2016 MANAGING DIRECTOR’S REVIEW continued
compared to 2.73x in the prior
year. Gearing (net debt to net
debt plus equity) was 28.7 per cent
(2015: 25 per cent).
Management continued to focus on
driving further efficiencies in working
capital management, with average
net working capital to sales down to
39.9 per cent (2015: 41.9 per cent).
In Brazil, extended terms were
provided to some customers, who
were impacted by adverse weather
conditions. The company has security
against the majority of these
receivables. This has resulted in higher
non-current receivables in 2016 of
$62 million (2015: $32 million). The
company has included these non-
current receivables in the net working
capital calculation. The company has
achieved its objective to bring this ratio
down to 40 per cent by the end of the
2016 financial year and is now focused
on driving further efficiencies.
The major driver of the improvement
in average net working capital was
trade payables, with the company
negotiating more favourable terms
with several key suppliers and
expanding its supplier financing
program. Average receivables
were also lower for the year.
The group is reviewing all assets on the
balance sheet to ensure they are core
to the strategy. The group expects to
receive almost $50 million from the sale
of two ex-manufacturing properties in
Australia, and the sale of our interest
in the Indian associate Excel Crop Care.
These proceeds will be used to retire
debt. The company will continue to
look for opportunities to divest other
non-core assets.
Cost savings and performance
improvement program
The company made excellent progress
on its cost savings and performance
improvement program, which aims to
deliver a net benefit of $116 million in
underlying EBIT by the end of the 2018
financial year.
The performance improvement
program covers a broad range
of initiatives across all areas of the
business including: manufacturing
footprint and efficiencies; procurement
practices; supply chain and logistics;
selling, general and administrative
expenses; and product portfolio.
The company delivered a net benefit
of $60 million from the performance
improvement program in the 2016
financial year, and has cumulative
benefits of $75 million over the past
two years. The higher than expected
2016 contribution reflects strong buy-in
to the change program from the
business and excellent execution. Most
of the savings in the 2016 financial year
came from the manufacturing footprint,
manufacturing excellence and
procurement initiatives. Our businesses
in the Americas and Europe were the
largest regional contributors.
The total estimated cost savings and
efficiencies – on a gross basis – are well
in excess of the targeted net benefit
announced by the company. However,
to support sustainable business
improvement and to secure benefits
on an ongoing basis, some of these
savings are being reinvested in new
systems and capabilities such as new
customer relationship management
(CRM) systems, improved performance
in supply chain management, specialist
procurement resources, enhanced
marketing capabilities, and a major
process improvement project to
harmonise the back office procedures
and systems within and across regions.
The company has also announced an
objective to achieve a return on funds
employed (ROFE) of 16 per cent by
the 2018 financial year. ROFE at 31 July
was 13.1 per cent, up from 11 per cent
in the prior comparative period.
People and organisation
The past 12 months have seen
considerable changes to Nufarm’s
operating model, including further
changes to the leadership team.
While periods of significant change
can be challenging, it has been
encouraging to see the high level
of engagement and support from
Nufarm employees around the
world. The strong commitment
and capabilities of our people are
a key strength of the company.
In 2016 the company continued to
work towards the development of a
culturally diverse workforce following
the launch of our new diversity policy
last year. Nufarm recognises that
talent comes from all sectors of the
community and across different age
groups, genders, cultural backgrounds
and experience. Our leadership team
is more culturally diverse than it has
ever been, and we have a commitment
to identify and grow talent to build a
better Nufarm, with the expectation
that we will become a more diverse
organisation in the future.
Nufarm continues to listen to its
people, with an employee opinion
survey scheduled for late 2016.
We are also maintaining a strong focus
and commitment to improving our
levels of safety and sustainability.
07
NUFARM LIMITED ANNUAL REPORT 2016 The company is well positioned to
generate growth in the United States,
where our business will benefit from
new product introductions and stronger
support from local distribution. The
business will also benefit from the
manufacturing efficiencies associated
with the closure of the Calgary plant.
The combination of important new
seed treatment product launches and
continued expansion of the European
sunflower business should support
earnings growth in seed technologies
over the next 12 months, along with
the possibility of an improved outlook
for Australian canola sales.
MANAGING DIRECTOR’S REVIEW continued
Outlook
The combination of additional cost
savings benefits, margin expansion
and revenue growth in a number of
the company’s businesses is expected
to result in earnings growth in 2017.
This is despite an expectation that
soft commodity prices will remain
low and general market conditions
will continue to be subdued.
The company’s performance in
Australia is expected to strengthen,
with restructuring initiatives resulting
in a lower and more flexible cost base,
and a better balance between sales of
high margin and commodity products
that should see sales and production
volumes improve. The outlook for the
Australian summer cropping season is
positive, with good winter and spring
rains across the country.
In Brazil, the area planted to crops
and the volume of crop protection
inputs are expected to rise. Careful
management of inventories, positive
exposure to stronger market segments,
and new product introductions should
result in Nufarm’s business being well
placed to achieve growth in the 2017
financial year.
New product introductions and
increased investment in marketing
and sales staff in our key European
markets should underpin what
is expected to be another solid
performance in this region.
IFRS and non-IFRS financial information
Nufarm results are reported under International Financial Reporting Standards (IFRS) including underlying
EBIT and underlying EBITDA, which are used to measure segment performance. This release also includes
certain non-IFRS measures including underlying net profit after tax and gross profit margin. These
measures are used internally by management to assess the performance of our business, make decisions
on the allocation of our resources and assess operational management. Non-IFRS measures have not been
subject to audit or review.
The following notes explain the terms used throughout this profit release:
1.
Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA
is Underlying EBIT before depreciation and amortisation of $85.024 million for the year ended
31 July 2016 and $80.208 million for the year ended 31 July 2015. We believe that underlying EBIT
and underlying EBITDA provide useful information, but should not be considered as an indication
of, or an alternative to, profit/(loss) for the period as an indicator of operating performance or as an
alternative to cash flow as a measure of liquidity.
Underlying EBIT is used to reflect the underlying performance of Nufarm’s operations. Underlying
EBIT is reconciled to operating profit below.
2.
Year ended 31 July
Underlying EBIT
Material items impacting operating profit
Operating profit
3. Non-IFRS measures are defined as follows:
2016
$000
286,696
(83,610)
203,086
2015
$000
236,882
(86,664)
150,218
• underlying net profit after tax – comprises profit/(loss) for the period attributable to the equity
holders of Nufarm Limited less material items;
• average gross margin – defined as average gross profit as a percentage of revenue;
• average gross profit – defined as revenue less a standardised estimate of production costs
excluding material items and non-product specific rebates and other pricing adjustments;
• net external interest expense – comprises interest income – external, interest expense – external,
lease expense – finance charges, and debt establishment costs as described in the notes to the
31 July 2016 Nufarm Limited financial report;
• ROFE – defined as underlying EBIT divided by the average of opening and closing funds employed
(total equity plus net debt);
• net debt – total debt less cash and cash equivalents;
• average net debt – net debt measured at each month end as an average;
• net working capital – current trade and other receivables and inventories less current trade and
other payables;
• average net working capital – net working capital measured at each month end as an average; and
• average leverage – defined as average net debt divided by underlying EBITDA.
08
Net interest expense is expected to
be moderately lower in 2017. Net
foreign exchange impacts will continue
to include anticipated hedging costs
of $1 million to $1.5 million per month
for Latin America.
Management will stay focused on
strengthening the balance sheet,
with continued attention given to
working capital management and the
sale of non-core assets. The working
capital objective will be to retain the
efficiencies achieved in recent years,
and upon the completion of the supply
chain investment, drive the next step
change reduction in average net
working capital. The benefits from
this project will start to flow in the
2018 financial year. In 2017, the focus
will be on improving cash flow and
reducing the average leverage ratio.
Growth prospects over the medium
to long term remain strong as the
company continues to secure further
benefits from the performance
improvement program and expands
its offerings in core crops and markets.
Greg Hunt
Managing director and
chief executive officer
NUFARM LIMITED ANNUAL REPORT 2016
THE OUTLOOK FOR THE AUSTRALIAN
SUMMER CROPPING SEASON IS POSITIVE,
WITH GOOD WINTER AND SPRING RAINS
ACROSS THE COUNTRY.
09
NUFARM LIMITED ANNUAL REPORT 2016 NUFARM’S CROP PROTECTION BUSINESS
GREW SALES BY THREE PER CENT TO
$2.65 BILLION AND UNDERLYING EBIT
BY 21 PER CENT TO $302.5 MILLION.
10
NUFARM LIMITED ANNUAL REPORT 2016 BUSINESS REVIEW
The company achieved margin growth in most of its regional crop
protection businesses, despite overall market conditions being
generally weaker due to the fall in crop prices and lower demand
in some market segments.
The company’s cost savings and
performance improvement program
contributed strongly to margin
expansion and the higher underlying
earnings. At an EBIT level, the program
contributed $60 million of benefits to
the 2016 results, and has contributed
a cumulative benefit of $75 million
over the past two years. Strong
earnings growth in Nufarm’s businesses
in North America, Latin America
and Europe more than offset
weakness in Australia and the
seed technologies segment.
Nufarm’s crop protection business
grew sales by three per cent to
$2.65 billion and underlying EBIT
by 21 per cent to $302.5 million.
Crop protection sales accounted
for 95 per cent of group revenues
and generated an average gross
margin of 28.8 per cent, which
is a significant improvement on
the previous year (26.9 per cent).
The seed technologies segment
generated revenues of $143.6 million,
down 10 per cent on the 2015 financial
year ($159.6 million). The segment
posted a 10 per cent decline in
underlying EBIT to $28.7 million.
The global seeds industry faced
challenging conditions, with most
players experiencing earnings declines.
Importantly, key market shares were
maintained, and the underlying
EBITDA margin improved, as
further efficiency savings were
extracted from the business.
and autumn, limiting pre-plant
opportunities. Good rainfall in
many areas from May onwards will
boost yields for farmers, providing
a positive outlook for the summer
cropping season.
A gross margin improvement in the
Australian business reflected a focus
on increased sales of higher margin
products and more disciplined selling
practices. However, this came at the
expense of lower sales of larger volume
commodity products, with a resulting
negative impact on plant recoveries.
The previously announced closure
of three manufacturing facilities in
Australia and New Zealand is now
complete. Two sites – Welshpool and
Lytton – have been sold, with proceeds
received post year end, and the
Otahuhu site is expected to be sold
during the second half of 2016. The
full benefit of these changes should be
realised in the 2017 financial year, as
we achieve improved plant recoveries
with a better balance between higher
margin product sales and volume-
based commodity product sales.
The company’s continued focus on
working capital efficiencies helped
drive an improvement in the average
net working capital to sales ratio to
39.9 per cent, and average net working
capital dollars reduced by $32 million.
Although year end net debt was higher,
average leverage across the year was
below the prior period. The return
on funds employed for the period
was 13.1 per cent, compared to
11 per cent in the prior year.
Australia/New Zealand
The Australian and New Zealand
businesses generated sales of
$554 million, down five per cent
on the previous year ($582.4 million).
Underlying EBIT was $47 million
compared to $52.7 million in the
prior period.
Climatic conditions in Australia
were mixed. Western Australia had
a very good season, but eastern
Australia was again dry during summer
Operating segments summary
The table below provides a summary of the performance of the operating
segments for the 2016 financial year and the prior corresponding period.
Year ended 31 July
Revenue
Underlying EBIT
($000s)
Crop protection
Australia and
New Zealand
Asia
Europe
North America
Latin America
Total crop
protection
Seed technologies
– global
Corporate
Nufarm group
2016
2015
Change
(%)
2016
2015
Change
(%)
553,994
148,604
550,376
653,939
740,686
582,391
155,233
544,775
588,650
706,533
-4.9 46,963
-4.3 22,824
1.0 73,017
11.1 59,288
4.8 100,396
52,745
18,134
64,426
38,921
76,684
-11.0
25.9
13.3
52.3
30.9
2,647,599 2,577,582
2.7 302,488 250,910
20.6
143,618
–
159,581
–
2,791,217 2,737,163
31,829
-10.0 28,719
n/a (44,511)
(45,857)
2.0 286,696 236,882
-9.8
-2.9
21.0
11
NUFARM LIMITED ANNUAL REPORT 2016 BUSINESS REVIEW continued
Asia
Asian sales were $148.6 million
compared to $155.2 million in the prior
year. Underlying EBIT was $22.8 million,
well up on the $18.1 million generated
in the prior year.
Although Indonesian sales were lower
due to the prolonged dry season, this
was more than offset by stronger sales
into Japan, China and Korea. Sales to
Japan were up 36 per cent on last year.
A combination of increased focus on
higher margin products and prudent
cost control led to an improved EBIT
result on the prior year.
North America
North American crop protection sales
grew by 11 per cent to $653.9 million.
Underlying EBIT was up strongly
to $59.3 million, compared to
$38.8 million in the prior year.
A mild winter and early warm spring
in the United States provided good
opportunities in the ‘burn down’
segment where Nufarm has a strong
position. Despite soft commodity
pricing that encouraged farmers to
reduce their spend on crop protection,
Nufarm was able to improve margins
through marketing programs that
closely aligned with the needs of
distribution partners, and newer
products that address the increasing
challenges associated with resistant
weeds. The turf and ornamental
business also performed strongly
during the year.
The previously announced closure
of the Calgary plant was completed
in June, with production successfully
transferred to the company’s Chicago-
based manufacturing facilities.
The Canadian business grew sales and
earnings, with new product launches
and differentiated offerings continuing
to strengthen Nufarm’s position in
that market.
Latin America
Latin American crop protection sales
grew by five per cent to $740.7 million.
Underlying EBIT was up strongly
to $100.4 million compared to
$76.7 million in the prior year.
The business took a conservative
approach to sales growth, particularly
given the volatile market conditions.
We were able to maintain market
share in Brazil.
Eight new products were launched by
Nufarm in Brazil in the first half of 2016,
and further launches are planned in the
new financial year. Channel inventory
of Nufarm products remains well
below the industry average, with
good ‘product-on-ground’ usage
during the year.
Higher US dollar priced raw material
costs resulted in margins coming under
pressure, but the business was able to
increase local currency selling prices
which offset much of that cost increase.
Substantial procurement savings also
contributed to the stronger EBIT result.
Risk management remains a key priority.
The Brazil business incurred significant
foreign exchange losses, hedging costs
and interest costs due to a structural
change away from US dollar pegged
invoicing. While this increases the cost
of doing business, Brazil remains a
strategically important market for
Nufarm with potential for further
substantial growth. Measures in place
to mitigate the risks associated with
the business are regularly reviewed.
The Argentina business performed
well, despite the political and economic
instability. The new government
devalued the peso, reduced taxes on
grain exports and relieved some of the
foreign currency controls. The impact
of the one-off devaluation was included
in material items, and was offset by
margin increases on the inventory
holdings at the time of the devaluation.
Europe
European crop protection sales grew
by one per cent to $550.4 million.
Underlying EBIT was up to $73 million
compared to $64.5 million in the prior
year. Seasonal conditions were mixed,
with a wet and cold spring reducing
herbicide and fungicide applications
in cereals. Yields were below average
in Western Europe, but record yields
were achieved in Eastern Europe.
Nufarm’s branded sales were
slightly ahead of the prior year,
when measured in euros. Margin
increases were achieved due to
more disciplined selling policies,
higher sales of differentiated
formulations and the launch of
several new products in the period.
The restructuring of the European
manufacturing base is proceeding on
schedule. The Botlek manufacturing
facility in the Netherlands closed, with
capacity relocated to the Wyke facility
in northern England. Manufacturing
efficiency programs are nearing
completion at the Linz (Austria) and
Gaillon (France) production facilities.
These changes will permanently reduce
the company’s fixed cost base, improve
working capital management, and
support the continued growth of
the European business.
12
NUFARM LIMITED ANNUAL REPORT 2016 BUSINESS REVIEW continued
Major product segments
Crop protection
Nufarm’s crop protection business
generated $2.65 billion in revenues,
which was three per cent higher
than the previous year’s sales of
$2.58 billion. These sales generated an
average underlying gross profit margin
of 28.8 per cent, significantly stronger
than the 26.9 per cent average gross
margin recorded in financial year 2015.
Herbicide sales at $1.76 billion were
in line with the prior year. Glyphosate
sales were down on the prior year,
mainly due to the lower average
technical price across the year (down
around 20 per cent), but margins
were stronger. Glyphosate volumes
were ahead of last year, with growth
achieved in North America and Latin
America. Phenoxy herbicide revenues
and margins were up, driven by
stronger sales in North America.
Dicamba sales were down on last
year due to an over-supply in
the United States market while
Flumioxazin sales were up on the
prior year driven by new product
launches in the United States.
Group insecticide sales were
$279 million, and in line with the
prior year. Gross margins were slightly
ahead. Lower insect pressure and
higher rainfall in southern Brazil
resulted in reduced demand for these
products, while North American sales
increased, particularly in the turf and
specialty segment.
Fungicide sales were up by 12 per cent
to $307 million, with margins slightly
ahead of the prior year. The fungicide
portfolio performed strongly in the
period, with relatively low disease
pressure in Brazil offset by a positive
autumn season in Europe, and the
continued roll-out of new mixture
products.
Sales of plant growth regulators (PGRs)
and biorational products were also up,
with a successful focus on products in
crop segments that can deliver higher
margin earnings. Europe has benefitted
from a focus on cereals with PGRs,
and the North American business
with biorationals in the trees, nuts,
vegetables and vines (TNVV) segment.
The company continued to strengthen
its strategic relationship with the
Sumitomo Chemical Company
and this was reflected in higher sales
of Sumitomo products across Nufarm’s
distribution platforms. Sales between
the two parties grew 20 per cent to
$171 million in the year. There was
very good sales growth in the United
States, Canada and Brazil, as well as
the execution of a new distribution
agreement in the United Kingdom.
Portfolio collaboration opportunities
continue to be explored and
developed.
Seed technologies
The company’s seed technologies
segment includes sales of seeds,
managed under our Nuseed business,
and seed treatment chemistry.
Revenues in this segment were
$143.6 million, 10 per cent below
the prior period sales of $159.6 million.
The segment generated an underlying
EBIT of $28.7 million, compared to
$31.8 million in the prior period.
Segment sales were down primarily
due to lower soft commodity pricing,
continued dry conditions in Australia
prior to seed planting, and over-supply
in the United States sorghum market.
European sunflower sales were up on
the prior year. Seed treatment sales
were up in Europe, with strong demand
for the company’s Nuprid 600 product
in France.
Nuseed has undertaken significant
organisational changes to improve
efficiency in the areas of research
and development, supply chain and
customer focus. This included the
implementation of a centre of
excellence model for research
and development, the closure of
two seed processing facilities and the
centralisation of the global portfolio
and commercial functions. As a result,
headcount was reduced and expense
savings were delivered in the period.
The changes enable Nuseed to
concentrate resources in the high-
growth, high-value segments and build
a stronger trait and hybrid pipeline.
The company’s omega 3 canola
program continues on track, now
well into field trials and the pre-
registration phase of development.
Several significant patents relating to
this program were published and/or
granted during the year, contributing
to a very strong intellectual property
position. Nuseed is now engaging
with several industry players to validate
both performance and acceptance
in end-use markets. Commercialisation
of the technology is planned for
2018–2019, subject to regulatory
approvals.
13
NUFARM LIMITED ANNUAL REPORT 2016 SUSTAINABILITY
We have a commitment to act responsibly while providing
value for our stakeholders. Our sustainability objective is
to pursue continuous improvement in safety, to responsibly
manage our impact on the environment and contribute to
society in a positive way.
Last year, we launched our first
company-wide sustainability strategy
and four year plan aimed at improving
our sustainability performance. This
year, we focused on achieving global
alignment of our safety systems and
processes, and improving our safety
behaviours and culture.
We have continued to work towards
our goal of zero harm and reinforce a
‘safety first’ culture. We have also made
good progress in improving the way
we report, investigate and prevent
reoccurrence of significant incidents.
The company is midway through a
major performance improvement
program. We have streamlined our
manufacturing footprint and conducted
manufacturing efficiency programs.
We completed the process of
decommissioning our plants at Botlek,
Lytton, Otahuhu and Calgary without
any lost time injuries. The changes to
our manufacturing footprint will ensure
Nufarm is more efficient, competitive
and sustainable in the future.
During the year, we safely constructed
and commissioned a new insecticide
and fungicide manufacturing facility
in Laverton, Melbourne. We are
developing a strong safety culture
at this operation.
Despite these achievements, sadly
we had a fatality in September 2015
at our Linz site in Austria – this is a
stark reminder of why we need to
focus on continuously improving safety
at Nufarm to meet our goal of zero
harm. In May 2016, an accident on
a public road resulted in the death
of one of our sales people in Western
Australia. One of our difficult safety
challenges is that we have a sales force
that uses public roads every day to
visit customers. This year we continued
to roll out programs focused on road
safety across all our regions.
We have reset our injury reporting
and classification processes to ensure
consistent company-wide reporting.
Nufarm has commenced reporting
its serious injury frequency rate (SIFR)
as its principle lagging safety metric.
Our global SIFR has started to trend
towards zero as safety initiatives
begin to take effect.
We continue to work towards reducing
our environmental footprint. The
significant structural changes that we
have made to our business mean that
we are setting new environmental
baselines. In line with our sustainability
strategy, we will continue to focus on
improving our water, energy and waste
management.
We engage with local communities in
the areas we operate through a variety
of programs. We have programs at our
manufacturing plants that are close to
communities, and we support a variety
of local initiatives. Many of our sales
team live in areas they work, and
some actively contribute to their
communities in partnership with
our channel partners.
We have extended our partnership
with Nuffield farming scholarships,
sponsoring scholarships in Australia
and Brazil from 2017. This provides
an opportunity for people in the
agricultural industry to travel, learn
and develop their capabilities.
Our commitment to change means
we still have progress to make in
our journey towards making Nufarm
a safer and more sustainable business.
Further information can be found
in our 2016 sustainability report,
available on our website.
14
NUFARM LIMITED ANNUAL REPORT 2016 OUR COMMITMENT TO CHANGE
MEANS WE STILL HAVE PROGRESS
TO MAKE IN OUR JOURNEY TOWARDS
MAKING NUFARM A SAFER AND MORE
SUSTAINABLE BUSINESS.
15
NUFARM LIMITED ANNUAL REPORT 2016 BOARD OF DIRECTORS
Donald McGauchie AO
Greg Hunt
Anne Brennan
Gordon Davis
Managing director and
chief executive officer
Greg Hunt joined the
board in May 2015.
Greg joined Nufarm in 2012
and was group executive
commercial operations prior
to being appointed acting
chief executive officer in
February 2015. Greg has
considerable executive
and agribusiness experience.
Greg had a successful career
at Elders before being
appointed managing
director, a position he
held between 2001– 2007.
After leaving Elders, Greg
worked with various private
equity firms focused on
the agriculture sector and
has acted as a corporate
adviser to Australian and
international organisations
in agribusiness-related
matters.
Anne Brennan joined the
board on 10 February 2011.
Gordon Davis joined the
board on 31 May 2011.
He has a bachelor of forest
science (hons), master of
agricultural science and
holds a master of business
administration.
Gordon is a director of
Primary Health Care Limited
and was managing director
of AWB Limited between
2006 and 2010. Prior to
this, he held various senior
executive positions with
Orica Limited, including
general manager of Orica
Mining Services (Australia,
Asia) and general manager
of Incitec Fertilizers. He
has also served in a senior
capacity on various industry
associations.
Gordon is chairman of
the health, safety and
environment committee
and a member of the
audit and risk committee
and the human resources
committee.
She has a bachelor of
commerce (hons) from
University College Galway
and is a fellow of the
Institute of Chartered
Accountants in Australia
and a fellow of the
Australian Institute of
Company Directors.
She was formerly the
executive finance director
for the Coates Group and
chief financial officer for
CSR. Prior to this Anne was
a partner in professional
services firms Ernst & Young,
Andersen and KPMG.
Anne is a director of Myer
Holdings Limited, Charter
Hall Group and Argo
Investments Limited. She is
also a director of Rabobank
Australia Limited and
Rabobank New Zealand
Limited. In the past three
years, Anne was a director
and deputy chairperson of
Echo Entertainment Group
Limited and a director of
Cuscal Limited.
Anne is a member of the
audit and risk committee
and human resources
committee.
(Chairman)
Donald McGauchie AO
joined the board in 2003
and was appointed chairman
on 13 July 2010.
He has wide commercial
experience within the
agricultural, 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 a former member of
the board of the Reserve
Bank of Australia.
Donald is chairman of
Australian Agricultural
Company Limited and a
director of Graincorp Ltd.
In the past three years,
Donald was a director of
James Hardie Industries plc.
Donald is chairman of the
nomination and governance
committee and a member
of the human resources
committee.
16
NUFARM LIMITED ANNUAL REPORT 2016 BOARD OF DIRECTORS continued
Frank Ford
Bruce Goodfellow
Peter Margin
Toshikazu Takasaki
Bruce Goodfellow 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 and food trading
business and financial
and commercial business
management experience.
Bruce is a director of
Sanford Ltd, a public
company registered in
New Zealand and listed
on NZX Limited, chairman
of Refrigeration Engineering
Co. Ltd and Sulkem Co. Ltd,
and a director of Cambridge
Lane Property Limited, all
privately owned companies.
Bruce is a member of
the nomination and
governance committee.
Frank Ford joined the
board on 10 October
2012. Frank has a master
of taxation from the
University of Melbourne
and a bachelor of business,
accounting from RMIT
University and is a fellow
of the Institute of Chartered
Accountants. Frank is a
former managing partner
of Deloitte Victoria after a
long and successful career
as a professional adviser
spanning some 35 years.
During that period, Frank
was also a member of
the Deloitte global board,
global governance
committee and national
management committee.
Frank is a director of
Tarrawarra Museum of
Art Limited and a former
non-executive director
of Manassen Foods Group.
In the past three years
Frank was a director of
Citigroup Pty Limited and
Toll Holdings Limited.
Frank is the chairman
of the audit and risk
committee and a member
of the nomination and
governance committee.
Peter Margin joined the
board on 3 October 2011.
Toshikazu Takasaki joined
the board in 2012.
He has a bachelor of science
(hons) from the University
of NSW and holds a master
of business administration
from Monash University.
Peter has many years
of leadership experience
in major Australian
and international food
companies. His most recent
role was as chief executive
of Goodman Fielder Ltd,
and before that Peter was
chief executive and chief
operating officer of National
Foods Ltd. He has also held
senior management roles
in Simplot Australia Pty Ltd,
Pacific Brands Limited
(formerly known as Pacific
Dunlop Limited), East Asiatic
Company and HJ Heinz
Company Australia Limited.
Peter is currently a director
of Bega Cheese Limited,
PACT Group Holdings
Limited and Costa Group
Holdings Limited. In the
past three years Peter was
a director of Ricegrowers
Limited, PMP Limited and
Huon Aquaculture Group
Limited.
Peter is chairman of the
human resources committee
and a member of the health,
safety and environment
committee and audit and
risk committee.
Mr Takasaki represents
the interests of 23 per cent
shareholder Sumitomo
Chemical Company (SCC).
He has a bachelor of
business administration
from the University of
Tokyo and is a former
executive of SCC, holding
senior management
positions in businesses
relating to crop protection,
both within Japan and in
the United States. He is
now a business consultant
with a national qualification
registered by the Japanese
Ministry of Economy, Trade
and Industry as a small and
medium sized enterprise
consultant.
He brings broad industry
and international experience
to the board.
Toshikazu is a member
of the health, safety and
environment committee.
17
NUFARM LIMITED ANNUAL REPORT 2016 EXECUTIVE MANAGEMENT
Greg Hunt
Paul Binfield
Niels Pörksen
Elbert Prado
Managing director and
chief executive officer
Greg Hunt joined Nufarm
in 2012 and was appointed
managing director and
chief executive officer
in May 2015. Greg has
considerable executive
and agribusiness experience
and had a successful career
at Elders Australia Limited,
holding the position of
managing director between
2001–2007. He has worked
with various private equity
firms focused on the
agriculture sector, and
has acted as a corporate
adviser to Australian and
international organisations
on agribusiness-related
matters.
Chief financial officer
Group executive portfolio
Paul Binfield joined Nufarm
in November 2011. He
has held senior strategic
financial roles at Coles
Liquor and Hotels, a major
division of Wesfarmers Ltd,
and at Mayne Group. Paul
has extensive experience in
publicly listed and private
company finance functions,
both in Australia and the
United Kingdom.
Niels Pörksen joined Nufarm
in 2014 as director, business
improvement in Europe, and
then in 2015, was appointed
director, commercial
operations.
In October 2016, Niels
joined the global team in
Australia to represent the
portfolio function, as part of
the Nufarm executive team.
Niels has significant
experience in the crop
protection industry and was
an executive board member
at Nordzucker, and worked
at BASF Chemicals in various
senior management roles
for over 17 years.
Group executive
manufacturing and
supply chain
Elbert Prado, a chemical
engineer, joined Nufarm
in July 2013 after extensive
international experience
in senior operations roles
within the chemical industry.
He has a strong focus
on safety, supply chain
and manufacturing
excellence. Elbert was
global manufacturing
and supply chain director
for Rohm and Haas.
18
NUFARM LIMITED ANNUAL REPORT 2016 EXECUTIVE
MANAGEMENT continued
CORPORATE
GOVERNANCE
Nufarm’s board processes have been reviewed to ensure
they represent and protect the interests of all stakeholders.
This includes detailed consideration of the third edition of
the Corporate Governance Principles and Recommendations
(‘the ASX principles’) published by the Australian Securities
Exchange Limited’s (ASX) Corporate Governance Council.
The ASX Listing Rules require Nufarm to disclose the extent
to which we have adopted the ASX principles. During this
reporting period, Nufarm believes it has complied with all
of the ASX principles contained in the third edition of the
ASX principles.
In accordance with ASX Listing Rule 4.10.3, Nufarm’s
FY16 corporate governance statement can be viewed
in the corporate governance section of our website:
http://www.nufarm.com/CorporateGovernance
Brent Zacharias
Group executive Nuseed
Brent Zacharias joined
Nufarm in 2006 after a
14-year career with Dow
AgroSciences. Brent has
a degree in agricultural
economics and held senior
roles in Nufarm’s Canadian
business prior to transferring
to Australia as Nuseed
general manager in 2008.
Now based in Canada,
Brent holds global
responsibility for Nuseed
– Nufarm’s agricultural
seed and traits division.
19
NUFARM LIMITED ANNUAL REPORT 2016 INFORMATION ON THE COMPANY
Our business
• Diversified business across
• Highly experienced management
Nufarm is a leading global crop
protection and seed technologies
company. The company has its origins
in New Zealand dating back to 1916
and has been operating in the crop
protection business for almost 60 years.
We develop, manufacture and sell
a wide range of crop protection
products, including herbicides,
insecticides and fungicides that help
protect crops against damage caused
by weeds, pests and disease. We
operate primarily in the off-patent
segment of the crop protection market,
which consists of products based on
technical active ingredients for which
the patent has expired. Our focus is
on creating products that use off-
patent active ingredients within a
differentiated formulation, delivery
system or other enhancements that
provide additional benefits to crop
producers. We also have a proprietary
seed technologies business with a
portfolio covering canola, sorghum and
sunflower crops and we are developing
a presence in the fast-growing and
high-value seed treatment segment.
We have crop protection and
manufacturing facilities in our four core
regions of Australia and New Zealand,
North America, Latin America and
Europe. We also distribute our
products in more than 100 countries.
Our competitive strengths
We believe our leading industry
position is based on a combination
of innovative product development,
comprehensive product registration
expertise and an integrated global
manufacturing, marketing and
distribution platform, which combine
to create a resilient business with
defendable market positions.
• Leading positions in targeted
markets and segments across
the core geographies of Australia,
New Zealand, Asia, North America,
Latin America and Europe: we
have a diversified global business
with an established presence in
major cropping regions throughout
the world.
20
geographies and by products:
our geographical and product
diversification mitigates our exposure
to adverse weather conditions or
commercial pressures in any single
cropping region or for any single
type of crop or chemistry. We offer
a wide range of products across
all crop protection segments,
including herbicides, fungicides and
insecticides, as well as a range of
seeds and seed treatment products.
Our diverse portfolio contains
products designed to be used at
various stages of the cropping cycle,
from pre-planting to post-harvest.
• Differentiated product portfolio
with proven expertise in bringing
new products to market: we have
significant product development
expertise, which enables us to create
a portfolio of value-added off-patent
products sold under a variety of
reputable brand names. We believe
this expertise, along with our ability
to respond quickly to evolving
customer needs with new,
differentiated products, represents
one of our key competitive strengths.
• Global manufacturing, marketing
and distribution platform: our ability
to deliver sufficient quantities of crop
protection products to end users with
short lead time is critical, particularly
given the seasonal nature of
cropping. We have established a
global platform across Australia, Asia,
North America, Latin America and
Europe that enables us to service our
existing customer base and support
the continued growth of our business.
• Established strategic alliance and
commercial relationships with major
crop protection companies: we have
a history of successful collaborations
with other major crop protection
companies and seed that provides
opportunities for expansion into
new products and geographic
markets. Our strategic alliance with
Sumitomo Chemical, which includes
distribution agreements in a number
of geographic markets, and our
other commercial relationships
encompass a range of research
and development, manufacturing,
supply and distribution agreements.
team supported by a strong board
of directors: we have a highly
experienced management team
with extensive chemical engineering,
scientific and industry experience.
Our board combines a mix of
long-serving directors and more
recent appointees with industry,
financial, accounting, management
and governance expertise.
Our strategies
Our strategy is focused on five key
crops in four geographies. Our product
portfolio investments are focused in
areas where we are best positioned
to increase our market share.
Our goal is to leverage our strong
product development, manufacturing
and distribution platform as well as our
established market positions to be a
leading global provider of innovative,
off-patent crop protection products,
seeds and seed traits. We aim to
achieve this through the following
strategies:
• Leverage our product development
and regulatory skills to generate
accelerated growth in higher-value
products and market segments: we
believe we have substantial potential
to expand our business and grow
market share in our core markets.
We intend to continue growing our
sales and optimising our product mix
through new product development
and commercial partnering, which
will be focused on developing
value-added off-patent products
that generate higher margins.
• Optimise route to market
strategies: we constantly evaluate
our route to market strategies,
which are designed to ensure the
delivery of the right product to
the right market anywhere in our
global operations. Our global
manufacturing, formulation and
logistics capabilities, complemented
by our network of distribution
relationships, are key to the
success of this strategy.
NUFARM LIMITED ANNUAL REPORT 2016 INFORMATION ON THE COMPANY continued
• Use strategic alliances and other
commercial arrangements with
industry leaders to maximise the
value of our platform: we have an
important strategic alliance with
Sumitomo Chemical, as well as a
range of business relationships with
other major companies in the sector,
ranging from supply agreements,
licensing arrangements, toll
manufacturing and distribution
arrangements. We believe these
arrangements provide opportunities
to maximise the value of our product
development, manufacturing and
distribution platforms as well as
increasing our customer base by
providing access to additional
products or new markets or
creating supply chain efficiencies.
• Continue to maximise free cash flow
and strengthen our balance sheet:
we are focused on maximising our
free cash flow through our continued
disciplined approach to financial
management. In particular, we are
focused on further improving our
working capital management as it
relates to procurement as well as
management of inventory and
receivables.
Our risks
Due to the scope of our operations and
the industry in which we are engaged,
there are numerous factors that may
have an effect on our results and
operations. The following describes the
material risks that could affect Nufarm.
External risks
Weather conditions may significantly
affect our results of operations and
financial condition.
Fluctuations in commodity prices,
foreign currency exchange rates and
currency values could have a material
adverse effect on our results of
operation and financial condition.
We are subject to extensive regulation
and stringent environmental, health and
safety laws that may adversely affect
our operational and financial position.
Business, operational and financial risks
We sell our products in competitive
markets, and the success of our
competitive strategy depends
on developing new products and
retaining customers and distributors.
Principal risk area
Risk management approach
Our collaborative relationships with
other major crop protection companies
may change or be terminated.
We may not be able to obtain funding
on acceptable terms, or at all, due to
a deterioration of the credit and capital
markets. This may hinder or prevent us
from meeting our future capital needs
and from refinancing our existing
indebtedness.
We are dependent on effective
procurement strategies and on the
continuing efficient operation of
our manufacturing plants to be able
to deliver cost-competitive products
to market.
We may become involved in future
legal proceedings, which may result
in substantial expense and may divert
our attention from our business.
Management of principal risks
Our approach to managing key
risks is outlined below.
External risks
Risks arise from variable weather
conditions, fluctuations in commodity
prices and currency rates, actions by
governments or regulators.
Business, operational and financial risks
Risks arise from a competitive
marketplace, identifying and developing
innovative solutions, legal proceedings,
accessing and sourcing capital from
financial markets, management of
manufacturing facilities and supply
chain. In addition, relationships with
commercial counterparties we transact
with may change.
The diversification of our portfolio of products, geographies and currencies is a
key strategy for reducing volatility. The managing director’s review and business
review describe external factors and trends affecting our results, and note 31 to
the financial statements outlines the group’s financial risk management strategy,
including market and currency risk. We engage with government authorities and
other key stakeholders to ensure the potential impacts of proposed regulatory
changes are understood and where possible, mitigated.
We support our growth strategy through established investment approval and
review processes that apply to all major capital decisions, and we invest in new
product development and innovation projects that help keep our businesses
competitive. We seek to establish a capital structure that is appropriate for our
business model and provides a platform to support our growth strategy. We
analyse risks to monitor volatilities and key financial ratios. Credit limits and review
processes are established for all customers and financial counterparties. Note 31
to the financial statements outlines our financial risk management strategy.
We engage expert advisers to ensure our intellectual property is protected and
potential impacts of legal proceedings are mitigated.
We seek to ensure that adequate operating margins are maintained through
operating cost-effective manufacturing facilities. Global sourcing arrangements
have been established to ensure continuity of supply and competitive costs for
key supply inputs. Through the application of our risk management processes,
we identify material catastrophic operational risks and implement appropriate
risk management controls and business continuity plans.
21
NUFARM LIMITED ANNUAL REPORT 2016 FINANCIAL REPORT
22
NUFARM LIMITED ANNUAL REPORT 2016 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 2016 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:
DG McGauchie AO (chairman)
GA Hunt (managing director)
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
PM Margin
T Takasaki
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 16 and 17.
Company secretary
The company secretary is R Heath.
Mr Heath has a bachelor of laws and joined the company in 1980 initially as legal officer, later becoming assistant company
secretary. In 1989, Mr Heath moved from New Zealand to Australia to become company secretary of Nufarm Australia Limited.
In 2000, Mr Heath was appointed company secretary of Nufarm Limited.
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:
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow1
GA Hunt2
DG McGauchie
PM Margin
T Takasaki
Nufarm Ltd
ordinary shares
10,000
40,000
15,000
1,170,735
143,845
54,239
2,458
–
Nufarm Finance (NZ) Ltd
step-up securities
–
–
–
48,423
–
–
–
–
1. The shareholdings of Dr WB Goodfellow include:
(i) 31,585 shares issued under the company’s non-executive director share plan and held by Pacific Custodians Pty Ltd as trustee of the plan, and include
his relevant interests in:
(ii) St Kentigern Trust Board (430,434 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;
(iii) Sulkem Company Limited (128,110 shares);
(iv) 531 Trust (400,861 shares). Dr Goodfellow and R Marshall are trustees of 531 Trust.
(v) Auckland Medical Research Foundation (26,558 step-up securities). Dr Goodfellow does not have a beneficial interest in these step-up securities.
(vi) Trustees of the Goodfellow Foundation (33,854 shares and 1,338 step-up securities). Dr Goodfellow is chairman of the Foundation and does not have
a beneficial interest in these shares or step-up securities.
(vii) Henry Berry Corporation Limited (20,000 shares and 700 step-up securities).
2. GA Hunt’s interest in 143,845 ordinary shares includes 58,784 deferred shares granted as remuneration that are not yet exercised or vested.
23
NUFARM LIMITED ANNUAL REPORT 2016
DIRECTORS’ REPORT continued
Directors’ meetings
The number of directors’ meetings (including meetings of board committees) and number of meetings attended by each
of the directors of the company during the financial year are:
Committees
Director
Board
Audit and risk
committee
Human
resources
Nomination and
governance
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
GA Hunt
DG McGauchie
PM Margin
T Takasaki
Meetings
held1
8
8
8
8
8
8
8
8
Meetings
attended
7
7
7
8
8
8
8
8
Meetings
held1
5
5
5
–
–
–
5
–
Meetings
attended
5
5
5
–
–
–
5
–
Meetings
held1
3
3
–
–
–
3
3
–
Meetings
attended
3
3
–
–
–
3
3
–
Meetings
held1
–
–
4
4
–
4
–
–
Meetings
attended
–
–
3
4
–
4
–
–
Health safety
and environment
Meetings
held1
–
3
–
–
–
–
3
3
Meetings
attended
–
3
–
–
–
–
3
3
1. Number of meetings held during the period the director held office.
Principal activities and changes
Details of Nufarm’s principal activities and changes are set out in the information on the company section on pages 20 and 21.
Nufarm employs approximately 3,200 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 group for the 12 months to 31 July 2016 is $27.5 million. The comparable figure
for the 12 months to 31 July 2015 was $43.2 million.
Dividends
The following dividends have been paid declared or recommended since the end of the preceding financial year.
The final dividend for 2014–2015 of six cents paid 13 November 2015.
The interim dividend for 2015–2016 of four cents paid 6 May 2016.
$000
15,933
10,631
The final dividend for 2015–2016 of seven cents as declared and recommended by the directors is payable 11 November 2016.
Nufarm step-up securities distributions
The following Nufarm step-up securities distributions have been paid since the end of the preceding financial year:
Distribution for the period 16 April 2015 – 15 October 2015
at the rate of 6.1617% per annum paid 15 October 2015
Distribution for the period 16 October 2015 – 15 April 2016
at the rate of 6.12% paid 15 April 2016
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 4 to 8 and the business review on pages 11 to 13.
$000
7,754
7,702
24
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
State of affairs
The state of the group’s affairs are set out in the managing director’s review on pages 4 to 8 and the business review
on pages 11 to 13.
Operations, financial position, business strategies and prospects
Information on the group, which enables an informed assessment of its operations, financial position, strategies and
prospects, is contained in the financial accounts, managing director’s review, the business review, and the information
on the company section.
Events subsequent to reporting date
On 21 September 2016, the directors declared a final franked dividend of seven cents per share payable 11 November 2016.
On 30 June 2016, Sumitomo Chemical Company Limited acquired a 45 per cent state in Excel Crop Care and declared
an open market offer for an additional 30 per cent stake, which subsequently closed on 9 September 2016. Nufarm has
registered to participate in the open market offer proposed by Sumitomo Chemical Company Limited. Nufarm is awaiting
confirmation from the Bombay Securities Exchange regarding the sale of its interest in Excel Crop Care.
Likely developments
Likely developments in the group’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 page 14. The group did not incur any
prosecutions or fines in the financial period relating to environmental performance. The group publishes annually a sustainability
report (formerly called health, safety and environment report). This report can be viewed on the group’s website or a copy will
be made available upon request to the company secretary.
Non-audit services
During the year KPMG, the company’s auditor, has performed certain other services in addition to their statutory duties.
Details of the audit fee and non-audit services are set out in note 40 to 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.
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 41 and forms part of the directors’ report for the financial
year ended 31 July 2016.
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.
25
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
2016 Remuneration report
The remuneration report is designed to provide shareholders with an understanding of Nufarm’s remuneration policies and
the link between our remuneration strategy and performance. This report details Nufarm’s remuneration framework and
outcomes for key management personnel (KMP) for the year ended 31 July 2016 (FY16). The report has been prepared
in accordance with section 300A of the Corporations Act 2001 (Corporations Act).
Section
1. Remuneration snapshot
1.1 Key points
1.2 Changes during FY16
1.3 Key management personnel
2. Setting senior executive remuneration
2.1 Remuneration governance
2.2 Remuneration strategy
2.3 Remuneration components
3. Executive remuneration outcomes
3.1 Financial performance
3.2 Short term incentive outcomes
3.3 Long term incentive outcomes
3.4 Senior executive contract details
4. Non-executive director remuneration
5. Remuneration tables
5.1 Remuneration of directors and disclosed executives
5.2 Equity instruments held by disclosed executives
5.3 Shares held in Nufarm Ltd
What it covers
Provides a summary of the remuneration outcomes for FY16.
Details the key remuneration changes in FY16.
Lists the names and roles of the executive KMP whose
remuneration details are disclosed in this report.
Explains Nufarm’s remuneration policy, and how the board and
human resources committee (HRC) make decisions, including
the use of external consultants.
Explains Nufarm’s remuneration strategy and how it underpins
the business strategy.
Shows how executive remuneration is structured to support
business objectives and explains the executive remuneration mix.
Provides a breakdown of Nufarm’s performance over the past
five years.
Details the STI outcomes for FY16.
Details the LTI outcomes for the plan with a performance test
at 31 July 2016.
Lists the key contract terms governing the employment of
executive KMP (including termination entitlements where relevant).
Provides details of the fee structure for board and committee roles.
Provides the remuneration disclosures required by the
Corporations Act and in accordance with relevant Australian
accounting standards.
26
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
1. Remuneration snapshot
1.1 Key points
The overall structure and philosophy of Nufarm’s approach to remuneration remained consistent throughout FY16. The
organisation’s remuneration philosophy is based on linking financial rewards directly to employee contributions and company
performance. As Nufarm continues its three-year business transformation journey to deliver growth and build a better Nufarm,
the remuneration framework and incentive plans continue to connect the evolving business strategy to leadership behaviours.
The incentive outcomes for FY16 reflect the performance of the business and the value created for shareholders over the past
three years.
The key outcomes under our incentive plans this year were:
Short term incentive outcomes
Long term incentive outcomes
Senior executives received an average of 70.8 per cent of the target opportunity available
based on the assessment of financial and individual performance.
The FY14 LTI plan was tested on 31 July 2016. The outcome was that 89.2 per cent
of the maximum opportunity vested as shares. The results of the two plan measures
were that the relative total shareholder return (RTSR) ranked at the 73rd percentile
of the comparator group and Nufarm achieved an average ROFE over three years
of 11 per cent, which exceeded the target of 10.7 per cent for the FY14 LTI plan.
1.2 Changes during FY16
Valdemar Fischer ceased to be KMP effective 5 February 2016 as he stepped down from the role of group executive,
marketing and portfolio strategy. Valdemar remains in the business (based in Brazil) as a strategic advisor to the CEO.
Niels Pörksen was appointed group executive portfolio solutions effective October 2016. He will represent the portfolio
function as part of Nufarm’s leadership team. He will be responsible for the development of a product portfolio pipeline
that will meet the needs of customers in key crops.
1.3 Key management personnel
Nufarm’s KMP comprise the directors of the company and selected members of the Nufarm leadership team. The term senior
executives refers to the CEO and those executives with authority and responsibility for planning, directing and controlling the
activities of the company and the group, directly or indirectly. The executive KMPs disclosed in this report are:
Name
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Valdemar Fischer
Position
Managing director and chief executive officer
Chief financial officer
Group executive supply chain operations
Group executive Nuseed
Group executive portfolio and marketing strategy
Term as KMP in FY16
1 August 2015 – 31 July 2016
1 August 2015 – 31 July 2016
1 August 2015 – 31 July 2016
1 August 2015 – 31 July 2016
1 August 2015 – 5 February 2016
27
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
2. Setting senior executive remuneration
2.1 Remuneration governance
The HRC is responsible for reviewing and making recommendations to the Nufarm board on remuneration policies and packages
applicable to disclosed executives. The HRC is comprised of four independent non-executive directors and is tasked with
ensuring that remuneration policies and packages retain and motivate high-calibre executives, and have a clear relationship
between company performance and executive remuneration. The HRC charter can be found at www.nufarm.com
During 2016, the HRC reviewed information provided by Godfreys Remuneration Group (GRG) to assess whether existing
frameworks remain appropriate. The HRC also sought external general market movement data for the 2016 year from GRG
but did not require a remuneration recommendation.
The HRC reviews executive KMPs’ remuneration annually to ensure there is a balance between fixed and at-risk pay, and
it reflects both short and long term performance objectives aligned to Nufarm’s strategy. The board reviews the CEO’s
remuneration based on market practice, performance against agreed measures and other relevant factors, while the CEO
undertakes a similar exercise in relation to senior executives. The results of the CEO’s annual review of senior executives’
performance and remuneration are subject to board review and approval.
The board measures financial performance under the STI and LTI plans using audited numbers. The RTSR is measured
by an independent external adviser.
Within the remuneration framework the board has discretion to ‘clawback’ LTI plan and deferred STI prior to vesting:
• where payment is contrary to the financial soundness of the company;
• in circumstances where the financial performance of Nufarm over the relevant period (including the initial STI performance
period) has been mis-stated; and/or
• for individual gross misconduct.
Executive KMPs are not permitted to hedge any shares issued to them under the STI while those shares remain held in trust.
In making its remuneration decisions the board considered all information in light of company performance, changes during
the year to the scope and scale of executive roles, individual performance and the motivation and retention of key individuals.
2.2 Remuneration strategy
Nufarm’s remuneration strategy and reward frameworks reflect the importance of improving the performance of the business
and lifting returns on funds employed, as well as supporting a goal to attract, motivate and retain a high-performing workforce.
The core elements of Nufarm’s remuneration strategy and policy for the disclosed executive KMPs are as follows:
• An overall framework that supports attraction, motivation and retention of talent, shareholder value creation and
reward differentiation.
• An STI program that is biased to growth in profitability and a strong focus on balance sheet management. The program
also focuses individuals to achieve innovation and increased business discipline, both of which the company sees as integral
to delivering targeted financial outcomes and returning the company to acceptable returns for shareholders.
• An LTI plan that is based on the principle of aligning executive KMPs’ interests and rewards with those of shareholders.
With a focus on growth and increased participation in high-value markets with sustainable returns, this improvement will
be driven by:
– continued growth in our revenues;
– a strengthening of our margins;
– a continued, relentless focus on driving down net working capital; and
– a cost savings and performance improvement program that is planned to deliver a net benefit of at least $116 million by 2018.
28
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
A focus on working capital and improving returns on funds employed is fundamental to the way in which Nufarm operates
and where it is heading with its organisational strategy and is therefore a key element of the way performance is measured
and assessed at a group and individual level.
The STI and LTI plans combine shared accountability for financial results with individual reward for strategic changes and
improvements within the individual’s function or business unit. Each year the board reviews the financial metrics and individual
objectives to ensure they remain appropriate as a basis of reward, given the business strategy and the interest of shareholders.
2.3 Remuneration components
In FY15, the board approved a change to the executive remuneration structure from the total target reward (TTR) model,
with fixed and variable components in aggregate equalling 100 per cent, to a more common structure of fixed annual
remuneration (FAR) with additional short term and long term incentives (described as a percentage of FAR) available
to be earned subject to performance. All senior executives are employed on this basis.
The graph below outlines the target remuneration mix for executive KMPs. The variable components of STI (including
potential restricted shares) and LTI are expressed at target (which is 50 per cent of the maximum opportunity).
CEO
50.0%
12.5%
12.5%
25.0%
Disclosed
executives
53.7%
13.4%
13.4%
19.5%
FAR
Cash STI
Deferred STI
LTI
(a) Remuneration structure
Attract, motivate and
retain highly skilled
employees
Reinforce values
and cultural
priorities
Reward achievement
of financial and
strategic objectives
Align to long term
shareholder value
creation
FAR
Fixed annual
remuneration
STI
LTI
Short term incentive
(at risk)
Long term incentive
(at risk)
Cash
Equity
• Base salary plus
superannuation.
• Set based on market
and internal relativities,
performance and
experience.
• 50% of STI outcome
paid in October after
the financial year end.
• STI outcome based on
financial and individual
performance.
• 50% of the STI outcome
is deferred as restricted
shares for a period of
two years.
• Subject to clawback
and forfeiture in
circumstances outlined.
• Indeterminate rights
subject to three-year
performance period
with 50% subject to
RTSR and 50% subject
to ROFE.
• Subject to clawback
and forfeiture in
circumstances outlined.
29
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
Plan participants include disclosed executives and senior managers globally.
Awards under the plan are made at the end of the financial year.
The board sets measures at the start of each year focused on profitability and balance
sheet management. Noted below are the measures used in 2016.
80% of the potential was based on underlying
net profit after tax (NPAT) and average net
working capital (ANWC)/sales.
20% of the potential was based on
individual strategic and business
improvement objectives aligned to the
role and contribution of the executive.
This structure reflects Nufarm’s strong focus on the use of capital and ensures alignment
of reward to business outcomes and shareholder returns.
Awards are assessed annually at the end of the financial year. Awards are based on the
percentage achievement against the budget and strategic measures.
Percentage budget achievement
<85%
85%
100% 120% Underlying NPAT
110% ANWC/sales
150%
Percentage of STI target
award realised
Straight-line vesting between 85% and budget and between budget (target) and
120% budget achievement (stretch).
100%
25%
nil
Strategic and business improvement objectives are assessed on a merit basis against
stated objectives.
50% of executive KMPs’ STI is paid in cash at the time of performance testing and 50%
deferred into shares in the company for nil consideration.
Vesting will occur on the second anniversary of the grant date of the deferred equity,
subject to continued employment or otherwise if the participant has left employment
for a qualifying reason.
The rules of the plan provide for clawback of deferred STI prior to vesting with board
discretion where payment is contrary to the financial soundness of the company; in
circumstances where the financial performance of Nufarm over the relevant period
(including the initial STI performance period) has been misstated; and/or for individual
gross misconduct.
If an executive KMP leaves before the vesting anniversary under ‘qualifying leaver’ provisions
the equity will remain in the plan until the vesting date. If the executive leaves under other
than ‘qualifying leaver’ circumstances the equity will be forfeited. ‘Qualifying leaver’ provisions
include participants who cease employment due to retirement, death, ill health/disability,
redundancy, or contract severance without cause by Nufarm.
The rules of the plan provide the flexibility, in special circumstances (e.g. health or severe
personal hardship), to accelerate the vesting. This would result in the shares being released
from the trust to the executive.
(b) FY16 STI plan
Who participates in the STI?
When are awards made?
What measures are used
in the plan?
When and how are the STI
payments determined?
Are payments in cash
or shares?
When do the shares vest?
Is there a clawback
provision in the plan?
What happens if
the executive KMP
leaves Nufarm?
30
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
(c) FY16 LTI plan
Why have an LTI plan?
Who participates
in the LTI plan
Are the awards
cash or shares?
This plan aligns executive interests and earnings with the longer term Nufarm strategy
and the interests of shareholders.
The current participants in the plan are disclosed executives and other selected senior
managers (together, the LTI plan participants).
The plan rules provide the flexibility to use a number of different instruments provided
they comply with local regulations and sound practice. At the time of vesting the board
will determine if the rights convert to ordinary shares or cash or other instruments which
may be in use at the time.
How is the number
of rights calculated?
When are the awards made? Under the plan, LTI plan participants receive an annual award of rights as soon as practical
after the announcement of results for the preceding year.
The number of rights to be granted is calculated by dividing the individual’s LTI grant
opportunity for the performance year by the volume weighted average price of the
company’s shares over the five trading days immediately following the prior year’s annual
results announcement.
The performance/vesting period for awards is three years. Awards will vest in two equal
tranches as follows:
When do the awards vest?
Why have ROFE and RTSR
been chosen as the hurdles?
What is the comparator
group for the assessment
of relative TSR?
How is RTSR measured?
What is the RTSR
performance required
for vesting?
• 50% of the LTI plan grant will vest subject to the achievement of RTSR performance
hurdle measured against a selected comparator group of companies; and
• the remaining 50% of the LTI plan grant will vest subject to the three-year average
of an absolute ROFE target.
ROFE is used to track progress towards the goal to return long term results back to
acceptable levels for Nufarm. Strong RTSR performance ensures Nufarm is an attractive
investment for shareholders.
Based on the results of research and modelling carried out by Ernst & Young, at the inception
of the plan the board approved the adoption of the ‘S&P/ASX 200 excluding those companies
in the Financial, Materials and Energy groups’ as the RTSR comparator group. This provides a
group which is large enough for sound measurement with exclusions that reduce the volatility
by removing companies which are in significantly different industries to Nufarm. Commencing
from FY15, the board approved the inclusion of Dulux (DLX), Incitec Pivot (IPL) and Orica
(ORI) on the basis of their similarity as chemical companies even though they appear in the
materials index. The RTSR comparator group is also seen as an appropriate representation
of Nufarm’s competitors for investment.
RTSR will be measured over the performance period. For the purposes of this measurement,
each company’s share price will be measured using the average price over 60 days up to (but
excluding) the first day of the performance period, and the average closing price over 60 days
up to and including the last day of the performance period.
TSR of Nufarm relative to the TSR of
comparator group companies
Less than 50th percentile
50th percentile
Between 51st percentile and 75th percentile
75th percentile
0%
50%
Straight-line vesting between 50% and 100%
100% vesting
Proportion of RTSR grant vesting
How is the ROFE target set? ROFE objectives are set by the board at the beginning of each year. There is both a ‘target’
How is ROFE measured?
and a ‘stretch’ hurdle. These numbers are based on the budget and growth strategy.
‘Target’ represents a sustainable return to acceptable ROFE levels. Stretch recognises
achievement well above budget. This ensures that full vesting of the LTI plan is truly reliant
on outstanding performance.
Return is calculated on the group’s earnings before interest and taxation and adjusted
for any material items. Funds employed are represented by shareholders’ funds plus total
interest bearing debt. For the purposes of measuring ROFE performance in the LTI plan,
ROFE will be averaged over the life of the plan.
31
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
What ROFE result is
required for vesting?
What was the result
for the FY16 year?
What happens if the
awards do not vest?
Is there a clawback
provision in the plan?
What happens if an
executive KMP leaves?
Proportion of ROFE grant vesting
0%
50%
Straight-line vesting between 50% and 100%
100%
Percentage of ROFE target achieved
Less than target
Target
Between target and stretch
Stretch
The FY14 award, which matured in 2016, met the ROFE hurdle rate over the three-year
performance period and performance against the RTSR target was above the 50th percentile
over the same period. The three-year average ROFE outcome was 11% compared with
a three-year target of 10.7%. Overall, 89.2% of the FY14 award vested at 31 July 2016.
To the extent that the RTSR and ROFE performance hurdles are not met at the end of the
three-year performance period and full vesting is not achieved, performance will not be
re-tested and the award will lapse. There is no partial vesting of the LTI plan before the
third anniversary.
The rules of the plan provide for clawback of unvested LTI plan rights where: payment is
contrary to the financial soundness of the company; in circumstances where the financial
performance of Nufarm over the relevant period has been misstated; and/or for individual
gross misconduct.
To be eligible under the LTI plan, the executive must be employed by Nufarm on the
first anniversary of the allocation. If the executive leaves before this date, the allocation
is forfeited. If the executive leaves under ‘qualifying leaver’ provisions (refer STI section
above for definition of ‘qualifying leaver’) after the first anniversary and before the third
anniversary of the plan, the allocation will be pro-rated and the pro-rated allocation will
remain ‘on foot’ in the plan subject to certain overriding discretions set out in the plan.
The rules of the plans provide the flexibility, in special circumstances (e.g. health or severe
personal hardship), to accelerate the vesting. The qualifying allocation will be tested against
the hurdles to determine the value (if any) of the allocation.
3. Executive remuneration outcomes
3.1 Financial performance
Details of Nufarm’s performance, share price and dividends over the past five years are summarised in the table below:
Performance measures
Earnings
Underlying EBIT1
ANWC/sales3
Underlying NPAT 2
ROFE achieved
Shareholder value
Closing share price 31 July
RTSR
Dividends declared
FY16
FY15
FY14
FY13
FY12
$m
%
$m
%
$
%
cents
286.7
39.9
108.9
13.2
8.28
8.7
11.0
236.9
41.9
117.1
11.0
7.72
80.2
10.0
200.6
47.7
86.4
9.1
4.35
(1.7)
8.0
186.8
46.8
83.2
8.8
4.50
(16.5)
8.0
206.0
45.3
115.4
10.4
5.47
26.8
6.0
1. and 2. Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying NPAT is net profit after tax before material items. Underlying
NPAT and underlying EBIT are used internally by management to assess performance of the business and make decisions on the allocation of our
resources. NPAT, rather than EBIT, is used to assess management’s STI to ensure rewarded business outcomes are aligned with shareholder returns.
3.
Average net working capital/sales is used throughout the business and highlights the strong business-wide focus on the management of working capital
over the full year.
32
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
3.2 Short term incentive outcomes
Based on an underlying NPAT result of $108.9 million, an ANWC/sales result at 39.9 per cent and performance against
individual strategic and business improvement objectives, disclosed executives employed for the performance period
FY16 were awarded an incentive in accordance with the rules of the plan.
Individual objectives were driven by Nufarm’s strategy and the goals to deliver on sustainable innovation and business
discipline across the business. These objectives were specific to the role of each executive and included organisation
restructuring, management of risk, efficiency improvements, partnership development, portfolio enhancement, business
process and systems improvements, and the implementation of initiatives to support growth in higher value segments.
(a) FY16 STI plan payment results
The table below displays FY16 STI payments as a percentage of FAR and also as a percentage of target opportunity.
2016 STI potential
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Valdemar Fischer1
Executive KMP average
At
target
$
600,000
391,456
350,000
216,953
443,535
400,389
At
maximum
$
900,000
587,183
525,000
325,429
665,303
600,583
Total
award
$
437,684
285,557
255,316
114,871
323,547
283,395
FY16 STI
award as
a % of
target
potential
73
73
73
53
73
71
To be paid
in cash in
October
2016
$
218,842
142,778
127,658
57,435
161,774
141,697
Retained
in shares
vesting 2nd
anniversary
31.07.182
$
218,842
142,778
127,658
57,435
161,774
141,697
FY16 STI
as % of
FAR
36
36
36
26
48
37
1. Amounts shown represent the full year outcome. Note that amounts shown in the remuneration table represent the remuneration earned whilst acting
as a key management personnel.
2. The portion of FY16 STI payment retained in shares will vest on 31 July 2018, on the second anniversary from effective allocation date.
(b) Historical STI plan performance relative to Nufarm’s underlying EBIT results
The following chart compares Nufarm’s historical STI plan performance results against underlying EBIT for the same period.
Nufarm’s incentive plans measure performance against a range of financial and non-financial metrics with varied weightings.
Accordingly, the pay for performance relationship is based on the performance against these metrics as a whole and may not
always align with underlying EBIT growth, as was the case in FY16.
Underlying EBIT growth vs STI outcomes
)
%
(
I
h
t
w
o
r
g
T
B
E
g
n
y
l
r
e
d
n
U
i
25
20
15
10
5
0
-5
-10
-15
120
100
80
60
40
20
0
)
%
(
e
m
o
c
t
u
o
n
a
p
l
I
T
S
FY12
FY13
FY14
FY15
FY16
Underlying EBIT percentage growth
Percentage STI max
33
NUFARM LIMITED ANNUAL REPORT 2016
DIRECTORS’ REPORT continued
3.3 Long term incentive outcomes
The performance period for the FY14 LTI plan concluded on 31 July 2016.
The results of Nufarm’s RTSR was calculated by an external provider. The RTSR vesting result was based on Nufarm ranking at
the 73rd percentile of the comparator group. The board determined the ROFE outcome to ensure no windfall gains or losses
and accordingly adjusted for the net impact of material items. The outcome was reviewed by Nufarm’s external auditor KPMG.
The board approved the vesting outcomes in accordance with the LTI plan rules.
(a) FY14 LTI plan testing as at 31 July 2016
The vesting table for the FY14 LTI plan is detailed below, reflecting performance up to 31 July 2016 against the two performance
measures of RTSR and ROFE.
Performance measure
RTSR (97% vesting)
ROFE (81.4% vesting)
Total
(b) FY14 LTI award outcome
The table below details the individual outcome for the FY14 LTI plan.
% of total
plan vested
48.5
40.7
89.2
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Valdemar Fischer
Total
number
of rights
available
48,865
54,341
34,786
14,747
30,547
Total
number
of rights
awarded
43,587
48,472
31,029
13,154
27,247
Total
award
as a % of
potential
89.2
89.2
89.2
89.2
89.2
Average
grant date
fair value
of awarded
rights
$2.95
$2.95
$2.95
$2.95
$2.95
Total grant
date fair
value of
award
$
128,733
143,161
91,643
38,850
80,473
(c) Historical LTI plan performance relative to Nufarm’s share price
The following chart compares Nufarm’s LTI plan vesting results for the past three LTI plans (as a percentage of plan maximum)
to the share price history during the same period:
Nufarm historical share price vs LTI outcome
%
2
.
9
8
)
%
(
e
m
o
c
t
u
o
n
a
p
l
I
T
L
100
80
60
40
20
0
5
1
0
2
v
o
N
6
1
0
2
r
a
M
6
1
0
2
l
u
J
%
0
.
0
4
1
0
2
l
u
J
4
1
0
2
v
o
N
5
1
0
2
r
a
M
%
3
.
1
3
5
1
0
2
l
u
J
2
1
0
2
l
u
J
2
1
0
2
v
o
N
3
1
0
2
r
a
M
3
1
0
2
l
u
J
3
1
0
2
v
o
N
4
1
0
2
r
a
M
LTI plan
Share price
9
8
7
6
5
4
3
2
1
0
)
$
(
e
c
i
r
p
e
r
a
h
S
34
NUFARM LIMITED ANNUAL REPORT 2016
DIRECTORS’ REPORT continued
3.4 Senior executive contract details
The company has employment contracts with the disclosed executive KMPs. These contracts formalise the terms and
conditions of employment. The contracts are for an indefinite term. The contracts of the CEO and most other disclosed
executives have been structured to be compliant with the termination benefits cap under the Corporations Act.
The company may terminate the contract of the CEO and managing director by giving six months notice, in which case
the CEO would be entitled to a termination payment of 12 months FAR inclusive of any notice paid in lieu. The contract
also provides for payment of applicable statutory entitlements.
The CEO may terminate the contract by giving the company six months notice.
The company may terminate the contract of most other executives by six months notice, in which case a termination payment
equivalent to 12 months’ FAR will be paid including notice period paid in lieu.
The company may terminate the employment contracts immediately for serious misconduct.
4. Non-executive directors (NED) remuneration
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 2015 AGM, shareholders approved an aggregate of $1,760,000 per year
(including superannuation costs).
The total fees for the 2016 year remained within the approved cap. Board fees are reviewed every 18 months. These were
reviewed in August 2016. Nufarm’s NEDs are remunerated with set fees and do not receive any performance-based pay.
This enables them to maintain independence and impartiality when making decisions affecting the future direction of
the company.
Chairman1
General board
Audit committee chair
Audit committee member
HSE risk committee chair
HSE risk committee member
HR committee chair
HR committee member
Nominations committee chair
Nominations committee member
1. The chairman receives no fees as a member of any committee.
Fees applicable from
1 August 2015 to
31 July 2016
($) per annum
363,825
148,838
30,000
15,000
17,500
8,750
25,000
12,500
11,550
1,500 per meeting
35
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
5. Remuneration tables
5.1 Remuneration of directors and disclosed executives
Details follow of the nature and amount of each major element of remuneration in respect of the NED and disclosed executive KMPs.
Short term
Salary and fees
$
Cash bonus
(vested)
$
Non-
monetary
benefits
$
160,307
151,148
176,216
169,886
140,762
138,852
330,750
322,875
179,625
169,120
168,035
165,613
143,262
138,688
1,298,957
1,256,182
–
828,659
1,165,000
835,581
2,463,957
2,920,422
747,696
694,369
709,012
513,759
338,736
–
487,047
–
–
778,788
–
324,815
–
166,510
–
162,845
2,282,491
2,641,086
4,746,448
5,561,508
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
124,265
218,842
219,594
218,842
343,859
142,778
167,899
127,658
136,424
83,539
–
57,435
–
–
254,971
–
120,803
–
–
–
63,428
411,410
743,525
630,252
1,087,384
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120,045
9,095
–
9,095
120,045
9,509
–
98,604
20,031
64,670
–
6,598
–
–
3,785
–
23,375
–
134,409
–
31,774
179,381
213,374
188,476
333,419
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Total
$
160,307
151,148
176,216
169,886
140,762
138,852
330,750
322,875
179,625
169,120
168,035
165,613
143,262
138,688
1,298,957
1,256,182
–
1,072,969
1,392,937
1,055,175
2,691,894
3,384,326
899,983
862,268
935,274
670,214
486,945
–
551,080
–
–
1,037,544
–
468,993
–
300,919
–
258,047
2,873,282
3,597,985
5,565,176
6,982,311
In AUD
Directors’ non-executive
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
Sub total non-executive directors’ remuneration
Executive director DJ Rathbone2
Executive director GA Hunt4
Total directors’ remuneration
Group executives
PA Binfield
E Prado
V Fischer7
B Zacharias6
Group executives – former KMP
BF Benson 3
RG Reis5
BJ Croft 5
R Heath5
Sub total – total executive remuneration
Total directors’ and executive remuneration
1. Represents total remuneration paid in the financial year.
2. D Rathbone ceased employment effective 4 February 2015.
3. B Benson ceased employment effective 31 July 2015.
4. G Hunt appointed acting CEO 4 February 2015 and managing director and CEO from 5 May 2015.
5. Ceased acting as KMPs from 4 February 2015.
6. B Zacharias commenced acting as KMP from 1 August 2015.
7. V Fischer commenced acting as KMP from 1 August 2015 and ceased acting as KMP from 5 February 2016.
36
Post-
employment
Share-based
payments
Other
long term
Total1
Superannuation
$
Termination
benefits
$
Equity
settled
Total
remuneration
$
Percentage of
Value of options
remuneration
performance
as a proportion
of total
based
remuneration
%
%
16,031
15,115
17,622
16,989
14,076
13,885
33,075
32,287
17,963
16,912
16,803
16,561
14,326
13,869
129,896
125,618
–
17,261
35,000
34,983
164,896
177,862
35,000
34,200
2,917
30,843
200,414
49,016
–
–
–
–
–
–
1,643,193
101,717
1,643,193
101,717
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(213,840)
412,113
175,682
412,113
(38,158)
308,798
170,030
238,449
139,147
124,410
149,998
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
176,338
166,263
193,838
186,875
154,838
152,737
363,825
355,162
197,588
186,032
184,838
182,174
157,588
152,557
1,428,853
1,381,800
–
2,621,300
1,840,050
1,265,840
3,268,903
5,268,940
1,243,781
1,066,498
1,176,640
840,204
811,769
750,094
657,579
390,783
3,982,284
6,312,160
7,251,187
–
–
–
–
–
–
66,350
1,196,954
372,067
87,904
2,760,819
17,507
87,442
22,335
596,277
17,917
425,600
(86,857)
17,507
287,347
184,324
452,243
362,186
1,622,554
3,265,747
45,910
821,655
727,739
1,233,768
689,581
69,319
179,558
281,275
11,581,100
0
-3
34
31
36
32
31
33
26
28
0
23
0
35
0
-13
0
28
0
-8
14
6
15
7
12
6
6
9
0
1
0
4
0
0
3
-7
NUFARM LIMITED ANNUAL REPORT 2016
5. Remuneration tables
5.1 Remuneration of directors and disclosed executives
Details follow of the nature and amount of each major element of remuneration in respect of the NED and disclosed executive KMPs.
In AUD
Directors’ non-executive
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
Sub total non-executive directors’ remuneration
Executive director DJ Rathbone2
Executive director GA Hunt4
Total directors’ remuneration
Group executives
PA Binfield
E Prado
V Fischer7
B Zacharias6
RG Reis5
BJ Croft 5
R Heath5
Group executives – former KMP
BF Benson 3
Short term
Salary and fees
$
Cash bonus
(vested)
$
Non-
monetary
benefits
$
160,307
151,148
176,216
169,886
140,762
138,852
330,750
322,875
179,625
169,120
168,035
165,613
143,262
138,688
1,298,957
1,256,182
–
828,659
1,165,000
835,581
2,463,957
2,920,422
747,696
694,369
709,012
513,759
338,736
–
–
–
–
–
–
Total
$
160,307
151,148
176,216
169,886
140,762
138,852
330,750
322,875
179,625
169,120
168,035
165,613
143,262
138,688
1,298,957
1,256,182
–
1,072,969
1,392,937
1,055,175
2,691,894
3,384,326
899,983
862,268
935,274
670,214
486,945
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
124,265
218,842
219,594
218,842
343,859
142,778
167,899
127,658
136,424
83,539
120,045
9,095
9,095
120,045
9,509
98,604
20,031
64,670
487,047
57,435
6,598
551,080
778,788
254,971
3,785
1,037,544
324,815
120,803
23,375
468,993
166,510
162,845
2,282,491
2,641,086
4,746,448
5,561,508
63,428
411,410
743,525
630,252
1,087,384
134,409
300,919
31,774
179,381
213,374
188,476
333,419
258,047
2,873,282
3,597,985
5,565,176
6,982,311
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Sub total – total executive remuneration
Total directors’ and executive remuneration
1. Represents total remuneration paid in the financial year.
2. D Rathbone ceased employment effective 4 February 2015.
3. B Benson ceased employment effective 31 July 2015.
5. Ceased acting as KMPs from 4 February 2015.
6. B Zacharias commenced acting as KMP from 1 August 2015.
4. G Hunt appointed acting CEO 4 February 2015 and managing director and CEO from 5 May 2015.
7. V Fischer commenced acting as KMP from 1 August 2015 and ceased acting as KMP from 5 February 2016.
DIRECTORS’ REPORT continued
Post-
employment
Share-based
payments
Other
long term
Total1
Superannuation
$
Termination
benefits
$
16,031
15,115
17,622
16,989
14,076
13,885
33,075
32,287
17,963
16,912
16,803
16,561
14,326
13,869
129,896
125,618
–
17,261
35,000
34,983
164,896
177,862
35,000
34,200
2,917
30,843
200,414
–
49,016
–
–
66,350
–
17,507
–
17,917
–
17,507
287,347
184,324
452,243
362,186
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,643,193
–
–
–
1,643,193
–
–
–
–
–
–
–
–
1,196,954
–
–
–
425,600
–
–
–
1,622,554
–
3,265,747
Equity
settled
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(213,840)
412,113
175,682
412,113
(38,158)
308,798
170,030
238,449
139,147
124,410
–
149,998
–
–
372,067
–
87,442
–
(86,857)
–
45,910
821,655
727,739
1,233,768
689,581
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
101,717
–
–
–
101,717
–
–
–
–
–
–
–
–
87,904
–
22,335
–
–
–
69,319
–
179,558
–
281,275
Total
remuneration
$
Percentage of
remuneration
performance
based
%
Value of options
as a proportion
of total
remuneration
%
176,338
166,263
193,838
186,875
154,838
152,737
363,825
355,162
197,588
186,032
184,838
182,174
157,588
152,557
1,428,853
1,381,800
–
2,621,300
1,840,050
1,265,840
3,268,903
5,268,940
1,243,781
1,066,498
1,176,640
840,204
811,769
–
750,094
–
–
2,760,819
–
596,277
–
657,579
–
390,783
3,982,284
6,312,160
7,251,187
11,581,100
0
-3
34
31
36
32
31
33
26
28
0
23
0
35
0
-13
0
28
0
-8
14
6
15
7
12
6
6
9
0
1
0
4
0
-7
0
3
37
NUFARM LIMITED ANNUAL REPORT 2016
DIRECTORS’ REPORT continued
5.2 Equity instruments held by disclosed executives
The following tables show the number of:
• options/performance rights over ordinary shares in the company;
• right to deferred shares granted under the STI scheme; and
• shares in the company
that were held during the financial year by disclosed executives of the group, including their close family members and
entities related to them.
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.
Options/rights over ordinary shares in Nufarm Limited
Balance at
1 August
Granted as
Forfeited
Net
change
Balance
at 31 July
Scheme
2015 remuneration(g) Exercised or lapsed(d)
other(f)
2016(e)
Vested
during
2016
Vested at
31 July
2016(a)
Value at
date of
forfeiture(d)
Directors
G Hunt
LTI performance
STI deferred (c)
110,627
31,563
74,378
27,221
(11,984)
(5,278)
–
–
Executives
Current KMP
P Binfield
E Prado
LTI performance
STI deferred(c)
LTI performance
STI deferred(c)
B Zacharias LTI performance
STI deferred(c)
Former KMP
V Fischer(b) LTI performance
STI deferred(c)
LTI performance
STI deferred
Total
Total
123,023
40,690
72,271
7,145
34,457
36,890
68,972
71,442
409,350
187,730
597,080
(13,327)
(5,869)
34,938
20,813
31,238
16,911
20,082
2,569
–
–
–
(3,202)
(8,859)
–
(3,757)
–
(1,593)
–
–
–
–
–
–
–
–
–
–
–
167,743
43,587
43,587
43,702
58,784
10,018
31,563
–
138,765
48,472
48,472
48,595
61,503
11,172
40,690
–
99,752
31,029
31,029
31,108
24,056
7,145
7,145
–
49,744
13,154
13,154
13,190
30,600
29,218
28,031
–
–
–
18,594
18,232
(7,471)
–
(80,095)
(89,674)
–
–
–
–
–
–
179,230
(35,984)
(16,497)
(80,095)
456,004
136,242
136,242
136,595
85,746
(8,859)
–
(89,674)
174,943
57,553
107,429
–
264,976
(44,843)
(16,497)
(169,769)
630,947
193,795
243,671
136,595
(a) All options/rights that are vested are exercisable.
(b) V Fischer ceased acting as KMP from 5 February 2016.
(c) The grant date fair value of deferred shares granted as remuneration in 2016 was $8.07. 100% of STI deferred shares available to vest in 2016 vested
as the necessary service condition was satisfied. 100% of non-vested STI deferred shares are due to vest in 2017. Note those deferred shares granted
as remuneration during FY16 relate to the FY15 STI outcomes. Deferred shares granted as remuneration on the back of the FY16 STI outcomes will be
determined and allocated in October 2016.
(d) LTIP performance rights forfeited due to a failure to satisfy service or performance conditions during 2016 are disclosed in column ‘forfeited or lapsed’.
11% of rights due to vest in 2016 were forfeited. The value of LTIP performance rights forfeited is expressed in the table above using the share price
of the Company at 31 July 2016 of $8.28.
(e) 159,126 of total LTIP performance rights held by KMPs are due to vest in 2017, with the remaining unvested balance due to vest in 2018.
(f) ‘Net change other’ reflects changes to KMP during the period.
(g) The number of LTIP performance rights granted as remuneration during FY16 were determined by dividing the KMP’s total LTI grant opportunity
by $8.07, being the five-day VWAP post the announcement of the group’s 2015 annual results.
38
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ REPORT continued
5.3 Shares held in Nufarm Ltd
Shares held in Nufarm Limited
Balance
at 1 August
2015
Note
Granted as
remuneration
On exercise
of rights
Directors
DG McGauchie
G Hunt
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
PM Margin
T Takasaki
Executives
Current KMP
P Binfield
E Prado
B Zacharias
Former KMP
V Fischer
Total
1
46,239
22,862
10,000
40,000
10,000
1,148,715
2,458
–
56,000
–
1,176
252,468
1,589,918
–
–
–
–
–
–
–
–
–
–
–
–
–
Net
change
other
Balance
at 31 July
2016
8,000
50,215
–
–
5,000
22,020
–
–
54,239
85,061
10,000
40,000
15,000
1,170,735
2,458
–
–
11,984
–
–
–
–
–
–
13,327
–
12,061
5,000
–
(8,859)
74,327
–
4,378
7,471
(259,939)
–
44,843
(178,563)
1,456,198
1. The holding of Dr WB Goodfellow includes his relevant interest in:
(i)
St Kentigern Trust Board (430,434 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 (128,110 shares);
(iii) 531 Trust (400,861 shares). Dr Goodfellow and R Marshall are trustees of 531 Trust.
(iv) Auckland Medical Research Foundation (26,558 step-up securities). Dr Goodfellow does not have a beneficial interest in these step-up securities.
(v) Trustees of the Goodfellow Foundation (33,854 shares and 1,338 step-up securities). Dr Goodfellow is chairman of the Foundation and does not have
a beneficial interest in these shares or step-up securities.
(vi) Henry Berry Corporation Limited (20,000 shares and 700 step-up securities).
(vii) 31,585 shares issued under the company’s non-executive director share plan and held by Pacific Custodians Pty Ltd as trustee of the plan.
39
NUFARM LIMITED ANNUAL REPORT 2016
DIRECTORS’ REPORT continued
Shares issued as a result of the exercise of options
There were 110,483 (2015: nil) shares issued as a result of the exercise of options during the year.
Unissued shares under option
There are 374,220 (2015: 131,681) unissued shares under option. The unissued shares under option have been provided
to Nufarm employees as performance rights and the exercise price of such options is nil.
Loans to key management personnel
There were no loans to key management personnel at 31 July 2016 (2015: nil).
Other key management personnel transactions with the company or its controlled entities
Apart from the details disclosed in this note, no director has entered into a material contract with the company or entities in
the group since the end of the previous financial year and there were no material contracts involving directors’ interest existing
at year end.
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 arm’s length basis.
From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase
goods from the group. These purchases are on the same terms and conditions as those entered into by other group employees
or customers and are trivial or domestic in nature.
This report has been made in accordance with a resolution of directors.
DG McGauchie AO
Director
GA Hunt
Director
Melbourne
21 September 2016
40
NUFARM LIMITED ANNUAL REPORT 2016 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 2016
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
Gordon Sangster
Partner
Melbourne
21 September 2016
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity.
Liability limited by a scheme approved
under Profession Standards Legislation.
41
NUFARM LIMITED ANNUAL REPORT 2016 INCOME STATEMENT
For the year ended 31 July 2016
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/(losses) of equity accounted investees
Operating profit
Financial income
Financial expenses excluding foreign exchange gains/(losses)
Net foreign exchange gains/(losses)
Net financial expenses
Net financing costs
Profit/(loss) before income tax
Income tax benefit/(expense)
Consolidated
2016
$000
2015
$000
Note
2,791,217
(1,989,561)
801,656
2,737,163
(2,020,290)
716,873
7
19
10
10
10
39,971
(419,317)
(181,273)
(39,348)
1,397
203,086
15,678
(112,159)
(56,966)
(169,125)
(153,447)
11,710
(348,120)
(198,620)
(32,745)
1,120
150,218
7,423
(82,329)
(302)
(82,631)
(75,208)
49,639
75,010
11
(22,161)
(31,961)
Profit/(loss) for the period from continuing operations
27,478
43,049
Attributable to:
Equity holders of the company
Non-controlling interests
Profit/(loss) for the period
Earnings per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
The income statement is to be read in conjunction with the attached notes.
27,519
(41)
43,220
(171)
27,478
43,049
30
30
6.1
6.1
11.7
11.6
42
NUFARM LIMITED ANNUAL REPORT 2016 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2016
Profit/(loss) for the period
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences for foreign operations
Effective portion of changes in fair value of cash flow hedges
Effective portion of changes in fair value of net investment hedges
Net changes in fair value of available-for-sale financial assets
Items that will not be reclassified to profit or loss:
Actuarial gains/(losses) on defined benefit plans
Income tax on share-based payment transactions
Note
Consolidated
2016
$000
27,478
2015
$000
43,049
(64,880)
(1,497)
5,487
(448)
36,352
1,437
(7,572)
–
(19,631)
772
(19,323)
(201)
Other comprehensive profit/(loss) for the period, net of income tax
(80,197)
10,693
Total comprehensive profit/(loss) for the period
(52,719)
53,742
Attributable to:
Equity holders of the company
Non-controlling interest
Total comprehensive profit/(loss) for the period
The amounts recognised directly in equity are disclosed net of tax.
The statement of comprehensive income is to be read in conjunction with the attached notes.
(52,678)
(41)
53,913
(171)
(52,719)
53,742
43
NUFARM LIMITED ANNUAL REPORT 2016 BALANCE SHEET
As at 31 July 2016
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Other investments
Total current assets
Non-current assets
Trade and other receivables
Investments in equity accounted investees
Other investments
Deferred tax assets
Property, plant and equipment
Intangible 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
Non-controlling interest
TOTAL EQUITY
The balance sheet is to be read in conjunction with the attached notes.
44
Consolidated
2016
$000
2015
$000
Note
15
16
17
18
20
16
19
20
18
22
23
15
24
25
26
18
28
24
25
18
26
281,444
819,977
685,833
34,114
38,564
1,859,932
391,418
732,391
753,690
39,259
–
1,916,758
121,681
1,138
438
252,058
352,853
873,038
1,601,206
3,461,138
73,123
10,552
466
250,942
369,883
952,464
1,657,430
3,574,188
–
699,430
364,830
18,691
6,524
20,336
1,109,811
1,282
671,483
380,426
19,552
5,919
33,174
1,111,836
16,941
542,048
141,284
100,826
801,099
1,910,910
1,550,228
22,691
556,427
151,807
94,632
825,557
1,937,393
1,636,795
1,080,768
(276,148)
494,055
1,298,675
246,932
4,621
1,550,228
1,074,119
(213,134)
524,089
1,385,074
246,932
4,789
1,636,795
NUFARM LIMITED ANNUAL REPORT 2016 STATEMENT OF CASH FLOWS
For the year ended 31 July 2016
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Material items
Cash generated from operations
Interest received
Dividends received
Interest paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sales of businesses and investments
Payments for plant and equipment
Purchase of businesses, net of cash acquired
Payments for acquired intangibles and major product development expenditure
Net investing cash flows
Cash flows from financing activities
Debt establishment transaction costs
Proceeds from borrowings
Repayment of borrowings
Distribution to Nufarm step-up security holders
Dividends paid
Net financing cash flows
Net increase/(decrease) in cash and cash equivalents
Cash at the beginning of the year
Exchange rate fluctuations on foreign cash balances
Cash and cash equivalents at 31 July
The statement of cash flows is to be read in conjunction with the attached notes.
Consolidated
2016
$000
2015
$000
Note
6
38
14
2,714,314
(2,412,549)
(51,688)
250,077
15,678
508
(106,626)
(22,262)
137,375
2,841,147
(2,484,368)
(19,899)
336,880
7,423
538
(73,182)
(43,149)
228,510
1,103
–
(59,209)
2,665
(82,769)
(138,210)
6,806
–
(46,654)
–
(64,251)
(104,099)
(2,876)
1,091,834
(1,138,232)
(15,456)
(24,919)
(89,649)
(1,536)
1,071,244
(1,023,581)
(16,689)
(20,913)
8,525
(90,484)
390,136
(18,208)
281,444
132,936
241,638
15,562
390,136
15
45
NUFARM LIMITED ANNUAL REPORT 2016 STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July 2016
Consolidated
Balance at 1 August 2014
Profit/(loss) for the period
Other comprehensive income
Actuarial gains/(losses) on defined benefit plans
Foreign exchange translation differences
Gains/(losses) on cash flow hedges taken to equity
Gains/(losses) on net investment hedges taken to equity
Income tax on share-based payment transactions
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in equity
Accrued employee share award entitlement
Issuance of shares under employee share plans
Dividends paid to shareholders
Dividend reinvestment plan
Distributions to Nufarm step-up security holders
Remeasurement of non-controlling interest option
Share
capital
$000
1,068,871
Translation
reserve
$000
(258,779)
Capital profit
reserve
$000
33,627
–
–
–
–
–
–
–
–
2,104
–
3,144
–
–
–
–
36,352
–
–
–
36,352
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2015
1,074,119
(222,427)
33,627
(24,334)
524,089
1,385,074
246,932
4,789
1,636,795
Balance at 1 August 2015
1,074,119
(222,427)
33,627
(24,334)
524,089
1,385,074
246,932
4,789
1,636,795
Profit/(loss) for the period
Other comprehensive income
Actuarial gains/(losses) on defined benefit plans
Foreign exchange translation differences
Gains/(losses) on cash flow hedges taken to equity
Gains/(losses) on net investment hedges taken to equity
Net changes in fair value of available-for-sale financial assets
Income tax on share-based payment transactions
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in equity
Accrued employee share award entitlement
Issuance of shares under employee share plans
Dividends paid to shareholders
Dividend reinvestment plan
Distributions to Nufarm step-up security holders
Remeasurement of non-controlling interest option
–
–
–
–
–
–
–
–
–
4,876
–
1,773
–
–
–
–
(64,880)
–
–
–
–
(64,880)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2016
1,080,768
(287,307)
33,627
(22,468)
494,055
1,298,675
246,932
4,621
1,550,228
The statement of changes in equity is to be read in conjunction with the attached notes.
46
Nufarm step-up
Non-controlling
Total
$000
1,356,539
securities
$000
246,932
interest
$000
5,229
Total
equity
$000
1,608,700
43,220
43,220
(171)
43,049
Other
reserve
$000
(23,421)
–
–
–
1,437
(7,572)
(201)
(6,336)
4,304
(2,104)
–
–
–
3,223
–
–
–
(1,497)
5,487
(448)
772
4,314
3,956
(4,876)
–
–
–
(1,528)
Retained
earnings
$000
536,241
(19,323)
23,897
(23,788)
(12,261)
(19,631)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(26,564)
(11,358)
(19,323)
36,352
1,437
(7,572)
(201)
53,913
4,304
–
(23,788)
3,144
(12,261)
3,223
(19,631)
(64,880)
(1,497)
5,487
(448)
772
3,956
–
(26,564)
1,773
(11,358)
(1,528)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(171)
(269)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(127)
(19,323)
36,352
1,437
(7,572)
(201)
53,742
4,304
–
(24,057)
3,144
(12,261)
3,223
(19,631)
(64,880)
(1,497)
5,487
(448)
772
3,956
–
(26,691)
1,773
(11,358)
(1,528)
27,519
27,519
(41)
27,478
7,888
(52,678)
(41)
(52,719)
NUFARM LIMITED ANNUAL REPORT 2016 STATEMENT OF CHANGES IN EQUITY continued
For the year ended 31 July 2016
Share
capital
$000
1,068,871
Translation
Capital profit
reserve
$000
(258,779)
reserve
$000
33,627
Other
reserve
$000
(23,421)
Retained
earnings
$000
536,241
Total
$000
1,356,539
Nufarm step-up
securities
$000
246,932
Non-controlling
interest
$000
5,229
Total
equity
$000
1,608,700
–
43,220
43,220
–
–
1,437
(7,572)
(201)
(6,336)
4,304
(2,104)
–
–
–
3,223
(19,323)
–
–
–
–
23,897
–
–
(23,788)
–
(12,261)
–
(19,323)
36,352
1,437
(7,572)
(201)
53,913
4,304
–
(23,788)
3,144
(12,261)
3,223
–
–
–
–
–
–
–
–
–
–
–
–
–
(171)
–
–
–
–
–
(171)
–
–
(269)
–
–
–
43,049
(19,323)
36,352
1,437
(7,572)
(201)
53,742
4,304
–
(24,057)
3,144
(12,261)
3,223
Balance at 31 July 2015
1,074,119
(222,427)
33,627
(24,334)
524,089
1,385,074
246,932
4,789
1,636,795
Balance at 1 August 2015
1,074,119
(222,427)
33,627
(24,334)
524,089
1,385,074
246,932
4,789
1,636,795
–
27,519
27,519
–
–
(1,497)
5,487
(448)
772
4,314
3,956
(4,876)
–
–
–
(1,528)
(19,631)
–
–
–
–
–
7,888
–
–
(26,564)
–
(11,358)
–
(19,631)
(64,880)
(1,497)
5,487
(448)
772
(52,678)
3,956
–
(26,564)
1,773
(11,358)
(1,528)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(41)
–
–
–
–
–
–
(41)
–
–
(127)
–
–
–
27,478
(19,631)
(64,880)
(1,497)
5,487
(448)
772
(52,719)
3,956
–
(26,691)
1,773
(11,358)
(1,528)
Consolidated
Balance at 1 August 2014
Profit/(loss) for the period
Other comprehensive income
Actuarial gains/(losses) on defined benefit plans
Foreign exchange translation differences
Gains/(losses) on cash flow hedges taken to equity
Gains/(losses) on net investment hedges taken to equity
Income tax on share-based payment transactions
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in equity
Accrued employee share award entitlement
Issuance of shares under employee share plans
Dividends paid to shareholders
Dividend reinvestment plan
Distributions to Nufarm step-up security holders
Remeasurement of non-controlling interest option
Profit/(loss) for the period
Other comprehensive income
Actuarial gains/(losses) on defined benefit plans
Foreign exchange translation differences
Gains/(losses) on cash flow hedges taken to equity
Gains/(losses) on net investment hedges taken to equity
Net changes in fair value of available-for-sale financial assets
Income tax on share-based payment transactions
Total comprehensive income/(loss) for the period
Transactions with owners, recorded directly in equity
Accrued employee share award entitlement
Issuance of shares under employee share plans
Dividends paid to shareholders
Dividend reinvestment plan
Distributions to Nufarm step-up security holders
Remeasurement of non-controlling interest option
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,104
3,144
4,876
1,773
36,352
36,352
(64,880)
(64,880)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2016
1,080,768
(287,307)
33,627
(22,468)
494,055
1,298,675
246,932
4,621
1,550,228
The statement of changes in equity is to be read in conjunction with the attached notes.
47
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
Nufarm Limited (the ‘company’) is a company limited by shares and domiciled in Australia that is listed on the Australian
Securities Exchange. 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 2016 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 a for-profit entity and 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, and seed treatment products.
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements are general purpose financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs)
adopted by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorised for issue by the board of directors on 21 September 2016.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments
and available-for-sale investments, which are measured at fair value, and defined benefit fund obligations that are 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 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 Corporations (Rounding in Financial/Directors’ Reports) instrument 2016/191
and, in accordance with that instrument, 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 in conformity with AASBs 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 estimates are 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 or at
each reporting date if required. 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
assumptions 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. Other non-current assets are also
assessed for impairment indicators.
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NUFARM LIMITED ANNUAL REPORT 2016 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. The assessment
of probability involves estimation of a number of factors including future taxable income. Refer to note 11 and note 18.
(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 to 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 less costs to sell at the time the product is expected to be sold.
Refer to note 17.
(vi) Capitalised development costs
Development expenditures are recognised as an intangible asset when the group judges and is able to demonstrate:
(a) the technical feasibility of completing the intangible asset so that it will be available for use;
(b) intention to complete;
(c) ability to use the asset; and
(d) how the asset will generate future economic benefits and the ability to measure reliably the expenditure during development.
Refer to note 23.
(vii) 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. The group assesses intellectual property to have a finite life or
indefinite life.
(e) Reclassification
Comparatives have been adjusted to present them on the same basis as current period figures.
3. Significant accounting policies
Except as described immediately below, the group’s accounting policies have been applied consistently to all periods
presented in these consolidated financial statements, and have been applied consistently by group entities.
During the current reporting period, a number of new or amended standards became applicable for the first time:
AASB 2015–3 Amendments to Australian Accounting Standards Arising from the Withdrawal of AASB 1031 Materiality
and AASB 2015–4 Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian
Groups with a Foreign Parent. These standards did not materially effect the entity’s accounting policies or any of the
amounts recognised in the financial statements.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after
1 July 2016, and have not been applied in preparing these financial statements. None of these are expected to have a
significant effect on the consolidated financial statements of the group, except for AASB 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers, which become mandatory for the group’s 2019 consolidated financial statements
and IFRS 16 Leases, which becomes mandatory for the 2018 consolidated financial statements. AASB 9 could change the
classification and measurement of financial assets, IFRS 15 could change revenue recognition practices and IFRS 16 could
change the classification and measurement of operating or financing leases. The group does not currently plan to adopt these
standards early and the extent of the impact (if any) has not been determined.
(a) Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which
control is transferred to the group. The group controls an entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control,
the group takes into consideration potential voting rights that currently are exercisable.
For acquisitions on or after 1 July 2009, the group measures goodwill at the acquisition date as:
• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree, plus if the business combination is achieved in stages,
the fair value of the existing equity interest in the acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts
are generally recognised in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the group incurs
in connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is
classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to
the fair value of the contingent consideration are recognised in profit or loss.
(ii) Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
When a written put option is established with non-controlling shareholders in an existing subsidiary, then the group will
recognise a liability for the present value of the exercise price of the option. When the NCI still has present access to the
returns associated with the underlying ownership interest, NCI continues to be recognised and accordingly the liability is
considered a transaction with owners and recognised via a reserve. Any changes in the carrying value of the put liability
over time is recognised directly in reserves.
(iii) Subsidiaries
Subsidiaries are entities controlled by the group. The group controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
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 where necessary to align them with the policies adopted by the
group. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even
if doing so causes the non-controlling interests to have a deficit balance.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(a) Basis of consolidation (continued)
(iv) Investments in equity accounted investees
The group’s interests in equity accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the group has significant influence, but not control or joint control, over the financial
and operating policies. A joint venture is an arrangement in which the group has joint control, whereby the group has rights
to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Investments in associates and joint ventures are accounted for using the equity method and are initially recognised at cost,
which includes transaction costs. The group’s investment includes goodwill identified on acquisition, net of any accumulated
impairment losses. Subsequent to initial recognition, the consolidated financial statements include the group’s share of the
income and expenses and equity movements of the investees after adjustments to align the accounting policies of the
investees with those of the group, until the date on which significant influence or joint control ceases. On loss of significant
influence the investment is no longer equity accounted and is revalued to fair value.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, 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.
(b) Foreign currency
(i) 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.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate
at the date of the transaction. Foreign currency gains and losses are included in net financing costs.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are
translated to Australian dollars at exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income. Since 1 August 2004, the group’s date of
transition 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 the FCTR is transferred to profit or loss as part of the profit
or loss on disposal.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in
the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of
a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within equity
in the FCTR.
(c) Financial instruments
(i) Non-derivative financial assets
The group initially recognises loans and receivables on the date that they are originated. All other financial assets (including
assets designated at fair value through profit or loss) are recognised initially on the trade date at which the group becomes
a party to the contractual provisions of the instrument.
The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risk and rewards
of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the
group is recognised as a separate asset or liability.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(i) Non-derivative financial assets (continued)
Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when,
the group has the legal right to offset the amounts and intends to settle on a net basis or to realise the asset and
settle the liability simultaneously.
The group has the following non-derivative financial assets: financial assets at fair value through profit or loss, loans
and receivables and available-for-sale financial assets.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as
such upon initial recognition. Financial assets are designated at fair value through profit or loss if the group manages such
investments and makes purchase 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 assets at fair value through profit or loss are measured at fair value, and changes therein are
recognised in profit or loss.
Financial assets designated at fair value through profit or loss comprise equity securities that otherwise would have been
classified as available-for-sale.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are recognised initially at fair value plus any direct attributable transaction costs. Subsequent to initial recognition loans
and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and
receivables comprise trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.
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 purposes of the statement of cash flows.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not
classified as another category of financial asset. Available-for-sale financial assets are recognised initially at fair value plus
any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and any changes
other than impairment losses are recognised in other comprehensive income and presented in the fair value reserve in equity.
When an investment is derecognised, the cumulative gain or loss in equity is reclassified to profit or loss.
(ii) Non-derivative financial liabilities
The group initially recognises debt securities and subordinated liabilities on the date they are originated. All other financial
liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which
the group becomes a party to the contractual provisions of the instrument. The group derecognises a financial liability when
its contractual obligations are discharged or cancelled or expired. Financial assets and liabilities are offset and the net amount
presented in the balance sheet when, and only when, the group has the legal right to offset the amounts and intends to settle
on a net basis or to realise the asset and settle the liability simultaneously.
The group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts and trade and other
payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent
to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. This
includes trade payables that represent liabilities for goods and services provided to the group prior to the end of the year
which are unpaid.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(iii) 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 Nufarm step-up securities (NSS) are classified as non-controlling equity instruments as they are issued by a subsidiary.
After-tax distributions thereon are recognised as distributions within equity. Further details can be found in note 29.
(iv) Derivative financial instruments, including hedge accounting
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value
depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged.
The group designates certain derivatives as either:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges);
• hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges); or
• hedges of a net investment in a foreign operation (net investment hedges).
The group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. The group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of
hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months. Trading derivatives are classified as a current asset or liability.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss,
together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain
or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss
within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate
risk. The gain or loss relating to the ineffective portion is recognised in profit or loss within other income or other expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item
for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated
effective interest rate.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(iv) Derivative financial instruments, including hedge accounting (continued)
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective
portion is recognised immediately in profit or loss within other income or other expense.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss
(for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest
rate swaps hedging variable rate borrowings is recognised in profit or loss within ‘finance costs’. The gain or loss relating to
the effective portion of forward foreign exchange contracts hedging export sales is recognised in profit or loss within ‘sales’.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example,
inventory or fixed assets) the gains and losses previously deferred in equity are reclassified from equity and included in the
initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods
sold in the case of inventory, or as depreciation or impairment in the case of fixed assets.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is
ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in equity is immediately reclassified to profit or loss.
Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive
income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately
in profit or loss within other income or other expenses.
Gains and losses accumulated in equity are reclassified to profit or loss when the foreign operation is partially disposed of or sold.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument
that does not qualify for hedge accounting are recognised immediately in profit or loss.
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is 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, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment
is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
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 in profit or loss.
(ii) 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.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(d) Property, plant and equipment (continued)
(iii) Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value. 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, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied
in the asset. Leased 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.
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
• computer equipment
5 years
3 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
(e) Intangible assets
(i) Goodwill
Goodwill that arises upon the acquisition of business combinations is included in intangible assets. Subsequent to initial
recognition, goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the
carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment
is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.
(ii) 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 and capitalised borrowing costs. Development expenditure
that does not meet the above criteria is recognised in profit or loss as incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.
(iii) 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. Intellectual property is assessed as to whether it has a finite or indefinite
life. Finite life intellectual property is amortised over its useful life but not longer than 30 years. 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.
(iv) 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 accumulated impairment losses.
(v) 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.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(e) Intangible assets (continued)
(vi) Amortisation
Amortisation is calculated over the cost of the asset, less its residual value. With the exception of goodwill, intangibles with a
finite life are amortised on a straight-line basis in profit and loss over the estimated useful lives of the intangible assets from
the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset. The estimated useful life for intangible assets with a finite life, in the current and
comparative periods, are as follows:
• capitalised development costs
5 – 30 years (2015: 5 – 10 years)
• intellectual property – finite life
over the useful life and not more than 30 years (2015: over the useful life)
• computer software
3 – 7 years (2015: 3 – 7 years)
Amortisation methods, useful lives and residual values are reassessed at each reporting date.
(f) Leased assets
Leases where 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 in 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.
(h) Impairment
(i) Non-derivative financial assets
A financial asset, not carried at fair value through profit or loss, is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence of impairment includes default or delinquency by a debtor, indications that a debtor will enter bankruptcy,
and, in the case of an investment in an equity security, a significant or prolonged decline in its fair value.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its
carrying amount, and the present value of estimated future cash flows discounted at the original effective interest rate.
An impairment loss on an available-for-sale financial asset is recognised by reclassifying the losses accumulated in the fair
value reserve in equity to profit and loss. The cumulative loss that is reclassified from equity to profit and loss is the difference
between the acquisition cost and the current fair value less any impairment loss previously recognised in profit and loss.
If, in a subsequent period, the fair value of an impaired available-for-sale financial asset increases and the increase relates
to an event occurring after the impairment loss was recognised then the impairment loss is reversed, with the amount
of the reversal recognised in profit and loss.
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NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(h) Impairment (continued)
(ii) 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, then 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 inflows from continuing
use that are largely independent of the cash inflows of other assets or groups of assets (the ‘cash-generating unit’). 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 estimated 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.
Goodwill that forms part of the carrying amount of an investment in an associate or joint venture is not recognised separately,
and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate or joint
venture is tested for impairment as a single asset when there is objective evidence that the investment in an associate or joint
venture may be impaired.
(i) Assets held for sale
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 costs 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.
Intangible assets and property, plant and equipment once classified as held for sale or distribution are not amortised or
depreciated. In addition, equity accounting of equity accounted investees ceases once classified as held for sale or distribution.
(j) Employee benefits
(i) 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 employee benefit expense in profit or loss in the periods during which services are
rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in
future payments is available.
57
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(j) Employee benefits (continued)
(ii) Defined benefit plans
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 the current and prior periods, discounting that amount and deducting the fair
value of any assets.
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit
method. When the calculation results in a potential asset for the group, the recognised asset is limited to the present value
of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.
To calculate the present value economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan asset
(excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other
comprehensive income (OCI). The group determines the net interest expense (income) on the net defined benefit liability
(asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the
annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit
liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses
related to defined benefit plans are recognised in profit and loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service
or the gain or loss on curtailment is recognised immediately in profit or loss. The group recognises gains and losses on the
settlement of a defined benefit plan when the settlement occurs.
(iii) 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
future benefit that employees have earned in return for their service in the current and prior periods plus related on-costs;
that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount
rate is the yield at the reporting date on corporate 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.
(iv) 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. If benefits are payable more than
12 months after the reporting period, then they are discounted to their present value.
(v) 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.
58
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(j) Employee benefits (continued)
(vi) 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 to note 27 for details
of the global share plan.
The group has a short term incentive plan (STI) available to key executives, senior managers and other managers globally.
A pre-determined percentage of the STI is paid in cash with the remainder deferred into shares which have either a one
or two-year vesting period. The cash portion is recognised immediately as an expense at the time of performance testing.
The expense relating to deferred shares is expensed over the vesting period. Refer to note 27 for further details on this plan.
The group has a long term incentive plan (LTIP) which is available to key executives and certain selected senior managers.
Performance rights have been granted to acquire ordinary shares in the company subject to the achievement of global
performance hurdles. The expense in relation to the LTIP is recognised over the vesting period of three years. Refer to
note 27 for further details on this plan.
(k) Provisions
A provision is recognised if, as a result of a past event, the group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.
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 losses are not provided for.
(l) Revenue
(i) 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 persuasive evidence of an arrangement exists, usually in the form
of an executed sales agreement, that 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. If it is probable
that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of
revenue as the sales are recognised.
(ii) Dividend income
Dividend income is recognised when the right to receive the payment is established. This is generally at the point the dividend
has been formally declared.
(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.
59
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(m) Lease payments (continued)
Determining whether an arrangement contains a lease
At the inception of an arrangement, the group determines whether such an arrangement is or contains a lease. A specific
asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement
conveys the right to use the asset if the arrangement conveys to the group the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the group separates payments and other consideration required by
such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the group
concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and liability are recognised at
an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an
imputed finance charge on the liability is recognised using the group’s incremental borrowing rate.
(n) Finance income and finance costs
The group’s finance income and finance costs include the following: interest income, interest expense, dividend income,
dividends on preference shares issued classified as financial liabilities, the net gain or loss on the disposal of available-for-sale
financial assets, the net gain or loss on financial assets at fair value through profit or loss, the foreign currency gain or loss on
financial assets and financial liabilities, the gain on the remeasurement to fair value of any pre-existing interest in an acquiree
in a business combination, the fair value loss on contingent consideration classified as a financial liability, impairment losses
recognised on financial assets (other than trade receivables), the net gain or loss on hedging instruments that are recognised
in profit or loss, and the reclassification of net gains previously recognised in other comprehensive income.
Interest income or expense is recognised using the effective interest method. Dividend income is recognised in profit or loss
on the date on which the group’s right to receive payment is established.
(o) Income tax
Income tax expense comprises current and deferred tax. Current and deferred taxes are recognised in profit or loss except to
the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of 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 or loss, 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 for unused tax losses, tax credits and deductible temporary differences, to the extent that
it is probable that future taxable profits will be available against which they 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.
Additional income taxes that arise from the distribution of cash dividends are recognised at the same time as the liability to pay
the related dividend is recognised. The group does not distribute non-cash assets as dividends to its shareholders.
60
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(o) Income tax
(i) 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. 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 (refer below). Any difference
between these amounts is recognised by the company as an equity contribution amounts 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.
(ii) Nature of tax funding arrangements and tax sharing agreements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement
which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding
arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity
and any tax loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity
receivable/(payable) equal in amount to the tax liability/(asset) assumed. The inter-entity receivables/(payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the
head entity’s obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity, in conjunction with other members of the tax-consolidated group, has also entered a tax sharing agreement.
The tax sharing agreement provides for the determination of the allocation of the income tax liabilities between the entities
should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements
in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.
(p) Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST or equivalent), except where
the GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the
cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable
to, the tax authority 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) 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.
61
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(r) Segment reporting
Determination and presentation of operating segments
An operating segment is a component of the group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate to transactions with any of the group’s other components. All
operating segment results are reviewed regularly by the group’s CEO to make decisions about resources to be allocated
to the segment and to assess its performance.
Segment results that are reported to the CEO 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.
4. Determination of fair values
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, and willingly. The market value of items of plant, equipment, fixtures and fittings is based on
the market approach and cost approaches quoted market prices for similar items when available and replacement cost
when appropriate.
(ii) Intangibles assets
The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty
payments that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible
assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
(iii) Inventories
The fair value of inventories 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 inventories.
(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. This fair value is determined for disclosure purposes.
(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 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.
62
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
4. Determination of fair values (continued)
(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.
(vii) Share-based payment transactions
The fair value of the performance rights issued under the Nufarm long term incentive plan have been measured using
Monte-Carlo Simulation and the Binomial Tree. The fair value of the deferred shares granted to participants under the
Nufarm short term incentive will be measured using the volume weighted average price for the five-day period subsequent
to year end results announcement. Measurement inputs include the share price on the measurement date, the exercise
price of the instrument, expected volatility, expected term of the instruments, dividends, and the risk-free rate (based on
government bonds).
(viii) Available-for-sale investments
The fair value of the available-for-sale investment is derived from quoted market prices in an active market.
5. Operating segments
Segment information is presented in respect of the group’s key operating segments. The operating segments are based
on the group’s management and internal reporting structure.
Operating segments
The group operates predominantly along two business lines, being crop protection and seed technologies.
The crop protection business deals in the manufacture and sale of crop protection products used by farmers to protect crops
from damage caused by weeds, pests and disease. It is managed by major geographic segments, being Australia and New
Zealand, Asia, Europe, North America and Latin America. The North America region includes Canada and the United States.
The Latin America region (previously known as Latin America) includes Brazil, Argentina, Chile, Uruguay, Paraguay, Bolivia,
Columbia, the Andean countries, Mexico and the Central American countries.
The seed technologies business deals in the sale of seeds and seed treatment products. The seed technologies business
is managed on a worldwide basis.
Information regarding the results of each operating segment is included below. Performance is measured based on underlying
EBIT as included in the internal management reports that are reviewed by the group’s CEO. Underlying EBIT is used to measure
performance as management believes that such information is the most relevant in evaluating the results of each segment.
Segment revenue is based on the geographic location of customers. Segment results include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. The non-operating corporate segment comprises mainly
corporate expenses, interest-bearing loans, borrowings and corporate assets.
63
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
5. Operating segments (continued)
Crop protection
Seed
technologies
Non-
operating
corporate
Group
Australia
and
New
Zealand
$000
Asia
$000
Europe
$000
North
America
$000
Latin
America
$000
Total
$000
Global
$000
$000
Total
$000
553,994
148,604
550,376
653,939
740,686 2,647,599
143,618
– 2,791,217
61,773
26,723
110,313
76,931
104,443
380,183
35,529
(43,992)
371,720
(14,810)
46,963
(3,899)
22,824
(37,296)
73,017
(17,643)
59,288
(4,047)
100,396
(77,695)
302,488
(6,810)
28,719
(519)
(44,511)
(85,024)
286,696
2016
Operating
segments
Revenue
Total segment
revenue
Results
Underlying
EBITDA(a)
Depreciation
and amortisation
excluding material
items
Underlying EBIT(a)
Material items included in operating profit (refer note 6)
Material items included in net financing costs (refer note 6)
Total material items (refer note 6)
Net financing costs (excluding material items)
Profit/(loss) before tax
(83,610)
(15,450)
(99,060)
(137,997)
49,639
Assets
Segment assets
Investment in
associates
Total assets
Liabilities
Segment liabilities
Total liabilities
Other segment
information
Capital
expenditure
486,868
89,788
688,906
412,074
803,801 2,481,437
363,129
615,434 3,460,000
–
486,868
–
89,788
764
689,670
–
412,074
–
764
803,801 2,482,201
374
363,503
–
1,138
615,434 3,461,138
129,558
129,558
182,173
182,173
243,544
243,544
67,249
67,249
207,577
207,577
830,101
830,101
26,833 1,053,976 1,910,910
26,833 1,053,976 1,910,910
40,421
2,317
47,453
12,378
6,992
109,561
30,753
–
140,314
(a) Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA is underlying EBIT, before depreciation, amortisation
and impairments.
64
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
5. Operating segments (continued)
Crop protection
Seed
technologies
Non-
operating
corporate
Group
Australia
and
New
Zealand
$000
Asia
$000
Europe
$000
North
America
$000
Latin
America
$000
Total
$000
Global
$000
$000
Total
$000
582,391
155,233
544,775
588,650
706,533 2,577,582
159,581
– 2,737,163
69,952
21,661
98,565
54,579
79,604
324,361
37,648
(44,919)
317,090
(17,207)
52,745
(3,527)
18,134
(34,139)
64,426
(15,658)
38,921
(2,920)
76,684
(73,451)
250,910
(5,819)
31,829
(938)
(45,857)
(80,208)
236,882
2015
Operating
segments
Revenue
Total segment
revenue
Results
Underlying
EBITDA(a)
Depreciation
and amortisation
excluding
material items
Underlying EBIT(a)
Material items included in operating profit (refer note 6)
Material items included in net financing costs (refer note 6)
Total material items (refer note 6)
Net financing costs (excluding material items)
Profit/(loss) before tax
(86,664)
–
(86,664)
(75,208)
75,010
Assets
Segment assets
Investment in
associates
Total assets
Liabilities
Segment liabilities
Total liabilities
Other segment
information
Capital
expenditure
440,197
97,380
751,869
531,119
671,788 2,492,353
375,982
695,301 3,563,636
–
440,197
8,761
106,141
1,441
753,310
–
531,119
–
10,202
671,788 2,502,555
350
376,332
–
10,552
695,301 3,574,188
146,079
146,079
110,567
110,567
257,625
257,625
103,421
103,421
194,533
194,533
812,225
812,225
26,914 1,098,254 1,937,393
26,914 1,098,254 1,937,393
14,727
1,316
40,282
22,969
6,844
86,138
25,580
–
111,718
(a) Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA is underlying EBIT, before depreciation, amortisation
and impairments.
65
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
5. Operating segments (continued)
Geographical information
Australia
New Zealand
Asia
Europe
United States
Rest of North America
Brazil
Rest of Latin America
Unallocated(b)
Total
Revenue by location
of customer
Non-current assets
by location
2016
$000
519,709
61,031
148,029
591,640
582,525
118,789
590,784
178,710
–
2,791,217
2015
$000
548,307
59,391
155,233
567,446
561,674
105,913
556,475
182,724
–
2,737,163
2016
$000
265,472
5,008
39,838
387,697
357,781
8,639
278,399
6,364
252,008
1,601,206
2015
$000
250,651
5,429
43,607
437,265
405,718
14,311
231,166
18,341
250,942
1,657,430
(b) Unallocated assets predominately include deferred tax assets.
6. Items of material income and expense
Material items are those items where their nature and/or amount is considered material to the financial statements. Such items
included within the group’s profit for the year are detailed below.
Material items by category:
Asset rationalisation and restructuring
Argentina peso devaluation event
Gain arising on revaluation of investment to fair value
Total
2016 asset rationalisation and restructure
Consolidated
Consolidated
2016
$000
Pre-tax
2016
$000
After-tax
2015
$000
Pre-tax
2015
$000
After-tax
(126,223)
36
27,127
(99,060)
(108,497)
23
27,075
(81,399)
(86,664)
–
–
(86,664)
(73,839)
–
–
(73,839)
The asset rationalisation and restructuring program has resulted in the rationalisation of under-utilised assets and a restructure
throughout the Nufarm group. Asset rationalisation and restructure costs amount to $126.2 million mainly relate to the
write-down of product related assets arising from rationalisation of the group’s product portfolio. A breakdown of the nature
of costs incurred are further described below. Asset rationalisation costs have only been tax benefited to the extent that it is
probable that the benefit will be utilised.
Summary of nature of cost
Portfolio rationalisation program
Manufacturing excellence
Other asset rationalisation and restructure costs
2016
$000
81,346
30,999
13,878
126,223
Further explanation of nature of cost
Primarily the write downs of product related assets
Primarily closure of the Calgary plant
2016 Argentina peso devaluation event
In December 2015 the Argentine government relaxed regulations restricting free movement of the Argentine peso. This
relaxation of regulations resulted in a one-off significant devaluation of the peso against the United States dollar. As a result
of the devaluation Nufarm incurred foreign currency exchange losses on its net USD liabilities ($15.450 million) and benefited
from increased gross margin on its USD denominated sales ($15.486 million).
66
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
6. Items of material income and expense (continued)
2016 Gain arising on revaluation of investment to fair value
Excel Crop Care is an Indian crop protection business, in which Nufarm had an equity accounted 14.69 per cent interest.
During June 2016, Sumitomo Chemical Company Limited acquired a 45 per cent stake in Excel Crop Care and declared an
open market offer for an additional 30 per cent of the company’s shares. On 30 June 2016, Nufarm concluded that its ability
to exert significant influence was relinquished. Subsequently, the company ceased to account for its investment in Excel Crop
Care as an equity accounted investment, and reclassified its investment as ‘available-for-sale’. This reclassification resulted
in a one-off gain of $27.127 million to account for the difference between the carrying value of the equity investment and
the fair value.
2015 asset rationalisation and restructure
The 2015 asset rationalisation and restructuring program resulted in the rationalisation of under-utilised assets and
an organisational restructure throughout the Nufarm group. Asset rationalisation and restructure costs amounting to
$86.664 million mainly related to the rationalisation of European manufacturing assets, whereby the Botlek manufacturing
facilities were closed and manufacturing consolidated. Asset rationalisation costs were tax benefitted to the extent that it is
probable that the benefit will be utilised.
Material items are classified by function as follows:
Year ended 31 July 2016
$000
Asset rationalisation
and restructuring
Argentina peso
devaluation event
Gain arising on revaluation
of investment to fair value
Total material items
Total material items
included in operating profit
Year ended 31 July 2015
$000
Asset rationalisation
and restructuring
Total material items
Total material items included
in operating profit
Cost of
sales
Other
income
(40,259)
15,486
–
–
Selling,
marketing and
distribution
expense
General and
administrative
expense
Research and
development
expenses
Net
financing
costs
Total
pre-tax
(68,574)
(17,381)
(9)
–
(126,223)
–
–
–
(15,450)
36
–
(24,773)
27,127
27,127
–
(68,574)
–
(17,381)
(24,773)
27,127
(68,574)
(17,381)
–
(9)
(9)
–
(15,450)
27,127
(99,060)
–
(83,610)
Cost of
sales
Other
income
Selling,
marketing and
distribution
expense
General and
administrative
expense
Research and
development
expenses
Net
financing
costs
(48,349)
(48,349)
(48,349)
–
–
–
(5,142)
(5,142)
(33,111)
(33,111)
(5,142)
(33,111)
(62)
(62)
(62)
–
–
–
Total
pre-tax
(86,664)
(86,664)
(86,664)
Material items impact operating cash flows as follows:
Net cash from operating activities
Net cash arising on material items
Net cash from operating activities excluding material items
Consolidated
2016
$000
137,375
(51,688)
189,063
2015
$000
228,510
(19,899)
248,409
67
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
7. Other income
Other income
Dividend income
Rental income
Gain arising on revaluation of investment to fair value (a)
Sundry income
Total other income
(a) Refer to notes 19 and 20.
8. Other expenses
The following expenses were included in the period result:
Depreciation and amortisation
Inventory write down
Minimum lease payments recognised as an operating lease expense
9. Personnel expenses
Wages and salaries
Other associated personnel expenses
Contributions to defined contribution superannuation funds
(Expense)/gain related to defined benefit superannuation funds
Short term employee benefits
Other long term employee benefits
Restructuring
Personnel expenses
Consolidated
2016
$000
35
243
27,127
12,566
39,971
2015
$000
137
241
–
11,332
11,710
Consolidated
2016
$000
(85,024)
(22,910)
(6,476)
2015
$000
(80,208)
(11,104)
(6,204)
Consolidated
2016
$000
(271,966)
(48,237)
(13,471)
(3,991)
(8,645)
(2,481)
(17,464)
(366,255)
2015
$000
(261,896)
(46,583)
(15,398)
2,528
(9,975)
(2,597)
(22,162)
(356,083)
The restructure expense relates to the group’s asset rationalisation and organisational restructure program.
These costs are included in material items in note 6.
10. Finance income and expense
Other financial income
Financial income
Interest expense – external
Interest expense – debt establishment transaction costs
Lease amortisation – finance charges
Net foreign exchange gains/(losses)
Financial expenses
Net financing costs
68
Consolidated
2016
$000
15,678
15,678
(104,387)
(5,533)
(2,239)
(56,966)
(169,125)
2015
$000
7,423
7,423
(73,054)
(7,175)
(2,100)
(302)
(82,631)
(153,447)
(75,208)
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
11. Income tax expense
Recognised in the income statement
Current tax expense
Current period
Tax-free income and non-recognition of tax assets on material items
Adjustments for prior periods
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences and tax losses
Effect of changes in tax rates
Initial (recognition)/derecognition of tax assets
Deferred tax expense/(benefit)
Consolidated
2016
$000
2015
$000
30,276
12,538
(2,393)
40,421
(20,433)
(14)
2,187
(18,260)
24,567
11,272
489
36,328
(1,602)
25
(2,790)
(4,367)
Total income tax expense/(benefit) in income statement
22,161
31,961
Attributable to:
Continuing operations
Total income tax expense/(benefit) in income statement
Numerical reconciliation between tax expense and pre-tax net profit
Profit/(loss) before tax
Income tax using the Australian corporate tax rate of 30%
Increase/(decrease) in income tax expense due to:
Non-deductible expenses
Other taxable income
Effect of changes in tax rates
Initial (recognition)/derecognition of tax assets
Tax-free income and non-recognition of tax assets on material items
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)
Income tax recognised directly in equity
Nufarm step-up securities distribution
Income tax recognised directly in equity
Income tax recognised in other comprehensive income
Relating to actuarial gains/(losses) on defined benefit plans
Relating to equity based compensation
Income tax recognised in other comprehensive income
22,161
22,161
31,961
31,961
49,639
75,010
14,892
22,503
4,591
2,218
(14)
2,187
12,538
(5,051)
(1,740)
(5,067)
24,554
(2,393)
22,161
5,102
2,668
25
(2,790)
11,272
(2,195)
(2,607)
(2,506)
31,472
489
31,961
(4,098)
(4,098)
(4,428)
(4,428)
(3,687)
(772)
(4,459)
(4,997)
201
(4,796)
69
NUFARM LIMITED ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTS continued
12. Discontinued operations
There were no discontinued operations in the current or prior period.
13. Assets held for sale
There were no assets held for sale in the current or prior period.
14. Acquisition of businesses and acquisition of non-controlling interests
Business acquisitions – 2016
On 1 November 2015 the group acquired 100 per cent ownership interest in F&N Agro Polska SP. Z O.O (F&N Poland).
As a result the group’s equity interest in F&N Poland increased from 50 to 100 per cent, obtaining control of F&N Poland.
The acquisition of F&N Poland increases the group’s presence in this emerging agriculture chemical market.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.
Acquiree’s net assets at acquisition date
Cash and cash equivalents
Receivables
Inventory
Property, plant and equipment
Deferred tax asset
Intangible assets
Other assets
Trade and other payables
Interest bearing loans and borrowings
Deferred tax liability
Other liabilities
Net identifiable assets and liabilities
Goodwill on acquisition
Total fair value of assets acquired
Goodwill arising at the date of acquisition was recognised as follows:
Consideration to be transferred(a)
Fair value of pre-existing interest in F&N Poland
Fair value of identifiable net assets
Goodwill
Fair value on
acquisition
$000
2,665
19,694
10,673
326
746
1
404
(16,329)
(15,052)
(31)
(3,097)
–
3,875
3,875
1,937
1,938
–
3,875
(a) The total consideration to be transferred represents the fair value at the acquisition date of Nufarm’s equity investment in the Czech Republic and Slovakian
F&N joint ventures (F&N joint ventures). Under the terms of the acquisition, between 1 June 2016 and 31 December 2016 (at the discretion of the seller), Nufarm
will relinquish its equity investment in the F&N joint ventures. At 31 July 2016 Nufarm had not relinquished its equity investment in the F&N joint ventures.
Total goodwill of $3.875 million (2015: $nil) from business acquisitions is attributable mainly to the synergies expected to
be achieved from integrating the respective business into the group’s existing business. The remeasurement to fair value of
the group’s existing 50 per cent interest in F&N Poland resulted in a gain of $1.938 million. This amount has been included
in other income.
Business acquisitions – 2015
There were no business acquired during the prior period.
Acquisition of non-controlling interest
There was no acquisition of non-controlling interest in the current or prior period.
70
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
15. Cash and cash equivalents
Bank balances
Call deposits
Bank overdraft
Total cash and cash equivalents
16. Trade and other receivables
Current
Trade receivables
Provision for impairment losses
Derivative financial instruments
Prepayments
Other receivables
Current receivables
Non-current
Derivative financial instruments
Trade receivables
Other receivables
Non-current receivables
Total trade and other receivables
17. Inventories
Raw materials
Work in progress
Finished goods
Provision for obsolescence of finished goods
Total inventories
2016
$000
236,511
44,933
281,444
–
281,444
2015
$000
292,770
98,648
391,418
(1,282)
390,136
Consolidated
2016
$000
2015
$000
779,318
(36,127)
743,191
8,521
18,298
49,967
819,977
682,846
(42,766)
640,080
7,261
37,793
47,257
732,391
19,060
62,351
40,270
121,681
17,760
32,422
22,941
73,123
941,658
805,514
Consolidated
2016
$000
202,231
14,780
474,613
691,624
(5,791)
685,833
2015
$000
214,682
26,527
517,222
758,431
(4,741)
753,690
71
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
18. Tax assets and liabilities
Current tax assets and liabilities
The current tax asset for the group of $34.114 million (2015: $39.259 million) represents the amount of income taxes recoverable
in respect of prior periods and that which arose from the payment of tax in excess of the amounts due to the relevant tax
authority. The current tax liability for the group of $6.524 million (2015: $5.919 million) represents the amount of income taxes
payable in respect of current and prior financial periods.
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Consolidated
Property, plant and equipment
Intangible assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Tax assets/(liabilities)
Set off of tax
Net tax assets/(liabilities)
2016
$000
1,838
14,121
23,361
21,797
22,836
168,105
252,058
–
252,058
2015
$000
1,512
13,846
23,333
27,039
22,447
162,765
250,942
–
250,942
2016
$000
(11,961)
(108,337)
–
–
(20,986)
–
(141,284)
–
(141,284)
2015
$000
(8,750)
(121,070)
–
–
(21,987)
–
(151,807)
–
(151,807)
2016
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
–
110,774
Movement in temporary differences during the year
Consolidated 2016
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Consolidated 2015
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Balance
31.07.15
$000
(7,238)
(107,224)
23,333
27,039
460
162,765
99,135
Recognised
in income
$000
(4,017)
11,205
6,136
(5,212)
1,606
8,542
18,260
Recognised
in equity
$000
–
–
(3,687)
–
(772)
–
(4,459)
Currency
adjustment
$000
1,132
1,803
(2,421)
(30)
556
(3,202)
(2,162)
Balance
31.07.14
$000
(4,294)
(93,619)
17,703
17,137
1,549
172,703
111,179
Recognised
in income
$000
(594)
(1,028)
8,805
10,775
(1,682)
(11,909)
4,367
Recognised
in equity
$000
–
–
(4,997)
–
201
–
(4,796)
Currency
adjustment
$000
(2,350)
(12,577)
1,822
(873)
392
1,971
(11,615)
Other
movement
$000
–
–
–
–
–
–
–
Other
movement
$000
–
–
–
–
–
–
–
2015
$000
(7,238)
(107,224)
23,333
27,039
460
162,765
99,135
–
99,135
Balance
31.07.16
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
Balance
31.07.15
$000
(7,238)
(107,224)
23,333
27,039
460
162,765
99,135
The carrying value of deferred tax assets relating to tax losses and tax credits is largely dependent on the generation of sufficient
future taxable income. The carrying value of this asset will continue to be assessed at each reporting date.
72
NUFARM LIMITED ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTS continued
18. Tax assets and liabilities (continued)
Deferred tax assets and liabilities
Unrecognised deferred tax liability
At 31 July 2016, a deferred tax liability of $26,865,351 (2015: $32,099,309) relating to investments in subsidiaries has not been
recognised because the company controls the repatriation of retained earnings and it is satisfied that it will not be incurred in
the foreseeable future. This amount represents the theoretical withholding tax payable if all overseas retained earnings were
paid as dividends.
Unrecognised deferred tax assets
At 31 July 2016, there are unrecognised deferred tax assets in respect of tax losses and timing differences of $42,961,719
(2015: $20,400,996).
19. Investments accounted for using the equity method
The group accounts for investments in associates and joint ventures using the equity method.
The group had the following individually immaterial associates and joint ventures during the year:
Ownership and
voting interest
Carrying
amount
Share
of profit
Nature of
relationship
Excel Crop Care Ltd Associate1
F&N joint ventures
Others
Joint ventures2
Associates3
Country
India
Europe
Balance date
of associate
31 March
31 December
2016
%
14.69
50.00
2015
%
14.69
50.00
2016
$000
–
764
374
2015
$000
8,760
1,441
351
1,138 10,552
2016
$000
2,005
(682)
74
1,397
2015
$000
1,737
266
(883)
1,120
1. Excel Crop Care is an Indian crop protection business, in which Nufarm had an equity accounted 14.69 per cent interest. During June 2016, Sumitomo
Chemical Company Limited acquired a 45 per cent stake in Excel Crop Care and declared an open market offer for an additional 30 per cent of the company’s
shares. On 30 June 2016, Nufarm concluded that its ability to exert significant influence was relinquished. Subsequently, the company ceased to account for its
investment in Excel Crop Care as an equity accounted investment, and reclassified its investment as ‘available-for-sale’. This reclassification resulted in a one-off
gain of $27.127 million (note 6) to account for the difference between the carrying value of the equity investment and the fair value.
Up to this date Nufarm’s investment in Excel Crop Care was equity accounted due to Nufarm holding 14.69 per cent of voting rights and Nufarm’s ability
to exert significant influence. The relationship extended to manufacturing and marketing collaborations and the sale/purchase of crop protection products.
The share of profits disclosed above for the year ended 31 July 2016 is the share of profits earned from 1 August 2015 to 30 June 2016.
2. The F&N joint ventures represents the group’s interest in joint ventures with FMC Corporation, which operated in Poland until 31 October 2015, and continues
to operate in the Czech Republic and Slovakia. The joint ventures sell Nufarm and FMC products within their respective country. On 1 November 2015, the group’s
equity interest in F&N Poland increased from 50 to 100 per cent and F&N Poland became a subsidiary from that date (see note 14).
The share of net profits has been derived from the latest management reports as at 31 July 2016 for the F&N joint ventures.
3. Aggregate of other individually immaterial associates.
73
NUFARM LIMITED ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTS continued
20. Other investments
Investments – available-for-sale
Balance at the beginning of the year
Additions
Net change in fair value gains/(losses) transferred to equity
Balance at the end of the year
Current investments
Equity securities – available-for-sale
Total current investments
Non-current investments
Other investments
Total non-current investments
Available-for-sale equity securities
Consolidated
2016
$000
2015
$000
–
39,012
(448)
38,564
38,564
38,564
–
–
–
–
–
–
438
438
466
466
As discussed in note 19, on 30 June 2016 Nufarm ceased to equity account for its investment in Excel Crop Care due
to the loss of significant influence, and subsequently recognised a one-off gain of $27.127 million (note 6) due to the
difference between the carrying amount of the investment and its fair value. Subsequently Nufarm reclassified its
investment as ‘available-for-sale’.
21. Other non-current assets
There were no other non-current assets in the current or prior period.
Other non-current assets
Consolidated
2016
$000
–
–
2015
$000
–
–
74
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
22. Property, plant and equipment
Consolidated 2016
Cost
Balance at 1 August 2015
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2016
Depreciation and impairment losses
Balance at 1 August 2015
Depreciation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2016
Land
and
buildings
$000
Plant
and
machinery
$000
Leased
plant and
machinery
$000
Capital
work in
progress
$000
213,733
2,870
–
(17,258)
5,771
(3,311)
201,805
654,148
31,130
329
(112,076)
(42,756)
(26,324)
504,451
(93,416)
(6,659)
–
–
8,024
4,006
1,707
(86,338)
(452,733)
(33,369)
(278)
–
111,893
49,674
13,536
(311,277)
24,240
528
338
(21)
(18)
(3,155)
21,912
(4,499)
(1,637)
(63)
–
14
14
601
(5,570)
28,410
24,681
–
(358)
(22,872)
(1,991)
27,870
–
–
–
–
–
–
–
–
Total
$000
920,531
59,209
667
(129,713)
(59,875)
(34,781)
756,038
(550,648)
(41,665)
(341)
–
119,931
53,694
15,844
(403,185)
Net property, plant and equipment at 31 July 2016
115,467
193,174
16,342
27,870
352,853
Consolidated 2015
Cost
Balance at 1 August 2014
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2015
Depreciation and impairment losses
Balance at 1 August 2014
Depreciation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2015
Land
and
buildings
$000
Plant
and
machinery
$000
Leased
plant and
machinery
$000
Capital
work in
progress
$000
213,148
821
–
(9,153)
1,230
7,687
213,733
(87,859)
(6,637)
–
–
4,316
1,652
(4,888)
(93,416)
666,612
15,527
–
(92,955)
28,205
36,759
654,148
(463,818)
(37,199)
–
(19,347)
89,896
(1,590)
(20,675)
(452,733)
19,745
540
–
(26)
(36)
4,017
24,240
(2,510)
(1,424)
–
–
17
32
(614)
(4,499)
25,737
29,766
–
(20)
(30,160)
3,087
28,410
–
–
–
–
–
–
–
–
Total
$000
925,242
46,654
–
(102,154)
(761)
51,550
920,531
(554,187)
(45,260)
–
(19,347)
94,229
94
(26,177)
(550,648)
Net property, plant and equipment at 31 July 2015
120,317
201,415
19,741
28,410
369,883
Assets pledged as security for finance leases amount to $10.298 million (2015: $12.433 million).
75
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
23. Intangible assets
Intellectual
property
Finite
life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
Consolidated 2016
Cost
Balance at 1 August 2015
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2016
Amortisation and impairment losses
Balance at 1 August 2015
Amortisation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2016
Goodwill
$000
354,661
–
3,875
(5,920)
(2,518)
(14,115)
335,983
(112,578)
–
–
–
–
2,036
2,702
(107,840)
Indefinite
life
$000
443,071
–
–
(34,566)
(389,333)
(17,609)
1,563
134,799
3,056
–
(2,396)
394,664
2,987
533,110
(15,743)
–
–
–
(258)
13,745
693
(1,563)
(89,586)
(15,185)
–
–
1,064
(12,364)
1,636
(114,435)
303,880
58,026
44
(41,024)
(9,545)
(39,359)
272,022
(79,384)
(24,408)
(43)
–
18,506
2,093
9,820
(73,416)
1,281,971
45,560
76,520
15,438
3,919
–
(84,734)
(828)
(3,018)
3,714
(1,939)
(70,035)
61,945 1,204,623
(32,216)
(3,766)
–
–
454
51
1,146
(34,331)
(329,507)
(43,359)
(43)
–
19,766
5,561
15,997
(331,585)
Intangibles carrying amount at 31 July 2016
228,143
–
418,675
198,606
27,614
873,038
Consolidated 2015
Cost
Balance at 1 August 2014
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2015
Amortisation and impairment losses
Balance at 1 August 2014
Amortisation charge for the year
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2015
Intellectual
property
Goodwill
$000
Indefinite
life
$000
Finite
life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
344,560
–
–
–
(668)
10,769
354,661
(117,749)
–
–
–
668
4,503
(112,578)
408,737
–
–
–
–
34,334
443,071
(16,204)
–
–
–
–
461
(15,743)
147,276
6,681
–
(35,743)
–
16,585
134,799
(87,414)
(11,596)
–
18,865
14
(9,455)
(89,586)
230,122
52,971
–
(11,624)
–
32,411
303,880
(59,080)
(20,010)
–
8,559
(270)
(8,583)
(79,384)
36,749
5,412
–
(99)
761
2,737
45,560
1,167,444
65,064
–
(47,466)
93
96,836
1,281,971
(27,547)
(3,342)
–
96
162
(1,585)
(32,216)
(307,994)
(34,948)
–
27,520
574
(14,659)
(329,507)
Intangibles carrying amount at 31 July 2015
242,083
427,328
45,213
224,496
13,344
952,464
76
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
23. Intangible assets (continued)
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, 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.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-
generating unit/CGU).
The group has determined that operating unit by country or region (i.e. Europe) 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 intangibles are country or region specific
in nature. There is no allocation of goodwill between CGUs.
The major CGUs and their intangible assets are as follows: North America $208 million (2015: $253 million), Brazil $166 million
(2015: $168 million), Seed technologies $252 million (2015: $245 million), Europe $177 million (2015: $210 million) and
Australia and New Zealand (ANZ) $52 million (2015: $36 million). The balance of intangibles is spread across multiple CGUs,
with no individual CGU intangible balance being material relative to the total intangibles balance at balance date.
Impairment testing for cash-generating units containing goodwill
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 three-year plan for each cash-generating unit with a growth factor applied to extrapolate
a cash flow beyond year three. A perpetuity factor is then applied to the normalised cash flow beyond year five in order to
include a terminal value in the value-in-use calculation. The terminal growth rate assumed for each CGU is generally a long
term inflation estimate. The cash flow is then discounted to a present value using a discount rate, which is the company’s
weighted average cost of capital, adjusted for country risk and asset-specific risk associated with each CGU.
The range of terminal growth rates and nominal post-tax discount rates applied for impairment testing purposes is as follows:
Material crop protection CGUs
(North America, Brazil, Europe and ANZ)
Seed technology CGU
24. Trade and other payables
Current payables – unsecured
Trade creditors and accruals – unsecured
Derivative financial instruments
Payables – acquisitions
Current payables
Non-current payables – unsecured
Creditors and accruals
Derivative financial instruments
Payables – acquisitions
Non-current payables
Terminal
growth rate
Discount
rate
2016
%
2015
%
2016
%
2015
%
Total goodwill and
indefinite life assets
2015
$000
2016
$000
1.7 to 4.5
2.2
1.7 to 3.5 7.6 to 13.4
13.3
2.3
8.1 to 12.4
8.9
144,341
68,821
465,869
178,195
Consolidated
2016
$000
2015
$000
683,854
15,415
161
699,430
664,768
6,548
167
671,483
10,623
212
6,106
16,941
12,652
4,150
5,889
22,691
77
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
25. Interest-bearing loans and borrowings
Current liabilities
Bank loans – secured
Bank loans – unsecured
Deferred debt establishment costs
Other loans – unsecured
Finance lease liabilities – secured
Loans and borrowings – current
Non-current liabilities
Bank loans – secured
Bank loans – unsecured
Senior unsecured notes
Deferred debt establishment costs
Other loans – unsecured
Finance lease liabilities – secured
Loans and borrowings – non-current
Net cash and cash equivalents
Net debt
Financing facilities
Consolidated
2016
$000
2015
$000
288,517
79,026
(3,696)
787
196
364,830
83,002
19,965
428,800
(4,546)
2,752
12,075
542,048
346,751
37,569
(5,003)
543
566
380,426
44,593
62,802
438,357
(5,895)
2,111
14,459
556,427
(281,444)
(390,136)
625,434
546,717
Refer to the section entitled ‘liquidity risk’ in note 31 for detail regarding the group’s financing facilities.
2016
Bank loan facilities and senior unsecured notes
Other facilities
Total financing facilities
2015
Bank loan facilities and senior unsecured notes
Other facilities
Total financing facilities
Financing arrangements
Repayment of borrowings (excluding finance leases)
Period ending 31 July 2016
Period ending 31 July 2017
Period ending 31 July 2018
Period ending 31 July 2019 or later
78
Accessible
$000
Utilised
$000
1,801,589
3,539
1,805,128
899,310
3,539
902,849
1,804,163
2,654
1,806,817
930,072
2,654
932,726
Consolidated
2016
$000
–
368,330
66,866
467,653
2015
$000
384,863
50,158
43,550
454,155
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
25. Interest-bearing loans and borrowings (continued)
Finance lease liabilities
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
Finance lease liabilities
Finance lease liabilities are secured over the relevant leased plant.
Average interest rates
Nufarm step-up securities (refer note 29)
Syndicated bank facility
Group securitisation program facility
Other bank loans
Finance lease liabilities – secured
Senior unsecured notes
Consolidated
2016
$000
1,644
1,566
4,962
88,159
96,331
(84,060)
12,271
2015
$000
2,117
2,052
5,612
109,751
119,532
(104,507)
15,025
Consolidated
2016
%
6.36
2.03
2.36
12.09
12.74
6.38
2015
%
6.16
3.54
2.38
7.30
12.57
6.38
Average interest rates are calculated using the weighted average of the interest rates for the drawn balances under each
facility as at 31 July 2016.
26. Employee benefits
Current
Liability for short term employee benefits
Liability for current portion of other long term employee benefits
Current employee benefits
Non-current
Defined benefit fund obligations
Present value of unfunded obligations
Present value of funded obligations
Fair value of fund assets – funded
Recognised liability for defined benefit fund obligations
Liability for non-current portion of other long term employee benefits
Non-current employee benefits
Total employee benefits
Consolidated
2016
$000
2015
$000
15,563
3,128
18,691
16,278
3,274
19,552
8,409
216,495
(136,292)
88,612
6,598
221,728
(147,351)
80,975
12,214
100,826
119,517
13,657
94,632
114,184
The group makes contributions to defined benefit pension funds in the United Kingdom, the Netherlands, France and
Indonesia that provide defined benefit amounts for employees upon retirement.
79
NUFARM LIMITED ANNUAL REPORT 2016 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
Service cost
Interest cost
Actuarial losses/(gains)
Past service cost
Losses/(gains) on curtailment
Contributions
Benefits paid
Exchange differences on foreign funds
Closing defined benefit obligation
Changes in the fair value of fund assets are as follows:
Opening fair value of fund assets
Interest income
Actuarial gains/(losses) – return on plan assets excluding interest income
Surplus taken to retained earnings
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/(gain) recognised in profit or loss
Current service costs
Interest on obligation
Interest income
Losses/(gains) on curtailment
Past service cost/(gain)
Expense recognised in profit or loss
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
Expense recognised in profit or loss
Consolidated
2016
$000
2015
$000
228,326
1,180
7,611
30,329
–
–
41
(7,389)
(35,194)
224,904
147,351
4,800
7,011
–
6,472
(7,231)
(22,111)
136,292
176,361
2,861
7,353
26,557
(4,469)
(2,416)
171
(6,639)
28,547
228,326
121,773
5,857
2,237
–
5,368
(6,284)
18,400
147,351
Consolidated
2016
$000
2015
$000
1,180
7,611
(4,800)
–
–
3,991
2,053
1,177
515
246
3,991
2,861
7,353
(5,857)
(2,416)
(4,469)
(2,528)
2,686
1,158
(6,555)
183
(2,528)
80
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
26. Employee benefits (continued)
Actuarial gains/(losses) recognised in other comprehensive income (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:
Equities
Bonds
Property
Cash
Principal actuarial assumptions at the reporting date (expressed as weighted averages):
Discount rate at 31 July
Future salary increases
Future pension increases
2016
$000
2015
$000
(52,325)
(19,631)
(71,956)
(33,002)
(19,323)
(52,325)
Consolidated
2016
%
2015
%
55.1
38.7
1.9
4.3
2.5
0.6
2.3
60.2
34.5
1.6
3.7
3.6
0.4
2.6
The group expects to pay $4,125,000 in contributions to defined benefit plans in 2016 (2015: $4,187,000).
27. Share-based payments
Nufarm executive share plan (2000)
The Nufarm executive share plan (2000) offered shares to executives. From 1 August 2011, it was decided that there will be
no further awards under this share plan and that it would be replaced by the Nufarm short term incentive plan (refer below).
Any unvested equities held in the executive share plan will remain and be subject to the vesting conditions under the rules
of the plan. 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 granted 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 2016, there were 25 participants (2015: 32 participants) in the
scheme and 189,460 shares (2015: 299,978) were allocated and held by the trustee on behalf of the participants. The cost
of issuing shares is expensed in the year of issue.
Nufarm short term incentive plan (STI)
The STI is available to key executives, senior managers and other managers globally. The first awards under the plan were
issued in October 2012. The STI is measured on the following metrics, relevant to an individual:
• budget measures of profit before tax or net profit after tax and net working capital; and
• strategic and business improvement objectives.
A predetermined percentage of the STI is paid in cash at the time of performance testing and the balance is deferred into shares
in the company for nil consideration. The number of shares granted is based on the volume weighted average price (VWAP)
of Nufarm Limited shares in the five days subsequent to the results announcement. Vesting will occur after a two-year period.
81
NUFARM LIMITED ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTS continued
27. Share-based payments (continued)
Nufarm executive long term incentive plan (LTIP)
On 1 August 2011, the LTIP commenced and is available to key executives and certain selected senior managers. Awards are
granted to individuals in the form of performance rights, which comprise rights to acquire ordinary shares in the company for
nil consideration, subject to the achievement of global performance hurdles. Under the plan, individuals will receive an annual
award of performance rights as soon as practical after the announcement of results in the preceding year. The performance
and vesting period for the awards will be three years. Awards vest in two equal tranches as follows:
• 50 per cent of the LTIP grant will vest subject to the achievement of a relative total shareholder return (TSR) performance
hurdle measured against a selected comparator group of companies; and
• the remaining 50 per cent will vest subject to meeting an absolute return on funds employed (ROFE) target.
Global share plan (2001)
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 2016 there were 766 participants (2015: 823 participants)
in the scheme and 1,780,842 shares (2015: 1,938,372) were allocated and held by the trustee on behalf of the participants.
The power of appointment and removal of the trustees for the share purchase schemes is vested in the company.
Employee expenses
Total expense arising from share-based payment transactions
Measurement of fair values
2016
$000
3,956
2015
$000
4,304
The fair value of performance rights granted through the LTIP and deferred shares granted through the STIP were measured
as follows:
Plan
Weighted average fair value at grant date
Share price at grant date
Grant date
Earliest vesting date
Exercise price
Expected life
Volatility
Risk-free interest rate
Dividend yield
Nufarm STI
2016
deferred
shares
$8.07
$8.07
Nufarm LTI
2016
performance
rights
Oct 2015
$6.72
$8.28
30 Sep 2015 15 Oct 2015
31 Jul 2018
31 Jul 2017
–
–
2.9 years
1 year
31%
n/a
1.8%
n/a
1.5%
n/a
Nufarm LTI
2016
performance
rights
Dec 2015
$6.61
$8.25
3 Dec 2015
31 Jul 2018
–
2.8 years
31%
2.1%
1.5%
Nufarm STI
2015
deferred
shares
$4.85
$4.93
30 Sep 2014
31 Jul 2016
–
1 year
n/a
n/a
n/a
Nufarm LTI
2015
performance
rights
Sept 2014
$3.87
$4.93
30 Sep 2014
31 Jul 2017
–
2.8 years
35%
2.7%
2.3%
The fair values of awards granted were estimated using a Monte Carlo simulation methodology and a Binomial Tree methodology.
82
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
27. Share-based payments (continued)
Reconciliation of outstanding share awards
Outstanding at 1 August
Forfeited during the year
Exercised during the year
Expired during the year
Granted during the year
Outstanding at 31 July
Exercisable at 31 July
Nufarm LTI
number of
performance
rights
2016
1,208,112
(368,789)
(110,483)
–
248,561
977,401
374,220
Nufarm STI
number of
deferred
shares
2016
978,653
(3,765)
(237,162)
–
443,433
1,181,159
715,552
Nufarm LTI
number of
performance
rights
2015
996,934
(182,901)
–
–
394,079
1,208,112
–
Nufarm STI
number of
deferred
shares
2015
841,942
(49,859)
(161,850)
–
348,420
978,653
571,767
The performance rights outstanding at 31 July 2016 have a $nil exercise price and a weighted average contractual life of three
years (2015: three years). All performance rights granted to date have a $nil exercise price.
28. Provisions
Provisions
Current
Restructuring
Other
Current provisions
Movement in provisions
Balance at 1 August 2015
Provisions made during the year
Provisions used during the year
Exchange adjustment
Balance at 31 July 2016
Consolidated
2016
$000
2015
$000
18,842
1,494
20,336
29,481
3,693
33,174
Consolidated
Other
provisions
$000
3,693
959
(2,775)
(383)
1,494
Restructuring
$000
29,481
11,016
(21,944)
289
18,842
Total
$000
33,174
11,975
(24,719)
(94)
20,336
The provision for restructuring is mainly relating to the asset rationalisation and restructuring being undertaken by the group.
The other provision consists of liabilities of the group.
83
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
29. Capital and reserves
Share capital
Balance at 1 August
Issue of shares
Balance at 31 July
Parent company
Number of
ordinary
shares
2016
Number of
ordinary
shares
2015
265,067,424 264,021,627
1,045,797
265,899,295 265,067,424
831,871
The company does not have authorised capital or par value in respect of its issued shares.
On 9 October 2015, 489,833 shares at $8.0669 were issued under the Nufarm short term incentive plan and Nufarm executive
long term incentive plan.
On 13 November 2015, 107,788 shares at $8.3691 were issued under the dividend reinvestment program.
On 4 December 2015, 27,221 shares at $8.0669 were issued under the Nufarm short term incentive plan and Nufarm
executive long term incentive plan.
On 5 January 2016, 85,586 shares at $8.2343 were issued under the global share plan. 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.
On 8 May 2016, 121,443 shares at $7.1736 were issued under the dividend reinvestment program.
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, were 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 3.9 per cent (2015: 3.9 per cent). On 23 September 2011, Nufarm announced that it would ‘step-up’ the NSS. This
resulted in the interest margin attached to the NSS being stepped up by two per cent, with the new interest margin being set
at 3.9 per cent as at 24 November 2011. No other terms were adjusted and there are no further step-up dates. Nufarm retains
the right to redeem or exchange the NSS on future distribution dates.
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 from the presentation currency of the reporting entity.
Capital profit reserve
This reserve is used to accumulate realised capital profits.
Other reserve
This reserve represents the accrued employee entitlements to share awards that have been charged to the income statement
and have not yet been exercised. This reserve also holds the debit balance related to the written put option of the 49 per cent
interest held by the non-controlling shareholders of Atlantica Sementes Ltda (Atlantica). As the non-controlling shareholders
still have present access to the economic benefits with their underlying ownership interest, their non-controlling interest
continues to be recognised. In the event the written put option is exercised, this debit reserve will be utilised to complete
the transaction. This reserve also holds the balances related to hedging.
84
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
29. Capital and reserves (continued)
Dividends
An interim dividend of four cents per share totalling $10,631,114 was declared on 23 March 2016, and was paid
(net of dividend reinvestment program) on 6 May 2016 (2015: four cents per share, totalling $10,570,585).
A final dividend of seven cents per share totalling $18,612,951 was declared on 21 September 2016, and will be
paid on 11 November 2016 (2015: six cents per share, totalling $15,933,435).
Distributions
Distributions recognised in the current year by Nufarm Finance (NZ) Ltd on the Nufarm step-up securities* are:
2016
Distribution
Distribution
2015
Distribution
Distribution
Distribution rate
%
Total amount
$000
Payment
date
Consolidated
6.16
6.16
6.64
6.63
7,702
15 April 2016
7,754 15 October 2015
15,456
8,350
8,339
16,689
15 April 2015
15 October 2014
* Refer to discussion titled ‘Nufarm step-up securities’ above.
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 $11.358 million (2015: $12.261 million).
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% (2015: 30%)
Franking credits/(debits) that will arise from the payment of income tax payable/(refund)
as at the end of the year
Credit/(debit) balance at 31 July
2016
$000
2015
$000
529
3,503
(1,440)
(911)
(4,437)
(934)
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
In accordance with the tax consolidation legislation, the company as the head entity in the tax-consolidated group has
also assumed the benefit/(obligation) of ($910,825) (2015: $934,467) franking credits/(debits).
85
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
30. Earnings per share
Net profit for the year
Net profit attributable to non-controlling 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
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
2016
$000
27,478
41
27,519
(11,358)
16,161
2015
$000
43,049
171
43,220
(12,261)
30,959
16,161
30,959
(81,399)
(73,839)
97,560
104,798
For the purposes of determining basic and diluted earnings per share, the after-tax distributions on NSS are deducted from
net profit.
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
2015
2016
265,635,463 264,727,654
266,527,407 266,019,789
There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of ordinary shares since the
reporting date and before the completion of this financial report.
Earnings per share for continuing and discontinued operations
Basic earnings per share
From continuing operations
Diluted earnings per share
From continuing 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 and financial instruments
The group has exposure to the following financial risks:
• credit risk;
• liquidity risk; and
• market risk.
Cents per share
2016
2015
6.1
6.1
6.1
6.1
36.7
36.6
11.7
11.7
11.6
11.6
39.6
39.4
This note presents information about the group’s exposure to each of the above risks, the objectives, policies and processes
for measuring and managing risk, and the management of capital.
86
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
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.
The general manager global risk management reports to the chairman of the audit committee and functionally to the chief
financial officer. He provides a written report of his activities at each meeting of the audit committee. In doing so he has direct
and ongoing 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.
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’s maximum exposure to credit risk at the reporting date was:
Carrying amount
Trade and other receivables
Cash and cash equivalents
Derivative contracts:
Assets
Consolidated
2016
$000
2015
$000
914,077
281,444
780,493
391,418
27,581
1,223,102
25,021
1,196,932
The group’s maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
Carrying amount
Australia/New Zealand
Asia
Europe
North America
Latin America
Trade and other receivables
Consolidated
2016
$000
2015
$000
153,584
34,940
217,319
38,283
469,951
914,077
98,591
39,148
214,423
80,299
348,032
780,493
The group’s top five customers account for $113 million of the trade receivables carrying amount at 31 July 2016
(2015: $94.7 million). These top five customers represent 15 per cent (2015: 15 per cent) of the total receivables.
87
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Impairment losses
The ageing of the group’s customer 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
Trade receivables
Consolidated
2016
$000
684,317
73,652
7,572
17,137
58,991
841,669
(36,127)
805,542
2015
$000
544,919
79,158
27,373
11,624
52,194
715,268
(42,766)
672,502
Some of the past due receivables are secured by collateral from customers such as director’s 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.
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 acquired through business combinations
Exchange adjustment
Balance at 31 July
Consolidated
2016
$000
42,766
3,967
(10,076)
–
(530)
36,127
2015
$000
26,591
18,447
(821)
–
(1,451)
42,766
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.
88
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. 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.
As at 31 July 2016, the key group facilities include a group trade receivables securitisation facility, a US$325 million senior
unsecured notes offering due in October 2019, and a senior secured bank facility of $485 million (31 July 2015: $540 million).
On the 29 January 2016, the senior secured bank facility (SFA) was refinanced such that the total facility amount decreased
to $485 million (31 July 2015: $540 million), of which $30 million is due in January 2018, $415 million is due in January 2019,
and $40 million is due in January 2021 (31 July 2015: $150 million due in February 2018, $30 million due in December 2017,
$350 million due in December 2016, and $10 million due in December 2015). The SFA includes covenants of a type normally
associated with facilities of this kind, and the group was in compliance with these covenants throughout the financial year.
The amount drawn down under the facility at 31 July 2016 is $4 million (2015: $10 million).
On 23 August 2011, Nufarm executed A$300 million group trade receivables securitisation facility. The facility provides
funding that aligns with the working capital cycle of the company. Subsequent to execution, on 15 April 2015, a monthly
facility limit was introduced for the group trade receivables securitisation facility to reflect the cyclical nature of the trade
receivables being used to secure funding under the program. The monthly facility limit is set at $300 million for four months
of the financial year, $375 million for three months of the financial year, and at $225 million for five months of the financial
year (31 July 2015: facility limit was set at $300 million for four months of the financial year, $375 million for three months
of the financial year, and at $225 million for five months of the financial year).
The US$325 million senior unsecured notes (the ‘notes’) due in October 2019 were completed on 8 October 2012.
The majority of debt facilities that reside outside the notes, SFA and the group trade receivables securitisation facility
are regional working capital facilities, primarily located in Brazil and Europe, which at 31 July 2016 totalled $588 million
(2015: $526 million).
At 31 July 2016, the group had access to debt of $1,805 million (2015: $1,807 million) under the notes, SFA, group trade
receivables securitisation facility and with other lenders.
A parent guarantee is provided to support working capital facilities in Europe, Latin America and the notes.
89
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
The following are the contractual maturities of the group’s financial liabilities:
Consolidated 2016
Non-derivative financial liabilities
Bank overdrafts
Trade and other payables
Bank loans – secured
Bank loans – unsecured
Senior unsecured notes
Other loans – unsecured
Finance lease liabilities – secured
Derivative financial liabilities
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Derivative financial assets
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Carrying
amount
$000
Contractual
cash flows
$000
Less than
1 year
$000
1–2
years
$000
More than
2 years
$000
–
700,744
371,519
98,991
428,800
3,539
12,271
–
700,744
394,252
107,472
524,203
3,539
96,331
–
684,015
301,001
86,697
27,258
787
1,644
–
6,325
58,483
12,582
27,258
2,752
1,566
–
10,404
34,768
8,193
469,687
–
93,121
3,081
–
39,345
(35,929)
39,345
(34,222)
–
(772)
–
(935)
12,546
–
433,768
(421,004)
433,768
(421,004)
–
–
–
–
–
(19,060)
153,662
(180,828)
7,643
(9,569)
7,643
(9,569)
138,376
(161,690)
–
(8,521)
1,603,910
396,197
(404,782)
1,806,970
396,197
(404,782)
1,108,778
–
–
106,268
–
–
591,924
90
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
Consolidated 2015
Non-derivative financial liabilities
Bank overdrafts
Trade and other payables
Bank loans – secured
Bank loans – unsecured
Unsecured note issues
Other loans – unsecured
Finance lease liabilities – secured
Derivative financial liabilities
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Derivative financial assets
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Carrying
amount
$000
Contractual
cash flows
$000
Less than
1 year
$000
1–2
years
$000
More than
2 years
$000
1,282
683,476
391,344
100,371
438,357
2,654
15,025
1,282
683,476
405,326
117,313
565,483
2,654
119,532
1,282
664,935
357,381
48,294
28,250
543
2,117
–
1,083
3,050
51,880
28,250
2,111
2,052
–
17,458
44,895
17,139
508,983
–
115,363
7,861
–
73,183
(78,473)
73,183
(72,012)
–
(2,012)
–
(4,449)
2,837
–
267,238
(264,458)
267,238
(264,458)
–
–
–
–
–
(17,760)
211,937
(232,466)
13,252
(10,494)
12,353
(10,390)
186,332
(211,582)
–
(7,261)
1,618,186
313,734
(320,745)
1,865,016
313,734
(320,745)
1,102,500
–
–
88,377
–
–
674,139
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 used to manage the exposure.
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 group uses derivative financial instruments to manage specifically identified foreign currency risk on sales, purchases
and borrowings that are denominated in a currency other than the functional currency of the individual group entity. The
currencies giving rise to this risk include the US dollar, the Euro, the British pound, the Australian dollar, the New Zealand
dollar and the Brazilian real. The group uses foreign exchange contracts, cross-currency interest rate swaps and options to
manage currency risk. The group designates select derivatives for hedge accounting as cash flow hedges where it is deemed
appropriate to do so.
In October 2012, the group completed a US$325 million senior unsecured notes offering due in October 2019 (the ‘notes’).
Currency risk related to the principal amount of the notes has been hedged using cross-currency interest rate swap contracts
that mature on the same date as the notes are due for repayment. These contracts have been designated for hedge accounting.
91
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Currency risk (continued)
The group uses derivative financial instruments to manage foreign currency translation risk arising from the group’s net
investments in foreign currency subsidiary entities. These contracts are designated as net investment hedges for hedge
accounting purposes. No ineffectiveness was recognised from net investment hedges during the reporting periods.
For accounting purposes, other than the contracts referred to previously, the group has not designated any other derivatives
in hedge relationships and all movements in fair value are recognised in profit or loss during the period. The net fair value
of derivative contracts in the group, not designated as being in a hedge relationship, used as economic hedges of forecast
transactions at 31 July 2016 was a $4.025 million liability (2015: $4.424 million asset) comprising assets of $8.521 million
(2015: $7.261 million) and liabilities of $12.546 million (2015: $2.837 million).
Exposure to currency risk
The group’s exposure to major foreign currency risks at balance date are as follows. The exposures are calculated based on
locally reported net foreign currency exposures, and are presented net of open derivative financial instruments. The analysis
is performed on the same basis as the previous financial year.
Consolidated 2016
Functional currency of group operation
Australian dollars
US dollars
Euro
UK pounds sterling
Consolidated 2015
Functional currency of group operation
Australian dollars
US dollars
Euro
UK pounds sterling
Net financial assets/(liabilities) –
by currency of denomination
AUD
$000
USD
$000
–
(1,362)
3,908
(268)
2,278
AUD
$000
–
(69,342)
18,526
–
(50,816)
21,631
–
13,759
19,227
54,617
USD
$000
16,723
–
22,122
16,036
54,881
Euro
$000
3,232
–
–
(255)
2,977
Euro
$000
18,181
754
–
(13,271)
5,664
GBP
$000
(6,114)
–
2,202
–
(3,912)
GBP
$000
(13,598)
–
8,240
–
(5,358)
92
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Currency risk (continued)
Sensitivity analysis
Based on the aforementioned group’s net financial assets/(liabilities) at 31 July 2016, a one per cent strengthening or
weakening of the following currencies at 31 July 2016 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 is performed on the same
basis for 31 July 2015.
Currency movement
1% change in the Australian dollar exchange rate
1% change in the US dollar exchange rate
1% change in the Euro exchange rate
1% change in the GBP exchange rate
Strengthening
Weakening Strengthening
Weakening
Profit or (loss)
after tax
2016
$000
Profit or (loss)
after tax
2016
$000
Profit or (loss)
after tax
2015
$000
Profit or (loss)
after tax
2015
$000
(114)
392
(118)
(158)
115
(388)
117
157
(500)
864
(303)
(57)
505
(856)
300
56
The group’s financial asset and liability profile may not remain constant, and therefore these sensitivities should be used with care.
The following significant exchange rates applied during the year:
AUD
US dollar
Euro
GBP
BRL
Interest rate risk
Average rate
Reporting date
2016
0.727
0.658
0.496
2.692
2015
0.811
0.693
0.519
2.266
2016
0.760
0.680
0.573
2.462
2015
0.733
0.665
0.469
2.489
The group has the ability to use derivative financial instruments to manage specifically identified interest rate risks. Interest
rate swaps, denominated in AUD, are entered into to achieve an appropriate mix of fixed and floating rate exposures.
The majority of the group’s debt is raised under central borrowing programs. The A$485 million syndicated bank facility
and the group trade receivables securitisation facility are considered floating rate facilities. On 8 October 2012, the
group completed a US$325 million notes issue with a fixed coupon component. Concurrent with the completion of the
US$325 million notes issue, the group entered into interest rate swaps to manage specifically identified interest rate risks
associated with the fixed coupon component of the notes. These swaps effectively converted a majority of the fixed interest
payable on the notes to floating interest, and are designated for hedge accounting. The group also uses interest rate swaps
to manage the level of floating rate debt held by the group. These swaps effectively convert a portion of floating rate debt
to fixed rate debt, and are predominately designated for hedge accounting. The group’s earnings are sensitive to changes
in interest rates on the floating interest rate component of the group’s net borrowings.
Interest rate risk on Nufarm step-up securities
The distribution rate is the average mid-rate for bank bills with a term of six months plus a margin of 3.90 per cent
(2015: 3.90 per cent).
93
NUFARM LIMITED ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Interest rate risk (continued)
Profile
At the reporting date the interest rate profile of the group’s interest-bearing financial instruments were:
Variable rate instruments
Financial assets
Financial liabilities
Fixed rate instruments
Financial assets
Financial liabilities
Consolidated
Carrying amount
2016
$000
2015
$000
44,933
(790,576)
(745,643)
98,648
(713,377)
(614,729)
–
(124,544)
(124,544)
–
(234,374)
(234,374)
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 2016. 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 31 July 2015.
2016
Variable rate instruments
Total sensitivity
2015
Variable rate instruments
Total sensitivity
Fair values
Profit or loss
100bp
increase
$000
100bp
decrease
$000
(7,456)
(7,456)
7,456
7,456
(6,147)
(6,147)
6,147
6,147
All financial assets and financial liabilities, other than derivatives, are initially recognised at the fair value of consideration paid
or received, net of transaction costs as appropriate, and subsequently carried at fair value or amortised cost, as indicated in
the tables below. Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently
remeasured at their fair value.
The financial assets and liabilities are presented by class in the tables below at their carrying values, which generally
approximate to the fair values. In the case of the centrally managed fixed rate debt not swapped to floating rate totalling
$131.6 million (2015: $136.4 million), the fair value at 31 July 2016 is $128.484 million (2014: $136.439 million).
94
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Fair values (continued)
Consolidated 2016
Cash and cash equivalents
Trade and other receivables
Equity securities – available-for-sale
Forward exchange contracts:
Assets
Liabilities
Interest rate swaps:
Assets
Liabilities
Trade and other payables excluding
derivatives
Bank overdraft
Secured bank loans
Unsecured bank loans
Senior unsecured notes(a)
Other loans
Finance leases
Consolidated 2015
Cash and cash equivalents
Trade and other receivables
Equity securities – available-for-sale
Forward exchange contracts:
Assets
Liabilities
Interest rate swaps:
Assets
Liabilities
Trade and other payables excluding
derivatives
Bank overdraft
Secured bank loans
Unsecured bank loans
Senior unsecured notes(a)
Other loans
Finance leases
Available
-for-sale
$000
–
–
38,564
Note
15
16
20
Carried at
fair value
through
profit or
loss
$000
–
–
–
Financial
assets/
liabilities at
amortised
cost
$000
281,444
914,077
–
Derivatives
used for
hedging
$000
–
–
–
16
24
16
24
24
15
25
25
25
25
25
–
–
–
–
–
–
–
–
–
–
–
38,564
8,521
(5,250)
–
(7,296)
–
–
–
–
–
–
–
(4,025)
–
–
19,060
(3,081)
–
–
–
–
–
–
–
15,979
–
–
–
–
(700,744)
–
(371,519)
(98,991)
(428,800)
(3,539)
(12,271)
(420,343)
Available
-for-sale
$000
–
–
–
Note
15
16
20
Carried at
fair value
through
profit or
loss
$000
–
–
–
Financial
assets/
liabilities at
amortised
cost
$000
391,418
780,493
–
Derivatives
used for
hedging
$000
–
–
–
16
24
16
24
24
15
25
25
25
25
25
–
–
–
–
–
–
–
–
–
–
–
–
6,384
(2,837)
–
(2,839)
877
–
17,760
(5,022)
–
–
–
–
–
–
–
–
–
–
–
4,424
–
–
–
–
–
–
–
9,899
(683,476)
(1,282)
(391,344)
(100,371)
(438,357)
(2,654)
(15,025)
(460,598)
Total
$000
281,444
914,077
38,564
8,521
(5,250)
19,060
(10,377)
(700,744)
–
(371,519)
(98,991)
(428,800)
(3,539)
(12,271)
(369,825)
Total
$000
391,418
780,493
–
6,384
(5,676)
18,637
(5,022)
(683,476)
(1,282)
(391,344)
(100,371)
(438,357)
(2,654)
(15,025)
(446,275)
(a) Includes $297.2 million (2015: $301.9 million) of centrally managed fixed rate debt swapped to floating rate under fair value hedges, and is consequently fair
valued for interest rate risk.
95
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Fair values (continued)
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Consolidated 2016
Equity securities – available-for-sale
Derivative financial assets
Derivative financial liabilities
Consolidated 2015
Equity securities – available-for-sale
Derivative financial assets
Derivative financial liabilities
Level 1
$000
38,564
–
38,564
Level 2
$000
–
27,581
27,581
Level 3
$000
–
–
–
Total
$000
38,564
27,581
66,145
–
–
(15,627)
(15,627)
–
–
(15,627)
(15,627)
Level 1
$000
–
–
–
Level 2
$000
–
25,021
25,021
Level 3
$000
–
–
–
Total
$000
–
25,021
25,021
–
–
(10,698)
(10,698)
–
–
(10,698)
(10,698)
There have been no transfers between levels in either 2016 or 2015.
Valuation techniques used to derive fair values
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined using valuation techniques. These valuation techniques maximise the use of observable market data where
it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an
instrument are observable, the instrument is included in Level 2.
Specific valuation techniques used to value financial instruments include:
• The use of quoted market prices or dealer quotes for similar instruments.
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable
yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
96
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
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 material items. Funds employed is
defined as shareholders’ funds plus total interest bearing debt. The board of directors determines the level of dividends to
ordinary shareholders and reviews the group’s total shareholder return with similar 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. ROFE objectives are set by the board at the beginning of each year. There is a target and a stretch hurdle. These
numbers will based on the budget and growth strategy. The ROFE return for the year ended 31 July 2016 was 13.1 per cent
(2015: 11 per cent).
There were no changes in the group’s approach to capital management during the year.
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
2016
$000
12,247
9,033
19,969
134,418
175,667
2015
$000
12,954
9,327
23,259
163,534
209,074
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 commitments
The group had contractual obligations to purchase plant and equipment for $7.713 million at 31 July 2016 (2015: $3.787 million).
97
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
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.
Guarantee facility for Eastern European joint ventures
with FMC Corporation.
Environmental guarantee given to the purchaser of
land and buildings at Genneviliers for EUR 8.5 million.
Insurance bond for EUR 2.789 million established to make
certain capital expenditures at Gaillon plant in France.
Brazilian taxation proceedings.
Other bank guarantees.
Contingent liabilities
Brazilian taxation proceedings
Consolidated
2016
$000
2015
$000
–
9,626
12,500
12,782
4,102
4,195
23,699
20,114
775
–
41,076
46,717
As at 31 July 2016, the total contingent liability relating to future potential tax liabilities in Brazil is $23.7 million (2015: $20.1 million).
The group considers that it is not probable that a liability will arise in respect of these cases and it continues to defend the cases.
Brazilian business acquisition
The group has previously disclosed an ongoing arbitration related to indemnities held in respect of the purchase of the Brazilian
business in 2007. The arbitration was completed in November 2015 and upon conclusion of this matter, no significant tax liabilities
are expected to be deemed as indemnified in the foreseeable future. No material income statement impact arose on the
conclusion of the November 2015 arbitration.
Contingent asset
The group holds a contingent asset in respect of potential pre-acquisition tax credits of its Brazilian business acquired in 2007.
Whilst the credits are deemed to be valid, the Brazilian courts are currently deliberating the value of the credits and therefore
the full amount of this contingent asset is yet to be established. Such credits can be used to offset future federal tax payable.
98
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
35. Group entities
Parent entity
Nufarm Limited – ultimate controlling entity
Subsidiaries
Access Genetics Pty Ltd
Agcare Biotech Pty Ltd
Agchem Receivables Corporation
Agryl Holdings Limited
Ag-seed Research Pty Ltd
Agturf Inc
AH Marks (New Zealand) Limited
AH Marks Australia Pty Ltd
AH Marks Holdings Limited
AH Marks Pensions Scottish Limited Partnership
Artfern Pty Ltd
Atlantica Sementes SA
Australis Services Pty Ltd
Bestbeech Pty Ltd
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
Fidene Limited
Note
Place of
incorporation
Percentage of shares held
2016
2015
(a)
(a)
(a)
(a)
Australia
Australia
USA
Australia
Australia
USA
New Zealand
(a)
Australia
United Kingdom
United Kingdom
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
Australia
Brazil
Australia
Australia
Australia
Netherlands
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Canada
New Zealand
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
51
100
100
100
100
100
100
100
100
100
100
100
100
100
99
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
Place of
incorporation
Percentage of shares held
2016
2015
Note
(a)
(a)
(a)
(a)
(a)
Australia
Egypt
USA
Greece
United Kingdom
Guatemala
France
France
Australia
Malaysia
USA
Guatemala
Mexico
USA
Australia
Australia
Malaysia
Australia
Malaysia
Malaysia
N. Antillies
(a)
Australia
USA
USA
Morocco
South Africa
Canada
Zimbabwe
USA
USA
Malaysia
35. Group entities (continued)
First Classic Pty Ltd
Framchem SA
Frost Technology Corporation
Greenfarm Hellas Trade of Chemical Products SA
Growell Limited
Grupo Corporativo Nufarm SA
Laboratoire European de Biotechnologie s.a.s
Le Moulin des Ecluses s.a
Lefroy Seeds Pty Ltd
Manaus Holdings Sdn Bhd
Marman (Nufarm) Inc
Marman de Guatemala Sociedad Anomima
Marman de Mexico Sociedad Anomima De Capital Variable
Marman Holdings LLC
Masmart Pty Ltd
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
Midstates Agri Services Inc
NF Agriculture Inc
Nufarm Africa SARL AU
Nufarm Agriculture (Pty) Ltd
Nufarm Agriculture Inc
Nufarm Agriculture Zimbabwe (Pvt) Ltd
Nufarm Americas Holding Company
Nufarm Americas Inc
Nufarm Asia Sdn Bhd
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
88
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
88
100
100
100
100
100
100
100
100
100
100
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
35. Group entities (continued)
Nufarm Australia Limited
Nufarm Bulgaria
Nufarm BV
Nufarm Canada Receivables Partnership
Nufarm Chemical (Shanghai) Co Ltd
Nufarm Chile Limitada
Nufarm Colombia S.A.
Nufarm Crop Products UK Limited
Nufarm Cropcare Private Limited
Nufarm Costa Rica Inc. SA
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 Europe GmbH
Nufarm Finance BV
Nufarm Finance (NZ) Limited
Nufarm GmbH
Nufarm GmbH & Co KG
Nufarm Grupo Mexico S DE RL DE CV
Nufarm Holdings (NZ) Limited
Nufarm Holdings BV
Nufarm Holdings s.a.s
Nufarm Hong Kong Investments Ltd
Nufarm Hungaria Kft
Nufarm Inc
Nufarm Industria Quimica e Farmaceutica SA
Note
(a)
Place of
incorporation
Australia
Bulgaria
Netherlands
Canada
China
Chile
Colombia
United Kingdom
India
Costa Rica
Guatemala
Mexico
Panama
Venezuela
Ecuador
Germany
Brazil
Spain
Germany
Netherlands
New Zealand
Austria
Austria
Mexico
New Zealand
Netherlands
France
Hong Kong
Hungary
USA
Brazil
Percentage of shares held
2016
2015
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
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
101
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
35. Group entities (continued)
Nufarm Insurance Pte Ltd
Nufarm Investments Cooperatie WA
Nufarm Italia srl
Nufarm KK
Nufarm Korea Ltd
Nufarm Labuan Pte Ltd
Nufarm Limited
Nufarm Malaysia Sdn Bhd
Nufarm Materials Limited
Nufarm NZ Limited
Nufarm Pensions General Partner Ltd
Nufarm Pensions Scottish Limited Partnership
Nufarm Peru SAC
Nufarm Platte Pty Ltd
Nufarm Polska SP.Z O.O
Nufarm Portugal LDA
Nufarm Romania SRL
Nufarm s.a.s
Nufarm SA
Nufarm Services (Singapore) Pte Ltd
Nufarm Services Sdn Bhd
Nufarm Suisse Sarl
Nufarm Technologies (M) Sdn Bhd
Nufarm Technologies USA
Nufarm Technologies USA Pty Ltd
Nufarm Treasury Pty Ltd
Nufarm Turkey Import & Trade of Chemical Products LLP
Nufarm UK Limited
Note
(a)
(a)
(b)
Place of
incorporation
Singapore
Netherlands
Italy
Japan
Korea
Malaysia
United Kingdom
Malaysia
Australia
New Zealand
United Kingdom
United Kingdom
Peru
Australia
Poland
Portugal
Romania
France
Argentina
Singapore
Malaysia
Switzerland
Malaysia
New Zealand
(a)
(a)
Australia
Australia
United Kingdom
United Kingdom
Percentage of shares held
2016
2015
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
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
102
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
35. Group entities (continued)
Nufarm Ukraine LLC
Nufarm Uruguay SA
Nufarm USA Inc
Nugrain Pty Ltd
Nuseed Americas Inc
Nuseed Europe Holding Company Ltd
Nuseed Europe Ltd
Nuseed Global Innovation
Nuseed Holding Company
Nuseed Mexico SA De CV
Nuseed Pty Ltd
Nuseed SA
Nuseed Serbia d.o.o.
Nuseed South America Sementes Ltda
Nuseed Ukraine LLC
Nuseed Uruguay
Nutrihealth Grains Pty Ltd
Nutrihealth Pty Ltd
Opti-Crop Systems Pty Ltd
Pharma Pacific Pty Ltd
PT Agrow
PT Crop Care
PT Nufamindo Agro Mukmur
PT Nufarm Indonesia
Richardson Seeds Ltd
Seeds 2000 Argentina SRL
Selchem Pty Ltd
Societe Des Ecluses la Garenne s.a.s
Note
Place of
incorporation
Percentage of shares held
2016
2015
Ukraine
Uruguay
USA
(a)
Australia
USA
United Kingdom
United Kingdom
United Kingdom
USA
Mexico
(a)
Australia
(a)
(a)
(a)
Argentina
Serbia
Brazil
Ukraine
Uruguay
Australia
Australia
Australia
Australia
Indonesia
Indonesia
Indonesia
Indonesia
USA
Argentina
(a)
Australia
France
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
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
75
100
100
100
–
100
100
100
100
100
(a) These entities have entered into a deed of cross guarantee dated 21 June 2006 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.
(b) Formerly known as F&N Argo Polska SP.Z O.O and operated under a joint venture agreement with FMC Corporation.
103
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
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 21 June 2006, 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 2016 is set
out as follows:
Summarised income statement and retained profits
Profit/(loss) before income tax expense
Income tax expense
Net profit attributable to members of the closed group
Retained profits at the beginning of the period
Adjustments for entities entering the deed of cross guarantee
Dividends paid
Retained profits at the end of the period
Balance sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Other investments
Total current assets
Non-current assets
Trade and other receivables
Investments in equity accounted investees
Other investments
Deferred tax assets
Property, plant and equipment
Intangible assets
Total non-current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Loans and borrowings
Employee benefits
Current tax payable
Provision
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
TOTAL EQUITY
104
Consolidated
2016
$000
88,017
(4,824)
83,193
(6,273)
–
(26,564)
50,356
2015
$000
(17,961)
(1,689)
(19,650)
37,165
–
(23,788)
(6,273)
50,541
645,435
177,121
7,512
38,564
919,173
73,607
582,276
202,553
8,989
–
867,425
21,553
374
1,216,126
63,624
122,095
124,600
1,548,372
2,467,545
19,401
9,111
1,200,606
65,072
114,616
110,911
1,519,717
2,387,142
695,241
–
8,876
1,560
5,745
711,422
729,289
5,748
9,626
4,030
3,735
752,428
212
424,237
16,212
7,332
447,993
1,159,415
1,308,130
5,150
432,547
13,828
9,003
460,528
1,212,956
1,174,186
1,147,259
110,515
50,356
1,308,130
1,074,119
106,340
(6,273)
1,174,186
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
37. Parent entity disclosures
Result of the parent entity
(Loss)/profit for the period
Other comprehensive income
Total comprehensive profit/(loss) for the period
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Reserves
Accumulated losses
Retained earnings (a)
Total equity
Company
2016
$000
2015
$000
19,927
2,527
22,454
8,866
1,841
10,707
1,067,008
1,424,788
1,087,435
1,459,583
190,012
188,838
225,978
224,804
1,080,768
42,988
(31,536)
143,730
1,235,950
1,074,119
41,829
(31,536)
150,367
1,234,779
(a) Retained earnings comprises the transfer of net profit for the year and are characterised as profits available for distribution as dividends in future years.
Dividends amounting to $26.564 million (2015: $23.788 million) were distributed from the retained earnings during the year.
Parent entity contingencies
The parent entity is one of the guarantors of the senior secured bank facility (SFA) and would be obliged, along with the
other guarantors, to make payment on the SFA in the unlikely event of a default by one of the borrowers. The parent entity
also provides guarantees to support several of the regional working capital facilities located in Latin America and Europe,
and the senior unsecured notes.
Parent entity capital commitments for acquisition of property, plant and equipment
There are no capital commitments for the parent entity in 2016 or 2015.
105
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
38. Reconciliation of cash flows from operating activities
Cash flows from operating activities
Profit/(loss) for the period
Adjustments for:
Dividend from associated company
Amortisation
Depreciation
Non-cash material items
Inventory write down excluding material items
Gain on disposal of non-current assets and investments
Share of (profits)/losses of associates net of tax
Financial expense
Interest paid
Tax expense
Taxes paid
Movements in working capital items:
(Increase)/decrease in receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
Exchange rate change on foreign controlled entities working capital items
Net operating cash flows
39. Related parties
Consolidated
2016
$000
2015
$000
27,478
43,049
473
43,359
41,665
59,173
–
4,036
(1,397)
112,159
(106,626)
22,161
(22,262)
180,219
(114,742)
61,841
(20,984)
31,041
(42,844)
137,375
401
34,948
45,260
43,955
6,633
(1,623)
(1,120)
82,329
(73,182)
31,961
(43,149)
169,462
(6,404)
(131,954)
163,258
34,148
59,048
228,510
(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.
106
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
39. Related parties (continued)
(b) Transactions with associated parties
Excel Crop Care Ltd
F&N joint ventures
Sumitomo Chemical Company Ltd
Lotus Agrar GmbH
Purchases from
Trade payable
Sales to
Trade payable
Trade receivable
Sales to
Purchases from
Trade receivable
Trade payable
Sales to
Trade receivable
Trade payable
Consolidated
2016
$000
4,189
3,355
19,551
2
12,660
34,900
136,181
17,261
48,529
–
–
–
2015
$000
6,677
4,573
50,756
167
34,767
32,535
110,894
20,843
40,260
20,390
3,590
–
These transactions were undertaken on commercial terms and conditions.
On 1 November 2015, the F&N joint venture involving FMC Corporation and Nufarm operating in Poland was acquired
by Nufarm (refer note 14). At this point this joint venture ceased to be an associated party and became a 100 per cent
owned subsidiary. The amounts disclosed for the F&N joint ventures only include amounts up to 31 October 2015 with
respect to the F&N joint venture operating in Poland.
During the year ended 31 July 2015, Nufarm divested its interest the Lotus Agrar GmbH joint venture and ceased to recognise
Lotus Agrar GmbH as an associated party.
(c) 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
Termination benefits
Other long term benefits
Consolidated
2016
$
5,565,176
452,243
1,233,768
–
–
7,251,187
2015
$
6,982,311
362,186
689,581
3,265,747
281,275
11,581,100
Individual director’s and executive’s compensation disclosures
Information regarding individual directors and executives compensation is provided in the remuneration report section
of the directors’ report.
107
NUFARM LIMITED ANNUAL REPORT 2016 NOTES TO THE FINANCIAL STATEMENTS continued
39. Related parties (continued)
(d) Other key management personnel transactions with the company or its controlled entities
Apart from the details disclosed in this note, no director has entered into a material contract with the company or entities
in the group since the end of the previous financial year and there were no material contracts involving directors’ interest
existing at year end.
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 arm’s-length basis.
From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase
goods from the group. These purchases are on the same terms and conditions as those entered into by other group employees
or customers and are trivial or domestic in nature.
(e) Loans to key management personnel and their related parties
There were no loans to key management personnel at 31 July 2016 (2015: nil).
40. Auditors’ remuneration
Audit services
KPMG Australia
Audit and review of group financial report
Overseas KPMG firms
Audit and review of group and local financial reports
Other auditors
Audit and review of financial reports
Audit services remuneration
Other services
KPMG Australia
Other assurance services
Other advisory services
Overseas KPMG firms
Other assurance services
Other advisory services
Other services remuneration
41. Subsequent events
Consolidated
2016
$
2015
$
510,000
498,000
1,470,122
1,980,122
1,250,000
1,748,000
222,788
2,202,910
159,680
1,907,680
21,000
–
–
–
16,667
75,000
112,667
62,296
159,486
221,782
A final dividend of seven cents per share, totalling $18,612,951, was declared on 21 September 2016, and will be paid on
11 November 2016 (2015: six cents per share, totalling $15,933,435).
On 30 June 2016, Sumitomo Chemical Company Limited acquired a 45 per cent stake in Excel Crop Care and declared an
open market offer for an additional 30 per cent stake which subsequently closed on 9 September 2016. Nufarm has registered
to participate in the open market offer proposed by Sumitomo Chemical Company Limited. Nufarm is awaiting confirmation
from the Bombay Securities Exchange regarding the sale of its interest in Excel Crop Care.
108
NUFARM LIMITED ANNUAL REPORT 2016 DIRECTORS’ DECLARATION
1. In the opinion of the directors of Nufarm Limited (the company):
(a) the consolidated 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 group’s financial position as at 31 July 2016 and of its 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; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become
due and payable.
2. There are reasonable grounds to believe that the company and the 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 2016.
4. The directors draw attention to note 2 to the consolidated financial statements, which includes a statement of compliance
with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at Melbourne this 21st day of September 2016.
DG McGauchie AO
Director
GA Hunt
Director
109
NUFARM LIMITED ANNUAL REPORT 2016
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 consolidated
balance sheet as at 31 July 2016, consolidated income statement and consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date,
notes 1 to 41 comprising a summary of significant accounting policies and other explanatory information 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 of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to
fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation
of Financial Statements, that the financial statements of the group comply 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 of the financial report that gives a true and fair view 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, a true and fair view which is consistent with our understanding
of the group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity.
Liability limited by a scheme approved
under Profession Standards Legislation.
110
NUFARM LIMITED ANNUAL REPORT 2016 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 the group is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the group’s financial position as at 31 July 2016 and of their performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included under the heading ‘remuneration report’ of the directors’ report for the
year ended 31 July 2016. 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 2016, complies with Section 300A
of the Corporations Act 2001.
KPMG
Gordon Sangster
Partner
Melbourne
21 September 2016
111
NUFARM LIMITED ANNUAL REPORT 2016
SHAREHOLDER AND STATUTORY INFORMATION
Details of shareholders, shareholdings and top 20 shareholders
Listed securities – 23 September 2016
Fully paid ordinary shares
Number
of holders
8,439
Number
of securities
265,899,295
Percentage held
by top 20
89.10
Twenty largest shareholders
Sumitomo Chemical Company Limited
J M Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Amalgamated Dairies Limited
BNP Paribas Noms Pty Ltd
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