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Arcadia BiosciencesANNUAL
REPORT
2017
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 and Australia
and New Zealand.
We aspire to be known for providing
our customers with innovative solutions
and a superior customer experience.
We exist to grow a better tomorrow,
a mission that also reflects our
commitment to the communities in
which we operate, the ambition we
have for our people and our collective
approach to success.
03 Facts in brief
03 Our One Nufarm strategy
04 Managing director’s review
10 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
43
Lead auditor’s independence
declaration
44
Income statement
45
Statement of comprehensive
income
46 Balance sheet
47 Statement of cash flows
48 Statement of changes in equity
50 Notes to the financial statements
112 Directors’ declaration
113 Independent auditor’s report
119 Shareholder and statutory
information
124 Directory
CUSTOMER
EXPERIENCE
NUFARM LIMITED ABN 37 091 323 312
Sales countries
Crop protection production
Reginal HQ
Seed R&D
Seed Production
Chicago
Heights, USA
Alsip, USA
Wyke, UK
Gaillon, France
Linz, Austria
Cairo,(cid:31)
Egypt
Shanghai procurement hub,
China
Fortaleza,
Brazil
Kuala Lumpur,
Malaysia
Merak,
Indonesia
Kwinana,
Australia
Yenda, Australia
Pipe Road, Australia
Raymond Road, Australia
PORTFOLIO EXCELLENCESUPPLY CHAIN EXCELLENCEPEOPLE | VALUES | CULTURECUSTOMER EXCELLENCEONE NUFARMEveryone has a role to playin serving the customer. Chicago
Heights, USA
Alsip, USA
Wyke, UK
Gaillon, France
Linz, Austria
Cairo,(cid:31)
Egypt
Shanghai procurement hub,
China
Fortaleza,
Brazil
Kuala Lumpur,
Malaysia
Merak,
Indonesia
Sales countries
Crop protection production
Reginal HQ
Seed R&D
Seed Production
Kwinana,
Australia
Yenda, Australia
Pipe Road, Australia
Raymond Road, Australia
01
NUFARM LIMITED ANNUAL REPORT 2017 POSITIONED FOR FUTURE GROWTH
Last three years have delivered:
• Revenue growth of 19 per cent.
• Margin expansion of nearly 300 basis points.
• Increase in underlying earnings from $200 million to just over $300 million.
• Average NWC/sales down from 47.7 per cent to 36.8 per cent, releasing
$300 million in capital.
• ROFE up from 9.1 per cent to 13.6 per cent.
Our focus on the implementation of our strategy is delivering strong
progress toward sustainable business improvements and organic growth
above market in our core geographies.
The performance improvement program continues to deliver benefits
ahead of target. For FY17 the benefit total is $26 million and remains
on track to meet $116 million target by FY18. The program has now
yielded a net earnings benefit of over $100 million and is the primary
driver of our improved profitability over the last three years.
02
NUFARM LIMITED ANNUAL REPORT 2017 Underlying net profit after tax
$135.8m
FACTS IN BRIEF
Sales revenue
$3.1b
Total equity
$1.6b
Total assets
$3.6b
Trading results
Profit attributable to shareholders
Abnormal (gain)/loss
Underlying net profit after tax
Sales revenue
Total equity
Total assets
Ratios
Earnings per ordinary share (cents)
Gearing ratio (%)
Net tangible assets per ordinary share ($)
Distribution to shareholders
Annual dividend per ordinary share (cents)
People
Staff employed
12 months
ended
31 July
2017
$000
12 months
ended
31 July
2016
$000
114,467
21,356
135,823
27,519
81,399
108,918
3,111,115
1,602,923
3,644,888
2,791,217
1,550,228
3,461,138
38.7
29.8
2.67
6.1
28.7
2.55
13.0
11.0
3,189
3,256
The financial information contained within our financial statements has been prepared in accordance with
IFRS. Refer to page 9 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 2016 unless otherwise stated. Non-IFRS measures have
not been subject to audit or review.
OUR ONE NUFARM STRATEGY
We are delivering on our plan and making strong
progress towards:
• Building a more cost-competitive business
that is able to compete more effectively and
deliver better outcomes for our customers.
• Strengthening our position in our strategic
markets and crop segments.
• Improving our quality of earnings.
• Better working capital management and a
strengthening balance sheet.
• Establishing a sound strategic foundation.
• A stronger platform to support continued
and profitable growth.
03
NUFARM LIMITED ANNUAL REPORT 2017 MANAGING DIRECTOR’S REVIEW
Final dividend
Directors declared an unfranked
final dividend of 8 cents per share,
resulting in a full year dividend
of 13 cents. This represents an
18 per cent increase on the full
year dividend of 11 cents per share
(unfranked) paid in the previous year.
The final dividend will be paid
on 10 November 2017 to the
holders of all fully paid shares in the
company as at the close of business
on 13 October 2017. The final
dividend will be 100 per cent
conduit foreign income.
$3.1b
Nufarm group revenues
Group revenues increased by
12 per cent to $3.11 billion
(2016: $2.79 billion), which is a
strong outcome given the overall
industry saw little to no growth during
the period. The group generated an
underlying gross profit margin of
29.4 per cent, in line with the 29.6 per
cent margin for the previous year.
Underlying net profit after tax was
$135.8 million, up 25 per cent on the
$108.9 million reported in the prior
period. Underlying earnings before
interest, tax, depreciation and
amortisation (EBITDA) increased by
five per cent to $390.0 million and
underlying earnings before interest and
tax (EBIT) increased by five per cent to
$302.3 million. On a constant currency
basis, both underlying EBITDA and
EBIT increased by nine per cent.
Underlying earnings per share
improved strongly to 46.7 cents,
a 27 per cent increase over the
prior year 36.7 cents.
Average net working capital to sales
was down to 36.8 per cent, a significant
improvement on the previous year
(39.9 per cent).
Net debt at 31 July 2017 was
$680 million, up on the $625 million
at 31 July 2016. The year end net debt
was impacted by a higher year end
net working capital balance, caused
by the delayed seasonal conditions
moving sales into the last quarter of the
financial year. Average net debt over
the 12-month period was $886 million,
lower than the $912 million average in
2016, and was aided by the continued
focus on more efficient working capital
management.
Greg Hunt
Managing director and
chief executive officer
Nufarm Limited announced
a statutory net profit after
tax of $114.5 million for the
12 months to 31 July 2017.
The statutory profit result
includes the impact of
$23 million in pre-tax
one-off restructuring
and asset rationalisation
costs and compares to
a statutory profit after
tax of $27.5 million in
the previous year.
04
NUFARM LIMITED ANNUAL REPORT 2017 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
of the company’s ordinary shares
on the ASX over the 10-day period
commencing on 16 October 2017.
The last election date for shareholders
who are not yet participants in the
DRP is 16 October 2017.
The final dividend will be paid on 10 November 2017 to the
holders of all fully paid shares in the company as at the close
of business on 13 October 2017.
Interest/tax/cash flow
Total financing costs were $107.0
million, compared to an underlying
$137.9 million in the prior year.
Net external interest expense was
$93.2 million, which is $3.3 million
lower than the previous period.
The lower interest expense was
primarily driven by the lower average
net debt balance outstanding during
the financial year.
Foreign exchange losses were
$13.8 million, compared to
$41.5 million recorded in the
2016 year. The exchange loss
relates largely to the Latin American
operations, and is consistent with
the company’s previous guidance
of $1 million to $1.5 million of
hedging costs per month.
05
NUFARM LIMITED ANNUAL REPORT 2017 MANAGING DIRECTOR’S REVIEW continued
The underlying effective tax rate
was 30.2 per cent for the year, which
compared to 26.8 per cent in the
prior period. The income tax expense
includes a $2.5 million expense, due
to a reduction in the French statutory
tax rate (effective in 2019), and its
subsequent effect on the deferred
tax assets on the French entity’s
balance sheet.
The business generated an underlying
net operating cash inflow of $73.4
million in the 2017 year. This compares
to a cash inflow of $189.1 million in the
previous year. The lower cash inflow
was attributable to a higher net
working capital balance at year end,
which was driven by the later seasonal
conditions in several regions. The lower
operating cash inflow was somewhat
offset by the inflow from material items
of $32 million, including $49 million
from the proceeds of non-core asset
sales. This compares to a net cash
outflow from material items in 2016
of $52 million.
Material items
The company’s performance
improvement program – initiated in
2014 – has reduced the fixed cost base
of the business, lifted profitability and
enhanced Nufarm’s competitiveness.
During the year, the company reported
a one-off pre-tax charge of $23 million
related to restructuring initiatives and
asset rationalisation associated with the
performance improvement program.
The restructuring costs relate to the
merging of the company’s Australian
marketing arms and brands ($5 million),
and the implementation of a European-
wide Enterprise Resource Planning
(ERP) system and shared services
model to support Nufarm’s European
business ($5 million). The integration
of the Australian brands has resulted
in a single, focused sales organisation
that is delivering business efficiencies
and a more streamlined service to
Australian customers. The European
ERP system and shared services centre
will result in a sustainably lower cost
base, improved information sharing
and other business efficiencies.
06
Year ended 31 July
Material items by category
Asset rationalisation and restructing
Sale of Excel Crop Care investment
Total material items impacting operating profit
Pre-tax
$000
After-tax
$000
(23,937)
894
(23,043)
(22,250)
894
(21,356)
Nufarm has also written down the
carrying value of two smaller production
facilities as part of its ongoing
manufacturing footprint assessment.
This includes a small insecticide
pelletising operation in Yenda, NSW,
and a phenoxy herbicide formulation
facility in India. The asset rationalisation
charge amounts to $13 million.
The cash impact of the material items is
$11.2 million, of which $2.1 million was
incurred in financial year 2017, with the
balance carrying over into financial year
2018. In the current year, the net cash
inflow associated with material items
was $32 million, largely driven by the
proceeds of the sale of non-current
assets of $49 million, which were
reported in financial year 2016, but
impacted cash in the 2017 financial
year. Since year end, the company has
divested a non-core ex-manufacturing
property in New Zealand, with
proceeds of approximately $7 million.
Balance sheet management
Net debt at 31 July 2017 was $680
million compared to $625 million at
31 July 2016. Year end net debt was
impacted by the higher net working
capital at 31 July 2017, which was
driven by the delayed seasonal
conditions moving sales into the fourth
quarter of the financial year. Net debt
did benefit from the net cash inflow
from material items of $32 million.
Average net debt was lower than
in the previous 12-month period
($886 million versus $912 million),
aided by continued excellent
working capital management
across the year.
Management continued to focus on
driving further efficiencies in working
capital management, with average
net working capital to sales down to
36.8 per cent (2016: 39.9 per cent).
Average net working capital over
the last 12 months was $1.143 billion
compared to $1.115 billion in the
prior year. The 2.5 per cent increase
in average net working capital
($28 million), compares to the 12 per
cent sales growth recorded in the year.
The average leverage ratio (net debt
divided by the 12-month rolling
EBITDA) was 2.27x (2016: 2.45x).
Gearing (net debt to net debt plus
equity) was 29.8 per cent (2016: 28.7
per cent). The interest coverage ratio
(EBITDA divided by interest expense)
improved to 4.36x (2016: 4.09x).
Cost-savings and performance
improvement program
The company continues to make
progress on its cost-savings and
performance improvement program,
which aims to deliver a net benefit of
at least $116 million in underlying EBIT
by the end of the 2018 financial year.
The company delivered $26 million
of benefits in the 2017 financial year,
bringing cumulative benefits to
$101 million. Most of the savings in
the 2017 financial year came from
manufacturing footprint changes,
manufacturing efficiencies and
procurement initiatives. In the 2018
financial year, savings are expected
from the combined Australian sales
and marketing functions, procurement
initiatives, further SKU rationalisation
benefits and the simplification of the
back-office processing. The company
also expects further benefits from the
program in 2019 and 2020, as some
projects will only achieve their full
run-rate benefits in those years.
NUFARM LIMITED ANNUAL REPORT 2017 New product introductions and
increased investment in marketing
and sales staff in our key European
markets should underpin what is
expected to be another improved
performance in this region.
A pipeline of continuous new seed
product launches and new seed
treatment products, combined with
the Beyond Yield strategy, should
deliver steady earnings growth
over the next 12 months for the
seed technologies segment.
Net interest expense is expected
to be moderately lower in 2018.
Net foreign exchange impacts will
continue to include anticipated
hedging costs of approximately
$20 million for Brazil and Argentina.
To support sustainable business
improvement on an ongoing basis,
the company is reinvesting in new
systems and capabilities such as new
customer relationship management
(CRM) systems, improved supply chain
processes and systems; specialist
procurement resources and systems,
standard back-office processes
and systems across regions, and
human resource systems. These
transformational investments will
provide a global view of information
that enables a ‘One Nufarm’ approach
to business decisions.
Underlying return on funds employed
(ROFE) at 31 July 2017 was 13.6 per
cent, up from 13.1 per cent in the
prior year, and up from 9.1 per cent
in the 2014 financial year, when the
performance improvement program
was initiated. The company’s underlying
ROFE target remains 16 per cent.
Outlook
The combination of revenue growth,
margin expansion and additional
cost-savings benefits is expected to
result in earnings growth in 2018.
This is despite an expectation that
soft commodity prices will remain low.
The company’s performance in
Australia is expected to have a better
balance between sales of high margin
and commodity products that should
see sales and production volumes
improve. As well, the merger of the
Nufarm and Crop Care marketing arms
will position the business to deliver a
better experience for our customers.
Spring and summer rains in northern
NSW and Queensland are needed
to generate demand for crop
protection products in the summer
cropping period.
The company is well positioned to
generate growth in the US, where
our business will benefit from new
product introductions and strong
support from channel partners.
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 2018 financial
year. A modest earnings recovery is
expected for Argentina.
07
NUFARM LIMITED ANNUAL REPORT 2017 MANAGING DIRECTOR’S REVIEW continued
08
NUFARM LIMITED ANNUAL REPORT 2017 $279.2m
Nufarm operating
profit for 2017
Management will stay focused on
strengthening the balance sheet, with
continued attention given to working
capital management. 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.
but will be disciplined in terms
of ensuring any such opportunities
represent compelling value and
are strategically sound.
In summary, and assuming average
seasonal conditions, the business
is expected to generate an improved
EBIT on the prior year, driven
by the combination of growing
revenues, margin expansion and
cost-saving benefits.
By building on what has been achieved
over the last two years with the
performance improvement program
and maintaining our strategic focus,
Nufarm is positioned to capitalise on
the many opportunities evolving in the
global agricultural space. The company
continues to remain alert to potential
acquisitions that might result from the
current round of industry consolidation,
Greg Hunt
Managing director and
chief executive officer
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 $87.732 million for the year ended
31 July 2017, and $85.024 million for the year ended 31 July 2016. 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.
2.
Underlying EBIT is used to reflect the underlying performance of Nufarm’s operations. Underlying
EBIT is reconciled to operating profit below.
Year ended 31 July
Underlying EBIT
Material items impacting operating profit
Operating profit
2017
$000
302,285
(23,043)
279,242
2016
$000
286,696
(83,610)
203,086
3. Non-IFRS measures are defined as follows:
• underlying gross profit – comprises gross profit less material items;
• 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 other financial income, interest expense – external/debt
establishment transaction costs, and lease amortisation – finance charges as described in note 10
to the 31 July 2017 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 non-current trade receivables,
and inventories less current trade and other payables; and
• average net working capital – net working capital measured at each month end as an average.
09
NUFARM LIMITED ANNUAL REPORT 2017
$2.94b
Crop protection sales
up +11% from FY16
BUSINESS REVIEW
The group generated increased sales in both its crop protection
and seed technologies segments, and across all regions when
reported on a constant currency basis.
Total crop protection sales increased
by 11 per cent to $2.94 billion and
generated a six per cent increase in
EBIT to $321.6 million. The crop
protection underlying gross profit
margin was 28.4 per cent of sales, in line
with the previous year of 28.5 per cent.
Seed technology sales in the
period were up by 17 per cent to
$168.6 million and generated an
EBIT of $36.4 million, which was
a significant improvement on the
$28.7 million recorded in this segment
in the 2016 year. The seed technologies
underlying gross profit margin was
47.4 per cent of sales, above the
previous year of 45.0 per cent.
Operating segments summary
Australia/New Zealand
Australia/New Zealand sales increased
18 per cent on the prior year, as the
business executed a strategy to regain
volume and share. There was a
resulting impact on gross margins,
particularly in Australia, where the
business took the decision to be
price competitive in certain targeted
market segments.
The segment generated sales of
$654.2 million, up on the previous
year ($554.0 million). Underlying
EBIT was $51.6 million compared
to $47.0 million in the prior year.
The table below provides a summary of the performance of the operating
segments for the 2017 financial year and the prior corresponding period.
Year ended 31 July
Revenue
Underlying EBIT
2016
2017
654,194
165,633
539,803
761,050
821,835
($000s)
Crop protection
Australia and
553,994
New Zealand
148,604
Asia
550,376
Europe
653,939
North America
Latin America
740,686
Total crop protection 2,942,515 2,647,599
Seed technologies
– global
Non-operating
corporate
Nufarm group
–
–
3,111,115 2,791,217
168,600
143,618
Change
(%)
2017
2016
Change
(%)
18.1 51,629 46,963
11.5 24,429 22,824
-1.9 85,827 73,017
16.4 70,265 59,288
11.0 89,415 100,396
11.1 321,565 302,488
9.9
7.0
17.5
18.5
-10.9
6.3
17.4 36,399 28,719
26.7
n/a (55,679) (44,511)
11.5 302,285 286,696
25.1
5.4
Climatic conditions in Australia were
below average. The summer crop and
fallow season in northern NSW and
southern Queensland was very dry.
The winter season also started poorly
in the key cropping areas of Western
Australia and northern NSW/southern
Queensland. The month of June was
the driest on record in many parts of
the country. While the winter crop
plantings are estimated to be in line
with the area planted in 2016, this
year’s harvest is forecast to be down
by a third. The dry conditions reduced
product demand, which led to pricing
pressure across the market.
Australia/New Zealand sales increased 18 per cent on the prior year,
as the business executed a strategy to regain volume and share.
10
NUFARM LIMITED ANNUAL REPORT 2017 In May, Nufarm announced that
the company’s marketing arms
and brands in Australia, previously
marketed under Nufarm and Crop
Care brands, would be merged as
of 1 August 2017. The integration
has resulted in a single, focused
sales organisation that is delivering
business efficiencies and an improved
service to Australian customers.
The previously announced closure
of three manufacturing facilities in
Australia and New Zealand is now
complete. Two sites have been sold,
with the third site sold after 31 July.
The manufacturing restructure results
in lower fixed costs, better plant
utilisation, and improved efficiencies.
This ensures the company can be more
price competitive for customers and,
furthermore, the higher sales volumes
have helped secure more of the
benefits of the restructuring program.
Asia
North America
Asian crop protection sales were
$165.6 million compared to
$148.6 million in the prior year, an
increase of 12 per cent. Underlying
EBIT improved to $24.4 million,
up seven per cent on the $22.8 million
generated in the prior year.
Indonesian sales were up on last year,
driven by good weather and an early
start to the planting season. In the prior
year, Indonesian sales were impacted
by an El Nino weather event. There was
continued sales growth into Japan and
China. The higher sales, combined with
an increased focus on higher margin
products, led to the improved EBIT
result over the prior period.
North American crop protection
sales grew by 16 per cent to
$761.1 million. Underlying EBIT was
up strongly to $70.3 million, compared
to $59.3 million in the prior year.
In the US broadacre segment, sales
volumes grew 17 per cent with the
company’s focused channel strategy
delivering results, aided by a strong fall
burndown market and increased cotton
plantings. The turf and ornamental
business grew sales five per cent,
mainly off the back of new mixture
products. In Canada, demand from
higher canola, soybeans and pulse
plantings, along with well-executed
marketing plans, drove a 28 per cent
sales increase on the prior year.
11
NUFARM LIMITED ANNUAL REPORT 2017 BUSINESS REVIEW continued
The implementation of Salesforce.com
– a customer relationship management
tool – was completed in February,
and is resulting in better business
processes, and better communication
both within the organisation and with
distribution customers.
The Calgary plant in Canada was closed
in June 2016, with production moving
to the Chicago Heights facility. The
full benefit of these manufacturing
efficiencies was realised in the 2017
financial year.
Latin America
Latin American crop protection sales
were up 11 per cent on the previous
year ($821.8 million versus $740.7
million). Underlying EBIT at $89.4
million was down 11 per cent on the
prior year’s $100.4 million. The Brazilian
business grew sales by 20 per cent
and earnings by five per cent. In
contrast, the Argentina business
suffered from variable weather and
severe pricing pressure, with sales
down 26 per cent and margins down
24 per cent.
Weather conditions in Brazil were
positive, resulting in record grain
production. Nufarm’s local currency
sales were up by 10 per cent, reflecting
a gain in market share on the prior
year. The total value of the Brazil crop
protection market is estimated to
have been flat in calendar year 2016
(as measured in US dollars) compared
to calendar year 2015.
In contrast to last year, the average
Brazilian real exchange rate for the
period was nearly 10 per cent stronger
against the Australian dollar, and
the Brazilian real was less volatile
compared to the 2016 financial year.
This resulted in a greater proportion
of sales being invoiced in US dollars,
and allowed the business to better
manage the foreign currency
exposures, resulting in a reduced
currency loss, consistent with the
guidance provided at the 2016 full
year results.
The strong Brazilian real did,
however, result in farmers delaying
their purchases of crop protection
inputs in anticipation of price
reductions, and this led to some pricing
pressure in the market. More sales
and technical support for new product
launches and increased expertise
in the treasury function resulted
in a higher cost base in Brazil.
A feature of the Brazilian market
during the period was the continued
challenges faced by the grower base
in obtaining credit. Whilst the business
managed credit well, and growers
are experiencing record harvests, the
company remains vigilant on customer
receivables. The business continues
to enhance the portfolio with several
new products launched during the
year. Channel inventory for Nufarm
products is at normal levels.
The Argentina business suffered from
a delayed season due to excessive
rainfall, as well as a change in the
import licensing system, which allowed
greater access to the market for
imported products. This caused
growers to delay purchases, with many
putting their business out to tender,
resulting in severe pricing pressure in
the market. The Argentina result was
also impacted by the exchange rate,
with the Argentina peso 30 per cent
weaker against the Australian dollar
across the year. A local inflation rate
above 30 per cent impacted the
company’s cost base. Argentina
earnings were consequently down
$17 million compared to the prior
period, but still managed to generate
a small profit for the year.
Europe
European sales were below the prior
period by two per cent (2017: $539.8
million versus 2016: $550.4 million),
but grew seven per cent on a constant
currency basis. Underlying EBIT
improved strongly to $85.8 million,
ahead of the $73.0 million posted in
the 2016 year. Seasonal conditions
were mixed, with a late start to the
season in Western and Central Europe,
and dry conditions in Southern Europe.
Nufarm’s branded products accounted
for all the constant currency sales
growth. The business continues to
focus on high value and differentiated
products, together with new product
launches and pricing discipline, which
have contributed to the improved
profitability of the business.
The previously announced restructuring
of the European manufacturing base
is completed. Manufacturing efficiency
programs at the Linz (Austria) and
Gaillon (France) production facilities
are nearing completion. A more
efficient European manufacturing base
is strengthening Nufarm’s competitive
position and lowering the working
capital requirements of the business.
The new European ERP system and
implementation of a shared services
model will further strengthen the
European business over coming periods.
Major product segments
Crop protection
Nufarm’s crop protection business
generated $2.94 billion in revenues,
which was up 11 per cent on the
previous year sales of $2.65 billion.
These sales generated an average
underlying gross profit margin
of 28.4 per cent, in line with the
28.5 per cent average gross profit
margin recorded in the 2016 year.
Herbicide sales were up 10 per cent
to $1.95 billion. Glyphosate sales were
well up on last year due to a higher
average technical price and improved
volumes in Australia/New Zealand
and North America; however, margins
were slightly down due to competitive
market conditions in Australia, North
America and Latin America. Phenoxy
herbicide revenues were lower than
the prior year, but margins were up,
driven by an improved cost position.
Other herbicides are ahead of last year,
with Flumioxazin and Picloram being
the main drivers.
12
NUFARM LIMITED ANNUAL REPORT 2017 Pre-commercialisation plans are
progressing on schedule, with
important fish feed and nutrition
studies underway or planned, and
strong interest from the customer
base. Nuseed will utilise a closed loop
production system for the oil, in which
growers will be contracted to grow
the crop and crushers will be
contracted to extract the oil, with
Nuseed then supplying the oil to
markets including aquaculture feed
companies. The ability to coordinate
the value chain beyond the seed will
allow the company to secure maximum
value from the omega-3 program, while
ensuring quality and providing the
transparency expected by customers.
Nuseed and its partners, CSIRO and
GRDC, have jointly secured a strong
intellectual property (IP) position,
which facilitates a clear pathway to
commercialisation. Several companies
aspire to produce alternative sources
of long-chain omega-3, including BASF.
BASF has chosen to challenge several
of our patents without success. Nuseed
continues to assess actions against
BASF patents in various jurisdictions.
This activity is anticipated to continue
as a normal course of IP estate
management in both companies.
Insecticide sales were up 18 per cent to
$342 million, with margin percentage in
line with the prior year. The increased
sales were driven mainly by Brazil, with
growth from new products, extensions
into new crops and strong sales of a
Sumitomo-sourced product that controls
white fly infestation in soybeans.
Fungicide sales were up by eight per
cent to $335 million, with margins
ahead of the prior year. The fungicide
portfolio performed well in the period,
with most regions contributing to the
growth. Main contributors to the result
include Mancozeb, Fludioxinil and the
copper-based products.
The Croplands equipment business,
based in Australia, generated higher
sales and there was also an increase
in sales of plant growth regulators.
These revenues are captured in ‘other
products’ category sales, which were
up five per cent to $310 million.
The company continued to strengthen
its strategic relationship with
Sumitomo Chemical Company, and
this was reflected in higher sales of
Sumitomo products across Nufarm’s
distribution platform. Nufarm sales of
Sumitomo products grew 38 per cent
to $229 million. The higher sales
were mainly in the US, Canada
and Brazil. Portfolio collaboration
opportunities continue to be
explored and developed.
Seed technologies
The company’s seed technologies
segment includes sales of seeds,
managed under the Nuseed business,
and seed treatment chemistry.
Revenues in this segment were
$168.6 million, 17 per cent ahead of
the prior year sales of $143.6 million.
The segment generated a profit of
$36.4 million at the underlying EBIT
level, well up on the $28.7 million
recorded in the prior year.
Australian canola, European sunflowers,
Latin American sorghum and European
seed treatment sales were all strong
contributors to the sales growth.
Australian canola volumes increased
more than 50 per cent, with favourable
early seasonal conditions and market
share gains. Australian earnings also
benefitted from higher collections of
canola end point royalties from the
strong 2016 farmer-saved seed harvest.
The growth in European sunflowers and
Latin America sorghum relates primarily
to market share growth from new
pipeline launches. Sales of seed
treatment chemistry were in line with
the prior year, with a stronger sales
performance in both Brazil and the
US and slightly lower sales in Europe
and Canada.
The regulatory submissions for the
company’s omega-3 canola program
were filed in Australia, the United
States and Canada earlier this year.
The submissions are progressing well,
and the company is on track to initiate
first commercial production in the
2018/19 financial year. The first
large-scale omega-3 canola crop is
being harvested in the United States
this month, representing an important
milestone in the pre-commercialisation
phase of the industry-leading program.
Some 3,000 acres of the proprietary
omega-3 canola are being grown in
Washington State in compliance with
the USDA notification process.
This unique omega-3 canola produces
long-chain omega-3, similar to those
found in fish oil, using a sustainable
land-based source. It has been
developed through collaboration
between Nufarm’s wholly-owned
subsidiary, Nuseed, the Commonwealth
Scientific and Industrial Research
Organisation (CSIRO), and the
Grains Research and Development
Corporation (GRDC).
13
NUFARM LIMITED ANNUAL REPORT 2017 SUSTAINABILITY
Responsibility is one of our core values and we believe that acting
responsibly generates long-term value for our stakeholders.
Two years ago, we introduced our
sustainability strategy and four-year
plan to improve our sustainability
performance. This year we continued
our focus on aligning our safety
systems and processes and
strengthening our safety culture and
behaviours and working towards
meeting our objective of zero harm.
In our four-year sustainability strategy
launched in 2015, incident elimination
was highlighted as the key priority for
the first two years.
As our sustainability strategy actions
and programs have been progressively
implemented, we have started to see
a downward trend in the lost time
injury frequency rate (LTIFR) emerging.
With the increased and accurate
reporting of injuries across our
global operations, we have had the
opportunity to investigate and deal
with the root causes of these serious
injuries and better manage the risks.
This year we have achieved some
significant milestones on our journey
to zero harm, with our site in Indonesia
reaching seven years without a lost
time injury (LTI). Our Chicago Heights
manufacturing site achieved five years
without a lost time injury in January
2017. In Australia our insecticide and
fungicide site in Laverton achieved
four years without a lost time injury.
Our most significant risks relate to
the processing of chemicals at our
manufacturing sites. The hazards and
the risk controls required for the safe
use of these chemicals are well known
and documented across the global
hazardous materials manufacturing
industry. This year our major strategic
incident prevention focus has been on
the deployment of the Nufarm process
safety management (PSM) standard.
Each region and manufacturing site
has allocated resources to ensure
the successful deployment of the
requirements of the PSM standard.
Our most significant non-manufacturing
hazard within our global business
involves our staff driving on public roads
as a part of their job. Our driver risk
reduction program includes defensive
driver training, fatigue management,
safe mobile phone use and fitness to
drive. This year we have continued to
deploy defensive driver and rider
training programs in all our regions.
12-month rolling average LTIFR
We have a strategic objective to
engage with our suppliers to uphold
the same sustainability standards that
we hold ourselves accountable to.
In FY17 we commenced corporate
social responsibility (CSR) assessments
to assess our suppliers’ performance
in the areas of environment, human
rights, corporate governance and
supply chain sustainability through
EcoVadis, a global leader in supplier
CSR assessment.
We have made some important steps
towards our environmental objective
of zero harm. We have two sites with
ISO14001 certification and two more
4 yrs
Three manufacturing sites
LTI free for four years
3.0
2.5
2.0
1.5
1.0
0.5
0.0
6
1
0
2
n
a
J
7
1
0
2
l
u
J
7
1
0
2
n
a
J
7
1
0
2
l
u
J
LTIFR is the number of lost time injuries per million hours worked.
14
NUFARM LIMITED ANNUAL REPORT 2017
sites have plans to commence
implementation in 2018. ISO104001
establishes best practice environmental
management systems and aligns with
the requirements of our corporate
standards.
This year we developed a human
rights policy which includes our zero
tolerance stance on all forms of modern
slavery in both our organisation and
supply chain. In implementing this
policy, we have commenced modern
slavery risk assessments. This process
assesses the adequacy of our control
measures to identify and prevent
modern slavery within our own
business and in the use of contract
labour, and we expect to complete
these risk assessments in 2018.
We are committed to building a
company that has a sustainable future
for our people, our customers and
the communities we operate in. We
continue to work with the communities
close to our manufacturing sites. In
Brazil, we have an extensive corporate
social responsibility program that
supports the community close to our
site. This year our North American Turf
and Ornamental business committed
to a significant donation to Greencare
for troops, a not-for-profit organisation
that provides garden and landscape
services to the families of serving
military and veterans. We also support
the Nuffield Farming Scholarship
programs in Brazil and Australia.
The organisation is now two years
into deployment of its four-year
sustainability strategy. Execution of
the strategy is largely on track at this
halfway stage and as we move into
the third year of our strategy we
are increasing our focus on ethical
sourcing, environment and community.
15
NUFARM LIMITED ANNUAL REPORT 2017 BOARD OF DIRECTORS
Greg Hunt
Anne Brennan
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 of Elders
Australia Limited,
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.
Anne 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.
Gordon Davis
Gordon Davis
joined the board
on 31 May 2011.
Frank Ford
Frank Ford joined
the board on
10 October 2012.
Gordon 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 Midway
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.
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.
Donald
McGauchie AO
(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 2017 Bruce Goodfellow
Peter Margin
Marie McDonald
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.
Peter Margin joined
the board on
3 October 2011.
Marie McDonald joined
the board in 2017.
Toshikazu Takasaki
joined the board in
2012.
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 US. 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.
Marie has a bachelor
of laws (hons) and
a bachelor of science
(hons) and was
a senior partner at
Ashurst until 2014,
specialising in mergers
and acquisitions,
corporate governance
and commercial
law. She was widely
recognised as one
of Australia’s leading
corporate and
commercial lawyers.
Marie is a director
of CSL Limited,
Nanosonics Limited
and the Walter and
Eliza Hall Institute of
Medical Research.
She was chair of
the corporations
committee of the
Business Law Section
of the Law Council
of Australia from
2012 to 2013, having
previously been
the deputy chair,
and was a member
of the Australian
Takeovers Panel
from 2001 to 2010.
Marie is a member
of the audit and risk
committee and the
health safety and
environment
committee.
Peter 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,
HJ Heinz Company
Australia Limited and
is currently executive
chair of Asahi
Beverages ANZ.
Peter is a director of
ASX listed companies
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 audit
and risk committee.
17
NUFARM LIMITED ANNUAL REPORT 2017 EXECUTIVE MANAGEMENT
Greg Hunt
Paul Binfield
Niels Pörksen
Elbert Prado
Brent Zacharias
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
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.
Group executive
portfolio
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.
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.
18
NUFARM LIMITED ANNUAL REPORT 2017 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 FY17 corporate
governance statement can be viewed
in the corporate governance section of
our website: http://www.nufarm.com/
CorporateGovernance
NUFARM LIMITED ANNUAL REPORT 2017
19
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 2017 • 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.
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.
Principal risk area
Risk management approach
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 2017 FINANCIAL REPORT
22
NUFARM LIMITED ANNUAL REPORT 2017 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 2017 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
ME McDonald (appointed 22 March 2017)
PM Margin
T Takasaki
Unless otherwise indicated, all directors held their position as a director throughout the entire period and up to the date of
this report. Details of the qualifications, experience and responsibilities and other directorships of the directors are set out on
pages 16 and 17.
Company secretary
The company secretary is Mr 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 Hunt
DG McGauchie
ME McDonald
PM Margin
T Takasaki
Nufarm Ltd
ordinary shares
10,000
40,000
20,000
1,172,824
211,610
54,239
–
2,458
–
Nufarm Finance (NZ) Ltd
step-up securities
–
–
–
48,423
–
–
–
–
–
1. The shareholdings of Dr WB Goodfellow include:
(i)
(ii)
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:
St Kentigern Trust Board (430,434 shares and 19,727 step-up securities) – Dr Goodfellow is a trustee of the Trust Board. Dr Goodfellow does not have
a beneficial interest in these shares or step-up securities;
(iii) Sulkem Company Limited (129,787 shares);
(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 (420,861 shares and 700 step-up securities).
23
NUFARM LIMITED ANNUAL REPORT 2017
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
Health safety
and environment
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
GA Hunt
ME McDonald
DG McGauchie
PM Margin
T Takasaki 2
Meetings
held1
7
7
7
7
7
3
7
7
7
Meetings
attended
7
7
7
7
7
3
7
7
6
Meetings
held1
3
3
3
-
-
-
-
3
-
Meetings
attended
3
3
3
-
-
-
-
3
-
Meetings
held1
4
4
-
-
-
-
4
4
-
Meetings
attended
4
4
-
-
-
-
4
4
-
Meetings
held1
-
-
3
3
-
-
3
-
-
Meetings
attended
-
-
3
3
-
-
3
-
-
Meetings
held1
-
3
-
-
-
-
-
3
3
Meetings
attended
-
3
-
-
-
-
-
3
3
1. Number of meetings held during the period the director held office.
2. Takasaki-san did not attend one meeting during the period due to a conflict of interest.
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 2017 is $114.5 million. The comparable
figure for the 12 months to 31 July 2016 was $27.5 million.
Dividends
The following dividends have been paid declared or recommended since the end of the preceding financial year.
The final dividend for 2015–2016 of seven cents paid 11 November 2016.
The interim dividend for 2016–2017 of five cents paid 5 May 2017.
The final dividend for 2016–2017 of eight cents as declared and recommended by the directors is payable
10 November 2017.
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 2016 – 15 October 2016
at the rate of 6.36 per cent per annum paid 17 October 2016
Distribution for the period 16 October 2016 – 15 April 2017
at the rate of 5.89 per cent paid 18 April 2017
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 and the business review on pages 4 to 13.
24
$000
18,656
13,340
$000
7,997
7,372
NUFARM LIMITED ANNUAL REPORT 2017 State of affairs
The state of the group’s affairs are set out in the managing director’s review on pages 4 to 9.
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
of this annual report.
Events subsequent to reporting date
On 26 September 2017, the directors declared a final franked dividend of eight cents per share payable 10 November 2017.
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 pages 14 and 15. 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 39 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 43 and forms part of the directors’ report for the financial year
ended 31 July 2017.
Rounding of amounts
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.
25
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
A message from the chairman of the human resources committee (HRC) (unaudited)
Dear shareholder,
I am pleased to present our remuneration report for the year ended 31 July 2017. Our aim in preparing this report is to enable
you, our shareholders and interested stakeholders, to understand the links between remuneration, company strategy and
Nufarm’s performance, and the framework we have in place to provide effective governance over remuneration at Nufarm.
Nufarm’s remuneration structure is designed to support our strategic objectives and help drive sustainable value creation.
The capabilities and commitment of our management and employees make a critical contribution to the success of the
company and our remuneration policies are based on principles that encourage and reward performance and outcomes.
2017 was a year of profitable growth, with excellent progress on working capital management efficiencies, which has been
reflected in the company’s overall result.
Through our remuneration strategy we want to ensure our senior executives are rewarded for delivering sustainable returns
over a long term horizon that are aligned with shareholder value creation.
Fixed remuneration increases for executives were determined according to the nature and size of role and within Nufarm’s
usual benchmarking approach. Any increases are reflective of market pricing for roles that were undertaken.
The FY17 STI plan was amended to increase focus on executives delivering year over year growth for Nufarm. The gateway for
the STI plan in FY16 was 85 per cent of the budgeted underlying NPAT. In FY17 the gateway was lifted to the previous year’s
actual underlying NPAT. Similarly, the gateway for ANWC/sales was also increased from 85 per cent of budgeted ANWC/sales
to previous year’s actual ANWC/sales. However, the scale of STI payout associated with achievement against budget did not
change to ensure acceleration of STI payment did not occur.
The company’s performance has been reflected in the short term incentive outcomes received by the chief executive officer
and senior executives.
The FY15 LTI plan was tested on 31 July 2017. The outcome was that 100 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 in the top decile
of the comparator group and Nufarm achieved an average ROFE over three years of 12.5 per cent, which exceeded the
target of 11.5 per cent for the FY15 LTI plan.
The board also seeks AGM approval for a revised aggregate fee pool of $2,000,000 per year (representing a 13.6 per cent
increase to the current aggregate) to accommodate the addition of a new board member and cover a review of fees in
January 2018. The current aggregate of $1,760,000 per year was approved at the 2014 AGM.
The human resources committee continues to have a strong focus on the relationship between business performance and
remuneration and in turn, each year the board reviews the financial metrics and individual objectives to ensure they remain
appropriate as a basis of reward given the objectives of the business strategy and the interests of shareholders.
Further detail is provided within the remuneration report.
Peter Margin
Chair – human resources committee
26
NUFARM LIMITED ANNUAL REPORT 2017 2017 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 2017 (FY17). 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 FY17
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 directors’ 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
What it covers
Provides a summary of the remuneration outcomes for FY17.
Details the key remuneration changes in FY17.
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 FY17.
Details the LTI outcomes for the plan with a performance test at
31 July 2017.
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.
27
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
1. Remuneration snapshot
1.1 Key points
The overall structure and philosophy of Nufarm’s approach to remuneration remained consistent throughout FY17. 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 FY17 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
Executive KMPs received an average of 133 per cent of the target opportunity available
based on the assessment of financial and individual performance.
The FY15 LTI plan was tested on 31 July 2017. The outcome was that 100 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 top decile of the comparator
group and Nufarm achieved an average underlying return on funds employed (ROFE)
over three years of 12.5 per cent, which exceeded the target of 11.5 per cent for the
FY15 LTI plan.
1.2 Changes during FY17
Niels Pörksen was appointed group executive portfolio solutions effective 1 October 2016. He represents the portfolio
solutions function as part of Nufarm’s leadership team (NLT). He is responsible for the development of a product portfolio
pipeline that will meet the needs of customers in key crops.
The FY17 STI plan was designed to support Nufarm’s year on year growth. The gateway for the STI plan in FY16 was
85 per cent of the budgeted underlying net profit after tax (UNPAT), in FY17 the gateway was the previous year’s actual
UNPAT. Similarly, the gateway for ANWC/sales was also increased from 85 per cent of budgeted ANWC/sales to previous
year’s actual ANWC/sales. However, the scale of STI payout associated with achievement against budget did not change
in order to ensure that any acceleration of STI payment did not occur.
For FY17, all executive KMPs participated in the same STI plan with the exception of group executive Nuseed, who
participated in a separate plan tailored to ensure the role is measured against and rewarded for Nuseed financial deliverables.
The key change to his STI plan was that the gate for the plan was changed from 85 per cent of budgeted UNPAT to FY16
UNPAT achievement. This ensures the plan does not pay for less than last year’s profit, hence rewarding year on year growth.
1.3 Key management personnel
Nufarm’s KMP comprise the directors of the company and selected members of the NLT. The term executive KMPs 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
Niels Pörksen
Position
Managing director and chief executive officer
Chief financial officer
Group executive supply chain operations
Group executive Nuseed
Group executive portfolio solutions
Term as KMP in FY17
1 August 2016 – 31 July 2017
1 August 2016 – 31 July 2017
1 August 2016 – 31 July 2017
1 August 2016 – 31 July 2017
1 October 2016 – 31 July 2017
28
NUFARM LIMITED ANNUAL REPORT 2017 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 2017, the HRC reviewed information provided by Egan Associates Pty Ltd to assess whether existing frameworks
remain appropriate. The HRC also sought external general market movement data for the 2017 year from Egan Associates
Pty Ltd, but did not receive 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 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.
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 in making its remuneration decisions.
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 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 cumulative net benefit of at least
$116 million by 2018.
29
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
A focus on managing working capital and improving returns on funds employed is fundamental to the way in which Nufarm
operates 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
The executive remuneration structure is based on 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.
Disclosed
executives
52.6%
13.2%
13.2%
21.0%
34.2% Equity
35.0% Equity
CFO
50.0%
15%
15%
20.0%
CEO
41.6%
14.6%
14.6%
29.2%
43.8% Equity
FAR
Cash STI
Deferred STI
LTI
(a) Remuneration structure
Attract, motivate and
retain highly skilled
employees
FAR
Fixed annual
remuneration
Reward achievement
of financial and strategic
objectives
STI
Align to long term
shareholder value
creation
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.
30
NUFARM LIMITED ANNUAL REPORT 2017 (b) FY17 STI plan
Changes to the STI plan
For FY17, the board reinforced the principle of rewarding year on year growth. This was done by increasing the gateway for
the STI plan from 85 per cent of the budgeted UNPAT to the previous year’s actual UNPAT for both the UNPAT measure and
the individual component of the STI. Similarly, the gateway for ANWC/sales was also increased from 85 per cent of budgeted
ANWC/sales to the previous year’s actual ANWC/sales. However, the scale of STI payout associated with achievement against
budget did not change in order to ensure acceleration of STI payment did not occur.
For FY17, all executive KMPs participated in the same STI plan with the exception of group executive Nuseed, who participated
in a separate plan tailored to ensure the role was measured against and rewarded for Nuseed financial deliverables.
Both plan details are below, with the major differences between the plans outlined where applicable.
Who participates in the STI?
When are awards made?
What measures are used
in the plan?
When and how are the STI
payments determined?
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 2017.
All executive KMP roles (except
group executive (GE) Nuseed)
80% of the potential was based on
Nufarm group underlying net profit
after tax (UNPAT) and average net
working capital (ANWC)/sales.
Group executive Nuseed
30% of the potential was based on Nufarm group
UNPAT and ANWC/sales.
50% of the potential was based on Nuseed UNPAT
and ANWC/sales.
20% of the potential was based on individual strategic
and business improvement objectives aligned to the
role and contribution of the executive.
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.
All executive KMP roles (except GE Nuseed)
Group UNPAT
Group ANWC
Performance
% Budget
achieved
Below threshold < FY16 group
% of target STI
opportunity
realised against
measure
Nil
Threshold
Target
Stretch
UNPAT
FY16 group
UNPAT
100%
120%
85%
100%
150%
% budget
achieved
< FY16 group
ANWC
FY16 group
ANWC
100%
110%
% of target STI
opportunity
realised against
measure
Nil
100%
100%
150%
Nuseed UNPAT
Group executive Nuseed
Additional to group Nufarm measures shown in the table immediately above, the following
two Nuseed measures also form part of the STI plan.
Performance
Below threshold < 85%
Threshold
Target
Stretch
Straight-line vesting between threshold and budget and between budget (target) and
stretch. Strategic and business improvement objectives are assessed on a merit basis against
stated objectives.
< 85%
85%
100%
110%
Nil
25%
100%
150%
Nil
25%
100%
150%
85%
100%
120%
Nuseed ANWC
31
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
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?
(c) FY17 LTI plan
Why have an LTI plan?
Who participates
in the LTI plan?
Are the awards
cash or shares?
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 provides 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.
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?
• 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 and 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.
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?
32
NUFARM LIMITED ANNUAL REPORT 2017 What is the RTSR
performance required
for vesting?
How is the ROFE target set?
How is ROFE measured?
What ROFE result is
required for vesting?
What was the result
for the FY17 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 RTSR grant vesting
0%
50%
Straight-line vesting between 50% and 100%
100% vesting
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
ROFE objectives are set by the board at the beginning of each year. There is both a ‘target’
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.
Percentage of ROFE target achieved
Less than target
Target
Between target and stretch
Stretch
The FY15 award, which matured in 2017, exceeded the ROFE stretch over the three-year
performance period and performance against the RTSR target was above the 75th percentile
over the same period. The three-year average ROFE outcome was 12.5% compared with
a three-year target of 11.5%. Overall, 100% of the FY15 award vested at 31 July 2017.
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 to the 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.
Proportion of ROFE grant vesting
0%
50%
Straight-line vesting between 50% and 100%
100%
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.
33
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
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 EBIT 1
ANWC/sales3
Underlying NPAT 2
ROFE achieved
Shareholder value
Closing share price 31 July
TSR
Dividends declared
FY17
FY16
FY15
FY14
FY13
$m
%
$m
%
$
%
cents
302.3
36.8
135.8
13.6
8.46
3.5
13.0
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
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.
3.2 Short term incentive outcomes
Based on an underlying NPAT result of $135.8 million, an ANWC/sales result at 36.8 per cent and performance against
individual strategic and business improvement objectives, disclosed executives employed for the performance period
FY17 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) FY17 STI plan payment results
Outcomes against targets for disclosed executives are shown below:
Financial: Weighting and outcome 2
Group
UNPAT
%
Group
ANWC
%
Business unit
profitability
%
Business
unit ANWC
%
Personal:
Weighting
and outcome
%
Overall
award as a
% of target
potential
40
40
40
15
35
40
40
40
15
35
-
-
-
25
5
-
-
-
25
5
20
20
20
20
20
133
133
133
132
135
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Niels Pörksen1
Key:
Below threshold
Between threshold and target
Greater than target
1. Weighting reflects N Pörksen’s transition from his European regional management role to his KMP role effective 1 October 2016.
2. Nufarm’s objective is to be as transparent as possible, without disclosing commercially sensitive information. Consequently, while STI measures, descriptions,
weighting and performance in FY17 for disclosed executives have been provided above, the specific targets for measures such as NPAT have not.
34
NUFARM LIMITED ANNUAL REPORT 2017
The table below displays FY17 STI payments as a percentage of FAR and also as a percentage of target opportunity
2017 STI potential
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Niels Pörksen1
Senior executive average
At target
$
875,000
481,490
357,000
221,928
368,933
460,870
At
maximum
$
1,312,500
722,236
535,500
332,893
553,399
691,305
Total
award
$
1,166,247
641,756
475,829
293,015
498,693
615,108
FY17 STI
award as
a % of
target
potential
133
133
133
132
135
133
FY17 STI
as % of
FAR
93
80
67
66
70
94
To be paid
in cash in
October
Retained
in shares
vesting 2nd
anniversary
2017 31 July 20192
$
583,124
320,878
237,915
146,508
249,347
$
583,123
320,878
237,914
146,507
249,346
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 FY17 STI payment retained in shares will vest on 31 July 2019, on the second anniversary from effective allocation date.
(b) Historical STI plan performance relative to Nufarm’s UNPAT results
The following chart compares Nufarm’s historical STI plan performance results against underlying NPAT 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 NPAT growth as was the case in FY16.
UNPAT growth vs STI outcomes
)
%
(
h
t
w
o
r
g
T
A
P
N
g
n
y
l
r
e
d
n
U
i
40
30
20
10
0
-10
-20
-30
-40
160
140
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
FY17
Underlying NPAT percentage growth
Percentage STI max
3.3 Long term incentive outcomes
The performance period for the FY15 LTI plan concluded on 31 July 2017.
The results of Nufarm’s RTSR was calculated by an external provider. The RTSR vesting result was based on Nufarm ranking in
the top decile 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.
35
NUFARM LIMITED ANNUAL REPORT 2017
DIRECTORS’ REPORT continued
(a) FY15 LTI plan testing as at 31 July 2017
The vesting table for the FY15 LTI plan is detailed below, reflecting performance up to 31 July 2017 against the two
performance measures of RTSR and ROFE.
Performance measure
RTSR (100% vesting)
ROFE (100% vesting)
Total
(b) FY15 LTI award outcome
The table below details the individual outcome for the FY15 LTI plan.
% of total
plan vested
50
50
100
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Niels Pörksen
Total
number
of rights
available
49,778
55,355
37,485
16,508
-
Total
number
of rights
awarded
49,778
55,355
37,485
16,508
-
Total award
as a % of
potential
100.0
100.0
100.0
100.0
n/a
Average
grant date
fair value of
awarded
rights
$3.87
$3.87
$3.87
$3.87
n/a
Total grant
date fair
value of
award
$
192,641
214,224
145,067
63,886
-
(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
)
%
(
e
m
o
c
t
u
o
n
a
p
l
I
T
L
120
100
80
60
40
20
0
7
1
0
2
l
u
J
%
2
.
9
8
6
1
0
2
l
u
J
a
/
n
3
1
0
2
l
u
J
%
0
.
0
4
1
0
2
l
u
J
%
3
1
3
.
5
1
0
2
l
u
J
LTI plan
Share price
)
$
(
e
c
i
r
p
e
r
a
h
S
12
10
8
6
4
2
0
2
1
0
2
l
u
J
36
NUFARM LIMITED ANNUAL REPORT 2017
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 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 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 2014 AGM, shareholders approved an aggregate of
$1,760,000 per year (including superannuation costs). The total fees for the 2017 year remained within the approved cap.
The board has determined that it is appropriate to seek AGM approval for a revised aggregate fee pool of $2,000,000 per
year (representing a 13.6 per cent increase to the current aggregate) to accommodate the addition of a new board member
and cover a review of fees in January 2018.
Board fees are reviewed every 18 months with the last fees increase effective 1 August 2016. These fees will be reviewed
again in January 2018. Nufarm’s NEDs are remunerated with set fees and do not receive any performance-based pay. This
enables them to maintain independence and impartiality when making decisions affecting the future direction of the company.
Chairman 1
General board
Audit committee chair
Audit committee member
HSE risk committee chair
HSE risk committee member
HR committee chair
HR committee member
Nominations committee chair
Nominations committee member
1. The chairman receives no fees as a member of any committee.
Fees applicable from
1 August 2016 to
31 July 2017
($) per annum
378,378
154,792
31,200
15,600
18,200
9,100
26,000
13,000
12,012
1,560 per meeting
37
NUFARM LIMITED ANNUAL REPORT 2017 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
$
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
166,719
160,307
183,265
176,216
144,974
140,762
343,980
330,750
186,810
179,625
173,338
168,035
148,992
143,262
51,236
–
1,399,314
1,298,957
1,215,833
1,165,000
2,615,147
2,463,957
768,317
747,696
714,000
709,012
–
338,736
713,723
–
440,866
487,047
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
583,123
218,842
583,123
218,842
320,878
142,778
237,914
127,658
–
83,539
207,675
–
146,507
57,435
2,636,906
2,282,491
5,252,053
4,746,448
912,974
411,410
1,496,097
630,252
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,714
9,095
2,714
9,095
–
9,509
32,158
98,604
–
64,670
54,501
–
50,070
6,598
136,729
179,381
139,443
188,476
Total
$
166,719
160,307
183,265
176,216
144,974
140,762
343,980
330,750
186,810
179,625
173,338
168,035
148,992
143,262
51,236
–
1,399,314
1,298,957
1,801,670
1,392,937
3,200,984
2,691,894
1,089,195
899,983
984,072
935,274
–
486,945
975,899
–
637,443
551,080
3,686,609
2,873,282
6,887,593
5,565,176
In AUD
Directors’ non-executive
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
M McDonald 2
Sub total non-executive directors’ remuneration
Executive director GA Hunt
Total directors’ remuneration
Group executives
PA Binfield
E Prado
V Fischer 3
N Pörksen4
B Zacharias
Group executives – former KMP
Sub total – total executive remuneration
Total directors’ and executive remuneration
1. Represents total remuneration paid in the financial year.
2. M McDonald appointed 22 March 2017.
3. V Fischer resigned 5 February 2016.
4. N Pörksen appointed 1 October 2016.
38
Post-
employment
Share-based
payments
Other
long term
Total1
Superannuation
$
Termination
benefits
$
Equity
settled
$
Total
performance
of total
remuneration
based
remuneration
$
$
%
%
Percentage of
Value of options
remuneration
as a proportion
16,672
16,031
18,327
17,622
14,498
14,076
34,398
33,075
18,682
17,963
17,334
16,803
14,899
14,326
5,124
–
139,934
129,896
37,083
35,000
177,017
164,896
37,083
35,000
2,917
–
–
–
200,414
23,398
48,207
49,016
108,688
287,347
285,705
452,243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
761,804
412,113
761,804
412,113
442,560
308,798
354,099
238,449
124,410
136,028
–
–
186,126
149,998
1,118,813
821,655
1,880,617
1,233,768
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
183,391
176,338
201,592
193,838
159,472
154,838
378,378
363,825
205,492
197,588
190,672
184,838
163,891
157,588
56,360
–
1,539,248
1,428,853
2,600,557
1,840,050
4,139,805
3,268,903
1,568,838
1,243,781
1,338,171
1,176,640
811,769
1,135,325
–
–
871,776
750,094
4,914,110
3,982,284
9,053,915
7,251,187
52
34
49
36
44
31
0
26
30
0
38
28
16
14
15
15
14
12
0
6
6
0
13
9
NUFARM LIMITED ANNUAL REPORT 2017
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
$
166,719
160,307
183,265
176,216
144,974
140,762
343,980
330,750
186,810
179,625
173,338
168,035
148,992
143,262
51,236
–
1,399,314
1,298,957
1,215,833
1,165,000
2,615,147
2,463,957
768,317
747,696
714,000
709,012
338,736
713,723
–
–
440,866
487,047
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
583,123
218,842
583,123
218,842
320,878
142,778
237,914
127,658
83,539
207,675
–
–
146,507
57,435
Total
$
166,719
160,307
183,265
176,216
144,974
140,762
343,980
330,750
186,810
179,625
173,338
168,035
148,992
143,262
51,236
–
1,399,314
1,298,957
1,801,670
1,392,937
3,200,984
2,691,894
899,983
984,072
935,274
486,945
975,899
–
–
637,443
551,080
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,714
9,095
2,714
9,095
9,509
32,158
98,604
64,670
54,501
–
–
50,070
6,598
–
1,089,195
2,636,906
2,282,491
5,252,053
4,746,448
912,974
411,410
1,496,097
630,252
136,729
179,381
139,443
188,476
3,686,609
2,873,282
6,887,593
5,565,176
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Sub total non-executive directors’ remuneration
In AUD
Directors’ non-executive
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
M McDonald 2
Executive director GA Hunt
Total directors’ remuneration
Group executives
PA Binfield
E Prado
V Fischer 3
N Pörksen4
B Zacharias
Group executives – former KMP
Sub total – total executive remuneration
Total directors’ and executive remuneration
1. Represents total remuneration paid in the financial year.
2. M McDonald appointed 22 March 2017.
3. V Fischer resigned 5 February 2016.
4. N Pörksen appointed 1 October 2016.
Post-
employment
Share-based
payments
Other
long term
Total1
Superannuation
$
Termination
benefits
$
16,672
16,031
18,327
17,622
14,498
14,076
34,398
33,075
18,682
17,963
17,334
16,803
14,899
14,326
5,124
–
139,934
129,896
37,083
35,000
177,017
164,896
37,083
35,000
–
2,917
–
200,414
23,398
–
48,207
49,016
108,688
287,347
285,705
452,243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Equity
settled
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
761,804
412,113
761,804
412,113
442,560
308,798
354,099
238,449
–
124,410
136,028
–
186,126
149,998
1,118,813
821,655
1,880,617
1,233,768
Total
remuneration
$
$
Percentage of
remuneration
performance
based
%
Value of options
as a proportion
of total
remuneration
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
183,391
176,338
201,592
193,838
159,472
154,838
378,378
363,825
205,492
197,588
190,672
184,838
163,891
157,588
56,360
–
1,539,248
1,428,853
2,600,557
1,840,050
4,139,805
3,268,903
1,568,838
1,243,781
1,338,171
1,176,640
–
811,769
1,135,325
–
871,776
750,094
4,914,110
3,982,284
9,053,915
7,251,187
52
34
49
36
44
31
0
26
30
0
38
28
16
14
15
15
14
12
0
6
6
0
13
9
39
NUFARM LIMITED ANNUAL REPORT 2017
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
2016 remuneration(g) Exercised or lapsed(d)
other(f)
2017(e)
Vested
during
2017
Vested at
31 July
2017(a)
Value at
date of
forfeiture(d)
Directors
GA Hunt
LTI performance 167,743
STI deferred (c)
27,221
95,670
23,927
(43,587)
(27,221)
Executives
Current KMP
PA Binfield LTI performance 138,765
STI deferred(c)
LTI performance
STI deferred(c)
99,752
16,911
20,813
E Prado
B Zacharias LTI performance
49,744
STI deferred(c)
2,569
N Pörksen LTI performance
–
Total
Total
STI deferred(c)
LTI performance 456,004
–
STI deferred
67,514
523,518
35,096
15,611
31,226
13,957
19,276
6,186
26,008
9,328
(48,472)
(20,813)
(31,029)
(16,911)
(13,154)
(2,569)
–
–
207,276
(136,242)
69,009
(67,514)
276,285
(203,756)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
219,826
49,778
49,778
23,927
27,221
–
125,389
55,355
55,355
15,611
20,813
–
99,949
37,485
37,485
13,957
16,911
–
55,866
16,508
16,508
6,186
2,569
26,008
9,328
–
–
–
–
–
527,038
159,126
159,126
69,009
67,514
–
596,047
226,640
159,126
–
–
–
–
–
–
–
–
–
–
–
–
–
(a) All options/rights that are vested are exercisable.
(b) N Pörsken commenced acting as KMP from 1 October 2016.
(c) The grant date fair value of deferred shares granted as remuneration in 2017 was $9.15. 100 per cent of STI deferred shares available to vest in 2017 vested
as the necessary service condition was satisfied. 100 per cent of non-vested STI deferred shares are due to vest in 2018. Note those deferred shares granted
as remuneration during FY17 relate to the FY16 STI outcomes. Deferred shares granted as remuneration on the back of the FY17 STI outcomes will be
determined and allocated in October 2017.
(d) LTIP performance rights forfeited due to a failure to satisfy service or performance conditions during 2017 are disclosed in column ‘forfeited or lapsed’.
Zero per cent of rights due to vest in 2017 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 2017 of $8.46.
(e) 160,637 of total LTIP performance rights held by KMPs are due to vest in 2018, with the remaining unvested balance due to vest in 2019.
(f) ‘Net change other’ reflects changes to KMP during the period.
(g) The number of LTIP performance rights granted as remuneration during FY17 were determined by dividing the KMP’s total LTI grant opportunity
by $9.15, being the five-day VWAP post the announcement of the group’s 2016 annual results.
40
NUFARM LIMITED ANNUAL REPORT 2017 5.3 Shares held in Nufarm Ltd
Shares held in Nufarm Limited
Directors
DG McGauchie
GA Hunt
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
PM Margin
T Takasaki
Executives
Current KMP
PA Binfield
E Prado
B Zacharias
N Pörsken
Total
Balance
at 1 August
2016
Note
Granted as
remuneration
On exercise
of rights
Net
change
other
Balance
at 31 July
2017
1
54,239
143,845
10,000
40,000
15,000
1,170,735
2,458
–
115,017
7,145
33,595
–
1,564,813
–
23,927
–
–
–
–
–
–
–
43,587
–
–
–
–
–
–
–
251
–
–
5,000
2,089
–
–
54,239
211,610
10,000
40,000
20,000
1,172,824
2,458
–
–
–
–
–
–
69,285
47,940
15,723
–
–
(11,000)
(13,627)
–
184,302
44,085
35,691
–
203,756
(17,287)
1,751,282
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 (129,787 shares);
(iii) Auckland Medical Research Foundation (26,558 step-up securities). Dr Goodfellow does not have a beneficial interest in these step-up securities;
(iv) Trustees of the Goodfellow Foundation (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;
(v) Henry Berry Corporation Limited (420,861 shares and 700 step-up securities); and
(vi) 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.
41
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ REPORT continued
Shares issued as a result of the exercise of options
There were 374,220 (2016: 110,483) shares issued as a result of the exercise of options during the year.
Unissued shares under option
There are 349,484 (2016: 374,220) 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 2017 (2016: 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
26 September 2017
42
NUFARM LIMITED ANNUAL REPORT 2017 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 of Nufarm Limited for the financial year
ended 31 July 2017 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
26 September 2017
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.
43
NUFARM LIMITED ANNUAL REPORT 2017 INCOME STATEMENT
For the year ended 31 July 2017
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
2017
$000
2016
$000
Note
3,111,115
(2,197,865)
913,250
2,791,217
(1,989,561)
801,656
7
19
10
10
10
13,264
(411,067)
(195,666)
(40,415)
(124)
279,242
8,591
(101,774)
(13,812)
(115,586)
(106,995)
39,971
(419,317)
(181,273)
(39,348)
1,397
203,086
15,678
(112,159)
(56,966)
(169,125)
(153,447)
172,247
49,639
11
(57,205)
(22,161)
Profit/(loss) for the period from continuing operations
115,042
27,478
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.
114,467
575
27,519
(41)
115,042
27,478
30
30
38.7
38.6
6.1
6.1
44
NUFARM LIMITED ANNUAL REPORT 2017 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 July 2017
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
Available-for-sale financial assets – reclassified to profit or loss
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
2017
$000
115,042
2016
$000
27,478
(29,099)
2,479
4,019
1,342
(894)
(64,880)
(1,497)
5,487
(448)
–
(2,091)
(358)
(19,631)
772
Other comprehensive profit/(loss) for the period, net of income tax
(24,602)
(80,197)
Total comprehensive profit/(loss) for the period
90,440
(52,719)
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.
89,865
575
(52,678)
(41)
90,440
(52,719)
45
NUFARM LIMITED ANNUAL REPORT 2017 BALANCE SHEET
As at 31 July 2017
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.
46
Consolidated
2017
$000
2016
$000
Note
15
16
17
18
20
16
19
20
18
22
23
15
24
25
26
18
28
24
25
18
26
235,145
1,027,516
763,039
25,615
–
2,051,315
281,444
819,977
685,833
34,114
38,564
1,859,932
110,701
334
384
240,248
350,520
891,386
1,593,573
3,644,888
121,681
1,138
438
252,058
352,853
873,038
1,601,206
3,461,138
11,384
826,367
426,026
18,679
17,628
15,718
1,315,802
–
699,430
364,830
18,691
6,524
20,336
1,109,811
12,796
478,028
137,644
97,695
726,163
2,041,965
1,602,923
16,941
542,048
141,284
100,826
801,099
1,910,910
1,550,228
1,090,197
(301,741)
563,140
1,351,596
246,932
4,395
1,602,923
1,080,768
(276,148)
494,055
1,298,675
246,932
4,621
1,550,228
NUFARM LIMITED ANNUAL REPORT 2017 STATEMENT OF CASH FLOWS
For the year ended 31 July 2017
Cash flows from operating activities
Profit/(loss) for the period – before tax
Adjustments for:
Depreciation and amortisation
Non-cash material items
Inventory write-down excluding material items
Share of (profits)/losses of associates net of tax
Net finance expense
Other
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
Cash generated from operations excluding material items
Material items
Cash generated from operations
Interest received
Dividends received
Interest paid
Taxes paid
Net operating cash flows
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sale of property, plant and equipment (material items)
Proceeds from sales of businesses and investments (material items)
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 1
Consolidated
2017
$000
2016
$000
Note
172,247
49,639
8
19
6
22
14
23
87,731
7,081
16,849
124
93,183
(651)
(209,195)
(94,055)
137,896
(29,947)
181,263
(17,937)
163,326
8,591
1,431
(97,996)
(19,909)
55,443
1,031
9,552
39,905
(50,595)
–
(100,651)
(100,758)
85,024
59,173
9,801
(1,397)
96,481
4,001
(114,742)
52,040
30,704
31,041
301,765
(51,688)
250,077
15,678
508
(106,626)
(22,262)
137,375
1,103
–
–
(59,209)
2,665
(82,769)
(138,210)
(747)
1,193,896
(1,153,379)
(15,369)
(29,880)
(5,479)
(2,876)
1,091,834
(1,138,232)
(15,456)
(24,919)
(89,649)
(50,794)
281,444
(6,889)
223,761
(90,484)
390,136
(18,208)
281,444
15
1. Represented by cash at bank of $235.145 million and bank overdraft of $(11.384) million (2016: cash at bank of $281.444 million and bank overdraft of $(nil)).
The statement of cash flows is to be read in conjunction with the attached notes.
47
NUFARM LIMITED ANNUAL REPORT 2017 STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July 2017
Consolidated
Balance at 1 August 2015
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
Share
capital
$000
1,074,119
Translation
reserve
$000
(222,427)
Capital profit
reserve
$000
33,627
–
–
–
–
–
–
–
–
–
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
Balance at 1 August 2016
1,080,768
(287,307)
33,627
(22,468)
494,055
1,298,675
246,932
4,621
1,550,228
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
Available-for-sale financial assets – reclassified to profit or loss
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
–
–
–
–
–
–
–
–
–
–
6,738
–
2,691
–
–
–
–
(29,099)
–
–
–
–
–
(29,099)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2017
1,090,197
(316,406)
33,627
(18,962)
563,140
1,351,596
246,932
4,395
1,602,923
The statement of changes in equity is to be read in conjunction with the attached notes.
48
Retained
earnings
$000
524,089
Nufarm step-up
Non-controlling
Total
$000
1,385,074
securities
$000
246,932
interest
$000
4,789
Total
equity
$000
1,636,795
27,519
27,519
(41)
27,478
Other
reserve
$000
(24,334)
–
–
–
(1,497)
5,487
(448)
772
4,314
3,956
(4,876)
(1,528)
–
–
–
–
–
–
2,479
4,019
1,342
(894)
(358)
6,588
4,739
(6,738)
–
–
–
(1,083)
(19,631)
7,888
(26,564)
(11,358)
(2,091)
112,376
(31,996)
(11,295)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,631)
(64,880)
(1,497)
5,487
(448)
772
(52,678)
3,956
–
(26,564)
1,773
(11,358)
(1,528)
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
89,865
4,739
–
(31,996)
2,691
(11,295)
(1,083)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(41)
(127)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
575
(801)
(19,631)
(64,880)
(1,497)
5,487
(448)
772
(52,719)
3,956
–
(26,691)
1,773
(11,358)
(1,528)
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
90,440
4,739
–
(32,797)
2,691
(11,295)
(1,083)
114,467
114,467
575
115,042
NUFARM LIMITED ANNUAL REPORT 2017
Share
capital
$000
1,074,119
Translation
Capital profit
reserve
$000
(222,427)
reserve
$000
33,627
Other
reserve
$000
(24,334)
Retained
earnings
$000
524,089
Total
$000
1,385,074
Nufarm step-up
securities
$000
246,932
Non-controlling
interest
$000
4,789
Total
equity
$000
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)
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
Balance at 1 August 2016
1,080,768
(287,307)
33,627
(22,468)
494,055
1,298,675
246,932
4,621
1,550,228
–
114,467
114,467
–
–
2,479
4,019
1,342
(894)
(358)
6,588
4,739
(6,738)
–
–
–
(1,083)
(2,091)
–
–
–
–
–
–
112,376
–
–
(31,996)
–
(11,295)
–
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
89,865
4,739
–
(31,996)
2,691
(11,295)
(1,083)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
575
–
–
–
–
–
–
–
575
–
–
(801)
–
–
–
115,042
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
90,440
4,739
–
(32,797)
2,691
(11,295)
(1,083)
Consolidated
Balance at 1 August 2015
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
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
Available-for-sale financial assets – reclassified to profit or loss
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
6,738
2,691
(64,880)
(64,880)
(29,099)
(29,099)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2017
1,090,197
(316,406)
33,627
(18,962)
563,140
1,351,596
246,932
4,395
1,602,923
The statement of changes in equity is to be read in conjunction with the attached notes.
49
NUFARM LIMITED ANNUAL REPORT 2017
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 2017 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 26 September 2017.
(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 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 the group 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, using a value-in-use (VIU) or a fair value less cost to dispose (FVLCD) methodology to estimate the
recoverable amount of cash-generating units. VIU is determined as the present value of the estimated future cash flows,
expected to arise from the continued use of the asset in its present form and its eventual disposal.
VIU is determined by applying assumptions specific to the group’s continued use and cannot consider future development.
The determination of recoverable value often requires the estimation and discounting of future cash flows which is based on
information available at balance date such as expected revenues from products, the return on assets, future costs, growth
rates, applicable discount rates and useful lives.
50
NUFARM LIMITED ANNUAL REPORT 2017
2. Basis of preparation (continued)
(d) Use of estimates and judgements (continued)
(ii) Impairment testing (continued)
FVLCD is an estimate of the amount that a market participant would pay for an asset or cash-generating unit (CGU), less the
cost to dispose. Fair value is generally determined using independent market assumptions to calculate the present value of
the estimated future cash flows expected to arise from the continued use of the asset, and its eventual sale where a market
participant may take a consistent view. Cash flows are discounted using an appropriate discount rate to arrive at a net present
value of the asset, which is compared against the asset’s carrying value.
These estimates are subject to risk and uncertainty that may be beyond the control of the group; hence there is a possibility
that changes in circumstances will materially alter projections, which may impact the recoverable amount of assets at each
reporting date.
Other non-current assets are also assessed for impairment indicators. Refer to note 23 for key assumptions made in
determining the recoverable amounts of the CGUs.
(iii) Income taxes
Uncertain tax matters:
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. The group has
exercised judgement in the application of tax legislation and its interaction with income tax accounting principles. 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 recognised on the balance sheet and the amount of other tax losses and temporary differences not yet
recognised in the period in which the tax determination is made.
Deferred tax:
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. Judgement is required by the group to determine the likely timing and the level of future
taxable income. The group assess the recoverability of recognised and unrecognised deferred taxes including losses in
Australia and overseas using assumptions and projected cash flows.
Deferred tax liabilities arising from temporary differences in investments, caused principally by retained earnings held in
foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to
occur in the foreseeable future.
(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 and requires the exercise of judgement in relation to assumptions for expected
future salary levels, long term price inflation and bond rates, 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) Working capital
In the course of normal trading activities, the group uses judgement in establishing the carrying value of various elements
of working capital, which is principally inventories and trade receivables. Judgement is required to estimate the provision
for obsolete or slow-moving inventories and bad and doubtful receivables.
In estimating the provision for obsolete or slow-moving inventories, the group considers the net realisable value of inventory
using estimated market price less cost to sell. In estimating the provision for bad and doubtful receivables, the group considers
material change in credit quality considering each geographical location’s specific circumstances.
Actual expenses in future periods may be different from the provisions established and any such differences would impact
future earnings of the group.
51
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
2. Basis of preparation (continued)
(d) Use of estimates and judgements (continued)
(vi) Capitalised development costs
Development expenditure is recognised as an intangible asset when the group judges and can 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.
The criteria above are derived from independent valuations and predicated on estimates and judgements including future
cash flows, revenue streams and value-in-use calculations. Estimates and assumptions may change as new information
becomes available. If, after having commenced the development activity, a judgement is made that the intangible asset
is impaired, the appropriate amount will be written off to the income statement.
(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. Changes to estimates related to the useful life of intellectual property are accounted for prospectively and may
affect amortisation rates and intangible asset carrying values.
(e) Reclassification
Where applicable, comparatives are 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.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards are effective for annual periods beginning on or after 1 August 2017.
The group has not early adopted the following new or amended standards in preparing these consolidated financial statements.
Amendments
The following amended standards are not expected to have a significant impact on the group’s consolidated financial statements.
• Classification and measurement of share-based payment transactions (Amendments to AABS 2).
• Sale or contribution of assets between an investor and its associate or joint venture (Amendments to AASB 10 and AASB 128).
• Disclosure initiative (Amendments to AASB 107).
• Recognition of deferred tax assets for unrealised losses (Amendments to AASB 112).
AASB 15 Revenue from contracts with customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
AASB 15 is effective for the group beginning on or after 1 August 2018.
The group has commenced its implementation project and has completed an initial assessment of the potential impact of
the adoption of AASB 15 on its consolidated financial statements. This has included identifying significant revenue streams,
liaising with the global finance teams and reviewing significant sales and distribution contract terms.
Key areas currently identified requiring further detailed analysis include:
(a) Sales incentive programs – AASB 15 introduces the concept of variable consideration with a constraint. Specifically,
variable consideration is only included in the transaction price if, and to the extent that, it is highly probable that its
inclusion will not result in a significant revenue reversal in the future when the uncertainty has subsequently been resolved.
The constraint on variable consideration is a new way of measurement and may result in different outcomes upon initial
recognition of the sale for Nufarm.
52
NUFARM LIMITED ANNUAL REPORT 2017 3. Significant accounting policies (continued)
New standards and interpretations not yet adopted (continued)
AASB 15 Revenue from contracts with customers (continued)
(b) Tolling – Under AASB 15, revenue will be recognised when a customer obtains control of the goods. For some made-to-
order product contracts, the customer controls all the work in progress as the products are being manufactured. When
this is the case, revenue will be recognised as the products are being manufactured. This may result in revenue, and some
associated costs, for these contracts being recognised earlier than at present – i.e. before the goods are delivered to the
customers’ premises.
The group is currently performing a detailed assessment of the impact resulting from the application of AASB 15 and expects
to disclose additional quantitative information before it adopts AASB 15.
The group is currently assessing which transition option and practical expedients it will adopt.
AASB 9 Financial Instruments
AASB 9 is effective for the group beginning on or after 1 August 2018.
The actual impact of adopting AASB 9 on the group’s consolidated financial statements in 2018 is not known and cannot be
reliably estimated because it will be dependent on the financial instruments that the group holds and economic conditions
at that time, as well as accounting elections and judgements that it will make in the future.
Changes in accounting policies resulting from the adoption of AASB 9 will generally be applied retrospectively, except as
described below. The new hedge requirements should generally be applied prospectively and for any assessments that are
required to be made based on facts and circumstances that exist at the date of initial application.
The group plans to take advantage of the exemption allowing it not to restate comparative information for prior periods with
respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial
assets and financial liabilities resulting from the adoption of AASB 9 generally will be recognised in retained earnings and
reserves as at 1 August 2018.
As part of the group’s transition plan the key areas of focus are:
(a) Classification – Financial assets – AASB 9 contains three principle classification categories for financial assets: measured at
amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The
standard eliminates the existing AASB 139 categories of held to maturity, loans and receivables and available-for-sale.
(b) Impairment – Financial assets and contract assets – AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward-
looking ‘expected credit loss’ (ECL) model. This will require considerable judgement as to how changes in economic factors
affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial
assets measured at amortised cost or FVOCI, except for investments in equity instruments and contract assets.
(c) Hedge accounting – AASB 9 will require the group to ensure that hedge accounting relationships are aligned with the
group’s risk management objectives and strategy and to apply a more qualitative and forward-looking approach to
assessing hedge effectiveness. AASB 9 also introduces new requirements regarding rebalancing of hedge relationships
and prohibiting voluntary discontinuation of hedge accounting.
AASB 16 Leases
The standard is effective for the group beginning on or after 1 August 2019.
AASB 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
There are optional exemptions for short term leases and leases of low value.
53
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
New standards and interpretations not yet adopted (continued)
AASB 16 Leases (continued)
The group has commenced an initial assessment of the potential impact on its consolidated financial statements and has not yet
quantified the impact on its reported assets and liabilities of adoption of AASB 16. So far, the most significant impact identified
is that the group will recognise new assets and liabilities for its operating leases of warehouse and factory facilities in the United
Kingdom. In addition, the nature of expenses related to those leases will now change as AASB 16 replaces the straight-line
operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.
The group has not yet determined which transition approach to apply, being the retrospective approach or modified
retrospective approach with optional practical expedients.
Details of the group’s operating leases are disclosed in note 32.
(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.
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.
54
NUFARM LIMITED ANNUAL REPORT 2017
3. Significant accounting policies (continued)
(a) Basis of consolidation (continued)
(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.
When the group loses control over a subsidiary it derecognises the assets and liabilities of the subsidiary and any related NCI
and other components of equity. Any resulting gain or loss is recognised in profit and loss. Any interest retained is measured
at fair value when control is lost.
Changes in the group’s interest in a subsidiary that do not result in a loss of control are accounted for as an equity transaction.
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.
(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.
55
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(b) Foreign currency (continued)
(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 and accumulated in translation reserve except to
the extent that the translation difference is allocated to NCI. When a foreign operation is disposed of, in part or in full, the
relevant amount in the translation reserve 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
translation reserve.
(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.
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.
56
NUFARM LIMITED ANNUAL REPORT 2017 3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(i) Non-derivative financial assets (continued)
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.
(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.
57
NUFARM LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(iv) Derivative financial instruments, including hedge accounting (continued)
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.
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.
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.
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.
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NUFARM LIMITED ANNUAL REPORT 2017 3. Significant accounting policies (continued)
(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.
(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.
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NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(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.
(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, for the current and
comparative periods, are as follows:
• capitalised development costs
5 – 30 years
• intellectual property – finite life
over the useful life and not more than 30 years
• computer software
3 – 7 years
Amortisation methods, useful lives and residual values are reassessed at each reporting date.
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NUFARM LIMITED ANNUAL REPORT 2017 3. Significant accounting policies (continued)
(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. Impairment losses recognised in profit and loss for equity investments classified as available-for-
sale are not reversed through profit and loss.
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NUFARM LIMITED ANNUAL REPORT 2017 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.
Refer to use of estimates and judgements note 2 and intangibles note 23 for further information.
(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.
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NUFARM LIMITED ANNUAL REPORT 2017 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.
(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 an 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 predetermined 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.
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NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(j) Employee benefits (continued)
(vi) Share-based payment transactions (continued)
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
Operating leases are not capitalised and payments made 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.
Assets held under lease, which result in the group receiving substantially all the risks and rewards of ownership, are capitalised
as property, plant and equipment at the lower of the fair value of the asset or the estimated present value of the minimum
lease payments, with a corresponding lease liability included within loans and borrowings.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of
the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising
the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
(n) Finance income and finance costs
The group’s finance income and finance costs include the following: interest income, interest expense, 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.
Finance costs are expensed as incurred except where they relate to the financing of construction or development of qualifying assets.
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NUFARM LIMITED ANNUAL REPORT 2017 3. Significant accounting policies (continued)
(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.
(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.
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NUFARM LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS continued
3. Significant accounting policies (continued)
(o) Income tax (continued)
(ii) Nature of tax funding arrangements and tax sharing agreements (continued)
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 consolidated 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.
(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 arms’-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.
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NUFARM LIMITED ANNUAL REPORT 2017
4. Determination of fair values (continued)
(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.
(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 South America. The North America region includes Canada and USA. The Latin
America region (previously known as South America) includes Brazil, Argentina, Chile, Uruguay, Paraguay, Bolivia, Colombia,
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.
67
NUFARM LIMITED ANNUAL REPORT 2017
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
654,194
165,633
539,803
761,050
821,835
2,942,515 168,600
–
3,111,115
64,876
28,315
121,350
89,338
95,608
399,487
45,305
(54,776)
390,016
(13,247)
51,629
(3,886)
24,429
(35,523)
85,827
(19,073)
70,265
(6,193)
89,415
(77,922)
321,565
(8,906)
36,399
(903)
(55,679)
(87,731)
302,285
2017
Operating
segments
Revenue
Total segment
revenue
Results
Underlying
EBITDA (a)
Depreciation
and amortisation
excluding material
items
Underlying EBIT(a)
Total material items (refer note 6)
Net financing costs (excluding material items)
Profit/(loss) before tax
(23,043)
(106,995)
172,247
Assets
Segment assets
Investment in
associates
559,936
77,794
756,299
528,935
846,434
2,769,398
373,931
501,225
3,644,554
–
–
–
–
–
–
334
–
334
Total assets
559,936
77,794
756,299
528,935
846,434
2,769,398
374,265
501,225
3,644,888
Liabilities
Segment liabilities
184,960
209,181
249,370
115,387
182,086
940,984
33,493 1,067,488
2,041,965
Total liabilities
184,960
209,181
249,370
115,387
182,086
940,984
33,493 1,067,488
2,041,965
Other segment
information
Capital
expenditure
39,730
2,022
57,130
14,057
5,995
118,934
32,312
–
151,246
(a) Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA is underlying EBIT, before depreciation, amortisation
and impairments.
68
NUFARM LIMITED ANNUAL REPORT 2017
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
26,833
1,053,976 1,910,910
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.
69
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
5. Operating segments (continued)
Geographical information – revenue by location of customer
Brazil
United States of America
Australia
Rest of world (b)
Total
Revenue
2017
$000
707,266
641,132
630,573
1,132,144
3,111,115
2016
$000
590,784
582,525
519,709
1,098,199
2,791,217
(b) Other than Australia, United States of America and Brazil, sales to other countries are individually less than 10 per cent of the group’s total revenues.
Geographical information – non-current assets by location of asset
United States of America
Australia
Brazil
United Kingdom
Rest of world (c)
Unallocated (d)
Total
Revenue
2017
$000
334,601
284,991
273,514
272,065
188,043
240,359
1,593,573
2016
$000
357,781
265,472
278,399
246,648
200,898
252,008
1,601,206
(c) Other than Australia, United States of America, Brazil and United Kingdom, non-current assets held in other countries are individually less than 10 per cent of
the group’s total non-current assets.
(d) Unallocated non-current 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
Sale of Excel Crop Care investment
Gain arising on revaluation of investment to fair value
Argentina peso devaluation event
Total
2017 asset rationalisation and restructure
Consolidated
Consolidated
2017
$000
Pre-tax
2017
$000
After-tax
2015
$000
Pre-tax
2015
$000
After-tax
(23,937)
894
–
–
(23,043)
(22,250)
894
–
–
(21,356)
(126,223)
–
27,127
36
(99,060)
(108,497)
–
27,075
23
(81,399)
The asset rationalisation and restructuring program continued throughout 2017 resulting in a further $23.937 million of costs
relating primarily to the integration of the Crop Care range under the Nufarm brand, the restructure of back office activities
in Europe and the rationalisation of two production facilities in Australia and India. Included in this charge is a non-cash
write-down of inventory, property, plant and equipment assets and intangible assets (goodwill) of $11.833 million related
to the production facilities in Australia and India primarily held in the ANZ and Asia segments.
2017 sale of Excel Crop Care investment
During October 2016, Nufarm recorded a gain of $0.894 million on the sale of its 14.69 per cent interest in Excel Crop Care.
70
NUFARM LIMITED ANNUAL REPORT 2017
6. Items of material income and expense (continued)
2016 asset rationalisation and restructure
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 $126.223 million and 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
$000
Pre-tax
Further explanation of nature of cost
81,346 Primarily the write-downs of product-related assets
30,999 Primarily closure of the Calgary plant
13,878
126,223
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).
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.
Material items are classified by function as follows:
Year ended 31 July 2017
$000
Asset rationalisation and
restructuring
Sale of Excel Crop Care
investment
Total material items
Total material items
included in operating
profit
Year ended 31 July 2016
$000
Asset rationalisation and
restructuring
Argentina peso
devaluation event
Gain due to revaluation of
investment to fair value
Total material items
Total material items
included in operating profit
Cost of
sales
Other
income
Selling,
marketing and
distribution
expense
General and
administrative
expense
Research and
development
expenses
Net
financing
costs
(2,515)
–
(419)
(20,909)
–
(2,515)
894
894
–
(419)
–
(20,909)
(94)
–
(94)
–
–
–
Total
pre-tax
(23,937)
894
(23,043)
(2,515)
894
(419)
(20,909)
(94)
–
(23,043)
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)
71
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
6. Items of material income and expense (continued)
Material items impact operating cash flows as follows:
Net operating cash flows
Net operating cash (inflows)/outflows arising on material items
Net cash from operating activities excluding material items
7. Other income
Dividend income
Rental income
Gain arising on revaluation of investment to fair value (a)
Sundry income
Total other income
(a) Refer to note 6, 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
2017
$000
55,443
17,937
73,380
2016
$000
137,375
51,688
189,063
Consolidated
2017
$000
745
279
–
12,240
13,264
2016
$000
35
243
27,127
12,566
39,971
Consolidated
2017
$000
(87,731)
(19,324)
(5,078)
2016
$000
(85,024)
(22,910)
(6,476)
Consolidated
2017
$000
(284,751)
(45,664)
(21,507)
(1,618)
(9,537)
(2,707)
(8,052)
(373,836)
2016
$000
(271,966)
(48,237)
(13,471)
(3,991)
(8,645)
(2,481)
(17,464)
(366,255)
The restructure expense relates to the group’s asset rationalisation and organisational restructure program.
These costs are included in material items in note 6.
72
NUFARM LIMITED ANNUAL REPORT 2017 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
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
2017
$000
8,591
8,591
(96,072)
(3,777)
(1,925)
(13,812)
(115,586)
2016
$000
15,678
15,678
(104,387)
(5,533)
(2,239)
(56,966)
(169,125)
(106,995)
(153,447)
Consolidated
2017
$000
2016
$000
48,211
3,119
(4,121)
47,209
1,641
2,730
5,625
9,996
30,276
12,538
(2,393)
40,421
(20,433)
(14)
2,187
(18,260)
Total income tax expense/(benefit) in income statement
57,205
22,161
Attributable to:
Continuing operations
Total income tax expense/(benefit) in income statement
57,205
57,205
22,161
22,161
73
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
11. Income tax expense (continued)
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
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.
Consolidated
2017
$000
2016
$000
172,247
49,639
51,674
14,892
6,698
2,668
2,730
5,625
3,119
(3,115)
(2,002)
(6,071)
61,326
(4,121)
57,205
4,591
2,218
(14)
2,187
12,538
(5,051)
(1,740)
(5,067)
24,554
(2,393)
22,161
(4,074)
(4,074)
(4,098)
(4,098)
524
358
882
(3,687)
(772)
(4,459)
14. Acquisition of businesses and acquisition of non-controlling interests
Business acquisitions – 2017
There were no business acquisitions in the current period.
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. The provisional fair
value of assets acquired, established at 1 November 2015, has remained unchanged throughout the 12-month period post
acquisition.
74
NUFARM LIMITED ANNUAL REPORT 2017 14. Acquisition of businesses and acquisition of non-controlling interests (continued)
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, during August 2016 Nufarm 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.
Acquisition of non-controlling interest
There was no acquisition of non-controlling interest in the current or prior period.
15. Cash and cash equivalents
Bank balances
Call deposits
Bank overdraft
Total cash and cash equivalents
2017
$000
217,128
18,017
235,145
(11,384)
223,761
2016
$000
236,511
44,933
281,444
–
281,444
75
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
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
18. Tax assets and liabilities
Current tax assets and liabilities
2017
$000
2016
$000
974,915
(26,439)
948,476
5,928
23,238
49,874
1,027,516
779,318
(36,127)
743,191
8,521
18,298
49,967
819,977
11,125
73,197
26,379
110,701
19,060
62,351
40,270
121,681
1,138,217
941,658
2017
$000
203,698
15,996
552,662
772,356
(9,317)
763,039
2016
$000
202,231
14,780
474,613
691,624
(5,791)
685,833
The current tax asset for the group of $25.615 million (2016: $34.114 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 $17.628 million (2016: $6.524 million) represents the amount of
income taxes payable in respect of current and prior financial periods.
76
NUFARM LIMITED ANNUAL REPORT 2017 18. Tax assets and liabilities (continued)
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)
2017
$000
2,480
11,672
20,125
20,054
29,773
156,144
240,248
–
240,248
2016
$000
1,838
14,121
23,361
21,797
22,836
168,105
252,058
–
252,058
2017
$000
(11,612)
(104,285)
–
(514)
(21,233)
–
(137,644)
–
(137,644)
2016
$000
(11,961)
(108,337)
–
–
(20,986)
–
(141,284)
–
(141,284)
2017
$000
(9,132)
(92,613)
20,125
19,540
8,540
156,144
102,604
–
102,604
Movement in temporary differences during the year
Consolidated 2017
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Consolidated 2016
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Balance in
2016
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
Recognised
in income
$000
517
(1,482)
(2,856)
(2,181)
6,157
(10,151)
(9,996)
Recognised
in equity
$000
–
–
524
–
358
–
882
Currency
adjustment
$000
474
3,085
(904)
(76)
175
(1,810)
944
Other
movement
$000
–
–
–
–
–
–
–
Balance in
2015
$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)
Other
movement
$000
–
–
–
–
–
–
–
2016
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
–
110,774
Balance
2017
$000
(9,132)
(92,613)
20,125
19,540
8,540
156,144
102,604
Balance
2016
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
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.
77
NUFARM LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS continued
18. Tax assets and liabilities (continued)
Deferred tax assets and liabilities
Unrecognised deferred tax liability
At 31 July 2017, a deferred tax liability of $23.527 million (2016: $26.865 million) 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 2017, there are unrecognised deferred tax assets in respect of tax losses and timing differences of $43.716 million
(2016: $42.962 million).
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:
Nature of
relationship
Country
India
Excel Crop Care Ltd Associate1
F&N joint ventures
Seedtech Pty Ltd
Joint ventures 2 Eastern Europe
Associate 3
Australia
Ownership and
voting interest
Carrying
amount
Balance date
of associate
31 March
31 December
31 December
2017
%
0.00
0.00
25.00
2016
%
14.69
50.00
25.00
2017
$000
–
–
334
334
2016
$000
–
764
374
1,138
Share of
profit/(loss)
2017
$000
–
(84)
(40)
(124)
2016
$000
2,005
(682)
74
1,397
1. Excel Crop Care is an Indian crop protection business, in which the company 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, the company 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’ and was disclosed as other
investments with a value of $38.564 million at 31 July 2016.
Up to this date the company’s investment in Excel Crop Care was equity accounted due to the company holding 14.69 per cent of voting rights and its 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. During October 2016,
the company sold its 14.69 per cent interest in Excel Crop Care via the open market offer, refer to note 20 for final sale proceeds.
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 continued
to operate in the Czech Republic and Slovakia until September 2016. The joint ventures sold the group and FMC products within their respective countries. 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.
3. Seedtech is a company that offers services to the seed industry such as cleaning, packaging, distribution and storage of seeds.
78
NUFARM LIMITED ANNUAL REPORT 2017
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
Disposal
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
2017
$000
2016
$000
38,564
–
1,342
(39,906)
–
–
39,012
(448)
–
38,564
–
–
38,564
38,564
384
384
438
438
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.
79
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
22. Property, plant and equipment
Consolidated 2017
Cost
Balance at 1 August 2016
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2017
Depreciation and impairment losses
Balance at 1 August 2016
Depreciation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2017
Land
and
buildings
$000
Plant
and
machinery
$000
Leased
plant and
machinery
$000
Capital
work in
progress
$000
201,805
981
–
(2,642)
2,164
(2,182)
200,126
504,451
13,981
–
(7,857)
16,801
(9,206)
518,170
(86,338)
(6,371)
–
–
2,160
–
1,010
(89,539)
(311,277)
(30,695)
–
–
6,452
(138)
4,500
(331,158)
21,912
305
–
(9,445)
(246)
(780)
11,746
(5,570)
(1,572)
–
–
4,435
205
196
(2,306)
27,870
35,328
–
(90)
(18,786)
(841)
43,481
–
–
–
–
–
–
–
–
Total
$000
756,038
50,595
–
(20,034)
(67)
(13,009)
773,523
(403,185)
(38,638)
–
–
13,047
67
5,706
(423,003)
Net property, plant and equipment at 31 July 2017
110,587
187,012
9,440
43,481
350,520
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
(93,416)
(6,659)
–
–
8,024
4,006
1,707
(86,338)
654,148
31,130
329
(112,076)
(42,756)
(26,324)
504,451
(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
Assets pledged as security for finance leases amount to $9.440 million (2016: $10.298 million).
80
NUFARM LIMITED ANNUAL REPORT 2017 23. Intangible assets
Consolidated 2017
Cost
Balance at 1 August 2016
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2017
Amortisation and impairment losses
Balance at 1 August 2016
Amortisation charge for the year
Additions through business
combinations
Impairment loss
Disposals and write-offs
Other transfers
Exchange adjustment
Balance at 31 July 2017
Intellectual
property
Indefinite
life
$000
Finite
life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
1,563
–
–
–
–
13
1,576
533,110
6,725
–
–
547
(14,356)
526,026
272,022
51,374
–
(1,201)
(2,193)
(11,383)
308,619
61,945
42,552
–
(45)
224
(2,021)
1,204,623
100,651
–
(4,792)
(1,422)
(37,687)
102,655 1,261,373
Goodwill
$000
335,983
–
–
(3,546)
–
(9,940)
322,497
(107,840)
–
(1,563)
–
(114,435)
(22,939)
(73,416)
(20,925)
(34,331)
(5,229)
(331,585)
(49,093)
–
–
–
–
2,363
(105,477)
–
–
–
–
(13)
(1,576)
–
–
(103)
(81)
3,232
(134,326)
–
–
127
1,544
2,848
(89,822)
–
–
125
(41)
690
(38,786)
–
–
149
1,422
9,120
(369,987)
Intangibles carrying amount at 31 July 2017
217,020
–
391,700
218,797
63,869
891,386
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
Intellectual
property
Goodwill
$000
Indefinite
life
$000
Finite
life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
354,661
–
3,875
(5,920)
(2,518)
(14,115)
335,983
443,071
–
–
(34,566)
(389,333)
(17,609)
1,563
134,799
3,056
–
(2,396)
394,664
2,987
533,110
303,880
58,026
44
(41,024)
(9,545)
(39,359)
272,022
45,560
15,438
–
(828)
3,714
(1,939)
61,945
1,281,971
76,520
3,919
(84,734)
(3,018)
(70,035)
1,204,623
(112,578)
–
(15,743)
–
(89,586)
(15,185)
(79,384)
(24,408)
(32,216)
(3,766)
(329,507)
(43,359)
–
–
–
2,036
2,702
(107,840)
–
–
(258)
13,745
693
(1,563)
–
–
1,064
(12,364)
1,636
(114,435)
(43)
–
18,506
2,093
9,820
(73,416)
–
–
454
51
1,146
(34,331)
(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
81
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
23. Intangible assets (continued)
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 life 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 $195 million (2016: $208 million), Brazil $175 million
(2016: $166 million), seed technologies $273 million (2016: $252 million), Europe $195 million (2016: $177 million) and Australia
and New Zealand (ANZ) $47 million (2016: $52 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.
Valuation method – value-in-use
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 CGU 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 using a value-in-use methodology is as follows:
Terminal
growth rate
Discount
rate
2017
%
2016
%
2017
%
2016
%
Total goodwill and
indefinite life assets
2017
$000
2016
$000
Material crop protection CGUs
(North America, Brazil, Europe and ANZ)
1.9 to 4.5
1.7 to 4.5
7.8 to 13.5
7.6 to 13.4
136,238
144,341
The terminal growth rate assumed is generally a long term inflation estimate. The discount rate assumed is the company’s
weighted average cost of capital, adjusted for country risk and asset-specific risk. The margin and volume assumptions generally
reflect past experience for existing and enhanced portfolio products, while new products utilise external sources of information
reflecting current market pricing in expected end use markets.
Valuation method – fair value less cost of disposal
At 31 July 2017 the group used the fair value less cost of disposal (FVLCD) method to estimate the Seed Technology CGU
recoverable amount. FVLCD is an estimate of the amount that a market participant would pay for an asset or CGU, less the
cost of disposal. The fair value is determined using 10 year discounted cash flows. Values determined are benchmarked
against comparable market transactions. Cash flows are discounted using an appropriate post-tax market discount rate to
arrive at a net present value of the asset which is compared against the asset’s carrying value.
The fair value measurement was categorised as a Level 3 fair value based on inputs in the valuation technique used (see note 31).
The group commenced using the FVLCD methodology for the Seed Technology CGU to incorporate significant developments in
its product portfolio.
The FVLCD valuation is most sensitive to changes in margin, discount rates, volumes and terminal growth rates.
The range of terminal growth rates and nominal post-tax discount rates applied for impairment testing purposes using a FVLCD
methodology are as follows:
Seed Technology CGU
Terminal
growth rate
Discount
rate
2017
%
2.5
2016
%
2.2
2017
%
13.8
2016
%
13.3
Total goodwill and
indefinite life assets
2016
$000
68,821
2017
$000
67,085
The terminal growth rate assumed is generally a long term inflation estimate. The discount rate assumed is the company’s
weighted average cost of capital, adjusted for country risk and asset-specific risk. The margin and volume assumptions generally
reflect past experience for existing and enhanced portfolio products, while new products utilise external sources of information
reflecting current market pricing in expected end use markets.
82
NUFARM LIMITED ANNUAL REPORT 2017 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
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
2017
$000
2016
$000
812,920
6,118
7,329
826,367
683,854
15,415
161
699,430
9,981
2,815
–
12,796
10,623
212
6,106
16,941
Consolidated
2017
$000
2016
$000
303,150
124,391
(3,065)
1,231
319
426,026
22,861
40,021
403,537
(2,147)
2,264
11,492
478,028
288,517
79,026
(3,696)
787
196
364,830
83,002
19,965
428,800
(4,546)
2,752
12,075
542,048
(223,761)
(281,444)
680,293
625,434
Refer to the section entitled ‘liquidity risk’ in note 31 for detail regarding the group’s financing facilities.
2017
Bank loan facilities and senior unsecured notes
Other facilities
Total financing facilities
2016
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
Accessible
$000
Utilised
$000
1,736,331
3,495
1,739,826
893,960
3,495
897,455
1,801,589
3,539
1,805,128
899,310
3,539
902,849
Consolidated
2017
$000
–
428,772
60,947
407,736
2016
$000
368,330
66,866
467,653
–
83
NUFARM LIMITED ANNUAL REPORT 2017 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
2017
$000
1,528
1,571
5,019
81,873
89,991
(78,180)
11,811
2016
$000
1,644
1,566
4,962
88,159
96,331
(84,060)
12,271
Consolidated
2017
%
5.87
n/a
2.49
10.54
13.12
6.38
2016
%
6.36
2.03
2.36
12.09
12.74
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 2017. At 31 July 2017, the syndicated bank facility was undrawn.
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
2017
$000
2016
$000
16,068
2,611
18,679
15,563
3,128
18,691
7,667
8,409
166,916
216,495
(90,485)
(136,292)
84,098
88,612
13,597
97,695
12,214
100,826
116,374
119,517
During the year ended 31 July 2017, the group made contributions to defined benefit pension funds in the United Kingdom,
the Netherlands, France and Indonesia that provide defined benefit amounts for employees upon retirement.
84
NUFARM LIMITED ANNUAL REPORT 2017 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
Liabilities extinguished on settlement
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
Assets distributed on settlement
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
2017
$000
2016
$000
224,904
666
4,563
31
–
(1,236)
(38,781)
–
(5,582)
(9,982)
228,326
1,180
7,611
30,329
–
–
–
41
(7,389)
(35,194)
174,583
224,904
136,292
147,351
2,375
(1,536)
–
(38,781)
3,254
(5,397)
(5,722)
4,800
7,011
–
–
6,472
(7,231)
(22,111)
90,485
136,292
Consolidated
2017
$000
666
4,563
(2,375)
(1,236)
–
1,618
1,441
865
(842)
154
1,618
2016
$000
1,180
7,611
(4,800)
–
–
3,991
2,053
1,177
515
246
3,991
85
NUFARM LIMITED ANNUAL REPORT 2017 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
2017
$000
2016
$000
(71,956)
(2,091)
(74,047)
(52,325)
(19,631)
(71,956)
Consolidated
2017
%
59.6
32.9
1.0
6.4
2.7
0.3
2.8
2016
%
55.1
38.7
1.9
4.3
2.5
0.6
2.3
The group expects to pay $4.791 million in contributions to defined benefit plans in 2017 (2016: $4.125 million).
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 2017, there were 19 participants (2016: 25 participants) in the
scheme and 125,347 shares (2016: 189,460) 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.
86
NUFARM LIMITED ANNUAL REPORT 2017 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 2017
there were 573 participants (2016: 766 participants) in the scheme and 1,664,626 shares (2016: 1,780,842) 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
2017
$000
4,739
2016
$000
3,956
The fair value of performance rights granted through the LTIP and deferred shares granted through the STIP were measured
as follows:
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
2017
deferred
shares
$9.15
$9.15
Nufarm STI
2016
deferred
shares
$8.07
$8.07
Nufarm LTI
2017
performance
rights
Nov 2016
$7.17
$8.59
Nufarm LTI
2017
performance
rights
Dec 2016
$7.63
$9.03
Nufarm LTI
2016
performance
rights
Oct 2015
$6.72
$8.28
28 Sep 2016 3 Nov 2016 1 Dec 2016 30 Sep 2015 15 Oct 2015
31 Jul 2018
31 Jul 2018 31 Jul 2019 31 Jul 2019
–
–
2.9 years
2.7 years
31%
31%
1.8%
1.9%
1.5%
1.7%
31 Jul 2017
–
1 year
n/a
n/a
n/a
–
2.7 years
31%
1.7%
1.7%
–
1 year
n/a
n/a
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%
The fair values of awards granted were estimated using a Monte-Carlo simulation methodology and a Binomial Tree methodology.
87
NUFARM LIMITED ANNUAL REPORT 2017 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
2017
977,401
(44,248)
(374,220)
–
328,431
887,364
349,484
Nufarm STI
number of
deferred
shares
2017
430,290
(2,639)
(428,499)
–
270,354
269,506
–
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
325,896
(3,765)
(324,957)
–
433,116
430,290
–
The performance rights outstanding at 31 July 2017 have a $nil exercise price and a weighted average contractual life of three
years (2016: three years). All performance rights granted to date have a $nil exercise price.
28. Provisions
Current
Restructuring
Other
Current provisions
Movement in provisions
Balance at 1 August 2016
Provisions made during the year
Provisions used during the year
Exchange adjustment
Balance at 31 July 2017
Consolidated
2017
$000
2016
$000
14,533
1,185
15,718
18,842
1,494
20,336
Consolidated
Other
provisions
$000
1,494
76
(375)
(10)
1,185
Restructuring
$000
18,842
12,166
(16,424)
(51)
14,533
Total
$000
20,336
12,242
(16,799)
(61)
15,718
The provision for restructuring is mainly relating to the asset rationalisation and restructuring being undertaken by the group.
29. Capital and reserves
Share capital
Balance at 1 August
Issue of shares
Balance at 31 July
88
Parent company
Number of
ordinary
shares
2017
Number of
ordinary
shares
2016
265,899,295 265,067,424
831,871
266,928,840 265,899,295
1,029,545
NUFARM LIMITED ANNUAL REPORT 2017 29. Capital and reserves (continued)
The company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are
entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company.
On 9 October 2016, 640,428 shares at $9.1459 were issued under the Nufarm short term incentive plan and Nufarm executive
long term incentive plan.
On 11 November 2016, 177,405 shares at $8.8758 were issued under the dividend reinvestment program.
On 2 December 2016, 23,927 shares at $9.1459 were issued under the Nufarm short term incentive plan and Nufarm
executive long term incentive plan.
On 5 January 2017, 72,412 shares at $9.12 were issued under the global share plan.
On 5 May 2017, 115,373 shares at $9.6881 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 (2016: 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.
Dividends
An interim dividend of five cents per share, totalling $13,339,938, was declared on 22 March 2017, and was paid (net of
dividend reinvestment program) on 5 May 2017 (2016: four cents per share, totalling $10,631,114).
A final dividend of eight cents per share, totalling $21,354,307, was declared on 26 September 2017, and will be paid on
10 November 2017 (2016: seven cents per share, totalling $18,656,341).
89
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
29. Capital and reserves (continued)
Distributions
Distributions recognised in the current year by Nufarm Finance (NZ) Ltd on the Nufarm step-up securities* are:
2017
Distribution
Distribution
2016
Distribution
Distribution
Distribution rate
%
Total amount
$000
Payment
date
Consolidated
5.89
6.36
6.12
6.16
7,372
7,997
15,369
7,702
7,754
15,456
18 Apr 2017
15 Oct 2016
15 Apr 2016
15 Oct 2015
* Refer to discussion titled ‘Nufarm step-up securities’ on page 89.
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 $11.295 million (2016: $11.358 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% (2016: 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
2017
$000
–
–
–
2016
$000
529
(1,440)
(911)
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 $nil (2016: ($910,825)) franking credits/(debits).
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
2017
$000
115,042
(575)
114,467
(11,295)
103,172
2016
$000
27,478
41
27,519
(11,358)
16,161
103,172
16,161
(21,356)
(81,399)
124,528
97,560
For the purposes of determining basic and diluted earnings per share, the after-tax distributions on NSS are deducted from
net profit.
90
NUFARM LIMITED ANNUAL REPORT 2017 30. Earnings per share (continued)
Weighted average number of ordinary shares used in calculation of basic earnings per share
Weighted average number of ordinary shares used in calculation of diluted earnings per share
Number of shares
2017
2016
266,635,627 265,635,463
267,613,174 266,527,407
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
2017
2016
38.7
38.7
38.6
38.6
46.7
46.5
6.1
6.1
6.1
6.1
36.7
36.6
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.
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.
91
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
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
2017
$000
2016
$000
1,121,164
235,145
914,077
281,444
17,053
1,373,362
27,581
1,223,102
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
South America
Trade and other receivables
Consolidated
2017
$000
2016
$000
187,717
26,182
273,188
96,140
537,937
1,121,164
153,584
34,940
217,319
38,283
469,951
914,077
The group’s top five customers account for $127.7 million of the trade receivables carrying amount at 31 July 2017
(2016: $113.0 million). These top five customers represent 12 per cent (2016: 15 per cent) of the total receivables.
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
92
Consolidated
2017
$000
894,074
69,431
9,210
10,846
64,551
1,048,112
(26,439)
1,021,673
2016
$000
684,317
73,652
7,572
17,137
58,991
841,669
(36,127)
805,542
NUFARM LIMITED ANNUAL REPORT 2017
31. Financial risk management and financial instruments (continued)
Credit risk (continued)
Impairment losses (continued)
Some receivables are secured by collateral from customers such as guarantees and charges on assets. In some countries
credit insurance is undertaken to reduce credit risk. The past due receivables not impaired are considered recoverable.
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
2017
$000
36,127
7,372
(16,969)
–
(91)
26,439
2016
$000
42,766
3,967
(10,076)
–
(530)
36,127
The allowance account for trade receivables is used to record the impairment losses unless the group is satisfied that no
recovery of the amount owing is possible. At that point the amount is considered irrecoverable and is written off against
the receivable directly.
Liquidity risk
Liquidity risk is the risk that the group will 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.
Sales and operating profit are seasonal and are weighted towards the first half of the calendar year in Australia/New Zealand,
North America and Europe, reflecting the planting and growing cycle in these regions while in Latin America the sales and
operating profit is weighted towards the second half of the calendar year. This seasonal operating activity results in seasonal
working capital requirements.
The principal source of liquidity consists of cash generated from operations. Working capital fluctuations due to seasonality
of the business are supported by the short term funding available from the group’s trade receivable securitisation facility.
As at 31 July 2017, 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 $505 million (31 July 2017: $485 million).
On 20 July 2017, an additional lender was added to the senior secured bank facility (SFA), which was previously refinanced on
29 January 2016, and the total facility amount increased to $505 million (31 July 2016: $485 million). Of this, $30 million is due
in January 2018, $435 million is due in January 2019, and $40 million is due in January 2021 (31 July 2016: $30 million due in
January 2018, $415 million due in January 2019, and $40 million due in January 2021). 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 facility is undrawn at 31 July 2017 (2016: $4 million).
On 23 August 2011, Nufarm executed a 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 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 2016: 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 Latin America and Europe, which at 31 July 2017 totalled $528 million
(2016: $588 million).
93
NUFARM LIMITED ANNUAL REPORT 2017
NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
At 31 July 2017, the group had access to debt of $1,740 million (2016: $1,805 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, South America and the notes.
The liquidity of the group is influenced by the terms suppliers extend in respect of purchases of goods and services. The
determination of terms provided by suppliers is influenced by a variety of factors including supplier’s liquidity. Suppliers may
engage financial institutions to facilitate the receipt of payments for goods and services from the group, which are often
referred to as supplier financing arrangements. The group is aware that trade payables of $256 million at 31 July 2017 (2016:
$175 million) are to be settled via such arrangements in future periods. In the event suppliers or financial institutions cease
such arrangements, the liquidity of the group’s suppliers may be affected. If suppliers subsequently seek to reduce terms on
group’s purchases of goods and services in the future, the group’s liquidity will be affected. Details of the group’s trade and
other payables are disclosed in note 24.
The following are the contractual maturities of the group’s financial liabilities:
Carrying
amount
$000
Contractual
cash flows
$000
Less than
1 year
$000
1–2
years
$000
More than
2 years
$000
11,384
830,230
326,011
164,412
403,537
3,495
11,811
11,384
830,230
342,082
181,624
468,389
3,495
89,991
11,384
820,249
318,101
140,844
25,941
1,231
1,528
–
17
19,551
40,780
25,941
2,264
1,571
–
9,964
4,430
–
416,507
–
86,892
2,815
–
924
–
418
–
6,118
–
215,422
(210,956)
215,422
(210,956)
418
–
–
–
88
–
–
–
–
(11,125)
145,167
(162,984)
7,539
(9,107)
7,539
(9,107)
130,089
(144,770)
–
(5,928)
1,742,760
383,789
(388,536)
1,910,021
383,789
(388,536)
1,317,847
–
–
88,974
–
–
503,200
Consolidated 2017
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
94
NUFARM LIMITED ANNUAL REPORT 2017 31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
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)
12,546
–
433,768
(421,004)
433,768
(421,004)
–
(772)
–
–
–
(935)
–
–
–
(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
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 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. Financial instruments used by the group to manage currency risks include derivative instruments such as foreign exchange
contracts, cross-currency interest rate swaps and options, and non-derivative instruments such as foreign currency debt
instruments. The group designates select financial instruments for hedge accounting 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.
95
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Market risk (continued)
Currency risk (continued)
The group uses financial instruments to manage foreign currency translation risk arising from the group’s net investments in
foreign currency subsidiary entities. These financial instruments 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 financial instruments referred to previously, the group has not designated any other
derivative financial instruments in hedge relationships and all movements in fair value are recognised in profit or loss during
the period. The net fair value of derivative financial instruments in the group, not designated as being in a hedge relationship,
used as economic hedges of forecast transactions at 31 July 2017 was a $0.190 million liability (2016: $4.025 million asset)
comprising assets of $5.928 million (2016: $8.521 million) and liabilities of $6.118 million (2016: $12.546 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.
Net financial assets/(liabilities) –
by currency of denomination
AUD
$000
USD
$000
Euro
$000
GBP
$000
–
12,688
2,408
(268)
–
14,828
322
–
20,033
(4,827)
15,001
30,529
2,921
–
–
23,382
–
26,303
Net financial assets/(liabilities) –
by currency of denomination
AUD
$000
–
(1,362)
3,908
(268)
–
2,278
USD
$000
21,631
–
13,759
19,227
1
54,618
Euro
$000
3,232
–
–
(255)
–
2,977
(3,410)
–
908
–
–
(2,502)
GBP
$000
(6,114)
–
2,202
–
–
(3,912)
Consolidated 2017
Functional currency of group operation
Australian dollars
US dollars
Euro
British pound
Brazilian real
Consolidated 2016
Functional currency of group operation
Australian dollars
US dollars
Euro
British pound
Brazilian real
96
NUFARM LIMITED ANNUAL REPORT 2017 31. Financial risk management and financial instruments (continued)
Market risk (continued)
Currency risk (continued)
Sensitivity analysis
Based on the aforementioned group’s net financial assets/(liabilities) at 31 July 2017, a one per cent strengthening or
weakening of the following currencies at 31 July 2017 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 2016.
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
1% change in the BRL exchange rate
Strengthening
Profit or (loss)
after tax
2017
$000
Weakening Strengthening
Profit or (loss)
after tax
2016
$000
Profit or (loss)
after tax
2017
$000
Weakening
Profit or (loss)
after tax
2016
$000
104
20
21
(146)
(105)
(105)
(20)
(20)
144
104
(114)
392
(118)
(158)
–
115
(388)
117
157
–
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
2017
0.754
0.690
0.593
2.433
2016
0.727
0.658
0.496
2.692
Reporting date
2016
0.760
0.680
0.573
2.462
2017
0.799
0.675
0.605
2.501
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$505 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
(2016: 3.90 per cent).
97
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
31. Financial risk management and financial instruments (continued)
Market risk (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
2017
$000
2016
$000
18,017
(787,729)
(769,712)
44,933
(790,576)
(745,643)
–
(121,537)
(121,537)
–
(124,544)
(124,544)
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 2017. Due to the seasonality of the crop protection business, debt levels can
vary during the year. The analysis is performed on the same basis for 31 July 2016.
2017
Variable rate instruments
Total sensitivity
2016
Variable rate instruments
Total sensitivity
Fair values
Profit or loss
100bp
increase
$000
100bp
decrease
$000
(7,697)
(7,697)
7,697
7,697
(7,456)
(7,456)
7,456
7,456
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
$125.3 million (2016: $131.6 million), the fair value at 31 July 2017 is $130.3 million (2016: $128.5 million).
98
NUFARM LIMITED ANNUAL REPORT 2017 31. Financial risk management and financial instruments (continued)
Fair values (continued)
Consolidated 2017
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 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
Carried at
fair value
through
profit or
loss
$000
–
–
–
Financial
assets/
liabilities at
amortised
cost
$000
235,145
1,121,164
–
Derivatives
used for
hedging
$000
–
–
–
Available
-for-sale
$000
–
–
–
Note
15
16
20
16
24
16
24
24
15
25
25
25
25
25
–
–
–
–
–
–
–
–
–
–
–
–
5,928
(5,454)
–
–
–
(664)
–
–
–
–
–
–
–
(190)
11,125
(2,815)
–
–
–
–
–
–
–
8,310
–
–
–
–
(830,230)
(11,384)
(326,011)
(164,412)
(403,537)
(3,495)
(11,811)
(394,571)
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
–
–
–
Available
-for-sale
$000
–
–
38,564
Note
15
16
20
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)
Total
$000
235,145
1,121,164
–
5,928
(5,454)
11,125
(3,479)
(830,230)
(11,384)
(326,011)
(164,412)
(403,537)
(3,495)
(11,811)
(386,451)
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)
(a) Includes $278.3 million (2016: $297.2 million) of centrally managed fixed rate debt swapped to floating rate under fair value hedges, and is consequently fair
valued for interest rate risk.
99
NUFARM LIMITED ANNUAL REPORT 2017 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 2017
Equity securities – available-for-sale
Derivative financial assets
Derivative financial liabilities
Consolidated 2016
Equity securities – available-for-sale
Derivative financial assets
Derivative financial liabilities
Level 1
$000
–
–
–
Level 2
$000
–
17,053
17,053
–
–
(8,933)
(8,933)
Level 1
$000
38,564
–
38,564
Level 2
$000
–
27,581
27,581
Level 3
$000
–
–
–
–
–
Level 3
$000
–
–
–
Total
$000
–
17,053
17,053
(8,933)
(8,933)
Total
$000
38,564
27,581
66,145
–
–
(15,627)
(15,627)
–
–
(15,627)
(15,627)
There have been no transfers between levels in either 2017 or 2016.
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.
100
NUFARM LIMITED ANNUAL REPORT 2017
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 shareholder’s 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 2017 was 13.6 per cent
(2016: 13.1 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
2017
$000
10,778
8,927
18,682
124,012
162,399
2016
$000
12,247
9,033
19,969
134,418
175,667
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 $7.373 million at 31 July 2017 (2016: $7.713 million).
101
NUFARM LIMITED ANNUAL REPORT 2017
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.
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.
Brazilian taxation proceedings – goodwill deductibility.
Other bank guarantees.
Contingent liabilities
Brazilian taxation proceedings
Consolidated
2017
$000
2016
$000
12,593
12,500
4,132
4,102
25,959
23,699
16,200
–
316
775
59,200
41,076
As at 31 July 2017, the total contingent liability relating to future potential tax liabilities (excluding the goodwill deductibility
case) in Brazil is $25.959 million (2016: $23.699 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 taxation proceedings – goodwill deductibility
The Brazilian tax authorities are challenging the validity of goodwill deductions, in respect of certain years, arising from Nufarm’s
acquisition of Agripec (now known as Nufarm Brazil). Nufarm considers that it is not probable that a liability will arise in
respect of this matter and has been successful in a lower court hearing. During the year, the Brazilian tax authorities continue
to pursue this assessment.
There are six levels of Brazilian courts, and Brazilian tax disputes can take 10–15 years to be settled. It is possible that
assessments could be received in future periods. In the event contingent Brazilian tax obligations crystallise, they will be
settled using tax assets and cash.
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.
102
NUFARM LIMITED ANNUAL REPORT 2017
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
2017
2016
(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
103
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
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 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
Nufarm Australia Limited
Note
(a)
(a)
(a)
(a)
(a)
(a)
Place of
incorporation
Percentage of shares held
2017
2016
Australia
Egypt
USA
Greece
United Kingdom
Guatemala
France
France
Australia
Malaysia
USA
Guatemala
Mexico
USA
Australia
Australia
Malaysia
Australia
Malaysia
Malaysia
Australia
USA
USA
Morocco
South Africa
Canada
Zimbabwe
USA
USA
Malaysia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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
104
NUFARM LIMITED ANNUAL REPORT 2017 35. Group entities (continued)
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
Nufarm Insurance Pte Ltd
Note
Place of
incorporation
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
Singapore
Percentage of shares held
2017
2016
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
105
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
35. Group entities (continued)
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
Nufarm Ukraine LLC
Note
Place of
incorporation
Netherlands
(a)
(a)
(b)
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
Ukraine
Percentage of shares held
2017
2016
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
100
106
NUFARM LIMITED ANNUAL REPORT 2017 35. Group entities (continued)
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
2017
2016
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
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
75
100
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.
107
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
36. Deed of cross guarantee
Under ASIC Corporations (wholly-owned Companies) Instrument 2016/785, 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 2017 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
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
108
Consolidated
2017
$000
90,088
(3,921)
86,167
50,356
(31,996)
104,527
2016
$000
88,017
(4,824)
83,193
(6,273)
(26,564)
50,356
38,937
612,104
201,272
4,716
–
857,029
50,541
645,435
177,121
7,512
38,564
919,173
11,212
334
1,223,734
68,318
130,312
145,596
1,579,506
2,436,535
21,553
374
1,216,126
63,624
122,095
124,600
1,548,372
2,467,545
630,355
133
8,294
2,242
7,848
648,872
695,241
–
8,876
1,560
5,745
711,422
2,815
401,391
17,674
8,787
430,667
1,079,539
1,356,996
212
424,237
16,212
7,332
447,993
1,159,415
1,308,130
1,156,688
95,781
104,527
1,356,996
1,147,259
110,515
50,356
1,308,130
NUFARM LIMITED ANNUAL REPORT 2017 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
2017
$000
7,554
375
7,929
2016
$000
19,927
2,527
22,454
1,037,191
1,389,289
1,067,008
1,424,788
171,450
170,275
190,012
188,838
1,090,197
41,065
(31,536)
119,288
1,219,014
1,080,768
42,988
(31,536)
143,730
1,235,950
(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 $31.996 million (2016: $26.564 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 2017 or 2016.
109
NUFARM LIMITED ANNUAL REPORT 2017 NOTES TO THE FINANCIAL STATEMENTS continued
38. Related parties
(a) Transactions with related parties in the wholly-owned group
The parent entity entered into the following transactions during the year with subsidiaries of the group:
• loans were advanced and repayments received on short term intercompany accounts; and
• management fees were received from several wholly-owned controlled entities.
These transactions were undertaken on commercial terms and conditions.
(b) Transactions with associated parties
Excel Crop Care Ltd
F&N joint ventures
Sumitomo Chemical Company Ltd
Purchases from
Trade payable
Sales to
Trade payable
Trade receivable
Sales to
Purchases from
Trade receivable
Trade payable
Consolidated
2017
$000
–
–
–
–
–
55,603
207,310
16,938
42,852
2016
$000
4,189
3,355
19,551
2
12,660
34,900
136,181
17,261
48,529
These transactions were undertaken on commercial terms and conditions.
(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
2017
$
6,887,593
285,705
1,880,617
–
–
9,053,915
2016
$
5,565,176
452,243
1,233,768
–
–
7,251,187
Individual director’s and executive’s compensation disclosures
Information regarding individual director’s and executive’s compensation is provided in the remuneration report section
of the directors’ report.
(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 director’s 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.
110
NUFARM LIMITED ANNUAL REPORT 2017 38. Related parties (continued)
(e) Loans to key management personnel and their related parties
There were no loans to key management personnel at 31 July 2017 (2016: nil).
39. 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
40. Subsequent events
Consolidated
2017
$
2016
$
538,000
510,000
1,539,239
2,077,239
1,470,122
1,980,122
136,248
2,213,487
222,788
2,202,910
280,641
–
21,000
–
–
76,941
357,582
16,667
75,000
112,667
A final dividend of eight cents per share, totalling $21,354,307 was declared on 26 September 2017, and will be paid on
10 November 2017 (2016: seven cents per share, totalling $18,656,341).
Other than the matters outlined above, or elsewhere in the financial information, no matters or circumstances have arisen
since the end of the financial year that have or may significantly affect the operations, results or state of affairs of the group
in subsequent accounting periods.
111
NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORS’ DECLARATION
1
In the opinion of the directors of Nufarm Limited (the company):
(a) the consolidated financial statements and notes 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 2017 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 35 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 Corporations (wholly-owned Companies) Instrument 2016/785.
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 2017.
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 26th day of September 2017.
DG McGauchie AO
Director
GA Hunt
Director
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NUFARM LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
Independent Auditor’s Report
To the shareholders of Nufarm Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of the
Nufarm Limited (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with
the Corporations Act 2001, including:
• giving a true and fair view of the Group’s
financial position as at 31 July 2017 and of
its financial performance for the year ended
on that date; and
•
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
The Financial Report comprises the:
• Consolidated balance sheet as at 31 July 2017
• Consolidated income statement, consolidated
statement of comprehensive income, consolidated
statement of changes in equity, and consolidated
statement of cash flows for the year then ended
• Notes including a summary of significant accounting
policies
• Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year end and from time to time during
the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit
of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have
fulfilled our other ethical responsibilities in accordance with the Code.
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.
113
NUFARM LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT continued
Key Audit Matters
The Key Audit Matters we identified are:
• Recoverability of non-current assets,
including property, plant and equipment and
intangible assets
Key Audit Matters are those matters that, in our
professional judgment, were of most significance
in our audit of the Financial Report of the current
period.
• Recognition of deferred tax assets in
relation to prior period losses
• Recoverability of trade receivables
These matters were addressed in the context of
our audit of the Financial Report as a whole, and in
forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Recoverability of non-current assets, including property, plant and equipment ($350.5m), intangible assets
($891.4m)
Refer to the following notes to the financial report: Note 2 (d) (ii) Basis of preparation – Use of
estimates and judgments – impairment testing, Note 3 (h) Significant accounting policies –
Impairment, and Note 23 Intangible assets.
The key audit matter
How the matter was addressed in our audit
Recoverability of non-current assets including
property, plant and equipment, and intangible
assets is a key audit matter due to the:
• determination of the Group’s cash
generating units (‘CGU’s);
• diverse nature of regional agricultural
markets in which the Group operates. This
includes different economic, regulatory and
climatic conditions of a large number of
geographies. The Group prepare individual
discounted cash flow models incorporating
these variations for each CGU. This volume
and variety of data necessitates additional
audit effort, and we involve KPMG audit
teams located in significant jurisdictions
who have knowledge of the local
conditions.
• each geographic and product market
segment experiences the following, which
are subject to inherent uncertainty leading
to a range of possible forecast outcomes:
•
fluctuating demand depending on
economic and climatic conditions;
• significant regulatory activity and
oversight, which can lead to approval
and cessation of new and existing
products; and
•
technology advancements by the Group
and competitors, which can lead to
Our procedures included:
•
testing the key controls over the cash flow
models, including Board review and approval
of key assumptions and business unit budgets
which form the basis of the cash flow
forecasts
• using our understanding of the nature of the
Group’s business, we analysed the internal
reporting of the Group to assess how results
are monitored and reported, and the
implications to CGU identification in
accordance with accounting standards
• assessing the Group’s discounted cash flow
models and key assumptions by:
- comparing cash flows to historical trends
and performance, by CGU, to inform our
evaluation of current forecasts incorporated
into the models;
- agreeing the relevant cash flow forecasts to
the board approved budgets and FY18-FY19
business plans;
- involving our valuation specialists to assess
the reasonableness of the discount rates by
considering comparable market information
and evaluating the economic assumptions
relating to cost of debt and cost of equity;
and
- using our industry knowledge, information
114
NUFARM LIMITED ANNUAL REPORT 2017
shifts in market demand for products.
Given the unique, not homogenous, nature of
these factors, specific auditor attention is
applied to each piece, increasing the audit
effort. We focus on the authority and
knowledge of the sources of judgements to the
models, evidence of bias, and consistency of
application of judgements.
The above factors increase the complexity in
auditing the appropriateness of intangible asset
useful lives and the forward-looking
assumptions contained in the Group’s
discounted cash flow models for each CGU.
Additional key assumptions we focused on
included short term and terminal value growth
rates and discount rates.
These same conditions impact our audit effort
applied for the value associated with new
products in development phases.
This stage of development, versus those closer
to product launch, are prone to wider ranging
forecasting outcomes and highly judgemental
assumptions. The Group engaged an external
valuation expert to assist. We focused on the
authority and knowledge of the sources of
judgements to the valuation, common market
practices, and consistency of judgements.
published by regulatory and other bodies,
and through discussions with management,
to assess the reasonableness of
assumptions. These included intangible
asset useful lives and the impact of
technology, market and regulatory changes
on those assumptions. We looked for
evidence of sensitivity and bias within and
across models, and consistency of
application, investigating significant
differences.
• evaluating the Group’s sensitivity analysis in
respect of the key assumptions in the models,
including the identification of areas of
estimation uncertainty and reasonably possible
changes in key assumptions;
• comparing carrying values of CGUs to available
market data, such as implied earnings
multiples of comparable entities;
• assessing the Group’s valuation of products in
development phase by additionally
- assessing the competency, scope of work
and objectivity of experts engaged by
management; and
- involving our valuation specialists to assess
the reasonableness of the valuation
methodology to industry practice and the
requirements of the accounting standards.
• We assessed the Group’s disclosures by
comparing to our business understanding and
accounting standards requirements
Recoverability of deferred tax assets in relation to prior period tax losses ($156.1m)
Refer to the following notes to the financial report: Note 2 (d) (iii) Basis of preparation - Use of
estimates and judgements - income tax, Note 3(o) Significant accounting policies – Income tax, Note
11 Income tax expense and Note 18 Tax assets and liabilities.
The key audit matter
How the matter was addressed in our audit
Recoverability of deferred tax assets in relation
to prior period tax losses is a key audit matter
due to the:
- complexity in auditing the forward-looking
assumptions applied to the Group’s tax loss
utilisation models for each tax jurisdiction
given the significant Group assumptions
Our procedures included:
•
testing the key controls over the taxable profit
forecasts that underpin the tax loss utilisation
models, including Board review and approval
of key assumptions and business unit budgets
which form the basis of the taxable profit
115
NUFARM LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT continued
involved. Further details on the significant
forward-looking assumptions and implications
for the audit are contained in the recoverability
of non-current assets, including property, plant
and equipment and intangible assets key audit
matter. Additional auditor attention is focused
on the reconciliation of forecast cash flows to
taxable profits.
- age of the tax losses, and the relevance of
recent taxable profits to forecasts.
- the large number of jurisdictions and our need
to consider their varying and complex rules on
tax loss utilisation.
-
forecasts
• comparing the key assumptions and business
unit budgets for consistency with those tested
by us, as set out in the recoverability of non-
current assets, including property, plant and
equipment and intangible assets key audit
matter, and taxable profits concepts
• assessing the Group’s tax loss utilisation
models, by significant jurisdiction, key
assumptions by:
- comparing taxable profit to historical trends
and performance to inform our evaluation of
the current taxable profit forecasts;
- agreeing the taxable profit forecasts to the
board approved budgets;
- evaluating the Group’s aged utilisation
sensitivity analysis in respect of the key
assumptions, including the identification of
areas of estimation uncertainty to focus our
further procedures;
- understanding the timing of future taxable
profits and considering the consistency of
the timeframes of expected recovery to our
knowledge of the business and its plans;
and
- involving our tax specialists and teams from
the relevant jurisdictions to assess the tax
loss utilisation expiry dates and annual
utilisation allowances for consistency with
local practice, regulatory parameters and
legislation.
Recoverability of trade receivables ($1,048.1m)
Refer to the following notes to the financial report: Refer to the following notes to the financial report:
Note 2 (d) (v) Significant accounting policies – Use of estimates and judgements – working capital,
Note 3 (c) (i) Significant accounting policies – financial instruments – Non-derivative financial assets,
Note 3 (h) (i) Significant accounting policies – Impairment – Non–derivative financial assets, Note 16
Trade and other receivables and Note 31 Financial risk management and financial instruments.
The key audit matter
How the matter was addressed in our audit
Recoverability of trade receivables is a key audit
matter due to the scale of audit effort applied to
gathering evidence. The Group operates in a
large number of different geographical locations
with wide ranging characteristics of agriculture
markets and individual customers within these
Our procedures included:
• Testing key controls within the credit control
and approval process;
• Assessing, on a sample basis, the
116
NUFARM LIMITED ANNUAL REPORT 2017
locations. Specifically, certain geographies have
extended credit terms coupled with detailed
security arrangements attached to these terms
which result in differing credit risk
characteristics.
The Group make judgements in relation to credit
risk exposures, based on historical patterns in
conjunction with collateral, guarantees or
insurance to determine the recoverability of
trade receivables. We involve KPMG audit
teams located in significant jurisdictions who
have knowledge of the local conditions.
recoverability of trade receivables by
comparing the Group’s views of recoverability
of the amounts outstanding to historical
patterns of receipts in conjunction with
reviewing collateral, guarantees or insurance
and cash received subsequent to year end in
relation to these receivables.
• We use our local knowledge of the jurisdiction
to evaluate the impact of local conditions such
as the industry practice of extending credit
terms and the use of guarantees to assess the
trade receivables’ recoverability.
• Assessing the Group’s disclosures in respect
to credit risk against the requirements of the
accounting standards.
Other Information
Other Information is financial and non-financial information in Nufarm Limited’s annual reporting which
is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible
for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
and will not express an audit opinion or any form of assurance conclusion thereon, with the exception
of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information.
In doing so, we consider whether the Other Information is materially inconsistent with the Financial
Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date
of this Auditor’s Report we have nothing to report.
Responsibilities of Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001;
•
implementing necessary internal control to enable the preparation of a Financial Report that gives
a true and fair view and is free from material misstatement, whether due to fraud or error; and
• assessing the Group’s ability to continue as a going concern. This includes disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless they either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from
117
NUFARM LIMITED ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT continued
material misstatement, whether due to fraud or error; and
•
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of this Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the
Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf.
This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
preparation
The Directors of the Company are responsible for
the
the
Remuneration Report in accordance with Section 300A
of the Corporations Act 2001.
presentation
and
of
Our responsibilities
We have audited the Remuneration Report included
in the Directors’ report for the year ended 31 July
2017.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
In our opinion, the Remuneration Report of
Nufarm Limited for the year ended 31 July
2017, complies with Section 300A of the
Corporations Act 2001.
KPMG
Gordon Sangster
Partner
Melbourne
26 September 2017
118
NUFARM LIMITED ANNUAL REPORT 2017
SHAREHOLDER AND STATUTORY INFORMATION
Details of shareholders, shareholdings and top 20 shareholders
Listed securities – 25 September 2017
Fully paid ordinary shares
Number
of holders
7,946
Number
of securities
266,928,840
Percentage held
by top 20
89.51
Twenty largest shareholders
Sumitomo Chemical Company Limited
J P 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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