Nufarm Limited
Annual Report 2017

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ANNUAL 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. 58 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. 59 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. 60 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. 61 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. 62 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. 63 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. 64 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. 65 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. 66 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 112 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 Avalon Investment Trust Ltd BNP Paribas Nominees Pty Ltd Citicorp Nominees Pty Limited CS Third Nominees Pty Limited Forsyth Barr Custodians Ltd Challenge Investment Company Limited RBC Investor Services Australia Nominees Pty Ltd Merrill Lynch (Australia) Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Pacific Custodians Pty Limited CPU Share Plans Pty Ltd Moturua Properties Ltd AMP Life Limited Distribution of shareholders Size of holding 1– 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Ordinary shares as at 25.09.17 Percentage of issued capital as at 25.09.17 60,210,136 42,452,055 39,116,152 29,195,480 16,459,026 12,934,328 5,120,708 4,535,282 3,963,007 3,853,241 3,480,067 3,418,545 3,130,282 2,567,134 2,043,966 1,855,011 1,641,023 1,123,062 964,455 858,162 22.56 15.90 14.65 10.94 6.17 4.85 1.92 1.70 1.48 1.44 1.30 1.28 1.17 0.96 0.77 0.69 0.61 0.42 0.36 0.32 Number of holders as at 25.09.17 Ordinary shares held as at 25.09.17 4,014 3,037 536 304 55 1,585,414 7,153,014 3,776,100 6,663,557 247,750,755 Of these, 766 shareholders held less than a marketable parcel of shares of $500 worth of shares (56 shares). In accordance with the ASX Listing Rules, the last sale price of the company’s shares on the ASX on 25 September 2017 was used to determine the number of shares in a marketable parcel. 119 NUFARM LIMITED ANNUAL REPORT 2017 SHAREHOLDER AND STATUTORY INFORMATION continued Stock exchanges on which securities are listed Ordinary shares: Australian Securities Exchange (ASX). Substantial shareholders In accordance with section 671B of the Corporations Act, as at 25 September 2017, the substantial shareholders set out below have notified the company of their respective relevant interest in voting shares in the company shown adjacent to their respective names as follows: Number and percentage of shares in which interest held at date of notice Ellerston Capital Limited Zhang Hua on behalf of himself and his controlled entities Power Growth Global Limited and Brecken International Limited Sumitomo Chemical Company Limited Nufarm Limited1 PG Keeling & EW Preston (Oxford Trustees) Date of notice 2 August 2017 Number 25,769,695 Interest % 9.65 20 June 2017 10 June 2011 10 June 2011 31 May 2010 17,116,950 60,210,136 60,210,136 14,711,590 6.4126 23 23 5.62 1. Nufarm Limited has a relevant interest in the shares held by Sumitomo Chemical Company. The relevant interest arises under a Shareholder Deed dated 22 January 2010 between Nufarm and Sumitomo, which contains certain obligations relating to the voting and disposal of shares in Nufarm by Sumitomo. Voting rights On a show of hands, every shareholder present in person or represented by a proxy or representative shall have one vote and on a poll every shareholder who is present in person or represented by a proxy or representative shall have one vote for every fully paid share held by the shareholder. 120 NUFARM LIMITED ANNUAL REPORT 2017 Shareholder information Annual general meeting The annual general meeting of Nufarm Limited will be held on Thursday 7 December 2017 at 10.00am in Bayside Rooms 5 and 6, Level 2, RACV Club, 501 Bourke Street, Melbourne, Victoria. Full details are contained in the notice of meeting sent to all shareholders. Voting rights Shareholders are encouraged to attend the annual general meeting. However, when this is not possible, they are encouraged to use the form of proxy by which they can express their views. Proxy voting can be completed online via www.nufarm.com/annualgeneralmeeting or via post by completing the proxy form and sending it back in the return envelope. Every shareholder, proxy or shareholder’s representative has one vote on a show of hands. In the case of a poll, each share held by every shareholder, proxy or representative is entitled to: (a) one vote for each fully paid share; and (b) voting rights in proportion to the paid up amount of the issue price for partly paid shares. Stock exchange listing Nufarm shares are listed under the symbol NUF on the ASX. The securities of the company are traded on the ASX under CHESS (Clearing House Electronic Sub-register System), which allows settlement of on-market transactions without having to reply on paper documentation. Shareholders seeking more information about CHESS should contact their stockbroker or the ASX. 121 NUFARM LIMITED ANNUAL REPORT 2017 SHAREHOLDER AND STATUTORY INFORMATION continued Shareholder details The Nufarm Limited Share Register is managed by Computershare Investor Services. You can gain access to your shareholding information in the following ways. Online via Investor Centre Details of individual shareholdings can be checked by visiting our share registry’s website at www.investorcentre.com Existing users can simply login. New users will need to create a login. You will need to enter your security reference number (SRN) or holder identification number (HIN), your postcode or country of residence, enter Nufarm as the company name and then follow the prompts to complete registration. By telephone via InvestorPhone: InvestorPhone provides telephone access 24 hours a day seven days a week. Step 1 Call the Nufarm shareholder information line on 1300 652 479 (within Australia) or +61 3 9415 4360 (outside Australia). Step 2 Follow the prompts to gain secure, immediate access to your: – holding details – registration details – payment information Shareholder communications You can choose to receive shareholder communications electronically. Register for this initiative at www.eTree.com.au/nufarm and a donation of $1 will go to Landcare to support urgent reforestation projects in Australia and New Zealand. The default for receiving the annual report is now via the company’s website – www.nufarm.com 122 NUFARM LIMITED ANNUAL REPORT 2017 Shareholder enquiries Contact: Computershare Investor Services Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 GPO Box 2975 Melbourne Victoria 3001 Telephone: 1300 652 479 (within Australia) +61 3 9415 4360 (outside Australia) Email: web.queries@computershare.com.au Key dates 26 October 2017* Annual report sent to shareholders 7 December 2017 Annual general meeting 21 March 2018* 31 July 2018 Announcement of profit result for half year ending 31 January 2017 End of financial year * Subject to confirmation. For enquiries relating to the operations of the company, please contact the Nufarm Corporate Affairs Office on: Telephone: Facsimile: Email: +61 3 9282 1177 +61 3 9282 1111 corporate.information@au.nufarm.com Written correspondence should be directed to: Corporate Affairs Office Nufarm Limited PO Box 103 Laverton Victoria 3028 Australia 123 NUFARM LIMITED ANNUAL REPORT 2017 DIRECTORY Directors DG McGauchie AO – chairman GA Hunt – managing director AB Brennan GR Davis FA Ford Dr WB Goodfellow ME McDonald PM Margin T Takasaki Company secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Auditors KPMG Tower Two Collins Square 727 Collins Street Melbourne Victoria Docklands VIC 3008 Australia Share registrar Australia Computershare Investor Services Pty Ltd GPO Box 2975EE Melbourne Victoria 3001 Australia Telephone: 1300 850 505 Outside Australia: +61 3 9415 4000 Step-up securities registrar New Zealand Computershare Registry Services Limited Private Bag 92119 Auckland NZ 1020 Telephone: +64 9 488 8700 Registered office 103 –105 Pipe Road Laverton North Victoria 3026 Australia Telephone: +61 3 9282 1000 Facsimile: +61 3 9282 1001 NZ branch office 6 Manu Street Otahuhu Auckland New Zealand Telephone: +64 9 270 4157 Facsimile: +64 9 267 8444 Trustee for Nufarm step-up securities The Trust Company (Australia) Limited Level 15, 20 Bond Street Sydney NSW 2000 Australia Website www.nufarm.com Nufarm Limited ACN 091 323 312 124 NUFARM LIMITED ANNUAL REPORT 2017 103 –105 Pipe Road Laverton North Victoria 3026 Australia Telephone: +61 3 9282 1000 Facsimile: +61 3 9282 1001 nufarm.com

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