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2018
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Contents
About Nufarm
03 Facts in brief
04 Chairman’s message
06 Board of directors
08 Key management personnel
09 Operating and financial review
09
Information on the company
11 Our One Nufarm strategy
13 Managing director’s review
17 Business review
20 Sustainability
22 Risk management
Lead auditor’s independence declaration
29 Corporate governance
30 Financial report
3 1 Directors’ report
34 Remuneration report
51
52 Income statement
53 Statement of comprehensive income
54 Balance sheet
55 Statement of cash flows
56 Statement of changes in equity
58 Notes to the financial statements
114 Directors’ declaration
115 Independent auditor’s report
122 Shareholder and statutory information
125 Directory
Nufarm is the dependable global partner behind
thousands of agricultural success stories. Working
side by side with farmers, agronomists and their
partners, we help people get more from their land.
We are one of the world’s leading developers and manufacturers of seeds
and crop protection solutions. For more than 100 years we’ve been finding
more effective ways to fight disease, weeds and pests to increase the yield
of our customers’ crops, by turning world-leading scientific breakthroughs into
local solutions.
We’re known for our hands-on support, giving our customers the confidence
that they’ll get the right product for the job, and that there’ll be someone to talk
it through when they need a helping hand.
It’s what we’ve been doing for more than 100 years. And it’s why more and
more people are depending on us to help them grow.
We have manufacturing and marketing operations based in Australia,
New Zealand, Asia, Europe and the Americas, and we employ 3217 people
around the world. Nufarm is listed on the Australian Stock Exchange (symbol NUF)
and our head office is in Melbourne, Australia.
Helping farmers get
more from their land
Nufarm Limited ABN 37 091 323 312
$3.3b
Revenue
$386m
Underlying EBITDA
01
Nufarm Limited Annual Report 2018 Wyke
UK
Duesseldorf
Germany
Gaillon
France
Linz
Austria
Cairo
Egypt
Alsip & Chicago Heights USA
Fortaleza
Brazil
Sao Paulo
Brazil
Sales countries
Manufacturing Facilities
Regional HQ
Seed R&D
Shanghai
Procurement
Hub China
Melbourne
Australia
Kuala
Lumpur
Malaysia
Merak
Indonesia
Kwinana
Australia
2 sites, Laverton Australia
About Nufarm continued
The 2018 financial year
Strong revenue growth, however
earnings were impacted by
dry Australian conditions
• Revenue growth in all regions except Australia.
• Underlying EBITDA down by one per cent,
with the Australian drought impact largely
offset by the European acquisition contribution.
• Underlying net profit after tax down 28 per cent
on prior year.
• Reported $15.6 million net loss after tax
compared to a $114.5 million profit last year.
Reported net loss after tax includes material
items of $114.0 million, mainly comprising
Australian impairment charge and European
business acquisition costs.
• Underlying earnings per share down
40 per cent to 28.2 cents per share.
• Australian drought and late season in Europe
impact working capital, with average net
working capital to sales increasing to
40.3 per cent (2017: 36.8 per cent).
• Final dividend: six cents per share (2017:
eight cents per share). Full year dividend:
11 cents per share (2017: 13 cents per share).
02
Nufarm Limited Annual Report 2018 Wyke
UK
Duesseldorf
Germany
Gaillon
France
Linz
Austria
Cairo
Egypt
Alsip & Chicago Heights USA
Fortaleza
Brazil
Sao Paulo
Brazil
Sales countries
Manufacturing Facilities
Regional HQ
Seed R&D
Shanghai
Procurement
Hub China
Melbourne
Australia
Kuala
Lumpur
Malaysia
Merak
Indonesia
Kwinana
Australia
2 sites, Laverton Australia
Facts in Brief
Trading results
Profit/(loss) attributable to shareholders
Abnormal (gain)/loss
Underlying net profit after tax
Sales revenue
Total equity
Total assets
Ratios
Earnings/(loss) per ordinary share (cents)
Gearing ratio (%)
Net tangible assets per ordinary share ($)
Distribution to shareholders
Annual dividend per ordinary share (cents)
People
Staff employed
12 months ended
31 July 2018
$000
12 months ended
31 July 2017
$000
(15,588)
113,984
98,396
3,307,847
1,971,624
5,051,367
(8.5)
41.1
0.86
11.0
1 1 4,467
21,356
135,823
3, 1 1 1 , 1 1 5
1,602,923
3,644,888
38.7
29.8
2.67
13.0
3,217
3,256
The financial information contained within our financial statements has been prepared in accordance with IFRS. Refer to
page 16 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 2017 unless otherwise stated. Non-IFRS measures have not been subject to audit or review.
03
Nufarm Limited Annual Report 2018 Chairman’s message
Donald McGauchie AO
Chairman
This year we have continued to deliver against the strategy
we introduced in 2015, focusing on the global regions and
crops in which we have existing strengths and can leverage
valuable growth opportunities.
In late 2017 we announced the acquisition
of two important product portfolios in
Europe, both of which are extremely
complementary to our existing range of
crop protection solutions. These products
are already delivering value, driving
stronger customer relevance and good
early sales across our targeted European
countries and crops.
The safety of the community, customers
and our employees is Nufarm’s highest
priority. I’m pleased to report that the
commitment we have made to
systematically managing our risks and
improving our safety culture has resulted
in more Nufarm people going home
safely than ever before.
The past year has been a true testament
to the talent and commitment of Nufarm’s
people, as we successfully executed our
ambitious global growth agenda, while
also navigating the drought-challenged
Australian market. The board and I
appreciate their ongoing support and
look forward to continuing to deliver value
for our shareholders in the year ahead.
Donald McGauchie AO
Chairman
Shareholders,
On behalf of the Nufarm board of
directors I’m pleased to present the
annual report for the 2018 financial year.
This year we have continued to deliver
against the strategy we introduced in
2015, focusing on the global regions
and crops in which we have existing
strengths and can leverage valuable
growth opportunities.
While this year’s drought conditions in
large parts of Eastern Australia have
significantly impacted grower demand,
and therefore our overall financial
performance, we have demonstrated
good organic growth in several other
regions, particularly North America and
Latin America. Given the weather volatility
faced by all agricultural companies,
the diversification of our business across
geographies and crops is one of the
true strengths of Nufarm.
We continue to invest in growth, with
a strong pipeline of new crop protection
and seed products in development.
During the year we extended and
confirmed our development agreements
with our partner Sumitomo, providing us
with access to innovative new chemistries
in several key regions in the years ahead.
Our world-leading omega-3 canola,
researched in partnership with the CSIRO
and GRDC, received regulatory approval
here in Australia and our pathway to
commercialisation in 2019/2020 is
progressing well.
04
Nufarm Limited Annual Report 2018 05
Nufarm Limited Annual Report 2018 Board of directors
Greg Hunt
AB Brennan
Gordon Davis
Frank Ford
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 advisor
to Australian
and international
organisations
in agribusiness
related matters.
Anne Brennan
joined the board
on 10 February 2011.
Gordon Davis
joined the board
on 31 May 2011.
Frank Ford joined
the board on
10 October 2012.
She has a bachelor
of commerce (hons)
from University College
Galway and is a fellow
of the Institute of
Chartered Accountants
in Australia and a fellow
of the Australian Institute
of Company Directors.
She was formerly
the executive finance
director for the Coates
Group and chief
financial officer for CSR.
Prior to this Anne was a
partner in professional
services firms Ernst
& Young, Andersen
and KPMG.
Anne is a director of
Charter Hall Group,
Argo Investments
Limited and Metcash
Limited. She is also a
director of Rabobank
Australia Limited and
Rabobank New
Zealand Limited.
In the past three years,
Anne was a director of
Myer Holdings Limited.
Anne is a member
of the audit and risk
committee and human
resources committee.
He has a bachelor of
forest science (Hons),
master of agricultural
science and holds
a master of business
administration.
Gordon is a director
of Primary Health Care
Limited and 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
advisor 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.
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.
06
Nufarm Limited Annual Report 2018 Toshikazu
Takasaki
Toshikazu Takasaki
joined the board
in 2012.
Mr Takasaki represents
the interests of
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.
Bruce Goodfellow
Peter Margin
Marie McDonald
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.
Marie McDonald joined
the board in 2017.
Marie has a bachelor
of laws (honours) and
a bachelor of science
(honours) 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 Margin
joined the board
on 3 October 2011.
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 a 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 PMP Limited and
Huon Aquaculture
Group Limited.
Peter is chairman of
the human resources
committee and a
member of the audit
and risk committee.
07
Nufarm Limited Annual Report 2018 Key management personnel
Greg Hunt
Paul Binfield
Niels Pörksen
Elbert Prado
Brent Zacharias
Managing director and
chief executive officer
Chief financial officer
Group executive
portfolio solutions
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.
Paul Binfield joined
Nufarm in November
2011. He has held senior
strategic financial roles
at Coles Liquor and
Hotels, a major
division of Wesfarmers
Ltd, and at Mayne
Group. Paul has
extensive experience
in publicly listed and
private company
finance functions,
both in Australia
and the United
Kingdom.
Niels Pörksen joined
Nufarm in 2014 as
director, business
improvement in Europe,
and then in 2015 was
appointed director,
commercial operations.
In October 2016,
Niels joined the global
team in Australia to
represent the portfolio
function, as part of
the Nufarm executive
team.
Niels has significant
experience in the crop
protection industry and
was an executive
board member at
Nordzucker, and
worked at BASF
Chemicals in various
senior management
roles for over 17 years.
Group executive
manufacturing and
supply chain
Group executive
Nuseed
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.
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.
08
Nufarm Limited Annual Report 2018 Operating and financial review
Information on the company
Our capabilities
Nufarm is a leading crop protection
and seed technologies company.
We develop, manufacture and sell a
wide range of crop protection products,
including herbicides, insecticides and
fungicides, that help growers protect
their 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 using technical
active ingredients for which the patent
has expired.
We also have a proprietary seed
technologies business with a portfolio
covering canola, sorghum and sunflower
crops, and we are developing a global
presence in the fast growing and high
value seed treatment segment.
Our reach
Nufarm has leading positions in targeted
markets and segments
We have an established presence
and leading market positions in major
agricultural regions throughout the world.
We have crop protection formulation and
manufacturing facilities in nine countries,
and seed-related research, development
and marketing operations in Australia,
North America, Latin America and Europe.
We have marketing operations in more
than 30 countries, and we distribute our
products in approximately 100 countries
across Australia and New Zealand, Asia,
North America, Latin America and Europe.
Established strategic alliances
and commercial relationships
We have a strategic alliance with our
largest shareholder, Sumitomo Chemical
Company, with whom we have a range
of collaboration agreements covering
product distribution, development and
manufacturing. We also have commercial
relationships with other major crop
protection companies including Bayer,
Dow, FMC, Syngenta and Monsanto which
we believe strengthen our business in
a variety of areas, including research
and development, procurement,
manufacturing, distribution and sales.
09
Nufarm Limited Annual Report 2018 Operating and financial review continued
Information on the company continued
Our history
Our people
We have our origins in New Zealand
dating back to 1916, and we’ve been
helping farmers get more from their land
for the last 100 years
From the beginning, growers and channel
partners have looked to Nufarm for its
adaptability, helping them experience
everyday certainty in challenging times.
We continue to be a supplier of smart,
dependable, great-value products,
backed by the best service and
technical support in the industry.
Over the last century, Nufarm has seen
various acquisitions and solid organic
growth expand the business to distribute
in 100 countries.
Earlier this year we strengthened our
presence in Europe with two acquisitions
that complement our strategic priorities.
The addition of these portfolios
consolidates our position as a leading
post-patent supplier in Europe and
increases our relevance to the customer
base by allowing us to offer a more
comprehensive suite of crop protection
solutions in a number of very important
crop segments.
Nufarm is now one of the most significant
crop protection companies in the world,
with a clear leadership position in
Australia and substantial operations
in North and South America, Europe,
New Zealand and Asia.
For more than 100 years our people have
been finding more effective ways to fight
disease, weeds and pests to increase the
yields of our customers’ crops, by turning
world-leading scientific breakthroughs
into local solutions.
Today, Nufarm employs 3,217 people
globally.
Our global team demonstrates a range of
expertise, including scientists, agricultural
product specialists, manufacturing and
logistics planners and customer-facing
sales managers.
We have sales and marketing teams
in more than 30 countries with strong
relationships with local distributors who
directly service growers and farmers.
These relationships provide us with
a competitive advantage in terms of
our access to key markets as well as
market intelligence.
Our product development staff globally,
as well as field personnel located in
all key markets, provide local market
insights to drive product development
and differentiation.
We have strong in-house formulation
development capabilities with Centres
of Excellence in Australia, Brazil and
the United States.
Differentiated product
portfolio and expertise to
bring new products to market
With strategically located laboratories
across the world, we have proven
product development and registration
expertise in our key markets that enable
us to develop innovative, differentiated
and value-added products and
formulations relevant to the region’s
growers and bring them to market quickly.
This provides us with a large pipeline of
new product opportunities and supports
the profitable growth of our business.
Global manufacturing,
marketing and distribution
platform
Our global product development,
manufacturing and distribution platform
allows us to deliver products to our
customers with short lead times, which
is critical given the weather dependent
nature of cropping and related crop
protection product demand patterns.
This platform also allows us to establish
close relationships with our customer
base, including independent distributors
and dealers as well as end users
of our products – contributing to our
understanding of the evolving needs
of crop producers and thereby
helping us optimise our product
development activities.
We believe our product and geographic
diversity, along with our long-term
customer relationships, help to protect
our business from adverse seasonal
or commercial pressures in any one
market while also providing a range
of expansion opportunities in major
cropping markets around the world.
10
Nufarm Limited Annual Report 2018
Our One Nufarm strategy
We aim to build a more cost-competitive business and improve the quality of earnings
to create a strong platform to support continued, profitable growth. We are focused
on implementing a strategy of going deeper into those geographic markets and crop
segments where we are the strongest, rather than spreading our efforts more broadly.
Our strategy is focused on the following
key crops in four core geographies:
cereals; corn; soybean; pasture, turf
and ornamentals; and trees, nuts, vines
and vegetables (TNVV). Our four core
geographies are: Australia/New Zealand,
serviced by a hub in Australia; North
America, serviced by a hub in the United
States; Latin America, serviced by a hub
in Brazil; and Europe, serviced by hubs
in France, Germany and Poland. We
believe that focusing on these crops and
geographies – where we have existing
strengths and further growth opportunities
– ensures that we allocate capital to
where we can maximise our returns.
A key component of delivering on
our strategy has been our successful
performance improvement program that
was implemented in 2015. This program
has generated sustainable earnings
benefits and has embedded a culture of
continuous improvement that we expect
to continue to yield benefits in the future.
Under this program, we have optimised
our manufacturing footprint, strengthened
our supply chain and improved our
procurement processes. In turn, this has
significantly enhanced our ability to
supply Nufarm products to our customers
at prices we believe are competitive.
We have implemented a business
model that is centre-led, thereby
reducing duplication and inefficiency
in our regional operations, and focused
on delivering superior quality, service
and value to our customers. We continue
to invest in the transformation of our
global systems, driving greater efficiency
across our product development and
customer engagement processes.
11
Nufarm Limited Annual Report 2018 $3.3b
Revenue
increased
6 per cent
on 2017
12
Nufarm Limited Annual Report 2018 Operating and financial review continued
Managing director’s review
Greg Hunt
Managing director and
chief executive officer
Nufarm Limited delivered an underlying net profit after tax of
$98.4 million, down 28 per cent on the $135.8 million reported
in the prior period. Underlying earnings before interest, tax,
depreciation and amortisation (EBITDA) decreased by one per cent
to $385.7 million and underlying earnings before interest and
tax (EBIT) decreased by 12 per cent to $265.1 million. On a constant
currency basis, underlying EBITDA was in line with last year and
underlying EBIT decreased by 10 per cent.
The company reported a statutory
net loss after tax of $15.6 million for the
12 months to 31 July 2018. The statutory
result includes $114 million in material items,
including an impairment charge and tax
asset write-off for the Australian business
of $91.5 million and business acquisition
costs of $22.2 million, and compares to
a statutory profit after tax of $114.5 million
in the previous year.
Group revenues increased by six per cent
to $3.31 billion (2017: $3.11 billion), despite
the overall industry recording minimal
growth during the period. The group
generated an underlying gross profit
margin of 29.1 per cent, slightly below the
29.4 per cent margin for the previous year.
The underlying EBIT result was impacted
by the very dry Australian autumn
conditions, and continued drought into
winter in the eastern and southern states.
Whilst this impact was largely offset
by the underlying EBITDA contribution
from the European acquisitions, the
increased amortisation related to the
acquisitions reduced the contribution at
the underlying EBIT level. Good earnings
growth was delivered in the North
American and Latin American businesses.
Underlying earnings per share were
down to 28.2 cents, a 40 per cent
decrease over the prior year 46.7 cents.
Average net working capital to
sales went up to 40.3 per cent (2017:
36.8 per cent), driven by higher
inventories in Australia and higher
receivables in Europe.
Net debt at 31 July 2018 was
$1,374 million, up on the $680 million
at 31 July 2017. The year-end net debt
was impacted by the funding for the
European acquisitions of $335 million
and the higher year-end net working
capital balance (up by $287 million).
Average net debt over the 12-month
period was $1,085 million, higher than
the $886 million average in 2017.
13
Nufarm Limited Annual Report 2018 Operating and financial review continued
Managing director’s review continued
Year ended 31 July
Revenue
Underlying gross profit
Underlying EBITDA1
Underlying EBIT 1,2
Operating profit
Net profit/(loss) after tax
Net operating cash flow
Underlying basic earnings per share (cents)
Total dividend per share declared in respect
of period (cents)
2018
$000
3,307,847
2017
$000
3,111,115
Change
%
6.3
963,434
385,653
265,103
175,499
(15,588)
(88,169)
28.2
11.0
915,765
390,016
302,285
279,242
114,467
55,443
46.7
13.0
5.2
(1.1)
(12.3)
(37.2)
(113.6)
(259.0)
(39.6)
(2.0)
The financial information contained within our statutory accounts has been prepared in accordance with IFRS. Refer to
footnotes, including explanations of the non-IFRS measures used in this report. All references to the prior period are to the
year ended 31 July 2017 unless otherwise stated. This report is based on financial statements which have been audited
by KPMG. Non-IFRS measures have not been subject to audit or review. Refer to the 31 July 2018 Nufarm Limited Financial
Report for the independent auditor’s report to the members of Nufarm Limited.
Final dividend
Directors declared an unfranked final
dividend of six cents per share, resulting
in a full year dividend of 11 cents. This is
down two cents on the previous year.
The final dividend will be paid on
2 November 2018 to the holders of all
fully paid shares in the company as at
the close of business on 5 October 2018.
The final dividend will be 100 per cent
conduit foreign income.
The dividend reinvestment plan (DRP) will
be made available to shareholders for the
final dividend. Directors have determined
that the issue price will be calculated on
the volume weighted average price of
the company’s ordinary shares on the
ASX over the 10-day period commencing
on 10 October 2018 and ending on
19 October 2018. The last election date
for shareholders who are not yet
participants in the DRP is 8 October 2018.
Interest/ tax/cash flow
Total underlying financing costs were
$118.3 million, compared to an underlying
$107.0 million in the prior year.
Underlying net external interest expense
was $91.8 million, which is $1.4 million
lower than the previous period. The lower
interest expense was primarily driven by
a reduction in Brazilian bank base rates,
and lower net working capital in Brazil
leading to lower funding requirements
for the business.
Underlying foreign exchange losses were
$26.6 million, compared to $13.8 million
recorded in the 2017 year. The exchange
loss relates largely to the Latin American
operations ($19.5 million), and is consistent
with the company’s previous guidance.
The remaining losses relate to emerging
markets currencies, particularly in Europe.
The underlying effective tax rate was
33.2 per cent for the year, which
compared to 30.2 per cent in the prior
period. The income tax expense includes
non-recoverable withholding taxes in
Australia and a prior year tax adjustment
in Canada. An underlying effective tax
rate of approximately 32 per cent is
expected in the 2019 year, reducing
to approximately 31 per cent thereafter.
The business generated an underlying net
operating cash outflow of $56.7 million
in the 2018 year. This compares to a cash
inflow of $73.4 million in the previous
year. The cash outflow was attributable
to a higher net working capital balance
at year-end, which was driven by the
late seasonal conditions in Europe and
the dry Australian conditions.
Acquisitions
During the year, Nufarm signed and
announced agreements to acquire crop
protection product portfolios, from FMC
Corporation for US$85 million, and from
Adama and Syngenta for US$490 million.
The acquisitions were subject to regulatory
approval, and both acquisitions were
subsequently completed in the first quarter
of 2018. The FMC acquisition was
completed on 1 February 2018, and the
Adama/Syngenta portfolio acquisition
completed on 16 March 2018.
14
The acquired portfolios consist of
established brands, formulations and
registrations for the European market.
These product portfolios strengthen the
company’s position in our core crops
and key markets in Europe and provide
additional scale that will make Nufarm
more relevant to both key distribution
customers and end-users.
For the 2018 financial year, the acquisitions
delivered sales of $69 million. Integration
plans are well progressed and the
business has seen strong engagement
with customers on the new portfolios.
To support the new products in the
portfolio, an extra 41 people have been
added to the business in the areas of
sales, marketing, regulatory and field
development. The acquired European
portfolios are expected to deliver the
financial targets given at the time of
the acquisitions.
Material items
The company incurred post-tax one-off
material items totalling $114.0 million in the
year, mainly related to the impairment
and tax asset write-off associated with
the Australian business, and costs relating
to the European acquisitions.
The Australian business was severely
impacted by drought conditions during
the year, particularly in the eastern and
southern states. The 2019 financial period
will also be impacted due to the high
amounts of inventory in the channel.
The lower than expected earnings in the
2018 and 2019 financial years, and the
discounting of future cash flows of the
Australian/New Zealand cash-generating
unit (CGU), has resulted in the carrying
value of the CGU being higher than its
recoverable amount, causing an
impairment loss of $70.6 million in the
year. The impairment loss brings the
carrying value equal to the recoverable
amount, and was allocated against
goodwill, fixed assets and intangible
assets. Associated with the reduced
earnings in 2018 and a lower expectation
of earnings in 2019, there was also a
write-off of the Australian carried forward
tax losses amounting to $20.9 million.
One-off transaction costs of $24.1 million
were incurred in relation to the European
acquisitions, mainly consisting of advisor
fees, integration costs, hedging costs
and other financing expenses.
Nufarm Limited Annual Report 2018
Nufarm undertook an early refinance
of the 2019 senior unsecured notes to
accommodate the European acquisitions
and to strengthen its capital structure.
The early termination of the existing notes
resulted in break fees and the early
recognition of interest costs in relation
to interest rate swaps on the notes.
The cash impact of the refinancing of
the notes was a $0.3 million outflow,
due to the favourable outcomes on
currency hedges.
Changes in the corporate tax rates in
USA, France and Argentina led to the
remeasurement of the group’s deferred
tax assets and liabilities, resulting in net
income tax credits of $12.2 million.
The cash impact of the material items is
$26.1 million, of which $19.2 million was
incurred in financial year 2018, with the
balance carrying over into future financial
years. In the current year, the net cash
outflow associated with material items
was $26.1 million, consisting of the
business acquisition costs and some
restructuring costs carried over from
the previous financial year.
Balance sheet management
Net debt at 31 July 2018 was $1,374 million
compared to $680 million at 31 July
2017. Year-end net debt was impacted
by the higher net working capital
(up $287 million) at 31 July 2018, which
was driven by the dry Australian season
and late seasonal conditions in Europe
moving sales into the fourth quarter
of the financial year. Net debt also
includes the debt related to the
European acquisitions of $335 million.
Average net debt was higher than in the
previous 12-month period ($1,085 million
compared to $886 million), due to the
higher net working capital brought
forward from last year; the working
capital related to the acquisitions; the
drought-impacted Australian season;
and the late start to the European season.
Average net working capital to sales
was 40.3 per cent (2017: 36.8 per cent).
Management continues to focus on
driving efficiencies in working capital
management, with the medium target
remaining in the 35 per cent to 37 per cent
range given normal seasonal conditions
and the full implementation of the global
supply chain management system.
The average leverage ratio (12-month
average net debt divided by the pro-
forma underlying EBITDA) was 2.37x
(2017: 2.27x). The interest coverage ratio
(proforma underlying EBITDA divided by
underlying net external interest) was 4.99x
(2017: 4.90x). The underlying EBITDA is
adjusted to reflect the pro-forma historical
earnings (as allowed under the banking
covenants) from the acquisitions to give
proforma underlying EBITDA. The gearing
ratio (net debt to net debt plus equity)
was 41.1 per cent (2017: 29.8 per cent).
Return on funds employed (ROFE) at
31 July 2018 was 9.4 per cent, down
from 13.6 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. Underlying ROFE,
adjusted for the acquisitions and material
items, is 10.3 per cent.
Cost savings and performance
improvement program
The company continues to progress
its cost savings and performance
improvement program. The program
aimed to deliver a net benefit of
$116 million in underlying EBIT by the
2018 financial year. The company
had delivered $101 million of benefits
to the end of the 2017 financial year.
Current business transformation initiatives,
particularly the European back-office
harmonisation and the global supply
system projects, are expected to be
fully implemented during the 2019 year.
Consequently, the delivery of the
remaining targeted benefits will
move into the 2019 and 2020 years.
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.
Outlook
The combination of revenue growth,
partial recovery in the Australian business
and the full year impact of the European
acquisitions is expected to result in
earnings growth in 2019. This is despite
an expectation that soft commodity
prices will remain low and market
conditions will remain competitive.
Underlying EBITDA is expected to
be in the $500 million to $530 million
range for the 2019 financial year.
This outlook also assumes average
seasonal conditions for the major selling
periods in our key markets and no material
impact from government policy changes
or third party supply interruptions outside
of our control. It should also be noted that
heightened volatility currently exists in
relation to various potential industry-wide
impacts, including currency movements.
Year ended 31 July 2018
Material items by category
Asset rationalisation and restructuring
Sale of Excel Crop Care investment
ANZ impairment and tax asset write-down
Business acquisition costs – other
Business acquisition costs – refinance 2019 notes
Change in corporate tax rates
Total material items
Pre-tax
$000
After-tax
$000
1,491
–
(70,559)
(24,124)
(13,684)
–
1,201
–
(91,504)
(22,228)
(13,684)
12,231
(106,876)
(113,984)
15
Nufarm Limited Annual Report 2018 Operating and financial review continued
Managing director’s review continued
in Europe, first half EBITDA is expected
to be similar to that generated in the first
half of 2018. At an underlying EBIT level,
earnings are likely to be below the 2018
first half, as the increased amortisation
associated with the European acquisitions
will more than offset the first half earnings
contribution from those portfolios, which
are weighted to the second half of
the year.
The company continues to remain alert
to potential acquisitions that might result
from industry consolidation, but will be
disciplined in terms of ensuring any such
opportunities represent compelling
value and are strategically sound.
An improvement in net working capital
is anticipated, with the net working capital
to sales ratio expected to return to a level
below 40 per cent. The completion of the
supply chain investment and a
commitment to the company’s integrated
business planning (IBP) process should
help drive the average net working
capital to sales down to the 35 per cent
to 37 per cent range over the medium
term. An increased underlying EBITDA
and lower net working capital position
at July 2019 will strengthen cash flow
and result in lower group net debt levels
and reduced leverage.
Net interest expense is expected to
increase in the 2019 financial year, given
the full year funding of the acquisitions.
Net foreign exchange impacts will
continue to include anticipated hedging
costs of approximately $20 million
for Brazil and Argentina.
Given the ongoing drought-related
impacts in Australia and some planned
maintenance related plant shutdowns
G A Hunt
Managing Director & CEO
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 report 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 annual report:
1. Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA is underlying
EBIT before depreciation and amortisation of $120.550 million for the year ended 31 July 2018 and $87.731 million for
the year ended 31 July 2017. 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
2018
$000
265,103
(89,604)
175,499
2017
$000
302,285
(23,043)
279,242
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 interest income – external, interest expense – external/debt
establishment transaction costs and lease amortisation – finance charges as described in note 10 to the
31 July 2018 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, non-current trade receivables and inventories less
current trade and other payables.
• Average net working capital – net working capital measured at each month end as an average.
• Constant currency – comparison removing the impact of exchange rates. It is the FY18 result translated at FY17
exchange rates.
16
Nufarm Limited Annual Report 2018
Business review
Operating segments summary
The group generated increased sales
in both its crop protection and seed
technologies segments, and across all
regions except for Australia/New Zealand.
Total crop protection sales increased
by six per cent to $3.1 billion, but
underlying EBITDA fell by one per cent
to $395.7 million mainly due to the
Australia/New Zealand segment. The
crop protection underlying gross profit
margin was 28.3 per cent of sales, in line
with the previous year of 28.4 per cent.
Seed technology sales in the period
were up by 10 per cent to $185.5 million
and generated an underlying EBITDA
of $43.6 million, which was down four
per cent on the $45.3 million recorded in
this segment in the 2017 year. The seed
technologies underlying gross profit
margin was 43.8 per cent of sales, below
the previous year of 46.7 per cent.
The following table provides a summary
of the performance of the operating
segments for the 2018 financial year
and the prior year.
Australia /New Zealand
Australia/New Zealand sales were
down 10 per cent on the prior year,
as the Australian business was impacted
by a severe drought through the autumn
and winter cropping periods.
The segment generated sales of
$590.1 million, down on the previous
year’s $654.2 million. Underlying
EBITDA was $23.7 million compared
to $64.9 million in the prior year.
Climatic conditions in Australia were poor
during the winter cropping period. The
autumn period was one of the driest on
record across Australia, limiting pre-plant
herbicide opportunities. Winter also
proved to be very dry in the eastern and
southern states. Much of New South Wales
and Queensland have been declared
drought affected and production is
expected to be down 30 per cent to
40 per cent on the prior year. Western
Australia received good winter rains
and will deliver close to a record harvest.
The drier winter conditions in the Eastern
states have extended into spring, which
severely limited the post-emergent market
opportunities and reduced demand
for this higher-value component of
Nufarm’s portfolio.
The earnings result was impacted
by a scheduled plant upgrade at the
Laverton manufacturing site in the first half.
The 2,4-D plant was off-line for a total of
nearly eight weeks, and works included
the replacement of two reactors involved
in the synthesis process. This has improved
long term efficiency and productivity of the
plant. Lost recoveries from the scheduled
shutdowns impacted the Australian result
by $8 million at the underlying EBIT level.
The consolidation of the company’s
Nufarm and Crop Care marketing arms
and brands in Australia occurred on
August 1, 2017. This has resulted in a single,
focused sales organisation that is
delivering business efficiencies and an
improved service to Australian customers,
who have welcomed the change.
Both the New Zealand and Croplands
equipment businesses performed well,
improving earnings on the prior year. The
New Zealand business capitalised on a
strong agriculture sector, with growth in
the pasture and horticulture markets. The
Croplands business increased sales of its
WeedIT smart technology applications
and improved manufacturing efficiencies
during the period.
Asia
Asian crop protection sales were
$170.7 million compared to $165.6 million
in the prior year, an increase of
three per cent. Underlying EBITDA was
$25.2 million, 11 per cent down on the
$28.3 million generated in the prior year.
Indonesian sales were up 8.6 per cent in
local currency, driven by good weather,
new product introductions and higher
glyphosate pricing. Sales growth was
also achieved in China, Malaysia and
Sri Lanka. Sales into Japan were down
18 per cent, due to increased generic
competition in the non-crop segment.
Sales in Japan are typically higher margin
so the lost sales had a significant impact
on earnings.
During the period, Nufarm established a
sales and marketing joint venture in China
with locally-based Fuhua Group. The joint
venture strengthens Nufarm’s relationship
with a highly strategic supply partner with
a portfolio and go-to-market approach
that is complementary to Nufarm.
North America
North American sales grew by 10 per cent
to $833.7 million. Underlying EBITDA was
up strongly to $99.5 million, compared
to $89.3 million in the prior year.
The North American business increased
market share in all three of its key segments,
being US row crops, the Canada market
and the turf and ornamental business. The
revenue growth reflects a focused product
portfolio and increased support from the
customer base. Glyphosate volumes grew
12 per cent on last year reflecting strong
customer support for our foundational
products. The business also successfully
launched several new products, including
Year ended 31 July
Revenue
Underlying EBITDA
2018
$000
2017
$000
Change
%
2018
$000
2017
$000
Change
%
Crop protection
Australia and New Zealand
Asia
Europe
North America
Latin America
Total crop protection
Seed technologies – global
Non operating corporate
Nufarm Group
590,151
170,680
642,571
833,705
885,232
654,194
165,633
539,803
761,050
821,835
3,122,339
2,942,515
185,508
168,600
–
–
3,307,847
3,111,115
(9.8)
3.0
19.0
9.5
7.7
6.1
10.0
n/a
6.3
23,736
25,229
149,873
99,487
97,377
64,876
28,315
121,350
89,338
95,608
395,702
399,487
43,580
(53,629)
45,305
(54,776)
385,653
390,016
(63.4)
(10.9)
23.5
11.4
1.9
(0.9)
(3.8)
(2.1)
(1.1)
17
Nufarm Limited Annual Report 2018 Operating and financial review continued
Business review continued
formulations that combine Sumitomo and
Nufarm chemistry to address an increasing
incidence of glyphosate resistance.
During the year, the US business extended
the distribution relationship with Sumitomo
in the turf and ornamental business for
a further five years. Nufarm plans to
extend its manufacturing capacity in the
USA, with a new formulation facility to be
based in Greenville, Mississippi. The facility
will help facilitate sales growth into the
south-eastern region of the USA and will
provide freight savings to the business.
It is expected to commence operations
in the middle of 2019.
Latin America
Latin American crop protection sales
were up eight per cent on the previous
year ($885.2 million compared to
$821.8 million). Underlying EBITDA
at $97.4 million was up two per cent
on the prior year’s $95.6 million.
The Brazilian business grew sales by
11 per cent, which was mostly volume-
driven, and reflected increased demand
in the soybean and pasture segments,
and for solutions to a growing
glyphosate-resistance issue. Nufarm
continued to increase market share, with
the total crop protection market in Brazil
down seven per cent (in US dollars) in
calendar year 2017. The reduced market
size was caused by competitor channel
stock adjustments. It is now considered
that industry channel inventories are
back to normal levels.
Pricing was very competitive, with
margins impacted by the higher cost
of active ingredients out of China
and currency volatility.
Argentina experienced a severe drought
from November through April, which
reduced soybean production by
approximately 30 per cent. Rains finally
arrived in April/May, which provided
a better outlook for the winter wheat
season. Sales were down 16 per cent,
but earnings improved due to a focus
on higher margin product sales and
the benefit of price increases as the
currency weakened.
In contrast to last year, the average
Brazilian real exchange rate for the
period was six per cent weaker against
the Australian dollar and the Argentina
peso 31 per cent weaker. On a constant
currency basis, Latin America sales
would have increased 17 per cent
and underlying EBITDA 12 per cent.
Credit conditions in Brazil eased during
the year, off the back of improved farmer
profitability. The business managed net
working capital well, and combined with
a reduction in bank base interest rates, this
led to lower funding costs in the business.
The currency exposures were managed
well, given the increased volatility in Latin
American currencies in 2018, with
exchange losses across the crop and
seeds businesses totalling $19.5 million.
This is largely in line with the guidance
given for the year. The company will
continue to closely manage credit
and currency exposures.
18
Europe
European sales increased on the prior
period by 19 per cent (2018: $642.6 million
compared to 2017: $539.8 million).
Underlying EBITDA improved to
$149.9 million, up 24 per cent on the
$121.4 million posted in the 2017 year.
The sales growth was driven by
a $69 million contribution from the
European portfolio acquisitions, and
translation gains from a stronger euro.
Climatic conditions were adverse in the
year, particularly in central and northern
Europe. The season started late, with
winter extending into late March/early
April. This was followed by a very short
spring season and a hot, dry summer.
Severe drought and heat waves in large
parts of France, Germany and the Nordic
region severely impacted the business.
The business continues to focus on high
value and differentiated products, together
with new product launches and pricing
discipline and this has contributed to the
improved profitability of the business.
The new European Enterprise resource
planning (ERP) system and implementation
of a shared services model will further
strengthen the European business over
coming periods. The first wave of countries
went live on the new system in November
2017, with the remaining countries going
live in two phases in August and
December this year.
The newly acquired product portfolios
performed strongly in 2018, reflecting
well executed integration plans and a
positive response from the customer base.
Management has well-developed
business plans to deliver the acquisition
financial targets in 2019.
Nufarm Limited Annual Report 2018
Major product segments
Crop Protection
Nufarm’s crop protection business
generated $3.12 billion in revenues,
which was up six per cent on the previous
year sales of $2.94 billion. These sales
generated an average underlying gross
profit margin of 28.3 per cent, in line with
the 28.4 per cent average gross profit
margin recorded in the 2017 year.
Herbicide sales were up eight per cent
to $2.12 billion. Glyphosate sales were
well up on last year, due to a higher
average technical price, and stronger
volumes in North America and Latin
America, however, margins were slightly
down due to competitive market
conditions in Australia and Latin America.
Phenoxy herbicide revenues were
four per cent up on the prior year, but
with margins largely in line with the
previous year. Other herbicide revenues
were ahead of last year by six per cent,
with picloram and fluroxypyr – two
important mixture products for the pasture
and glyphosate resistance segments
– being the main drivers.
On August 10 2018, a California jury found
Monsanto liable in a lawsuit in which a
man alleged the company’s glyphosate-
based products had caused his non-
Hodgkins lymphoma. This verdict is being
contested, with Bayer-Monsanto claiming
the jury’s decision is wholly at odds with
over 40 years of real-world use, an
extensive body of scientific data and
analysis which support the conclusion that
glyphosate-based herbicides are safe for
use and do not cause cancer in humans.
Glyphosate is an important product for
Nufarm, contributing 12 per cent of the
group gross profit. The company’s position
on glyphosate is supported by the more
than 800 scientific studies and reviews
that have concluded that glyphosate is
safe to use and is unlikely to cause cancer.
The company supports the rigorous
scientific process employed by regulatory
authorities around the world, which
undertake years of analysis and review
before products like glyphosate are
approved for use.
Insecticide sales were up 14 per cent to
$382 million, with margin percentage
in line with the prior year. The increased
sales were driven mainly by Brazil,
with growth from new products and
extensions into new crops.
Fungicide sales were down six per cent
to $316 million, with margins holding on
the prior year. The fungicide portfolio was
down due to the dry conditions in Australia
and lower mancozeb sales in Brazil.
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 have grown at a compound
annual growth rate of 37 per cent to
$245 million over the last five years.
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 $185.5 million,
which represented a 10 per cent increase
on prior year sales of $168.6 million.
The segment generated underlying
EBITDA of $43.6 million, down four
per cent on the $45.3 million recorded
in the prior year.
Despite challenging seasonal conditions
in the Australian canola segment, stronger
sales of sunflower and sorghum and an
expanded offering of seed treatment
products helped drive higher revenues
for the period. As disclosed in the July
trading update, profitability was impacted
by a European regulatory directive that
restricted use of neonicotinoid-based
seed treatment applications in France.
A derogation application to allow
temporary use of these products in France
was not successful and this resulted in
an estimated $11 million negative impact
at the underlying EBITDA level. The seed
technologies segment overall experienced
an excellent growth year, gaining
approximately $9 million in underlying
EBITDA contribution in other areas to
offset the downside in France.
While the canola season was challenging
for total canola seed volumes in Australia,
Nuseed retained share in the largest
segments, achieved growth in new hybrid
categories, and increased end-point
royalty collections, resulting in solid 2018
earnings in the region. Successful new
product launches broadened Nuseed’s
offerings in the European, Latin American
and US sunflower segments, and
strengthened the company’s position
in the Latin American and US sorghum
markets. An expanded distribution base
in the US helped drive higher sales of
seed treatment products, along with the
successful launch in Brazil of an insecticide
treatment based on Sumitomo chemistry,
and early sales of a combination
product in Europe, acquired as part
of the European portfolio transaction.
The reporting period saw significant
progress relating to Nuseed’s proprietary
omega-3 canola. In February of this year,
Australian regulators approved omega-3
canola for production and use in feed
and human consumption. Subsequent to
year-end, the United States Department of
Agriculture (USDA) approved omega-3
canola for cultivation in the US. Regulatory
submissions relating to food and feed
approval in the US and cultivation,
food and feed in Canada continued to
progress through the review process
on schedule, and those approvals are
anticipated prior to the 2019 North
American cropping season.
Nuseed successfully contracted, planted
and harvested 15,000 acres of omega-3
canola in Montana under the USDA
notification process. This activity has
helped validate the company’s closed
loop business model and stewardship
protocols. Multiple pre-commercial
feeding trials, utilising Nuseed’s omega-3
canola oil, were commenced with
downstream aquaculture companies,
with initial data expected at the end
of the calendar year.
Nuseed and its partners, CSIRO and GRDC,
continue to strengthen the intellectual
property (IP) relating to the technology,
with more than 20 additional patents
granted over the past 12 months. Earlier
this month, Nuseed – together with
partners CSIRO and GRDC – filed US
federal court proceedings against BASF
and Cargill claiming infringement of
16 of our patents for their activities in the
USA. The company believes it has clear
freedom to operate, and a clear path
to commercialisation of its proprietary
omega-3 canola technology.
The company remains confident it will
be first to market with a land-based,
sustainable, long-chain omega-3 solution.
19
Nufarm Limited Annual Report 2018
Operating and financial review continued
Sustainability
Responsibility is central to Nufarm’s
business values. Our employees,
shareholders and customers expect
us to act responsibly in everything
we do, including ensuring we operate
sustainably and safely.
Since the launch of our sustainability
strategy in 2015, we have increased
our efforts across all locations, improving
our safety processes and procedures
while building a strong safety leadership
and culture.
The most significant hazards managed
by Nufarm relate to the potential loss
of containment of chemicals at our
manufacturing sites. Last year, Nufarm’s
continuous improvement approach saw
a global process safety management
program (PSM) initiated at our sites with
each site developing a PSM gap closure
plan. Each site is now well progressed
in implementing their plans, having
adopted a strong risk management-
based approach to reducing these risks
to as low as reasonably practicable.
Another significant safety hazard in
our business is the risk of a vehicle
accident to our sales team when driving
on public roads. This year we launched
a behavioural based online driver
safety program for frequent drivers.
We have also commenced the
development of a non-manufacturing
sustainability learning program as
well as other initiatives to increase
sustainability awareness amongst
our non-manufacturing employees
that will be launched in 2019.
This year our determination to ensure
our people are safe delivered our lowest
ever lost time injury frequency rate
(LTIFR) and we have also seen a decline
in the severity of incidents. Our sites
are achieving record stretches of time
between serious injury events, with 10
of our 12 manufacturing sites lost time
injury free for more than 12 months.
The initiatives that were implemented
through our sustainability strategy, including
Nufarm’s health, safety and environment
standard and procedures, process safety
management program, systematic risk
identification and management, auditing
of compliance, Nufarm’s life saving rules,
driver safety education programmes and
safety training for leaders and staff, have
all contributed to this improvement in our
safety performance across the business.
In 2017, we established new corporate
environmental procedures. These
procedures set a higher level of
environmental performance across our
business. This year, to embed those
requirements, each of our manufacturing
sites undertook an environmental gap
analysis against these procedures
and established an environmental gap
closure plan which they will execute
over the next two to three years.
We have best practice environmental
management systems (EMS) in place at our
manufacturing sites in Wyke (UK), Gaillon
(France) and Merak (Indonesia), which
are all certified to ISO14001. Our site in Linz,
Austria is well progressed in implementing
an IS14001 EMS with certification planned
for next year. Our Pipe Road site in
Australia will commence work on
an ISO14001 equivalent EMS in 2019.
We continue to reduce the environmental
footprint of our manufacturing operations
through implementing or commissioning
new environmental controls that improve
the quality of our air and waste water
emissions. For example, our site at
Maracanau, Brazil is in close proximity
to a local community; in response to their
concerns we made improvements to our
air emission controls, reducing nuisance
odours from our site.
We operate several manufacturing sites
that are subject to Australian federal
and state environmental regulations.
The nature of our operations can lead
to these regulators issuing remedial
notices requiring us to carry out additional
environmental protection activities.
This was the case this year and we are
progressing through these requirements
in line with the timeframes set out by
the regulator.
Nufarm works to reduce the
environmental impact of our products
through the development of biorational
products and designing formulations
to have minimum off-target impacts.
We work closely with our customers to
provide training on using our products
safely and correctly across all business
regions and we partner with local
service providers in the countries in
which we operate to collect and
recycle our packaging.
During the financial year, the crop
protection sector came under increasing
public pressure. In a number of markets,
sections of the community continue to
question the safety and perceived
environmental impact of herbicides,
20
Nufarm Limited Annual Report 2018
insecticides and fungicides. A rigorous
regulatory process exists in every country
in which we operate to ensure only
products that have been thoroughly
tested and assessed against stringent
health, safety and environmental
requirements can be approved for use.
In 2018, the European Union restricted
the use of three neonicotinoids, including
Imidacloprid, to indoor use only. These
products continue to be approved for use
by regulatory authorities in other parts
of the world, including Brazil, the United
States and Australia. There has been
widespread public concern about the
impact of glyphosate on human health
following a legal case where the jury
found the glyphosate manufacturer liable
for causing the plaintiff’s cancer. More
than 800 studies have found glyphosate
to be safe when used according to
the manufacturer’s safety label and it
continues to be approved as safe for
use by regulatory authorities around the
world, including the United States, Australia,
New Zealand, Europe and Canada.
Our human rights policy establishes
our zero tolerance for all forms of modern
slavery in our operations and our supply
chain. This year we completed an
assessment of our exposure to modern
slavery in our operations and the controls
in place to prevent the practice. Last year
we partnered with EcoVadis to undertake
corporate social responsibility (CSR)
assessments of our raw material
suppliers. These assessments review
the environmental, social governance
and sourcing practices of our suppliers.
In 2018, we have extended the program,
increasing the number of suppliers
assessed from 23 percent to 37 percent.
We will expand this program further
in 2019.
Some of our manufacturing sites are close
to communities and in these locations, we
have established community programs
and partnerships. We can help to provide
employment opportunities in these
communities through the education and
development of young people. In 2018,
we established a partnership between
our Wyke manufacturing site in the United
Kingdom and the local primary school
and have extended our program at our
Maracanau site in Brazil to engage local
primary schools. We have continued
our support of the Nuffield International
Scholarship program this year, sponsoring
a Brazilian scholar.
Figure 1: Nufarm serious injury frequency rate (SIFR) and lost time injury
frequency rate (LTIFR) 12 month rolling averages
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1
6
0
2
n
a
J
1
6
0
2
r
a
M
1
6
0
2
y
a
M
1
6
0
2
y
u
J
l
1
6
0
2
p
e
S
1
6
0
2
v
o
N
1
7
0
2
n
a
J
1
7
0
2
r
a
M
1
7
0
2
y
a
M
1
7
0
2
y
u
J
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1
7
0
2
p
e
S
1
7
0
2
v
o
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1
8
0
2
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1
8
0
2
r
a
M
1
8
0
2
y
a
M
1
8
0
2
y
u
J
l
Nufarm Global SIFR
Nufarm Global LTIFR
* Serious injury frequency rate (SIFR) is an indicator that includes the two principal serious injury metrics (lost time and
medical treatment). It is designed to assist us to focus on all incidents that are serious enough to result in treatment
by a medical professional rather than only those that result in time lost from work.
21
Nufarm Limited Annual Report 2018
Operating and financial review continued
Risk management
Climate and
seasonality
Commodity prices
As an input supplier to global agriculture, demand for crop protection products is influenced by climatic
conditions that help determine the timing and extent of cropping activity as well as weed, pest and
disease pressures. Climatic conditions will vary from region to region. While certain conditions may
increase demand for crop protection products, extreme climatic conditions, such as prolonged
drought, may reduce demand for those products. In 2018, Australia experienced one of the driest
autumns since records began more than 100 years ago, leading to an extremely poor winter crop
season. The Australian crop protection market is down substantially as a result. The limited demand for
crop protection products across the country has led to increased competition and high inventory levels
in the channel, resulting in significant margin pressure. These seasonal conditions have also impacted
the mix of products sold, with growers purchasing lower margin foundational products over higher
margin differentiated products. The Australian Bureau of Meteorology (BOM) is currently forecasting
a dry spring 2018, and has issued an El Nino watch alert.
The timing of weather seasons in the geographies in which Nufarm operates is uncertain and varies
from year to year. Since the demand for Nufarm’s products is dependent upon the weather, there is a
risk that unusually early or late seasons may have a negative impact on demand for Nufarm products
in a particular year and therefore its financial performance. The duration of key selling periods and
subsequent demand, and the timing of that demand, for crop protection products can also be
impacted by climatic conditions such as longer than average winters in Nufarm’s larger Northern
Hemisphere markets.
Nufarm’s operations are global, providing geographic diversification to climatic and seasonality risks.
Our product portfolio is diverse, supporting a wide range of agricultural applications. At an operating
level, Nufarm’s business planning processes incorporate forecasting and supply planning based on
typical weather conditions. These plans are reviewed on an ongoing basis as the seasons progress
to align supply with changing demand.
International commodity prices can impact the profitability of crop protection companies. This
relates to fluctuations in the prices of commodities that are associated with chemical intermediates
used in the manufacture of crop protection products, and to international prices for various crops
(‘soft’ commodities) that can affect demand for those crops and growers’ decisions to plant them.
The crop protection products market can be volatile and pricing can change rapidly. This volatility,
in combination with foreign exchange changes, could have a material impact on Nufarm’s ability
to compete and may impact the financial performance and prospects of the business.
Nufarm has entered into numerous arrangements with suppliers and customers to assist in the
management of our supply chain costs to ensure we can compete in changing and competitive
markets. Nufarm’s business planning processes help inventory management to reduce price risk
of stock on hand.
Foreign exchange
Global crop protection companies such as Nufarm purchase inputs and determine selling prices in a
range of international currencies and are therefore exposed to fluctuations in exchange rates. Further,
a substantial portion of Nufarm’s revenues, costs, assets and liabilities are denominated in currencies
other than Australian dollars. As a result, exchange rate movements affecting these currencies may
impact the financial performance and future prospects of the business of Nufarm.
Nufarm has implemented a range of financial risk management policies and procedures to assist with
the management of foreign exchange exposure. The group treasury function manages financial risks
in accordance with these policies. Where possible, currency and interest rate risk is managed through
hedging strategies.
22
Nufarm Limited Annual Report 2018 Regulatory
The crop protection industry is highly regulated with government controls and standards imposed
on all aspects of the industry’s operations. Crop protection products are subject to regulatory review
and approval in all markets in which they are sold, with the requirements of regulatory authorities
varying from country to country. Europe in particular is highly regulated and there is increasing political
influence on the regulatory system. The influence of politics in the regulatory process also makes
outcomes increasingly unpredictable. Regulatory policies can have an impact on the availability
and usage of crop protection products and, in some cases, can result in the restriction or removal
of certain products from the market, which can have a material adverse effect on the financial
performance of Nufarm.
Nufarm’s business operations could be adversely affected by changes in international or Australian
state, territory and commonwealth governments and changes in government legislation, guidelines
and regulations.
Nufarm monitors regulatory developments across its key regions of operations closely and participates
in several industry bodies and task forces which provide input and analysis to regulatory bodies on the
use of our key products. The Nufarm portfolio team considers the regulatory environment in the
maintenance and ongoing development of our portfolio.
Environmental
Nufarm operates in a regulatory environment that establishes high standards in terms of environmental
compliance. Any material failure by Nufarm to adequately control hazardous substances and
manufacturing operations, including the discharge of waste material, or to meet its various statutory
and regulatory environmental responsibilities, could result in significant liabilities as well as ongoing
costs relating to operational inefficiencies which may arise.
Group HSE has provided clear guidelines on the management of environmental risks, which includes
ongoing assessment and review of regulatory requirements. Local management engage with local
environmental authorities on key risks and compliance.
Quality controls
Nufarm manufactures and supplies a range of crop protection products which must be manufactured,
formulated and packaged to exact standards, with strict quality controls. The performance of those
products would be negatively impacted if those quality standards are not met and this could, in turn,
have an adverse impact on the reputation and success of Nufarm.
Competition
Quality guidelines and procedures are defined across the manufacturing process, including external
tolling activities. These processes are subject to rigorous testing to ensure quality standards are met.
An ongoing review program is in place with the aim of ensuring operations adhere to the quality
standards and identify continuous improvement opportunities.
Nufarm conducts business in a highly competitive industry in which there are a number of well-
established competitors that have significantly greater financial resources, sales and marketing
organisations, market penetration and development capabilities, as well as broader product offerings
and greater market and brand presence. Most of the products supplied by Nufarm can also be
purchased from other crop protection companies. This may place pricing pressure on Nufarm and
may impact Nufarm’s ability to retain existing customers or attract new customers. There can be no
assurances given in respect of Nufarm’s ability to compete. Nufarm’s financial performance, the future
prospects of the business and the value of Nufarm shares could be materially adversely affected if
Nufarm cannot compete, existing competitors increase market share or new competitors enter the
relevant markets.
Nufarm monitors the competitive market on an ongoing basis. Pricing and supply decisions are
managed globally and locally with the aim of ensuring our products remain competitive and market
share is maintained.
23
Nufarm Limited Annual Report 2018 Operating and financial review continued
Risk management continued
Industry consolidation
Excess supply
Environmental
compliance
audits in China
Third party supply
The industry in which Nufarm conducts business is currently undergoing a period of consolidation
with a number of large mergers and acquisitions underway (including, for example, ChemChina’s
acquisition of Syngenta, Dow’s merger with DuPont, FMC’s acquisition of certain assets from DuPont’s
crop protection business, Bayer’s acquisition of Monsanto, UPL’s acquisition of Arysta and BASF’s
acquisition of a portfolio of assets from Bayer). Completion of these transactions is expected to
result in a change to the industry landscape and competitive environment, producing larger market
competitors with an increased market presence. If these changes result in an increase in competition
and Nufarm is unable to adapt and its competitive position deteriorates, Nufarm’s financial
performance, its future prospects and the value of Nufarm shares could be adversely affected.
Nufarm continues to actively monitor the market to identify specific risks and opportunities presented
by industry consolidation. We have taken a disciplined approach to participation in opportunities
presented, ensuring all decisions are strategically aligned and execution risks are understood and
managed. Analysis of the industry post consolidation occurs on an ongoing basis as input to strategic
marketing and operational decisions.
Supply and demand factors play a role in the profitability of crop protection sales. The introduction
of significant levels of new capacity relating to the supply of crop protection products can result in
volatility in pricing and margins in key products supplied by Nufarm.
The Chinese government is undertaking environmental compliance audits in China, which in some
circumstances have resulted in the partial or complete closure of chemical production facilities.
These audits remain ongoing and could include the closure of facilities which supply Nufarm. If these
closures occur, it could impact Nufarm’s ability to source product at competitive prices which might
impact Nufarm’s sales and/or margins.
Nufarm relies on supply of various active ingredients, intermediates and other inputs from a number
of third party suppliers, including suppliers based in China. The reliability of supply and the cost of these
inputs can be impacted by a range of factors including, but not limited to, manufacturing closures or
temporary disruptions, compliance with more stringent environmental and/or safety standards, and
other changes in government policy or regulation. Any resulting disruption to supply or price impact
may affect Nufarm’s ability to meet its sales and/or margin forecasts.
Supply and demand factors play a role in the profitability of crop protection sales. The introduction
of significant levels of new capacity relating to the supply of crop protection products can result in
volatility in pricing and margins in key products supplied by Nufarm.
Nufarm’s procurement and business planning processes include the ongoing assessment of supply
availability as input to manufacturing and safety stock levels. Where possible, we have entered into
specific supply arrangements to assist with availability and pricing of key active ingredients. Our
manufacturing facilities are geographically aligned with distribution to minimise disruption to supply.
Geopolitical risks
Nufarm is subject to a number of geopolitical risks in certain markets that Nufarm may or may not
operate in, including political instability and policy changes.
Following US President Donald Trump’s decision to raise tariffs on $US200 billion of Chinese imports, the
Chinese Communist Party has announced it will levy tariffs on $US60 billion worth of American goods.
The Chinese Ministry of Commerce has announced plans to impose a 10 per cent tariff on 3571 goods
from the US and a five per cent tariff on another 1636 US products. The new US imposed tariffs, mark the
latest move in a potentially volatile trade dispute between China and the US. The introduction of Chinese
and US tariffs have the potential to impact the price and volume of a number of agricultural products
that are traded between the countries (for example, soybeans exported into China from the US) and
also have the potential to impact the volume and price of certain chemical inputs imported by Nufarm.
The UK’s potential exit from the European Union has the potential to impact the UK and Europe’s
agricultural sector as new agricultural and crop chemical policies may be implemented.
These changes, among others, could adversely affect Nufarm’s operations and earnings, and impact
on Nufarm’s share price.
24
Nufarm Limited Annual Report 2018
Relationships with
customers and
distributors
Nufarm is exposed to competitor pressures in retaining and attracting customers. The loss of a key
customer, the inability to renew contracts on similar terms or the inability of Nufarm to attract new
customers may have a material impact on future profitability and the value of Nufarm shares.
Nufarm also uses third parties to sell and/or distribute its products. These third parties may choose to
prioritise other products or may elect not to renew distribution agreements when they expire. Should this
occur, Nufarm may not be able to sell its products or may suffer delays in appointing new distributors.
Nufarm’s strategic alliances, partnerships and distribution agreements are reviewed on an ongoing
basis and aligned to strategy. Customer marketing plans are managed regionally and aligned to
specific customer needs. Our customer base is diversified to minimise the impact of the loss of any
single customer.
Relationships with
other commercial
counterparties
Nufarm has important strategic alliances and a range of business relationships with other major
companies in the sector, including licensing arrangements and distribution arrangements. These
arrangements provide opportunities to maximise the value of Nufarm’s distribution platforms as well
as increasing Nufarm’s customer base by providing access to additional products or new markets.
Nufarm’s collaborative relationships with other major crop protection companies may change or be
terminated, which could have a material adverse impact on Nufarm’s financial performance and the
value of Nufarm shares.
25
Nufarm Limited Annual Report 2018 Operating and financial review continued
Risk management continued
Relationships
with suppliers
Nufarm relies on the supply of a number of key raw materials, intermediates and active ingredients in
order to produce and supply its range of crop protection products. Commercial terms relating to the
supply of those inputs can vary and are subject to negotiation with third parties. Pricing and other
terms associated with these arrangements can impact the margins associated with the sale of related
products and Nufarm’s future profitability and the value of Nufarm shares. As part of Nufarm’s
acquisitions of two portfolios of products in Europe, Nufarm entered into transitional supply
agreements (TSAs) with the vendors, Adama, Syngenta and FMC. Nufarm is reliant on the vendors
meeting their commitments under the respective TSAs for supply of a number of key products. The
transitional services agreement (TSA) states that Adama following Nufarm’s acquisition of Century must
supply the in-scope finished good products to Nufarm for a period of two years from closing with an
option to extend a further year. Prochloraz and Tebuconazole mixture formulations are key products
in the Century portfolio. Any inability to supply means farmers’ needs may be replaced by competitor
products as they cannot be substituted ‘like-for-like’ by any others in Nufarm’s portfolio. Once
displaced by competitor products, it may be very challenging for Nufarm to re-enter for next season(s).
The only substantive qualification to the supply obligation is force majeure. Adama has informed
Nufarm that it is experiencing some supply issues arising out of the Chinese regulatory activity
referenced on page 24, stating force majeure, a claim Nufarm has formally refuted. Adama has since
put forward a proposal which would satisfy Nufarm’s full forecast of Prochloraz based products on
the assumption that one of their suppliers resumes production satisfactorily.
Grower options
and technology
Growers evaluate a number of options when determining how best to address their crop protection
needs. Products supplied by Nufarm might be assessed alongside products supplied by other crop
protection companies and other forms of crop protection by alternative technologies such as
biological controls and biotechnology. The introduction of genetically modified seeds has, in some
instances, either reduced the need for crop protection products or resulted in a change in the crop
protection products used.
Loss of key personnel
Debt financing risk
The Nufarm portfolio team conducts regular assessments of advancements in application technology
and product development. This is a key input to the product development pipeline and participation in
potential partnerships with third parties with access to alternative technologies.
There can be no assurance that Nufarm will be able to retain key personnel. The loss of key personnel
or the inability to recruit and retain or motivate high calibre staff could have a material adverse effect
on Nufarm. Nufarm operates globally and has facilities in multiple jurisdictions. Management of a
complex business that operates globally has a higher employee risk/complexity than a business
which operates in one jurisdiction. The addition of new employees and the departure of existing
employees, particularly in key positions, can be disruptive and could have an adverse effect on
Nufarm and may impact Nufarm’s financial performance, future prospects of the business and the
price of Nufarm shares.
Critical roles across the organisation have been identified and appropriate succession and retention
strategies developed. Guidelines for remuneration and reward have been developed to ensure
Nufarm can attract and retain talent.
Nufarm has significant short term bilateral funding facilities to fund its working capital requirements.
Continued access to these facilities is dependent upon compliance with relevant banking covenants
and the successful renewal of these facilities as and when they fall due. Nufarm’s ability to refinance its
debt obligations, and the terms on which any such refinancing can be obtained, is uncertain. If Nufarm
is unable to refinance its debt obligations, or to do so on reasonable terms, may have an adverse
effect on the financial position and performance of Nufarm.
Board and executive oversight is in place to monitor ongoing compliance with key banking covenants
and facilitate the early identification of any covenants under stress. A clearly defined funding strategy
is in place which includes a diversified funding structure with a range of debt maturity profiles.
26
Nufarm Limited Annual Report 2018 Operational risk
IP rights and
branded names
While Nufarm has operational risk management practices, its profitability will continue to be subject
to a variety of operational risks including strategic and business decisions (including acquisitions),
technology risk (including business systems failure), reputation risk, fraud, compliance with legal
and regulatory obligations, counterparty performance under outsourcing arrangements, business
continuity planning, legal risk, data integrity risk, customer default risk, key person risk and external
events. Further operational risks are that a customer or customers may terminate the services of Nufarm
at any time, for any reason, or that a regulatory investigation or review may adversely affect Nufarm’s
ability to conduct its operations in an efficient and cost effective manner.
Operation of Nufarm’s manufacturing sites in Australia requires a major hazard facility (MHF) licence
from Worksafe Australia (Worksafe). Worksafe undertakes regular audits of Nufarm’s sites to ensure
that it is appropriate to renew the licence. These audits can result in Nufarm having to spend additional
capital expenditure to modify the manufacturing facility or modify its ways of working to meet Worksafe’s
requirements. Any decision by Worksafe not to renew Nufarm’s MHF licences would lead to Nufarm
having to modify its ways of working, which would lead to additional ongoing operational costs.
Nufarm has implemented a risk management framework and process which includes an annual
board review of group risks, regional risks and mitigating strategies. Regional management identify
and monitor key operational risks on a quarterly basis through the business planning process and
report on the status of the risks to the executive group. Group policies and procedures have been
established to manage key regulatory risks and where applicable regional leaders have been
appointed to manage specific regulatory risks. A robust and comprehensive HSE program is in place
which provides clear guidance on culture, behaviours, process and reporting. This program includes
the ongoing assessment of HSE risks and practices.
Nufarm regards its brand names, trademarks, domain names, trade secrets and similar intellectual
property as important to its success. Nufarm’s business has been developed with a strong emphasis
on branding. Should any brand names be damaged in any way or lose market appeal, Nufarm’s
business could be adversely impacted. While Nufarm will use all reasonable endeavours to protect
its intellectual property rights, unauthorised use or disclosure of its intellectual property may have an
adverse effect on the operating, marketing and financial performance of Nufarm. Although most of
Nufarm’s products are post patent, there are certain products or developing technologies which may
be entitled to patent protection. There is a risk that Nufarm might not be able to obtain such protection,
or that Nufarm’s activities may infringe the patent or other rights of others.
Policies and procedures are in place to assist with the identification and protection of patents and
trademarks. The Nufarm product development process includes specific steps to identify potential
patent or trademark risks. Where considered necessary, external expert advice is obtained.
Information and
cyber security
Nufarm’s operations are supported by several key IT systems and applications. Complete or partial
failure of the IT systems, applications or data centre infrastructure due to unauthorised access, cyber-
attacks or natural disasters could have a significant impact on Nufarm’s ability to maintain operations
and service customers. This could adversely impact Nufarm’s financial position and/or reputation.
Nufarm has implemented disaster recovery strategies over its key IT systems, applications and data
centres, which are reviewed and tested on a regular basis. Cyber threats are assessed on an ongoing
basis to the best of our knowledge based on the continually evolving nature of these threats. Security
controls are updated to mitigate these risks supported by a combination of external and internal
vulnerability testing.
27
Nufarm Limited Annual Report 2018 Operating and financial review continued
Risk management continued
Glyphosate litigation
and increased
community focus
On 6 August 2018, a Brazilian federal judge banned the use of crop protection products containing
glyphosate whilst toxicology tests on the chemical are carried out. On 3 September 2018, the Regional
Federal Court of first Region in Brasilia cancelled the suspension without conditions following
discussions with the Ministry of Agriculture.
ERP implementation
This has enabled Nufarm to continue to sell glyphosate for use in the forthcoming Brazilian soybean
planting season. On 10 August 2018, a California jury found Monsanto liable to the amount of
US$289 million as a result of allegations their glyphosate-based product Round-Up caused a man’s
cancer. There is risk that glyphosate sales around the world are adversely impacted given both
the intense legal and community pressure on this product. There is also a risk of future litigation for
suppliers of glyphosate-based products, including Nufarm.
Nufarm maintains a dedicated internal legal team across its key regional operations which is
supported externally as required. Specific reporting protocols and guidelines are in place to
manage ongoing legal input and facilitate escalation to executive management when required.
Nufarm has begun the implementation of a new enterprise resource planning (ERP) system and shared
service centre. Whilst the ERP project is progressing to schedule, if the ERP implementation were to
experience delays or unanticipated issues, this could have an impact on Nufarm’s ability to service
customers, provide timely and accurate financial information to the company’s management and may
also impede Nufarm’s ability to integrate recent acquisitions. This could have a material adverse effect
on the business, financial conditions and results of Nufarm.
Regular executive oversight is in place through participation on the project steering committee and a
program of independent project assessments has been established which coincide with key project
milestones. Dedicated change management resources have been employed to facilitate training and
readiness to minimise potential business disruption.
28
Nufarm Limited Annual Report 2018
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 2018 corporate governance
statement can be viewed in the corporate
governance section of our website: http://
www.nufarm.com/CorporateGovernance
29
Nufarm Limited Annual Report 2018 Financial Report
30
Nufarm Limited Annual Report 2018 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
2018 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
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 6 and 7.
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 Goodfellow(1)
GA Hunt(2)
DG McGauchie
ME McDonald
PM Margin
T Takasaki
Nufarm Ltd
ordinary
shares
12,224
48,889
24,445
Nufarm
Finance
(NZ) Ltd
step-up
securities
–
–
–
1,339,887
48,423
389,422
66,293
8,584
3,005
–
–
–
–
–
–
(1) The shareholdings of Dr WB Goodfellow include:
(i)
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;
(ii) Sulkem Company Limited (160,713 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 (41,378 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 (514,386 shares and 700 step-up securities)
(2) GA Hunt’s interest in 389,422 ordinary shares includes 69,695 deferred shares granted as remuneration that are not yet exercised or vested.
31
Nufarm Limited Annual Report 2018
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 & Risk
Committee
Human
Resources
Nomination &
Governance
Health Safety &
Environment
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
GA Hunt
ME McDonald
DG McGauchie
PM Margin
T Takasaki(2)
Meetings
Held(1)
13
Meetings
Attended
12
Meetings
Held(1)
4
Meetings
Attended
4
Meetings
Held(1)
3
Meetings
Attended
3
Meetings
Held(1)
–
Meetings
Attended
–
Meetings
Held(1)
–
Meetings
Attended
–
13
13
13
13
13
13
13
13
13
13
13
13
13
13
13
8
4
4
–
–
2
–
4
–
4
4
–
–
2
–
4
–
3
–
–
–
–
3
3
–
3
–
–
–
–
3
3
–
–
3
3
–
–
3
–
–
–
3
3
–
–
3
–
–
3
–
–
–
3
–
–
3
3
–
–
–
2
–
–
3
(1) Number of meetings held during the period the director held office.
(2) Mr T Takasaki did not attend five unscheduled meetings held in the period which related to the Century/Surf acquisitions to avoid any potential conflict of interest.
Principal activities and changes
Nufarm’s principal activities during the financial year were the manufacture and sale of crop protection products and its proprietary
seed technologies business which are further described in the information on the company section of the operating and financial
review on pages 9 and 10.
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 / (loss) attributable to members of the group for the 12 months to 31 July 2018 is $(15.6 million). The comparable figure
for the 12 months to 31 July 2017 was $114.5 million.
Operating and financial review and future prospects
The operating and financial review and future prospects are set out in the operating and financial review on pages 9 to 28 and the
financial accounts.
Dividends
The following dividends have been paid, declared or recommended since the end of the preceding financial year.
The final dividend for 2016–2017 of eight cents paid 10 November 2017.
The interim dividend for 2017–2018 of five cents paid 4 May 2018.
$000
21,415
16,380
The final dividend for 2017–2018 of six cents as declared and recommended by the directors is payable 2 November 2018.
32
Nufarm Limited Annual Report 2018
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 15 April 2017 – 14 October 2017 at the rate of 5.865 per cent per annum paid 16 October 2017
Distribution for the period 15 October 2017 – 14 April 2018 at the rate of 5.80 per cent paid 16 April 2018
$000
7,381
7,259
State of affairs
The state of the group’s affairs are set out in the operating and financial review on pages 9 to 28.
Events subsequent to reporting date
On 26 September 2018, the Directors declared a final unfranked dividend of six cents per share payable 2 November 2018.
On 26 September 2018, the company announced it was undertaking a pro rata entitlement offer to raise approximately $300 million
of share capital. In raising the share capital, the company estimates $6.4 million of transaction costs will be incurred. Net of transaction
costs, the company expects to use the estimated $293.6 million to repay existing debt facilities.
Environmental performance
Details of Nufarm’s performance in relation to environmental regulations are set out in the operating and financial review on pages 20 and
21. The group did not incur any prosecutions or fines in the financial period relating to environmental performance. The group publishes
annually a sustainability 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 in the Company’s 2018 Annual Report and forms part of the directors’ report for
the financial year ended 31 July 2018.
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.
33
Nufarm Limited Annual Report 2018 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 2018. 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. Whilst enjoying strong
revenue growth, 2018 earnings were impacted by a severe drought in Australia resulting in a decrease in underlying EBIT and
a significant increase in our Net Working Capital outcome. Whilst underlying EBIT was lower, underlying EBITDA was down by
one per cent, with the Australian drought impact largely offset by the European acquisition contribution.
The company’s performance has been reflected in the 2018 short term incentive outcomes which did not pay out for the chief executive
officer and senior executives. The 2016 LTI plan was tested on 31 July 2018 with no equity vesting since neither the Relative Total
Shareholder Return (RTSR) nor the average ROFE over three years’ targets were met. Our STI and LTI outcomes reflect strongly that our
senior executives are only rewarded when they deliver sustainable returns over both short and long term 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 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.
In 2018, the committee broadened its strategic agenda by expanding its focus from remuneration matters to talent, diversity and
succession for our senior most roles within the Company.
Further detail is provided within the remuneration report.
Peter Margin
Chair – human resources committee
34
Nufarm Limited Annual Report 2018 2018 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 2018 (FY18). 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 2018
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
What it covers
Provides a summary of the remuneration outcomes for 2018.
Details the key remuneration changes in 2018.
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 2018.
Details the LTI outcomes for the plan with a performance test at 31 July 2018.
Lists the key contract terms governing the employment of executive KMP
(including termination entitlements where relevant).
4. Non-executive director remuneration
Provides details of the fee structure for board and committee roles.
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
Provides the remuneration disclosures required by the Corporations Act
and in accordance with relevant Australian Accounting Standards.
35
Nufarm Limited Annual Report 2018 Directors’ report continued
1. Remuneration snapshot
1.1 Key points
The overall structure and philosophy of Nufarm’s approach to remuneration remained consistent throughout 2018. 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 key outcomes under our incentive plans this year were:
Short term incentive outcomes
The entry hurdle measures required for payment of short term incentive plan for executive KMPs
were not met. With the exception of Brent Zacharias (Group Executive Nuseed) all KMPs including
the chief executive officer did not receive any payment related to the 2018 plan.
Long term incentive outcomes
The 2016 LTI plan was tested on 31 July 2018 and did not meet the entry hurdle associated with the
plan measures. The outcome was that all KMPs did not receive any equity related to the 2016 plan.
1.2 Changes during 2018
In 2017, the group executive Nuseed was moved to a plan tailored to ensure the role is measured against and rewarded for
Nuseed financial deliverables. In 2018, the plan was further refined to ensure greater emphasis on the Nuseed financial deliverables
(with Nuseed measures accounting for 60 per cent of STI, previously set to 50 per cent of STI).
1.3 Key management personnel
Nufarm’s KMP comprise the directors of the company and selected members of the Nufarm Leadership Team (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 FY18
1 August 2017 – 31 July 2018
1 August 2017 – 31 July 2018
1 August 2017 – 31 July 2018
1 August 2017 – 31 July 2018
1 August 2017 – 31 July 2018
36
Nufarm Limited Annual Report 2018 2. Setting senior executive remuneration
2.1 Remuneration governance
The Human resources Committee (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 2018, the HRC sought external general market movement data for the 2018 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 relative total shareholder return
(RTSR) is measured by an independent external advisor.
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.
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. In 2019, the board intend to
undertake a comprehensive review of the LTI plan with a view to ensuring it aligns with the long term strategy and continues to
motivate our senior executives.
37
Nufarm Limited Annual Report 2018 Directors’ report continued
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%
13.1%
21.1%
34.2% Equity
38.6% Equity
CFO
45.5%
15.9%
15.9%
22.7%
CEO
40.0%
15.0%
15.0%
30.0%
45.0% Equity
0%
20%
40%
60%
80%
100%
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 personal
strategic objectives
Align to long term
shareholder value
creation
STI
LTI
Short term incentive
(at risk)
Long term incentive
(at risk)
Cash
Equity
• Base salary plus
superannuation.
• Set based on market
and internal relativities,
performance and
experience.
• 50% of STI outcome paid
• 50% of STI outcome
in October after the
financial year end.
• STI outcome based
on financial and
individual performance.
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.
38
Nufarm Limited Annual Report 2018
(b) 2018 STI plan
Changes to the STI plan
For 2018, 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?
Plan participants include disclosed executives and senior managers globally.
Awards under the plan are made at the end of the financial year.
What measures are
used in the plan?
The board sets measures at the start of each year focused on profitability and balance sheet management.
Noted below are the measures used in 2018.
When and how are
the STI payments
determined?
All executive KMP roles
(except GE Nuseed)
80 per cent of the potential was based on Nufarm
group underlying net profit after tax (UNPAT) and
average net working capital (ANWC)/sales.
Group executive Nuseed
20 per cent of the potential was based on
Nufarm group UNPAT and ANWC/sales.
60 per cent of the potential was based on
Nuseed UPBT and ANWC/sales.
20 per cent of the potential was based on individual
strategic and business improvement objectives
aligned to the role and contribution of the executive.
20 per cent 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
Below Threshold
Threshold
Target
Stretch
% budget
achieved
< 2017 group UNPAT
2017 group UNPAT
100%
120%
% of target STI
opportunity
realised against
measure
% budget
achieved
Nil < 2017 group ANWC
54% 2017 group ANWC
100%
150%
100%
110%
% of target STI
opportunity
realised against
measure
Nil
100%
100%
150%
Group executive Nuseed
Additional to group Nufarm measures shown in table immediately above, the following two Nuseed
measures also form part of the STI plan
Nuseed UPBT
Nuseed ANWC
% of target STI
opportunity
realised against
measure
Nil
25%
100%
150%
% budget
achieved
< 85%
85%
100%
120%
% of target STI
opportunity
realised against
measure
Nil
25%
100%
150%
% budget
achieved
< 85%
85%
100%
110%
Performance
Below Threshold
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.
39
Nufarm Limited Annual Report 2018 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?
50 per cent of executive KMPs’ STI is paid in cash at the time of performance testing and 50 per cent
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
mis-stated; and/or for individual gross misconduct.
If an executive KMP leaves before the vesting anniversary under ‘qualifying leaver’ provisions the equity
will remain in the plan until the vesting date. If the executive leaves under other than ‘qualifying leaver’
circumstances the equity will be forfeited. ‘Qualifying leaver’ provisions include participants who cease
employment due to retirement, death, ill health/disability, redundancy, or contract severance without
cause by Nufarm.
The rules of the plan provide the flexibility, in special circumstances (e.g. health or severe personal hardship),
to accelerate the vesting. This would result in the shares being released from the trust to the executive.
(c) 2018 LTI plan
Changes to the LTI plan
The Nufarm executive LTI plan (plan) was first introduced in 2012 with no change in plan design since its inception. A comprehensive
review of all plan elements (including the peer comparator group) is currently underway with the aim of reinforcing plan effectiveness
for both the organisation and the KMPs. All changes, subject to board approval, will be introduced to LTI plans from 2020 onwards.
Why have an LTI plan? This plan aligns executive interests and earnings with the longer term Nufarm strategy and the interests
of shareholders.
Who participates
in the LTI plan
Are the awards
cash or shares?
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.
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.
How are the number
of rights calculated?
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.
When do the
awards vest?
The performance/vesting period for awards is three years. Awards will vest in two equal tranches as follows:
• 50 per cent 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 per cent of the LTI plan grant will vest subject to the three year average of an absolute
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?
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 2015 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.
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.
What is the RTSR
performance required
for vesting?
TSR of Nufarm relative to the TSR
of comparator group companies
Less than 50th percentile
Proportion of RTSR grant vesting
0%
50th percentile
50%
Between 51st percentile and 75th percentile
Straight line vesting between 50% and 100%
75th percentile
100% vesting
40
Nufarm Limited Annual Report 2018 How is the ROFE
target set?
How is ROFE
measured?
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 shareholder’s 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.
What ROFE result is
required for vesting?
Percentage of ROFE target achieved
Less than target
Proportion of ROFE grant vesting
0%
Target
50%
Between target and stretch
Straight line vesting between 50% and 100%
Stretch
100%
What was the result
for the 2018 year?
What happens if the
awards do not vest?
The 2016 award, which matured in 2018, did not vest into shares as both RTSR and ROFE performance
hurdles were not met.
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 retested and the award
will lapse. There is no partial vesting of the LTI plan before the third anniversary.
Is there a clawback
provision in the plan?
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 mis-stated; and/or for individual gross misconduct.
What happens if an
executive KMP leaves?
To be eligible under the LTI plan, the executive must be employed by Nufarm on the first anniversary of
the allocation. If the executive leaves before this date, the allocation is forfeited. If the executive leaves
under ‘qualifying leaver’ provisions, (refer STI section above for definition of ‘qualifying leaver’) after the first
anniversary and before the third anniversary of the plan the allocation will be pro-rated and the pro-rated
allocation will remain ‘on foot’ in the plan subject to certain overriding discretions set out in the plan.
The rules of the plans provide the flexibility, in special circumstances (e.g. health or severe personal hardship),
to accelerate the vesting. The qualifying allocation will be tested against the hurdles to determine the value
(if any) of the allocation.
3. Executive remuneration outcomes
3.1 Financial performance
Details of Nufarm’s performance, share price and dividends over the past five years are summarised in the table below:
Performance measures
2018
2017
2016
2015
2014
Earnings
Underlying EBIT*
Underlying EBITDA
ANWC/Sales***
Underlying NPAT**
ROFE achieved
Shareholder value
Closing share price 31 July
Enterprise value****
TSR
Dividends declared
$m
$m
%
$m
%
$
$m
%
Cents
265.1
385.7
40.3
98.4
9.4
7.15
3,964.1
(13.9)
11.0
302.3
390
36.8
135.8
13.6
8.46
3,185.4
3.5
13.0
286.7
372
39.9
108.9
13.2
8.28
3,074.0
8.7
11.0
236.9
200.6
317
41.9
117.1
11.0
7.72
2,840.0
80.2
10.0
281
47.7
86.4
9.1
4.35
1,908.8
(1.7)
8.0
* and **
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.
***
****
Average net working capital/sales is used throughout the business and highlights the management of working capital over the full year.
Enterprise value is Nufarm ordinary shares on issue, multiplied by Nufarm’s share price, plus net debt and Nufarm step-up securities as at 31 July.
41
Nufarm Limited Annual Report 2018 Directors’ report continued
3.2 Short term incentive outcomes
Based on an underlying NPAT result of $98.4 million, an ANWC/sales result at 40.3 per cent and performance against individual strategic
and business improvement objectives, disclosed executives (except GE Nuseed) employed for the performance period FY18 did not
receive any payment under the 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. There was no payment associated with the individual
objectives since the entry hurdle for the 2018 plan was not met.
(a) 2018 STI plan payment results
Outcomes against targets for disclosed executives are shown below:
Financial: Weighting and outcome*
Group
UNPAT
40% ●
40% ●
40% ●
40% ●
10% ●
Group
ANWC
40% ●
40% ●
40% ●
40% ●
10% ●
Business unit
profitability
Business
unit ANWC
–
–
–
–
–
–
–
30% ●
–
30% ●
Personal:
Weighting
and
outcome
20% ●
20% ●
20% ●
20% ●
20% ●
Overall
award as a
% of target
potential
0%
0%
0%
0%
27.72%
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Niels Pörksen
Brent Zacharias
Key:
● Below threshold
● Between threshold and target
● Greater than target
*
Nufarm’s objective is to be as transparent as possible, without disclosing commercially sensitive information. Consequently, while STI measures, descriptions, weighting and performance
in 2018 for disclosed executives have been provided above, the specific targets for measures such as NPAT have not.
The table below displays 2018 STI payments as a percentage of FAR and also as a percentage of target opportunity:
2018 STI Potential
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Niels Pörksen
At target
$
At
maximum
$
965,625
1,448,438
578,591
367,710
234,490
367,710
867,887
551,565
351,735
551,565
Total
award
$
–
–
–
65,438
–
Senior executive average
502,825
754,238
13,088
2018 STI
award as a
% of target
potential
0%
2018 STI as
% of FAR
0%
0%
0%
28%
0%
3%
0%
0%
14%
0%
2%
To be paid
in cash in
October
2018
$
–
Retained
in shares
vesting 2nd
anniversary
31 July 2020*
$
–
–
–
–
–
32,719
32,719
–
–
* The portion of 2018 STI payment retained in shares will vest on 31 July 2020, on the second anniversary from effective allocation date.
42
Nufarm Limited Annual Report 2018
(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.
Underlying NPAT growth vs STI outcomes
40
30
)
%
(
t
r
h
w
o
g
T
A
P
N
g
n
y
l
r
e
d
n
U
i
20
10
0
-10
-20
-30
-40
160
140
120
100
80
60
40
20
0
)
%
(
t
e
m
o
c
u
o
n
a
p
l
I
T
S
2014
2015
2016
2017
2018
Underlying NPAT percentage growth
Percentage STI max
3.3 Long term incentive outcomes
The performance period for the 2016 LTI plan concluded on 31 July 2018.
The results of Nufarm’s RTSR was calculated by an external provider. The board determined the ROFE outcome to ensure no windfall
gains or losses and accordingly adjusted for the net impact of material items. The outcome was reviewed by Nufarm’s external auditor
KPMG. The board approved the vesting outcomes in accordance with the LTI plan rules.
(a) 2016 LTI plan testing as at 31 July 2018
The vesting table for the 2016 LTI plan is detailed below, reflecting performance up to 31 July 2018 against the two performance
measures of RTSR and ROFE.
Performance measure
RTSR (nil vesting)
ROFE (nil vesting)
Total
(b) 2016 LTI award outcome
The table below details the individual outcome for the FY16 LTI plan.
% of total plan vested
0%
0%
Nil
Disclosed executive
Greg Hunt
Paul Binfield
Elbert Prado
Brent Zacharias
Niels Pörksen
Total
number of
rights
available
74,378
Total
number of
rights
awarded
–
Total award
as a % of
potential
0%
Average
grant date
fair value of
awarded
rights
n/a
Total grant
date fair
value of
award
$
–
34,938
31,238
20,082
–
–
–
–
–
0%
0%
0%
0%
n/a
n/a
n/a
n/a
–
–
–
–
Total grant
date fair
value of
lapsed
awards
$
499,820
234,783
209,919
134,951
–
43
Nufarm Limited Annual Report 2018
Directors’ report continued
(c) Historical LTI plan performance relative to Nufarm’s share price
The following chart compares Nufarm’s LTI plan vesting results for the past four LTI plans (as a percentage of plan maximum) to the share
price history during the same period. The 2016 LTI plan did not meet hurdle and therefore is not depicted.
Nufarm historical share price vs LTI outcome
)
$
(
e
c
i
r
p
e
r
a
h
S
12
10
8
6
4
2
0
1
4
0
2
l
u
J
%
2
9
8
.
1
6
0
2
l
u
J
%
0
0
1
1
7
0
2
l
u
J
%
3
.
1
3
1
5
0
2
l
u
J
120
100
80
60
40
20
0
1
8
0
2
l
u
J
)
%
(
t
e
m
o
c
u
o
n
a
p
l
I
T
L
LTI plan
Share price
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.
44
Nufarm Limited Annual Report 2018
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 2017 AGM, shareholders approved an aggregate of $2,000,000 per year (including
superannuation costs). The total fees for the 2018 year remained within the approved cap.
Board fees are generally reviewed every 18 months with the last review done in August 2016. A review was held in September 2018
and fees will increase by 3.75 per cent effective August 2018. The next review will be held in February 2020. Nufarm’s NEDs are
remunerated with set fees and do not receive any performance based pay. This enables them to maintain independence and
impartiality when making decisions affecting the future direction of the company.
Chairman*
General board
Audit committee chair
Audit committee member
HSE risk committee chair
HSE risk committee member
HR committee chair
HR committee member
Nominations committee chair
Nominations committee member
* The chairman receives no fees as a member of any committee.
Fees applicable from
1 August 2017 to
31 July 2018
($) per annum
378,378
154,792
31,200
15,600
18,200
9,100
26,000
13,000
12,012
1,560 per meeting
45
Nufarm Limited Annual Report 2018 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
Post-employment
payments
long term
Total1
Share-based
Other
In AUD
Directors’ non-executive
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
M McDonald
Sub total non-executive directors remuneration
Executive Director GA Hunt
Total directors’ remuneration
Group executives
PA Binfield
E Prado
N Pörksen
B Zacharias
Sub total – total executive remuneration
Total directors and executive remuneration
1. Represents total remuneration paid in the financial year.
Salary
and fees
$
Cash bonus
(vested)
$
Non-
monetary
benefits
$
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
166,720
166,719
183,265
183,265
144,974
144,974
343,980
343,980
197,733
186,810
173,338
173,338
148,993
148,992
167,274
51,236
1,526,277
1,399,314
1,265,479
1,215,833
2,791,756
2,615,147
804,635
768,317
735,420
714,000
713,209
713,723
461,044
440,866
2,714,308
2,636,906
5,506,064
5,252,053
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
583,123
–
583,123
–
320,878
–
237,914
–
207,675
36,564
146,507
36,564
912,974
36,564
1,496,097
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,944
2,714
2,944
2,714
295
–
23,504
32,158
27,661
54,501
46,261
50,070
97,721
136,729
100,665
139,443
Total
$
166,720
166,719
183,265
183,265
144,974
144,974
343,980
343,980
197,733
186,810
173,338
173,338
148,993
148,992
167,274
51,236
1,526,277
1,399,314
1,268,423
1,801,670
2,794,700
3,200,984
804,930
1,089,195
758,924
984,072
740,870
975,899
543,869
637,443
2,848,593
3,686,609
5,643,293
6,887,593
Superannuation
benefits
Equity settled
remuneration
based
remuneration
Termination
Percentage of
Value of options
remuneration
as a proportion
Total
performance
of total
$
%
%
$
16,672
16,672
18,326
18,327
19,630
14,498
34,398
34,398
–
18,682
17,333
17,334
14,899
14,899
16,727
5,124
137,985
139,934
25,000
37,083
162,985
177,017
25,000
37,083
–
–
25,449
23,398
50,601
48,207
101,050
108,688
264,035
285,705
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
557,691
761,804
557,691
761,804
263,659
442,560
205,715
354,099
215,533
136,028
130,170
186,126
815,076
1,118,813
1,372,768
1,880,617
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
183,392
183,391
201,591
201,592
164,604
159,472
378,378
378,378
197,733
205,492
190,671
190,672
163,892
163,891
184,001
56,360
1,664,262
1,539,248
1,851,114
2,600,557
3,515,376
4,139,805
1,093,589
1,568,838
964,639
1,338,171
981,852
1,135,325
724,640
871,776
3,764,720
4,914,110
7,280,096
9,053,915
30
52
24
49
21
44
22
30
23
38
16
16
10
15
9
14
13
6
7
13
46
Nufarm Limited Annual Report 2018 Short term
Post-employment
Share-based
payments
Other
long term
Total1
Directors’ non-executive
In AUD
AB Brennan
GR Davis
Dr WB Goodfellow
DG McGauchie
P Margin
F Ford
T Takasaki
M McDonald
Group executives
PA Binfield
E Prado
N Pörksen
B Zacharias
Sub total non-executive directors remuneration
Executive Director GA Hunt
Total directors’ remuneration
Sub total – total executive remuneration
Total directors and executive remuneration
1. Represents total remuneration paid in the financial year.
$
166,720
166,719
183,265
183,265
144,974
144,974
343,980
343,980
197,733
186,810
173,338
173,338
148,993
148,992
167,274
51,236
1,526,277
1,399,314
1,265,479
1,215,833
2,791,756
2,615,147
804,635
768,317
735,420
714,000
713,209
713,723
461,044
440,866
2,714,308
2,636,906
5,506,064
5,252,053
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
583,123
583,123
320,878
237,914
207,675
36,564
146,507
36,564
912,974
36,564
1,496,097
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,944
2,714
2,944
2,714
295
–
23,504
32,158
27,661
54,501
46,261
50,070
97,721
136,729
100,665
139,443
Total
$
166,720
166,719
183,265
183,265
144,974
144,974
343,980
343,980
197,733
186,810
173,338
173,338
148,993
148,992
167,274
51,236
1,526,277
1,399,314
1,268,423
1,801,670
2,794,700
3,200,984
804,930
1,089,195
758,924
984,072
740,870
975,899
543,869
637,443
2,848,593
3,686,609
5,643,293
6,887,593
Salary
Cash bonus
monetary
and fees
(vested)
benefits
Non-
Superannuation
$
Termination
benefits
$
Equity settled
$
16,672
16,672
18,326
18,327
19,630
14,498
34,398
34,398
–
18,682
17,333
17,334
14,899
14,899
16,727
5,124
137,985
139,934
25,000
37,083
162,985
177,017
25,000
37,083
–
–
25,449
23,398
50,601
48,207
101,050
108,688
264,035
285,705
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
557,691
761,804
557,691
761,804
263,659
442,560
205,715
354,099
215,533
136,028
130,170
186,126
815,076
1,118,813
1,372,768
1,880,617
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
remuneration
$
Percentage of
remuneration
performance
based
%
Value of options
as a proportion
of total
remuneration
%
183,392
183,391
201,591
201,592
164,604
159,472
378,378
378,378
197,733
205,492
190,671
190,672
163,892
163,891
184,001
56,360
1,664,262
1,539,248
1,851,114
2,600,557
3,515,376
4,139,805
1,093,589
1,568,838
964,639
1,338,171
981,852
1,135,325
724,640
871,776
3,764,720
4,914,110
7,280,096
9,053,915
30
52
24
49
21
44
22
30
23
38
16
16
10
15
9
14
13
6
7
13
47
Nufarm Limited Annual Report 2018 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 Ltd
Scheme
Balance at
1 August
2017
Granted as
remuneration(g)
Exercised
Forfeited
or
lapsed
Net
change
other
Balance
at 31 July
2018(c)
Vested
during
2018
Vested
at 31 July
2018(a)
Value at
date of
forfeiture
Directors
G Hunt
Executives
LTI performance
219,826
115,412
(49,778)
(74,378)
STI deferred(b)
23,927
69,695
(23,927)
–
Current KMP
P Binfield
LTI performance
STI deferred(b)
125,389
15,611
49,398
(55,355)
(34,938)
38,351
(15,611)
–
E Prado
LTI performance
99,949
35,158
(37,485)
(31,238)
STI deferred(b)
13,957
28,435
(13,957)
–
B Zacharias LTI performance
55,866
22,124
(16,508)
(20,082)
STI deferred(b)
6,186
N Pörksen
LTI performance
26,008
STI deferred(b)
9,328
17,724
(6,186)
35,158
–
29,801
(9,328)
–
–
–
Total
LTI performance
527,038
257,250
(159,126)
(160,636)
STI deferred
69,009
184,006
(69,009)
–
Non-KMP officers
R Heath
LTI performance
Total
36,194
632,241
10,600
(15,392)
(10,994)
451,856
(243,527)
(171,630)
(a) All options/rights that are vested are exercisable.
– 211,082
–
69,695 23,927
–
–
–
531,803
–
84,494
–
–
249,807
38,351
15,611
–
–
66,384
–
–
223,352
–
–
–
–
–
–
–
28,435
13,957
41,400
–
17,724
6,186
61,166
–
–
9,328
29,801
– 464,526
–
– 184,006 69,009
–
20,408
–
– 668,940 69,009
–
–
–
–
–
–
143,586
–
–
–
– 1,148,548
–
–
–
78,607
– 1,227,155
(b) The grant date fair value of deferred shares granted as remuneration during the year ended 31 July 2018 was $7.20. 100 per cent of STI deferred shares available to vest during the
year ended 31 July 2018 vested as the necessary service condition was satisfied. 100 per cent of non-vested STI deferred shares are due to vest during the year ended 31 July 2019.
Note those deferred shares granted as remuneration during the year ended 31 July 2018 relate to the year ended 31 July 2017 STI outcomes. Deferred shares granted as
remuneration on the back of the current year STI outcomes will be determined and allocated in October 2018.
(c) LTIP performance rights forfeited due to a failure to satisfy service or performance conditions during 2018 are disclosed in column ‘Forfeited or lapsed’. 100 per cent of rights due to
vest in 2018 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 2018 of $7.15.
(d) 217,084 of total LTIP performance rights held by KMPs are due to vest in 2019, with the remaining unvested balance due to vest in 2020.
(e) ‘Net change other’ reflects changes to KMP during the period.
(f) The number of LTIP performance rights granted as remuneration during 2018 were determined by dividing the KMP’s total LTI grant opportunity by $8.37, being the five-day VWAP post
the announcement of the group’s 2017 annual results.
48
Nufarm Limited Annual Report 2018 5.3 Shares held in Nufarm Ltd
Shares held in Nufarm Ltd
Note
Balance at
1 August 2017
Granted as
remuneration
On exercise
of rights
Net change
other
Balance at
31 July 2018
Directors
DG McGauchie
G Hunt
AB Brennan
GR Davis
FA Ford
Dr WB Goodfellow
1
PM Margin
ME McDonald
T Takasaki
Executives
Current KMP
P Binfield
E Prado
B Zacharias
N Poersken
Total
54,239
187,683
10,000
40,000
20,000
1,172,824
2,458
–
–
184,302
44,085
35,691
–
1,751,282
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
73,705
–
–
–
–
–
–
–
12,054
58,339
2,224
8,889
4,445
66,293
319,727
12,224
48,889
24,445
167,063
1,339,887
547
8,584
–
3,005
8,584
–
70,966
51,442
22,694
9,328
11,233
(24,056)
(25,736)
8,696
266,501
71,471
32,649
18,024
228,135
232,282
2,211,699
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 (160,713 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 (41,378 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 (514,386 shares and 700 step-up securities).
49
Nufarm Limited Annual Report 2018
Directors’ report continued
Shares issued as a result of the exercise of options
There were 333,078 (2017: 374,220) shares issued as a result of the exercise of options during the year.
Unissued shares under option
There are nil (2017: 349,484) 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 2018 (2017: 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 arms-length basis.
From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase goods
from the group. These purchases are on the same terms and conditions as those entered into by other group employees or customers
and are trivial or domestic in nature.
This report has been made in accordance with a resolution of directors.
DG McGauchie AO
Director
GA Hunt
Director
Melbourne
26 September 2018
50
Nufarm Limited Annual Report 2018 Lead auditor’s independence declaration
Under section 307C of the Corporations Act 2001
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 2018 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Gordon Sangster
Partner
Melbourne
26 September 2018
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 Professional
Standards Legislation.
51
Nufarm Limited Annual Report 2018
Income statement
For the year ended 31 July 2018
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
2018
$000
2017
$000
Note
3,307,847
3,111,115
(2,344,413)
(2,197,865)
963,434
913,250
7
7,256
(480,650)
(275,573)
(39,046)
78
13,264
(411,067)
(195,666)
(40,415)
(124)
19
10
10
10
175,499
279,242
10,978
(118,638)
(27,946)
(146,584)
(135,606)
8,591
(101,774)
(13,812)
(115,586)
(106,995)
39,893
172,247
11
(55,900)
(57,205)
Profit/(loss) for the period from continuing operations
(16,007)
115,042
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.
(15,588)
114,467
(419)
575
(16,007)
115,042
30
30
(8.5)
(8.5)
38.7
38.6
52
Nufarm Limited Annual Report 2018 Statement of comprehensive income
For the year ended 31 July 2018
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
2018
$000
(16,007)
2017
$000
115,042
(24,231)
(29,099)
2,028
8,882
–
–
2,479
4,019
1,342
(894)
4,980
(587)
(2,091)
(358)
Other comprehensive profit/(loss) for the period, net of income tax
(8,928)
(24,602)
Total comprehensive profit/(loss) for the period
(24,935)
90,440
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.
(24,516)
89,865
(419)
575
(24,935)
90,440
53
Nufarm Limited Annual Report 2018 Balance sheet
As at 31 July 2018
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.
54
Consolidated
2018
$000
2017
$000
Note
15
16
17
18
20
16
19
20
18
22
23
15
24
25
26
18
28
24
25
18
26
301,700
235,145
1,199,617
1,027,516
1,179,696
763,039
31,609
25,615
–
–
2,712,622
2,051,315
108,859
110,701
411
442
201,962
338,749
1,688,322
334
384
240,248
350,520
891,386
2,338,745
1,593,573
5,051,367
3,644,888
7,357
1,131,270
519,698
19,347
20,930
12,398
11,384
826,367
426,026
18,679
17,628
15,718
1,711,000
1,315,802
10,800
12,796
1,148,715
478,028
113,552
95,676
1,368,743
137,644
97,695
726,163
3,079,743
2,041,965
1,971,624
1,602,923
1,537,502
1,090,197
(309,126)
496,316
(301,741)
563,140
1,724,692
1,351,596
246,932
246,932
–
4,395
1,971,624
1,602,923
Nufarm Limited Annual Report 2018 Statement of cash flows
For the year ended 31 July 2018
Cash flows from operating activities
Profit/(loss) for the period – before tax
Adjustments for:
Depreciation and amortisation
Asset impairment
Inventory write down
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
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
Payments for plant and equipment
Purchase of businesses, net of cash acquired
Proceeds from sale of business and investments
Payments for acquired intangibles and major product development expenditure
Net investing cash flows
Cash flows from financing activities
Share issue proceeds (net of costs)
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(a)
Consolidated
2018
$000
2017
$000
39,893
172,247
120,550
70,559
15,310
(78)
107,660
(102)
87,731
7,081
16,849
124
93,183
(651)
(183,045)
(209,195)
(407,253)
316,514
(21,425)
58,583
10,978
12
(109,630)
(48,112)
(88,169)
6,084
(69,539)
(778,859)
–
(123,260)
(94,055)
137,896
(29,947)
163,326
8,591
1,431
(97,996)
(19,909)
55,443
10,583
(50,595)
–
39,905
(100,651)
(965,574)
(100,758)
436,454
(16,911)
–
(747)
2,201,871
1,193,896
(1,458,764)
(1,153,379)
Note
8
19
6
22
14
23
6
25
25
25
(14,640)
(35,580)
6
1,112,430
58,687
223,761
11,895
15
294,343
(15,369)
(29,880)
(5,479)
(50,794)
281,444
(6,889)
223,761
(a) Represented by cash at bank of $301.700 million and bank overdraft of $7.357 million (2017: cash at bank of $235.145 million and bank overdraft of $11.384 million).
The statement of cash flows is to be read in conjunction with the attached notes.
55
Nufarm Limited Annual Report 2018 Statement of changes in equity
For the year ended 31 July 2018
Consolidated
Balance at 1 August 2016
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
Share
capital
$000
1,080,768
Translation
reserve
$000
(287,307)
Capital profit
reserve
$000
33,627
–
–
–
–
–
–
–
–
–
–
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
Balance at 1 August 2017
1,090,197
(316,406)
33,627
(18,962)
563,140
1,351,596
246,932
4,395
1,602,923
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
Acquisition of remaining interest in non-controlling interest
Contributions of equity net of transaction costs
–
–
–
–
–
–
–
–
–
–
7,473
–
2,962
–
–
–
436,870
–
–
(24,231)
–
–
–
–
–
(24,231)
–
–
–
–
–
–
1,249
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2018
1,537,502
(339,388)
33,627
(3,365)
496,316
1,724,692
246,932
The statement of changes in equity is to be read in conjunction with the attached notes.
56
Nufarm step-up
Non-controlling
Total
$000
1,298,675
securities
$000
246,932
interest
$000
4,621
Total equity
$000
1,550,228
114,467
114,467
575
115,042
112,376
89,865
575
90,440
Other
reserve
$000
(22,468)
–
–
–
2,479
4,019
1,342
(894)
(358)
6,588
4,739
(6,738)
–
–
–
(1,083)
–
–
–
–
–
2,028
8,882
(587)
10,323
3,904
(7,889)
–
–
–
(379)
9,638
–
Retained
earnings
$000
494,055
(2,091)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(31,996)
(11,295)
4,980
(10,608)
(37,795)
(10,763)
(7,658)
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
4,739
–
(31,996)
2,691
(11,295)
(1,083)
4,980
(24,231)
2,028
8,882
–
–
(587)
(24,516)
3,904
(416)
(37,795)
2,962
(10,763)
(379)
3,229
436,870
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(801)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(419)
(747)
(3,229)
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
4,739
–
(32,797)
2,691
(11,295)
(1,083)
4,980
(24,231)
2,028
8,882
–
–
(587)
(24,935)
3,904
(416)
(38,542)
2,962
(10,763)
(379)
–
436,870
1,971,624
(15,588)
(15,588)
(419)
(16,007)
Nufarm Limited Annual Report 2018 Consolidated
Balance at 1 August 2016
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
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
Acquisition of remaining interest in non-controlling interest
Share
capital
$000
1,080,768
Translation
Capital profit
reserve
$000
(287,307)
reserve
$000
33,627
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,738
2,691
7,473
2,962
(29,099)
(29,099)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24,231)
(24,231)
1,249
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Contributions of equity net of transaction costs
436,870
The statement of changes in equity is to be read in conjunction with the attached notes.
Other
reserve
$000
(22,468)
–
–
–
2,479
4,019
1,342
(894)
(358)
6,588
4,739
(6,738)
–
–
–
(1,083)
Retained
earnings
$000
494,055
Total
$000
1,298,675
Nufarm step-up
securities
$000
Non-controlling
interest
$000
246,932
4,621
Total equity
$000
1,550,228
114,467
114,467
(2,091)
–
–
–
–
–
–
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
112,376
89,865
–
–
(31,996)
–
(11,295)
–
4,739
–
(31,996)
2,691
(11,295)
(1,083)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
575
115,042
–
–
–
–
–
–
–
(2,091)
(29,099)
2,479
4,019
1,342
(894)
(358)
575
90,440
–
–
(801)
–
–
–
4,739
–
(32,797)
2,691
(11,295)
(1,083)
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
Balance at 1 August 2017
1,090,197
(316,406)
33,627
(18,962)
563,140
1,351,596
246,932
4,395
1,602,923
–
–
–
2,028
8,882
–
–
(587)
10,323
3,904
(7,889)
–
–
–
(379)
9,638
–
(15,588)
(15,588)
4,980
–
–
–
–
–
–
(10,608)
–
–
(37,795)
–
(10,763)
–
(7,658)
4,980
(24,231)
2,028
8,882
–
–
(587)
(24,516)
3,904
(416)
(37,795)
2,962
(10,763)
(379)
3,229
–
436,870
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 July 2018
1,537,502
(339,388)
33,627
(3,365)
496,316
1,724,692
246,932
(419)
(16,007)
–
–
–
–
–
–
–
(419)
–
–
(747)
–
–
–
(3,229)
–
–
4,980
(24,231)
2,028
8,882
–
–
(587)
(24,935)
3,904
(416)
(38,542)
2,962
(10,763)
(379)
–
436,870
1,971,624
57
Nufarm Limited Annual Report 2018 Notes to the consolidated 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 2018 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 2018.
(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.
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.
58
Nufarm Limited Annual Report 2018 2. Basis of preparation (continued)
(ii) Impairment testing (continued)
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 assesses the recoverability of recognised and unrecognised deferred taxes including losses in Australia and overseas using
assumptions and projected cashflows.
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.
(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.
59
Nufarm Limited Annual Report 2018
2. Basis of preparation (continued)
(d) Use of estimates and judgements (continued)
(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 2018. The
group has not early adopted any amendments, standards or interpretations that have been issued but are not yet mandatory in
preparing these consolidated financial statements.
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 1 August 2018.
The group has completed an assessment of the potential impact of the adoption of AASB 15 on its consolidated financial statements.
This has included identifying significant revenue streams and reviewing a representative sample of sales and distribution contract terms
to identify potential changes in the amount and timing of revenue recognition between the current standard AASB 118 Revenue and
AASB 15. The following is noted:
• The Seed technologies segment receives royalty revenue from growers for certain varieties of seed. Under the current standard
royalty revenue is estimated and accrued at the point the seed is sold. AASB 15 specifically addresses sales or usage based royalties
and revenue is recognised at the later of when the sales or usage occurs and the performance obligation is satisfied, which would
be when the harvest occurs and the royalty is paid. This results in a difference in the timing of revenue recognition. The adjustment on
transition to derecognise accrued revenue related to the royalties is not material.
• The group sells a proportion of its products on cost and freight (CFR) or cost, insurance and freight (CIF) terms. These terms mean that
the group is responsible for providing the shipping services after the date at which control of the goods passes to the customer.
Under the current standard, freight revenue is recognised at the same time as when product revenue is recognised. Under AASB 15,
freight and where applicable other services are required to be accounted for as separate performance obligations with revenue
recognised over time as the service is provided. The impact of this change is not material at 31 July 2018.
• Sales contracts include a range of rebates and sales incentives to customers. AASB 15 introduces the concept of variable
consideration with 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 been resolved.
The impact of this change is not material at 31 July 2018.
• The group performs tolling services for customers under made-to-order product contracts. Under the current standard, tolling revenue
is recognised when the process is completed and control of the finished product passes to the customer. Under AASB 15 when the
customer controls all the work in progress as the products are being manufactured revenue is recognised over time as the service is
rendered. The impact is not material at 31 July 2018.
The group will adopt the cumulative transition approach to implementation where any transitional adjustments are recognised in
retained earnings at 1 August 2018 without adjustment of comparatives and the new standard will only be applied to contracts that
remain in force at that date.
60
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
New standards and interpretations not yet adopted (continued)
AASB 9 Financial Instruments
AASB 9 is effective for the group beginning on 1 August 2018.
As part of the group’s transition work plan, the key areas of focus have been:
(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. The group has not
identified any material measurement impacts upon transition.
(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. The group’s quantitative impact upon
transition is an additional loss allowance required of approximately $13.245 million post tax due to the group’s expectations of
future economic conditions, which is immaterial to the net assets of the group. This transition adjustment is recognised through
opening retained earnings in the year ending 31 July 2019.
(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.
The group has not identified any material impacts upon transition.
The group will use the exemption to not 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.
AASB 16 Leases
The standard is effective for the group beginning on 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.
AASB 16 will therefore result in higher assets and liabilities on the balance sheet. Information on the undiscounted amount of the group’s
non-cancellable operating lease commitments as defined under AASB 117, the current leasing standard as at 31 July 2018, is disclosed in
note 32. The present value of the group’s operating lease payments as defined under AASB 16 will be recognised as lease liabilities on
the balance sheet. 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. EBITDA, as defined in note 5
operating segments, will increase as the operating lease cost is charged against EBITDA under AASB 117 while under the new standard
will be included in depreciation and interest which are excluded from EBITDA.
The group’s assessment of the potential impact on its consolidated financial statements is ongoing and includes the identification and
understanding of the provisions of the standard which will most impact the group, establishing the population of lease contracts which
will extend beyond 1 August 2019 and establishing a contract review checklist and process.
The group is assessing the transition options available and currently expects to apply the modified retrospective approach with
optional practical expedients.
61
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(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.
(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 NCI in a subsidiary are allocated to the NCI even if doing so causes the NCI 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.
62
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(a) Basis of consolidation (continued)
(iv) Investments in equity accounted investees (continued)
Investments in associates and joint ventures are accounted for using the equity method and are initially recognised at cost, which
includes transaction costs. The group’s investment includes goodwill identified on acquisition, net of any accumulated impairment
losses. Subsequent to initial recognition, the consolidated financial statements include the group’s share of the income and expenses
and equity movements of the investees after adjustments to align the accounting policies of the investees with those of the group, until
the date on which significant influence or joint control ceases. On loss of significant influence the investment is no longer equity
accounted and is revalued to fair value.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are
eliminated against the investment to the extent of the group’s interest in the investee. Unrealised losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of group entities at exchange rates at the dates
of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the
functional currency at the foreign exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies
that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was
determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign
currency gains and losses are included in net financing costs.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to
Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian
dollars at exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income 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.
63
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(i) Non-derivative financial assets (continued)
The group has the following non-derivative financial assets: financial assets at fair value through profit or loss, loans and receivables
and available-for-sale financial assets.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial
recognition. Financial assets are designated at fair value through profit or loss if the group manages such investments and makes
purchase and sale decisions based on their fair value in accordance with the group’s documented risk management or investment
strategy. Upon initial recognition attributable transaction costs are recognised in profit and loss when incurred. Financial assets at fair
value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss.
Financial assets designated at fair value through profit or loss comprise equity securities that otherwise would have been classified as
available-for-sale.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets
are recognised initially at fair value plus any direct attributable transaction costs. Subsequent to initial recognition loans and
receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables
comprise trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts
that are repayable on demand and form an integral part of the group’s cash management are included as a component of cash and
cash equivalents for the purposes of the statement of cash flows.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified as
another category of financial asset. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, they are measured at fair value and any changes other than impairment losses are
recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the
cumulative gain or loss in equity is reclassified to profit or loss.
(ii) Non-derivative financial liabilities
The group initially recognises debt securities and subordinated liabilities on the date they are originated. All other financial liabilities
(including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the group
becomes a party to the contractual provisions of the instrument. The group derecognises a financial liability when its contractual
obligations are discharged or cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the
balance sheet when, and only when, the group has the legal right to offset the amounts and intends to settle on a net basis or to realise
the asset and settle the liability simultaneously.
The group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts and trade and other payables.
Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition these financial liabilities are measured at amortised cost using the effective interest rate method. This includes trade
payables that represent liabilities for goods and services provided to the group prior to the end of the year which are unpaid.
(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.
64
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(iv) Derivative financial instruments, including hedge accounting
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to
their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain
derivatives as either:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges);
• hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges); or
• hedges of a net investment in a foreign operation (net investment hedges).
The group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedge transactions. The group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have
been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item
is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
Trading derivatives are classified as a current asset or liability.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the
effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss within finance costs, together with
changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective
portion is recognised in profit or loss within other income or other expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.
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 hedge
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.
65
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(c) Financial instruments (continued)
(iv) Derivative financial instruments, including hedge accounting (continued)
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in profit or loss.
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost
of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use,
and the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are recognised net in profit or loss.
(ii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will flow to the group and its cost can be measured reliably. The carrying
amount of the replaced part is derecognised. The costs of day-to-day servicing of property, plant and equipment are recognised in
profit or loss as incurred.
(iii) Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value. Depreciation is recognised
in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this
most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are
depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the group will obtain ownership
by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
• buildings
15–50 years
• leasehold improvements
5 years
• plant and equipment
10–15 years
• motor vehicles
• computer equipment
5 years
3 years
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
(e) Intangible assets
(i) Goodwill
Goodwill that arises upon the acquisition of business combinations is included in intangible assets. Subsequent to initial recognition,
goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of
goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any
asset, including goodwill, that forms part of the carrying amount of the equity accounted investee.
66
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(e) Intangible assets (continued)
(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 to 30 years
• intellectual property – finite life
over the useful life and not more than 30 years
• computer software
3 to 7 years
Amortisation methods, useful lives and residual values are reassessed at each reporting date.
(f) Leased assets
Leases where the group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Upon initial
recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised in the group’s balance sheet.
(g) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle
and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them
to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate
share of overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses.
67
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(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.
(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 of disposal. 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.
68
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(i) Assets held for sale (continued)
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.
(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.
69
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(j) Employee benefits (continued)
(vi) Share-based payment transactions
The group has a global share plan for employees whereby matching and loyalty shares are granted to employees. The fair value
of matching and loyalty shares granted is recognised as 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.
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.
70
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(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.
(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/benefit, 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 to note 3(o) (ii)). 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.
71
Nufarm Limited Annual Report 2018 3. Significant accounting policies (continued)
(o) Income tax (continued)
(ii) Nature of tax funding arrangements and tax sharing agreements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which
sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements
require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity and any tax-loss deferred
tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable/(payable) equal in amount to
the tax liability/(asset) assumed. The inter-entity receivables/(payables) are at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s
obligation to make payments for tax liabilities to the relevant tax authorities.
The head entity, in conjunction with other members of the tax-consolidated group, has also entered a tax sharing agreement. The tax
sharing agreement provides for the determination of the allocation of the income tax liabilities between the entities should the head
entity default on its tax payment obligations. No amounts have been recognised in the 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
segments’ results are reviewed regularly by the group’s chief executive officer (CEO) to make decisions about resources to be
allocated to the segment and to assess its performance.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise mainly loans and borrowings and related expenses, corporate assets and head office
expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets
other than goodwill.
4. Determination of fair values
Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable,
further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(i) Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market
value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer
and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, and
willingly. The market value of items of plant, equipment, fixtures and fittings is based on the market approach and cost approaches
quoted market prices for similar items when available and replacement cost when appropriate.
72
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 4. Determination of fair values (continued)
(ii) Intangibles assets
The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments
that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible assets is based on the
discounted cash flows expected to be derived from the use and eventual sale of the assets.
(iii) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary
course of business less the estimated costs of completion and sale, and a reasonable profit margin based on effort required to
complete and sell the inventories.
(iv) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate
of interest at the reporting date. This fair value is determined for disclosure purposes.
(v) Derivatives
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available,
then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the
residual maturity of the contract using a risk-free interest rate (based on Government bonds). The fair value of interest rate swaps is
based on broker quotes. Those quotes are tested for reasonableness by future cash flows based on the terms and maturity of each
contract and using market interest rates for a similar instrument at the measurement date.
(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, Columbia, the Andean countries, Mexico and the
Central American countries.
The seed technologies business deals in the sale of seeds and seed treatment products. The seed technologies business is managed
on a worldwide basis.
Information regarding the results of each operating segment is included below. Performance is measured based on underlying EBIT,
as defined on following page, 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.
73
Nufarm Limited Annual Report 2018 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
590,151
170,680
642,571
833,705
885,232 3,122,339
185,508
– 3,307,847
23,736
25,229
149,873
99,487
97,377 395,702
43,580
(53,629)
385,653
(14,500)
(3,049)
(63,423)
(22,036)
(6,604)
(109,612)
(9,269)
(1,669)
(120,550)
2018
Operating segments
Revenue
Total segment revenue
Results
Underlying EBITDA(a)
Depreciation and
amortisation excluding
material items
Underlying EBIT(a)
9,236
22,180
86,450
77,451
90,773 286,090
34,311
(55,298)
265,103
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
(89,604)
(17,272)
(106,876)
(118,334)
39,893
Assets
Segment assets
703,337
106,143 1,757,588 666,249
866,038 4,099,355
427,712
523,889 5,050,956
Investment in associates
–
–
–
–
–
–
411
–
411
Total assets
703,337
106,143 1,757,588 666,249
866,038 4,099,355
428,123
523,889 5,051,367
Liabilities
Segment liabilities
Total liabilities
Other segment
information
Capital expenditure
239,835
281,043 304,458
203,173
209,598 1,238,107
34,745
1,806,891 3,079,743
239,835
281,043 304,458
203,173
209,598 1,238,107
34,745
1,806,891 3,079,743
55,906
1,296
814,587
12,574
13,128
897,491
43,662
–
941,153
(a) Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA is underlying EBIT before depreciation, amortisation and impairments.
74
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 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)
(3,886)
(35,523)
(19,073)
(6,193)
(77,922)
(8,906)
(903)
(87,731)
2017
Operating Segments
Revenue
Total segment revenue
Results
Underlying EBITDA(a)
Depreciation and
amortisation excluding
material items
Underlying EBIT(a)
51,629
24,429
85,827
70,265
89,415
321,565
36,399
(55,679)
302,285
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
559,936
77,794
756,299
528,935
846,434
2,769,398
373,931
501,225
3,644,554
Investment in associates
–
–
–
–
–
–
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
Total liabilities
Other segment
information
Capital expenditure
184,960
209,181
249,370
115,387
182,086
940,984
33,493
1,067,488
2,041,965
184,960
209,181
249,370
115,387
182,086
940,984
33,493
1,067,488
2,041,965
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.
Geographical information – revenue by location of customer
Brazil
United States of America
Australia
Rest of world(b)
Total
Revenue
2018
$000
799,094
722,452
559,540
1,226,761
3,307,847
2017
$000
707,266
641,132
630,573
1,132,144
3,111,115
(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.
75
Nufarm Limited Annual Report 2018 5. Operating segments (continued)
Geographical information – non-current assets by location of asset
Germany
United States of America
United Kingdom
Brazil
Australia
Rest of world(c)
Unallocated(d)
Total
Non-current assets
2018
$000
739,688
353,767
301,914
275,002
256,585
209,496
202,293
2017
$000
904
334,601
272,065
273,514
284,991
187,139
240,359
2,338,745
1,593,573
(c) Other than Germany, 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. Individually material income and expense items
Individually material items are those items where their nature, including the expected frequency of the events giving rise to them, 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
ANZ impairment and tax asset write-down
Business acquisition costs – other
Business acquisition costs – refinance 2019 notes
Change in corporate tax rates
Total
2018 Material Items
Asset rationalisation and restructuring
Consolidated
Consolidated
2018
$000
Pre-tax
2018
$000
After-tax
2017
$000
Pre-tax
2017
$000
After-tax
1,491
–
(70,559)
(24,124)
(13,684)
–
1,201
–
(91,504)
(22,228)
(13,684)
12,231
(23,937)
(22,250)
894
894
–
–
–
–
–
–
–
–
(106,876)
(113,984)
(23,043)
(21,356)
During the year ended 31 July 2018, the group undertook rationalisation and restructuring activities including the sale of a former
manufacturing site located in NZ and the reorganisation of certain back office activities.
ANZ Impairment and tax asset write-down
Prolonged and severe drought conditions across Australia reduced current expectations of future earnings whereby a non-cash
impairment of intangibles (refer note 22), property, plant and equipment (refer note 21), and tax assets amounting to $91.504 million was
incurred in the year ended 31 July 2018.
Business acquisition costs
During the year the group acquired two separate European businesses consisting of product portfolios based in Europe (refer to note
14 for further details). One-off transaction costs incurred to effect the acquisitions include, but are not limited to, advisor fees, integration
costs, hedging costs, and other financing expenses.
Business acquisition costs – refinance of 2019 notes
In response to the 2018 business acquisitions, the group undertook an early refinance of the 2019 senior secured notes to strengthen its
capital structure. As a result, break fees and the early recognition of interest costs in relation to interest rate swaps were incurred. The
cash impact of the refinance of the 2019 notes was a cash outflow of $0.300 million due to favourable cashflow outcomes on cash
flow hedges offsetting break fees and interest costs on interest rate swaps.
Change in corporate tax rates
Changes in corporate tax rates across the USA, France and Argentina led to the re-measurement of the group’s deferred tax position
resulting in net income tax credits of $12.231 million.
76
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 6. Individually material income and expense items (continued)
2017 Material Items
Asset rationalisation and restructure
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.
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.
Material items are classified by function as follows:
Cost of
sales
Other
income
Selling,
marketing and
distribution
expense
General and
administrative
expense
Research and
development
expenses
Net
financing
costs
Total
pre-tax
–
–
–
–
–
–
–
–
–
–
–
–
(509)
2,000
–
–
–
(70,559)
(20,536)
–
(509)
(89,095)
(509)
(89,095)
–
–
–
–
–
–
–
1,491
–
(70,559)
(3,588)
(24,124)
(13,684)
(13,684)
(17,272)
(106,876)
–
(89,604)
Cost of
sales
Other
income
Selling,
marketing and
distribution
expense
General and
administrative
expense
Research and
development
expenses
Net
financing
costs
Consolidated year
ended 31 July 2018
$000
Asset rationalisation
and restructuring
ANZ impairment and
tax asset write-down
Business acquisition costs
Business acquisition costs
– refinance 2019 notes
Total material items
Total material items included
in operating profit
Consolidated year
ended 31 July 2017
$000
Asset rationalisation
and restructuring
Sale of Excel Crop
Care investment
Total material items
(2,515)
–
(419)
(20,909)
–
(2,515)
894
894
–
(419)
–
(20,909)
Total material items included
in operating profit
(2,515)
894
(419)
(20,909)
Material items impacting cash flows is as follows:
Net operating cash flows
Net operating cash (inflows)/outflows arising on material items
Net cash from operating activities excluding material items
Net investing cash flows
Individually material (inflows)/outflows from sale of property, plant and equipment
Individually material (inflows)/outflows form the sale/purchase of businesses and investments
Net cash from investing activities excluding material items
Total
pre-tax
(23,937)
894
(23,043)
(23,043)
(94)
–
(94)
(94)
–
–
–
–
Consolidated
2018
$000
(88,169)
31,462
(56,707)
2017
$000
55,443
17,937
73,380
(965,574)
(100,758)
(5,351)
778,859
(192,066)
(9,552)
(39,905)
(150,215)
77
Nufarm Limited Annual Report 2018 7. Other income
Dividend income
Rental income
Sundry income
Total other income
8. Other expenses
The following expenses were included in the period result:
Depreciation and amortisation
Impairment loss
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
The restructure expense relates to the group’s asset rationalisation and organisational restructure program.
These costs are included in material items in note 6.
10. Finance income and expense
Other financial income
Financial income
Interest expense – external
Interest expense – debt establishment transaction costs
Lease amortisation – finance charges
Net foreign exchange gains/(losses)
Financial expenses
Net financing costs
78
Consolidated
2018
$000
–
271
6,985
7,256
2017
$000
745
279
12,240
13,264
Consolidated
2018
$000
(120,550)
(70,559)
(15,310)
(4,671)
2017
$000
(87,731)
–
(19,324)
(5,078)
Consolidated
2018
$000
(303,004)
(50,057)
(24,045)
(2,113)
(10,582)
(3,004)
(2,681)
2017
$000
(284,751)
(45,664)
(21,507)
(1,618)
(9,537)
(2,707)
(8,052)
(395,486)
(373,836)
Consolidated
2018
$000
10,978
10,978
2017
$000
8,591
8,591
(109,933)
(96,072)
(6,719)
(1,986)
(27,946)
(146,584)
(3,777)
(1,925)
(13,812)
(115,586)
(135,606)
(106,995)
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 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 – material items
Initial (recognition)/derecognition of tax assets
ANZ tax asset write-down – material items
Deferred tax expense/(benefit)
Total income tax expense/(benefit) in income statement
Attributable to:
Continuing operations
Total income tax expense/(benefit) in income statement
Numerical reconciliation between tax expense and pre-tax net profit
Profit/(Loss) before tax
Income tax using the Australian corporate tax rate of 30%
Increase/(decrease) in income tax expense due to:
Non-deductible expenses
Other taxable income
Effect of changes in tax rates – material items
Initial (recognition)/derecognition of tax assets
ANZ tax asset write-down – material items
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
Consolidated
2018
$000
2017
$000
15,191
30,583
(538)
48,211
3,119
(4,121)
45,236
47,209
(3,326)
(12,231)
5,276
20,945
10,664
1,641
2,730
5,625
–
9,996
55,900
57,205
55,900
55,900
57,205
57,205
39,893
172,247
11,968
51,674
7,085
2,428
(12,231)
5,276
20,945
30,583
(4,109)
(242)
(5,265)
56,438
(538)
6,698
2,668
2,730
5,625
–
3,119
(3,115)
(2,002)
(6,071)
61,326
(4,121)
55,900
57,205
(3,877)
(3,877)
(4,074)
(4,074)
917
587
1,504
524
358
882
79
Nufarm Limited Annual Report 2018 12. Discontinued operations
There were no discontinued operations in the current or prior period.
13. Assets held for sale
There were no assets held for sale in the current or prior period.
14. Acquisition of businesses and acquisition of non-controlling interests
Business acquisitions – 2018
Century and FMC acquisition
On 24 October 2017, the group announced that it had entered into an agreement with Adama Agricultural Solutions Ltd (Adama)
and Syngenta Crop Protection AG and related group companies (Syngenta) to purchase a European business comprising a portfolio
of crop protection products registered in European markets (Century Acquisition). Subsequently, the group announced an issuance
of 59,551,672 ordinary shares which generated $436.870 million of additional share capital (net of costs). The cash consideration paid
was US$490 million, plus inventory of $21.843 million.
On 8 November 2017, the group announced that it had entered into an agreement with FMC Corporation (FMC) to purchase a European
business comprising a portfolio of herbicide products registered in European markets (FMC Acquisition). The cash consideration paid
was US$85 million, plus inventory of $2.871 million.
On 1 February 2018 the FMC Acquisition was closed with the successful transfer of registration data and cash consideration in accordance
with the transaction agreements. Related derivative contracts were utilised or closed as part of the acquisition completion.
On 16 March 2018, European regulatory approval was obtained in relation to the Century Acquisition. On 16 March 2018 the Century
Acquisition was effectively closed with the successful transfer of registration data and cash consideration in accordance with the
transaction agreements. Derivative contracts related to the Century Acquisition were utilised or closed as part of the acquisition completion,
this included the derivative not designated for hedge accounting, which resulted in a realised loss for the group of $1.807 million in net
financing costs.
One-off transaction costs incurred to effect the acquisitions include, but are not limited to, advisor fees, integration costs, hedging costs,
and other financing expenses. These one-off costs totalled $22.228 million net of tax (refer to note 6) for the year ended 31 July 2018.
The acquisition of these businesses increases the group’s product portfolio offering within the European region. The business expects to
extract revenue synergies from the acquisitions via opening up the existing business to new customers and cross selling opportunities.
Identifiable assets acquired and liabilities assumed (provisional)
On a provisional basis, the following table summarises the assets acquired and liabilities assumed at the date of acquisition.
Acquiree’s net assets at acquisition date
Inventory
Intangible assets
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration to be transferred
FMC Acquisition
fair value on
acquisition
$000
2,871
84,763
87,634
26,308
113,942
Century
Acquisition
fair value on
acquisition
$000
21,843
530,487
552,330
105,283
657,613
Total fair
value on
acquisitions
$000
24,714
615,250
639,964
131,591
771,555
Total goodwill of $131.591 million from business acquisitions is attributable mainly to the synergies expected to be achieved from
integrating the respective businesses into the group’s existing business.
During the year ended 31 July 2018, the acquired businesses above generated additional revenues of $68.943 million and operating
profits of approximately $10.969 million. Revenue and profit from the acquired businesses that would have been earned if the acquisitions
had occurred at the commencement of the financial year has not been provided on the basis that the calculation of that information
is impracticable. This is because the businesses were fully integrated into the vendor’s operations and separate comparable financial
information relating to the acquired businesses as stand-alone operations is not available.
Business acquisitions – 2017
There were no acquisitions in the prior period.
80
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 14. Acquisition of businesses and acquisition of non-controlling interests (continued)
Acquisition of non-controlling interest 2018
On 29 December 2017 the group acquired an additional 49 per cent of the equity interest in Atlantica Sementes SA (Atlantica), a business
based in Brazil specialising in the sale and distribution of seed related products, via the exercising of a written put option. As a result,
the group’s equity interest in Atlantica increased from 51 per cent to 100 per cent. The group recognised a liability for the present value
of the exercise price of the put option up to the date of acquisition and exercise of the put option. The carrying amount of Atlantica’s
net assets in the group’s consolidated financial statements on the date of acquisition was $6.590 million. Given the transaction is
deemed as a common control transaction the impact has been recognised in equity resulting in a transfer of non-controlling interests
to retained earnings.
Acquisition of non-controlling interest 2017
There was no acquisition of non-controlling interest in prior period.
15. Cash and cash equivalents
Bank balances
Call deposits
Bank overdraft
Total cash and cash equivalents
16. Trade and other receivables
Current
Trade receivables
Provision for impairment losses
Derivative financial instruments
Prepayments
Other receivables
Current receivables
Non-current
Derivative financial instruments
Trade receivables
Other receivables
Non-current receivables
Total trade and other receivables
17. Inventories
Raw materials
Work in progress
Finished goods
Provision for obsolescence of finished goods
Total inventories
Consolidated
2018
$000
255,535
46,165
301,700
(7,357)
294,343
2017
$000
217,128
18,017
235,145
(11,384)
223,761
Consolidated
2018
$000
2017
$000
1,130,846
(36,546)
974,915
(26,439)
1,094,300
948,476
5,339
23,882
76,096
5,928
23,238
49,874
1,199,617
1,027,516
–
76,452
32,407
108,859
11,125
73,197
26,379
110,701
1,308,476
1,138,217
Consolidated
2018
$000
313,103
18,438
862,360
1,193,901
(14,205)
2017
$000
203,698
15,996
552,662
772,356
(9,317)
1,179,696
763,039
81
Nufarm Limited Annual Report 2018 18. Tax assets and liabilities
Current tax assets and liabilities
The current tax asset for the group of $31.609 million (2017: $25.615 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 $20.930 million (2017: $17.628 million) represents the amount of income taxes payable in respect of
current and prior financial periods.
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Consolidated
Property, plant and equipment
Intangible assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Tax assets/(liabilities)
Set off of tax
2018
$000
16,945
8,928
19,556
20,993
16,231
119,309
201,962
–
2017
$000
2,480
11,672
20,125
20,054
29,773
156,144
2018
$000
(8,311)
2017
$000
(11,612)
2018
$000
8,634
(86,770)
(104,285)
(77,842)
–
(1,024)
(17,447)
–
–
(514)
(21,233)
–
240,248
(113,552)
(137,644)
–
–
–
19,556
19,969
(1,216)
119,309
88,410
–
Net tax assets/(liabilities)
201,962
240,248
(113,552)
(137,644)
88,410
102,604
Movement in temporary differences during the year
Consolidated 2018
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
156,144
(37,495)
Balance
2017
$000
Recognised
in income
$000
Recognised
in equity
$000
Currency
adjustment
$000
Other
movement
$000
(9,132)
(92,613)
20,125
19,540
8,540
18,262
18,573
(657)
1,032
(10,379)
–
–
(917)
–
(587)
–
(496)
(3,802)
1,005
(603)
1,210
660
102,604
(10,664)
(1,504)
(2,026)
–
–
–
–
–
–
–
Consolidated 2017
Property, plant and equipment
Intangibles assets
Employee benefits
Provisions
Other items
Tax value of losses carried forward
Balance
2016
$000
(10,123)
(94,216)
23,361
21,797
1,850
168,105
110,774
Recognised
in income
$000
517
Recognised
in equity
$000
–
Currency
adjustment
$000
474
Other
movement
$000
–
(1,482)
(2,856)
(2,181)
6,157
(10,151)
(9,996)
–
524
–
358
–
882
3,085
(904)
(76)
175
(1,810)
944
–
–
–
–
–
–
2017
$000
(9,132)
(92,613)
20,125
19,540
8,540
156,144
102,604
–
Balance
2018
$000
8,634
(77,842)
19,556
19,969
(1,216)
119,309
88,410
Balance
2017
$000
(9,132)
(92,613)
20,125
19,540
8,540
156,144
102,604
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.
82
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 18. Tax assets and liabilities (continued)
Deferred tax assets and liabilities (continued)
Unrecognised deferred tax liability
At 31 July 2018, a deferred tax liability of $26.368 million (2017: $23.527 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 2018, there are unrecognised deferred tax assets in respect of tax losses and timing differences of $90.197 million
(2017: $43.716 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:
Ownership and
voting interest
Carrying amount
Share of
profit/(loss)
Nature of
relationship
Joint Ventures(1)
Country
Eastern Europe
Balance
date of
associate
31 December
2018
0.00%
2017
0.00%
F&N joint ventures
Seedtech Pty Ltd
Associate(2)
Australia
31 December
25.00% 25.00%
2018
$000
–
411
411
2017
$000
–
334
334
2018
$000
–
78
78
2017
$000
(84)
(40)
(124)
(1) The F&N joint ventures represented 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.
(2) Seedtech is a company that offers services to the seed industry such as cleaning, packaging, distribution and storage of seeds.
20. Other investments
Investments – available-for-sale
Balance at the beginning of the year
Additions
Net change in fair value gains/(losses) transfered to equity
Disposal
Balance at the end of the year
Non-current investments
Other investments
Total non-current investments
Available-for-sale equity securities
Consolidated
2018
$000
2017
$000
–
–
–
–
–
38,564
–
1,342
(39,906)
–
442
442
384
384
On 30 June 2016 the group ceased to equity account for its investment in Excel Crop Care due to the loss of significant influence, and
subsequently reclassified its investment as ‘available-for-sale’. During the year ended 31 July 2017 Nufarm disposed of its investment in
Excel Crop Care.
21. Other non-current assets
There were no other non-current assets in the current or prior period.
83
Nufarm Limited Annual Report 2018 22. Property, plant and equipment
Consolidated 2018
Cost
Balance at 1 August 2017
Additions
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2018
Land and
buildings
$000
Plant and
machinery
$000
Leased
plant and
machinery
$000
Capital
work in
progress
$000
Total
$000
200,126
872
518,170
31,659
11,746
43,481
773,523
512
36,496
69,539
–
–
(2,265)
3,008
4,493
–
–
(7,340)
19,462
19,839
–
–
(81)
–
–
–
(3)
(23,985)
–
–
(9,689)
(1,515)
507
953
25,792
206,234
581,790
12,684
56,942
857,650
Accumulated depreciation and impairment losses
Balance at 1 August 2017
Depreciation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2018
(89,539)
(331,158)
(6,690)
(31,049)
(2,306)
(453)
–
–
(15,513)
(33,729)
1,014
(1)
7,180
149
(3,338)
(13,470)
–
–
59
–
(57)
(114,067)
(402,077)
(2,757)
–
–
–
–
–
–
–
–
(423,003)
(38,192)
–
(49,242)
8,253
148
(16,865)
(518,901)
Net property, plant and equipment at 31 July 2018
92,167
179,713
9,927
56,942
338,749
Consolidated 2017
Cost
Balance at 1 August 2016
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2017
Accumulated 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
Foreign 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
504,451
21,912
981
–
(2,642)
2,164
(2,182)
13,981
–
(7,857)
16,801
(9,206)
200,126
518,170
(86,338)
(6,371)
(311,277)
(30,695)
–
–
2,160
–
1,010
–
–
6,452
(138)
4,500
305
–
(9,445)
(246)
(780)
11,746
(5,570)
(1,572)
–
–
4,435
205
196
(89,539)
(331,158)
(2,306)
Total
$000
756,038
50,595
–
(20,034)
(67)
27,870
35,328
–
(90)
(18,786)
(841)
(13,009)
43,481
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
Assets pledged as security for finance leases amount to $9.927 million (2017: $9.440 million).
84
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 23. Intangible assets
Consolidated 2018
Cost
Balance at 1 August 2017
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2018
Accumulated amortisation
and impairment losses
Balance at 1 August 2017
Amortisation charge for the year
Additions through business combinations
Impairment loss
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2018
Intellectual Property
Goodwill
$000
Indefinite
life
$000
Finite life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
322,497
1,576
526,026
308,619
102,655
1,261,373
–
131,591
(237)
–
2,471
–
–
–
–
104
4,136
615,250
(91)
(2,518)
19,503
69,394
51,243
124,773
–
(6,886)
3,179
14,438
–
746,841
(5,197)
2,132
2,704
(12,411)
2,793
39,220
456,322
1,680
1,162,306
388,744
153,537
2,162,589
(105,477)
(1,576)
(134,326)
–
–
(3,109)
–
–
–
–
–
–
–
(44,371)
–
(89,822)
(27,058)
–
(5,612)
(5,500)
76
644
6,541
(644)
(38,786)
(369,987)
(10,928)
(82,357)
–
(7,096)
1,244
–
–
(21,317)
7,861
–
3,646
(104)
(5,537)
(5,376)
(1,096)
(8,467)
(104,940)
(1,680)
(189,126)
(121,859)
(56,662)
(474,267)
Intangibles carrying amount at 31 July 2018
351,382
–
973,180
266,885
96,875
1,688,322
Consolidated 2017
Cost
Balance at 1 August 2016
Additions
Additions through business combinations
Disposals and write-offs
Other transfers
Foreign exchange adjustment
Balance at 31 July 2017
Accumulated 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
Foreign exchange adjustment
Balance at 31 July 2017
Intellectual Property
Goodwill
$000
Indefinite
life
$000
Finite life
$000
Capitalised
development
costs
$000
Computer
software
$000
Total
$000
335,983
1,563
533,110
272,022
61,945
1,204,623
–
–
(3,546)
–
(9,940)
322,497
–
–
–
–
13
6,725
51,374
42,552
100,651
–
–
547
(14,356)
–
(1,201)
(2,193)
(11,383)
–
(45)
224
–
(4,792)
(1,422)
(2,021)
(37,687)
1,576
526,026
308,619
102,655
1,261,373
(107,840)
(1,563)
(114,435)
(22,939)
(73,416)
(20,925)
(34,331)
(5,229)
(331,585)
(49,093)
–
–
–
–
–
2,363
(105,477)
–
–
–
–
–
–
–
(103)
(81)
–
–
127
1,544
2,848
–
–
125
(41)
690
–
–
149
1,422
9,120
(13)
3,232
(1,576)
(134,326)
(89,822)
(38,786)
(369,987)
Intangibles carrying amount at 31 July 2017
217,020
–
391,700
218,797
63,869
891,386
85
Nufarm Limited Annual Report 2018 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 $208 million (2017: $195 million), Brazil $150 million (2017:
$175 million), Seed Technologies $305 million (2017: $273 million), Europe $979 million (2017: $195 million) and Australia and New Zealand
(ANZ) $25 million (2017: $47 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.
Two valuation methods are used by the group.
Valuation method – value in use
The group uses the value-in-use (VIU) method to estimate the recoverable amount. In assessing VIU, the estimated future cash flows are
derived from the three year plan for each cash-generating unit with a growth factor applied to extrapolate a cash flow beyond year
three. A perpetuity factor is then applied to the normalised cash flow beyond year five in order to include a terminal value in the VIU
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.
Valuation method – fair value less cost of disposal
Fair value less cost of disposal (FVLCD) is an estimate of the amount that a market participant would pay for an asset or a CGU, less the cost
of disposal. The fair value is determined using discounted cash flows. The cash flows are derived from board approved management
expectations of future outcomes taking into account past experience, adjusted for anticipated revenue growth. 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). Values determined are benchmarked against comparable market transactions and company trading multiples.
Valuation assumptions
The valuation method, range of terminal growth rates and nominal post-tax discount rates applied for impairment testing purposes
is as follows:
2018
Material crop protection CGUs (North America, Brazil and Europe)
ANZ CGU(1)
Seed Technology CGU
2017
Material crop protection CGUs (ANZ, North America, Brazil and Europe)(1)
Valuation
method
Terminal
growth rate
Discount
rate
Total
goodwill
$000
VIU 1.9% to 4.1% 8.0% to 13.1%
268,051
FVLCD
VIU
2.5%
3.1%
9.9%
12.4%
–
68,431
Valuation
method
VIU
Terminal
growth rate
Discount
rate
1.9% to 4.5% 7.8% to 13.5%
Total
goodwill
$000
136,238
Seed Technology CGU
FVLCD
2.5%
13.8%
67,085
(1) As at 31 July 2017, the total goodwill and indefinite life assets for the ANZ CGU was equal to $3.109 million. The carrying amount of goodwill and indefinite life assets for the ANZ CGU
was reduced to nil at 31 July 2018 as a result of impairment.
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.
86
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 23. Intangible assets (continued)
Impairment testing for cash-generating units containing goodwill (continued)
Valuation assumptions (continued)
With the exception of the ANZ CGU (see below), management has determined that, given the excess of recoverable value over asset
carrying value (headroom), there are no reasonably possible changes in assumptions which could occur to cause the carrying amount
of the CGUs to exceed their recoverable amount.
ANZ cash generating unit
At 31 July 2018 the group became aware of impairment indicators for the ANZ CGU and commenced using the FVLCD methodology
for the CGU. The carrying amount of the ANZ CGU was determined to be higher than its recoverable amount and an impairment loss of
$70.559 million was recognised during the year ended 31 July 2018 (31 July 2017: nil). The impairment loss was allocated against goodwill,
intangibles assets, and property, plant and equipment, and is included in ‘general and administrative expenses’ (refer note 6).
Following the impairment loss recognised in the ANZ CGU, the recoverable amount was equal to the carrying amount. Any adverse
movement in a key assumption (noted above) or ANZ cash flows would lead to further impairment.
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
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
Brazil unsecured notes
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
Consolidated
2018
$000
2017
$000
1,128,082
812,920
3,024
164
6,118
7,329
1,131,270
826,367
10,800
–
10,800
9,981
2,815
12,796
Consolidated
2018
$000
2017
$000
390,905
130,817
(3,683)
1,303
356
303,150
124,391
(3,065)
1,231
319
519,698
426,026
404,842
30,878
71,610
22,861
40,021
–
638,613
403,537
(11,721)
2,256
12,237
(2,147)
2,264
11,492
1,148,715
478,028
(294,343)
(223,761)
1,374,070
680,293
87
Nufarm Limited Annual Report 2018 25. Interest-bearing loans and borrowings (continued)
Financing facilities
Refer to the section entitled ‘liquidity risk’ in note 31 for detail regarding the group’s financing facilities.
2018
Bank loan facilities and senior unsecured notes
Other facilities
Total financing facilities
2017
Bank loan facilities and senior unsecured notes
Other facilities
Total financing facilities
Reconciliation of liabilities arising from financing activities
Balance at 31 July 2017
Cash changes
Proceeds from borrowings (net of costs)
Repayment of borrowings
Debt establishment transaction costs
Total cash flows
Non-cash changes
Foreign exchange movements
Transfer
Amortisation of debt establishment transaction costs
Total non-cash changes
Balance at 31 July 2018
Accessible
$000
Utilised
$000
2,185,377
1,667,665
3,559
3,559
2,188,936
1,671,224
1,736,331
893,960
3,495
3,495
1,739,826
897,455
Loans and
borrowings
– current
$000
Loans and
borrowings
– non-
current
$000
Debt
related
derivatives
(included in
assets /
liabilities)(1)
$000
Total debt
related
financial
instruments
$000
426,026
478,028
(30,056)
873,998
919,997
1,257,668
24,206
2,201,871
(853,662)
(605,102)
–
(16,911)
–
–
(1,458,764)
(16,911)
66,335
635,655
24,206
726,196
(13,723)
34,341
6,719
69,373
(34,341)
–
2,297
57,947
–
–
–
6,719
27,337
35,032
2,297
64,666
519,698
1,148,715
(3,553)
1,664,860
(1) Total derivatives balance at 31 July 2018 is a net asset of $2.315 million (31 July 2017: $8.120 million net asset). The difference in carrying value to the table above relates to interest rate
swap contracts, cross-currency interest rate swap contracts, and forward exchange contracts which are excluded from the balances above.
88
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 25. Interest-bearing loans and borrowings (continued)
Financing arrangements
Repayment of borrowings (excluding finance leases)
Period ending 31 July, 2018
Period ending 31 July, 2019
Period ending 31 July, 2020
Period ending 31 July, 2021 or later
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
Syndicated bank facility
Group securitisation program facility
Other bank loans
Finance lease liabilities – secured
Brazil unsecured notes
Senior unsecured notes
Consolidated
2018
$000
–
523,025
30,648
1,117,551
2017
$000
428,772
60,947
407,736
–
Consolidated
2018
$000
1,640
1,664
5,551
85,629
94,484
(81,890)
12,594
2017
$000
1,528
1,571
5,019
81,873
89,991
(78,180)
11,811
Consolidated
2018
%
6.08
1.84
2.89
5.70
13.33
9.69
5.75
2017
%
5.87
n/a
2.49
10.54
13.12
n/a
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 2018. At 31 July 2017 the syndicated bank facility was undrawn.
89
Nufarm Limited Annual Report 2018 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
2018
$000
17,377
1,970
19,347
7,505
173,171
(100,115)
80,561
15,115
95,676
115,023
2017
$000
16,068
2,611
18,679
7,667
166,916
(90,485)
84,098
13,597
97,695
116,374
During the year ended 31 July 2018 the group made contributions to defined benefit pension funds in the United Kingdom, France and
Indonesia that provide defined benefit amounts for employees upon retirement.
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 adjustment
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 adjustment
Closing fair value of fund assets
The actual return on plan assets is the sum of the expected return and the actuarial gain/(loss).
Consolidated
2018
$000
2017
$000
174,583
224,904
607
4,908
(3,604)
(908)
59
–
–
(6,579)
11,610
666
4,563
31
–
(1,236)
(38,781)
–
(5,582)
(9,982)
180,676
174,583
90,485
136,292
2,553
2,293
–
–
4,933
(6,376)
6,227
100,115
2,375
(1,536)
–
(38,781)
3,254
(5,397)
(5,722)
90,485
90
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 26. Employee benefits (continued)
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
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
The group expects to pay $5.116 million in contributions to defined benefit plans in 2019. (2017: $4.791 million).
Consolidated
2018
$000
2017
$000
607
4,908
(2,553)
59
(908)
2,113
1,287
546
231
49
2,113
666
4,563
(2,375)
(1,236)
–
1,618
1,441
865
(842)
154
1,618
(74,047)
4,980
(69,067)
(71,956)
(2,091)
(74,047)
Consolidated
2018
%
62.2
31.7
1.3
4.8
2.8
0.3
2.8
2017
%
59.6
32.9
1.0
6.4
2.7
0.3
2.8
91
Nufarm Limited Annual Report 2018
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
2018 there were 14 participants (2017: 19 participants) in the scheme and 77,916 shares (2017: 125,347) 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.
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 2018 there were 512 participants (2017: 573 participants) in the scheme and 1,624,341 shares
(2017: 1,664,626) 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
2018
$000
3,904
2017
$000
4,739
92
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 27. Share-based payments (continued)
Measurement of fair values
The fair value of performance rights granted through the LTIP and deferred shares granted through the STIP were measured as follows:
Plan
Weighted average fair value at grant date
Share price at grant date
Grant date
Earliest vesting date
Exercise price
Expected life
Volatility
Risk free interest rate
Dividend yield
Nufarm
STI 2018
deferred
shares
$8.37
$8.37
Nufarm
LTI 2018
performance
rights
Nov 2017
$6.60
$8.99
Nufarm
STI 2017
deferred
shares
$9.15
$9.15
28 Sep 2017
31 Jul 2019
1 Nov 2017 28 Sep 2016
31 Jul 2018
31 Jul 2020
–
–
1 year
2.8 years
n/a
n/a
n/a
28%
2.0%
1.7%
–
1 year
n/a
n/a
n/a
Nufarm
LTI 2017
performance
rights
Nov 2016
$7.17
$8.59
3 Nov 2016
31 Jul 2019
–
Nufarm
LTI 2017
performance
rights
Dec 2016
$7.63
$9.03
1 Dec 2016
31 Jul 2019
–
2.7 years
2.7 years
31%
1.7%
1.7%
31%
1.9%
1.7%
The fair values of awards granted were estimated using a Monte Carlo simulation methodology and a Binomial Tree methodology.
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
2018
887,364
(276,863)
(333,078)
–
395,260
672,683
–
Nufarm STI
number of
deferred
shares
2018
269,506
(14,272)
(268,840)
–
543,178
529,572
–
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
–
The performance rights outstanding at 31 July 2018 have a $nil exercise price (2017: $nil) and a weighted average contractual life
of three years (2017: three years). All performance rights granted to date have a $nil exercise price.
28. Provisions
Current
Restructuring
Other
Current provisions
Consolidated
Movement in provisions
Balance at 1 August 2017
Provisions made during the year
Provisions reversed during the year
Provisions used during the year
Exchange adjustment
Balance at 31 July 2018
2018
$000
11,161
1,237
12,398
Restructuring
$000
Other
provisions
$000
14,533
3,557
(558)
(6,655)
284
11,161
1,185
–
–
–
52
1,237
Consolidated
2017
$000
14,533
1,185
15,718
Total
$000
15,718
3,557
(558)
(6,655)
336
12,398
93
The provision for restructuring is mainly relating to the asset rationalisation and restructuring being undertaken by the group.
Nufarm Limited Annual Report 2018 29. Capital and reserves
Share capital
Balance at 1 August
Issue of shares
Balance at 31 July
Parent company
Number of
ordinary
shares
2018
266,928,840
Number of
ordinary
shares
2017
265,899,295
60,776,135
1,029,545
327,704,975
266,928,840
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.
In October 2017, the directors of the group agreed to issue 59,551,672 new shares to fund the acquisition of two European businesses
(note 14) pursuant to the terms of an underwritten accelerated renounceable entitlement offer. Following the announcement in October
2017, on 6 November 2017, 44,777,979 shares at $7.5000 were issued under the institutional entitlement offer and on 24 November
2017, 14,773,693 shares at $7.5000 were issued under the retail entitlement offer.
On 6 October 2017, 756,172 shares at $8.3667 were issued under the Nufarm short term incentive plan and Nufarm executive long
term incentive plan. On 10 November 2017, 228,101 shares at $8.9479 were issued under the dividend reinvestment program. On
11 December 2017, 69,695 shares at $8.3667 were issued under the Nufarm short term incentive plan. On 5 January 2018, 64,104 shares
at $8.7800 were issued under the global share plan. On 4 May 2018, 106,391 shares at $8.6513 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 (2017:
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 2.0 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. Until December 2017, this reserve held the debit balance related to a written put option of a 49 per cent interest
held by the non-controlling shareholders of Atlantica Sementes Ltda (Atlantica). As the non-controlling shareholders had the present
access to the economic benefits with their underlying ownership interest, their non controlling interest was recognised. In December
2017, the written put option was exercised, and the debit reserve was utilised to complete the transaction. This reserve also holds the
balances related to hedging.
94
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 29. Capital and reserves (continued)
Dividends
An interim dividend of five cents per share, totalling $16,379,929 was declared on 21 March 2018, and was paid (net of dividend
re-investment program) on 4 May 2018 (2017: five cents per share, totalling $13,339,938).
A final dividend of six cents per share, totalling $19,662,299 was declared on 26 September 2018, and will be paid on 2 November 2018
(2017: eight cents per share, totalling $21,414,801).
Distributions
Distributions recognised in the current year by Nufarm Finance (NZ) Ltd on the Nufarm step-up securities* are:
2018
Distribution
Distribution
2017
Distribution
Distribution
Consolidated
Total
amount
$000
Distribution
rate
Payment
date
5.80%
5.87%
7,259
16 Apr 2018
7,381
16 Oct 2017
14,640
5.89%
6.36%
7,372
18 Apr 2017
7,997
15 Oct 2016
15,369
* Refer to discussion titled ‘Nufarm step-up securities’ in this note.
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 $10.763 million (2017: $11.295 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 per cent (2017: 30 per cent)
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
2018
$000
2017
$000
–
–
–
–
–
–
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 (2017: $nil)) franking credits/(debits).
95
Nufarm Limited Annual Report 2018 30. Earnings per share
Net profit/(loss) for the year
Net profit/(loss) attributable to non-controlling interest
Net profit/(loss) attributable to equity holders of the parent
Nufarm step-up securities distribution
Earnings/(loss) used in the calculations of basic and diluted earnings per share
Earnings/(loss) from continuing operations
Consolidated
2018
$000
(16,007)
419
(15,588)
(10,763)
(26,351)
2017
$000
115,042
(575)
114,467
(11,295)
103,172
(26,351)
103,172
Subtract/(add back) items of material income/(expense) (refer note 6)
(113,984)
(21,356)
Earnings/(loss) excluding items of material income/(expense) used in the calculation of earnings
per share excluding material items
87,633
124,528
For the purposes of determining basic and diluted earnings per share, the after-tax distributions on NSS are deducted from net profit.
Number of shares
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
2018
2017
310,650,760 266,635,627
267,613,174
311,631,734
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
2018
2017
(8.5)
(8.5)
(8.5)
(8.5)
28.2
28.1
38.7
38.7
38.6
38.6
46.7
46.5
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 and risk committee and functionally to the chief
financial officer. He provides a written report of his activities at each meeting of the audit and risk committee. In doing so he has direct
and ongoing access to the chairman and members of the audit and risk committee.
96
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 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 equivalent assets
Derivative contracts:
Assets
Consolidated
2018
$000
1,303,137
301,700
2017
$000
1,121,164
235,145
5,339
17,053
1,610,176
1,373,362
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
2018
$000
210,914
30,557
430,792
125,685
505,189
1,303,137
2017
$000
187,717
26,182
273,188
96,140
537,937
1,121,164
The group’s top five customers account for $186.729 million of the trade receivables carrying amount at 31 July 2018 (2017: $127.732 million).
These top five customers represent 15 per cent (2017: 12 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
Consolidated
2018
$000
1,017,819
109,279
10,987
9,884
59,329
2017
$000
894,074
69,431
9,210
10,846
64,551
1,207,298
(36,546)
1,048,112
(26,439)
1,170,752
1,021,673
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.
97
Nufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Credit risk (continued)
Impairment losses (continued)
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
2018
$000
26,439
13,915
(1,772)
–
(2,036)
36,546
2017
$000
36,127
7,372
(16,969)
–
(91)
26,439
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.
Principally, the group sources liquidity from cash generated from operations, and where required, external bank facilities. 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.
Debt facilities
As at 31 July 2018, the key group facilities include a group trade receivables securitisation facility, a US$475 million senior unsecured notes
offering due in April 2026 (31 July 2017: US$325 million), and a senior secured bank facility of $645 million (31 July 2017: $505 million).
During the year ended 31 July 2018, the group completed the refinancing of the US$325 million senior unsecured notes due in October
2019. The 2019 notes were redeemed from investors in May 2018 through the issuance of US$475 million senior unsecured notes due in
April 2026 with a fixed coupon component of 5.75 per cent (‘2026 notes’). The 2026 notes were issued under a dual tranche structure
by Nufarm Australia Ltd (US$266 million) and Nufarm Americas Inc (US$209 million).
On 27 July 2018 the group closed an unsecured and non-convertible BRL 200 million debenture. Issued by Nufarm Industria Quimica
e Farma (Nufarm Brazil), the floating rate debenture matures in July 2021 and is governed by two group covenants that are measured
and reported at 31 July each year. The proceeds have been used to repay existing bank debt and extend Brazil’s weighted average
debt maturity profile.
On 24 January 2018 the group upsized its senior secured bank facility (SFA) to $665 million. In April 2018 the group elected to reduce
this by $20 million. At 31 July 2018 the facility size was $645 million (31 July 2017: $505 million). Of this, $645 million is due in January 2021
(31 July 2017: $30 million is due in January 2018, $435 million is due in January 2019, and $40 million is 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.
The facility is drawn to $404.843 million at 31 July 2018 (31 July 2017: undrawn).
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. The facility limit varies on a monthly basis to reflect the cyclical nature of the trade receivables
being used to secure funding under the program. The monthly facility limit is set at $375 million for five months of the financial year,
$300 million for three months of the financial year, $275 million for one month of the financial year and $175 million for three months
of the financial year (31 July 2017: 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).
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 2018 totalled $601.765 million (2017: $527.793 million).
98
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
Debt facilities (continued)
At 31 July 2018, the group had access to debt of $2,185 million (2017: $1,740 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.
Trade finance
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 $327.123 million at 31 July 2018 (2017: $255.838 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 the 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.
To support the liquidity of the group and reduce the credit risk relating to specific customers, trade receivables held by the group are
sold to third parties. The sales (or factoring) of receivables to third parties is primarily done on a non-recourse basis, and the group
incurs a financing expense at the time of the sale. The group derecognises trade receivables where the terms of the sale allows for
derecognition. At 31 July 2018 the group estimates $74.644 million (2017: $49.312 million) of derecognised trade receivables were
being held by third parties. For clarity, the group trade receivables securitisation facility, noted above, has terms which does not
allow the group to derecognise these trade receivables.
Contractual maturities
The following are the contractual maturities of the group’s financial liabilities:
Consolidated 2018
Non-derivative financial liabilities
Bank overdrafts
Trade and other payables
Bank loans – secured
Bank loans – unsecured
Brazil unsecured notes
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
7,357
7,357
7,357
1,139,046
1,139,046
1,128,246
–
14
–
10,786
795,747
825,915
410,035
7,433
408,447
161,695
71,610
174,911
92,351
142,212
29,933
2,766
6,939
6,939
78,473
638,613
933,088
37,434
36,720
858,934
3,559
12,593
3,559
94,484
1,303
1,640
2,256
1,664
–
91,180
–
–
–
–
–
–
3,024
523,446
523,446
–
(517,878)
(517,878)
–
–
–
–
–
–
–
843,835
843,835
(5,339)
(852,737)
(852,737)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,827,905
3,267,377
1,731,832
84,959
1,450,586
99
Nufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Liquidity risk (continued)
Contractual maturities (continued)
Consolidated 2017
Non-derivative financial liabilities
Bank overdrafts
Trade and other payables
Bank loans – secured
Bank loans – unsecured
Unsecured note issues
Other loans – unsecured
Finance lease liabilities – secured
Derivative financial liabilities
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Derivative financial assets
Derivatives used for hedging:
Outflow
Inflow
Other derivative contracts:
Outflow
Inflow
Carrying
amount
$000
Contractual
cash flows
$000
Less than
1 year
$000
1–2 years
$000
More than
2 years
$000
11,384
830,230
326,011
164,412
11,384
830,230
342,082
11,384
820,249
318,101
181,624
140,844
403,537
468,389
25,941
3,495
11,811
3,495
89,991
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
215,422
–
(210,956)
(210,956)
418
–
–
–
88
–
–
–
–
145,167
(11,125)
(162,984)
7,539
(9,107)
7,539
(9,107)
130,089
(144,770)
–
383,789
383,789
(5,928)
(388,536)
(388,536)
–
–
–
–
1,742,760
1,910,021
1,317,847
88,974
503,200
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.
The group completed the refinancing of the existing US$325 million senior unsecured notes due in October 2019 during April. The 2019
notes were redeemed through the issuance of US$475 million senior unsecured notes due in April 2026 as a dual tranche issuance by
Nufarm Australia Ltd and Nufarm Americas Inc. Currency risk related to the notes is managed using foreign exchange contracts.
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, 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 2018 was
a $2.315 million asset (2017: $0.190 million liability) comprising assets of $5.339 million (2017: $5.928 million) and liabilities of
$3.024 million (2017: $6.118 million).
100
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Market risk (continued)
Currency risk (continued)
Exposure to currency risk
The group’s exposure to major foreign currency risks at balance date are as follows. The exposures are calculated based on locally
reported net foreign currency exposures, and are presented net of open derivative financial instruments. The analysis is performed on
the same basis as the previous financial year.
Consolidated 2018
Functional currency of group operation
Australian dollars
US dollars
Euro
British pound
Brazilian real
Consolidated 2017
Functional currency of group operation
Australian dollars
US dollars
Euro
British pound
Brazilian real
Sensitivity analysis
Net financial assets/(liabilities)
– by currency of denomination
AUD
$000
USD
$000
Euro
$000
GBP
$000
–
37,906
21,682
(1,392)
2,447
97
(268)
–
2,276
–
25,836
10,533
(7,056)
67,219
(3)
–
(6,569)
–
–
4,625
–
–
15,110
3,233
Net financial assets/(liabilities)
– by currency of denomination
AUD
$000
USD
$000
Euro
$000
–
12,688
2,408
(268)
–
14,828
322
–
20,033
(4,827)
15,001
30,529
2,921
–
–
23,382
–
26,303
(2,502)
GBP
$000
(3,410)
–
908
–
–
Based on the aforementioned group’s net financial assets/(liabilities) at 31 July 2018, a 1 percent strengthening or weakening of the
following currencies at 31 July 2018 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 2017.
Strengthening
Weakening
Strengthening
Weakening
Profit or (loss)
after tax 2018
$000
Profit or (loss)
after tax 2018
$000
Profit or (loss)
after tax 2017
$000
Profit or (loss)
after tax 2017
$000
Currency movement
One per cent change in the Australian dollar exchange rate
One per cent change in the US dollar exchange rate
One per cent change in the Euro exchange rate
One per cent change in the GBP exchange rate
One per cent change in the BRL exchange rate
(388)
503
(108)
(3)
49
391
(498)
107
3
(49)
104
20
21
(146)
(105)
(105)
(20)
(20)
144
104
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
Average rate
Reporting date
2018
0.774
0.648
0.574
2.583
2017
0.754
0.690
0.593
2.433
2018
0.744
0.635
0.567
2.793
2017
0.799
0.675
0.605
2.501
101
Nufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Interest rate risk
The group’s exposure to the risk of changes in market interest rates primarily relates to the group’s debt obligations that have floating
interest rates. This risk is mitigated by maintaining a level of fixed and floating rate borrowings, as well as the ability to use derivative
financial instruments when deemed appropriate to do so.
The majority of the group’s debt is raised under central borrowing programs. The A$645 million syndicated bank facility and the
group trade receivables securitisation facility are considered floating rate facilities. The group completed the refinancing of the existing
US$325 million senior unsecured notes due in October 2019 during April 2018. The former notes were refinanced through the issuance
of US$475 million senior unsecured notes due in April 2026 with a fixed coupon component.
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 (2017: 3.90 per cent).
Profile
At the reporting date the interest rate profile of the group’s interest-bearing financial instruments were:
Carrying amount
Variable rate instruments
Financial assets
Financial liabilities
Fixed rate instruments
Financial assets
Financial liabilities
Consolidated
2018
$000
2017
$000
46,165
18,017
(969,870)
(787,729)
(923,705)
(769,712)
–
(642,337)
(642,337)
–
(121,537)
(121,537)
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 2018. 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 2017.
Profit or loss
2018
Variable rate instruments
Total sensitivity
2017
Variable rate instruments
Total sensitivity
Fair values
100bp
increase
$000
100bp
decrease
$000
(9,237)
(9,237)
9,237
9,237
(7,697)
(7,697)
7,697
7,697
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 $642.337 million
(2017: $125.257 million), the fair value at 31 July 2018 is $618.389 million (2017: $130.324 million).
102
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Fair values (continued)
Consolidated 2018
Cash and cash equivalents
Trade and other receivables excluding derivatives
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
Brazil unsecured notes
Senior unsecured notes
Other loans
Finance leases
Consolidated 2017
Cash and cash equivalents
Trade and other receivables excluding derivatives
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
Derivatives
used for
hedging
$000
Financial
assets/
liabilities at
amortised
cost
$000
Total
$000
Available
-for-sale
$000
Note
15
16
20
16
24
16
24
24
15
25
25
25
25
25
25
Note
15
16
20
16
24
16
24
24
15
25
25
25
25
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,500
(3,024)
2,839
–
–
–
–
–
–
–
–
–
2,315
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
301,700
301,700
1,303,137
1,303,137
–
–
–
–
–
–
2,500
(3,024)
2,839
–
(1,139,046)
(1,139,046)
(7,357)
(7,357)
(795,747)
(795,747)
(161,695)
(161,695)
(71,610)
(71,610)
(638,613)
(638,613)
(3,559)
(3,559)
(12,593)
(12,593)
(1,225,383)
(1,223,068)
Carried at
fair value
through
profit or
loss $000
–
Derivatives
used for
hedging
$000
–
Available
-for-sale
$000
–
Financial
assets/
liabilities at
amortised
cost
$000
235,145
Total
$000
235,145
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,928
(5,454)
–
–
–
–
–
(664)
11,125
(2,815)
1,121,164
1,121,164
–
–
–
–
–
–
5,928
(5,454)
11,125
(3,479)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(830,230)
(830,230)
(11,384)
(326,011)
(164,412)
(11,384)
(326,011)
(164,412)
(403,537)
(403,537)
(3,495)
(11,811)
(3,495)
(11,811)
(190)
8,310
(394,571)
(386,451)
(a) Includes $278.281 million of centrally managed fixed rate debt swapped to floating rate under fair value hedges, and is consequently fair valued for interest rate risk.
103
Nufarm Limited Annual Report 2018 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 2018
Derivative financial assets
Derivative financial liabilities
Consolidated 2017
Derivative financial assets
Derivative financial liabilities
Level 1
$000
–
–
–
–
Level 1
$000
–
–
–
–
Level 2
$000
5,339
5,339
(3,024)
(3,024)
Level 2
$000
17,053
17,053
(8,933)
(8,933)
Level 3
$000
–
–
–
–
Level 3
$000
–
–
–
–
Total
$000
5,339
5,339
(3,024)
(3,024)
Total
$000
17,053
17,053
(8,933)
(8,933)
There have been no transfers between levels in either 2018 or 2017.
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.
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 be based on the budget and
growth strategy. The ROFE return for the year ended 31 July 2018 was 9.4 per cent (2017: 13.6 per cent).
104
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 31. Financial risk management and financial instruments (continued)
Capital management (continued)
The reduction in ROFE in the year ended 31 July 2018 results from:
• a lower level of profitability; and
• the group undertook two significant acquisitions during the year (refer note 14) and the financial statements only reflect earnings since
the acquisition date.
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
2018
$000
13,036
10,583
19,000
139,440
182,059
2017
$000
10,778
8,927
18,682
124,012
162,399
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 $5.394 million at 31 July 2018 (2017: $7.373 million).
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 – hedge costs deductibility
Brazilian taxation proceedings – goodwill deductibility
Other bank guarantees
Contingent liabilities
Brazilian taxation proceedings
Consolidated
2018
$000
13,386
2017
$000
12,593
4,393
4,132
31,554
20,559
8,874
5,400
29,739
16,200
219
316
88,165
59,200
As at 31 July 2018, the total contingent liability relating to future potential tax liabilities (excluding the goodwill and hedge cases) in Brazil
is $31.554 million (2017: $20.559 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.
105
Nufarm Limited Annual Report 2018 34. Contingencies (continued)
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).
There are six levels of Brazilian courts (three levels of administrative court and three levels of judicial court), and Brazilian tax disputes
can take 10–15 years to be settled. This dispute has been ongoing since 2013, during which period the following events have occurred:
• 2014 unfavourable decision at first level of administrative court
• 2017 favourable decision at second level of administrative court
• 2018 unfavourable decision at third level of administrative court
The contingent liability has been estimated based on assessments received. Nufarm considers that it is not probable that a liability will
arise in respect of these assessments. It is possible that further assessments could be received in future periods.
Brazilian taxation proceedings – hedge costs deductibility
The Brazilian tax authorities are challenging the deductibility of hedge costs incurred in 2008. Nufarm received unfavourable decisions
at the first and second levels of administrative court, but considers that it is not probable that a liability will arise in respect of this matter.
The contingent liability has been estimated based on an assessment received.
In the event any of the contingent Brazilian tax obligations crystallise, it will result in a tax asset write-off and the tax liability will be
settled using a combination of remaining recognised and unrecognised tax assets (refer note 18) and/or 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.
Notes
Place of
incorporation
Percentage of shares held
2018
2017
(a)
(a)
(a)
(a)
Australia
Australia
USA
Australia
Australia
USA
New Zealand
(a)
Australia
United Kingdom
United Kingdom
(a)
(a)
Australia
Brazil
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
51
100
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
106
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 35. Group entities (continued)
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
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
Nufarm Bulgaria
Nufarm BV
Nufarm Canada Receivables Partnership
Notes
Place of
incorporation
Percentage of shares held
2018
2017
(a)
(a)
(a)
(a)
(a)
(a)
(a)
Australia
Australia
Netherlands
Australia
New Zealand
New Zealand
Australia
Australia
Australia
Australia
Canada
New Zealand
(a)
Australia
Egypt
USA
Greece
United Kingdom
Guatemala
(a)
(a)
(a)
(a)
(a)
(a)
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
Bulgaria
Netherlands
Canada
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
107
Nufarm Limited Annual Report 2018 35. Group entities (continued)
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
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
108
Notes
Place of
incorporation
Percentage of shares held
2018
2017
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
Netherlands
Italy
Japan
Korea
Malaysia
United Kingdom
Malaysia
Australia
New Zealand
United Kingdom
United Kingdom
Peru
Australia
Poland
Portugal
Romania
France
Argentina
Singapore
Malaysia
Switzerland
Malaysia
(a)
(a)
(b)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 35. Group entities (continued)
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
Nufarm Uruguay SA
Nufarm USA Inc
Nugrain Pty Ltd
Nuseed Americas Inc
Nuseed Canada Inc
Nuseed Europe Holding Company Ltd
Nuseed Europe Ltd
Nuseed Global Holdings Pty Ltd
Nuseed Global Innovation
Nuseed Holding Company
Nuseed International Holdings Pty Ltd
Nuseed Mexico SA De CV
Nuseed Omega Holdings Pty Ltd
Nuseed Pty Ltd
Nuseed Russia LLC
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
Notes
Place of
incorporation
New Zealand
(a)
(a)
Australia
Australia
United Kingdom
United Kingdom
Ukraine
Uruguay
USA
(a)
Australia
USA
Canada
United Kingdom
United Kingdom
Australia
United Kingdom
USA
Australia
Mexico
Australia
Australia
Russia
Argentina
Serbia
Brazil
Ukraine
Uruguay
Australia
Australia
Australia
Australia
Indonesia
Indonesia
Indonesia
Indonesia
USA
Argentina
Australia
France
(a)
(a)
(a)
(a)
(a)
Percentage of shares held
2018
2017
100
100
100
100
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
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.
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.
109
Nufarm Limited Annual Report 2018 36. Deed of cross guarantee (continued)
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 2018 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
110
Consolidated
2018
$000
(111,228)
(15,580)
(126,808)
104,527
(37,795)
(60,076)
2017
$000
90,088
(3,921)
86,167
50,356
(31,996)
104,527
58,242
1,054,010
362,117
5,272
–
38,937
612,104
201,272
4,716
–
1,479,641
857,029
–
411
11,212
334
1,520,249
1,223,734
43,359
108,367
149,575
68,318
130,312
145,596
1,821,961
1,579,506
3,301,602
2,436,535
982,143
630,355
(3,182)
7,689
1,861
6,542
133
8,294
2,242
7,848
995,053
648,872
–
662,266
12,066
9,489
2,815
401,391
17,674
8,787
683,821
430,667
1,678,874
1,079,539
1,622,728
1,356,996
1,603,992
1,156,688
78,812
(60,076)
95,781
104,527
1,622,728
1,356,996
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 37. Parent entity disclosures
Result of the parent entity
Profit/(loss) 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
2018
$000
84,758
468
85,226
2017
$000
7,554
375
7,929
1,529,926
1,037,191
1,880,129
1,389,289
171,985
171,301
171,450
170,275
1,537,502
1,090,197
36,611
(31,536)
166,251
41,065
(31,536)
119,288
1,708,828
1,219,014
(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 $37.795 million (2017: $31.996 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 2018 or 2017.
111
Nufarm Limited Annual Report 2018 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(1)
F&N joint ventures(1)
Sumitomo Chemical Company Ltd
Purchases from
Trade payable
Sales to
Trade payable
Trade receivable
Sales to
Purchases from
Trade receivable
Trade payable
Consolidated
2018
$000
–
–
–
–
–
44,176
177,841
27,574
68,926
2017
$000
–
–
–
–
–
55,603
207,310
16,938
42,852
(1) Excel Crop Care Ltd and F&N joint ventures ceased to be associated parties during the year ended 31 July 2017.
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
2018
$
5,643,293
2017
$
6,887,593
264,035
285,705
1,372,768
1,880,617
–
–
–
–
7,280,096
9,053,915
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation is provided in the remuneration report section of the
director’s report.
(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 arms-length basis.
From time to time, key management personnel of the company or its controlled entities, or their related entities, may purchase goods
from the group. These purchases are on the same terms and conditions as those entered into by other group employees or customers
and are trivial or domestic in nature.
(e) Loans to key management personnel and their related parties
There were no loans to key management personnel at 31 July 2018 (2017: nil).
112
Notes to the consolidated financial statements continuedNufarm Limited Annual Report 2018 39. Auditors’ remuneration
Audit services
KPMG Australia
Consolidated
2018
$
2017
$
Audit and review of group financial report
564,000
538,000
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 firms
Other assurance services
Other advisory services
Other services remuneration
40. Subsequent events
1,608,548
1,539,239
2,172,548
2,077,239
177,834
136,248
2,350,382
2,213,487
591,650
834,477
278,533
180,869
–
99,030
280,641
–
–
76,941
–
–
1,984,559
357,582
On 26 September 2018 the company announced it was undertaking a pro rata entitlement offer to raise approximately $300.000
million of share capital. In raising the share capital, the company estimates $6.400 million of transaction costs will be incurred.
Net of transaction costs, the company expects to use the estimated $293.600 million to repay existing debt facilities.
A final dividend of six cents per share, totalling $19,662,299 was declared on 26 September 2018, and will be paid on 2 November 2018
(2017: eight cents per share, totalling $21,354,307).
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.
113
Nufarm Limited Annual Report 2018 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 2018 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 2018.
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 2018
DG McGauchie AO
Director
GA Hunt
Director
114
Nufarm Limited Annual Report 2018 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
The Financial Report comprises 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 2018 and of its
financial performance for the year ended on
that date; and
complying with Australian Accounting
Standards and the Corporations Regulations
2001.
Consolidated balance sheet as at 31 July 2018
Consolidated income statement, consolidated
statement
income,
consolidated statement of changes in equity,
and consolidated statement of cash flows for
the year then ended
comprehensive
of
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.
115
Nufarm Limited Annual Report 2018
Key Audit Matters
The Key Audit Matters we identified are:
Recoverability
assets,
including property, plant and equipment and
intangible assets
non-current
of
Recognition of deferred tax assets in relation
to prior period losses
Recoverability of trade receivables
Acquisition accounting
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.
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 ($338.7m) and
intangible assets ($1,688.3m)
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 following:
inherent complexity in determination of the
Group’s cash generating units (‘CGU’s);
the 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 prepares 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;
regulatory
significant
and
oversight, which can lead to approval
and cessation of new and existing
products; and
activity
-
technology advancements by the Group
116
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
forecasts
current
incorporated into the models;
of
comparing the relevant cash flow forecasts
to the board approved budgets and FY20-
FY21 business plans;
involving our valuation specialists to assess
the discount rates against comparable
market
information and the economic
assumptions relating to cost of debt and
cost of equity; and
Independent auditor’s report continuedNufarm Limited Annual Report 2018
and competitors, which can lead to
shifts in market demand for products.
-
Given the unique, non-homogenous, nature of
these factors, specific auditor attention is applied
to each element, 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 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.
in early stages of development,
Products
compared to 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
them. We focused on the authority and
knowledge of the sources of judgements to the
valuation, common market practices, and
consistency of judgements.
In addition to the above, the Group recorded an
impairment charge of $70.6m against goodwill,
intangible assets and property, plant and
equipment in the ANZ Crop Protection CGU. The
results of this CGU were below expectations,
increasing the sensitivity of the model to small
changes in forecast cash flows. This further
increased our audit effort in this key audit area.
using our industry knowledge, information
published by regulatory and other bodies,
and through inquiries with the Group, to
assess the 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.
the
evaluating the Group’s sensitivity analysis in
respect of the key assumptions in the models,
including
identification of areas of
estimation uncertainty and reasonably possible
changes in key assumptions. We assessed the
related disclosures against accounting standard
requirements;
comparing carrying values of CGUs to available
market data, such as implied earnings multiples
of comparable entities;
assessing the Group’s valuation of the ANZ
Crop Protection CGU and products
in
development phase by additionally:
-
-
assessing the competency, scope of work
and objectivity of experts engaged by the
Group; and
involving our valuation specialists to assess
the valuation methodology against industry
practice and the requirements of the
accounting standards.
Recalculated the impairment charge against the
recorded amount disclosed.
Recoverability of deferred tax assets in relation to prior period tax losses ($119.3m)
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:
Our procedures included:
testing key controls over the taxable profit
forecasts underpinning the tax loss utilisation
117
Nufarm Limited Annual Report 2018
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
involved. Further details on the significant
and
forward-looking
implications for the audit are contained in the
recoverability
assets,
including property, plant and equipment and
intangible assets key audit matter. Additional
auditor attention
the
is
reconciliation of forecast cash flows to
taxable profits.
focused on
assumptions
non-current
of
models, including Board review and approval of
key assumptions and business unit budgets
which form the basis of these 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 profit concepts.
assessing the Group’s tax
loss utilisation
models and key assumptions, by significant
jurisdiction, by:
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.
The Group recorded a write-off of carry-forward
Australian tax losses of $20.9m. As noted above,
the results of the Australian region were below
expectations, which impacted forward-looking
earnings assumptions. This further increased our
audit effort in this key audit area.
-
-
-
-
-
comparing taxable profit to historical trends
and performance to inform our evaluation
of the current taxable profit forecasts;
comparing 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
for
consistency with local practice, regulatory
parameters and legislation.
allowances
utilisation
Recalculated
the amount of previously
recognised tax losses written off against the
recorded amount disclosed.
Recoverability of trade receivables ($1,207.3m)
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
118
Independent auditor’s report continuedNufarm Limited Annual Report 2018
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
locations. Specifically, certain geographies have
extended credit terms coupled with detailed
security arrangements attached to these terms
which
risk
result
characteristics.
differing
credit
in
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.
Our procedures included:
Testing key controls within the credit control
and approval process;
Assessing, on a sample basis, the recoverability
of trade receivables by comparing;
-
the Group’s views of recoverability of the
amounts outstanding to historical patterns
of receipts; and
assessing
or
insurance and cash received subsequent to
year end in relation to these receivables.
guarantees
collateral
-
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.
Acquisition accounting
Refer to the following note to the financial report: Note 14 Acquisitions of businesses and acquisition
of non-controlling interests.
The key audit matter
How the matter was addressed in our audit
During the year the Group completed the
acquisition of a portfolio of crop protection
products (‘Century Acquisition’) and a portfolio of
herbicide products (‘FMC Acquisition’) registered
in the European markets.
This was a key audit matter due to:
the size of the acquisitions
(purchase
consideration of $771.6m) having a pervasive
impact on the financial statements;
complexity of the Purchase Agreements and
other associated agreements. We focused
on the consideration paid and transaction
costs incurred and assessed them in line
with accounting standards;
the extent of judgement and complexity
involved in assessing the acquired portfolio
as a business or group of assets
in
accordance with accounting standards; and
judgement
in
and
the
establishing the fair value of the assets and
complexity
Our procedures included:
the
transaction documents
reading
to
understand the structure and key terms and
conditions of the acquisitions;
evaluating the accounting treatment of the
acquisitions,
future
business expenses against the accounting
standards criteria;
transaction costs and
evaluating the substance of the acquisitions,
using the terms and conditions of the Purchase
Agreements, against the criteria for business
combinations in the accounting standards;
evaluating the methodology used to fair value
assets and liabilities acquired. This included
expertise
consideration
and
of
independence of
the valuation specialist
engaged by
the Group, and comparing
methodologies with accepted market valuation
practices. Working with our valuation specialist
we challenged these assumptions via:
the
119
Nufarm Limited Annual Report 2018
liabilities acquired. The Group engaged an
independent expert
the
identification and measurement of intangible
assets as part of the purchase price
accounting process.
to advise on
-
-
the
comparing
independent
documentation; and
inputs used by
to
the
underlying
expert
assessing the useful
identifiable assets.
life allocated to
Assessing
the adequacy of
the Group’s
disclosure in respect of the acquisitions in
accordance with 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 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.
120
Independent auditor’s report continuedNufarm Limited Annual Report 2018
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 the 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/ar1.pdf. This
description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Nufarm Limited for the year ended 31 July
2018, complies with Section 300A of the
Corporations Act 2001.
KPMG
Gordon Sangster
Partner
Melbourne
26 September 2018
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
2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
121
Nufarm Limited Annual Report 2018
Shareholder and statutory information
Details of shareholders, shareholdings and top 20 shareholders
Listed securities – 26 September 2018
Fully paid ordinary shares
Number of
holders
Number of
securities
9,810 327,704,975
Twenty largest shareholders
JP Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Sumitomo Chemical Company Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
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