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Nufarm Limited Annual Report 2015 ANNUAL REPORT 2015 Building a better Nufarm The company is making changes and improvements that will help Nufarm become a better, more successful business. While we have continued to grow in recent years, we must ensure that we are generating the level of profitability that we need to fund future growth opportunities and reward our shareholders with a suitable return on their investment. We are lowering our cost base and putting systems and processes in place that help us become more efficient and more competitive. And we’ve set some ambitious targets to achieve over the next three years, with the aim of generating significant cost savings and a return on funds employed (ROFE) of 16 per cent by the end of our 2018 financial year. Nufarm has a strong global distribution platform; a broad product portfolio; a respected brand; and talented, committed employees who will continue to contribute to the success of the company. It’s a challenging, but exciting time to be part of a business where things are changing for the better. CONTENTS 01 About Nufarm 02 Key events 03 Facts in brief 04 Managing director’s review ER AND M 10 Business review M AR TO K S E U T 14 Sustainability C We understand our 16 Board of directors customers and markets. V E Our people, systems and A 18 Executive management R processes make us easy L U to deal with. U 20 Information on the company T L E 22 Corporate governance S U 36 Financial report C WE BUILD 37 Directors’ report VALUE FOR CUSTOMERS 57 Lead auditor’s independence declaration We safely AND NUFARM manufacture high We create unique E P quality products 58 Income statement C O value propositions and we deliver N R for our customers 59 Statement of comprehensive income those products in E T across our range L F full and on time O of high quality L 60 Balance sheet at the lowest E L products. I possible cost. C 61 Statement of cash flows O X D E E L 62 Statement of changes in equity VE NA LOPMENT OPERATIO 64 Notes to the financial statements 122 Directors’ declaration PEOPLE 123 Independent auditor’s report 125 Shareholder and statutory information OUR VALUES 129 Directory RESPECT, AGILITY, RESPONSIBILITY, EMPOWERMENT NUFARM LIMITED ABN 37 091 323 312 ABOUT NUFARM Nufarm is an established global agricultural inputs company, competing worldwide in crop protection and seed technologies. We are seen around the world as a supplier of quality products, supported by high standards of service and strong customer relationships. Our mission is to grow a better tomorrow through the products and services we provide that support the success of our distributors and growers. This mission also reflects our commitment to the communities in which we operate, the ambition we have for our people and our collective approach to success. Global Regional Crop protection Seeds Sales headquarters headquarters production production countries NUFARM LIMITED ANNUAL REPORT 2015 | 01 KEY EVENTS • Core crop protection business generates revenue growth and margin expansion • Strong earnings recovery in Australia and the United States • Performance improvement program delivers early benefits • Continued positive progress on working capital efficiencies 02 | NUFARM LIMITED ANNUAL REPORT 2015 FACTS IN BRIEF 12 months ended 12 months ended 31 July 2015 31 July 2014 $000 $000 Trading results Profit attributable to shareholders 43,220 37,707 Abnormal (gain)/loss 73,839 48,704 Underlying net profit after tax 117,059 86,411 Sales revenue 2,737,163 2,622,704 Total equity 1,636,795 1,608,700 Total assets 3,574,188 3,171,446 Ratios Earnings per ordinary share (cents) 11.7 9.6 Earnings per ordinary share excluding abnormals (cents) 39.6 28.1 Gearing ratio (%) 25.0 24.2 Net tangible assets per ordinary share ($) 2.58 2.84 Distribution to shareholders Annual dividend per ordinary share (cents) 10.0 8.0 People Staff employed 3,349 3,445 The financial information contained within our financial statements has been prepared in accordance with IFRS. Refer to page 7 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 2014 unless otherwise stated. Non-IFRS measures have not been subject to audit or review. NUFARM LIMITED ANNUAL REPORT 2015 | 03 MANAGING DIRECTOR’S REVIEW The 2015 full year results reflect both the strength of our core crop protection business and its growth potential and the early benefits of changes we are making to the business that will help drive stronger earnings and stronger returns. The company generated a statutory Earnings per share were 11.7 cents profit after tax of $43.2 million for (2014: 9.6 cents per share). Excluding the 12 months to 31 July 2015. This material items, earnings per share were included $73.8 million in one-off costs 39.6 cents (2014: 28.1 cents). associated with restructuring initiatives and asset rationalisation and compares Despite challenging market conditions to a statutory profit after tax of in a number of regions, the group $37.7 million in the previous generated a higher gross profit margin financial year. of 28 per cent, which was a material improvement on the prior year Greg Hunt Group revenues increased by (26.7 per cent) and reflected a strong Managing director and four per cent to $2.74 billion (2014: focus on higher margin products, cost chief executive officer $2.62 billion), while underlying earnings savings and restructuring initiatives, before interest and tax (EBIT) increased and disciplined selling policies. by 18 per cent to $236.9 million (2014: $200.6 million). Average net working capital to sales was 41.9 per cent, a significant Underlying net profit after tax was reduction on the prior 12-month $117.1 million, up 35 per cent on period (47.7 per cent) and represented the $86.4 million reported in the very positive progress towards the previous year. company’s target of 40 per cent by the end of financial year 2016. 04 | NUFARM LIMITED ANNUAL REPORT 2015 MANAGING DIRECTOR’S REVIEW continued Average net debt was $865 million, Directors have determined that the issue The majority of these costs related to down on the $913 million average price will be calculated on the volume the European manufacturing footprint debt in 2014. Net debt at balance weighted average of the company’s rationalisation, which involves the date was slightly up on the prior year ordinary shares on the ASX over a closure of the production facility in ($547 million versus $513 million), period of 10 consecutive trading days Botlek (The Netherlands). Other but on a constant currency basis fell commencing after the record date and costs related to the rationalisation by 18 per cent to $420 million. concluding prior to the date of allotment of underperforming assets and product of ordinary shares under the plan. The intangibles, and various redundancy Final dividend last election date for shareholders who and consulting costs. are not yet participants in the DRP is Directors declared an unfranked 19 October 2015. final dividend of six cents per share, Interest/tax/cash flow resulting in a full year dividend of While average net debt was lower 10 cents. This represents a 25 per cent Material items than in the prior year, higher base increase on the full year dividend of The company has initiated a rates in Brazil and increased interest eight cents per share (partially franked) restructuring program aimed costs in Argentina resulted in net paid in the previous year. at lowering the fixed cost base external interest costs3 of $67.7 million and permanently improving the compared to $64.3 million in the The final dividend will be paid on performance of the business. As part 2014 year. 13 November 2015 to the holders of of that program, under-utilised assets all fully paid shares in the company as are being rationalised. This program Total net financing costs were at the close of business on 16 October resulted in one-off, after-tax costs $75.2 million, compared to $88.0 million 2015. The final dividend will be of $73.8 million in the 2015 financial in the prior year. Foreign exchange 100 per cent conduit foreign income. year. On a pre-tax basis, the cash losses were $0.3 million, well down component of material items will on the $12.6 million loss recorded The dividend reinvestment plan be $43 million, with the balance of in the 2014 year. (DRP) will be made available to $44 million relating to non-cash items. shareholders for the final dividend. Profit/loss attributable to shareholders 81.0 72.6 43.2 37.7 (49.8) $ million 1 5 3 1 1 1 0 2 20 20 2012 2014 NUFARM LIMITED ANNUAL REPORT 2015 | 05 MANAGING DIRECTOR’S REVIEW continued The underlying effective tax rate expected to deliver $16 million progressively over the next two was 27.7 per cent. This compared in annualised savings by the 2017 years. Investments will also be made to 23.5 per cent in the prior year, financial year. to support improved performance which included a number of one-off in supply chain management, tax impacts. The performance improvement procurement, marketing capabilities program covers a broad range and other areas. The business generated strong net of initiatives across all areas of operating cash inflows of $228.5 million. the business. These include: While the majority of earnings benefits associated with the program will accrue • the restructuring and rationalisation in the 2017 and 2018 financial years, Balance sheet management of the company’s manufacturing early successes have resulted in footprint, which will result in a Net debt at year end was $547 million $15 million in benefit at an EBIT level lower fixed cost base and improved versus $513 million in the prior year.