NUFARM LIMITED 2004 ANNUAL REPORT ANNUAL 2004 LIMITED NUFARM NUFARM LIMITED 2004 ANNUAL REPORT DIRECTORY Directors KM Hoggard – Chairman DJ Rathbone – Managing Director GDW Curlewis Dr WB Goodfellow GA Hounsell DG McGauchie AO GW McGregor AO Dr JW Stocker AO RFE Warburton Company secretary R Heath Solicitors Arnold Bloch Leibler & Co 333 Collins Street Melbourne Victoria 3000 Australia Sylvia Miller & Associates Locked Bag 50 Toorak Victoria 3142 Australia Auditors Ernst & Young 120 Collins Street Melbourne Victoria 3000 Australia Trustee for capital note holders New Zealand Permanent Trustees Ltd Share registrar Australia Computershare Investor Services Pty Ltd GPO Box 2975EE Melbourne Victoria 3001 Australia Telephone: 1300 85 05 05 Outside Australia: 61 3 9415 4000 Capital notes registrar New Zealand Computershare Registry Services Limited Private Bag 92119 Auckland NZ 1020 Telephone: 64 9 488 8777 Registered office BLUE BOAT DESIGN BLUE BOAT 103-105 Pipe Road Laverton North Victoria 3026 Australia Telephone: 61 3 9282 1000 DESIGN BY Facsimile: 61 3 9282 1001 CONTENTS NZ branch office 2 Sterling Avenue MANAGING DIRECTOR’S REVIEW 10 STATEMENT OF FINANCIAL PERFORMANCE 40 Manurewa, Auckland NZ HEALTH SAFETY AND ENVIRONMENT 16 STATEMENT OF FINANCIAL POSITION 41 Telephone: 64 9 268 2920 GILLIAN SWEETLAND Facsimile: 64 9 267 8444 CROP PROTECTION 18 STATEMENT OF CASH FLOWS 42 WEBSITE: http://www.nufarm.com INDUSTRIAL CHEMICALS 22 NOTES TO FINANCIAL STATEMENTS 43 Nufarm Limited PRODUCED BY ACN 091 323 312 MANAGEMENT TEAM 26 DIRECTORS’ DECLARATION 86 BOARD OF DIRECTORS 28 INDEPENDENT AUDIT REPORT 87 CORPORATE GOVERNANCE 30 TREND STATEMENT 89 DIRECTORS’ REPORT 34 SHAREHOLDER AND STATUTORY INFORMATION 90 growth + focus + results = value NUFARM LIMITED 2004 ANNUAL REPORT FACTS IN BRIEF 12 months 12 months ended ended 31.7.2004 31.7.2003 Trading results $000 $000 Operating profit after tax 76,202 64,269 Sales revenue 1,576,815 1,458,811 Total equity 560,494 462,321 Total assets 1,431,578 1,357,814 Ratios Earnings per ordinary share (weighted average, excluding non-recurring item) 47.1c 41.3¢ Net debt to equity (gearing ratio) 61.0% 98.0% Net tangible assets per ordinary share $2.17 $2.05 Distribution to shareholders Annual dividend per ordinary share 23.0¢ 20.0¢ People Staff employed 2,613 2,566 FOCUS + GROWTH + RESULTS = VALUE + FOCUS+ Focus = crop protection + experienced management + shareholder returns. Focus on crop protection is a fundamental part of Nufarm’s business strategy. With an experienced, hands-on management team and a proficient board of directors, we are focused on strengthening brands, expanding our product range and delivering maximum returns for shareholders. NUFARM LIMITED 02 ANNUAL REPORT 2004 FOCUS + GROWTH + RESULTS = VALUE NUFARM LIMITED ANNUAL REPORT 2004 05 FOCUS + GROWTH + RESULTS = VALUE + GROWTH+ Growth = geographic expansion + product range + market share + profitability. Growth is integral to Nufarm’s success. In 50 years, we have grown from a small regional operation to one of the world’s leading crop protection companies. Nufarm is growing its market share positions in key products and continuing to expand into new global markets. NUFARM LIMITED ANNUAL REPORT 2004 05 FOCUS + GROWTH + RESULTS = VALUE = RESULTS= Results = reliable outcomes + delivering on guidance + quality earnings growth. Results are what count. Nufarm customers expect and receive reliable results from quality products, with top technical support and flexible supply. And getting it right with our customers means consistently better results for our shareholders. NUFARM LIMITED 06 ANNUAL REPORT 2004 FOCUS + GROWTH + RESULTS = VALUE NUFARM LIMITED ANNUAL REPORT 2004 09 FOCUS + GROWTH + RESULTS = VALUE VALUE Value = strategic relationships + people + efficiencies + strong brands. Value is found in solid investments. Nufarm invests in strategic relationships and alliances, people, product development and manufacturing improvements. We create value by improving business efficiencies that drive stronger margins. At Nufarm we understand the value of a strong brand. NUFARM LIMITED ANNUAL REPORT 2004 09 NUFARM Industrial Crop Crop Industrial Chemicals Protection Protection Chemicals BUSINESS SPLIT �� ��� ��� ��� ��� 2004 1997 Fertilisers ECONOMIC Nufarm uses the economic value added (EVA) concept to measure the financial performance of its various businesses and to evaluate new acquisition opportunities. VALUE EVA is defined as the corporate return on capital less the charge for the cost of that capital ADDED provided by shareholders and lenders. EVA measures the annual progress in adding value to the total capital invested in the business. The EVA in 2004 was $43.4 million, due largely to an improved working capital position. �� ���� ���� ���� ���� ���� ���� KEY • OPERATING PROFIT INCREASES BY 18% EVENTS TO $76.2 MILLION • CROP PROTECTION BUSINESS ACHIEVES GROWTH IN MAJOR MARKETS • BASF BRANDS ACQUISITION MAKES STRONG CONTRIBUTION • MAJOR INVESTMENT PROPOSED FOR BRAZIL • PROPOSED DIVESTMENT OF NON-CORE BUSINESSES MANAGING DIRECTOR’S REVIEW NUFARM LIMITED 10 ANNUAL REPORT 2004 managing focus + growth + results = value director’s review The 2004 financial year saw a very solid The core business also generated performance from the company’s core crop stronger profit growth (up by 20 per cent), protection business. The tax paid profit of compensating for a lower contribution from $76.2 million represents an increase of more Nufarm’s industrial chemicals businesses. than 18 per cent on the previous year’s net The company achieved stronger sales operating profit ($64.3m). and profit results in all of its major global Total group sales were $1.58 billion, up by crop protection markets except France, eight per cent on the 2003 year. where the business is being realigned to achieve additional higher margin branded Earnings per share were 47.1 cents, an product sales. To date, Nufarm has been increase of 14 per cent on last year’s 41.3 predominantly a third party supplier of cents. This was achieved on a higher capital technical product in France. This is a base following the issuing of some 11 million major agricultural inputs market and we new shares associated with a capital raising will achieve better results going forward in January – February 2004. by establishing a stronger branded The company’s balance sheet at year-end products business. shows a further substantial reduction in In 2004, Australasia accounted for 48 per net debt to equity, down by some 38 per cent of total sales, the Americas 28 per cent cent to 61 per cent. This improvement in and Europe 24 per cent. Our larger global the balance sheet builds on the significant presence helps protect the company from gains made in the previous year and the impact of adverse seasonal conditions reflects strong cash flow ($202.7 million), an in any one market. In 2004, seasonal improved working capital position (reduced conditions were average to good in the by $65m), and the repayment of $109 various geographies where Nufarm million in debt. products are sold. Other balance sheet ratios also Higher sales of premium branded strengthened. Return on funds employed products and enhanced operational increased from 13.9 per cent to 15.7 per efficiencies resulted in stronger margins cent at the EBIT level, and interest cover in most markets. increased to 4.4 times from 3.4 times. In January 2004, we announced the Business review acquisition of the global phenoxy herbicides The crop protection business achieved a business from the German company, BASF. 17 per cent increase in sales to $1,441 This acquisition saw Nufarm assume control million and represented 91 per cent of group of a number of leading brands in various sales. This reflects a key strategic objective markets, with particularly strong positions to focus our efforts in the crop protection in Europe. sector and gradually exit those businesses Sales of these brands were approximately where Nufarm does not have core strengths $25 million and generated a net profit of and competitive advantage. some $5 million. Margins achieved on these Crop protection is an industry in which the sales were stronger than those assumed at company has a 50-year history and is clearly the time of the acquisition. the area where Nufarm has the potential to add most value in terms of future growth. We have sought to strengthen our position via a combination of geographic and product portfolio expansion and made excellent progress on both fronts in the 2004 financial year. NUFARM LIMITED ANNUAL REPORT 2004 11 12 12 % $m 15.7% 8.0% + Group sales Group funds employed Return onaverage 2004 15.7 2004 1577 ANNUAL REPORT 2004 REPORT ANNUAL LIMITED NUFARM ANNUAL REPORT 2004 REPORT ANNUAL LIMITED NUFARM 2003 14.0 2003 1458 2002 13.5 2002 1429 2001 13.5 2001 1323 2000 14.6 2000 1213 % $m 4.0% + 61.0% EBITDA* Net debttoequity 2004 61 2004 207.0 2003 98 2003 199.8 2002 152 2002 182.2 2001 146 2001 164.1 2000 116 2000 162.9 * Earnings before interest, tax, depreciation and amortisation $m 18.0% + 47.1¢ Operating profit Earnings pershare 2004 76.2 2003 64.3 2002 56.8 2001 51.1 2000 51.9 managing focus + growth + results = value director’s review The considerable effort This acquisition also contributed to an and – despite a very competitive pricing improvement in the company’s methyls environment – the company was able to we have maintained in business, which grew in both volume and strengthen margins across the business. price and incorporated a higher proportion A more detailed overview on the business communicating of branded product sales versus lower performance is included on pages 18 to 23 margin third party technical sales. While Nufarm’s performance in this report. and prospects to the further initiatives are required to achieve increased and sustainable profitability from Non-operating items broader investment the methyls business, the 2004 result marks The net impact of various restructuring market undoubtedly a welcome turn-around in its performance.