Home' Nufarm Annual Report : Nufarm Half Year Report 2016 Contents 03
NUFARM LIMITED HALF YEAR REPORT 2016
REPORT TO SHAREHOLDERS CONTINUED
SIX MONTHS ENDED 31 JANUARY 2016
was also completed. In light of wider
industry practice and asset specific
factors, the company reassessed
the useful life of all product related
intangible assets to be no longer than
30 years. This accounting estimate
change will result in approximately
$7 million of higher amortisation
costs in financial year 2016.
The manufacturing footprint
rationalisation involves the closure of
the Calgary plant in Canada and costs
related to the implementation of the
manufacturing efficiencies initiatives.
Other costs are related to various
redundancy and consulting costs.
The streamlining of the
manufacturing and supply chain
operations will enable the company
to take advantage of global scale,
remove inefficiencies and improve
performance, with particular focus
on better serving Nufarm’s customers.
The material items also includes
the impact of the Argentina peso
devaluation that occurred in
December 2015 ($3.5 million
after-tax). Although the impact
is expected to be minimal at the
profit before tax level by the end
of the financial year, the exchange
loss resulting from the devaluation
exceeds the gross margin gains
at the half year.
Net external interest expense was
$36.8 million, which is $6.7 million
higher than the previous period.
The higher interest expense is
primarily driven by Brazil, and
is caused by higher base rates
and more real denominated debt.
Total net financing costs were
$72.5 million, compared to $25.6 million
in the prior year. Foreign exchange
losses were $32.5 million, compared
to $7.9 million of exchange gains
recorded in the half year. The one-off
devaluation of the Argentina peso,
that occurred in December 2015,
accounts for $15.4 million of the
The underlying exchange loss is
$17.1 million, and mainly relates
to the volatility of the Brazilian real
in the period, and the high cost
of hedging the resulting exposure
between the real and the United
The underlying effective tax rate was
16.4 per cent for the period, reflecting
the mix of profits in the first half. This
compares to 30.1 per cent in the prior
period. The company expects the full
year tax rate to be close to 30 per cent.
The business recorded a net
operating cash outflow of $247 million
in the first six months of the year.
This compares to a cash outflow of
$213 million in the previous period.
The higher cash outflow was mainly
attributable to the cash component
of the material items, that increased
$31 million over the previous year.
While the second half is expected to
see further reductions in the average
net working capital to sales, growth
in the business may result in the
actual net working capital dollars
at 31 July 2016 being higher than at
the same time last year. Consequently,
operating cash flow may not be
as strong as in the prior year.
We have seen good local currency
EBIT growth across all of our different
business segments, and a strong
improvement in gross profit margin,
which is a key indicator that we are
seeing some of the benefits of
changes we are making in the
Despite the tougher market
conditions in Latin America, we
have increased our market share
while maintaining a strong focus
on risk management.
The first half period encompasses the
key selling season in South America
and the summer cropping season in
Australia. The larger cereal growing
season in Australia and key seasons
and demand periods in Nufarm’s
major northern hemisphere markets
occur in the second half of the
South America’s largest market,
Brazil, experienced a late start
to the season but average climatic
conditions prevailed and there has
been little weather-related impact
on plantings and yields.
Nufarm sales in Brazil grew
22 per cent in local currency, however,
lower crop prices and a weaker
currency have contributed to a fall
in the United States dollar value of
crop protection sales in Brazil. The
weaker Brazilian real has also put
pressure on margins.
The Australian business was again
impacted by hot and dry seasonal
conditions in the major summer
cropping regions of Queensland and
northern New South Wales. However,
rainfalls in December and January
generated strong demand over the
last six weeks of the reporting period.
Underlying gross profit margin
was 28.2 per cent of sales, ahead
of the first half of the previous year
(26.7 per cent). Underlying net
expenses were up as a proportion
of sales (22.9 per cent versus
21.8 per cent), but the major impact
was currency. In constant currency
terms, the selling, general and
administrative expense to sales
ratio was 20.3 per cent, which
was in line with the prior year.
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