Home' Nufarm Annual Report : Nufarm Half Year Report 2016 Contents 07
NUFARM LIMITED HALF YEAR REPORT 2016
Nufarm’s sales and earnings remain
heavily weighted to the second six
months of the financial year, with the
major cropping seasons in Australia,
North America and Europe occurring
in that period. The majority of sales
relating to the seed technologies
segment also take place in the
The company’s performance in
Australia will continue to improve,
with restructuring initiatives resulting
in a lower and more flexible cost
base and a continued focus on
margin expansion. Australian climatic
conditions in the February to March
period have been mixed, but the
expectation is for above average
rainfall in autumn. With some
improvement in demand, the
business is expected to generate a
better second half result than in 2015.
Despite low soft commodity prices
and tighter farm economics in North
America, the company expects to
generate growth in the United States,
with our business benefiting from
a more focused portfolio and new
product introductions. We have
restructured our sales team to better
align with customers and are working
with our channel partners to make
it easy to do business with Nufarm,
resulting in good support from
distribution. The North American
business is well positioned to
capitalise on more positive
The second half represents the
smaller season in Brazil. While the
Brazilian market will continue to
be tough, a larger safrinha (second
season) crop is expected. In local
currency, we would expect to
outperform the second half of last
year. Much focus in the second
half will be on risk management,
with close attention paid to cash
collections, foreign exchange
risk and channel inventories.
Given normal seasonal conditions,
the European business is expected
to have a better second half than
last year. The growth will come from
continued focus on higher margin
products and the benefits of the
manufacturing efficiency programs.
Seed technology earnings growth
in the second half will be challenging
in a competitive market. Whilst
new seed treatment products and
continued expansion of the European
sunflower business will be positive,
there are challenging market
conditions in sorghum and global
confection sunflower. We remain
cautious on the Australian canola
market growth at this early stage
of the season. The second half is
expected to see continued positive
progress on the canola omega-3
program, with the objective of
moving into a regulatory approval
process by the calendar year end.
With the continued volatility of the
Latin American currencies through
February and even after the benefits
of hedging, Nufarm has incurred a
further $5 million in foreign exchange
losses in the month of February.
Underlying net profit after tax will
be impacted by higher net financing
expenses in the second half.
The combination of cost savings
benefits, margin expansion and
revenue growth in a number of the
company’s businesses is expected
to result in solid EBIT growth over
the prior year. This assumes relatively
normal seasonal conditions in our
key geographic markets.
A strong focus will be maintained
on balance sheet objectives, in
particular working capital efficiencies,
with the aim of reducing average
net working capital to sales to
40 per cent by July 2016.
Chief executive officer
23 March 2016
REPORT TO SHAREHOLDERS CONTINUED
SIX MONTHS ENDED 31 JANUARY 2016
IFRS and Non-IFRS financial information
Nufarm results are reported under International Financial Reporting Standards (IFRS) including underlying
EBIT and underlying EBITDA which are used to measure segment performance. This release also includes
certain non-IFRS measures including underlying net profit after tax and Gross profit margin. These
measures are used internally by management to assess the performance of our business, make decisions
on the allocation of our resources and assess operational management. Non-IFRS measures have not
been subject to audit or review.
The following notes explain the terms used throughout this profit release:
1. Underlying EBIT is earnings before net finance costs, taxation and material items. Underlying EBITDA
is underlying EBIT before depreciation and amortisation of $41.063 million for the half year ended
31 January 2016 and $39.016 million for the half year ended 31 January 2015. 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.
Six months ended 31 January
Material items impacting operating profit
3. Non-IFRS measures are defined as follows:
• 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 and lease
expense – finance charges as described in note 17 to the 31 January 2016 Nufarm Limited financial report.
• ROFE – defined as underlying EBIT divided by the average of opening and closing funds employed
(total equity plus net debt).
• Net debt – total debt less cash and cash equivalents.
• Average net debt – net debt measured at each month end as an average.
• Net working capital – current trade and other receivables and inventories less current trade and other payables.
• Average net working capital – net working capital measured at each month end as an average.
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