Nufarm : 2016 Full Year Results

21 September, 2016

Nufarm Limited ACN 091 323 312

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 announcement. All references to the prior period are to the year ended 31 July 2015 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 2016 Nufarm Limited Financial Report for the independent auditor's report to the members of Nufarm Limited.

Nufarm Limited today announced a statutory profit after tax of $27.5 million for the 12 months to 31 July, 2016. This included $81.4 million in one-off costs associated with restructuring initiatives and asset rationalisation, and compares to a statutory profit after tax of $43.2 million in the previous financial year.

Group revenues increased by 2.0% to $2.79 billion (2015: $2.74 billion), while underlying earnings before interest and tax (EBIT) increased by 21% to $286.7 million (2015: $236.9 million).

Underlying net profit after tax was $108.9 million, down 7.0% on the $117.1 million reported in the prior period. The underlying net profit was impacted by a higher cost of doing business in Latin America, where strong growth and structural market changes resulted in higher interest expense and significantly higher foreign exchange losses.

Earnings per share (excluding material items) were 36.7 cents (2015: 39.6 cents).

Despite challenging market conditions which negatively impacted the global crop protection sector, the group generated a higher underlying gross profit margin of 29.6%, which was a significant improvement on the prior year (28.0%), and reflected a strong focus on higher margin product sales and the benefit of cost savings and restructuring initiatives.

The company made excellent progress on its cost savings and performance improvement program, delivering a net benefit of $60 million in underlying EBIT in the 2016 financial year. This brings the cumulative benefits of the program to $75 million against the target of $116 million in benefits to be achieved by the end of financial year 2018.

Average net working capital to sales was 39.9%, a significant reduction on the prior period (41.9%), and below the company's 2016 financial year target of 40%.

Net debt at 31 July was $625 million, up on the $547 million in 2015, however both year end and average leverage were lower.

Directors declared an unfranked final dividend of 7 cents per share, resulting in a full year dividend of 11 cents. This represents a 1 cent per share increase on the full year dividend of 10 cents per share (unfranked) paid in the previous year.

The final dividend will be paid on 11 November, 2016 to the holders of all fully paid shares in the company as at the close of business on 14 October, 2016. The final dividend will be 100% 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 all shares sold on the ASX over the 10 day period commencing on 17 October, 2016. The last election date for shareholders who are not yet participants in the DRP is 17 October, 2016.

The company has implemented a performance improvement program to reduce the fixed cost base, lift the profitability of the business and enhance competitiveness. During the year, the company completed manufacturing footprint and product portfolio reviews associated with that program.

The resulting changes to the business have resulted in one-off, pre-tax costs of $126.2 million in the period. Offsetting these costs is the profit on the reclassification of the Excel Crop Care equity investment to an available-for-sale financial asset, which resulted in a gain of $27.1 million.

In the current year, the net cash outflow associated with material items was $52 million. In contrast, the 2017 financial year cash flow impact from material items, already booked in financial year 2016, is expected to be a net cash outflow of approximately $15 million. This is more than offset by an expected inflow from the potential sale of the Excel Crop Care investment and the ex-manufacturing properties, which should total near $50 million.

The majority of the performance improvement costs related to the product portfolio review. Nufarm is developing a product portfolio that better meets the needs of customers in select crops and key markets, where stronger margins can be generated. The company also made the decision during the year to assign a useful life of no longer than 30 years to all product related intangible assets. This accounting estimate change resulted in $6 million higher amortisation costs in financial year 2016. As the change was implemented as at 31 January, 2016, the full year impact in financial year 2017 will be $12 million.

The manufacturing footprint rationalisation costs in 2016 involve 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.

Excel Crop Care is an Indian crop protection business, in which Nufarm has a 14.69% interest. During June 2016, Sumitomo Chemical Company Limited acquired a 45% stake in Excel Crop Care and declared an open market offer for an additional 30% of the company's shares. At this date, Nufarm concluded that its ability to exert significant influence was relinquished. Subsequently, the company ceased to account for its investment in Excel Crop Care as an equity accounted investment, and reclassified its investment as 'available-for-sale'. This reclassification resulted in a one-off gain of

$27.1 million to account for the difference between the carrying value of the equity investment and the fair value.

Sumitomo's open market offer for an additional 30% of Excel Crop Care closed on 9 September. Nufarm has registered to participate in the open market offer as proposed by Sumitomo. Nufarm is awaiting confirmation from the Bombay Stock Exchange regarding the sale of its interest in Excel Crop Care, and if successful, the expected proceeds would be approximately $40 million.

The material items also include the net impact of the Argentina Peso devaluation that occurred in December 2015. The impact is break even at year end, with the exchange loss resulting from the devaluation ($15.450 million) offset by an increased gross margin from the inventory held at the time of the devaluation ($15.486 million).

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Total net financing costs were $153.4 million, compared to $75.2 million in the prior year.

Net external interest expense was $96.4 million, which is $21.5 million higher than the previous period. The higher interest expense is primarily driven by Brazil, and is caused by higher base rates, more Brazilian Real denominated debt and the increased funding requirements of the business.

Foreign exchange losses were $57.0 million, compared to $0.3 million of exchange losses recorded in the 2015 year. The one-off devaluation of the Argentina Peso, which occurred in December 2015, accounts for $15.5 million of the exchange losses.

The underlying foreign exchange loss is $41.5 million, and mainly relates to the volatility of the Brazilian Real and the Argentinean Peso in the period, and the high cost of hedging the resulting exposure between the those currencies and the US dollar. The exchange loss was exacerbated by the Brazilian market's structural switch to Real invoicing in the period.

The underlying effective tax rate was 26.8%, which compared to 27.7% in the prior period. The business generated underlying net operating cash inflows of $189.1 million.