Home' Nufarm Annual Report : Nufarm Half Year Report 2016 Contents NUFARM LIMITED HALF YEAR REPORT 2016
margin percentage has improved.
Phenoxy herbicide revenues and
margins were up, driven by stronger
sales in North and South America,
and growth in higher value Asian
markets. Dicamba sales are down on
last year due to an over-supply in the
United States market. Flumioxazin
sales are up on the prior year due
to new product launches in the
Group insecticide sales were down
seven per cent to $152 million, and
margins were slightly down. Lower
insect pressure and higher rainfall in
southern Brazil resulted in reduced
demand for these products, while
North American sales increased,
particularly in the turf and specialty
Fungicide sales were up by
13 per cent to $120 million, with
margins in line with the prior year.
The fungicide portfolio performed
strongly in the period, with relatively
low disease pressure in Brazil offset
by a positive autumn season in
Europe, and the continued roll-out
of new mixture products.
Sales of plant growth regulators
(PGRs) and biorational products were
also up, with a focus on products in
crop segments that can deliver higher
margin earnings beginning to pay
dividends. Europe has benefited
from a focus on cereals with PGRs,
and the North American business
with biorationals into the trees,
nuts, vegetables and vines (TNVV)
segment and cotton harvest PGRs.
The company’s seed technologies
segment includes sales of seeds,
managed under our Nuseed business,
and seed treatment chemistry.
Revenues in this segment were
$41.7 million, in line with the
prior period sales of $42.9 million.
The segment generated a loss of
$4.4 million at the underlying EBIT
level, compared to a $5.2 million
loss in the prior first half.
Sales volumes were down slightly
while overall margin was up
approximately two per cent,
largely due to the product mix.
The Australian business saw reduced
sales in sunflowers and sorghum
caused by the dry conditions leading
into December, but this was offset
by higher seed treatment and
sorghum sales in the United States.
Nuseed has completed significant
strategy and organisational changes
to improve efficiency in the areas of
research and development, supply
chain and customer focus. This
included the implementation of
a centre of excellence model for
research and development, the
closure of two seed processing
facilities and the centralisation of
the global portfolio and commercial
functions. As a result, headcount was
reduced and expense savings were
delivered in the period. The changes
enable Nuseed to concentrate
resources in the high-growth,
high-value segments and build a
stronger trait and hybrid pipeline.
The company’s omega-3 canola
program continued to advance
through field trials and is now in
the pre-registration phase of
development. Several significant
patents relating to this program were
published and/or granted during the
year, contributing to a very strong
intellectual property position.
Balance sheet management
Net debt at 31 January 2016 was
$927 million versus $890 million in
the prior year. Currency translation
had a negative impact on the net debt
figure, with the lower Australian dollar
resulting in increased debt associated
with the company’s United States
dollar denominated high yield bond.
On a constant currency basis, net
debt at 31 January was $892 million.
Average net debt was higher than
in the previous six-month period
($857 million versus $793 million).
Management continued to focus on
driving further efficiencies in working
capital management, with average
net working capital to sales down to
40.8 per cent (2015 first half: 43.9 per
cent). The company’s objective is to
bring this ratio down to 40 per cent
by the end of the 2016 financial year.
All components of net working
capital were down in the period, with
payables being the major driver.
Gearing (net debt to net debt plus
equity) was 38.8 per cent (2015 first
half: 34.8 per cent). The leverage
ratio (net debt divided by the
12 month rolling EBITDA) was
2.86x (2015 first half: 3.15x).
Cost savings and performance
The company continues to make
progress on its cost savings and
performance improvement program,
which aims to deliver a net benefit
of $116 million in underlying EBIT
by the end of the 2018 financial year.
The performance improvement
program covers a broad range
of initiatives across all areas of the
business including: manufacturing
footprint and efficiencies;
procurement practices; supply
chain and logistics; selling, general
and administrative expenses; and
The total estimated cost savings
and efficiencies – on a gross basis
are well in excess of the targeted
net benefit announced by the
company. However, to support
sustainable business improvement
and to secure benefits on an ongoing
basis, some of these savings will
be reinvested in new systems and
capabilities such as: new customer
relationship management (CRM)
systems; improved performance
in supply chain management;
specialist procurement resources;
enhanced marketing capabilities;
and other areas.
The company is on track to deliver
at least $20 million in benefits from
the performance improvement
program in the 2016 financial year.
The company has also announced
an objective to achieve a Return
on Funds Employed (ROFE) of
16 per cent by the 2018 financial
year. ROFE at 31 January was
10.7 per cent, up from 8.9 per cent
in the prior comparative period.
REPORT TO SHAREHOLDERS CONTINUED
SIX MONTHS ENDED 31 JANUARY 2016
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