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Aker Clean HydrogenALUMINA LIMITED ANNUAL REPORT 2018
OUR EXPOSURE
TO THE ALUMINA
MARKET AND PRICE
IS UNIQUE AND MAKES
ALUMINA LIMITED
ONE OF A KIND.
2
Alumina Limited is one of a kind.
Its 40 per cent joint-venture
interest in AWAC (Alcoa World
Alumina and Chemicals) provides
exposure to the most profitable
part of the aluminium supply
chain. The Company is uniquely
positioned in the world
alumina market.
CONTENTS
05
06
08
14
About Alumina Limited
At a Glance
Chairman and CEO Report
Sustainability
16
22
38
Directors’ Report
Map of Operations
Letter by Chair of
Compensation Committee
40
Remuneration Report
64
93
94
Financial Report
Directors’ Declaration
Independent Auditor’s Report
100
Financial History
3
ALUMINA LIMITED ANNUAL REPORT 2018 Alumina Limited provides a
unique opportunity for a pure
investment in AWAC, one of
the world’s largest bauxite
and alumina producers.
4
The Annual Report is presented in US dollars,
unless otherwise specified.
ABOUT
ALUMINA LIMITED
Alumina Limited is a leading Australian
company listed on the Australian Securities
Exchange (ASX).
Alumina Limited is the 40 per cent partner in the AWAC joint
venture whose assets comprise globally leading bauxite mines
and alumina refineries in Australia, Brazil, Spain, USA, Saudi
Arabia and Guinea. AWAC also has a 55 per cent interest in the
Portland aluminium smelter in Victoria, Australia.
AWAC’s joint venture partner and operator is Alcoa
Corporation. The AWAC joint venture was formed in 1994
and our relationship with Alcoa dates back to the early
1960s when Western Mining Corporation (now called
Alumina Limited) began to explore bauxite deposits and
other resources in the Darling Ranges of Western Australia.
Alcoa Inc. was invited to join the project to provide
technology, aluminium expertise and finance.
Over the following years the venture grew to include
refineries and smelter interests as the partners sought to
take opportunities to expand the business. By 1990, WMC
Limited’s interests in Alcoa of Australia had grown through
acquiring the interests of other minority participants, other
than Alcoa.
WMC Limited and Alcoa Inc. combined their respective
bauxite, alumina and alumina-based chemicals businesses
and investments and some selected smelting operations
to create Alcoa World Alumina and Chemicals (AWAC)
in January 1995.
ALUMINA LIMITED ANNUAL REPORT 2018
5
Alumina Limited has
the greatest exposure
in the industry to global
third party pricing.
AT A GLANCE
In 2018 Alumina Limited posted a record profit after tax
of $635 million compared to a net profit of $340 million
in 2017, an increase of 87 per cent and also paid the largest
annual dividend to shareholders since inception of the
Company. The Company made a net profit of $690 million
(2017: $363 million) excluding significant items.
While a number of one-off factors contributed to this
remarkable result, the year as a whole demonstrated the
impact on global alumina markets of Alumina Price Index
(API) structures that reflect and price the commodity
on its fundamentals.
In 2018, Alumina Limited’s 40 per cent interest in AWAC
benefited from Western world alumina market supply
disruptions that created a shortage in the market.
Average realised prices for alumina increased 33 per cent
on 2017 prices. In 2018, AWAC sold about 92 per cent
of its smelter-grade alumina on an alumina index or
spot pricing basis.
AWAC’s globally leading tier one assets are almost entirely
focused on the upstream sector of the aluminium supply
chain, which has been the most profitable part within the
industry. Alumina Limited has the greatest exposure in
the industry to third party alumina pricing, with limited
exposure to aluminium smelting.
Alumina Limited represents a unique opportunity for a pure
investment in AWAC, one of the world’s largest bauxite
and alumina producers.
ALUMINA LIMITED RESULTS
$635.4m
22.7
cents
per share
NET PROFIT AFTER TAX
$635.4 MILLION
2018 DIVIDENDS OF
22.7 CENTS PER SHARE
(2017: NET PROFIT AFTER TAX: $339.8 MILLION)
(2017: DIVIDEND: 13.5 CENTS PER SHARE)
$678.2m
NET CASH RECEIPTS OF
$678.2 MILLION
(2017: $263.1 MILLION)
$(95.8)m
NET (CASH)/DEBT
$(95.8) MILLION
(2017: $58.4 MILLION)
6
AWAC - A GLOBAL BUSINESS
In 2018 AWAC recorded a net profit after tax of $1,640
million compared to a net profit after tax of $901 million in
2017. AWAC’s results were influenced by an average realised
alumina price for the year of $447 per tonne, an increase
of $112 from last year. Growth in profit was underpinned
by higher alumina prices due to:
• increasing alumina demand,
• alumina supply constraints following the partial curtailment
of Alunorte, the world’s largest alumina refinery and
sanction-related supply disruptions at Rusal,
• Chinese structural reforms and
• limited alumina capacity growth outside China.
AWAC’s EBITDA, excluding significant items rose to $2,797
compared to $1,685 million in 2017. Cash from operations,
spurred by the higher alumina sales price, increased
to $1,970 million up from $1,102 million. In 2018, with
approximately 92 per cent of shipments priced on a spot or
an index basis, AWAC was well positioned to capitalise on the
steep upward price movement.
Alumina Limited is the 40 per cent partner in the AWAC
joint venture whose assets comprise, globally leading
bauxite mines and alumina refineries in Australia, Brazil and
other countries. AWAC also has a 55 per cent interest in the
Portland aluminium smelter in Victoria, Australia.
AWAC’s 60 per cent managing partner is Alcoa Corporation.
The AWAC joint venture was formed in 1994 and our
relationship with Alcoa dates back to 1961.
AWAC RESULTS (USGAAP)
$1,640.2m
$447/tonne
AWAC NET PROFIT AFTER TAX
$1,640.2 MILLION
(2017 NET PROFIT AFTER TAX: $901.3 MILLION)
REALISED ALUMINA PRICE OF
$447 PER TONNE
(2017: $335 PER TONNE)
$1,969.6m
AWAC CASH FROM OPERATIONS
$1,969.6 MILLION
(2017: $1,102.4 MILLION)
$2,796.8m
AWAC EBITDA EXCLUDING SIGNIFICANT ITEMS
$2,796.8 MILLION
(2017: $1,685.3 MILLION)
ALUMINA LIMITED ANNUAL REPORT 2018
7
CHAIRMAN AND
CEO REPORT
After excellent results in 2017, it is pleasing to be able
to report a further outstanding year for shareholders.
2018 has seen the Company report record profits
of $635.4 million and distribute record fully franked
dividends to shareholders of 22.7 cents.
Of all the global aluminium industry participants, Alumina
Limited is uniquely exposed to the currently most profitable
part of the aluminium supply chain - alumina production -
through its 40 per cent interest in the AWAC joint venture.
This year’s impressive result reflects the stand-out benefits
of Alumina’s unique and substantial exposure to the
alumina market – together with the direct benefits of the
scale, low cost of production and quality of AWAC’s tier
one alumina refineries.
To understand the 2018 results, it is helpful to reflect on what
drives the AWAC business and the markets it operates in.
The Lead Up to 2018
In the five years prior to 2017, the Company performance
suffered as AWAC focussed on weathering poor market
conditions. During these difficult years AWAC closed,
sold or restructured its higher cost assets and became
one of the lowest cost producers of alumina globally.
AWAC emerged from these challenging years after the
global financial crisis with an improved asset portfolio
of five refineries, three bauxite mines, the Portland
smelter and investment in three non-operated mines
and one refinery.
8
Our continuing alumina refineries are positioned low on the
cost curve. This cost competitiveness of the Company’s
refining assets places the Company in a strong position
relative to its competitors throughout the commodity cycle.
The Company’s limited exposure to aluminium smelting also
sets it apart from most industry participants.
Alumina Pricing
The most important development in recent years has been
the impact of the higher alumina price.
In 2017, alumina prices started to improve and increased
by 44 per cent compared to 2016 as Chinese Government
pollution reduction and efficiency policies had an impact.
Those policies were of great importance in signalling
a change to the excess capacity within China. These
developments in China continued to be relevant in 2018.
The global fundamentals of the alumina industry have also
been positive in 2017 and 2018. Older and less efficient
capacity in the western world has closed. There has been
limited new green field refinery growth and it has proved
difficult and costly to restore idle capacity.
Alumina Price Index (API) pricing has reflected the
fundamentals of global alumina markets and not metal
markets. In 2018 market dynamics reflected the inherent
characteristics of alumina as a standalone commodity
albeit within an integrated end product.
The chemical characteristics of alumina also dictate that
it deteriorates over time, it cannot be exposed to moisture
nor stored in the open air and there are limited alumina
storage facilities outside China. Thus, when market disruptions
occur in an already tight market, this inability to store alumina
easily can see API prices react in a significant way.
Mr Peter Day
Mr Mike Ferraro
9
ALUMINA LIMITED ANNUAL REPORT 2018 CHAIRMAN AND CEO REPORT
PRODUCTION
AWAC operations produced 39.2 million bone dry tonnes
of bauxite and 12.2 million tonnes of alumina of which 30
per cent was supplied to Alcoa Corporation’s smelters and
70 per cent to third party customers. AWAC is the largest
Western World supplier of alumina to third party smelters.
AWAC’s alumina production of 12.2 million tonnes in 2018,
declined by approximately 300,000 tonnes compared to the
previous year. This reflected an industry wide trend of alumina
production disruptions as producers pushed to meet market
demand. However, there has been a high degree of focus on
addressing the causes of the decline in production.
OUTLOOK
Alumina’s strategy is to invest in worldwide bauxite mining
and alumina refining operations through AWAC. The AWAC
alumina refining assets stand out for the Company and are
the foundation for AWAC generating strong cash flows to
shareholders while allowing investment for the future.
Shareholders will naturally ask what does 2019 and future
years hold for the Company. We continue to have confidence
in the quality of the AWAC assets and the attractiveness
of the alumina and bauxite markets. However, we must
assume that the two major alumina market disruptions in
2018 will not repeat nor continue to the same degree this
year and alumina prices will be lower. Nonetheless, your
Company is well placed to achieve attractive returns as
AWAC remains one of the lowest cost and largest producers
of alumina globally.
There will undoubtedly be new challenges for the Company
in 2019. The US/China trade wars and pressure on global
equity and credit markets are of concern, as are declines
in aluminium prices. We have also seen pressure on alumina
production costs which have risen 18 per cent over
the two years.
There were some major disruptions to the alumina
market in 2018 which caused prices to spike upwards.
The world’s largest alumina refinery, Alunorte in Brazil,
curtailed 50 per cent of its capacity following extreme
rainfall and subsequent environmental issues. Together
with US economic sanctions imposed on Rusal, the world’s
largest non-Chinese aluminium producer, this caused
average monthly alumina prices to be driven upwards in
excess of $500 per tonne in April, May, August, September
and October.
Average API alumina prices for 2018 were $473 per tonne
and represented a 36 per cent increase over 2017.
AWAC sold 92 per cent of its alumina using API in 2018.
These higher prices drove margins for AWAC of $221
per tonne and an AWAC net profit for 2018 of $1,640
million (2017: $901m) on a US GAAP basis. The year
demonstrated that alumina index pricing now effectively
reflects market fundamentals and these flow through to,
and drive the profits and performance, of your Company.
The events of 2017 and especially 2018 contradict the
conventional wisdom which assumes that aluminium supply
chain markets automatically share the same dynamics.
Indeed, the Company’s uniquely high exposure to alumina
markets – without significant participation in smelting and
downstream activities – is proving to be a clear source of
strength and shareholder value. Our focus on, and leverage
to API, and thus global alumina prices, is unmatched globally.
BAUXITE
The bauxite market has been different to that of alumina
in 2018. There has been unprecedented growth
in bauxite production in Guinea, as Chinese refineries
seek supply sources to address a supply shortage of
Chinese domestic bauxite. China’s demand for bauxite
is high and increasing but it is well supplied currently,
substantially from Guinea.
AWAC is a 22.5 per cent participant in the CBG bauxite mine
in Guinea which is nearing completion of a 5 million bone
dry tonne expansion. The Juruti mine in Brazil has undergone
two separate expansions from 2016, which will increase
production capacity to 6.5 million bone dry tonnes per annum.
The Juruti expansions have been made at a very low capital
investment by utilising existing infrastructure.
10
Higher caustic soda prices, logistics and maintenance costs
have been the principal causes. AWAC is well aware of the
need to maintain its low-cost position over the long-term,
and is expecting some cost reductions this year.
AWAC is well placed as a leading alumina producer and
there is limited new Western World alumina capacity
on the horizon.
Industrialisation in the developing world and the benefits
of aluminium as a light metal favour continuing growth in
demand for aluminium and alumina. With the changes that
have occurred to the alumina market structure, we believe it
is now time for AWAC to consider organically growing its best
assets. It has been over 10 years since the last period
of significant growth by AWAC. We would expect to be able
to report next year on the potential for growth prospects that
can add to shareholder value. For 2019, AWAC is expecting
$110 million in growth capital expenditure (largely for alumina)
which indicates a greater focus on growing its business.
The fundamentals for the alumina market remain positive.
CAPITAL MANAGEMENT/SHAREHOLDER RETURNS
The Company’s AWAC interest has provided strong cash
flows in recent years. The exceptional performance of
AWAC in 2018 and its strong balance sheet means our
share of those cash flows are directly passed through to
your Company. Alumina Limited received $678 million in
net cash distributions from AWAC in 2018 (2017: $263m).
This enabled payment of a final dividend of 14.1 cents
per share, bringing the total declared dividends for the
year to 22.7 cents per share. It is pleasing for shareholders
to receive the rewards from the outstanding results of
2018. This is a substantial increase on 13.5 cents per
share for 2017 and has delivered a yield of 11.5 per cent to
shareholders for 2018 based on the share price, immediately
before the final dividend was declared. The dividend yield
to shareholders has averaged 9.3 per cent, excluding the
effect of franking, over the last three years.
Unlike other industry participants, Alumina has been
able to pay most of its free cash flow to shareholders
by way of dividends.
Alumina’s dividend policy is that the Board intends on an
annual basis to distribute cash from operations after debt
servicing, corporate costs and capital commitments have
been met for the AWAC business.
We do not expect to be able to continually maintain
dividends at 2018 levels. With an expected decline from
record alumina prices, 2019 dividends will likely be lower.
The Board will also need to be particularly cognisant
of growth plans and their cash flow requirements when
considering future dividends.
Alumina held net cash of $96 million at year end.
The Company’s low debt levels has enabled cash received
from AWAC to be readily distributed to shareholders.
The Company’s A$125 million corporate bond matures
in late 2019 and we expect it to be replaced with a syndicated
bank facility.
SUSTAINABILITY
The impact of AWAC operations extends beyond economic
and financial outcomes and includes social and
environmental matters relevant to the community.
Strategic goals have been set by AWAC for a variety of
environmental impacts including emissions, energy, water,
land and waste management. The Company has also
recently completed a high-level materiality assessment
of the Company and the AWAC business. That led to
consideration of the linkages between the topics material
to the Company and the UN Sustainability Development
Goals to understand the impact of AWAC’s operations; these
are documented in the sustainability section of this report.
The annual sustainability report due for release later this year
will provide updated disclosure.
11
ALUMINA LIMITED ANNUAL REPORT 2018 CHAIRMAN AND CEO REPORT
GOVERNANCE
BOARD AND MANAGEMENT
The Remuneration Report reviews the Company’s
remuneration strategy, policy and outcomes.
The Company’s 2018 Remuneration Report provides full
details of the CEO’s and Senior Executives’ objectives and
an assessment of performance against those objectives.
In November 2017, John Pizzey announced his decision to
retire as Non-Executive Director and Chairman of Alumina
Limited on 31 March 2018. The Board appointed Peter Day
to succeed Mr Pizzey as Chairman of the Company from
1 April 2018.
The Company reports its governance practices consistent
with the 3rd Edition of the Corporate Governance Principles
and Recommendations of the ASX Corporate Governance
Council. A copy of the 2018 Corporate Governance
Statement is available on the Company website. Alumina’s
compliance with the Corporate Governance Principles and
Recommendations is defined in the Appendix 4G lodged
with the ASX.
John Bevan joined as a Director on 1 January 2018.
John was previously Chief Executive Officer of Alumina
Limited from 2008 to 2013. Mr Bevan brings a valuable
understanding of the markets and the joint venture in which
the Company operates.
12
An improving market structure encourages
us to assess expansions in alumina
and bauxite. Doing this sensibly and
carefully, together with a focus on growing
sustainability, will secure the future of
your Company for the long term.
CONCLUSION
Shareholders have a globally unique and valuable position
in some of the highest quality bauxite and alumina assets
in the aluminium supply chain. The alumina refineries
and bauxite deposits in Western Australia are one of
Australia’s great resource stories over several decades.
The value of those long life, high quality assets and our
unmatched exposure to global alumina markets, with
limited exposure to aluminium smelting, was demonstrated
in our performance again in 2018.
An improving market structure encourages us to assess
expansions in alumina and bauxite. Doing this sensibly and
carefully, together with a focus on growing sustainability,
will secure the future of your Company for the long term.
We are confident your investment in AWAC will continue
to provide sustainable long-term value for shareholders
throughout 2019 and beyond.
The Board thanks the employees of Alumina Limited and
AWAC for their work in 2018.
Mike Ferraro
Chief Executive Officer
W Peter Day
Chairman
ALUMINA LIMITED ANNUAL REPORT 2018
13
Above: Pinjarra refinery residue press filtration plant
prior to commissioning.
SUSTAINABILITY
As a resource-intensive extractives business, sustainability
is critical to how AWAC operates. It is the cornerstone
of the safety and well-being of the workforce, and the
resilience and prosperity of the local communities and
natural environment.
We do not have operational control of the assets in which
we are a joint-venture partner. However, we recognise
the influence we have through our governance
and joint venture agreements. Investors, and society
more broadly, have increasing expectations of AWAC
to understand and manage our sustainability risks and
opportunities, and to transparently communicate these.
Sustainability risks and opportunities in the mining industry
are constantly evolving due to developments in research,
global and regional regulation, technology, knowledge
and understanding of how mining operations impact the
environment and the social well-being of communities.
In 2018 we undertook an assessment of our sustainability
and climate-related risks and opportunities to better inform
our strategy and disclosures. This holistic assessment was
designed to ensure that Alumina’s sustainability reporting
scope, principles, governance and metrics are appropriate
and take into account the role it plays in the AWAC Joint
Venture. This also provides us the opportunity in 2019
to consider further the implications of new and emerging
reporting requirements such as the recommendations
of the Task Force on Climate-related Financial Disclosures
(TCFD), and legislative changes such as the Modern Slavery
Act, as they may apply to AWAC.
14
MATERIALITY
We identified which risks and opportunities are important
to our stakeholders and our business through interviews
with key external stakeholders, and a peer and media review.
The findings were then overlaid with Alcoa’s materiality
assessment outcomes to determine a preliminary list of
material topics. These were validated by Alumina’s senior
management at a workshop which assessed the relative
importance of the material topics to the Company and its
interest in the AWAC business and the impact the Company
has on the economy, the environment, and/or society.
The following topics were determined
to be most material to Alumina:
• Climate change
• Energy and emissions
• Waste (including dam management)
• Safety and health
• Community engagement
and investment
• Business integrity
Topics that had increased in importance since our previous
materiality process included land management and
closure, biodiversity, waste management (including dam
management) process emissions and diversity and inclusion.
This year, we considered the outputs of our materiality
assessment in the context of emerging global trends,
specifically the UN Sustainable Development Goals (SDGs).
The SDGs are a collection of 17 global goals which aim to
address some of the world’s most pressing environmental,
economic and social issues. We wanted to understand
which SDGs were most relevant to our operations and
activities, and identify the potential positive and negative
impact of AWAC’s operations on the relevant SDGs.
The following SDGs were found to be most aligned
to Alumina’s material topics:
GOVERNANCE
• Business integrity
• Supply chains
and human rights
• Government
and industry relations
COMMUNITY
• Community engagement
and investment
• Economic contribution
ENVIRONMENT
• Energy emissions
• Climate change
• Waste
• Land management and closure
• Water
• Process emissions
• Biodiversity
PEOPLE
• Safety and health
• Employee engagement
and agreements
• Diversity and inclusion
CLIMATE CHANGE
Climate change was identified as a material issue for our
business and our stakeholders. Alumina is committed
to providing meaningful and relevant disclosures of
climate-related risks and opportunities for AWAC.
We recognise that due to our interest in AWAC, an energy
and emissions-intensive business, we have a role to play
in seeking to reduce emissions and build resilience to
climate change impacts.
In 2018, a review was commenced to identify climate-
related risks and opportunities for AWAC/Alumina over the
short to long-term. This assessment considered AWAC’s
current energy mix, opportunities for transitioning to less
emissions-intensive energy use, downstream demand
forecasts for aluminium, physical risks to AWAC operations,
regulatory and market risks (including carbon and energy
prices) and standards for disclosure of climate risks.
We will continue to work with Alcoa to assess climate
change risks and opportunities across AWAC.
15
ALUMINA LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT
The Directors present their report on the consolidated
entity consisting of Alumina Limited (the Company)
and the entities it controlled at the end of, or during,
the year ended 31 December 2018 (the Group).
DIRECTORS
Unless otherwise indicated, the following persons
were Directors of the Company during the whole of
the financial year and up to the date of this report:
G J Pizzey (Chairman)
(part year – retired 31 March 2018)
W P Day (appointed Chairman – 1 April 2018)
E R Stein
C Zeng
W P Day
D O’Toole
J Bevan
M P Ferraro (Managing Director and Chief
Executive Officer)
BOARD OF DIRECTORS
The Company’s Directors in office as at 31 December 2018.
MR W PETER DAY
LLB (HONS), MBA, FCA,
FCPA, FAICD
Independent
Non-Executive Director
Mr Day was appointed as
a Director of the Company
on 1 January 2014, and was
appointed Chairman of the
Board on 1 April 2018. He is a member of the Nomination
and Compensation Committees and the Audit and Risk
Management Committee. Mr Day is also currently a
Non-Executive Director of Ansell (appointed August 2007),
Non-Executive Chairman of Australian Unity Office Fund
(appointed September 2015), and a former Director of:
Boart Longyear (February 2014–September 2017),
Federation Centres (October 2009–February 2014),
Orbital Corporation (August 2007–February 2014) and
SAI Global (August 2008–December 2016).
Mr Day brings extensive experience in the resource, finance
and manufacturing sectors, having held a number of senior
positions with Bonlac Foods, Rio Tinto, CRA, Comalco and
the Australian Securities and Investments Commission.
He is a former CFO of Amcor Limited. He also supports
initiatives in disability services and mentoring.
16
MS EMMA R STEIN
BSC (PHYSICS) HONS, MBA,
FAICD, HON FELLOW WSU
Independent
Non-Executive Director
Ms Stein was elected as a
Director of the Company
on 3 February 2011.
Ms Stein is currently a
Non-Executive Director of Cleanaway Waste Management
Limited (formerly known as Transpacific Industries Group
Ltd) (appointed August 2011) and Infigen Energy Limited
(appointed September 2017). She is a former
Non-Executive Director of Programmed Maintenance
Services Ltd (appointed June 2010 and resigned October
2017), Diversified Utilities Energy Trust (appointed June
2004 and resigned May 2017) and Clough Limited
(appointed July 2008 and resigned December 2013).
Formerly the UK Managing Director for French utility
Gaz de France’s energy retailing operations, Ms Stein moved
to Australia in 2003. Before joining Gaz de France, she was
UK Divisional Managing Director for British Fuels.
Ms Stein is Chair of the Compensation Committee (since 1
January 2014), current member and former Chair of the Audit
and Risk Management Committee (Chair from 28 November
2013 to 31 December 2013) and current member and former
Chair of the Nomination Committee (from 22 June 2017 to 31
March 2018). As a senior executive, she gained considerable
international experience in management and leadership,
strategy development and implementation in global industrial,
energy and utilities markets. She has 15 years’ experience as a
listed Non-Executive Director and Board Committee Chair for
capital intensive companies spanning resources, oil and gas
and related sectors.
MR CHEN ZENG
MIF
Non-Executive Director
Mr Zeng was appointed as
a Director of the Company
on 15 March 2013. He is a
member of the Nomination,
Compensation and Audit and
Risk Management Committees.
Mr Zeng is also currently the Vice Chairman and President
of CITIC Pacific Limited, as well as the Chairman and Chief
Executive Officer of CITIC Pacific Mining Management Pty Ltd.
These companies are all wholly-owned subsidiaries
of CITIC Limited (listed on the Hong Kong Stock Exchange).
CITIC Limited is in turn a majority-owned subsidiary of CITIC
Group Corporation, a Chinese state-owned enterprise.
Mr Zeng has previously served as a Director on the Board
of CITIC Group Corporation (2010 to 2011). He is also a
former Director of CITIC Limited. Before joining CITIC
Pacific Mining, Mr Zeng held various senior management
positions within CITIC Group. Mr Zeng was also previously
a Director of Macarthur Coal Limited (2007 to 2011) and
Marathon Resources Limited (2006 to 2014), both were
ASX listed companies. Mr Zeng has over 30 years of
experience in management and project development, and
a proven record in leading cross-cultural professionals in
the resources sector. He has been working in Australia since
1994 and has extensive experience in various industries
including aluminium smelting, coal and iron ore mining.
MS DEBORAH O’TOOLE
LLB, MAICD
Independent
Non-Executive Director
Ms O’Toole was appointed as
a director on 1 December 2017.
She has been appointed as a
member of the Nomination
Committee, the Compensation
Committee and was appointed Chair of the Audit and Risk
Management Committee on 1 April 2018. Ms O’Toole
is a Non-Executive Director of Sims Metal Management
Limited (appointed November 2014), the Asciano Rail
Group of Companies operating as Pacific National Rail
(appointed October 2016), Credit Union Australia Ltd
(appointed March 2014) and the Wesley Research Institute
(appointed March 2013). She is a former Non-Executive
Director of Boart Longyear Limited (appointed 1 October
2014 and resigned September 2017), CSIRO, Norfolk Group,
various companies in the MIM and Aurizon Groups and
government and private sector advisory boards.
She has acted as Chairperson of the Audit Committees
of CSIRO, Norfolk Group and Pacific Aluminium.
Ms O’Toole has extensive executive experience across a
number of sectors including over 20 years in the mining
industry and, more recently, in transport and logistics which
included managerial, operational and financial roles. She has
been Chief Financial Officer of three ASX listed companies:
MIM Holdings Limited, Queensland Cotton Holdings Limited
and, most recently, Aurizon Holdings Limited.
MR JOHN A BEVAN
BCom
Independent
Non-Executive Director
Mr Bevan was appointed
Non-Executive Director on
1 January 2018. He has been
appointed a member of the
Audit and Risk Management
Committee, the Compensation Committee and the
Nomination Committee and was appointed Chair of the
Nomination Committee from 1 April 2018. Mr Bevan is
currently a Director and Chairman of BlueScope Steel
Limited (appointed March 2014), a Director and Deputy
Chairman of Ansell Limited (appointed August 2012)
and a former Director of Nuplex Industries Limited
(September 2015–September 2016).
Mr Bevan was formerly the Chief Executive Officer
and Executive Director of Alumina Limited
(June 2008–December 2014). Prior to his 2008
appointment to Alumina Limited, he spent 29 years in
the BOC Group Plc where he was a member of the Board
of Directors and held a variety of senior management
positions in Australia, Korea, Thailand, Singapore and the
United Kingdom. Mr Bevan brings to the Board extensive
commercial and operational experience gained through
operating joint ventures in many parts of the world,
particularly Asia.
MR MIKE FERRARO
LLB (HONS)
Managing Director and
Chief Executive Officer
Prior to his appointment as
Chief Executive Officer and
Managing Director, Mr Ferraro
was a Non-Executive Director
of Alumina Ltd from 5 February
2014 to 31 May 2017 and Partner, Client Development-Asia
Pacific at Herbert Smith Freehills, a global law firm. He was
also formerly global head of the firm’s Corporate Group and
a member of its executive management team. Mr Ferraro
is also currently a Non-Executive Director of Helloworld
Travel Limited (appointed January 2017).
Between 2008 and 2010 Mr Ferraro was Chief Legal Counsel
at BHP Billiton Ltd. Mr Ferraro has considerable experience
in the resources sector and has over 35 years of experience
in joint ventures, mergers and acquisitions, fund raising
and regulatory issues across a wide range of sectors and
countries. He also has considerable experience in the
commercial and financing aspects of large transactions
gained from a number of years in investment banking
as a corporate adviser.
17
ALUMINA LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT
MR STEPHEN FOSTER
BCOM LLB (HONS) GDIPAPPFIN
(SEC INST) GRADDIP CSP, ACIS
General Counsel/ Company
Secretary
Mr Foster is responsible for
legal, company secretarial,
shareholder services, insurance
and human resources. He has
a wide range of legal and commercial experience gained
over 30 years, more recently at Village Roadshow and
WMC Limited, after working with the legal firm of Arthur
Robinson & Hedderwicks (now Allens). The appointment
of the Company Secretary/General Counsel is ratified by
the Board. As defined in the Board Charter, the Company
Secretary is accountable directly to the Board, through the
Chairman, on all matters to do with the proper functioning
of the Board.
The role of Company Secretary/General Counsel
for Alumina Limited includes:
• providing legal advice to the Board and management
as required;
• advising the Board on corporate governance principles;
• generally attending all Board meetings and
preparing the minutes;
• monitoring that the Board and Committee policies and
procedures are followed;
• facilitating the induction of Directors; and
• managing compliance with regulatory requirements
MEETINGS OF DIRECTORS
Particulars of the number of meetings of the Company’s
Directors (including meetings of committees of Directors)
during the financial year, and the number of those meetings
attended by each Director (as applicable), are detailed
in the table on page 19.
INTERESTS OF DIRECTORS
Particulars of relevant interests in shares in the Company,
or in any related body corporate held by the Directors as
at the date of this report are set out in the Remuneration
Report on page 58 of this report. Particulars of rights or
options over shares in the Company, or in any related body
corporate, held by the Directors as at the date of this report
are set out in the Remuneration Report on page 58
of this report.
18
INSURANCE OF OFFICERS
During or since the end of the financial year, the Group has
paid the premiums in respect of a contract to insure Directors
and other officers of the Group against liabilities incurred
in the performance of their duties on behalf of the Group.
The officers of the Group covered by the insurance policy
include any natural person acting in the course of duties for
the Group who is or was a Director, secretary or executive
officer as well as senior and executive staff. The Company is
prohibited, under the terms of the insurance contract, from
disclosing details of the nature of liability insured against and
the amount of the premium.
INDEMNITY OF OFFICERS
Rule 75 of the Company’s Constitution requires the
Company to indemnify each officer of the Company
(and, if the Board of the Company considers it appropriate,
any officer of a wholly-owned subsidiary of the Company)
out of the assets of the Company against any liability
incurred by the officer in or arising out of the conduct of
the business of the Company or the relevant wholly-owned
subsidiary or in or arising out of the discharge of the duties
of the officer, where that liability is owed to a person other
than the Company or a related body corporate of the
Company. This requirement does not apply to the extent
that the liability arises out of conduct on the part of the
officer which involved a lack of good faith, or to the extent
that the Company is otherwise precluded by law from
providing an indemnity. It also does not apply to the extent
and for the amount that the officer is not otherwise entitled
to be indemnified and is not actually indemnified by another
person (such as an insurer under any insurance policy).
‘Officer’ in this context means: a Director, secretary, senior
manager or employee; or a person appointed as a trustee
by, or acting as a trustee at the request of, the Company or
a wholly-owned subsidiary of the Company, and includes a
former officer. The Constitution also permits the Company,
where the Board considers it appropriate, to enter into
documentary indemnities in favour of such officers. The
Company has entered into such Deeds of Indemnity with
each of the Directors, which indemnify them consistently
with rule 75 of the Constitution.
DIVIDENDS
Details of the dividends paid to members of the Company
during the financial year are referred to in Note 6(b) of the
Consolidated Financial Statements found on page 81.
PRINCIPAL ACTIVITIES
The principal activities of the Group relate to its 40 per cent
interest in the series of operating entities forming Alcoa
World Alumina and Chemicals (AWAC). AWAC has interests
in bauxite mining, alumina refining and aluminium smelting.
There have been no significant changes in the nature of the
principal activities of the Group during the financial year.
Alumina Limited Directors’ Attendance At Meetings January to December 2018
Board
meeting
Board
Committee
meetings
Audit and Risk
Management
Committee
meetings
Compensation
Committee
meetings
Nominations
Committee
meetings
Directors
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
Eligible
to attend
Attended
G J Pizzey1
E R Stein
C Zeng
P Day
M Ferraro2
D O’Toole3
J Bevan4
Notes:
3
9
9
9
9
9
9
3
9
9
9
9
7
8
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
6
6
6
3
6
6
6
1
4
4
4
1
4
4
4
1
2
2
2
1
2
2
2
n/a
n/a
n/a
n/a
n/a
n/a
6
6
5
6
4
4
3
3
2
2
2
2
1 Mr Pizzey retired as Non-Executive Director and Chairman of the Board on 31 March 2018
2 Mr Ferraro is Managing Director and Chief Executive Officer and is not a member of the Committees of the Board however may attend in his capacity as CEO
3 Ms O’Toole was granted Leave of Absence for one Board meeting and one Compensation Committee meeting
4 Mr Bevan was granted Leave of Absence for one Board meeting and one Compensation Committee meeting
REVIEW OF OPERATIONS AND RESULTS
ENVIRONMENTAL REGULATION
The financial results for the Group include the 12-month
results of AWAC and associated corporate activities.
The Group’s net profit after tax for the 2018 financial year
attributable to members of the Company was $635.4
million (2017: $339.8 million). Excluding significant items,
there would have been a net profit after tax of $689.9
million (2017: $363.1 million). For further information on
the operations of the Group during the financial year and
the results of these operations refer to the Operating and
Financial Review on pages 22 to 37 of this report.
AWAC’s Australian operations are subject to various
Commonwealth and state laws governing the protection
of the environment in areas such as air and water quality,
waste emission and disposal, environmental impact
assessments, mine rehabilitation, and access to and use
of ground water. In particular, most operations are required
to be licensed to conduct certain activities under the
environmental protection legislation of the state in which
they operate, and such licences include requirements
specific to the subject site.
MATTERS SUBSEQUENT TO
THE END OF THE FINANCIAL YEAR
Other than as reported in Note 15 of the Consolidated
Financial Statements (refer to page 90), there are no
significant matters, circumstances or events that have
arisen since the end of the financial year that have
significantly affected, or may significantly affect, the Group’s
operations, the results of those operations, or the Group’s
state of affairs, in the financial years subsequent to the
financial year ended 31 December 2018.
LIKELY DEVELOPMENTS
In the opinion of the Directors, it would prejudice the
interests of the Group to provide additional information,
except as reported in this Directors’ Report (including the
Operating and Financial Review on pages 22 and 37 of this
report), relating to likely developments in the operations of
the Group and the expected results of those operations in
the financial years subsequent to the financial year ended
31 December 2018.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in the Australian
Securities and Investments Commission Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191. Amounts shown in the Financial Report and this
Directors’ Report have been rounded off to the nearest
hundred thousand dollars, except where otherwise required,
in accordance with that legislative instrument.
SIGNIFICANT CHANGES
IN THE STATE OF AFFAIRS
There have been no significant changes in the state
of affairs of the Group during the financial year.
AUDITOR
PricewaterhouseCoopers continues in office, in accordance
with the Corporations Act 2001 (Cth) (Corporations Act).
A copy of the Auditor’s Independence Declaration as
required under section 307C of the Corporations Act
is set out on page 20 of this report.
19
ALUMINA LIMITED ANNUAL REPORT 2018 DIRECTORS’ REPORT
NON-AUDIT SERVICES
The Group may decide to employ the auditor on assignments
additional to their statutory audit duties where the auditor’s
expertise and experience with the Company and/or the
Group are important. Details of the amounts paid or
payable to the auditor (PricewaterhouseCoopers) for audit
and non-audit services provided by (or on behalf of) the
auditor and its related practices are disclosed in Note 13 of
the Notes to the Consolidated Statements in the Financial
Report on page 89.
The Board of Directors has considered the position and,
in accordance with advice received from the Audit and Risk
Management Committee, is satisfied that the provision of
non-audit services during the financial year by (or on behalf
of) the auditor and its related practices, is compatible with
the general standard of independence for auditors imposed
by the Corporations Act. The Directors are satisfied that the
provision of those non-audit services did not compromise
the auditor independence requirements of the Corporations
Act for the following reasons:
• all non-audit services have been reviewed by the Audit and
Risk Management Committee to ensure they do not impact
the impartiality and objectivity of the auditor
• none of the services undermine the general principles
relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants. The fees paid
or payable during the financial year for services provided
by (or on behalf of) the auditor of the parent entity are
disclosed in Note 13 of the Notes to the Consolidated
Statements in the Financial Report on page 89.
CORPORATE GOVERNANCE STATEMENT
The Company has, for the 2018 reporting year, elected to
disclose the Corporate Governance Statement only on the
Company’s website. The Corporate Governance Statement
can be found at URL http://www.aluminalimited.com/
governance/.
AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Alumina Limited for the year
ended 31 December 2018, I declare that to the best of my
knowledge and belief, there have been:
(a) no contraventions of the auditor independence
requirements of the Corporations Act 2001 in relation to the
audit; and
(b) no contraventions of any applicable code of professional
conduct in relation to the audit other than as noted below.
The spouse of a partner in the lead audit engagement office,
who joined PricewaterhouseCoopers on 1 August 2018 as
part of a business acquisition, held an AUD 1,647 investment
in Alumina Limited until 11 September 2018. The investment
was immediately disposed of when the matter was identified.
The partner did not provide any services to Alumina Limited
and the audit team was not aware of the investment. On this
basis I do not believe this matter has impacted the objectivity
of PricewaterhouseCoopers in relation to the audit.
This declaration is in respect of Alumina Limited and the
entities it controlled during the period.
John O’Donoghue
Partner
PricewaterhouseCoopers
Melbourne
22 March 2019
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006,
GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
20
Alumina has been
able to pay most of its
free cash flow to
shareholders by way
of dividends.
ALUMINA LIMITED ANNUAL REPORT 2018
21
OPERATING AND FINANCIAL REVIEW
NOTE REGARDING NON-IFRS FINANCIAL INFORMATION
The Operating and Financial Review
contains certain non-IFRS financial
information. This information is
presented to assist in making appropriate
comparisons with prior year periods and
to assess the operating performance
of the business.
Alcoa World Alumina & Chemicals (AWAC)
financial information, is extracted from
audited financial statements prepared
in conformity with accounting principles
generally accepted in the United States
of America (US GAAP).
CONTENTS
1. STRATEGY AND BUSINESS MODEL
2. PRINCIPAL RISKS
3. REVIEW OF AWAC OPERATIONS
4. AWAC FINANCIAL REVIEW
23
25
27
31
5. ALUMINA LIMITED FINANCIAL REVIEW 33
6. MARKET OUTLOOK AND GUIDANCE
35
22
PortlandJurutiAlumarMRNAfobakaRas Al Khair San CiprianCBGPoint Comfort (curtailed)Al Ba’ithaNON-AWACOPERATED INTERESTBAUXITE MINEREFINERYBAUXITE MINEREFINERYSMELTERLOCATIONENERGYAWAC OPERATIONSKwinanaPinjarraWagerupHuntlyWillowdale
1. STRATEGY AND BUSINESS MODEL
BUSINESS MODEL
Alumina Limited represents a unique investment in globally
leading bauxite mines and alumina refineries through its
40% investment in Alcoa World Alumina and Chemicals
(AWAC). AWAC also has a 55% interest in the Portland
smelter in Victoria, Australia.
The Company provides a clean look-through to AWAC’s
underlying performance. This is possible because the
financial policies of both Alumina Limited and AWAC ensure
there is modest leverage in both the Company and AWAC,
the Company’s own costs are minimal and the distribution
policies of Alumina Limited and AWAC require free cash
flows to be paid to their respective shareholders.
Alumina Limited’s net profit/(loss) is principally comprised
of a return on its equity investment, and otherwise revenues
are limited to small amounts of interest income and
occasional one-off revenues.
AWAC was formed on 1 January 1995 by Alumina Limited
and Alcoa Inc. combining their respective global bauxite,
alumina and alumina-based chemicals business and
investments and their respective aluminium smelting
operations in Australia. Following the separation of Alcoa Inc.
into Alcoa Corporation and Arconic Inc. on 1 November 2016,
Alcoa Corporation (Alcoa) replaced Alcoa Inc as Alumina
Limited’s partner in the AWAC joint venture. Alcoa owns
the 60% interest in the joint venture and manages
the day-to-day operations.
23
PortlandJurutiAlumarMRNAfobakaRas Al Khair San CiprianCBGPoint Comfort (curtailed)Al Ba’ithaNON-AWACOPERATED INTERESTBAUXITE MINEREFINERYBAUXITE MINEREFINERYSMELTERLOCATIONENERGYAWAC OPERATIONSKwinanaPinjarraWagerupHuntlyWillowdaleALUMINA LIMITED ANNUAL REPORT 2018 The Strategic Council is the principal forum for Alcoa and
Alumina Limited to provide direction and counsel to the
AWAC entities in respect of strategic and policy matters.
The Alcoa and Alumina Limited representatives on the
boards of the AWAC entities are required, subject to their
general fiduciary duties, to carry out the directions and the
decisions of the Strategic Council. The Strategic Council
has five members, three appointed by Alcoa (of which one
is Chairman) and two by Alumina Limited (of which one is
the Deputy Chairman). Decisions are made by majority vote
except for matters which require a “super-majority” vote,
which is a vote of at least 80% of the members appointed
to the Strategic Council.
The following matters require a super-majority vote:
• change of the scope of AWAC
• change in the dividend policy
• equity calls on behalf of AWAC totalling, in any one year,
in excess of $1 billion
• acquisitions, divestitures, expansions and curtailments
exceeding 2 million tonnes per annum of bauxite or
0.5 million tonnes per annum of alumina or which have
a sale price, acquisition price, or project total capital cost
of $50 million or greater
• implementation of related party transactions in excess
of $50 million
• implementation of financial derivatives, hedges and other
commodity price or interest rate protection mechanisms
• decision to file for insolvency in respect of any
AWAC company.
Under the general direction of the Strategic Council,
Alcoa is the “industrial leader” and provides the operating
management of AWAC and of all affiliated operating entities
within AWAC.
Alumina Limited is entitled to representation in proportion
to its ownership interest on the board of each entity in the
AWAC structure and is currently represented on the boards
of Alcoa of Australia Ltd (AofA), Alcoa World Alumina Brazil
Ltda. (AWA Brazil), AWA Saudi Ltda., Alumina Espanola S.A.
and Alcoa World Alumina LLC (AWA LLC). In addition to the
Strategic Council meetings, Alumina Limited’s Management
and Board visit and review AWAC’s operations regularly.
Subject to the exclusivity provisions of the AWAC
agreements, AWAC is the exclusive vehicle for the pursuit
of Alumina Limited’s and Alcoa’s (and their related
corporations as defined) interests in the bauxite, alumina
and inorganic industrial chemicals businesses, and neither
party can compete with AWAC so long as they maintain an
ownership interest in AWAC. In addition, Alumina Limited
may not compete with the businesses of the integrated
operations of AWAC (being the primary aluminium smelting
and fabricating facilities and certain ancillary facilities that
existed at the formation of AWAC). The exclusivity provisions
would terminate immediately on and from a change in
control of either Alumina Limited or Alcoa.
24
Also effective immediately on and from a change of control
of Alcoa or Alumina Limited there is an increased opportunity
for development projects and expansions, whereby if either
Alumina Limited or Alcoa Corporation wishes to expand an
existing AWAC operation, develop a new project on AWAC
tenements or pursue a project outside of AWAC, it is entitled
to do so on a sole basis after providing 180 days for the other
party to explore joint participation in the proposed project.
A partner that avails itself of such an opportunity would
pay for all costs related to the project, including for AWAC
resources and shared facilities used, and would be entitled
to all of the project’s resulting off-take.
If there is a change of control of Alumina Limited then,
from a date nominated by Alumina Limited:
• Future alumina off-take rights, whereby from a date
nominated by Alumina Limited, Alumina Limited or
its acquirer will be entitled to buy, subject to its 40%
ownership cap:
• its net short position (calculated as total consumption
less total owned production per annum) of alumina at
market price for its internal consumption; plus
• up to 1 million tonnes per annum alumina off-take, at
market prices, which it may market and sell as it sees fit;
• in all cases subject to AWAC third party customer
contracts being satisfied;
• Future bauxite off-take rights, whereby from a date
nominated by Alumina Limited, Alumina Limited or its
acquirer will be entitled to buy, at market prices, up to its
net short position of bauxite for internal consumption,
subject to its 40% ownership cap and pre-existing
bauxite sales contracts.
STRATEGY ANALYSIS
AWAC is primarily focused on bauxite and alumina assets,
and this is the key investment concern of Alumina Limited.
That is, to invest in long-life, low cost bauxite and alumina
assets through AWAC.
Alumina Limited and Alcoa are different companies
with different shareholders and different governance
requirements. While AWAC is governed by constitutional
documents, in a practical sense, the reconciliation of
the differing interests requires challenge, debate and
negotiation. To do this well, Alumina Limited needs to
have (and has) an independent understanding of the
bauxite, alumina and aluminium market and views on
the impact of changes in the market, in particular around
capacity investment, pricing and the development of
the Chinese industry. Through the role of Alumina Limited
representatives on the Strategic Council and AWAC
entity boards and working with Alcoa, Alumina Limited
contributes to the strategic and high-level commercial
actions of AWAC.
2. PRINCIPAL RISKS
The risk management processes are summarised in the
Corporate Governance Statement located on the Company
web site at www.aluminalimited.com/governance/
Alumina Limited’s risk management framework provides
for the production of a Group risk matrix, which sets out
Alumina Limited’s most significant risks and the steps taken
to mitigate those risks. These risks are rated on the basis
of their potential impact on the current operations and
profitability and/or the long term value of the Group. Set out
below are some of the key risks faced by Alumina Limited.
However, there are other risks not listed below associated
with an investment in Alumina Limited.
Movements in the market prices of bauxite, alumina
and aluminium – AWAC’s, and hence Alumina Limited’s,
performance is predominantly affected by the market price
of alumina, and to some extent the market prices of bauxite
and aluminium. Market prices are affected by numerous
factors outside of Alumina Limited’s control. These include
the overall performance of world economies, the related
cyclicality of industries that are significant consumers of
aluminium and movement in production disproportionate
to demand (whether as a result of changes to production
levels at existing facilities or the development of new facilities
by competitors). A fall in the market prices of bauxite, alumina
and aluminium can adversely affect Alumina Limited’s
financial performance. AWAC seeks to identify ways in
which to lower costs of production and thus achieving a low
position on the cost curve. Achieving a low position on the
cost curve allows AWAC to remain competitive in the event
of unfavourable market movements. AWAC and Alumina
Limited generally do not undertake hedging to manage
this risk.
Fluctuations in exchange rates – while a significant
proportion of AWAC’s costs are incurred in Australian
dollars, its sales are denominated in US dollars. Accordingly,
AWAC and Alumina’s Limited’s future profitability can be
adversely affected by a strengthening of the Australian
dollar against the US dollar and a strengthening against the
US dollar of other currencies in which operating or capital
costs are incurred by AWAC outside Australia, including the
Brazilian Real. Also, given that China is a significant part of
the world alumina and aluminium markets, fluctuations in
the Chinese Renminbi against the US dollar could have some
impact on other parts of the industry. AWAC and Alumina
Limited generally do not undertake hedging activities to
manage this risk.
Increases in AWAC’s production costs or a decrease in
production – AWAC’s operations are subject to conditions
beyond its control that may increase its costs or decrease
its production, including increases in the cost of key inputs
(including energy, raw materials, labour, caustic and freight),
the non-availability of key inputs (including secure energy),
weather and natural disasters, fires or explosions at facilities,
unexpected maintenance or technical problems, key
equipment failures, disruptions to, or other problems with,
infrastructure and supply. In addition, industrial disruptions,
work stoppages, refurbishments and accidents at operations
may adversely affect profitability. Some cost inputs are
subject to long term contracts to increase the certainty of
input pricing. AWAC’s operating and maintenance systems
and business continuity planning seek to minimise the
impact of non-availability of key inputs. AWAC’s portfolio
restructuring and repositioning continues to ensure that
operations as a whole remain competitive. AWAC also
invests in capital expenditure projects that will reduce
cash costs over the long term. Planned development and
capital expenditure projects may not result in anticipated
construction costs or production rates being achieved.
AWAC structure – Alumina Limited does not hold a majority
interest in AWAC, and decisions made by majority vote may
not be in the best interests of Alumina Limited. There is also
a risk that Alumina Limited and Alcoa may have differing
priorities. During 2016, the joint venture agreements were
modified to ensure that certain key decisions require
Alumina Limited’s consent by a super-majority vote.
Greenhouse gas emission regulation – energy, particularly
to generate steam, and electricity, is a significant input in a
number of AWAC’s operations, making AWAC an emitter of
greenhouse gases. The introduction of regulatory change
by governments in response to greenhouse gas emissions
may represent an increased cost to AWAC and may affect
Alumina Limited’s profitability. AWAC and Alumina Limited
monitor regulatory changes, and understand their effect
on AWAC.
Political, legal and regulatory impacts – AWAC and
Alumina Limited operate across a broad range of legal,
regulatory or political systems. The profitability of those
operations may be adversely impacted by changes in the
regulatory regimes. AWAC and Alumina Limited’s financial
results could be affected by new or increasingly stringent
laws, regulatory requirements or interpretations, or
outcomes of significant legal proceedings or investigations
adverse to AWAC or Alumina Limited. This may include a
change in effective tax rates, additional tax liabilities or
becoming subject to unexpected or rising costs associated
with business operations or provision of health or welfare
benefits to employees, regulations or policies.
AWAC is also subject to a variety of legal compliance risks.
These risks include, among other things, potential claims
relating to product liability, health and safety, environmental
matters, intellectual property rights, government contracts,
taxes and compliance with foreign export laws, anti-bribery
laws, competition laws and sales and trading practices.
Failure to comply with the laws regulating AWAC’s
businesses may result in sanctions, such as fines, additional
tax liabilities or orders requiring positive action by AWAC,
which may involve capital expenditure or the removal of
licenses and/or the curtailment of operations. This relates
particularly to environmental regulations. Alumina Limited
and AWAC undertake a variety of compliance training and
governance functions to mitigate these risks.
25
ALUMINA LIMITED ANNUAL REPORT 2018 Furthermore, AWAC maintains a spread of assets and
customers across a portfolio of countries and regions
to minimise disruption and concentration risk.
Closure/impairment of assets – Alumina Limited may be
required to record impairment charges as a result of adverse
developments in the recoverable values of its assets.
To the extent that the carrying value of an asset is impaired,
such impairment may negatively impact Alumina Limited’s
profitability during the relevant period. Closure, curtailment
or sale of AWAC’s operations may result in a change in the
timing or amount of required remediation activities
and/or an impairment being incurred as a result of the
carrying value of an asset exceeding its recoverable value,
but may be necessary to ensure the ongoing competitiveness
of AWAC operations.
Customer risks – AWAC’s relationships with key customers
for the supply of alumina (including Alcoa) are important to
AWAC’s financial performance. The loss of key customers or
changes to sales agreements could adversely affect AWAC’s
and Alumina Limited’s financial performance. AWAC mitigates
customer risk by having a broad customer base across many
countries and regions.
Debt refinancing – Alumina Limited’s ability to refinance
its debt on favourable terms as it becomes due or to repay
its debt, its ability to raise further finance on favourable
terms, and its borrowing costs, will depend upon a number
of factors, including AWAC’s operating performance,
general economic conditions, political, capital and
credit market conditions, external credit ratings and the
reputation, performance and financial strength of Alumina
Limited’s business. If a number of the risks outlined in this
section eventuate (including the cyclicality of the alumina
industry and adverse movements in the market prices of
aluminium and alumina) and Alumina Limited’s operating
performance, external credit rating or profitability is
negatively impacted as a result of these risks, there is a risk
that Alumina Limited may not be able to refinance expiring
debt facilities or the costs of refinancing its debt may
increase substantially.
Other risks include:
• an alumina and/or aluminium market in supply surplus may
lead to downward price pressure;
• Chinese growth slowing and affecting aluminium
consumption and hence aluminium and alumina demand;
• greater Chinese aluminium production at lower cost,
combined with lower demand in China, may lead to a greater
level of Chinese primary aluminium and semi-finished
product exports, depressing the world prices of aluminium
which may put downward pressure on alumina prices;
• Alcoa and its subsidiaries have a variety of obligations to
Alumina Limited and AWAC, the fulfilment of which depends
on their financial position. Adverse changes to the financial
position of Alcoa and its subsidiaries could result in such
obligations not being met;
• AWAC’s operations generate hazardous waste which are
contained in tailing facilities, residue storage areas and other
impoundments. Unanticipated structural failure or over-
topping caused by extreme weather events could result in
injury or loss of life, damage to the environment or property.
These events could result in material civil or criminal fines,
penalties, and curtailment or closure
of facilities;
• a greater outflow of aluminium stocks from warehouses’
inventories could impact the world alumina market;
• a sustained increase in the supply of cheap bauxite from
Asia to China, could lower Chinese alumina production
costs;
• Chinese refineries being built outside China at a much lower
capital cost than the rest of the industry;
• A sustained increase in freight costs disadvantaging AWAC’s
competitiveness;
• a technology breakthrough could lower Chinese alumina
production costs;
• emerging competitors, that may be subsidised directly or
indirectly by government, entering the alumina market may
cause overcapacity in the industry which may result
in AWAC losing sales or in depressed prices.
26
3. REVIEW OF AWAC OPERATIONS
Since the beginning of this decade, AWAC has undergone
business improvement and transformation, which have
significantly increased the competitiveness of its portfolio
of assets in a global market. The current refining portfolio
is comprised mostly of tier one assets that allows AWAC to
generate higher returns during the highs and lows of the
commodity cycle.
In addition, AWAC’s bauxite resources in Australia, Brazil and
Guinea continue to cater for third party customers in both
the Pacific and the Atlantic regions, providing AWAC with an
additional earnings stream.
The significant growth in AWAC’s 2018 earnings and cash
generation was mainly due to higher realised prices for
alumina, as most of AWAC’s alumina sales are priced
on an alumina index basis.
DIAGRAM OF AWAC VALUE CHAIN
In 2018 alumina index prices had a growth rate higher than
aluminium by 27% (implied 22% linkage in 2018 versus
18% in 2017). This reflected structurally superior alumina
market fundamentals, which were supported by alumina
supply disruptions in the Atlantic and the Pacific, US trade
sanctions against one alumina producer and the impact of
China’s supply-side and environmental reforms.
For a second year running, AWAC’s overwhelming exposure
to alumina index pricing (during a time when aluminium
pricing has not been as favourable), and AWAC’s low position
on the cost curve, have delivered an outstanding profit for
Alumina Limited shareholders. Alumina Limited’s principal
exposure to alumina should continue to support a favourable
outcome for the Company in a balanced alumina market.
27
ALUMINA LIMITED ANNUAL REPORT 2018THIRD PARTY BAUXITE SALES12% OF THE TOTAL BDT3 SHIPPED4%31%66%20%96%69%34%80%MINING1REFINING1MINING HIGHLIGHTS:• Completed Juruti’s expansion to 6.5 million BDT• CBG’s Phase 1 expansion completed its first ore shipment• Annual production records at Huntly and Juruti minesALUMINA HIGHLIGHTS:• Platts FOB Australia averaged $473 per tonne (one month lag)• 92% of smelter grade alumina shipments on a spot or index basis• Monthly production record for Pinjarra and Wagerup during December 2018• Ma’aden at 98% of nameplate capacity for 20181 Excludes Al Ba’itha mine and Ras Khair refinery 2AWAC equity interest3 Bone dry tonnes (BDT)AWAC operated assetNon-AWAC operated assetPORTLAND &ALCOA SMELTERS30%THIRD PARTYALUMINA SALES70%Huntly &WillowdaleCBG2MRN2JurutiPinjarraWagerupKwinanaSanCiprianAlumar MINING
AWAC OPERATED MINES
Production (million BDT)
Cash cost ($/BDT of bauxite produced)
NON-AWAC OPERATED MINES
AWAC equity share of production
(million BDT)1
THIRD PARTY SALES
Shipments to third parties (million BDT)
Total third party revenue2 ($ million)
31 DEC 2018
31 DEC 2017
CHANGE
CHANGE (%)
39.2
11.4
4.0
5.6
250.5
38.8
11.1
4.6
6.6
334.0
0.4
0.3
(0.6)
(1.0)
(83.5)
1.0
2.7
(13.0)
(15.2)
(25.0)
1 Based on the terms of its bauxite supply contracts, AWAC bauxite purchases from Mineração Rio do Norte S.A. (“MRN”) and Compagnie des Bauxites de Guinée
(CBG) differ from its proportional equity in those mines.
2 Includes freight revenue of $68.1 million for 2018 (2017: $98.1 million).
AWAC Operated Mines
AWAC operated mines increased production by 1.0%.
The growth was facilitated by creep at the Huntly mine in
Western Australia, and a capacity increase at the Juruti mine
to 6.5 million BDT per annum.
Huntly and Juruti mines achieved an annual production
record with Huntly further achieving a monthly production
record in December.
BAUXITE PRODUCTION: CHANGE BY MINE (MILLION BDT)
CASH COST PER BDT OF BAUXITE PRODUCED^
$0.2
–
$0.1
$11.4
$11.1
–
0.3
0.1
39.2
2017
Labor
Fuel
Services &
Maintenance
Other #
2018
# Other includes: energy, supplies, PAE, royalties and other.
^ AWAC operated mines
38.8
Non-AWAC Operated Mines
AWAC’s equity share of production at MRN and CBG mines
decreased by 13% to 4.0 million BDT.
The MRN mine in Brazil decreased production in response
to a partial curtailment of a third party alumina refinery in
Brazil and issues caused by a severe dry season in 2017.
The CBG mine in Guinea decreased production as a
consequence of an expansion project, which temporarily
reduced the availability of mine infrastructure. This project
is now in the completion phase and expected to ramp up
in 1H 2019, which will increase AWAC’s equity share of
production by approximately 1.1 million BDT per annum.
The equity accounted share of profit after tax derived from
CBG and MRN was $13.7 million (2017: $23.1 million).
2017
Huntly
& Willowdale
Juruti
2018
Capital expenditure on the Western Australian bauxite export
infrastructure project has been deferred as an alternative
medium-term solution has been found.
AWAC’s cash cost per BDT of bauxite produced increased
by 2.7% to $11.4. Contributors to this increase included
higher royalties and higher diesel costs particularly at the
Juruti mine. The weaker Australian dollar and Brazilian real
against the US dollar had a favourable effect on cash cost
of bauxite produced.
28
Third Party Bauxite Sales
AWAC’s shipments to third party customers decreased by 15.2% to 5.6 million BDT in 2018, predominantly due to the
decline in production at the CBG and MRN mines. Increased inter-segment shipments from CBG to replenish low 2017
stockpiles at AWAC’s San Ciprian refinery further reduced bauxite availability to third parties. Increases in Huntly
and Juruti shipments partially offset the decline in MRN and CBG volume.
Third party revenue declined by 25% compared to 2017, caused by lower shipments and a decrease of 9% in the
average FOB realised price due to both changes in the product mix and lower FOB prices.
Third party bauxite shipments are expected to increase to 6.2 million BDT in 2019.
31 DEC 2018
31 DEC 2017
CHANGE
CHANGE (%)
12.9
12.2
447
473
226
221
92
1.8
0.5
13.1
12.5
335
349
198
137
85
1.5
0.4
(0.2)
(0.3)
112
124
28
84
7
0.3
0.1
(1.5)
(2.4)
33.4
35.5
14.1
61.3
8.2
20
25
The 2018 average realised price was $447 per tonne,
an improvement of $112 per tonne over the previous
corresponding period. As approximately 92% of AWAC’s
alumina shipments were priced on a spot or index basis,
AWAC was able to benefit from the 36% increase in the
Alumina Price Index (“API”), which was supported by a tight
alumina market. The average AWAC realised price was
$26 lower than the index price (one-month lag), which
reflects the impact of legacy contracts and lower-priced
chemical grade alumina.
REFINING
AWAC OPERATED REFINERIES
Shipments (million tonnes)
Production (million tonnes)
Average realised alumina price ($/tonne)
Platts FOB Australia - one month lag ($/tonne)
Cash cost per tonne of alumina produced
Margin1 ($/tonne)
Smelter Grade Alumina (“SGA”) shipments on spot or
index basis (%)
MA’ADEN JOINT VENTURE
Production (million tonnes)
AWAC’s share of production (million tonnes)
1 Calculated as average realised price less cash cost of production.
AWAC Operated Refineries
Production from AWAC operated refineries was 12.2 million
tonnes, down 0.3 million tonnes compared to 2017.
Whilst production slightly improved at the San Ciprian
refinery, production at all other refineries decreased as
a result of operational and equipment issues throughout
2018. With issues being progressively addressed, Pinjarra
and Wagerup completed the year strongly with monthly
production records in December.
Alumina shipments declined by 1.5% to 12.9 million tonnes
in 2018, as a result of the lower production.
ALUMINA PRODUCTION: CHANGE BY REFINERY (KT)
12,453
(195)
(75)
1
12,184
2017
Pinjarra
Wagerup
Kwinana
Alumar
San
Ciprian
2018
29
ALUMINA LIMITED ANNUAL REPORT 2018 The cash cost per tonne of alumina produced increased
to $226 per tonne (14.1% increase on 2017). The increase
is mostly attributable to higher input prices, with further
impact from higher conversion costs.
CASH COST PER TONNE OF ALUMINA PRODUCED^
$7
$11
$9
$226
$198
$1
2017
Energy
Caustic
Bauxite
Conversion#
2018
^ Includes thre mining business unit at cost
# Conversion includes: employee costs, indirect costs and other raw material costs
The rise in energy costs was mainly due to the increase in
the underlying oil reference price for the San Ciprian and
Alumar refineries.
The increase in the caustic cost is mainly related to price.
The cost of bauxite increased due to an increase in the
underlying production cost of bauxite, as well as higher
logistics and demurrage costs.
Conversion costs were higher at all refineries due to an
increase in maintenance, as a result of the impact of
operational and equipment issues. This was partially offset
by the weaker Australian dollar and Brazilian real against
the US dollar.
Ma’aden Joint Venture
During 2018, the Ma’aden refinery produced 1.8 million
tonnes of alumina (AWAC’s share of production was 0.5
million tonnes), representing a 20% improvement compared
to 2017. The Ma’aden refinery operated at 98% of nameplate
capacity during 2018.
The equity profit relating to the Ma’aden joint venture was
$32.5 million during 2018 (2017: $5.0 million equity loss).
The improvement in performance was mainly as a result
of higher alumina prices and production.
PORTLAND
AWAC’S 55% EQUITY SHARE
Production (thousand tonnes)
LME aluminium cash - 15 day lag ($/tonne)
EBITDA ($ million)
31 DEC 2018
31 DEC 2017
CHANGE
CHANGE (%)
164
2,119
(29.7)
112
1,950
(25.6)
52
169
(4.1)
46.4
8.7
(16)
Aluminium production increased by 46%, compared to 2017, when production was significantly affected by a power outage in
December 2016. The smelter reached the pre-outage capacity of approximately 167 thousand tonnes per year (AWAC equity
share) in October 2017.
The decline in 2018 earnings was primarily as a result of higher alumina and carbon input prices, partially offset by a higher
production rate and improved metal prices.
30
4. AWAC FINANCIAL REVIEW
The improvement in AWAC’s net profit was due to higher realised alumina prices during 2018 which more than offset higher
input costs and higher charges for significant items.
The increases in income tax charges were driven by higher taxable income, particularly in AWAC’s Australian operations.
AWAC PROFIT AND LOSS (US GAAP)
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Net profit after tax
Add back: Income tax charge
Add back: Depreciation and amortisation
Add back: Net interest income
EBITDA
Add back: Significant items (pre-tax)
EBITDA excluding significant items
1,640.2
701.3
290.4
(1.8)
2,630.1
166.7
2,796.8
901.3
443.7
274.5
(2.6)
1,616.9
68.4
1,685.3
AWAC’s net profit included the following significant items:
SIGNIFICANT ITEMS (US GAAP)
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Suralco restructuring related charges
Point Comfort restructuring related charges
Bauxite mining service contract final arbitration1
Derecognition of Brazil state VAT receivables2
Other3
Total significant items (pre-tax)
Total significant items (after-tax)
(9.7)
(34.3)
(29.0)
(77.6)
(16.1)
(166.7)
(149.0)
(8.3)
(48.6)
–
–
(11.5)
(68.4)
(65.7)
1 On December 16, 2016, Boskalis International B.V. (Boskalis) initiated a binding arbitration proceeding against Suriname Aluminum Company, LLC (Suralco), an
AWAC company, seeking $47 million plus prejudgment interest and associated taxes in connection with a dispute arising under a contract for mining services in
Suriname between Boskalis and Suralco. In February 2018, the arbitration hearing was held before a three-person panel. The panel awarded Boskalis $29 million,
including prejudgment interest of $3 million. The award is final and cannot be appealed. The cash payment of $29 million to Boskalis was made on 6 June 2018.
2 AWAC derecognised VAT receivables from certain Brazilian states. The company retains the ability to utilise the VAT credits in the future.
3 Other significant items include net charges related to Point Henry and Anglesea restructuring, severance and other payments.
AWAC BALANCE SHEET (US GAAP)
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Cash and cash equivalents
Receivables
Inventories
Property, plant & equipment
Other assets
Total Assets
Short term borrowings
Accounts payable
Taxes payable and deferred
Capital lease obligations & long term debt
Other liabilities
Total Liabilities
Equity
740.3
497.5
565.4
3,317.2
2,030.4
7,150.8
0.4
623.9
546.3
84.4
1,028.4
2,283.4
4,867.4
631.9
560.3
530.8
3,753.9
2,372.9
7,849.8
4.6
715.1
401.1
17.5
1,261.0
2,399.3
5,450.5
31
ALUMINA LIMITED ANNUAL REPORT 2018 The decrease in the value of assets and liabilities includes
the effect of the weaker Australian dollar and Brazilian real
against the US dollar as at 31 December 2018.
The high average alumina prices in the fourth quarter of
2018 resulted in higher cash and cash equivalents as at
year-end, whereas lower alumina prices in December 2018
relative to December 2017 resulted in lower receivables.
The increase in inventory includes the effect of a higher
bauxite inventory at San Ciprian compared to 2017.
The decrease in property, plant and equipment was mainly
due to foreign currency rate movement partially offset by
the Pinjarra press filtration construction and growth projects
such as the Juruti mine capacity increase.
Other assets and other liabilities decreased due to changes in
the fair value of derivatives associated with Portland’s hedging
arrangements and the effect of the weaker Australian dollar
against the US dollar as at 31 December 2018. The decrease
in other assets is also due to derecognition of Brazil state VAT
receivables. The decrease in other liabilities was also due to
the final payment of $74 million for the Alba settlement.
The rise in taxes payable and deferred is mainly attributable
to an increase in the taxable income for Australian operations.
The increase in capital lease obligations and long-term debt
relates to funds drawn from a newly establish bilateral bank
facility. The funds were used for various growth projects.
AWAC CASH FLOW (US GAAP)
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Cash from operations
Capital contributions arising from the allocation agreement1
Capital contributions from partners
Net movement in borrowings
Capital expenditure
Other financing and investing activities2
Effects of exchange rate changes on cash and cash equivalents
Cash flow before distributions
Distributions paid to partners
Net change in cash and cash equivalents
1,969.6
74.0
371.9
63.3
(234.1)
–
(68.4)
2,176.3
(2,067.9)
108.4
1,102.4
74.0
200.0
17.4
(191.6)
7.9
27.7
1,237.8
(857.1)
380.7
1 Contributions by Alcoa in accordance with the allocation agreement whereby Alcoa assumes an additional 25% equity share relating to the Alba settlement
payment and costs.
2 Made up of changes to capital lease obligations, related party notes receivable and other.
Cash from operations in 2018 increased primarily due to
higher average realised alumina prices. Consequently, gross
distributions paid to partners increased to $2,067.9 million.
Cash from operations includes the payment for the Alba
settlement of $74 million (2017: $74 million) and a $29
million payment relating to the arbitration settlement
of Suralco’s mining services contract.
In 2018, sustaining capital expenditure was $210.9 million
(2017: $146.0 million). The most significant expenditure was
for the Pinjarra refinery where press filtration is currently
being constructed.
Growth capital expenditure was $23.2 million. The largest
growth project related to the expansion of the Juruti mine.
32
5. ALUMINA LIMITED FINANCIAL REVIEW
ALUMINA LIMITED PROFIT AND LOSS
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Share of net profit of associates accounted for using the equity method
General and administrative expenses
Finance costs
Foreign exchange losses, tax and other
Profit for the year after tax
Total significant items after tax
Net profit after tax excluding significant items
653.5
(11.6)
(6.7)
0.2
635.4
54.5
689.9
360.4
(13.6)
(8.3)
1.3
339.8
23.3
363.1
SIGNIFICANT ITEMS (IFRS, POST-TAX)
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Suralco restructuring related charges and deferred tax assets adjustment
Point Comfort restructuring related charges
Bauxite mining service contract final arbitration
Derecognition of Brazil state VAT receivables
Other1
Total significant items
(1.2)
(13.8)
(11.6)
(25.8)
(2.1)
(54.5)
(2.2)
(19.5)
–
–
(1.6)
(23.3)
1 Other significant items include net charges related to Point Henry and Anglesea restructuring, severance and other payments.
Alumina Limited recorded a net profit after tax of
$635.4 million (2017: $339.8 million).
The increase in net profit was due to AWAC’s higher average
realised alumina price and partially offset by AWAC’s higher
production costs, and higher net charges for significant items.
Excluding significant items, net profit would have been
$689.9 million (2017: $363.1 million).
General and administrative expenses in 2018 includes
$0.3 million associated with the CFO’s retirement
(2017: $1.0 million associated with the CEO’s retirement and
$0.4 million of costs from the Company’s actions in relation
to Alcoa’s corporate separation).
Excluding these costs, 2018 general and administrative
expenses were lower than 2017 by approximately
$1.0 million, which was primarily attributable to a weaker
Australian dollar against the US dollar.
The Company’s finance costs in 2017 included $1.1 million
of charges related to the renegotiation of the syndicated
bank facility. Adjusting for this, 2018 finance costs were still
marginally lower than 2017 reflecting changes in the fixed
interest rate note’s coupon rate, which were triggered by
changes in the credit rating of Alumina Limited.
33
ALUMINA LIMITED ANNUAL REPORT 2018 ALUMINA LIMITED BALANCE SHEET
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Cash and cash equivalents
Investment in associates
Other assets
Total assets
Payables
Interest bearing liabilities
Other liabilities
Total liabilities
Net Assets
The decrease in investments in associates was due to foreign
currency balance sheet revaluations and AWAC’s increased
distributions to shareholders.
Alumina Limited’s net debt/(cash) as at 31 December 2018
was $(95.8) million (2017: $58.4 million).
183.8
2,060.2
1.1
2,245.1
1.2
88.0
20.1
109.3
2,135.8
40.0
2,301.0
1.9
2,342.9
1.3
98.4
9.2
108.9
2,234.0
Alumina Limited has $250 million of committed bank
facilities which expire as follows:
• $150 million in July 2020 (no amounts drawn under these
facilities as at 31 December 2018).
• $100 million in October 2022 (no amounts drawn under
these facilities as at 31 December 2018).
In addition to the bank facilities, Alumina Limited has an
A$125 million face value fixed rate note on issue which
matures on 19 November 2019.
ALUMINA LIMITED CASH FLOW
US$ MILLION
YEAR ENDED 31 DEC 2018
YEAR ENDED 31 DEC 2017
Dividends received
Distributions received
Net finance costs paid
Payments to suppliers and employees
GST refund, interest received & other
Cash from operations
Net receipts/(payments) – investments in associates
Free cash flow1
1 Free cash flow calculated as cash from operations less net investments in associates.
657.2
0.2
(7.5)
(10.7)
2.1
641.3
20.8
662.1
278.1
1.2
(8.6)
(12.1)
0.9
259.5
(16.2)
243.3
Alumina Limited’s free cash flow is comprised of the net
capital, dividends and income distributions received
from AWAC entities offset by the Company’s general,
administrative and finance costs.
Alumina Limited’s total gross receipts from AWAC during
2018 were $787.0 million compared to $343.1 million in 2017.
Alumina Limited’s gross cash contributions to AWAC during
2018 were $108.8 million (2017: $80.0 million).
Contributions to AWAC in 2018 were mainly to support one
AWAC entity’s purchases of alumina on a spot basis from
other AWAC entities in order to meet the former’s long term
customer supply commitments which are on different
pricing mechanisms.
Lower cash finance costs reflect the note’s decreased
coupon rate following the changes in the Company’s
credit rating.
As a result, free cash flow was $418.8 million higher in 2018
compared to 2017.
Alumina Limited’s dividend policy is based on distributing
the free cash up until the date of declaration by the
Directors of the Company. The Board will also consider
the capital structure of Alumina Limited, the capital
requirements for the AWAC business and market conditions.
Since 31 December 2018, AWAC has announced an
additional $193.6 million of net distributions, which are
included in the Company’s 14.1 cents per share 2018 final
dividend to be paid on 14 March 2019.
34
6. MARKET OUTLOOK AND GUIDANCE
ALUMINIUM
As forecast by Alumina Limited a year ago, China’s aluminium
production growth was lower in 2018 due to curtailments and
closures of smelting capacity as a result of environmental and
supply-side reform policies. Further and unforeseen Chinese
smelting capacity was curtailed due to low aluminium prices
and higher alumina costs.
Global primary aluminium production in 2018 rose by 1.5%
to just over 64 million tonnes, according to the International
Aluminium Institute. China, the largest aluminium producer,
increased output by only 1.6%, to an estimated 36.5 million
tonnes, while other Asian nations increased production by
11.7% to an estimated 4.4 million tonnes over 2018.
Primary aluminium production increased in Oceania
by 5.5% to an estimated 1.92 million tonnes and in Gulf
Co-operation Council States by 3.6% to 5.3 million tonnes.
The main decreases in smelting production in 2018 were in
South America, where output fell by 15.5% to an estimated
1.2 million tonnes and in North America, down 4.5% to an
estimated 3.7 million tonnes. The fall in production in
South American smelting was mainly related to the 50%
reduction in alumina production at the Alunorte refinery,
ordered by a Brazilian court in February.
The fall in North American production was related to
industrial action at the Bécancour smelter in Canada, which
was only partially offset by the restart of capacity in the USA
in the second half of the year.
Other matters which had a significant impact on primary
aluminium product flows and the aluminium price in 2018
were the U.S. imposition in March of a 10% tariff on imported
aluminium products and the imposition of sanctions on
UC Rusal and others by the U.S in April.
The above-mentioned American and Chinese factors
resulted in the production of aluminium, and hence the
demand for metallurgical alumina, not growing as fast as the
4% global rate forecast by Alumina Limited a year ago.
In late January 2019, the U.S. lifted sanctions against Rusal,
which should help restore more typical market conditions
and trade flows in the aluminium supply chain.
It is expected that during March and April 2019, increased
aluminium production will gradually come online under the
capacity replacement program and the re-start of some
idled capacity.
Outside China, 2019 primary aluminium production
is forecast to resume at smelters affected in 2018 by
operational issues and industrial action as well as modest
restarts in the US and other regions, where idling was
related to alumina shortages. New production has
commenced in Bahrain and is also expected in India,
Norway and Iran during 2019.
Aluminium demand growth outside China is expected to be
modest. On-going trade tensions between the U.S. and China
are affecting sentiment. Higher demand growth in China is
expected in electric vehicles and high-speed rail and growing
exports of higher value products.
ALUMINA
Over 2018, the alumina price indices reached a high of
$710 and a low of $357 per tonne, averaging approximately
$473. The prices were primarily due to the alumina supply
constraints, following the Alunorte curtailment, Rusal
sanction-related supply disruptions, Chinese policies and
increased costs.
Prior to the Alunorte curtailment in the first quarter of 2018,
the Atlantic market was short alumina, due to previous
curtailments and closures of Atlantic refineries by AWAC
and others. However, the global alumina market was broadly
balanced. Once the Alunorte curtailment took hold, the
ex-China market was unable to respond sufficiently quickly
to meet alumina demand, nor has it been able to store large
inventories. As a result, the alumina index price soared to
$710 and a price arbitrage emerged between China and the
rest of world market, which Chinese refiners quickly took
advantage of by exporting their more expensive alumina
from China to fill the gap. In 2018, China exported 1.46
million tonnes of alumina and imported only 510,000 tonnes
of alumina, according to Chinese Customs.
It remains unknown when Alunorte will receive Brazilian
court permission to resume full production and how long
it will take to reach it. In the meantime, it is likely that Chinese
refiners would respond quickly to fill any further supply gaps,
if the price arbitrage becomes sufficiently attractive for them
to do so. The recent Chinese domestic alumina price has
been above prices outside China, so there is currently
a financial disincentive for Chinese alumina exports.
The Chinese Government has recently announced a supply-
side reform focus on its domestic alumina sector. In addition
to on-going environmental and safety audits in China, which
are expected to continue to reduce production and increase
costs, specific alumina supply-side reforms are likely to
ensure domestic alumina and primary aluminium production
are more closely aligned as well as ensure that over-capacity
does not re-emerge in the industry.
Once Alunorte resumes full production, Chinese alumina
exports are unlikely to resume.
Additional alumina production in 2019 outside China is
expected from a number of refineries in Australia and Brazil,
which experienced operational issues in 2018. In addition,
increased production is expected from refineries ramping
up in Guinea and Jamaica, as well as in India.
35
ALUMINA LIMITED ANNUAL REPORT 2018 First alumina is also expected from the Al Taweelah
greenfields refinery in the UAE in 2019. There are reports
that Nanshan has commenced construction of a refinery
on Bintan Island in Indonesia. Otherwise, there is no other
committed greenfields refining capacity on the horizon
and any further restarting of curtailed capacity looks
challenging outside China.
Alumina Limited forecasts that alumina growth will broadly
match aluminium growth, with on-going modest alumina
imports into China, and a global alumina balance in 2019,
assuming a full resumption at Alunorte.
BAUXITE
China’s total bauxite imports reached nearly 83 million
tonnes in 2018, up 20.5% on 2017. Third party bauxite
remained well-supplied in 2018 and this is expected to
continue into 2019. Predominantly supply is expected to
continue to come from Guinea and Australia. The next
highest source country in 2018 was Indonesia.
Bauxite supply disruptions were experienced in China’s
domestic market throughout 2018, caused by on-going
audits for environmental, safety, licensing and tax reasons.
They are expected to continue into 2019, resulting in higher
than average prices over the year. Chinese domestic bauxite
quality continues to deteriorate, which is likely to accelerate
the demand for imported bauxite (or alumina) into China
and to increase Chinese alumina production costs.
AWAC GUIDANCE
The following 2019 guidance is provided to assist the understanding of the sensitivity of AWAC results to key external
factors. The guidance cannot be expected to be predictive of exact results; rather it provides direction and approximate
quantum of the impact on AWAC results. Sensitivity of each element of the guidance has been considered in isolation
and no correlation with movements in other elements within the guidance has been made.
ITEM
Production – alumina
Production – aluminium
Third party bauxite sales
Alumina Price Index sensitivity1: +$10/t
Caustic price sensitivity2: +$100/dry metric tonne
Australian $ Sensitivity: + 1¢ USD/AUD
Brazilian $ Sensitivity: + 1¢ BRL/USD
2019 GUIDANCE
Approximately 12.6 million tonnes
Approximately 165,000 tonnes
Approximately 6.2 million BD tonnes
Approximately +$110 million EBITDA
Approximately -$90 million EBITDA
Approximately -$25 million EBITDA
Minimal impact
SGA shipments expected to be based on alumina price indices or spot
Approximately 94% for the year
AWAC sustaining capital expenditure
AWAC growth capital expenditure
AWAC Point Comfort after tax restructuring3
Charges (IFRS)
Cash Flows
AWAC Suralco after tax restructuring3
Charges (IFRS)
Cash Flows
AWAC Point Henry and Anglesea after tax restructuring3
Charges (IFRS)
Cash Flows
1 Excludes equity accounted income/losses for the Ma’aden joint venture.
2 Caustic inventory flow is 5-6 month.
3 Ongoing costs will be recognised in future financial years relating to the curtailments and closures.
Approximately $155 million
Approximately $110 million
Approximately $40 million
Approximately $40 million
Approximately $15 million
Approximately $50 million
Approximately $5 million
Approximately $30 million
36
ALUMINA LIMITED GUIDANCE
The financial results of Alumina Limited are dependent upon AWAC’s operational performance and profitability, and the
ability of Alumina Limited to influence the performance of AWAC to ensure that the Company’s interests are protected.
Alumina Limited’s objectives are to achieve the position where AWAC is sustainable in the long term, that it has adequate
governance procedures in place, and that long term capital allocation is implemented to maximise AWAC’s returns.
Alumina Limited’s expectations for cash receipts from AWAC in 2019 are that total receipts by Alumina Limited should
exceed its corporate needs.
In 2019, Alumina Limited anticipates there could be equity calls by AWAC entities in relation to working capital support.
However, this is subject to market conditions.
ALUMINA LIMITED ANNUAL REPORT 2018
37
LETTER BY CHAIR
OF COMPENSATION
COMMITTEE
Dear Shareholders,
I am pleased to present Alumina Limited’s 2018
remuneration report.
Company performance and strategic priorities
2018 represented a very good year for Alumina Limited,
posting a record profit and returns to shareholders.
The financial performance of the Company correlates
to the improved market conditions coupled with the
benefits of the asset portfolio transformation of recent
years. Your Company’s total shareholder return performed
strongly in 2018 against its peers.
In 2016 the Alumina team completed the restructuring
of the AWAC joint venture. In previous years and in more
difficult market conditions, Alumina’s executives have
worked with Alcoa to improve the asset portfolio with
resultant benefits in terms of cost quartile positioning.
As the price of alumina increased, the improved cost base
has resulted in superior returns for shareholders. In the more
recent past, Alumina’s Board charged Senior Executives to
turn their minds to the future strategy of the business in the
context of industry trends and development.
Within Alumina Limited, a series of objectives were
formulated for 2018. A priority was to engage with Alcoa
to assess the potential growth and synergies within the
alumina and bauxite segments, whilst maintaining good
working relationships with our joint venture partner.
Alumina Limited’s management provided Alcoa with, and
contributed to, discussion and analysis of various potential
projects within AWAC, providing a sounding board. This work
draws on the knowledge, skills and experience of Alumina’s
senior team and goes to the heart of their value add for
Alumina’s shareholders.
38
Remuneration outcomes in 2018
In terms of the remuneration outcomes for 2018:
• base remuneration for the CEO (Chief Executive Officer)
was increased by 2.5 per cent.
• for Executive KMP other than the CEO, and interim Chief
Executive Officer, Short Term Incentives (STI’s) awarded
ranged from 60 per cent to 71 per cent of maximum, and
82 per cent to 89 per cent of target as they achieved most
of the objectives set by the Board, either completely or
partially. The Board believes these outcomes reflect the
achievements and contributions of Executive KMP during
the year, though note the STI outcomes were not driven
exponentially upwards by the increased 2018 profit or
dividend performance because this is a key tenet within
Alumina’s remuneration policy.
• Alumina’s CEO’s remuneration does not contain an STI.
He is remunerated through fixed base pay and two equity-
based components. Since his appointment* part way
through 2017, his equity base has grown through the grant
of rights and the rise in value of the company’s share
price. Of course, his experience will continue to mirror
that of our shareholders.
• the Company’s LTI scheme vested at a level of 96.88 per
cent as shareholders enjoyed a Total Shareholder Return
(TSR) of approximately 140 per cent over the three years
of the scheme’s performance period.
• the Board decided to defer reviewing Non-Executive
Director fees by another year, and therefore will review
them for 2020 rather than 2019 and so base fees remain
unchanged since 2011.
We welcome your feedback on our remuneration report
and I look forward to engaging with you on it.
Emma Stein - Chair
* 2018 represents the first full year of his service
as the data in the report shows.
ALUMINA LIMITED ANNUAL REPORT 2018
39
REMUNERATION
REPORT
This Remuneration Report forms part
of the Directors’ Report and outlines the
remuneration framework and outcomes
for Key Management Personnel (“KMP”)
for the year ended 31 December 2018.
The information provided is in accordance with the
requirements of the Corporations Act and has been audited.
All contracts for KMP are denominated in Australian dollars
and accordingly all figures in the Remuneration Report are
presented in Australian dollars unless otherwise indicated.
CONTENT
The Remuneration Report is presented in the following sections:
1.
1.1.
1.2.
1.3.
2.
2.1.
2.2.
2.3.
2.4.
2.5.
REMUNERATION FRAMEWORK
Persons covered by this report
Remuneration in business context
Remuneration strategy, components and mix
41
41
41
42
COMPANY PERFORMANCE AND EXECUTIVE REMUNERATION OUTCOMES 45
Company performance
Remuneration decisions and outcomes for 2018
Performance under the STI plan
Performance under the LTI plan
CEO and Senior Executives statutory remuneration
45
47
48
50
52
2.6.
Actual “Take Home” 2018 remuneration awarded to CEO and Senior Executives 54
3.
3.1.
3.2.
4.
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
4.7.
4.8.
4.9.
NON-EXECUTIVE DIRECTORS REMUNERATION
Remuneration outcomes in 2018
Non-Executive Directors share holdings
ADDITIONAL DISCLOSURES
Reconciliation of conditional rights held by CEO
Value change over time of the CEO’s conditional rights
Reconciliation of performance rights held by KMP
Reconciliation of ordinary shares held by KMP
CEO and Senior Executives service agreements
Cessation of employment
Change of control
Clawback policy
Share trading and hedge prohibition
56
56
58
58
58
59
59
60
62
63
63
63
63
4040
1. REMUNERATION FRAMEWORK
1.1. PERSONS COVERED BY THIS REPORT
In this report, KMP are those individuals having the authority and responsibility for planning, directing and controlling
the activities of the group, either directly or indirectly. They comprise:
• Non-Executive Directors (NED)
• Executive Directors
• Other Executives considered KMP.
NAME
ROLE
NON-EXECUTIVE DIRECTORS
Peter Day
Non-Executive Chairman
Appointed Chairman 1 April 2018
Director since 1 January 2014
John Pizzey
Non-Executive Chairman (retired)
Chairman from 1 December 2011 to 31 March 2018
Director from 8 June 2007 to 31 March 2018
Emma Stein
Chen Zeng
Non-Executive Director
Appointed 3 February 2011
Non-Executive Director
Appointed 15 March 2013
Deborah O'Toole
Non-Executive Director
Appointed 1 December 2017
John Bevan
Non-Executive Director
Appointed 1 January 2018
EXECUTIVE DIRECTORS
Mike Ferraro
Peter Wasow
OTHER KMP
Chris Thiris
Chief Executive Officer (CEO)
Appointed CEO from 1 June 2017
Chief Executive Officer (CEO)
From 1 January 2014 to 31 May 2017
Chief Financial Officer (CFO)
Appointed 13 December 2011 to 31 December 2018
Stephen Foster
General Counsel/Company Secretary Appointed 4 December 2002
Andrew Wood
Group Executive Strategy
& Development
Employed 1 September 2008
Galina Kraeva
Interim Chief Financial Officer (ICFO) Appointed 19 November 2018
1.2. REMUNERATION IN BUSINESS CONTEXT
Alumina Limited’s remuneration strategy and policy has
been developed in recognition of the unique nature of the
Company, the complexities of managing a significant but
non-controlling interest in a global joint venture and the
significance of external factors’ influence on the sector
and the Company’s performance.
Alumina Limited owns a 40 per cent interest in the
multi-billion dollar global enterprise, AWAC, one of the
world’s largest bauxite and alumina producers. AWAC is a
large capital-intensive business operating in a number of
jurisdictions with some in remote locations. Alumina Limited’s
executives are responsible for protecting and advancing the
interests of its approximately 53,000 shareholders in the
management of AWAC. Consistent with the governing joint
venture agreements, Alumina executives are responsible for
providing strategic input and advice into the joint venture.
This, in turn, draws on their abilities to persuade and
influence our joint venture partner to a common or at times,
different conclusion. To do so, they are required to have a
deep understanding of the complex trends and drivers of the
global bauxite, aluminium and volatile alumina industry.
At the Board’s direction, the CEO and Senior Executives are
required to maintain Alumina Limited’s financial metrics
consistent with an investment grade rating, maximize cash
flow from AWAC and support the joint venture in its efforts
to improve its relative cost position and strategic options.
The latter responsibilities rest with a small team of four key
executive officers. Alumina Limited requires and must retain,
high calibre people with strong skills sets and commercial
experience to ensure the Company and its investment are
managed well. Hence, Alumina Limited’s remuneration
needs to be competitive, valued and relevant.
41
ALUMINA LIMITED ANNUAL REPORT 2018 1.3. REMUNERATION STRATEGY, COMPONENTS AND MIX
REMUNERATION STRATEGY
Alumina Limited’s remuneration strategy is based on the following principles, which determine remuneration components,
their mix and way of delivery.
ALIGNMENT
Our remuneration is designed to aid alignment
of Company, Executive, Board and
Stakeholder interests.
RELEVANCE
Appropriate mix of fixed and at risk components,
short and long incentives reflecting a balance
of financial and non-financial objectives relevant
to the non-operating nature of the Company and
specific executive roles.
REMUNERATION PRINCIPLES
SUSTAINABILITY
Remuneration that is market competitive, that
attracts and retains executives with capabilities
and expertise to deliver our strategy.
TRANSPARENCY
Remuneration outcomes that are based on a set
of clear objectives and expectations linked
to Company strategy.
CEO AND EXECUTIVE KMP COMPONENTS AND PAY MIX
The following section sets out the different components of remuneration for the CEO and Senior Executives, the performance
measures used to determine the amount of remuneration executives will receive and how they are aligned with Alumina
Limited’s remuneration strategy.
EXECUTIVE
REMUNERATION
COMPONENTS
STRATEGIC
INTENT
PERFORMANCE
MEASURE
FIXED REMUNERATION
(“FAR”)
CEO EQUITY BASED
AWARD
Attract and retain
executives with the
capability and experience
to deliver our strategy.
Align performance
focus with the long-term
business strategy and
shareholder experience.
FAR is set based on
market relativities,
reflecting responsibilities,
qualifications, experience
and effectiveness.
There is a 3-year trading
restriction on the shares
from grant date.
The value of the equity
remains subject to
performance of the
Company’s share price.
SHORT-TERM
INCENTIVE FOR SENIOR
EXECUTIVES
Performance incentive
directed to achieving
Board approved targets,
reflective of market
circumstances.
LONG-TERM INCENTIVE
(LTI)1
Align performance
focus with the long-term
business strategy and
shareholders experience.
STI performance criteria
are set by reference to:
• A minimum
performance threshold
requirement (the
“Corporate Gate”)
• Financial metrics
• Strategic Objectives
• Individual performance
and effort relevant to
the specific objective.
LTI vesting is subject to
service and performance
tested three years from
the grant date. The testing
criteria is three-year
Company TSR equal to or
outperforming the median
of the two (one local, one
international) comparator
groups (half of the LTI
is attributable to each
comparator group).
DELIVERY
Cash Payment
Conditional Rights
Mix of cash and equity
Performance Rights
• GE Strategy &
Development:
100% cash
• Company Secretary and
CFO: 50% cash, 50%
equity with three years
trade restriction period
1More detail on the STI and LTI remuneration components and their link to company performance is included in section 2 of this report.
42
Conditional Rights 19%
Restriction period
• from which to assess, discuss and hold accountable CEO
H
S
A
C
I
Y
T
U
Q
E
CEO
In 2017, the Board changed the remuneration components
of the CEO’s remuneration package, whilst retaining existing
remuneration structures for Senior Executives. The CEO’s
remuneration package comprises FAR, an annual grant of
Conditional Rights subject to dealing restrictions, and an LTI.
The package has been specifically designed to exclude an STI,
which has been replaced with the restricted equity grant to
focus the CEO on the long term.
% of potential total
remuneration
FAR 60%
CEO
LTI Performance Rights 21%
Year 1
Year 2
Year 3
In creating a new remuneration structure for the CEO,
and in particular deciding whether an STI was relevant to
the CEO role, the Board identified remuneration elements
most aligned with the role of the CEO at Alumina Limited
and the skills and experience of the individual who was
appointed. The aspects considered most important
centred on strategic influence, long term value creation,
joint venture and industry relationships, identification of
portfolio opportunities and leadership skills. A greater
proportion of equity exposure (delivered via the Conditional
Rights) within overall remuneration was thought to be more
meaningful, drive long-term focus and a better measure
of the CEO’s performance. The value of CEO Conditional
Rights will change over time, for example, any sustained
retraction of the Company’s share price will cause a drop
in the value of the CEO’s Conditional Rights and mirror
the experience of shareholders. The table in section 4.2
demonstrates the changes in value of CEO’s Conditional
Rights between the grant date, vesting date or as at
31 December 2018.
When considering the value of each of the remuneration
elements for the CEO’s package, the Board also thought
it continued to be appropriate to maintain total reward
opportunity positioning in the lowest quartile when
comparing the CEO’s remuneration to that of companies
of a comparable size, and ensure upswings in the cycle
don’t generate excessive incentive outcomes. As a total
reward opportunity, the Board set the CEO remuneration
at a level that would be attractive and yet reflect the
non-operating nature of the company.
The Board continues to set specific annual objectives for
the CEO. Progress is reviewed quarterly and at the end
of the year. This process ensures there is a formal and
transparent process
performance in the short-term
• for the Board’s expectations of the CEO to be
communicated and ensure there is a shared understanding
of how performance will be assessed (for example, what
exceptional looks like versus good, or business as usual);
and
• to align the CEO and Board’s understanding of the priorities
that will underpin long-term shareholder value creation.
The Board has turned its mind to the CEO’s performance
assessment framework and process in the last year, and has
further refined its approach so that reward and recognition
decisions for the CEO are underpinned by the performance
assessment process.
43
ALUMINA LIMITED ANNUAL REPORT 2018 SENIOR EXECUTIVES
Senior Executive remuneration packages comprise FAR,
STI and a LTI. The STI component for the Senior Executives
is considered appropriate and provides the CEO with a
management tool to set annual priorities in the context of the
Company’s longer-term strategic plans, reinforced through
the attachment of an incentive.
In 2018, the Board amended the “Corporate Gate” measure
for the STI plan. It is a minimum performance threshold
requirement, whereby the Company must pay
a dividend or report an underlying profit before significant
items. Significant items include any positive or negative
one-off items such as profit on asset sales, asset
impairments or generally any matter which is not recurring.
If the “Corporate Gate” is not satisfied the overall scorecard
performance scores will be halved in determining
STI payments.
The distinction between Corporate and Personal objectives
has been removed, instead the Company strategic, financial
and non-financial objectives are identified. Some Company
objectives are weighted differently for each of the KMP
depending on the expected level of input and responsibilities
assigned. At the end of the year performance is evaluated
based on the status of objective completion and individual
performance relevant to the specific objective.
In the Board’s opinion this change to the STI performance
scorecard will direct Executive focus to the most
significant business priorities, promote teamwork and
present transparent and equitable basis of the
performance assessment. Change to the STI performance
scorecard has no effect on the structure of the CEO’s and
Senior Executives’ remuneration components.
44
2. COMPANY PERFORMANCE AND EXECUTIVE REMUNERATION OUTCOMES
2.1. COMPANY PERFORMANCE
In terms of financial performance, 2018 has been a record
year for Alumina Limited and the AWAC business. As market
conditions improved over the last couple of years, so did the
Company’s performance.
Alumina Limited’s TSR comparative to relevant ASX indices,
reveals a trend of improving returns to investors since 2016
following the completion of AWAC’s asset
portfolio transformation.
ALUMINA LTD. (INCL. FRANKING CREDITS) (A$) 2014–2018
ASX200 MATERIALS COMPANY TSR'S (INCL. FRANKING CREDITS) (A$)
400
350
300
250
200
150
100
E
G
N
A
H
C
E
G
A
T
N
E
C
R
E
P
50
Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
Alumina Ltd. TSR
ASX200 Materials Index 25th percentile
ASX200 Materials Index 50th percentile
ASX200 Materials Index 75th percentile
AVERAGE DIVIDEND YIELD
(PAST THREE YEARS EXCLUDING FRANKING CREDITS)
9.3%
7.0%
5.0%
3.4%
3.1%
2.8%
No
Dividends
No
Dividends
Alumina
Rio
Tinto
South32
Alba
Norsk
Hydro
Rusal
Alcoa
Corp.
Century
Aluminium
Share price and dividend distributions have improved over
the period leading up to record results in 2018 for Alumina
Limited and AWAC. The chart shows that Alumina Limited,
with an average yield of 9.3% over the last three years, has
compared very favourably to the yields of our peers.
Alumina Limited’s profit increased from US$339.8 million
in 2017 to US$635.4 million in 2018 (an increase of 87%).
This increase was largely due to higher alumina prices.
AWAC’s strong financial performance meant that our net
cash receipts for the year more than doubled compared to
the previous year and totalled US$787 million. This enabled
Alumina Limited to pay record dividends totalling
22.7 US cents per share.
45
ALUMINA LIMITED ANNUAL REPORT 2018
150
140
130
120
110
100
90
80
ALUMINA LIMITED 2018 TSR COMPARED TO ASX INDICES1
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Alumina Ltd. TSR (incl. franking credits)
ASX100 Accumulation Index
ASX200 Material Accumulations Index
1 Accumulation indices were used to take into account dividends and both growth and dividend income.
5 YEAR DIVIDEND AND PERCENTAGE
STI AWARD HISTORY
5 YEAR SHARE PRICE AND PERCENTAGE
LTI AWARD HISTORY
E
G
F
A
T
N
E
C
R
E
P
250
200
150
100
50
0
E
R
A
H
S
/
$
U
A
3.5
3
2.5
2
1.5
1
0.5
0
E
G
A
T
N
E
C
R
E
P
120
100
80
60
40
20
0
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Dividend
% Target STI
% Opportunity STI
Share Price
%LTI
E
R
A
H
S
/
S
T
N
E
C
S
U
25
20
15
10
5
0
46
Strong financial results and a positive outlook saw Alumina
Limited reinstated to investment grade credit status
by S&P in May 2018.
provided Alcoa with, and contributed to, discussion and
analysis of various potential projects within AWAC, providing
a sounding board.
Following the substantial completion of the restructuring of
the AWAC asset portfolio in previous years, it was time for
Alumina’s Board and Management to turn their minds to
the future strategy of the business in the context of industry
trends and development.
Within Alumina Limited, a series of objectives were formulated
for 2018. A priority was to engage with Alcoa to assess the
potential growth and synergies within the alumina and bauxite
segments, whilst maintaining good working relationships with
our joint venture partner. Alumina Limited’s management
2018 objectives provided a good blend of financial, non-
financial and strategic objectives. The actual remuneration
outcomes reflect a balanced approach to objective setting,
whereby short-term awards, particularly STI, are not being
inflated just because of the favourable market environment
and prices, but equally long-term awards represent ongoing
effort on strengthening Company performance and
matching our shareholder’s experience.
2.2. REMUNERATION DECISIONS AND OUTCOMES FOR 2018
FIXED REMUNERATION
2018 OUTCOMES
Fixed remuneration for the CEO (including conditional rights) and the General Counsel/Company
Secretary increased in 2018 by 2.5%, which was in line with the increases paid to staff in the company
except for two staff members who received a higher increase in base remuneration due to changes
in their respective responsibilities.
Fixed remuneration for the Group Executive Strategy & Development increased by 7% in 2018.
Following the retirement of long-term CFO, Chris Thiris, Ms Kraeva was appointed interim CFO
effective 19 November 2018. Ms Kraeva’s FAR was set at $600,000 and will be kept at this
level whilst she remains an Interim CFO.
SHORT TERM INCENTIVE
2018 OUTCOMES
In 2018, STI payments were assessed against nine corporate objectives: two financial objectives,
four strategic and three non-financial objectives.
“Corporate Gate” requirements were satisfied therefore STI was assessed based on 100% of the
potential award. Senior Executives (excluding the interim CFO), achieved on average 66% of the
maximum STI.
Given Ms Kraeva’s short period in the role, her performance was not assessed against the 2018
scorecard, but instead against personal targets set out at the beginning of the year.
LONG TERM INCENTIVE
2018 OUTCOMES
The FY16 LTI was tested in 2018 (testing period December 2015 to December 2018) with 96.88%
of the total award vesting.
Alumina Limited’s performance against the ASX Comparator group exceeded the 75th percentile and
therefore 100 per cent of the potential entitlement vested. In relation to the International Comparator
Group, Alumina Limited’s performance was just below the 75th percentile. This resulted in an overall
average of 97 per cent of the potential entitlement vesting.
47
ALUMINA LIMITED ANNUAL REPORT 2018 2.3. PERFORMANCE UNDER THE STI PLAN
2018
DESCRIPTION
KEY FEATURES OF THE STI PLAN
The Board sets financial and non-financial performance objectives at the start of each year. Performance
is then assessed against each objective at the end of each year to determine whether executives receive
payment under the STI plan.
PERFORMANCE PERIOD
Financial Year
PERFORMANCE
HURDLES
The STI is subject to the “Corporate Gate”, a minimum performance threshold requirement under which
Alumina Limited must pay a dividend or report an underlying profit before significant items. Significant
items may include any positive or negative one-off items such as profit on asset sales, asset impairments
or generally any matter which is not recurring.
Where scorecard objectives are met and the “Corporate Gate” is satisfied, the STI payment can be at the
target level. If the “Corporate Gate” is not satisfied the overall scorecard performance scores will be halved
in determining STI payments. Where objectives are significantly exceeded, the STI payment can approach
the maximum level indicated below.
The level of STI paid to each individual Senior Executive is determined with the reference to the relative
weighting of each objective on the scorecard and individual contribution relevant to the specific objective.
PERFORMANCE
ASSESSMENT
The Compensation Committee reviews individual performance against the scorecard at year end. It takes
into account actual performance outcomes and internal and external factors that may have contributed
to the results based on a comprehensive report provided by the CEO.
In determining its recommendations to the Board on the level of STI payments, the Compensation
Committee decides and, through discussion, tests:
• the weighting of each objective
• whether each individual element was achieved or surpassed
• if an element was not achieved, whether this was due to the element no longer being considered a priority
during the year due to changes in the operating environment, or whether due to poor performance
(in which case a zero is likely to be given).
Given the nature of the building blocks to the Alumina Limited STI scheme, a simple distinction between
threshold, at target and stretch performance is not always apparent, especially at the beginning of the
year. But in making its assessments as described above, the Compensation Committee is focused
on a scheme which is sufficiently demanding and rewards hard-won achievements by executives.
OPPORTUNITY
LEVELS
LEVEL OF
PERFORMANCE
Below Expectations
Corporate Gate not
met
(50% of Target)
Corporate Gate
satisfied
100% of Target
Maximum
CFO1
0
28
56
70
PERCENTAGE OF FAR (%)
COMPANY
SECRETARY/GENERAL
COUNSEL
GE STRATEGY &
DEVELOPMENT
0
28
56
70
0
17.5
35
50
1 Ms Kraeva (Interim CFO) 2018 maximum STI award was 30% and a target STI award of 24%.
48
The tables below provide a summary assessment of performance against the STI scorecard, the actual value of STI paid
to Senior Executives and the percentage of total maximum STI paid and forfeited for 2018.
2018 STI SCORECARD
PERFORMANCE MEASURE
Strategic objective - Engage with Alcoa to assess the
potential growth and synergies within the bauxite segment.
(weighting 18%)
Strategic objective - Present to the Board revised Company
strategy and commence implementation.
(weighting 15% )
Strategic objective - Engage with Alcoa to assess the
potential growth within the alumina segment.
(weighting 7%)
Strategic objective - Develop an understanding of AWAC risk
management framework. Reach a position of being satisfied
with the framework.
(weighting 6% )
Financial objective - Ensure the cash distributions required
under the AWAC Joint Venture agreements for 2018
are received.
(10% weighting)
Financial objective - Maintain key financial metrics
of Debt / EBITDA<2 times.
(weighting 10% )
Non-Financial objective - Continue to work with Alcoa
on a number of asset specific initiatives.
(weighting 15% )
Non-Financial objective - Effective and good working
relationship is maintained and enhanced with Alcoa.
(weighting 10% )
Non-Financial objective - Implement revised performance
management and career development process. Undertake
successor and contingency planning.
(weighting 9% )
2018 STI OUTCOMES
KMP
Peter Wasow (previous CEO)1
Chris Thiris (CFO)
Galina Kraeva (Interim CFO)2
Stephen Foster (Company Secretary)
Andrew Wood (GE Strategy & Development)
Total Executive STI
PERFORMANCE
LEVEL
PERFORMANCE ASSESSMENT
Partially
Achieved
At target
At target
Partially
Achieved
At target
At target
At target
Partially
Achieved
Partially
Achieved
YEAR
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
Recommendations developed and communicated
to Alcoa and synergies are being reviewed
Revised strategy presented to the Board,
implementation commenced
Recommendations developed
and communicated to Alcoa
Information on risk management framework
developed and provided. In process of developing
further actions
Distributions of US$787 million received
during 2018
Net cash position of $US95.8 million
as at 31/12/2018
Positive response and action taken
Whilst good working relationships are established
with the key stakeholders the depth of the
relationship across the organisation can be
further improved
New performance management process
implemented. Succession planning for
CFO role ongoing
STI PAID
A$
185,653
335,420
355,000
16,000
270,000
265,000
122,000
119,000
743,420
924,653
PAID AS A
PERCENTAGE
OF MAXIMUM
AWARD
FORFEITED AS
A PERCENTAGE
OF MAXIMUM
AWARD
75%
66%
72%
73%
71%
71%
60%
64%
68%
71%
25%
34%
28%
27%
29%
29%
40%
36%
32%
29%
1 Mr Wasow retired and ceased employment with Alumina Limited on 31 July 2017. His STI was pro-rated for his time of service.
2 Ms Kraeva appointed Interim CFO effective 19 November 2018. Her STI is pro-rated for her time as KMP from 19 November 2018 to 31 December 2018.
49
ALUMINA LIMITED ANNUAL REPORT 2018 2.4. PERFORMANCE UNDER THE LTI PLAN
2018
KEY FEATURES OF THE LTI PLAN
DESCRIPTION
The LTI is delivered in the form of Performance Rights that are tested over a three-year performance period. Each
Performance Right that vests deliver to the holder an ordinary share in Alumina Limited (for Performance Rights
granted prior to 2016) or upon vesting and exercise (for Performance Rights granted from 2016).
PERFORMANCE
PERIOD
PERFORMANCE
HURDLES
Three Year
Alumina Limited’s performance is tested using relative TSR compared against two comparator groups. Relative TSR
was chosen as an appropriate means of measuring Company performance as it incorporates both capital growth
and dividends.
The two comparator groups against which Alumina Limited’s performance were tested are:
• ASX Comparator Group (Test 1 – 50% weighting): Australian listed entities in S&P/ASX 100 Index, excluding
property trusts, the top 20 companies by market capitalisation and Alumina Limited.
• International Comparator Group (Test 2 – 50% weighting): reflecting the Company’s direct competitors in
the market comprising eight selected companies in the alumina and/or aluminium industries that are listed in
Australia or overseas, excluding the Company. The following companies were included in the group: South 32
(AUD), Hindalco Industries (INR), Century Aluminium (USD), Norsk Hydro (NOK), China Hongqiao Group (HKD),
Arconic (USD), Yunnan Aluminium ‘A’ (CNY), Aluminium Corp. of China ‘A’ (CNY).
PERFORMANCE
ASSESSMENT
Performance hurdles are independently measured by Mercer Consulting (Australia) at the conclusion of the relevant
performance period. Alumina Limited’s TSR is ranked against the TSR of companies in each
of the comparator groups.
ALUMINA LIMITED’S TSR PERCENTILE RANK
Below 50th
Equal to 50th
PERCENTAGE OF VESTINGIN
(APPLIES INDIVIDUALLY TO EACH
COMPARATOR GROUP)
0%
50%
Between 50th and 75th (ASX Comparator Group)1
An additional 2% of award for each percentile increase
Equal to or greater than 75th
100%
Following testing, any Performance Rights that have not vested will lapse.
ENTITLEMENTS
The participant is only entitled to proportionally receive dividends and other distributions, bonus issues or
other benefits if the performance conditions applicable to Performance Rights are satisfied (or waived) and the
Performance Rights vest and are exercised.
Shares relating to Performance Rights, are not automatically allocated upon vesting. Instead, participants are
entitled to exercise each relevant Performance Right at any time during the applicable exercise period (Exercise
Period) after vesting. The Exercise Period will generally end seven years after vesting of the relevant Performance
Rights. However, the Exercise Period may be shortened in certain circumstances such as cessation of employment
or a change of control event. Performance Rights that do not vest as at the end of the vesting period will lapse.
PERFORMANCE
LEVELS2
PERCENTAGE OF FAR (%)
CEO
CFO
INTERIM CFO
COMPANY SECRETARY
GE STRATEGY & DEVELOPMENT
Approx
35
40
20
40
30
1 If the Company’s TSR performance is equal to that of any entity (or security) between the 50th percentile and the 75th percentile of the International Comparator
Group ranked by TSR performance, the number of Performance Rights in the relevant half of the LTI award that vest will be equal to the vesting percentage
assigned by the Board to that entity (or security). If the Company’s TSR performance is between that of any two such entities (or securities) in the International
Comparator Group, the number of Performance Rights in the relevant half of the LTI award that vest will be determined on a pro rata basis relative
to the vesting percentages assigned by the Board to those entities (or securities).
2 To determine the number of Performance Rights to be offered, the LTI opportunity is allocated using a face value allocation methodology being the annual dollar
value of the LTI grant divided by the average Company share price over the 20 trading days leading up to the time that the Board determined to make offers
of Performance Rights to Senior Executives under the LTI plan for the relevant year.
50
Alumina Limited’s performance resulted in 96.88 per cent of the total potential entitlement vesting in 2018. The tables below
summarise Alumina Limited’s TSR performance against each of the comparator groups, and the number and value of the
performance rights vested to KMP as result of this performance. Full reconciliation of number of rights at the beginning
and the end of the financial year provided in section 4.3. of this report.
DESCRIPTION
Currency
Performance Period
Alumina Limited’s TSR
Alumina Limited’s TSR Percentile Rank
75th percentile TSR
50th percentile TSR
ASX COMPARATOR
GROUP
INTERNATIONAL
COMPARATOR
GROUP
AUD
USD1
8 December 2015 – 7 December 2018
139.08%
94.46%
58.08%
25.22%
141.33%
71.88%
148.92%
41.61%
1TSR for the International comparator group is calculated using prices and dividends converted to US dollars on a daily basis.
KMP1
Michael Ferraro
Chris Thiris
Galina Kraeva
Stephen Foster
Andrew Wood
NUMBER OF
PERFORMANCE
RIGHTS VESTED IN
2018
A$ VALUE OF
PERFORMANCE
RIGHTS VESTED2
–
230,381
50,087
172,059
91,067
–
502,331
–
–
198,526
1 Mr Ferraro was appointed CEO from 1 June 2017, therefore performance rights granted to him are still subject to future performance testing.
Performance Rights vested in 2018 were issued based on 2015 employment. Ms Kraeva was appointed Interim CFO effective 19 November 2018, and therefore
the Performance Rights vested reflect LTI grants granted to her prior to her becoming a KMP.
2 The value of Performance Rights vested is determined by the number of vested Rights multiplied by the market price at the exercise date. Mr Foster and
Ms Kraeva have not exercised their rights as yet. Had they done so on the vesting date, the value of their respective performance rights vested would have
been $375,089 and $109,190.
51
ALUMINA LIMITED ANNUAL REPORT 2018 2.5. CEO AND SENIOR EXECUTIVES STATUTORY REMUNERATION
The following table shows details of the remuneration expense recognised for the Group’s KMP for the current and
previous financial year measured in accordance with the requirements of the accounting standards. Amounts shown
under share-based payments reflect the accounting expense recorded during the year with respect
to awards that have or are yet to vest.
KMP
YEAR
SHORT-TERM BENEFITS (A$)
Mike Ferraro7
Peter Wasow
Chris Thiris
Galina Kraeva8
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2018
2017
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
FAR1
STI
Non-Monetary2
Other3
Total
1,286,610
731,502
–
–
33,047
18,543
13,261
1,332,918
–
750,045
899,473
185,653
–
4,065
1,089,191
468,111
2,591,658
701,400
678,712
335,420
355,000
70,239
16,000
517,700
499,600
384,710
353,768
270,000
265,000
122,000
119,000
2,960,659
743,420
3,163,055
924,653
27,607
26,371
1,482
(8,156)
24,213
17,402
11,204
71,382
80,331
–
1,064,427
7,798
1,067,881
–
–
–
–
–
87,721
779,544
788,813
524,112
483,972
13,261
3,788,722
11,863
4,179,902
POST EMPLOYMENT
BENEFITS (A$)
SHARE BASED PAYMENTS (A$)
Superannuation and
termination4
Conditional
Rights5
Performance
Rights6
REMUNERATION
TOTAL
(A$)
20,290
12,248
1,034,356
452,402
29,988
2,488
25,000
29,900
20,290
19,832
520,470
1,126,324
507,222
136,111
292,675
–
–
–
–
–
–
–
507,222
428,786
181,536
59,265
175,436
10,256
181,694
4,923
135,253
135,995
72,998
71,842
404,966
624,232
Total
688,758
195,376
10,256
181,694
4,923
135,253
135,995
72,998
71,842
912,188
2,041,966
957,669
1,527,085
1,279,563
95,132
939,797
954,708
617,400
575,646
5,221,380
1,053,018
6,359,244
1 FAR is the total cash cost of salary, exclusive of superannuation.
2 Non-monetary benefits represent the movement in accrued long service leave and value of the car park.
3 Other short-term benefits include personal financial advice allowance and travel allowance.
4 Superannuation and termination reflect the SGC contributions for all KMP and termination payments (payments in lieu) for Mr Chris Thiris (2017: Mr Peter Wasow).
5 The CEO’s remuneration package includes a conditional rights component. In accordance with AASB 2, the value attributed to the conditional rights represents
the amortisation for the reporting period of the value at grant date of all previously granted conditional rights that have neither vested nor lapsed.
52
2.5. CEO AND SENIOR EXECUTIVES STATUTORY REMUNERATION
The following table shows details of the remuneration expense recognised for the Group’s KMP for the current and
previous financial year measured in accordance with the requirements of the accounting standards. Amounts shown
under share-based payments reflect the accounting expense recorded during the year with respect
to awards that have or are yet to vest.
KMP
YEAR
SHORT-TERM BENEFITS (A$)
Mike Ferraro7
Peter Wasow
Chris Thiris
Galina Kraeva8
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2018
2017
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
FAR1
STI
Non-Monetary2
Other3
Total
1,286,610
731,502
–
–
13,261
1,332,918
750,045
899,473
185,653
–
4,065
1,089,191
33,047
18,543
27,607
26,371
1,482
(8,156)
24,213
17,402
11,204
71,382
80,331
–
–
–
–
–
–
–
1,064,427
7,798
1,067,881
87,721
779,544
788,813
524,112
483,972
70,239
16,000
701,400
678,712
517,700
499,600
384,710
353,768
335,420
355,000
270,000
265,000
122,000
119,000
2,960,659
743,420
13,261
3,788,722
3,163,055
924,653
11,863
4,179,902
POST EMPLOYMENT
BENEFITS (A$)
SHARE BASED PAYMENTS (A$)
Superannuation and
termination4
Conditional
Rights5
Performance
Rights6
20,290
12,248
1,034,356
452,402
29,988
2,488
25,000
29,900
20,290
19,832
520,470
1,126,324
507,222
136,111
292,675
–
–
–
–
–
–
–
507,222
428,786
181,536
59,265
175,436
10,256
181,694
4,923
135,253
135,995
72,998
71,842
404,966
624,232
TOTAL
REMUNERATION
(A$)
2,041,966
957,669
Total
688,758
195,376
468,111
2,591,658
10,256
181,694
4,923
135,253
135,995
72,998
71,842
912,188
1,527,085
1,279,563
95,132
939,797
954,708
617,400
575,646
5,221,380
1,053,018
6,359,244
6 In accordance with AASB 2, the value attributed to Performance Rights represents the amortisation for the reporting period of the value
at grant date of all previously granted Performance Rights that have neither vested nor lapsed. The value at grant date is amortised
over a three-year period.
7 Mr Ferraro appointed CEO from 1 June 2017.
8 Ms Kraeva appointed Interim CFO from 19 November 2018.
53
ALUMINA LIMITED ANNUAL REPORT 2018 2.6. ACTUAL “TAKE HOME” 2018 REMUNERATION AWARDED TO CEO AND SENIOR EXECUTIVES
The actual remuneration awarded during the year comprises the following elements:
• Cash salary including superannuation benefits and
any salary sacrifice arrangements, but excluding
termination payments;
• Other short-term benefits comprised of the personal
financial advice allowance and travel allowance
• STI cash payment;
• Conditional Rights vested (being the number of
conditional rights that vested multiplied by the market
price at the vesting date);
• LTI vested and exercised (being the number of
performance rights that vested and exercised multiplied
by the market price at the exercise date).
KMP
YEAR
SHORT-TERM BENEFITS (A$)
STI
Other
Total
Mike Ferraro1
Peter Wasow2
Chris Thiris2
Galina Kraeva3
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2018
2017
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
FAR including
superannuation
1,306,900
743,750
–
–
914,293
185,653
726,400
708,700
335,420
355,000
72,727
16,000
542,700
529,500
405,000
373,600
3,053,727
270,000
265,000
122,000
119,000
743,420
3,269,843
924,653
1 Mr Ferraro appointed CEO from 1 June 2017.
2 Termination payments for Mr Thiris and Mr Wasow are included in the table on page 52.
3 Ms Kraeva appointed Interim CFO from 19 November 2018.
54
13,261
–
4,065
–
7,798
–
–
–
–
–
13,261
11,863
1,320,161
743,750
1,104,011
1,061,820
1,071,498
88,727
812,700
794,500
527,000
492,600
3,810,408
4,206,359
SHARE BASED PAYMENTS (A$)
Conditional
Rights
Performance
Rights6
333,508
597,973
385,019
982,992
502,331
292,400
502,331
292,400
Total
333,508
–
–
–
–
–
–
–
219,705
198,526
115,598
700,857
219,705
198,526
115,598
1,034,365
333,508
597,973
1,012,722
1,610,695
–
–
–
–
–
–
–
–
TOTAL “TAKE HOME”
TOTAL STATUTORY
REMUNERATION,
REMUNERATION, EXCLUDING
EXCLUDING
TERMINATION
(A$)
TERMINATION
(A$)
1,653,669
743,750
2,087,003
1,564,151
1,363,898
88,727
812,700
1,014,205
725,526
608,198
4,844,773
5,817,054
2,041,966
957,669
1,572,122
1,099,683
1,279,563
95,132
939,797
954,708
617,400
575,646
4,793,978
5,339,708
These values differ from the executive statutory
remuneration table and have not been prepared
in accordance with statutory requirements and
Australian Accounting Standards.
SHARE BASED PAYMENTS (A$)
Conditional
Rights
Performance
Rights6
333,508
–
–
–
Total
333,508
–
914,293
185,653
4,065
597,973
385,019
982,992
–
–
–
–
–
–
–
333,508
502,331
292,400
–
–
219,705
198,526
115,598
700,857
502,331
292,400
–
–
219,705
198,526
115,598
1,034,365
3,269,843
924,653
597,973
1,012,722
1,610,695
KMP
YEAR
SHORT-TERM BENEFITS (A$)
STI
Other
Total
FAR including
superannuation
1,306,900
743,750
726,400
708,700
542,700
529,500
405,000
373,600
3,053,727
–
–
335,420
355,000
270,000
265,000
122,000
119,000
743,420
72,727
16,000
Mike Ferraro1
Peter Wasow2
Chris Thiris2
Galina Kraeva3
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2018
2017
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
1 Mr Ferraro appointed CEO from 1 June 2017.
2 Termination payments for Mr Thiris and Mr Wasow are included in the table on page 52.
3 Ms Kraeva appointed Interim CFO from 19 November 2018.
13,261
7,798
–
–
–
–
–
–
–
13,261
11,863
1,320,161
743,750
1,104,011
1,061,820
1,071,498
88,727
812,700
794,500
527,000
492,600
3,810,408
4,206,359
TOTAL “TAKE HOME”
REMUNERATION,
EXCLUDING
TERMINATION
(A$)
TOTAL STATUTORY
REMUNERATION, EXCLUDING
TERMINATION
(A$)
1,653,669
743,750
2,087,003
1,564,151
1,363,898
88,727
812,700
1,014,205
725,526
608,198
4,844,773
5,817,054
2,041,966
957,669
1,572,122
1,099,683
1,279,563
95,132
939,797
954,708
617,400
575,646
4,793,978
5,339,708
55
ALUMINA LIMITED ANNUAL REPORT 2018 3. NON-EXECUTIVE DIRECTORS REMUNERATION
3.1. REMUNERATION OUTCOMES IN 2018
The maximum remuneration for Non-Executive Directors is determined by resolution of shareholders. At the 2016 AGM,
shareholders approved a maximum aggregate remuneration of $1,500,000 per annum for Non-Executive Directors.
A total of $1,220,300 was paid in Non-Executive Director fees in 2018.
Other than the Chairman, who receives a single base fee of $410,000 (inclusive superannuation), Non-Executive Directors
receive a base fee plus additional fees for membership of Board Committees and superannuation contribution.
Non-Executive Directors do not participate in incentive plans or receive any retirement benefits other than statutory
superannuation contributions. There were no changes to NED remuneration base fees in 2018. The Board decided to defer
the 2019 review of fee until 2020 and subsequently there will be no increase of fees in 2019.
Base fee
Compensation Committee – Chair
Compensation Committee – Member
Audit and Risk Management Committee – Chair
Audit and Risk Management Committee – Member
Nomination Committee – Chair
Nomination Committee – Member
A$
150,000
30,000
5,000
30,000
5,000
10,000
–
56
All non-executive directors enter into a service agreement with the company in the form of a letter of appointment.
The letter summarises the board policies and terms, including remuneration, relevant to the office of director.
Table below provides summary of the actual remuneration received by each Non-Executive Director and is prepared
in accordance with statutory requirements and relevant accounting standards.
NON-EXECUTIVE
DIRECTOR
YEAR
SHORT-TERM BENEFITS (A$)
Fees Non-Monetary
John Pizzey2
Peter Day2.3
Emma Stein4
2018
2017
2018
2017
2018
2017
Deborah O’Toole3
2018
2017
2018
2017
2018
2017
2018
Chen Zeng
John Bevan4
Mike Ferraro5
Total
Non-Executive
Director
Remuneration
97,488
390,168
338,472
184,147
187,500
189,953
178,750
13,333
160,000
159,262
167,500
70,507
1,129,710
2017
1,007,370
POST EMPLOYMENT
BENEFITS (A$)
Superannuation1
TOTAL
REMUNERATION
(A$)
5,012
19,832
19,672
17,503
17,813
18,055
16,981
1,267
15,200
15,138
15,912
6,702
102,500
410,000
358,144
201,650
205,313
208,008
195,731
14,600
175,200
174,400
183,412
77,209
Total
97,488
390,168
338,472
184,147
187,500
189,953
178,750
13,333
160,000
159,262
167,500
70,507
1,129,710
90,590
1,220,300
1,007,370
78,497
1,085,867
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 The applicable superannuation contribution rate for 2018 and 2017 was 9.5 per cent.
2 Mr Pizzey retired as a Non-Executive Director and Chairman on 31 March 2018. Mr Day was appointed as Chairman on 1 April 2018.
3 Mr Day has resigned as Chair of the Audit and Risk Management Committee (“ARMC”) on 31 March 2018. Ms O’Toole was appointed as Chair of ARMC
on 1 April 2018. Ms O’Toole was appointed as Non-Executive Director on 1 December 2017.
4 Ms Stein has resigned as Chair of the Nomination Committee on 31 March 2018. Mr Bevan was appointed as Chair of the Nomination Committee on 1 April 2018.
Mr Bevan was appointed a Non-Executive Director on 1 January 2018.
5 Mr Ferraro resigned as a Non-Executive Director on 31 May 2017 and was appointed to the position of Chief Executive Officer and Managing Director on 1 June 2017.
57
ALUMINA LIMITED ANNUAL REPORT 2018 3.2. NON-EXECUTIVE DIRECTORS SHARE HOLDINGS
Each Non-Executive Director is required to hold shares in the Company having a value at least equal to 50 per cent of their
annual fees within five years from their appointment as a Director.
NON-EXECUTIVE
DIRECTOR
John Pizzey2
Peter Day
Emma Stein
Deborah O’Toole3
Chen Zeng4
John Bevan
YEAR
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
NUMBER OF SHARES AS
AT 1 JANUARY1
NUMBER OF SHARES
ACQUIRED DURING
THE YEAR
NUMBER OF SHARES AS
AT 31 DECEMBER1
82,111
75,720
75,720
84,794
75,808
–
–
4,804
4,804
300,154
8,500
–
–
–
8,986
8,000
–
–
–
–
90,611
75,720
75,720
84,794
84,794
8,000
–
4,804
4,804
300,154
1 Number of shares held at 1 January and 31 December of the respective years include directly held shares, nominally held shares,
and shares held by personally related entities.
2 Mr Pizzey retired as a Non-Executive Director and Chairman on 31 March 2018.
3 Ms O’Toole was appointed a Non-Executive Director on 1 December 2017.
4 Mr Zeng is a nominee of CITIC and CITIC holds 548,959,208 ordinary fully paid shares in Alumina Limited.
4. ADDITIONAL DISCLOSURES
4.1. RECONCILIATION OF CONDITIONAL RIGHTS HELD BY CEO
EXECUTIVE
DIRECTOR
YEAR1
NUMBER OF RIGHTS
VALUE OF RIGHTS (A$)
Total
as at 1
January
Granted
during
the
year1,2
Vested
during
the year3
Lapsed
during
the year4
Total
as at 31
Dec5
Granted
during the
year1.2
Vested
during the
year6
Lapsed
during the
year4
MAXIMUM
VALUE OF
RIGHTS
YET TO
VEST (A$)7
Mike Ferraro
(CEO)
Peter Wasow
(previous
CEO)
2018
122,164
169,268
(122,164)
2017
–
122,164
–
2017
177,988
116,580 (294,568)
–
–
–
169,268
410,000 (333,508)
122,164
233,333
–
–
212,175
(597,973)
–
–
–
–
–
–
1 Mr Ferraro receives Conditional Rights replacing an STI component. The number of Conditional Rights is determined by dividing the set value of $410,000
(2017: $400,000) by a Volume Weighted Average Price (VWAP) of $2.42 (2017: $1.91), independently calculated by Mercer. Mr Ferraro’s FAR increased
by 2.5% in 2018 therefore total value of the initial Conditional Rights grant increased. Mr Ferraro received a pro-rata allocation in 2017 calculated from his
commencement date of 1 June 2017 as CEO.
2 Mr Wasow received annually, Conditional Rights to a set value as an equity component of his FAR. In 2017 the number of Conditional Rights was equal to the set
value of $212,175 divided by an independently determined Volume Weighted Average Price (VWAP) which, for 2017 was $1.82 (116,580 shares).
3 The terms of Conditional Rights granted were not altered during 2018. The number of Conditional Rights vested is the number granted in the prior years,
following the completion of the required conditions. For Mr Wasow and Mr Ferraro there is a three-year trading restriction on the shares from grant date as long
as CEO remains employed by the Company.
4 No Conditional Rights lapsed.
5 Number of Conditional Rights yet to meet the required condition and have not lapsed.
6 Value vested is equal to the number of Conditional Rights that have satisifed the required conditions multiplied by the share price at the time of vesting.
In 2018, for Mr Ferraro, it was 122,164 Conditional Rights by the share price of $2.73 on 8 June 2018. In 2017, for Mr Wasow, it was 294,568 Conditional Rights
by the share price of $2.03 on 7July 2017.
7 The maximum value of the Conditional Rights is based on the number of rights that vest and are released at the expiration of the conditional period, multiplied
by the share price on the date of release.
58
4.2. VALUE CHANGE OVER TIME OF THE CEO’S CONDITIONAL RIGHTS
YEAR
2018
2017
TOTAL
NUMBER
OF RIGHTS
169,268
122,164
291,432
Granted during the year2
As at vesting date3
As at December 20184
VALUE OF RIGHTS (A$)1
410,000
233,333
643,333
–
333,508
333,508
389,316
–
389,316
1 The table above represents conditional rights of Mike Ferraro.
2 The number of Conditional Rights is determined by dividing the set value of $410,000 (2017: $400,000) by a Volume Weighted Average Price (VWAP) of $2.42
(2017: $1.91), independently calculated by Mercer. Mr Ferraro’s FAR increased by 2.5% in 2018 therefore the total value of the initial Conditional Rights grant
increased. Mr Ferraro received a pro-rata allocation in 2017 calculated from his commencement date of 1 June 2017 as CEO.
3 The value of Conditional Rights vested is determined by the number of vested Rights multiplied by the market price at the vesting date.
4 The value of Conditional Rights as at 31 December 2018 is determined by the number of vested Rights multiplied by the market price at the date.
4.3. RECONCILIATION OF PERFORMANCE RIGHTS HELD BY KMP
KMP
YEAR1
NUMBER OF PERFORMANCE RIGHTS
Total as at 1
January2
Granted
during the
year3
Vested or
vested and
exercised
during the
year4,5
Lapsed
during
the year6
Total as at 31
December7
Yet to be
exercised
as at 31
December
Yet to vest
as at 31
December
Mike Ferraro
Peter Wasow
Chris Thiris
Galina Kraeva
Stephen Foster
Andrew Wood
2018
2017
2017
2018
2017
2018
2018
2017
2018
2017
141,900
198,000
–
141,900
–
–
–
–
339,900
141,900
599,900
251,700
(159,759)
(441,873)
249,968
405,900
127,900
(230,381)
(141,769)
161,650
400,700
168,100
(121,328)
(41,572)
405,900
–
–
–
–
–
339,900
141,900
249,968
161,650
405,900
88,300
27,800
303,200
95,500
–
–
(1,613)
114,487
(50,087)
64,400
(5,541)
393,159
(172,059)
221,100
300,000
125,600
(91,164)
(31,236)
303,200
160,500
53,500
(91,067)
(2,933)
120,000
158,400
66,500
(47,966)
(16,434)
160,500
–
–
–
303,200
120,000
160,500
1 2018 include Performance Rights granted on 18 January 2018 (2017: 20 January 2017) for the three-year performance test period concluding 4 December 2020
(2017: 6 December 2019).
2Includes the number of Performance Rights granted that were subject to testing in 2018.
3 The terms of Performance Rights granted were not altered during 2018. Number of Performance Rights granted calculated as the annual dollar value of the LTI
grant divided by the average Company share price over the 20 trading days leading up to the time that the Board determined to make offers to Senior Executives
under the LTI plan for the relevant year.
4 The number of Performance Rights that vested in 2018 due to testing of Tranche 16. For the rights tested against the ASX Comparator Group, 100 per cent vested
and 93.76 per cent vested in relation to the International Comparator Group.
5 For Performance Rights granted on and after 20 January 2017, Performance Rights vest on satisfaction of the performance criteria. The eligible participant
then enters an exercise period that concludes at 5:00pm (Melbourne time) on the date that is seven years after vesting. Vested ESP entitlements that are not
exercised by the end of the Exercise Period will lapse (and consequently no Shares will be allocated, and no Cash Settlement Amounts will be paid, in respect of
those vested ESP entitlements). However, if any of eligible participants vested ESP entitlements would otherwise lapse at the end of the Exercise Period because
of this rule, and they have not previously notified Alumina Limited that they do not wish those vested ESP entitlements to exercised, then they will be deemed
to be exercised by the eligible participant.
6 The number of the Performance Rights that did not meet the criteria for vesting and therefore lapsed. In 2018, it also includes 134,350 Performance Rights
for Mr Thiris that lapsed on a proportional basis from his retirement date to the end of the relevant performance period (2017: 387,134 Performance Rights
for Mr Wasow that lapsed on his retirement).
7 Includes number of Performance Rights granted subject to future testing (yet to vest) and number of Performance rights vested but yet to be exercised.
59
ALUMINA LIMITED ANNUAL REPORT 2018 KMP
YEAR1
VALUE OF PERFORMANCE RIGHTS (A$)
Granted
during the
year1
Vested or
vested and
exercised
during the
year2
Lapsed
during the
year1
Yet to be
exercised1
282,150
262,515
–
–
–
–
259,251
385,019
(425,033)
182,258
502,331
(176,693)
173,143
292,400
(46,976)
–
–
–
–
–
Mike Ferraro
Peter Wasow
Chris Thiris
Galina Kraeva
2018
2017
2017
2018
2017
2018
Stephen Foster
2018
136,088
39,615
–
–
(1,274)
39,569
(4,377)
135,927
Andrew Wood
2017
2018
2017
129,368
219,705
(35,297)
76,238
198,526
(2,317)
68,495
115,598
(18,570)
–
–
–
MINIMUM VALUE
OF GRANTS
YET TO
VEST3
MAXIMUM VALUE
OF GRANT
YET TO
VEST OR TO BE
EXERCISED1
–
–
–
–
–
–
–
–
–
–
544,665
262,515
210,537
184,569
361,005
77,313
265,456
269,672
144,733
142,755
1 Calculated by multiplying the number of rights by the fair value as at the date of the grant, independently calculated by Mercer Consulting (Australia)
using the assumptions underlying the Black-Scholes methodology to produce a Monte Carlo simulation model that accommodates features
associated with Alumina Limited’s ESP such as exercise, lapse and performance hurdles.
2 The value of Performance Rights vested is determined by the number of vested Rights multiplied by the market price at the vesting date.
3 The minimum value of the Performance Rights for any given year is zero.
4.4. RECONCILIATION OF ORDINARY SHARES HELD BY KMP
KMP
YEAR1
NUMBER OF ORDINARY SHARES
Total as at
1 January1
Acquired
during the year
under LTI2
68,000
68,000
–
–
Acquired
during the
year CEO
Conditional
Rights
122,164
–
455,838
159,759
294,568
900,000
230,381
814,000
121,328
25,770
765,748
739,717
197,966
150,000
–
–
91,164
91,067
47,966
–
–
–
–
–
–
–
Other shares
acquired
during the year
Sold during
the year
Total as at 31
December
–
–
–
–
–
–
190,164
68,000
(910,165)
–
1,130,381
38,100
(73,428)
900,000
–
32,486
28,867
–
–
–
–
25,770
798,234
(94,000)
765,748
–
–
289,033
197,966
Mike Ferraro
Peter Wasow
Chris Thiris
Galina Kraeva
2018
2017
2017
2018
2017
2018
Stephen Foster
2018
Andrew Wood
2017
2018
2017
1 Number of shares held at 1 January and 31 December of the respective years include directly held, and nominally held shares, and shares held by personally
related entities.
2 For 2018, includes 2016 vested and exercised Performance Rights that were tested in December 2018. For 2017, includes vested 2015 Performance Rights
that were tested in December 2017.
60
ALUMINA LIMITED ANNUAL REPORT 2018
61
4.5. CEO AND SENIOR EXECUTIVES SERVICE AGREEMENTS
Remuneration and other terms of employment for executives are formalised in service agreements.
Major provisions of the agreements relating to remuneration are set out below.
Termination benefits are within the limits set by the Corporations Act 2001 (Cth).
TERM OF AGREEMENT AND NOTICE PERIOD
TERMINATION PAYMENTS1
MIKE FERRARO
• No fixed term.
• 12 month written notice from either party.
• Mr Ferraro’s employment may be terminated immediately
for any conduct that would justify summary dismissal.
• Alumina Limited may, at its discretion, make a payment in lieu
of some or all of the notice period.
• Any payment to be made to Mr Ferraro in lieu of notice shall
be calculated based on his Fixed Annual Reward. He would also
receive any statutory entitlements.
• Number of shares equal to the granted conditional rights that
would have vested during notice period.
• In addition to the above, Mr Ferraro may terminate his
employment by giving notice to Alumina Limited
(effective immediately or up to six months later) in the event
of a Significant Change. In that case Mr Ferraro will be entitled
to receive a payment equal to 12 months’ Fixed Annual Reward
less the amount received during any period of notice served.
He will also be entitled to payment in lieu of accrued annual
and long service leave entitlements.
CHRIS THIRIS, STEPHEN FOSTER, ANDREW WOOD AND GALINA KRAEVA
• No fixed term.
• An additional payment which is the greater of:
• Six month notice from the Company, three month notice
— A payment equivalent to six months Base Remuneration; or
from Mr Thiris and Mr Foster.
• Four month notice from the Company, two month notice
from Mr Wood.
• Three month notice from the Company, three month notice
from Ms Kraeva.
— A payment comprising:
– Notice payment (the greater of 12 weeks or notice provided
within employment contract),
– severance payment of 2.5 weeks per complete year of
service, pro-rated for completed months of service; and
– nine weeks ex gratia payment.
1 Payable upon termination with notice and without cause (e.g. for reasons other than unsatisfactory performance) and suitable alternative employment
is not offered or if they do not accept other employment, or in the event of a significant change (which is defined to be if Alumina Limited ceases to be
listed on the ASX or if there is a significant change to the executives status and/or responsibilities that is detrimental to the executive). Calculated according
to the “Base Remuneration”, which is defined as FAR for Mr Ferraro; and FAR + STI at target for Mr Thiris, Mr Foster, Mr Wood and Ms Kraeva.
The above termination entitlements are subject to any restrictions imposed by the Corporations Act.
62
4.6. CESSATION OF EMPLOYMENT
4.8. CLAWBACK POLICY
On cessation of employment, prior to Performance Rights
vesting, except to the extent that the Board otherwise
determines in its absolute discretion within 20 business
days after employment ceasing, a pro rata number of
unvested Performance Rights will lapse. The number of
unvested Performance Rights that lapse will be proportional
to the amount of the testing period that has not yet elapsed
at the time of employment ceasing. In these circumstances,
the Board also has discretion under the LTI plan rules to
determine, within two months of employment ceasing,
that any of the remaining unvested Performance Rights
are forfeited.
In relation to any remaining unvested Performance Rights
that do not lapse and are not forfeited, they will continue
on foot under the LTI plan rules and be tested for vesting
in the normal way unless the exercise period is shortened
or the Board in its discretion determines that any or all
performance conditions in respect of all or some of the
Performance Rights will be tested at a date determined
by the Board or waived, and/or cash settlement amounts
will be paid in respect of Performance Rights that vest and
are exercised.
4.7. CHANGE OF CONTROL
In the event of a change in control, the Board may bring
forward the testing date for the LTI performance conditions,
or waive those conditions, and/or shorten the exercise period
for Performance Rights that have already vested or that vest
subsequently. The Board may also, in its discretion, determine
that cash settlement amounts will be paid in respect of any
vested Performance Rights.
Alumina Limited has a Clawback Policy that provides scope
for the Board to recoup incentive remuneration paid to the
CEO and senior executives where:
• material misrepresentation or material restatement of
Alumina Limited’s financial statements occurred as a
result of fraud or misconduct by the CEO or any senior
executives; and
• the CEO or senior executives received incentive
remuneration in excess of that which should have been
received if the Alumina Limited financial statements had
been correctly reported.
The Board also may seek to recover gains from the sale
or disposition of vested shares and determine to cancel
unvested equity awards.
4.9. SHARE TRADING AND HEDGE PROHIBITION
Performance Rights and Conditional Rights granted under
Alumina Limited’s LTI plan must remain at risk until fully
vested. This is consistent with Alumina Limited’s Share
Trading Policy that prohibits Directors and employees from
engaging in:
• short-term trading of any Alumina Limited securities
• buying or selling Alumina Limited securities if they possess
unpublished, price-sensitive information; or
• trading in derivative products over the Company’s
securities, or entering into transactions in products that
limit the economic risk of their security holdings
in the Company.
This report is made in accordance with a resolution
of the Directors.
W Peter Day
Chairman
22 March 2019
ALUMINA LIMITED ANNUAL REPORT 2018
63
FINANCIAL
REPORT
The financial report covers the
consolidated entity consisting of Alumina
Limited (the Company or parent entity)
and its subsidiaries (together the Group).
The financial report is presented in
US dollars, unless otherwise specified.
Alumina Limited is a Company limited by shares,
incorporated and domiciled in Australia. Its registered office
and principal place of business is: Alumina Limited, Level 12,
IBM Centre, 60 City Road, Southbank Victoria 3006.
A description of the nature of the consolidated entity’s
operations and its principal activities is included in the
operating and financial review on pages 22–37 of the annual
report. The operating and financial review is not part of this
financial report.
The financial report was authorised for issue by the
Directors on 22 March 2019.
Through the use of the internet, we have ensured that
our corporate reporting is timely and complete. All press
releases, financial reports and other information are
available at our Investor Centre on our website:
www.aluminalimited.com.
CONTENT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2018
About This Report
1. Segment Information
2. Investments In Associates
3. Investments In Controlled Entities
4. Financial Assets And Liabilities
5. Financial Risk Management
6. Capital Management
65
66
67
68
69
70
71
74
74
77
81
64
Key Numbers
7. Expenses
8. Income Tax Expense
9. Equity
10. Cash Flow Information
Other Information
11. Related Party Transactions
12. Share-Based Payments
13. Remuneration Of Auditors
14. Commitments And Contingencies
15. Events Occurring After
The Reporting Period
16. Parent Entity Financial Information
17. Deed Of Cross Guarantee
18. New Accounting Standards
82
83
86
87
88
88
89
90
90
90
91
And Interpretations Not Yet Adopted
93
Signed Reports
Directors’ Declaration
Independent Auditor’s Review Report
to the Members of Alumina Limited
93
94
ALUMINA LIMITED YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
NOTES
US$ MILLION
Revenue from continuing operations
Share of net profit of associates accounted for using the equity method
General and administrative expenses
Change in fair value of derivatives/foreign exchange losses
Finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to the owners of Alumina Limited
Other comprehensive income/(loss)
Items that may be reclassified to profit or loss
Share of reserve movements accounted for using the equity method
Foreign exchange translation difference
Items that will not be reclassified to profit or loss
Re-measurements of retirement benefit obligations accounted
for using the equity method
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year attributable
to the owners of Alumina Limited
Earnings per share for profit from continuing operations attributable
to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
2(c)
7(a)
7(b)
8
9(b)
2018
1.6
653.5
(11.6)
(1.4)
(6.7)
635.4
–
635.4
0.4
(217.6)
(0.5)
(217.7)
417.7
2017
0.6
360.4
(13.6)
0.7
(8.3)
339.8
–
339.8
2.9
88.0
7.8
98.7
438.5
9(a)
9(a)
22.1¢
22.1¢
11.8¢
11.8¢
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
ALUMINA LIMITED ANNUAL REPORT 2018
65
ALUMINA LIMITED YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED BALANCE SHEET
NOTES
US$ MILLION
4(a)
2(c)
4(b)
4(c)
4(b)
4(c)
9(a)
9(a)
2018
183.8
1.1
184.9
2,060.2
–
2,060.2
2,245.1
1.2
88.0
19.0
0.2
0.4
108.8
-
-
0.5
0.5
109.3
2,135.8
2,682.9
(1.2)
(1,252.0)
706.1
2,135.8
2017
40.0
1.8
41.8
2,301.0
0.1
2,301.1
2,342.9
1.3
–
–
0.3
0.1
1.7
98.4
8.3
0.5
107.2
108.9
2,234.0
2,682.9
(0.9)
(1,034.7)
586.7
2,234.0
CURRENT ASSETS
Cash and cash equivalents
Other assets
Total current assets
NON-CURRENT ASSETS
Investment in associates
Property, plant and equipment
Total non-current assets
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Borrowings
Derivative financial instruments
Provisions
Other liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Borrowings
Derivative financial instruments
Provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Treasury shares
Reserves
Retained earnings
TOTAL EQUITY
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
66
ALUMINA LIMITED YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES
US$ MILLION
CONTRIBUTED
EQUITY1
RESERVES
RETAINED
EARNINGS
Balance as at 1 January 2017
Profit for the year
Other comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends paid
Movement in treasury shares
9(a)
Movement in share based payments reserve
2,682.9
(1,125.3)
–
–
–
(0.9)
–
–
90.9
–
–
(0.3)
449.3
339.8
7.8
(210.2)
–
–
Balance as at 31 December 2017
2,682.0
(1,034.7)
586.7
Balance as at 1 January 2018
Profit for the year
Other comprehensive loss for the year
Transactions with owners in their capacity as owners:
Dividends paid
Movement in treasury shares
9(a)
Movement in share based payments reserve
2,682.0
(1,034.7)
–
–
–
(0.3)
–
–
(217.2)
–
–
(0.1)
586.7
635.4
(0.5)
(515.5)
–
–
Balance as at 31 December 2018
2,681.7
(1,252.0)
706.1
1 Treasury shares have been deducted from contributed equity.
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
TOTAL
2,006.9
339.8
98.7
(210.2)
(0.9)
(0.3)
2,234.0
2,234.0
635.4
(217.7)
(515.5)
(0.3)
(0.1)
2,135.8
ALUMINA LIMITED ANNUAL REPORT 2018
67
ALUMINA LIMITED YEAR ENDED 31 DECEMBER 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES
US$ MILLION
Cash flows from operating activities
Payments to suppliers and employees (inclusive of goods and services tax)
GST refund received
Dividends received from associates
Distributions received from associates
Finance costs paid
Interest paid under cross currency interest rate swap
Interest received under cross currency interest rate swap
Other
Net cash inflow from operating activities
10(a)
Cash flows from investing activities
Payments for investments in associates
Proceeds from return of invested capital
Net cash inflow/(outflow) from investing activities
2(c)
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payments for shares acquired by the Alumina Employee Share Plan
Dividends paid
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
4(a)
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
2018
(10.7)
0.4
657.2
0.2
(8.1)
(5.1)
5.7
1.7
641.3
(108.8)
129.6
20.8
75.0
(75.0)
(1.2)
(515.5)
(516.7)
145.4
40.0
(1.6)
183.8
2017
(12.1)
0.5
278.1
1.2
(9.8)
(5.4)
6.6
0.4
259.5
(80.0)
63.8
(16.2)
105.0
(105.0)
(2.0)
(210.2)
(212.2)
31.1
8.6
0.3
40.0
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018
ABOUT THIS REPORT
THE NOTES TO THE FINANCIAL STATEMENTS
The notes include information which is required to
understand the financial statements and is material
and relevant to the operations, financial position and
performance of the Group. Information is considered
material and relevant if, for example:
• the amount in question is significant because of its size
or nature,
• it is important for the understanding of the results
of the Group, or
• it relates to an aspect of the Group’s operations that is
important to its future performance.
The notes are organised into the following sections:
• Group structure and AWAC performance: explains the
group structure and information about AWAC’s financial
position and performance and its impact on the Group.
• Financial and capital risk: provides information about the
Group’s financial assets and liabilities and discusses the
Group’s exposure to various financial risks and explains
how these affect the Group’s financial position and
performance and what the Group does to manage these
risks. It also describes capital management objectives
and practices of the Group.
• Key numbers: provides a breakdown of individual line
items in the financial statements that the Directors
consider most relevant and summarises the accounting
policies, judgements and estimates relevant to
understanding these line items.
• Other information: provides information on items, which
require disclosure to comply with Australian Accounting
Standards and other regulatory pronouncements.
However, they are not considered critical in understanding
the financial performance of the Group and are not
immediately related to the individual line items in the
financial statements.
Alumina Limited is a for profit company limited by shares
incorporated and domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange. The
consolidated financial report of the Group for the year ended
31 December 2018 was authorised for issue in accordance
with a resolution of the Directors on 22 March 2019.
The consolidated financial report is a general purpose
financial report which:
• incorporates assets, liabilities and results of operations of
all Alumina Limited’s subsidiaries and equity accounts its
associates. For the list of the Company’s associates and
subsidiaries refer Notes 2(a) and 3 respectively.
• has been prepared in accordance with the requirements
of the Corporations Act 2001, Australian Accounting
Standards (AAS) and Interpretations issued by the
Australian Accounting Standards Board (AASB). Alumina
Limited is a for profit entity for the purpose of preparing
the financial statements.
• complies with International Financial Reporting Standards
(IFRS) as issued by the International Accounting
Standards Board.
• has been prepared under the historical cost convention,
as modified by the revaluation of certain financial assets
and liabilities (including derivative instruments) at fair
value through profit or loss.
• the Company is of a kind referred to in the Australian
Securities and Investments Commission Corporations
Instrument 2016/191, relating to the “rounding off” of
amounts in the financial report. Amounts in the financial
report have been rounded off in accordance with that
Legislative Instrument to the nearest hundred thousand
dollars, and presented in US dollars, except where
otherwise required.
• adopts all new and amended Accounting Standards
and Interpretations issued by the AASB that are effective
for the annual reporting beginning 1 January 2018.
• does not early adopt Accounting Standards and
Interpretations that have been issued or amended
but are not yet effective.
• presents reclassified comparative information
where required for consistency with the current
year’s presentation.
ALUMINA LIMITED ANNUAL REPORT 2018
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
ACCOUNTING POLICIES
Significant and other accounting policies that summarise
the measurement basis used and are relevant to the
understanding of the financial statements are provided
throughout the notes to the financial statements.
FOREIGN CURRENCY TRANSLATION
The consolidated financial statements are presented in
US dollars, which is Alumina Limited’s presentation and
functional currency.
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
the dates of these transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in the profit or loss, except when they are deferred
in other equity as qualifying cash flow hedges and qualifying
net investment hedges or are attributable to part of the net
investment in a foreign operation.
The results and financial position of the Group entities
and associates that have a functional currency different
from the presentation currency are translated into the
presentation currency as follows:
• assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet.
• income and expenses are translated at average exchange
rates (unless this is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated
at the dates of the transactions).
• all resulting exchange differences are recognised in other
comprehensive income.
• on consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated
as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold,
its share of such exchange differences is reclassified
to the profit or loss, as part of the gain or loss on sale.
GROUP STRUCTURE AND AWAC PERFORMANCE
1. SEGMENT INFORMATION
Alumina Limited’s sole business undertaking is in the global
bauxite, alumina and aluminium industry, which it conducts
primarily through bauxite mining and alumina refining. All
of those business activities are conducted through its 40%
investments in AWAC. Alumina Limited’s equity interest in
AWAC form one reportable segment.
A full description of Alumina Limited’s business model is
included in the Operating and Financial Review on pages
22–37 of the annual report.
The equity interest in AWAC is represented by investments
in a number of entities in different geographical locations.
YEAR ENDED 31 DECEMBER 2018
US$ MILLION
Investments in associates
Other assets
Liabilities
Consolidated net assets
AUSTRALIA
1,150.0
184.3
(109.3)
1,225.0
BRAZIL
649.9
0.3
–
650.2
YEAR ENDED 31 DECEMBER 2017
US$ MILLION
Investments in associates
Other assets
Liabilities
Consolidated net assets
AUSTRALIA
1,307.4
32.2
(108.9)
1,230.7
BRAZIL
747.9
9.3
–
757.2
OTHER
260.3
0.3
–
260.6
OTHER
245.7
0.4
–
246.1
TOTAL
2,060.2
184.9
(109.3)
2,135.8
TOTAL
2,301.0
41.9
(108.9)
2,234.0
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2. INVESTMENTS IN ASSOCIATES
(a) ALCOA WORLD ALUMINA AND CHEMICALS
Alumina Limited has an interest in the following entities forming AWAC:
NAME
PRINCIPAL ACTIVITIES
COUNTRY OF
INCORPORATION
PERCENTAGE OWNERSHIP
2018
2017
Alcoa of Australia Limited
Bauxite, alumina & aluminium production
Australia
Alcoa World Alumina LLC
Bauxite and alumina trading & production
USA
Alumina Espanola S.A.
Alumina production
Alcoa World Alumina Brasil Ltda.
Bauxite and alumina production
AWA Saudi Ltda.
Bauxite and alumina production
Enterprise Partnership1
Finance lender
1The Enterprise Partnership was terminated on 31 July 2018.
Spain
Brazil
Hong Kong
Australia
40
40
40
40
40
–
40
40
40
40
40
40
The audited combined financial statements of the entities
forming AWAC are prepared in accordance with Accounting
Principles Generally Accepted in the United States of America
(US GAAP). Alcoa of Australia Limited (AWAC entity) further
issue audited financial statements prepared in accordance
with the requirements of the Corporations Act 2001,
Australian Accounting Standards and interpretations issued
by Australian Accounting Standards Board.
For the remaining AWAC entities, for equity accounting
purposes adjustments are made to convert the accounting
policies under US GAAP to Australian Accounting Standards.
The principal adjustments are to the valuation of inventories
from last in first-out basis to a basis equivalent to weighted
average cost, to create an additional asset retirement
obligation for dismantling, removal and restoration of certain
refineries, differences in the recognition of actuarial gains and
losses on certain defined benefit pension plans pension plans
and the reversal of certain fixed asset uplifts included in Alcoa
World Alumina Brasil Ltda.
In arriving at the value of these GAAP adjustments,
Management is required to use accounting estimates and
exercise judgement in applying the Group’s accounting
policies. The note below provides an overview of the areas that
involved a higher degree of judgement or complexity.
(b) CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS
Estimates and judgements are continually evaluated and
are based on historical experience and other factors,
including expectations of future events that may have
a financial impact on the Group and that are believed to
be reasonable under the circumstances. The resulting
accounting estimates will by definition, seldom equal the
related actual results. The estimates and judgements that
have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are disclosed below.
Retirement benefit obligations
The Group recognises a net liability for retirement benefit
obligations under the defined benefit superannuation
arrangements through its investment in AWAC.
All plans are valued in accordance with AASB 119 Employee
Benefits. These valuations require actuarial assumptions
to be made. All re-measurements are recognised in other
comprehensive income.
Asset retirement obligations
The estimated costs of rehabilitating mined areas and
restoring operating sites are reviewed annually and fully
provided at the present value. The amount of obligations
recognised under US GAAP by AWAC is adjusted to be in
compliance with AAS. This requires judgemental assumptions
regarding the timing of reclamation activities, plant and site
closure and discount rates to determine the present value of
these cash flows.
Carrying value of investments in associates
The Group assesses at each reporting period whether there
is objective evidence that the investment in associates is
impaired by:
• Performing an impairment indicators assessment to
consider whether indicators of impairment exist;
• If indicators of impairment exist, calculating the value in
use of the investment in AWAC using a discounted cash
flow model (“DCF model”); and
• Comparing the resulting value to the book value.
The key assumptions used in the DCF model to estimate
future cash flows are those relating to future alumina and
aluminium prices, energy prices and exchange rates.
Key assumptions are determined with reference to industry
participants and brokers’ forecasts, commodity and
currency forward curves and industry consultant views.
These cash flows are then discounted to net present value
using the weighted average cost of capital (WACC).
Furthermore, the following sensitivity analyses (stress
testing) are performed over the value in use calculation:
• Commodities, including aluminium, alumina, caustic, coal,
oil and gas price fluctuations (plus or minus 10%).
AWAC’s future cash flows are most sensitive to alumina
price fluctuations.
• Currency rate fluctuation (plus or minus 10%).
• Increased WACC.
ALUMINA LIMITED ANNUAL REPORT 2018
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2. INVESTMENTS IN ASSOCIATES (CONTINUED)
As a final check, the book value of the investment in associates is compared to Alumina Limited’s market capitalisation and
to major analysts’ valuations.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
No indicators of impairment were identified and no impairment loss was recognised in the years ended 31 December 2018
and 31 December 2017.
(c) SUMMARISED FINANCIAL INFORMATION FOR AWAC
The information disclosed in the tables below reflects the amounts presented in the AWAC financial statements amended
to reflect adjustments made by Alumina Limited when using the equity method, including adjustments for differences
in accounting policies.
SUMMARISED BALANCE SHEET
US$ MILLION
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Reconciliation to investment in associate balance
Group Share as a percentage
Group Share in dollars
Goodwill
Net value of mineral rights and bauxite assets
Deferred tax liability (DTL) on mineral rights and bauxite assets
Allocation of Alba settlement
Carrying value
Reconciliation of carrying amount:
Opening carrying value 1 January
Net additional (return)/funding in AWAC entities
Profit for the year
Other comprehensive (loss)/income for the year
Dividends and distributions paid
Closing net assets
2018
1,929.9
5,336.2
(1,464.7)
(1,263.2)
4,538.2
40%
1,815.3
175.8
102.8
(33.7)
-
2017
1,798.8
6,171.9
(1,514.9)
(1,393.3)
5,062.5
40%
2,025.0
175.8
104.9
(34.3)
29.6
2,060.2
2,301.0
2,301.0
(20.8)
653.5
(216.1)
(657.4)
2,060.2
2,106.0
16.2
360.4
97.7
(279.3)
2,301.0
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2. INVESTMENTS IN ASSOCIATES (CONTINUED)
SUMMARISED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
Revenues
Profit from continuing operations
Profit for the year
Other comprehensive(loss)/ income for the year
Total comprehensive income for the year
Reconciliation to investment in associate balance
Group Share of profit for the year as a percentage
Group Share of profit for the year in dollars
Mineral rights and bauxite amortisation
Movement in deferred tax liability on mineral rights and bauxite assets
Share of profit from associate accounted for using equity method
Dividends and distributions received from AWAC
(d) COMMITMENTS AND CONTINGENT LIABILITIES
FOR AWAC
Claims
There are potential obligations that may result in a future
obligation due to the various lawsuits and claims and
proceedings which have been, or may be, instituted or
asserted against entities within AWAC, including those
pertaining to environmental, product liability, safety and
health and tax matters. While the amounts claimed may be
substantial, the ultimate liability cannot now be determined
because of the considerable uncertainties that existed
at balance date. Also, not every plaintiff has specified the
amount of damages sought in their complaint. Therefore, it is
possible that results of operations or liquidity in a particular
period could be materially affected by certain contingencies.
Pursuant to the terms of the AWAC Formation Agreement,
Arconic Inc, Alcoa Corporation and Alumina Limited have
agreed to remain liable for Extraordinary Liabilities
(as defined in the agreement) as well as for certain other
pre-formation liabilities, such as environmental conditions,
to the extent of their pre-formation ownership of the AWAC’s
entity or asset with which the liability is associated.
US$ MILLION
2018
6,749.4
1,637.5
1,637.5
(540.2)
1,097.3
40%
655.0
(2.1)
0.6
653.5
657.4
2017
5,274.0
904.8
904.8
244.3
1,149.1
40%
361.9
(2.1)
0.6
360.4
279.3
Other commitments
AWAC has outstanding bank guarantees and letters of credit
primarily related to environmental and leasing obligations,
legal matters and custom duties, among others.
The total amount committed under these instruments,
which automatically renew or expire at various dates,
mostly in 2019, was $153.0 million at 31 December 2018.
AWAC has outstanding surety bonds primarily related to
custom duties. The total committed under these bonds,
which automatically renew or expire at various dates,
between 2019 and 2021, was $6.5 million at
31 December 2018.
ALUMINA LIMITED ANNUAL REPORT 2018
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
3. INVESTMENTS IN CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Alumina Limited
as at 31 December 2018 and the results of their operations for the year then ended.
The Group has formed a trust to administer the Group’s employee share scheme. This trust is consolidated, as the substance
of the relationship is that the trust is controlled by the Group. Shares held by the Alumina Employee Share Plan Trust are
disclosed as treasury shares and deducted from contributed equity.
The Group’s subsidiaries at 31 December 2018 are set out below.
NAME
Alumina Employee Share Plan Pty Ltd
Alumina Finance Pty. Ltd.
Alumina Holdings (USA) Inc.
Alumina International Holdings Pty. Ltd.
Alumina Brazil Holdings Pty Ltd
Alumina Limited Do Brasil SA
Alumina (U.S.A.) Inc.
Butia Participaçoes SA
Westminer Acquisition (U.K.) Limited
NOTES
PLACE OF
INCORPORATION
A
A
B
C
A
D
B
D
D
VIC, Australia
VIC, Australia
Delaware, USA
VIC, Australia
VIC, Australia
Brazil
Delaware, USA
Brazil
UK
PERCENTAGE
OWNERSHIP
2018
2017
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
A. A small proprietary company, which is not required to prepare a financial report.
B. A company that has not prepared audited accounts as it is non-operating or audited accounts is not required in its country of incorporation.
Appropriate books and records are maintained for the company.
C. The company has been granted a relief from the necessity to prepare accounts pursuant to Australian Securities and Investment Commission (ASIC)
Class Order 2016/785. For further information refer Note 17.
D. A company that prepares separate audited accounts in the country of incorporation.
FINANCIAL AND CAPITAL RISK
4. FINANCIAL ASSETS AND LIABILITIES
This note provides information about the Group’s financial instruments, including:
• an overview of all financial instruments held by the Group.
• specific information about each type of financial instrument.
• accounting policies.
• information about determining the fair value of the instruments.
AT FAIR VALUE
THROUGH PROFIT
OR LOSS
US$ MILLION
AT AMORTISED
COST
–
–
–
–
–
19.0
19.0
19.0
183.8
–
183.8
1.2
88.0
–
89.2
(94.6)
TOTAL
183.8
–
183.8
1.2
88.0
19.0
108.2
(75.6)
2018
Cash and cash equivalents – Note 4 (a)
Receivables
Total financial assets
Payables
Borrowings – Note 4 (b)
Derivative financial instruments – Note 4(c)
Total financial liabilities
Net financial liabilities/(assets)
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
4. FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
2017
Cash and cash equivalents – Note 4 (a)
Receivables
Total financial assets
Payables
Borrowings – Note 4 (b)
Derivative financial instruments – Note 4 (c)
Total financial liabilities
Net financial liabilities
AT FAIR VALUE
THROUGH PROFIT
OR LOSS
US$ MILLION
AT AMORTISED
COST
–
–
–
–
–
8.3
8.3
8.3
40.0
–
40.0
1.3
98.4
–
99.7
59.7
TOTAL
40.0
–
40.0
1.3
98.4
8.3
108.0
68.0
The Group’s exposure to various risks associated with the financial instruments is disclosed in Note 5. The maximum
exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned
above. The carrying amounts of financial assets and liabilities, other than derivative financial instruments, approximate
their fair values. Derivative financial instruments are measured at fair value through profit or loss.
(a) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short-term highly
liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value, and bank overdrafts.
Cash on hand and at bank
Money market deposits
Total cash and cash equivalents as per the Statement of Cash Flows
US$ MILLION
2018
2.8
181.0
183.8
2017
13.1
26.9
40.0
ALUMINA LIMITED ANNUAL REPORT 2018
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
4. FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(b) BORROWINGS
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised
in profit or loss over the period of the borrowings using the effective interest method.
Fees paid on establishment of loan facilities are recognised as transaction costs to the extent that it is probable that some
or all of a facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no
evidence that it is probable that some or all of a facility will be drawn down, the fee is capitalised as a prepayment for the
liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
Bank loans
Fixed rate note
Total borrowings
Bank loans
US$ MILLION
2018
–
88.0
88.0
2017
–
98.4
98.4
Alumina Limited has a $250 million syndicated bank facility with two tranches maturing in July 2020 ($150 million) and
October 2022 ($100 million). As at 31 December 2018 there were no amounts drawn against the syndicated facility
so the undrawn available facility amount as at 31 December 2018 was $250 million.
Fixed rate note
On 12 November 2014, Alumina Limited issued an A$125 million face value 5.5% fixed rate note at a discount of A$0.7 million.
A change in the credit rating of Alumina Limited triggered a 1.75% step up in coupon from 5.5% to 7.25%, which was effective
20 November 2016. A subsequent change in credit rating in April 2017 reduced the coupon rate from 7.25% to 6.75%, effective
19 May 2017. A further change in the credit rating triggered a 1.25% step down coupon rate from 6.75% to the original coupon
rate of 5.5%, effective 21 May 2018. The note matures on 19 November 2019. The fixed rate note has been converted
to US dollar equivalents at year-end exchange rates.
(c) DERIVATIVES
Derivatives are only used for economic hedging purposes and not as trading or speculative instruments. Derivatives are
classified as held for trading and accounted for at fair value through profit or loss as they are not designated as hedges.
They are presented as current assets or liabilities if they are expected to be settled within 12 months after the end of the
reporting period.
To provide an indication about the reliability of the input used in determining the fair value, the Group has classified its
financial instruments into three levels prescribed under the accounting standards. An explanation of each level follows
underneath the table.
2018
Cross-currency interest rate swap (CCIRS AUD/USD)
Total financial liabilities at fair value through profit or loss
2017
Cross-currency interest rate swap (CCIRS AUD/USD)
Total financial liabilities at fair value through profit or loss
US$ MILLION
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
–
–
–
–
19.0
19.0
8.3
8.3
–
–
–
–
19.0
19.0
8.3
8.3
Level 1: Financial instruments traded in active markets (such as publicly traded derivatives, trading and available for sale
securities) for which the fair value is based on quoted market prices at the end of the reporting period.
Level 2: Financial instruments that are not traded in an active market (for example, over the counter derivatives) for which
the fair value is determined using valuation techniques which maximise the use of observable market data and rely
as little as possible on entity specific estimates.
Level 3: If one or more of the significant inputs is not observable market data, the instrument is included in level 3.
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
5. FINANCIAL RISK MANAGEMENT
This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s
future financial performance.
RISK
EXPOSURE ARISING FROM
MEASUREMENT
MANAGEMENT
Market risk: foreign currency
Market risk: interest rate
Financial assets and liabilities
denominated in currency other
than US$
Long-term borrowings
at fixed rates
Cash flow forecasting &
sensitivity analysis
Cross-currency interest rate
swaps
Sensitivity analysis
Cross-currency interest rate
swaps
Credit risk
Cash and cash equivalents, and
derivative financial instruments
Credit ratings
Credit limits, letters of credit,
approved counter-parties list
Liquidity risk
Borrowings and other liabilities
Cash flow forecasting
Availability of committed
borrowing facilities
Financial risk management is carried out by the Treasury Committee which is responsible for developing and monitoring risk
management policies. Risk management policies are established to identify and analyse the risks faced by the Group to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions and the Group’s activities.
(a) MARKET RISK
Foreign exchange risk
Foreign exchange risk for the Group arises when future commercial transactions and recognised assets and liabilities are
denominated in a currency that is not the Group’s functional currency.
The fixed rate note is issued in Australian dollars. To mitigate the exposure to the AUD/USD exchange rate and Australian
interest rates the Group entered into CCIRS for the full amount of the face value of the fixed rate note to swap the exposure
back to US dollars.
Except as described above, the Group generally does not hedge its foreign currency exposures except through the near-term
purchase of currency to meet operating requirements.
The Group’s exposure to foreign currency risk at the end of the reporting period, as expressed in US$, was as follows:
2018
Cash and cash equivalents
Receivables
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial (liabilities)/assets
Derivative financial instruments (notional principal)
Net financial assets/(liabilities)
US$ MILLION
USD
AUD
OTHER
TOTAL
182.2
–
182.2
–
–
–
182.2
(108.4)
73.8
1.4
–
1.4
1.2
88.0
89.2
(87.8)
108.4
20.6
0.2
–
0.2
–
–
–
0.2
–
0.2
183.8
–
183.8
1.2
88.0
89.2
94.6
–
94.6
ALUMINA LIMITED ANNUAL REPORT 2018
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
5. FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) MARKET RISK (CONTINUED)
2017
Cash and cash equivalents
Receivables
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial (liabilities)/assets
Derivative financial instruments (notional principal)
Net financial assets/(liabilities)
Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises
from its borrowings.
Borrowings by the Group at variable rates expose it to cash
flow interest rate risk. Borrowings at fixed rates would
expose the Group to fair value interest rate risk.
When managing interest rate risk the Group seeks to
reduce the overall cost of funds. Group policy is to generally
borrow at floating rates subject to availability of attractive
fixed rate deals.
In 2018 and 2017, CCIRS for the whole face value of the
fixed rate note were used to manage the exposure to
Australian interest rates over the life of the note.
USD
29.5
–
29.5
–
–
–
29.5
(108.4)
(78.9)
US$ MILLION
AUD
OTHER
TOTAL
1.7
–
1.7
1.3
98.4
99.7
(98.0)
108.4
10.4
8.8
–
8.8
–
–
–
8.8
–
8.8
40.0
–
40.0
1.3
98.4
99.7
(59.7)
–
(59.7)
A change in credit rating for Alumina Limited triggered
a 1.75% step up in coupon from 5.5% to 7.25%, which
was effective 20 November 2016. To cover the increased
interest rate exposure one of the original CCIRS was
amended and an additional CCIRS was entered into.
A subsequent change in credit rating triggered a 0.50%
step down in the coupon from 7.25% to 6.75%, effective
19 May 2017. A further change in the credit rating triggered
a 1.25% step down in coupon rate from 6.75% to the
original coupon rate of 5.5%, effective 21 May 2018.
Existing CCIRS were amended to manage the changed
interest rate exposure.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
5. FINANCIAL RISK MANAGEMENT (CONTINUED)
The consolidated entity’s exposure to interest rate risk
and the effective weighted interest rate after the effect
of derivative instruments is set out below:
2018
Cash and cash equivalents
Receivables
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial (liabilities)/assets
Weighted average interest rate before derivatives
Weighted average interest rate after derivatives
2017
Cash and cash equivalents
Receivables
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial (liabilities)/assets
Weighted average interest rate before derivatives
Weighted average interest rate after derivatives
US$ MILLION
FLOATING
INTEREST
FIXED
INTEREST
NON-INTEREST
BEARING
TOTAL
183.8
–
183.8
–
–
–
183.8
3.8%
3.8%
–
–
–
–
88.0
88.0
(88.0)
5.9%
4.5%
–
–
–
1.2
–
1.2
(1.2)
183.8
–
183.8
1.2
88.0
89.2
94.9
US$ MILLION
FLOATING
INTEREST
FIXED
INTEREST
NON-INTEREST
BEARING
TOTAL
40.0
–
40.0
–
–
–
40.0
2.8%
2.8%
–
–
–
–
98.4
98.4
(98.4)
6.9%
4.9%
–
–
–
1.3
–
1.3
40.0
–
40.0
1.3
98.4
99.7
(1.3)
(59.7)
Had interest rates on floating rate debt during 2018 been one percentage point higher/lower than the average, with all other
variables held constant, pre-tax profit for the year would have been $0.6 million lower/higher (2017: $0.7 million lower/higher).
ALUMINA LIMITED ANNUAL REPORT 2018
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
5. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) CREDIT RISK
(c) LIQUIDITY RISK
Credit risk arises from cash and cash equivalents,
derivative financial instruments and deposits with banks
and financial institutions, as well as credit exposures to
customers, including outstanding receivables and committed
transactions. For banks and financial institutions, only
independently rated parties with a minimum rating of ‘A-‘ are
accepted, and exposure limits are assigned based on actual
independent rating under Board approved guidelines.
Prudent liquidity risk management requires maintaining
sufficient cash and credit facilities to ensure the Group’s
commitments and plans can be met. This is managed
by maintaining committed undrawn credit facilities to
cover reasonably expected forward cash requirements.
Management monitors rolling forecasts of the Group’s
liquidity, including undrawn borrowing facilities and cash
and cash equivalents on the basis of expected cash flows.
Credit risk further arises in relation to cross guarantees
given to wholly owned subsidiaries (see Note 17 for
details). Such guarantees are only provided in exceptional
circumstances and are subject to Board approval.
The carrying amount of financial assets recorded in the
financial statements, net of any allowances for losses,
represent the Group’s maximum exposure to credit risk.
The Group had the following undrawn borrowing facilities at the end of the reporting period:
Expiring within one year
Expiring beyond one year
Total undrawn borrowing facilities
The table below details the Group’s remaining contractual maturity for its financial liabilities.
US$ MILLION
2018
–
250.0
250.0
2017
–
250.0
250.0
2018
Trade payables
Borrowings
Total non-derivative financial liabilities
Derivative financial liabilities
2017
Trade payables
Borrowings
Total non-derivative financial liabilities
Derivative financial liabilities
US$ MILLION
LESS THAN
6 MONTHS
6–12
MONTHS
1–2
YEARS
2–5
YEARS
TOTAL
1.2
–
1.2
–
1.3
–
1.3
–
–
88.0
88.0
19.0
–
–
–
–
–
–
–
-
–
98.4
98.4
8.3
–
–
–
–
–
–
–
–
1.2
88.0
89.2
19.0
1.3
98.4
99.7
8.3
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
6. CAPITAL MANAGEMENT
(a) RISK MANAGEMENT
The Group’s objective when managing capital is to safeguard
the ability to continue as a going concern, so that it can
continue to provide returns for shareholders and to maintain
an optimal capital structure to reduce the cost of capital.
The Group calculates the gearing ratio as net debt divided
by total capital. Net debt is calculated as total borrowings
less cash and cash equivalents. Total capital is calculated
as ‘equity’ as shown in the balance sheet plus debt.
The Board’s policy is to maintain a strong capital base so
as to maintain investor, creditor and market confidence and
to sustain future development of the business. In order to
maintain or adjust the capital structure, the Company
may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell
assets to reduce debt.
The gearing ratios at 31 December 2018 and 31 December 2017 were as follows:
Total borrowings
Less: cash and cash equivalents
Net (cash)/debt
Total borrowings
Total equity
Total capital
Gearing ratio
(b) DIVIDENDS
Interim dividend of 8.6 cents fully franked at 30% per fully paid share declared 23 August 2018 and paid on
20 September 2018 (2017: 4.2 cents fully franked at 30% per fully paid share declared 24 August 2017 and
paid on 14 September 2017)
US$ MILLION
2018
88.0
(183.8)
(95.8)
88.0
2,135.8
2,223.8
(4.3%)
2017
98.4
(40.0)
58.4
98.4
2,234.0
2,332.4
2.5%
US$ MILLION
2018
247.7
2017
120.9
Final dividend of 9.3 cents fully franked at 30% per fully paid share declared 22 February 2018 and paid
on 15 March 2018 (2017: 3.1 cents fully franked at 30% per fully paid share declared 23 February 2017
and paid on 22 March 2017)
267.8
89.3
Total dividends
515.5
210.2
Since the year-end the Directors have recommended the payment of a final dividend of 14.1 cents per share
(2017: 9.3 cents per share), fully franked based on the tax paid at 30%. The record date to determine entitlements to the
dividend is 27 February 2019. The aggregate amount of the proposed dividend expected to be paid on 14 March 2019 out
of retained earnings at 31 December 2018, but not recognised as a liability at the year-end, is $406.1 million.
ALUMINA LIMITED ANNUAL REPORT 2018
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
6. CAPITAL MANAGEMENT (CONTINUED)
(c) FRANKED DIVIDENDS
Franking credits available for subsequent financial years, based on a tax rate of 30% (2017: 30%)
A$ MILLION
2018
473.2
2017
388.5
The above amounts are calculated from the balance of the franking credits as at the end of the reporting period, adjusted for
franking credits and debits that will arise from the settlement of liabilities and receivables for income tax and dividends after
the end of the year.
The fully franked dividends received from AWAC entities in the financial year were
A$ MILLION
2018
657.2
2017
278.1
KEY NUMBERS
7. EXPENSES
(a) EMPLOYEE BENEFITS EXPENSE
Liabilities for salaries and annual leave are recognised in current provisions (i.e. short-term employee benefits), and are
measured as the amount unpaid at reporting date at expected pay rates in respect of employees’ services up to that date,
including related on-costs.
The liability for long service leave is recognised in the provision for employee benefits and measured as the present value
of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration
is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future
payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms
to maturity and currency that match, as closely as possible, the estimated future cash flows.
All employees of Alumina Limited are entitled to benefits on retirement, disability or death from the Group’s superannuation
plan. Alumina Limited’s employees are members of the Alumina Limited Super Plan managed by MLC MasterKey Super,
except for employees who elected to contribute to an alternate fund. The plan is an accumulation category plan which offers
a minimum Company contribution of 9.5 per cent of basic salary to each member’s account. Members also have the option
to make voluntary contributions to their account. Employer contributions to these funds are recognised as an expense.
Profit/(loss) before income tax included the following specific expenses:
Defined contribution superannuation expense
Other employee benefits expense
Total employee benefits expense
US$ MILLION
2018
2017
0.2
5.5
5.7
0.2
6.5
6.7
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
7. EXPENSES (CONTINUED)
(b) FINANCE COSTS
Finance costs comprise interest payable on borrowings using the effective interest rate method, commitment fees and
amortisation of capitalised facility fees.
Finance costs:
Interest expense
Commitment and upfront fees
Amortisation of capitalised upfront fees
Total finance costs
US$ MILLION
2018
2017
4.3
2.1
0.3
6.7
4.7
2.1
1.5
8.3
8. INCOME TAX EXPENSE
(a) INCOME TAX EXPENSE AND DEFERRED TAXES
The income tax expense/benefit for the period is the
tax payable/receivable on the current period’s taxable
income based on the applicable income tax rate for each
jurisdiction adjusted by charges in deferred tax assets
and liabilities attributable to temporary differences and
to unused tax losses.
The current income tax charge is calculated on the basis
of the tax laws enacted or substantively enacted at the
reporting period in the countries where the Company’s
subsidiaries and associates operate and generate
taxable income.
Current tax
Deferred tax
Aggregate income tax expense
US$ MILLION
2018
2017
–
–
–
–
–
–
ALUMINA LIMITED ANNUAL REPORT 2018
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
8. INCOME TAX EXPENSE (CONTINUED)
(a) INCOME TAX EXPENSE AND DEFERRED TAXES
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted
or substantially enacted by the reporting date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those
temporary differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax
bases of investments in controlled entities where the parent
entity is able to control the timing of the reversal of the
temporary differences and it is probable that the differences
will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to
the same taxation authority. Current tax assets and liabilities
are offset where the entity has a legally enforceable right to
offset and intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
Alumina Limited and its wholly-owned Australian controlled
entities have implemented the tax consolidation legislation.
As a consequence, these entities are taxed as a single entity
and the deferred tax assets and liabilities of these entities
are set off in the consolidated financial statements.
The Group’s deferred tax assets and liabilities are
attributable to the following:
Deferred tax liabilities
Unrealised foreign exchange gains
Total deferred tax liabilities
Deferred tax assets
Employee benefits
Derivative financial instruments
Other
Total deferred tax assets other than tax losses
Net deferred tax assets/(liabilities) before tax losses
Deductible temporary differences and tax losses not recognised
Net deferred tax assets/(liabilities)
US$ MILLION
2018
5.6
5.6
0.2
5.7
0.1
6.0
0.4
(0.4)
–
2017
2.8
2.8
0.2
2.5
0.1
2.8
–
–
–
Deferred tax assets are recognised only to the extent of deferred tax liabilities existing at reporting date.
Remaining deferred tax assets are not recognised as it is not probable that future taxable amounts will be available
to utilise those temporary differences and losses.
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
8. INCOME TAX EXPENSE (CONTINUED)
(b) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE
Profit before income tax
Prima facie tax expense for the period at the rate of 30%
The following items caused the total charge for income tax
to vary from the above:
Share of equity accounted profit not assessable for tax
Foreign income subject to accruals tax
Share of Partnership income assessable for tax
Amounts non-assessable for tax
Tax losses not recognised
Non-deductible expenses
Net movement
Consequent decrease in charge for income tax at the rate of 30%
Aggregate income tax expense
US$ MILLION
2018
635.4
(190.6)
2017
339.8
(101.9)
(653.5)
(360.4)
2.2
0.2
(0.1)
13.9
1.9
(635.4)
190.6
–
4.7
0.8
–
11.2
3.9
(339.8)
101.9
–
(c) TAX EXPENSE RELATING TO ITEMS OF COMPREHENSIVE INCOME
Current and deferred tax balances attributable to amounts recognised directly in other comprehensive income and equity are
also recognised directly in other comprehensive income and equity.
Cash flow hedges
Actuarial gains on retirement benefit obligations
Total tax (credit)/expense relating to items of other comprehensive income
(d) TAX LOSSES
Tax losses – revenue
Tax losses - capital
Total unused tax losses
Potential tax benefit – revenue
Potential tax benefit – capital
Total potential tax benefit
US$ MILLION
2018
0.2
(0.5)
(0.3)
2017
1.2
3.5
4.7
US$ MILLION
2018
1,155.7
951.5
2,107.2
280.7
285.4
566.1
2017
1,053.3
951.5
2,004.8
345.6
285.4
631.0
ALUMINA LIMITED ANNUAL REPORT 2018
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
9. EQUITY
(a) CONTRIBUTED EQUITY
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity
as a deduction, net of tax, from the proceeds.
MOVEMENT IN SHARE CAPITAL
NUMBER OF SHARES
US$ MILLION
Balance brought forward
Movement for the period
Total issued capital
Treasury shares
2018
2017
2,879,843,498
2,879,843,498
–
–
2,879,843,498
2,879,843,498
2018
2,682.9
–
2,682.9
2017
2,682.9
–
2,682.9
Treasury shares are Alumina Limited shares held by the Alumina Employee Share Plan Trust for the purpose of issuing shares
under the Alumina Employee Share Plan.
MOVEMENT IN TREASURY SHARES
NUMBER OF SHARES
US$ MILLION
Balance brought forward
Shares acquired by Alumina Employee Share Plan Pty Ltd
(average price: A$2.32 per share (2017: A$1.84 per share))
2018
700,445
2017
1,856
2018
906,873
2017
1,905
684,500
1,484,568
1,241,548
2,040,374
Employee performance rights vested
(695,678)
(785,979)
(900,424)
(1,135,406)
Total treasury shares
689,267
700,445
1,247,997
906,873
The weighted average number of ordinary shares used as the denominator in the calculation of basic earnings per share is
calculated as the weighted average number of ordinary shares outstanding during the financial year, adjusted for treasury
shares issued.
Weighted average number of ordinary shares used as the denominator in the calculation
of basic and diluted earnings per share
NUMBER OF SHARES
2018
2017
2,878,674,535
2,878,924,467
(b) OTHER RESERVES
Other Reserves include assets revaluation reserve, capital reserve, option premium on convertible bonds reserve, share-based
payments reserve, cash-flow hedge reserve and foreign currency translation reserve.
Foreign currency translation reserve
The foreign currency translation reserve represents exchange differences arising on the translation of non-US dollar
functional currency operations within the Group into US dollars.
Balance at the beginning of the financial year
Currency translation differences arising during the year
Balance at the end of the financial year
US$ MILLION
2018
2017
(1,104.2)
(1,192.2)
(217.6)
88.0
(1,321.8)
(1,104.2)
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
10. CASH FLOW INFORMATION
(a) RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Profit from continuing operations after income tax
Share of net profit of associates accounted for using equity method
Dividends and distributions received from associates
Share based payments
Other non-cash items
(depreciation, net exchange differences, other)
Sub-total
Change in assets and liabilities:
Decrease/(increase) in receivables
Decrease/(increase) in other assets
US$ MILLION
2018
635.4
(653.5)
657.4
0.8
0.5
640.6
–
0.7
2017
339.8
(360.4)
279.3
0.9
(1.4)
258.2
0.1
1.2
Net cash inflow from operating activities
641.3
259.5
(b) NON-CASH FINANCING AND INVESTING ACTIVITIES
During the period there was a $100 million loan between two AWAC entities (100% AWAC level), which the borrower
repaid using partners’ equity contributions ($40 million Alumina Limited’s share). Proceeds from the loan repayment
were distributed back to the partners by the lender.
(c) NET DEBT RECONCILIATION
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
Cash and cash equivalents
Borrowing – repayable within one year
Borrowings – repayable after one year
Net cash/(debt)
Cash and liquid investments
Gross debt – fixed interest rates
Net cash/(debt)
Net debt as at 1 January 2017
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2017
Cash flows
Borrowings reclassification
Foreign exchange adjustments
Other non-cash movement
Net cash as at 31 December 2018
US$ MILLION
2018
183.8
(88.0)
–
95.8
183.8
(88.0)
95.8
US$ MILLION
CASH/BANK
OVERDRAFT
BORROWINGS
DUE WITHIN
1 YEAR
BORROWINGS
DUE AFTER
1 YEAR
8.6
31.1
0.3
-
40.0
145.4
-
(1.6)
-
183.8
-
-
-
-
-
-
(98.4)
9.4
1.0
(88.0)
(92.4)
-
(7.4)
1.4
(98.4)
-
98.4
-
-
-
2017
40.0
–
(98.4)
(58.4)
40.0
(98.4)
(58.4)
TOTAL
(83.8)
31.1
(7.1)
1.4
(58.4)
145.4
-
7.8
1.0
95.8
ALUMINA LIMITED ANNUAL REPORT 2018
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
OTHER INFORMATION
11. RELATED PARTY TRANSACTIONS
The parent entity within the Group is Alumina Limited. Balances and transactions between the parent entity
and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
(a) OWNERSHIP INTERESTS IN RELATED PARTIES
Interests held in the following classes of related parties are set out in the following notes:
• associates – Note 2.
• controlled entities – Note 3.
(b) COMPENSATION OF KEY MANAGEMENT PERSONNEL
Detailed remuneration disclosures for the key management personnel, defined as Group Directors,
CEO and Senior Executives, are provided in the remuneration report on pages 40 to 63 of this annual report.
The remuneration report has been presented in Australian dollars, whilst the financial report has been presented
in US dollars. The average exchange rate for 2018 of 0.7475 (2017: 0.7667) has been used for conversion.
DIRECTORS AND SENIOR EXECUTIVES
Short-term employee benefits
Post-employment and termination benefits
Share based payments
Total
US$
2018
2017
3,676,528
3,977,082
456,767
681,861
923,735
807,349
4,815,156
5,708,166
(c) OTHER TRANSACTIONS AND BALANCES WITH RELATED PARTIES
There have been no other related party transactions made during the year or balances outstanding as at 31 December 2018,
between the Group, its related parties, the Directors or key management personnel (2017: Nil).
12. SHARE-BASED PAYMENTS
The Group provides benefits to employees (including CEO and Senior Executives) through share based incentives.
Employees are incentivised for their performance in part through participation in the grant of conditional entitlement to fully
paid ordinary shares (a Performance Right) via the Alumina Limited Employee Share Plan (ESP).
For further details on key features of the ESP refer to the remuneration report on pages 40 to 63 of this annual report.
Set out below are summaries of performance rights granted under the ESP.
2018
GRANT DATE
EXPIRY DATE
19/12/2016
7/12/2018
20/1/2017
6/12/2019
1/6/2017
31/5/2020
18/1/2018
4/12/2020
TOTAL
BALANCE AT
START OF THE
YEAR NUMBER
839,664
506,487
141,900
–
1,488,051
GRANTED
DURING
THE YEAR
NUMBER
–
–
–
551,500
551,500
VESTED
DURING
THE YEAR
NUMBER
(813,765)
–
–
–
(813,765)
LAPSED
DURING
THE YEAR
NUMBER
(25,899)
(52,195)
–
(84,092)
(162,186)
BALANCE AT
THE END
OF YEAR
NUMBER
–
454,292
141,900
467,408
1,063,600
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2017
GRANT DATE
EXPIRY DATE
5/1/2015
11/12/2017
19/12/2016
7/12/2018
20/1/2017
6/12/2019
1/6/2017
31/5/2020
TOTAL
BALANCE AT
START OF THE
YEAR NUMBER
689,866
1,004,737
–
–
1,694,603
GRANTED
DURING
THE YEAR
NUMBER
–
–
708,400
141,900
850,300
VESTED
DURING
THE YEAR
NUMBER
(491,411)
–
–
–
LAPSED
DURING
THE YEAR
NUMBER
(198,455)
(165,073)
(201,913)
–
BALANCE AT
THE END
OF YEAR
NUMBER
–
839,664
506,487
141,900
(491,411)
(565,441)
1,488,051
The weighted average remaining contractual life of performance rights outstanding at the end of the period was 1.4 years
(2017: 1.4 years).
In addition to the ESP, the CEO’s remuneration includes an annual conditional share right component. For further details refer
to the remuneration report on pages 40 to 63 of this annual report.
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefits
expense were as follows:
Performance rights granted under the Alumina Employee Share Plan
CEO annual conditional share rights grant
Retired CEO annual conditional share rights grant
Total
13. REMUNERATION OF AUDITORS
US$ 000’S
2018
417
379
-
796
2017
556
104
217
877
During the period the following fees were paid or payable for services provided by the auditor of the parent entity, and its
related practices and non-related audit firms:
PricewaterhouseCoopers Australia:
Audit and review of the financial reports
Other assurance services
Related practices of PricewaterhouseCoopers Australia:
Overseas taxation services
Total
US$ 000’S
2018
2017
397
395
3
7
3
8
407
406
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where
PricewaterhouseCoopers’ expertise and experience with the Group are important provided such arrangements do not
compromise audit independence. These assignments are principally tax advice or where PricewaterhouseCoopers is awarded
assignments on a competitive basis.
ALUMINA LIMITED ANNUAL REPORT 2018
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
14. COMMITMENTS AND CONTINGENCIES
Capital commitments
There are no contractual capital commitments at reporting date but there could be future equity calls by AWAC entities
in relation to working capital support. However, this is subject to market conditions.
Contingent Liabilities
There are no contingent liabilities of the Group as at 31 December 2018 and 31 December 2017, other than as disclosed
in Note 2(d) and Note 16(b).
15. EVENTS OCCURRING AFTER THE REPORTING PERIOD
Except as disclosed in the Director’s report or elsewhere in the Financial Statements, there have been no significant
events occurring since 31 December 2018.
Please refer to Note 6(b) for the final dividend recommended by the Directors.
16. PARENT ENTITY FINANCIAL INFORMATION
The financial information for the parent entity has been
prepared on the same basis as the consolidated financial
statements, except as set out below.
Intercompany Loans
Loans granted by the parent entity to its subsidiaries are
classified as non-current assets.
Investments in subsidiaries, associates and
joint venture entities
Tax consolidation legislation
Investments in subsidiaries, associates and joint
venture entities are accounted for at cost in the financial
statements of Alumina Limited. Dividends received from
associates are recognised in the parent entity’s profit or
loss, rather than being deducted from the carrying amount
of these investments.
Where the parent entity has provided financial guarantees
in relation to loans and payables of subsidiaries for no
compensation, the fair values of these guarantees are
accounted for as contributions and recognised as part
of the cost of the investment.
(a) SUMMARISED FINANCIAL INFORMATION
Alumina Limited and its wholly-owned Australian controlled
entities have implemented tax consolidation legislation.
The head entity, Alumina Limited, and the controlled
entities in the tax consolidated Group account for their own
current and deferred tax amounts. These tax amounts are
measured as if each entity in the tax consolidated Group
continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts,
Alumina Limited also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused
tax losses and unused tax credits assumed from controlled
entities in the tax consolidated Group.
The individual financial statements for the parent entity show the following aggregate amounts:
BALANCE SHEET
Current assets
Total assets
Current liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Issued capital
Reserves
Retained earnings
TOTAL SHAREHOLDERS’ EQUITY
Profit for the year
Total comprehensive income for the year
90
US$ MILLION
2018
2017
184.2
3,985.8
108.8
114.9
32.2
3,861.5
1.7
114.5
2,682.9
2,682.9
236.8
951.2
3,870.9
639.5
639.5
236.9
827.2
3,747.0
258.7
258.7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
(b) GUARANTEES ENTERED INTO BY THE PARENT ENTITY
The parent entity has provided guarantees to certain third
parties in relation to the performance of contracts by various
AWAC companies.
In order to facilitate the full conversion of the San Ciprian
alumina refinery from fuel oil to natural gas, in October
2013, Alumina Espanola SA (Espanola) signed a take
or pay gas pipeline utilisation agreement. In November
2013, Alumina Limited agreed to proportionally (i.e. 40%)
guarantee the payment of Espanola’s contracted gas
pipeline utilisation over the four years of the commitment
period. Such commitment came into force six months after
the gas pipeline was put into operation. The gas pipeline was
completed in January 2015 and the refinery has switched
to natural gas consumption for 100% of its needs.
This guarantee will expire on 15 July 2019.
There is also a guarantee to Banco di Bilbao in respect of
Espanola’s bank facility.
In late 2011, Alcoa, on behalf of AWAC, issued guarantees
to the lenders of the Ma’aden bauxite mining/refining joint
venture in Saudi Arabia. Alcoa Corporation guarantees for
the Ma’aden Bauxite and Alumina Company cover total
debt service requirements through 2019 and 2024. In the
event Alcoa would be required to make payments under the
guarantees, 40% of such amount would be contributed by
Alumina Limited.
In addition, the parent entity has entered into a Deed of
Cross Guarantee with the effect that it guarantees the debts
of its wholly-owned subsidiaries. Further details of the Deed
of Cross Guarantee are disclosed in Note 17.
No liability was recognised by the parent entity of the group
in relation to the above-mentioned guarantees, as the fair
values of the guarantees are immaterial.
(c) CONTINGENT LIABILITIES OF THE PARENT ENTITY
The parent entity did not have any contingent liabilities as
at 31 December 2018 or 31 December 2017. For information
about guarantees given by the parent entity refer above.
(d) CONTRACTUAL COMMITMENTS FOR THE
ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
There are no contractual commitments by the parent entity
for the acquisition of property, plant and equipment as at
31 December 2018.
17. DEED OF CROSS GUARANTEE
Alumina Limited and Alumina International Holdings Pty. Ltd. are parties to a cross guarantee under which each of these
companies guarantees the debts of the other. By entering into the deed, wholly-owned entities have been relieved from the
requirement to prepare a financial report and directors’ report under Class Order 2016/785 (as amended) issued by the
Australian Securities and Investments Commission.
The above companies represent a “closed group” as defined in the Class Order, and as there are no other parties to the deed
of cross guarantee that are controlled by Alumina Limited, they also represent the “extended closed group”.
(a) CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME AND SUMMARY
MOVEMENTS IN CONSOLIDATED RETAINED EARNINGS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Dividends and distributions
Other income
General and administrative expenses
Change in fair value of derivatives/foreign exchange losses
Finance costs
Profit from ordinary activities before income tax
Income tax expense
Net profit for the year
Other comprehensive income net of tax
Total comprehensive income for the year
MOVEMENT IN CONSOLIDATED RETAINED EARNINGS
Retained profits at the beginning of the financial year
Net profit for the year
Dividend provided for or paid
Retained profits at the end of the financial year
US$ MILLION
2018
657.4
1.4
(11.0)
(1.4)
(6.9)
639.5
–
639.5
–
639.5
2018
694.5
639.5
2017
279.3
0.3
(13.3)
0.6
(8.4)
258.5
–
258.5
–
258.5
2017
646.2
258.5
(515.5)
818.5
(210.2)
694.5
ALUMINA LIMITED ANNUAL REPORT 2018
91
US$ MILLION
2018
183.5
215.5
0.7
399.7
1,630.3
1,823.1
-
3,453.4
3,853.1
1.5
88.0
19.0
0.3
108.8
5.7
-
0.5
6.2
115.0
3,738.1
2,682.9
236.7
818.5
3,738.1
2017
31.2
124.8
1.0
157.0
1,669.6
1,902.2
0.1
3,571.9
3,728.9
1.4
-
-
0.3
1.7
104.0
8.3
0.5
112.8
114.5
3,614.4
2,682.9
237.0
694.5
3,614.4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
17. DEED OF CROSS GUARANTEE (CONTINUED)
(b) CONSOLIDATED BALANCE SHEET
Current assets
Cash and cash equivalents
Receivables
Other assets
Total current assets
Non-current assets
Investment in associates
Other financial assets
Property, plant and equipment
Total non-current assets
Total assets
Current liabilities
Payables
Borrowings
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
18. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
A number of new or amended standards, such as AASB 9 Financial Instruments and AASB 15 Revenue from Contracts
with Customers, became applicable for the current reporting period.
The standards did not have any impact on the Group’s accounting policies and did not require current period
or retrospective adjustments.
Certain new accounting standards and interpretations have been published that are not mandatory for the 31 December
2018 reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these
new standards and interpretations is set out below:
AASB 16 Leases (effective 1 January 2019)
The new standard will replace AASB 117 Leases. Once effective, the new requirements will apply to new and pre-existing
lease arrangements. The key changes have been outlined below:
• Lessees will recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease
contracts (optional exemption available for certain short-term leases and leases of low-value assets).
• Lessees will have to present interest expense on the lease liability and depreciation on the right-of-use assets in their
income statement.
• Lease payments that reflect interest on the lease liability can be presented as an operating cash flow. Cash payments
for the principal portion of the lease liability should be classified within financing activities. Payments for short-term
leases and for leases of low-value assets could be presented within operating activities.
The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019.
The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group
has non-cancellable operating lease commitments of $0.3 million. Therefore, the impact of standard implementation
on the Group’s balance sheet and income statement will not be material.
DIRECTORS’
DECLARATION
In the Directors’ opinion:
a) the financial statements and notes set out on pages
64 to 93 are in accordance with the Corporations Act
2001, including:
The financial statements also comply with International
Financial Reporting Standards as issued by the International
Accounting Standards Board.
(i) complying with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional
reporting requirements; and
The Directors have been given the declarations by the
Chief Executive Officer and interim Chief Financial Officer
required by section 295A of the Corporation Act 2001.
(ii) giving a true and fair view of the consolidated entity’s
financial position as at 31 December 2018 and of its
performance for the financial year ended on that date; and
b) there are reasonable grounds to believe that the Company
will be able to pay its debts as and when they become due
and payable; and
c) at the date of this declaration, there are reasonable
grounds to believe that the members of the Extended Closed
Group identified in Note 17 will be able to meet any obligations
or liabilities to which they are, or may become, subject by
virtue of the deed of cross guarantee described in Note 17.
This declaration is made in accordance with a resolution
of the Directors.
W Peter Day
Chairman
ALUMINA LIMITED ANNUAL REPORT 2018
93
INDEPENDENT AUDITOR’S REPORT
To the members of Alumina Limited
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
OUR OPINION
In our opinion:
The accompanying financial report of Alumina Limited (the Company) and its controlled entities (together the Group)
is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group’s financial position as at 31 December 2018 and of its financial
performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
• the consolidated statement of profit or loss and other comprehensive income for the year then ended
• the consolidated balance sheet as at 31 December 2018
• the consolidated statement of changes in equity for the year then ended
• the consolidated statement of cash flows for the year then ended
• the notes to the consolidated financial statements, which include a summary of significant accounting policies
• the Directors’ declaration.
BASIS FOR OPINION
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001
and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: +61 3 8603 1000, F: +61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
94
OUR AUDIT APPROACH
An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement.
Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report
as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls
and the industry in which it operates.
Alumina Limited’s (“Alumina”) sole business undertaking is investing globally in bauxite mining, alumina refining with some
minor alumina-based chemical businesses and aluminium smelting operations. All of these business activities are conducted
through Alumina’s 40% investment in several entities which collectively form Alcoa World Alumina and Chemicals (AWAC).
Alcoa Corporation owns the remaining 60% of AWAC and is the manager of these business activities. Alumina Limited’s equity
interest in AWAC forms one reportable segment. Alumina participates in AWAC through the Strategic Council, which consists
of three members appointed by Alcoa Corporation and two members appointed by Alumina. As Alumina does not control or
operate the AWAC assets, its role involves strategic investment management on behalf of its shareholders. Accordingly, this
investment has been determined to be an associate and is accounted for under the equity method.
MATERIALITY
KEY AUDIT
MATTERS
AUDIT SCOPE
MATERIALITY
AUDIT SCOPE
KEY AUDIT MATTERS
• For the purpose of our audit we used
• Component auditors assisted in
• Amongst other relevant topics, we
communicated the following key audit matters
to the Audit and Risk Management Committee:
• Equity accounting for Alumina’s investment
in AWAC
• Impairment indicator assessment for
Alumina’s equity accounted investment
in AWAC
• These are further described in the Key audit
matters section of our report.
overall Group materiality of $31.5 million,
which represents approximately 5% of
the Group’s profit before tax.
• We applied this threshold, together
with qualitative considerations, to
determine the scope of our audit and the
nature, timing and extent of our audit
procedures and to evaluate the effect of
misstatements on the financial report
as a whole.
• We chose Group profit before tax
because, in our view, it is the benchmark
against which the performance of the
Group is most commonly measured and
is a generally accepted benchmark.
• We utilised a 5% threshold based on
our professional judgement, noting
it is within the range of commonly
acceptable thresholds.
performing audit work over the AWAC
financial information on behalf of the
Group engagement team. Specific
instructions were issued to the
component audit teams, including risk
analysis and materiality.
• We audited the equity accounting for
Alumina’s 40% investment in AWAC.
This process included auditing certain
adjustments made by Alumina to
convert the AWAC results (which are
prepared under US GAAP), to comply
with Australian Accounting Standards
(AAS).
• We audited the remainder of Alumina’s
financial report.
• Our audit also focused on where the
Group made subjective judgements;
for example, significant accounting
estimates involving assumptions and
inherently uncertain future events.
95
ALUMINA LIMITED ANNUAL REPORT 2018 KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report for the current period. The key audit matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Further, any commentary on the outcomes of a particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Equity accounting for Alumina Limited’s investment in AWAC
(Refer to note 2 in the financial report)
To assess the equity accounting for the Group’s 40% investment
in AWAC, we performed the following procedures amongst others:
Alumina Limited’s equity accounted investment in AWAC is
carried at $2.1 billion and its current year share of the net profit
of AWAC accounted for using the equity accounting method is
$653.5 million.
The equity accounting method requires consistent accounting
standards to be applied by the investing company and its
associates. Alcoa of Australia Limited (AWAC entity) already
prepares financial information under AAS, therefore no conversion
is required. The financial information of AWAC entities other than
Alcoa of Australia Limited is prepared under US Generally Accepted
Accounting Principles (US GAAP) therefore adjustments are
required to convert certain amounts to comply with AAS.
We determined equity accounting to be a key audit matter
because of the magnitude of the Investment in associates balance
and the complexity and significance of, and judgment involved
in preparing, the adjustments required by the Group
to convert amounts accounted for under US GAAP to AAS.
Judgement is involved in determining the differences in the
accounting for areas such as the valuation of inventory, asset
retirement obligation provisions, reversal of Brazil asset uplift
and defined benefit superannuation plans.
Impairment indicator assessment for Alumina Limited’s
equity accounted investment in AWAC
(Refer to note 2c in the financial report)
Alumina’s equity accounted investment in AWAC ($2.1 billion)
is the most material balance sheet item in the consolidated
financial report.
We therefore focused on the assessment which was performed by
Alumina to determine whether there was any objective evidence
or indicators that the equity accounted investment in AWAC could
be impaired as at 31 December 2018.
In management’s impairment indicator assessment it assesses
movements in the key assumptions which drive the valuation
of the investment in AWAC, the Company’s market capitalisation
compared to its net assets and analysts’ valuations. The key
assumption which the valuation of AWAC is most sensitive
to is the long term alumina price.
Alumina’s conclusion was that there was no indicator for
impairment for the year ended 31 December 2018.
96
• Considered the appropriateness of the equity accounting
method.
• Agreed the financial information of Alcoa of Australia Limited
accounted for under AAS (as audited by component auditors
under our instruction) to the equity accounting schedule
prepared by the Group.
• Agreed the financial information of AWAC accounted for
under US GAAP (as audited by component auditors under
our instruction) to the equity accounting schedule prepared
by the Group.
• Considered adjustments required to convert amounts
accounted for under US GAAP to comply with AAS.
To do this we:
• Assessed the appropriateness of material US GAAP
to AAS adjustments.
• Tested material US GAAP to AAS adjustments by agreeing
the adjustments to supporting schedules and documentation,
and involved specialists where required.
• Assessed completeness by considering whether other
transactions that had occurred during the year required a
different treatment under AAS compared with US GAAP.
• Reconciled the opening equity accounted investment balance to
the final position reflected in the financial report. To do this we:
• Recalculated the share of net profit and changes in reserves
of AWAC by examining the schedule prepared by management
and recalculating Alumina’s 40% share.
• Compared dividends, distributions and capital returns
received from AWAC and additional investments made
through cash calls to the relevant declaration documents
and bank statements.
To evaluate the Group’s impairment indicator assessment of
the AWAC investment we performed the following procedures
amongst others:
• Developed an understanding of the process by which the Group
conducted the impairment indicator assessment.
• Considered key assumptions including the Group’s long term
alumina price assumption by comparing it to economic analyst
and industry forecasts. We found that the long term alumina
price assumption used by the Group was consistent with market
data and industry research.
• Compared the Group’s market capitalisation to its net assets
as at 31 December 2018, noting that market capitalisation
exceeded net assets by approximately $2.5 billion.
• Evaluated the completeness of the Group’s assessment of
whether there were any other external or internal sources
of information that could indicate that the investment may
be impaired.
Other information
The Directors are responsible for the other information.
The other information comprises the information included
in the annual report for the year ended 31 December 2018,
but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other
information and accordingly we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears
to be materially misstated.
If, based on the work we have performed on the other
information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for
the financial report
The Directors of the Company are responsible for the
preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards
and the Corporations Act 2001 and for such internal control
as the Directors determine is necessary to enable the
preparation of the financial report that gives a true and fair
view and is free from material misstatement, whether due
to fraud or error.
In preparing the financial report, the Directors are
responsible for assessing the ability of the Group to continue
as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities for the audit of the
financial report
Our objectives are to obtain reasonable assurance about
whether the financial report as a whole is free from
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the
basis of the financial report.
A further description of our responsibilities for the audit of
the financial report is located at the Auditing and Assurance
Standards Board website at: http://www.auasb.gov.au/
auditors_responsibilities/ar1.pdf. This description forms
part of our auditor’s report.
REPORT ON THE REMUNERATION REPORT
Our opinion on the remuneration report
We have audited the remuneration report included in pages
40 to 63 of the Directors’ report for the year ended
31 December 2018.
In our opinion, the remuneration report of Alumina Limited
for the year ended 31 December 2018 complies with section
300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the
preparation and presentation of the remuneration report
in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the
remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
John O’Donoghue
Partner
Melbourne
22 March 2019
97
ALUMINA LIMITED ANNUAL REPORT 2018 DETAILS OF SHAREHOLDINGS AND SHAREHOLDERS
LISTED SECURITIES – 28 February 2019
Alumina Limited has 2,879,843,498 issued fully paid ordinary shares.
Range of Units as of 28/02/2019
RANGE
1–1,000
1,010–5,000
5,001–1,000
10,001–100,000
100,001 Over
Total
TOTAL HOLDERS
UNITS
% OF ISSUED CAPITAL
19,016
20,330
6,676
6,717
332
53,071
8,738,387
51,290,449
49,963,757
167,127,448
2,602,723,457
2,879,843,498
0.30
1.78
1.74
5.80
90.38
100.00
Of these, 4,262 shareholders held less than a marketable parcel of A$500 worth of shares (197) a total of 465,846 shares. In
accordance with ASX Business Rules, the last sale price on the Company’s shares on the ASX on 28 February 2019 was used
to determine the number of shares in a marketable parcel.
RANK
NAME
UNITS % UNITS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
HSBC CUSTODY NOMINEES (AUST)
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LTD
CITIC RESOURCES AUSTRALIA PTY LTD
BESTBUY OVERSEAS CO LTD
NATIONAL NOMINEES
BESTBUY OVERSEAS CO LTD
BNP PARIBAS NOMINEES PTY LTD
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