Alumina

ALUMINA 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 

CITIC RESOURCES AUSTRALIA PTY LTD

CITIC AUSTRALIA PTY LTD

BNP PARIBAS NOMS PTY LTD 

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 

ARGO INVESTMENTS LIMITED

CITICORP NOMINEES PTY LIMITED  

AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED

UBS NOMINEES PTY LTD

AMP LIFE

AUSTRALIAN FOUNDATION

BNP PARIBAS NOMS (NZ) LTD 

20

WARBONT NOMINEES PTY LTD 

Total: Top 20 holders of ORDINARY FULLY PAID SHARES 

Total: Remaining Holders Balance

842,609,036

494,250,603

298,314,115

219,617,657

154,114,590

145,355,917

76,145,410

74,767,292

59,282,343

39,799,208

19,963,596

15,196,105

12,429,285

12,279,297

12,210,000

7,927,025

7,724,004

6,413,142

5,375,554

4,791,381

29.26

17.16

10.36

7.63

5.35

5.05

2.64

2.60

2.06

1.38

0.69

0.53

0.43

0.43

0.42

0.28

0.27

0.22

0.19

0.17

2,508,565,560

371,277,938

87.11

12.89

Each ordinary shareholder is entitled on a show of hands to vote and on a poll one vote for each share held.

The Company does not have a current on market buy-back of its shares. There are no restricted securities or securities 
subject to voluntary escrow.

During the reporting period, 684,500 Alumina Limited fully paid ordinary shares were purchased on market by the 
Alumina Employee Share Plan at an average price of A$2.3027.

SUBSTANTIAL SHAREHOLDING AS AT 28 February 2019 
Citic Resources Australia Pty Ltd. 
Allan Gray Australia Pty Ltd. 
Lazard Asset Management Pacific Limited 

SHAREHOLDING 
547,459,208 
170,774,364 
144,018,731 

%
19.01
5.93
5.00

98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALUMINA LIMITED ANNUAL REPORT 2018
ALUMINA LIMITED ANNUAL REPORT 2018

99
99

FINANCIAL HISTORY

ALUMINA LIMITED AND CONTROLLED ENTITIES

AS AT 31 DECEMBER 

Revenue from continuing operations

Share of net profit/(loss) of associates accounted 
for using the equity method

2018 
US$ 
MILLIONS

2017 
US$ 
MILLIONS

2016 
US$ 
MILLIONS

2015 
US$ 
MILLIONS

2014 
US$ 
MILLIONS

1.6

0.6

653.5

360.4

0.6

18.1

0.1

0.1

109.9

(73.6)

Other income

–

–

–

–

1.5

General and administrative expenses

(11.6)

(13.6)

(25.7)

(11.9)

(13.5)

Change in fair value of derivatives/foreign exchange losses

Finance costs

Income tax (expense)/benefit from continuing operations

(1.4)

(6.7)

–

0.7

(8.3)

–

(14.1)

(9.1)

–

(3.2)

(6.6)

–

1.6

(13.6)

(0.8)

Net (loss)/profit attributable to owners of Alumina Limited

635.4

339.8

(30.2)

88.3

(98.3)

Total assets

Total liabilities

Net assets

Shareholders’ funds

Dividends paid

Dividends received from AWAC

Statistics

Dividends declared per ordinary share

Dividend payout ratio 

Return on equity1

Gearing (net debt to equity)

Net tangible assets backing per share

2,245.1

2,342.9

2,117.8

2,110.7

2,543.2

109.3

109.9

110.9

127.8

119.2

2,135.8

2,234.0

2,006.9

1,982.9

2,424.0

2,135.8

2,234.0

2,006.9

1,982.9

2,424.0

515.52

657.2

22.7c

81%

210.2

278.1

13.5c

62%

135.3

150.2

171.2

61.4

6.0c

6.3c

–

202%

–

16.0

1.6c

–

30.3%

15.8%

(1.5)%

3.9%

(3.5)%

(4.3)%

2.5%

$0.66 

$0.69

4.0%

$0.61

4.8%

$0.60

3.4%

$0.77

1 Based on net profit/(loss) attributable to owners of Alumina Limited
2  Final dividend for the financial year ended 31 December 2017, declared and paid in 2018 and interim dividend for the year 
ended 31 December 2018, declared and paid in 2018

100

ALUMINA LIMITED ANNUAL REPORT 2018

101

Neither  Alumina  Limited  nor  any  other  person  warrants  or  guarantees  the 
future performance of Alumina Limited or any return on any investment made in 
Alumina Limited securities. This document may contain certain forward-looking 
statements, including forward-looking statements within the meaning of the US 
Private  Securities  Litigation  Reform Act  of  1995. The  words “anticipate”, “aim”, 
“believe”,  “expect”,  “project”,  “estimate”,  “forecast”,  “intend”,  “likely”,  “should”, 
“could”,  “will”,  “may”,  “target”,  “plan”  and  other  similar  expressions  (including 
indications of “objectives”) are intended to identify forward-looking statements. 
Indications of, and guidance on, future financial position and performance and 
distributions, and statements regarding Alumina Limited’s future developments 
and the market outlook, are also forward-looking statements.

Any forward-looking statements contained in this document are not guarantees 
of  future  performance.  Such  forward-looking  statements  involve  known  and 
unknown risks, uncertainties and other factors, many of which are beyond the 
control of Alumina Limited and its directors, officers, employees and agents that 
may cause actual results to differ materially from those expressed or implied in 
such statements. Those risks, uncertainties and other factors include (without 
limitation): (a) material adverse changes in global economic conditions, alumina 
or aluminium industry conditions or the markets served by AWAC; (b) changes 
in production or development costs, production levels or sales agreements; (c) 
changes  in  laws,  regulations  or  policies;  (d)  changes  in  alumina  or  aluminium 
prices or currency exchange rates; (e) 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;  and  (f)  the  other  risk  factors  summarised  in 
Alumina Limited’s Annual Report 2018. Readers should not place undue reliance 
on  forward-looking  statements.  Except  as  required  by  law,  Alumina  Limited 
disclaims any responsibility to update or revise any forward-looking statements 
to  reflect  any  new  information  or  any  change  in  the  events,  conditions  or 
circumstances on which a statement is based or to which it relates.

Alumina Limited’s shares trade on the Australian Securities Exchange and also 
trades as American Depositary Receipts in the US on the OTCQX market.

Design ERD.COM.AU  Print BAMBRA PRESS

Alumina Limited

ABN 85 004 820 419 
Registered Corporate Head Office 
Level 12, IBM Centre 60 City Road 
Southbank Victoria 3006 Australia

GPO Box 5411 
Melbourne Victoria 3001 Australia 
Telephone +61 (0)3 8699 2600 
Facsimile +61 (0)3 8699 2699 
Website www.aluminalimited.com 
Email info@aluminalimited.com

—

AMERICAN DEPOSITARY RECEIPTS

BNY Mellon shareowner services telephone 
and internet correspondence: 
Toll free number (for callers within the USA) 
1-888-BNY-ADRS (1-888-269-2377) 
Telephone (for non-US callers) +1 201-680-6825 
Website: https://www-us.computershare.com/investor 
Email: shrrelations@cpushareownerservices.com

Shareowner correspondence should be mailed to: 
BNY Mellon Shareowner Services 
P.O. Box 505000 
Louisville, KY 40233-5000

Overnight Shareowner correspondence 
should be mailed to: 
462 South 4th Street Suite 1600 
Louisville, KY 40202 
UNITED STATES

—

SHARE REGISTRY

Computershare Investor Services Pty Limited 
Yarra Falls 452 Johnston Street 
Abbotsford Victoria 3067 Australia

GPO Box 2975 
Melbourne Victoria 3001 Australia 
Telephone +61(0)3 9415 4027 
Or 1300 556 050 (for callers within Australia) 
Facsimile +61(0)3 9473 2500 
Email web.queries@computershare.com.au

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ALUMINA LIMITED ANNUAL REPORT 2018