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AluminaCONSISTENCY
AMIDST
CHANGE
ANNUAL REPORT 2019
03
About Alumina Limited
04
At a Glance
06
CHAIRMAN AND CEO REPORT
12
SUSTAINABILITY
14
DIRECTORS’ REPORT
20
Operating and
Financial Review
30
Alumina Limited
Financial Review
36
Letter by Chair
of Compensation
Committee
38
Remuneration
Report
62
FINANCIAL REPORT
91
DIRECTORS’ DECLARATION
92
INDEPENDENT AUDITOR’S REPORT
98
Financial History
CONSISTENCY
AMIDST
CHANGE
In an ever-changing market, Alumina Limited remains
consistently focused on maintaining its unique position
in the world alumina industry.
A clear strategy today, delivering consistent
rewards tomorrow.
1
ALUMINA LIMITED ANNUAL REPORT 2019 The Company’s strong balance sheet and joint venture
distribution arrangements have been crucial in delivering
another year of healthy dividends to shareholders.
2
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, 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 was created on 11 December 2002
when WMC Limited’s alumina assets were demerged
from the nickel, copper and fertilizer businesses
(WMC Resources Limited).
The demerger has enabled investors to benefit
directly from the full value of the bauxite, alumina
and aluminium business.
ALUMINA LIMITED ANNUAL REPORT 2019
3
AT A GLANCE
In 2019 Alumina Limited posted a profit after
tax of $214 million compared to the record
net profit of $635.4 million in 2018. Excluding
significant items of $113 million, the net profit
after tax would have been $327 million (2018:
$690 million). Net receipts from AWAC totalled
$420.9 million (2018: $678.2 million).
The Company declared a fully franked final
dividend of 3.6 US cents per share, bringing
the full year dividend to 8.0 US cents per share.
ALUMINA LIMITED RESULTS
It was a solid result in a year that experienced a
softening alumina market leading to a steady decline
in the Alumina Price Index (API). The average realised
alumina price in 2019 declined 25 per cent to $336
per tonne. In 2019, AWAC sold about 94 per cent of
its smelter-grade alumina on an alumina index or
spot pricing basis.
The API in 2019 was adversely impacted by lower than
expected smelter demand, additional alumina supply
following the ramp up of the Alunorte refinery in Brazil
returning from its forced 50 per cent curtailment in 2018,
and also additional supply from other refineries.
Despite softer prices, record production at AWAC’s
tier 1 low cost refineries has enabled it to deliver strong
margins and returns. This enabled the Company to
record a strong result, return cash to shareholders,
and maintain a strong balance sheet.
Alumina Limited represents a unique opportunity for
a pure investment in AWAC, one of the world’s largest
bauxite and alumina producers.
4
$214.0m
2019 NET PROFIT AFTER TAX
2018: $635.4 MILLION
$420.9m
2019 NET CASH RECEIPTS
2018: $678.2 MILLION
8.0 cents per share
2019 DIVIDENDS
2018: 22.7 CENTS PER SHARE
$54.8m
NET (CASH)/DEBT
2018: ($95.8) MILLION
AWAC – A Global Business
$565.1m
AWAC NET PROFIT AFTER TAX
2018: $1,640.2 MILLION
$336/tonne
2019 REALISED ALUMINA PRICE
2018: $447 PER TONNE
$906.3m
AWAC CASH FROM OPERATIONS
2018: $1,969.6 MILLION
$1,586.0m
AWAC EBITDA
EXCL SIGNIFICANT ITEMS
2018: $2,796.8 MILLION
AWAC RESULTS (USGA AP)
In 2019, AWAC recorded a net profit after tax of $565.1 million compared to
a net profit after tax of $1,640.2 million in 2018. The decline in profit was due to
a softening market price for alumina. AWAC’s EBITDA for 2019 was $1,260.7 million
(2018: $2,630.1 million) and excluding significant items, relating mainly to the
announced closure of the Point Comfort refinery, would have been $1,586.0 million
(2018: $2,796.8 million).
In 2019 AWAC’s average realised alumina price was
$336 per tonne (2018: $447 per tonne).
AWAC benefited from record annual alumina production
of 12.6 million tonnes (by the existing refinery portfolio)
and a seven per cent improvement in the average cost
of production to $210 per tonne (2018: $226 per tonne).
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.
Alumina Limited was created on 11 December 2002
when WMC Limited’s alumina assets were demerged
from the nickel, copper and fertilizer businesses.
The demerger has enabled investors to benefit
directly from the full value of the bauxite, alumina
and aluminium business.
5
ALUMINA LIMITED ANNUAL REPORT 2019 Chairman and CEO Report
Alumina Limited (“Alumina”) has reported a third successive year
of strong returns for shareholders. Following the record results in
2018 the Company reported a profit of $214.0 million and distributed
fully franked dividends to shareholders of US 8.0 cents.
6
Alumina’s Strategy
The benefits of the Company’s unique exposure to
alumina in the aluminium supply chain is gaining greater
appreciation and recognition. This follows several years
of consistent performance and the renegotiation of the
AWAC JV agreement in 2016, which saw the Company’s
position in the joint venture strengthened.
Mr W Peter Day
Mr Michael Ferraro
Alumina’s business model is relatively straightforward:
Alumina owns 40% of the AWAC
joint venture, whose assets include
the low cost, long life bauxite mines
and alumina refineries built on the
extensive bauxite resources of the
Darling Ranges in Western Australia.
When a business such as AWAC enjoys
the strong alumina price that existed
in the first half of 2019, it assures a
very good result. In the second half
the alumina market was more subdued
but nevertheless the quality of AWAC’s
tier one low cost alumina refineries
ensured a solid outcome for the year.
We have a 40% interest in the AWAC joint venture
which owns alumina refineries positioned toward the
bottom end of the cost curve. This low-cost position
has been maintained for a long period.
We are focused on the alumina part of the aluminium
supply chain.
We offer investors a relatively undiluted exposure to
the alumina market with AWAC selling predominantly
at the market driven alumina price indices (API),
reflecting global alumina market fundamentals.
Alumina’s balance sheet and low debt provides
investors a direct and transparent exposure to AWAC’s
strong cash flows and the alumina price. This also
allows the Company to navigate changing industry
conditions and cycles.
Accordingly, we continue to have confidence in the quality
of the AWAC assets and the attractiveness of alumina and
bauxite markets. The WA refineries are well-placed to
grow with their existing infrastructure and low-cost
position. AWAC’s growth options will continue to be
assessed in 2020.
ALUMINA LIMITED ANNUAL REPORT 2019
7
A Year Reflecting AWAC’s Quality Assets
AWAC’s alumina assets again demonstrated their ability
to deliver solid returns through the cycle. AWAC had
94 per cent of its smelter grade alumina sales priced
at API. This meant the benefits of favourable alumina
prices in the first half flowed through to AWAC.
The average API for the 2019 year was $332 per tonne as
alumina prices weakened in the second half due to
increased global supply. This compared with an average
price of $473 per tonne in 2018. The lower prices in the
second half of 2019 were due to both increased alumina
supply and lower-than-expected demand, resulting in
a modest alumina surplus.
AWAC maintained its low-cost position during the year,
with its cost of alumina production falling by 7 per cent.
Cash margins for AWAC were a healthy $126 per tonne
of alumina for the year.
AWAC’s alumina production of 12.6 million tonnes in 2019
represented an increase of 400,000 tonnes compared to
the previous year.
AWAC’s bauxite mines are long life and low cost,
providing consistent production and profits year on year.
AWAC produced 40.7 million bone dry tonnes (BDT) of
bauxite in 2019, a 3.8 per cent increase from 2018.
The Company’s results and AWAC operating performance
are discussed in more detail in the operating and
financial review.
Alumina Markets
Alumina pricing in 2019 reflected the fundamentals of
global alumina markets. In Brazil, the Alunorte refinery
had curtailed 50% of its capacity in 2018 following
extreme rainfall and consequent environmental issues.
This continued to impact the global alumina market in the
first half of 2019. However, in May 2019 it was announced
that Alunorte would restart its idled capacity, triggering
the beginning of a decline in alumina prices.
For the first time in a decade, in 2019, world primary
and semi-fabricated aluminium consumption contracted.
Global primary metal consumption and aluminium
semi-fabricated consumption fell by just under 1%
respectively. Transportation, machinery and equipment
sectors led the decline, particularly automotive. A stagnant
construction and electrical industry, as well as a poor
macroeconomic environment, all contributed.
Over the longer term, aluminium demand is forecast
to continue to grow through economic expansion and
increasing intensity of use. For example, in developed
countries it is expected that more stringent environmental
requirements, to reduce emissions and waste and to
promote increased efficiencies, will lead to greater
light weighting of transport and electric vehicles. In
developing economies, such as India and in South-East
Asia, aluminium demand growth is expected through
greater urbanisation leading to more investment in
infrastructure and construction.
However, if ongoing, the effects of the COVID-19 on
global economic activity and markets will likely have a
countervailing impact on the demand for aluminium.
Energy
The energy supply arrangements for the Portland
aluminium smelter expire in mid-2021. The smelter in recent
years has not been contributing to the profitability of the
Company. Energy prices in Eastern Australia continue to
be very high and there have been more interruptions to
power supply than in the past. The future of the smelter
is dependent upon identifying a long-term lower cost
and reliable energy solution. Efforts continue to develop
a solution to this issue.
AWAC’s Western Australian refineries utilise gas from the
North West Shelf for their energy source. This long term,
competitive energy supply has been a critical part of
AWAC’s strength.
The WA gas markets have, like most commodities,
operated cyclically. Over the next few years there will be
increases in AWAC’s energy costs as supply contracted
during less favourable periods takes effect. The WA gas
market cycle has recently been more favourable to
purchasers and this should benefit AWAC over the
medium to long term.
8
CHA IRMAN A ND CE O REPORT
Sustainability
Governance
Environmental, health and safety management by
AWAC is continually seeking to meet higher standards.
The Company strengthened its own governance regime
by establishing a Board Sustainability Committee during
the year which will provide a platform for greater review
of sustainability issues.
In 2019 the Company issued its Climate Change Position
Statement and has been working with Alcoa on AWAC’s
climate change strategy.
We are working with AWAC to:
• establish GHG targets for our refineries;
• identify and assess climate change risks and
opportunities and undertake scenario analysis;
• align disclosures with the recommendation of the
Task Force on Climate-related Financial Disclosure; and
• evaluate technological and abatement measures
to reduce environmental impacts.
In 2020 there will be an increased emphasis on sustainability
oversight and management. This forms a central part of
Alumina Limited’s strategy going forward. Conservation of
natural resources, such as water, and reducing CO2 emissions
intensity, are a critical part of our business objectives.
The Remuneration Report reviews the Company’s
remuneration strategy, policy and outcomes. The Company’s
2019 Remuneration Report provides full details of the CEO
and the Senior Executives’ objectives and an assessment
of performance against those objectives.
The Company has updated its governance practices to
adopt the revisions to the 4th Edition of the Corporate
Governance Principles and Recommendations of the ASX
Corporate Governance Council. This has involved updating
the Company’s Board and Committee Charters, diversity
objectives and risk framework. A copy of the 2019 Corporate
Governance Statement is available on the Company website.
Alumina’s compliance with the Corporate Governance
Principles and Recommendations is set out in the
Appendix 4G lodged with the ASX.
In 2020 there will be an increased emphasis
on sustainability oversight and management.
This forms a central part of Alumina Limited’s
strategy going forward.
ALUMINA LIMITED ANNUAL REPORT 2019
9
9
ALUMINA LIMITED ANNUAL REPORT 2019 The quality of our tier one bauxite mines and alumina
refineries in Western Australia was evident again in 2019.
The Company’s low leverage and improved joint venture
position ensured their performance provided a healthy
level of dividends to shareholders.
10
CHA IRMAN A ND CE O REPORT
Capital Management / Shareholder Returns
Alumina received $420.9m in net cash distributions from
AWAC in 2019 (2018: $678.2m). As a result Alumina has
been able to pay most of its free cash flow to shareholders
by way of dividends. This enabled payment of a final
dividend of US3.6 cents per share, bringing the total
declared dividends for the year to US8.0 cents per share.
Although this is less than the dividends paid in 2018,
it represents a yield of 5.0 per cent to shareholders for
2019. The outlook for dividends in 2020 will be affected
by the lower alumina prices since mid-2019 and the
impact of COVID-19.
Alumina Limited has been a consistent source of strong
dividends over the last 3 years. Dividends since 2017
have delivered an average yield for shareholders of
8.6 per cent per annum, not including franking.
Alumina’s debt is currently at low levels and gearing
is 3.0%. The Company’s low debt level enables cash
received from AWAC to be readily distributed to
shareholders. The Company’s A$125m Corporate Bond
matured in 2019. The Bond was repaid utilising bank
facilities. As at 31 December 2019 the Company had
undrawn debt facilities of US$280 million with
maturities ranging from 2022 to 2024.
Board and Management
The Board was pleased to approve the appointment
of Mr Grant Dempsey as Chief Financial Officer of the
Company in July 2019. Ms Galina Kraeva acted as Interim
Chief Financial Officer in the first half and had a
substantial impact in the role.
It was with much sadness we report that two of the
Company’s great figures, Sir Arvi Parbo and Don Morley,
passed away in 2019. They were both long serving Chairs
of the Company who had an enormous influence on its
progress, and success.
Conclusion
The quality of our tier one bauxite mines and alumina
refineries in Western Australia was evident again in 2019.
The Company’s low leverage and improved joint venture
position ensured their performance provided a healthy
level of dividends to shareholders.
After 3 years of favourable global alumina markets we
have seen a weakening in market conditions and prices.
There have been serious and far reaching developments
from the impact of COVID-19 for Australia and the Western
World leading into late March. It appears the level of
Western world economic activity will decline substantially
in 2020. These developments have been rapid, and it is
currently extremely difficult to assess the implications
for the industry and the Company. However, if ongoing
for a substantial period, the effects from COVID-19 on
global economic activity and markets would likely have
a material flow-on negative impact on aluminium demand.
This is likely to have potential impacts on alumina and
aluminium prices.
We remain focused on having our AWAC joint venture
interest continue to deliver value to shareholders. The
Board thanks the employees of Alumina Limited and
AWAC for their work in 2019.
W Peter Day • Chairman
Mike Ferraro • Chief Executive Officer
11
ALUMINA LIMITED ANNUAL REPORT 2019 Sustainability
Sustainable, responsible business, environmental and societal practices have
long been a foundation and guiding principle of AWAC operations. Guidelines
have been established to put the safety of employees, contractors and the
community firmly ahead of production and to focus on limiting the environmental
impact of the operations, especially in restoration of mined areas.
The knowledge and understanding of sustainability risks
and opportunities and practices is constantly evolving.
To strive to be at the forefront of responsible sustainable
practices requires an organisation to reassess and rethink
its processes, policies, objectives and procedures.
In 2019, a number of sustainability-based initiatives
were considered and actions taken.
Governance
Due to the increasing scope and importance of
sustainability matters the Board decided to establish
a Sustainability Committee, effective 1 January 2020.
The Sustainability Committee has broad responsibilities
with regard to sustainability, climate change and health
and safety and will provide a platform for more focussed
review of material sustainability issues. The Committee
also provides a clear sustainability governance structure
to strengthen efforts on Environment, Social and
Governance (ESG) policies and commitments,
management activities, and deeper engagement with
Alcoa (AWAC’s operator/manager). A Charter for the
Sustainability Committee has been approved and
can be reviewed on the Company web site.
Continuing engagement of the Board on sustainability
matters was also a priority in 2019. The Board of Directors
participated in two workshop sessions on climate change
prepared by external consultants, covering topics such as
climate science, policies and targets, energy and carbon
markets, corporate approaches and global climate
change negotiations.
Alumina Limited interacted with Alcoa on a global review
of AWAC storage impoundments. Two recent failures of
non-AWAC impoundments in Brazil that resulted in loss
of life and environmental contamination highlight the
critical importance of maintaining safe and stable
impoundments. Changes to the governance structure
for the management of dams have been implemented
within AWAC.
12
AWAC facilities will also become subject to the International
Council of Mining and Metals (ICMM) guiding principles
and assurance processes following Alcoa’s initiation of
membership of the ICMM and its commitment to meeting
and adhering to the ICMM’s Sustainable Development
Framework. Alignment to the ICMM principles will
progressively occur over a two-year period.
In 2019 Alumina Limited released its Climate Change
Position Statement and is working with Alcoa towards
a climate change strategy and action plan in regards
to the AWAC operations, including scenario analysis
and risk assessment.
Performance
AWAC’s portfolio of alumina refineries has the lowest
CO2 intensity among the industries’ largest operators.
Since 2015, the combined GHG intensity (per tonne of
aluminium produced) of AWAC’s refineries and smelter,
has reduced by 13.5 per cent. In absolute volumes on
a full facility basis, 2.67 million tonnes of GHG has been
eliminated in the period between 2015 and 2018. The
reduction has been achieved through a mix of:
• targeted curtailment, closure or divestment of less
efficient assets (eg. closure of Suriname and Point
Comfort refineries);
• abatement measures including transitioning the
San Ciprian refinery in Spain from dependence on
fuel oil to natural gas;
• efficiency and process improvements.
However, in the longer term, a step change in technology
or energy utilisation will be required to make significant
inroads into reducing GHG emissions in refining operations.
The fundamental process for alumina refining has not
significantly changed in 100 years. The alumina refining
process is energy intensive, requiring high temperatures
(up to 1,000C). Alumina refineries around the world burn
some form of fuel to generate the heat, steam and pressure
required. Approximately 82 per cent of AWAC’s alumina
refineries energy is produced by natural gas, a much more
environmentally friendly fuel source than coal or oil used
by some other producers. Also, the majority of AWAC’s
bauxite is gibbsite, which can be digested in the refining
process at lower temperatures, thereby using less energy
and saving emissions per tonne of alumina.
AWAC continues to explore means of improving its
sustainability practices. AWAC is assisting research
into the application of solar thermal energy to provide
heat and reduce the consumption of natural gas. The
research indicates the potential to utilise solar thermal
energy; however it is yet to be determined if it is
commercially viable.
A more detailed analysis of AWAC sustainability
performance can be found in the Company’s
Sustainability Update on the Company website.
Lowest refinery CO2 emission intensity among major producers (includes direct and indirect emissions, in 2019)
AWAC refineries
RoW refineries
Chinese refineries
4.0
3.0
2.0
1.0
0.0
Average: 1.3
6.8
Cumulative Alumina Production Mt
Source: CRU
13
ALUMINA LIMITED ANNUAL REPORT 2019 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 2019 (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:
W P Day (Chairman), E R Stein, C Zeng, D O’Toole,
J Bevan and M P Ferraro (Managing Director and
Chief Executive Officer)
Board of Directors
The Company’s Directors in office as at 31 December
2019 were:
MR W PETER DAY 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, Compensation and Audit & Risk
Management Committees and Chair of the Sustainability
Committee (effective 1 January 2020). Mr Day is also
currently a Non-Executive Director of Ansell (appointed
August 2007), Non-Executive Chairman of Australian
Unity Investment Real Estate (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 Chief Financial Officer (CFO) of Amcor
Limited. He also supports initiatives in disability services
and mentoring.
MS EMMA R STEIN 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), Infigen Energy Limited
(appointed September 2017) and Adelaide Brighton Ltd
(appointed October 2019). 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.
14
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) and a member of the
Sustainability Committee (effective 1 January 2020). 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 over 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 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 (appointed 7 August 2014) and
the Sustainability Committee (effective 1 January 2020).
Mr Zeng is also currently a Director and Chairman (appointed
July 15 2019) of of CITIC Pacific Limited, Chief Executive
Officer and Chairman (appointed July 15 2019) of CITIC
Pacific Mining and Chief Executive Officer of CITIC Mining
International, the holding company of CITIC Pacific Mining
and also DAH Chong Hong Holdings Ltd (as of January
2019, is now a wholly owned subsidiary of CITIC Pacific).
He is a former Director of CITIC Limited (listed on the
Hong Kong Exchange), CITIC Dameng (listed on the Hong
Kong Exchange), Macarthur Coal Limited July 2007–
October 2011) and Marathon Resources Limited (resigned
31 January 2014). Mr Zeng also served as a Director on the
Board of CITIC Group between 2010 and 2011.
Before joining CITIC Pacific Mining, Mr Zeng was the
Vice Chairman and Chief Executive Officer (CEO) of CITIC
Resources, a CITIC Group controlled Hong Kong listed
company focused on crude oil production, metal mining
and refining, and commodity trading. Mr Zeng is also the
Chairman of CITIC Australia. Mr Zeng has over 31 years of
experience in project development, management, 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 and coal mining.
MS DEBORAH O’TOOLE Ms O’Toole was appointed as
a Director on 1 December 2017. She is a member of the
Nomination Committee, the Compensation Committee,
the Sustainability Committee (effective 1 January 2020)
and Chair of the Audit and Risk Management Committee
(from 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 CFO of three ASX listed companies:
MIM Holdings Limited, Queensland Cotton Holdings
Limited and, most recently, Aurizon Holdings Limited.
MR JOHN A BEVAN 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, Sustainability
Committee (effective 1 January 2020) and the Nomination
Committee and 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 Chairman of Ansell (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 2013). 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 MICHAEL FERRARO Prior to his appointment
as CEO and Managing Director Mr Ferraro was a Non-
Executive Director of Alumina Limited 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.
15
MR W PETER DAY
LLB (HONS), MBA, FCA,
FCPA, FAICD
Independent
Non-Executive Director
Victoria based
MS EMMA R STEIN
BSC (PHYSICS) HONS,MBA,
FAICD, HON FELLOW WSU
Independent
Non-Executive Director
New South Wales based
MR CHEN ZENG
MIF
Non-Executive Director
Western Australia based
MS DEBORAH O’TOOLE
LLB, MAICD
Independent
Non-Executive Director
Queensland based
MR JOHN A BEVAN
BCom
Non-Executive Director
New South Wales based
MR MICHAEL FERRARO
LLB (HONS)
Managing Director and
Chief Executive Officer
Victoria based
ALUMINA LIMITED ANNUAL REPORT 2019 COMPANY SECRETARY
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, 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 Chair, 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 below.
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 56 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 56 of this report.
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.
Alumina Limited Directors’ Attendance at Meetings January to December 2019
Board
Meeting
Board
Committee
Meetings
Audit and Risk
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
E R Stein
C Zeng
P Day
M Ferraro1
D O’Toole
J Bevan
10
10
10
10
10
10
10
10
10
10
10
10
0
0
1
1
0
0
0
0
1
1
0
0
8
8
8
8
8
8
4
4
4
4
4
4
3
3
3
3
3
3
n/a
n/a
n/a
n/a
n/a
n/a
8
8
8
8
4
4
4
4
3
3
3
3
1. Mr Ferraro is Managing Director and CEO and is not a member of the Committees of the Board however may attend in his capacity as CEO.
16
DIRE CTORS’ REP ORT
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 79.
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.
Review of Operations and Results
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 2019 financial
year attributable to members of the Company was
US$214.0 million profit (2018: US$635.4 million profit).
Excluding significant items, there would have been a net
profit after tax of US$326.6 million (2018: US$689.9 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 20
to 35 of this report. The market outlook and guidance on
pages 33-35, does not take into account the potential
impact to the relevant factors as a result of COVID-19.
17
Matters Subsequent to the end of the
Financial Year
Other than as reported in Note 15 of the Consolidated
Financial Statements (refer to page 87), 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 2019.
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 20 to 35 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 2019.
Environmental Regulation
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. Alumina
Limited is a non-operating joint venture partner that
holds a 40 per cent interest in AWAC, a global enterprise.
Alumina Limited annually reports its equity interest in
the greenhouse gas emissions and energy consumption
to the CDP and on an AWAC basis in the Company’s
Sustainability Update (Report). More information on
environmental performance is included in the
Company’s latest Sustainability Update available
online at www.aluminalimited.com.
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.
ALUMINA LIMITED ANNUAL REPORT 2019 Auditor
PricewaterhouseCoopers continues in office, in accordance
with the Corporations Act 2001 (Cth) (Corporations Act).
For a copy of the Auditor’s Independence Declaration as
required under section 307C of the Corporations Act refer
to the adjacent declaration.
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 87.
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 87.
Corporate Governance Statement
The Company has, for the 2019 reporting year, elected
to disclose the Corporate Governance Statement only
on the Company’s website.
The Corporate Governance Statement can be found
at www.aluminalimited.com/governance/.
Auditor’s Independence Declaration
As lead auditor for the audit of Alumina Limited for
the year ended 31 December 2019, 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.
This declaration is in respect of Alumina Limited
and the entities it controlled during the period.
John O’Donoghue • Partner
PricewaterhouseCoopers
Melbourne
24 March 2020
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
18
Alumina Limited has a 40 per cent joint venture
interest in tier one long life alumina refineries.
Shareholders have continued to benefit from these
assets even as alumina markets change.
19
ALUMINA LIMITED ANNUAL REPORT 2019 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).
* Ras Al-Khair
• San Ciprian
• Western Australia
• Kwinana
• Pinjarra
• Wagerup
• Portland
* CBG
* Al Ba’itha
• Western Australia
• Huntly • Willowdale
20
* MRN
• Juruti
Bauxite mine
Refinery
Smelter
* Non-AWAC operated
• AWAC operated
• Alumar
* Ras Al-Khair
• San Ciprian
• Western Australia
• Kwinana
• Pinjarra
• Wagerup
• Portland
* CBG
* Al Ba’itha
• Western Australia
• Huntly • Willowdale
Contents
1. Strategy and Business Model
2. Principal Risks
3. Review of AWAC Operations
4. AWAC Financial Review
5. Alumina Limited Financial Review
6. Market Outlook and Guidance
21
23
25
28
30
33
* MRN
• Juruti
Bauxite mine
Refinery
Smelter
* Non-AWAC operated
• AWAC operated
• Alumar
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.
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 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.
A LUMINA LIMITED ANNUAL REPORT 2019
21
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), AWA Saudi Ltda.,
Alumina Espanola S.A., Alcoa World Alumina LLC (AWA
LLC), and the Alcoa World Alumina Brazil advisory board.
In addition to the Strategic Council meetings, Alumina
Limited’s Management and Board regularly visit and
review AWAC’s operations, and participate in segment
and location meetings.
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.
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:
• Future alumina off-take rights, 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
- 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.
22
2. Principal Risks
The risk management processes are summarised in the
Corporate Governance Statement located on the Company
website 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 achieve a low position on the cost
curve. 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.
In addition, Chinese refineries being built outside of
China at a much lower capital cost than the rest of the
industry could increase the supply of alumina globally,
which could lead to a fall in the market price of alumina.
Similarly, a sustained increase in the supply of cheap
bauxite from Asia to China, could also lower Chinese
alumina production costs which could lead to a fall in
the market price of alumina.
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.
Political, legal and regulatory impacts – AWAC and
Alumina Limited operate across a broad range of legal,
regulatory and 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 and Alumina Limited are 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. Furthermore, AWAC maintains a
spread of assets and customers across a portfolio of
countries and regions to minimise disruption and
concentration risk.
23
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW 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 any one 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 (including through backward integration)
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.
Climate change – Climate change is a systemic and
material risk that will pose challenges in the future
management of AWAC operations in regard to energy
usage, greenhouse gas (GHG) emissions, carbon pricing
policies and regulations and market demand. Climate
change results in a number of physical and transitional
risks, which affect AWAC in the following manner.
Physical risks include:
• increased risks to personnel, business continuity,
production and facilities,
• climate factors like extreme weather events are
likely to have an impact on AWAC’s global mining
and refining operations,
• water stress and potential impact on production
if shortages occurred,
• disruption to supply chain efficiencies from storm
activity, and the transportation of raw materials,
• climatic changes leading to changes in rainfall
and sea levels.
Transitional risks include:
• the increased scrutiny by governments on GHG
emissions and the establishment of a carbon pricing
mechanism,
• emissions trading schemes, carbon taxes etc, present
a challenge and a financial risk to the business,
• cost of emissions abatement,
• rising cost of energy.
Energy 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.
Additional information in respect of climate change risks,
can be located in Alumina Limited 2018 Sustainability
report, and Alumina Limited’s Climate Change Position
Statement. These documents can be found at
www.aluminalimited.com
Other Risks
• an alumina and/or aluminium market in supply surplus
may lead to downward price pressure;
• 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;
this can include current Chinese industry participants
establishing new refineries outside of China
• global growth slowing and reducing aluminium
consumption, and hence aluminium and alumina
demand;
• a technology breakthrough could lower Chinese
alumina production costs;
• a sustained increase in freight costs could
disadvantage AWAC’s competitiveness;
• 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.
24
Review of AWAC Operations
Alumina Limited provides its shareholders with a unique
investment in globally leading bauxite mines and alumina
refineries in Australia, Brazil, Spain, Saudi Arabia and
Guinea through its 40% investment in the AWAC joint
venture. AWAC also has a 55% interest in the Portland
aluminium smelter in Victoria, Australia.
The current refining portfolio is comprised mostly of tier
one assets that allows AWAC to generate strong returns
throughout the commodity cycle. Having long life bauxite
mines located close to the Australian refineries is a key
competitive advantage in terms of driving a low position
on the cost curve.
With the return of operational stability, AWAC’s operated
assets performed strongly during 2019, culminating in an
annual production record for AWAC’s current portfolio of
refineries of 12.6 million tonnes. Increased production
helped drive lower cash costs of alumina production,
which partially offset the decline in the average realised
alumina price.
Alumina prices declined year-on-year due to a move from
a market deficit to a small surplus of alumina following
new and resumed refinery capacity, and also lower than
expected global aluminium demand.
Despite the decline in alumina prices, AWAC has remained
profitable and continues to return cash to its joint venture
partners, primarily due to its low cost alumina refineries.
The Company is also proud that AWAC’s Western
Australian bauxite mines and alumina refineries,
Juruti mine and Alumar refinery in Brazil received
an Aluminium Stewardship Initiative Certification,
in recognition of AWAC’s commitment to sustainable
production.
Bauxite Mining
AWAC Operated Mines
Production (million BDT)
Cash cost ($/BDT of bauxite produced)
Non-AWAC Operated Mines
31 Dec 2019
31 Dec 2018
Change
Change (%)
40.7
10.2
39.2
11.4
1.5
(1.2)
3.8
(10.5)
AWAC equity share of production (million BDT)1
4.1
4.0
0.1
2.5
Third Party Sales
Shipments to third parties (million BDT)
Total third party revenue, inclusive of freight2 ($ million)
6.2
274.7
5.6
250.5
0.6
24.2
10.7
9.7
1.
Based on the terms of its bauxite supply contracts, AWAC’s bauxite purchases from the Mineração Rio do Norte S.A. (“MRN”) mine
in Brazil, and Compagnie des Bauxites de Guinée (CBG) mine in Guinea, differ from their proportional equity in those mines.
2. Includes freight revenue of $79.1 million for 2019 (2018: $68.1 million).
AWAC Operated Mines
AWAC operated mines increased production by
3.8% driven by increased demand from AWAC owned
refineries. Juruti’s production improved following
the completion of an expansion to a new capacity
of 6.5 million BDT in 2018.
Production at Huntly increased to meet a third party
supply contract and accommodate record production
levels at the Pinjarra refinery. Willowdale’s production
was increased to meet demand from the Wagerup
refinery, and Juruti’s production was increased in
order to meet greater third party demand.
Bauxite Production
Change by Mine (Million BDT)
0.3
40.7
1.2
39.2
2018
Huntly & Willowdale
Juruti
2019
25
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW In Western Australia, planning for the relocation of the
Willowdale crusher to a new reserve area has begun and
is well progressed. The move is expected to be completed
by the end of 2021 and involve total sustaining capital
expenditure of approximately $135 million, of which
$14 million was spent in 2019 on planning and
approximately $90 million will be spent during 2020.
Similarly, planning for a new plateau in Juruti is being
undertaken which will involve sustaining capital
expenditure of approximately $5 million during 2020.
AWAC’s cash cost per BDT of bauxite produced decreased
by 10.5% to $10.2 per tonne, mostly due to a decline in
royalty payments, and the stronger US dollar which had
a favourable effect on the cash cost of bauxite produced.
Cash Cost per BDT of Bauxite Produced^
$11.4
($0.1)
($0.1)
($0.4)
$10.2
($0.6)
2018
Labor
Fuel
Services &
maintenance
Other#
2019
# Other includes energy, supplies, PAE, royalties and other
^ AWAC operated mines
Non-AWAC Operated Mines
Third Party Bauxite Sales
AWAC’s shipments to third party customers increased
by 10.7% to 6.2 million BDT with an increase in shipments
from Huntly, CBG and Juruti, partially offset by a decline
in shipments from MRN.
Third party revenue increased by 9.7%, with the increase
in third party shipments partially offset by a decrease in
the average FOB realised price of bauxite.
31 Dec 2019
31 Dec 2018
Change
Change (%)
12.9
12.6
336
210
126
94
344
12.9
12.2
447
226
221
92
–
0.4
(111)
(16)
(95)
2
–
3.3
(24.8)
(7.1)
(43.0)
2.2
473
(129)
(27.3)
1.839
0.462
1.765
0.443
0.074
0.019
4.2
4.3
AWAC’s equity share of production at MRN and CBG
increased by 0.1 million BDT (2.5%) in 2019.
CBG’s production increased by 10% to 3.0 million BDT,
as the benefits from an expansion project begin to be
realised. Once fully ramped up, the expansion will add an
additional 1.1 million BDT to AWAC’s share of production.
The production rate at MRN was marginally down,
resulting in a decrease of AWAC’s equity share of
production by 0.1 million BDT to 1.1 million BDT.
AWAC’s equity accounted share of profit after tax from
CBG and MRN was $18.2 million (2018: $13.7 million).
Refining
AWAC operated refineries
Shipments (million tonnes)
Production (million tonnes)
Average realised alumina price ($/tonne)
Cash cost per tonne of alumina produced
Margin1 ($/tonne)
Smelter Grade Alumina (“SGA”) shipments
on spot or index basis (%)
Platts FOB Australia – one month lag ($/tonne)
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.
26
AWAC Operated Refineries
Production from AWAC operated refineries was
12.6 million tonnes, an annual record for the current
portfolio of assets. Pinjarra and Wagerup achieved
annual production records. Alumar’s production
improved with its major boiler overhaul near completion.
The lower AWAC average realised alumina price in 2019
reflected lower global metal demand, and additional
alumina supply following the restart of Alunorte, ramp
up of Al Taweelah, and other refinery capacity.
Approximately 94% of AWAC’s alumina shipments
were priced on a spot or index basis. AWAC’s average
realised price of $336 per tonne, a decline of $111 per
tonne compared to the previous corresponding period,
reflected the average alumina price decline of 27.3% to
$344 per tonne.
The average cash cost per tonne of alumina improved
by 7.1% to $210 per tonne. An improved production rate
reduced energy and caustic usage and the strength of
the US dollar had a favourable effect on the cash cost
of production.
Ma’aden Joint Venture
The Ma’aden refinery increased production by 4.2% in
2019 to 1.839 million tonnes of alumina (AWAC’s share
was 0.462 million tonnes), operating at 102% of
nameplate capacity.
The equity profit relating to the Ma’aden joint venture for
AWAC was $6.4 million during 2019 (2018: $32.5 million
equity profit). The decline was predominantly driven
by lower realised alumina prices.
Portland
AWAC’S 55% Equity Share
Production (thousand tonnes)
LME aluminium cash – 15 day lag ($/tonne)
EBITDA ($ million)
Alumina Production Change by Refinery (Kt)
68
6
12,620
362
12,184
2018
Pinjarra
Wagerup
Kwinana
Alumar
San
Ciprian
2019
Cash Cost per Tonne of Alumina Produced^
$226
($2)
($9)
($2)
$210
($3)
2018
Energy
Caustic
Bauxite
Conversion*
2019
^ Includes the mining business unit at cost
* Conversion includes: employee costs, indirect costs and other raw material costs
31 Dec 2019
31 Dec 2018
Change
Change (%)
161
1,799
(20.0)
164
2,119
(29.7)
(3)
(320)
9.7
(1.8)
(15.1)
32.7
Portland’s aluminium production decreased by 1.8% compared to 2018.
The improvement in earnings was primarily as a result of a lower cash cost of production due to lower alumina prices.
This was partially offset by a decline in metal prices.
27
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW AWAC Financial Review
The decline in AWAC’s 2019 net profit was largely due to lower realised alumina prices, charges related to the closure of
Point Comfort, partially offset by improvements in the cash cost of production.
The decrease in the income tax charge was driven by lower taxable income, particularly in AWAC’s Australian operations.
AWAC Profit and Loss (US GAAP)
US$ Million
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
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
565.1
394.8
306.0
(5.2)
1,260.7
325.3
1,586.0
1,640.2
701.3
290.4
(1.8)
2,630.1
166.7
2,796.8
AWAC’s net profit included the following significant items:
Significant Items (US GAAP)
US$ Million
Suralco restructuring related charges1
Point Comfort restructuring related charges1
New operating model restructuring charges
Bauxite mining service contract final arbitration2
Derecognition of Brazil state VAT receivables3
Other4
Total significant items (pre-tax)
Total significant items (after-tax)
1. Including holding costs.
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
(12.6)
(289.0)
(17.1)
–
–
(6.6)
(325.3)
(315.2)
(9.7)
(34.3)
–
(29.0)
(77.6)
(16.1)
(166.7)
(149.0)
2.
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 $29 million to Boskalis was made on 6 June 2018.
3.
AWAC derecognised VAT receivables from certain Brazilian states. The company retains the ability to utilise the VAT credits in the future.
4.
Other significant items include net charges related to Point Henry and Anglesea restructuring, severance, other payments, Portland
government facility forgiveness, and Afobaka hydroelectricity dam accelerated depreciation.
28
AWAC Balance Sheet (US GAAP)
US$ Million
31 DEC 2019
31 DEC 2018
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
418.7
272.8
518.8
3,138.0
2,015.1
6,363.4
0.5
548.1
226.3
78.2
1,235.2
2,088.3
4,275.1
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
The decline 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 2019.
The lower average alumina prices and a tax payment in excess of $300 million relating to the prior period resulted in
lower cash and cash equivalents as well as a reduction in receivables and taxes payable balances respectively.
The decrease in inventories and accounts payable includes the lower cost of raw materials, in particular caustic.
Property, plant and equipment value declined due to the write-down of the Point Comfort refinery as well as accelerated
depreciation associated with the handback of the Afobaka hydroelectricity dam to the Suriname Government, partially
offset by the capitalisation of operating leases following the adoption of the new accounting standard ASC 842 “Leases”.
Other assets decreased slightly, mainly due to changes in the fair value of derivative assets associated with Portland’s
hedging arrangements.
Other liabilities increased mainly due to an increase in operating lease liabilities following the adoption of the new
accounting standard ASC 842 “Leases”.
29
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW AWAC Cash Flow (US GAAP)
Cash from operations
Capital contributions arising from the allocation agreement1
Capital contributions from partners
Net movement in borrowings
Capital expenditure
Other financing and investing activities2
Effects of exchange rate changes on cash and cash equivalents
Cash flow before distributions
Distributions paid to partners – in respect of the current year
Distributions paid to partners – in respect of the previous year
Net change in cash and cash equivalents
US$ Million
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
906.3
–
127.5
(5.9)
(176.9)
3.7
3.5
858.2
(645.8)
(534.0)
(321.6)
1,969.6
74.0
371.9
63.3
(234.1)
–
(68.4)
2,176.3
(1,540.4)
(527.5)
108.4
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 proceeds from sales of assets, and other.
Cash from operations in 2019 decreased primarily due to lower average realised alumina prices and a large tax payment
in relation to the prior period.
In 2019, sustaining capital expenditure was $151.0 million (2018: $210.9 million). The most significant expenditure related
to residue storage areas, completion of a press filtration facility and planning for the Willowdale mine’s crusher move.
2019 sustaining capital expenditure was lower than 2018 as the majority of the Pinjarra press filtration facility was
constructed throughout 2018, and completed in 1H 2019.
Growth capital expenditure was $25.9 million (2018: $23.2 million). This is down by $26 million from our previous guidance
largely due to an extended timeline for the evaluation of the WA refineries growth opportunities. We expect a decision in
relation to these projects to be made in 2020.
Other growth projects in 2019 included debottlenecking and a boiler upgrade at the Alumar refinery.
Alumina Limited Financial Review
Alumina Limited Profit and Loss
US$ Million
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
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
232.0
(12.1)
(7.3)
1.4
214.0
112.6
326.6
653.5
(11.6)
(6.7)
0.2
635.4
54.5
689.9
30
Alumina Limited Significant Items (IFRS, Post-Tax)
US$ Million
Suralco restructuring charges1
Point Comfort restructure-related charges1
New operating model restructuring charges
Bauxite mining service contract final arbitration
Derecognition of Brazil state VAT receivables
Other2
Total significant items
1. Including holding costs.
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
(2.2)
(109.0)
(4.9)
–
–
3.5
(112.6)
(1.2)
(13.8)
–
(11.6)
(25.8)
(2.1)
(54.5)
2.
Other significant items include net charges related to Point Henry and Anglesea restructuring, severance, other payments, Portland
government facility forgiveness, and Afobaka hydroelectricity dam accelerated depreciation.
Alumina Limited recorded a net profit after tax of $214.0 million (2018: $635.4 million).
Excluding significant items, net profit would have been $326.6 million (2018: $689.9 million).
The decrease in net profit was primarily due to a decline in AWAC’s profit.
2019 general and administrative expenses were higher than 2018 due to several factors including the additional ASIC
industry funding levy, higher consulting and recruitment fees.
The Company’s finance costs in 2019 were higher as they included $1.3 million of charges relating to the renegotiation of
the syndicated bank facility. This was partially offset by lower interest charges as a result of terminating the Company’s
A$125 million note in July 2019, and replacing it with the syndicated bank facility which has a lower coupon rate.
Alumina Limited Balance Sheet
US$ Million
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
Cash and cash equivalents
Investment in associates
Other assets
Total Assets
Payables
Interest bearing liabilities
Other liabilities
Total Liabilities
Net Assets
15.2
1,836.8
1.8
1,853.8
0.9
70.0
0.8
71.7
1,782.1
183.8
2,060.2
1.1
2,245.1
1.2
88.0
20.1
109.3
2,135.8
The value of investments in associates decline includes AWAC profit, the closure of Point Comfort and a large tax
payment in relation to the prior period.
Alumina Limited’s net debt/(cash) as at 31 December 2019 was $54.8 million. (2018: $(95.8) million)
During 2019 the Company redeemed the A$125 million note and also early terminated, by cash settlement, the CCIRS
which was used to mitigate the currency and interest rate exposure in relation to the Note.
The funds used to repay the Note and CCIRS were drawn down from the $350 million syndicated bank facility
(tranche maturing 30 July 2023). The facility had $70 million drawn as at 31 December 2019.
31
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW Alumina Limited Cash Flow
Dividends received
Distributions received
Net finance costs paid
Payments to suppliers and employees
GST refund, interest received & other
Cash from operations
Net receipts/(payments) – investments in associates
Free cash flow1
1. Free cash flow calculated as cash from operations less net investments in associates.
US$ Million
Year Ended
31 Dec 2019
Year Ended
31 Dec 2018
381.7
–
(8.3)
(11.9)
3.1
364.6
39.2
403.8
657.2
0.2
(7.5)
(10.7)
2.1
641.3
20.8
662.1
Alumina Limited’s dividend policy is to distribute free cash received right up until the date of the dividend declaration
whilst taking into consideration its capital structure, any capital requirements for AWAC and market conditions.
Net receipts from AWAC totalled $420.9 million (2018: $678.2 million), and an additional $31.3 million (2018: $193.6 million)
received post 31 December 2020 is included in the 2019 final dividend paid on 17 March 2020.
Contributions to AWAC in 2019 of $51.0 million (2018: $108.8 million) 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.
The higher cash finance costs are a result of the bank facility’s rollover and establishment fees incurred in 2019, which
was partially offset by lower interest charges as a result of terminating the Company’s A$125 million note in July 2019.
The lower dividend is driven by the reduction in distributions received from AWAC resulting from lower average alumina
prices and a payment of $338 million relating to prior period tax.
32
Market, Outlook and Guidance
The market outlook and guidance on pages 33–35, does not take into account the potential impact to the relevant
factors as a result of COVID-19.
Alumina
The alumina price ranged between $321 and $275 per tonne
during the second half of 2019, averaging $290/t. This
compares to the first half range between $321 and $418
per tonne, averaging $375/t. For the entire 2019 year the
alumina price index averaged $332 per tonne, compared
with $473 in 2018. Lower prices were due to both increased
alumina supply and lower-than-expected demand,
resulting in a modest alumina surplus outside China
(exported to China). A global manufacturing slowdown
reduced the need for primary aluminium and hence
smelter-grade alumina (SGA).
Despite subdued prices, smelter-grade alumina
production grew by 3.8 per cent outside China in 2019
driven largely by the resumption at the partially curtailed
Alunorte refinery in Brazil, ramping up of the Al Taweelah
refinery in the UAE, the Friguia refinery in Guinea and the
Lanjigarh refinery in India. Only the Alpart refinery in
Jamaica and the small Alro refinery in Romania
announced a capacity curtailment in 2019.
Smelter-grade alumina production in China contracted
by 1.2% in 2019, amid tightening environmental policies,
lower alumina prices and increase in net imports. In May,
over 4 million annual tonnes of capacity were curtailed in
Shanxi due to bauxite residue issues, of which 2.8 million
tonnes remain curtailed. Difficulty in accessing domestic
bauxite, plus narrowing margins forced more high cost
refineries in Northern China to curtail during the second
half of 2019.
Chinese alumina prices remained subdued in the second
half of 2019, causing the price outside China to fall as
surplus alumina was exported to China as the market
of last resort. Prices fell to the marginal cost level of
RMB 2,400 including VAT (nearly US$350) per tonne in
December and triggered some curtailments of high
cost refineries. Prices have stabilised since.
China returned to being a net importer of alumina in 2019.
China’s net imports totalled 1.4 million tonnes in 2019, after
being a net exporter in 2018 of nearly 1 million tonnes.
Going into 2020, whilst extra smelting production will
require more alumina, additional global alumina supplies
are likely to support a balanced to slight surplus SGA
market (0.2 million tonnes). Winter cuts in China are having
a reduced impact on production compared to previous
years. Much less new refining capacity is expected to be
built in China than in previous years, and any new capacity
will most likely displace high cost existing capacity.
Chinese smelter-grade alumina production is forecast
to grow by 1.8% and non-Chinese production by 4.8%
in 2020. Net alumina imported by China is forecast to
increase to 2 million tonnes in 2020.
Over the medium to longer term China is expected to
be broadly balanced in alumina, while continuing with
modest imports from time to time and the rest of world is
forecast to be balanced in the medium term. The Chinese
Government has imposed a supply side reform cap of
45 million tonnes on primary aluminium capacity. If this
is insufficient of itself to regulate over-capacity in the
Chinese alumina industry, the Chinese Government
might be expected to impose more specific measures,
particularly while Chinese state-owned-enterprises are
long alumina. Either way, it is not expected that there will
be Chinese overproduction of alumina in the medium to
long term (although China is forecast to maintain some
spare capacity which can be ramped up or down in line
with market needs and raw material cost or availability).
New, more cost-effective refineries are likely to be built
along the coast of China, or in bauxite-rich regions
outside of China, taking advantage of Chinese low capital
cost design and construction. Outside of China, greenfields
alumina refinery projects continue to be challenged by
high construction costs and distances between favourable
energy sources and good quality bauxite.
It is likely that sustainability concerns will increasingly
impact the industry into 2020 and beyond, at least outside
China. Examples are the greater downstream consumer
demand for responsible product chains, more stringent
measures for tailings dams and residue disposal areas,
climate change issues and air and water quality concerns.
These may add to alumina production costs. Over 2020
energy and caustic soda costs are expected to be relatively
stable, with some risk of increased costs. However, AWAC
is relatively well advanced to meet industry sustainability
issues within its operations, particularly with its low
position on the industry CO2 emissions curve and its
rehabilitation practices.
Alumina price indices continue to be the main way
smelter-grade alumina is priced. In March 2019, the LME
launched a new cash-settled futures contract, the LME
Alumina (CRU/Fastmarkets MB). This supplements CME’s
Alumina FOB Australia (Platts) Futures and Alumina FOB
Australia (Metal Bulletin) Futures contracts. In China in
2019, Aladdiny introduced a physically settled alumina
contract exchange platform. These types of price risk
management tools continue to assist the development
of alumina price indices.
33
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW Bauxite
China imported a record of 101 million tonnes of bauxite in
2019, representing a 22% increase from 82.4 million tonnes
in 2018. Third party bauxite continues to be well-supplied
globally and this is forecast to continue into 2020. Supply
to China is expected to continue to come predominantly
from Guinea and Australia. Indonesia remains the third
largest bauxite supplier to China, consistently exporting
over 1 million tonnes per month. These three countries
currently comprise around 94% of the total China imports.
The Indonesian Government has indicated the possibility
of bringing forward its ban on bauxite exports from
January 2022. Even if the Indonesian ban were brought
forward, beyond potential short-term supply disruptions,
there is sufficient potential supply from other sources,
such as Guinea, Australia and Malaysia, to fill the gap.
Political protests in Guinea in 2019 have impacted bauxite
supply at times and, if there were any extended supply
disruptions, they would be likely to have a far greater
impact on Chinese refinery bauxite sourcing and cost.
China currently imports around 50% of its bauxite needs,
up from around 30% five years ago and this is expected
to increase to over 75% within the next five years.
In 2019, the Chinese imported bauxite price on a value-in-
use adjusted basis has ranged from $49.50 to $55.10 per dry
metric tonne, with a volume-weighted average of $51.80.
There has been increasing usage of imported bauxite by
Chinese inland refineries. In 2019, thirteen refineries
either completed high temperature to low temperature
conversions or installed sweetening “add-ons” – and as a
result these lines are now using imported (low temperature)
bauxite to produce alumina. Freight cost increases and
logistical impacts are expected into 2020, due to new rules
regulating sulphur content in fuels (MARPOL IMO 2020).
Given the expected on-going ample supply of bauxite,
particularly from Guinea and Australia, and to a lesser
extent Indonesia, the third party bauxite market is likely
to remain relatively stable in the near future.
Aluminium
World primary and semi-fabricated aluminium consumption
contracted in 2019. Global primary consumption fell by just
under 1%. The transportation, machinery and equipment
sectors led the decline, in particular automotive. Primary
aluminium demand for the second half of 2019 fell by 4.6%
year on year, led by North America. A stagnant real estate
and electrical industry, as well as a poor macroeconomic
environment, all contributed to an overall 1% contraction
of global primary aluminium demand in 2019, despite
marginal demand growth in China.
However, more favourable monetary policy, easing of US
and Chinese trade tensions with the phase 1 agreement,
stronger packaging demand and positive sentiment in
global markets (particularly in emerging markets like China
and India), are expected to drive the primary aluminium
demand up in 2020.
Chinese primary aluminium production contracted by
2% in 2019, triggered by price driven curtailments in the
first half of 2019, as well a series of unplanned outages
in the second half of the year. Outside China, production
expanded by 1.1% to 27.9 million tonnes in 2019. This
was mainly due to the expansion of Alba (Bahrain),
Rusal (Russia) and restarts at Albras (Brazil), Becancour
(Canada), exceeding curtailments at Mostar (Bosnia),
CVG (Venezuela) and in Spain.
Going into 2020, global primary aluminium production
is expected to increase by 3.4%, with smelters started or
re-started in 2019 (Alba’s line 6, Rusal’s BEMO expansion,
Century (USA) restart) ramping up to full capacity and
with the ramping up of Becancour and Albras, Xinfa and
Weiqiao (China). In addition, there will be new Chinese
capacity, particularly in the Southwestern provinces
of Yunnan and Guangxi. Global demand is expected
to be 66 million tonnes.
LME prices continued to fluctuate while trending
lower during the second half of 2019 amid deteriorating
sentiment for the aluminium industry in the Western
World. In China, supply disruptions, decreasing inventory
and improving macroeconomic data supported primary
aluminium prices rebounding towards the end of the year.
Smelter profitability has improved in 2019, driven by
lower alumina and carbon prices.
During the first half of 2020, recovering demand for
aluminium, easing trade/macro concerns and improving
market sentiment are expected to be positive factors, but
capacity expansion and restarts both in and out of China
will provide ample supply and keep pressure on prices
in 2020. Some Chinese economic slowdown due to
COVID-19 is occurring and demand for aluminium
may be reduced. There are unloading and transportation
disruptions in China affecting bauxite, alumina and
aluminium flows.
Over the medium and longer term, aluminium demand
is forecast to continue to grow driven by economic
expansion and increasing intensity of use. CRU expects
primary aluminium demand to reach 87.6 million tonnes
in 2045, compared with 64.9 million tonnes in 2019 and
China, India and Southeast Asia are expected to account
for around 63% of world aluminium demand in 2045.
Whilst this is a modest growth rate, it would nevertheless
require an additional 44 million tonnes of alumina
production. In developed countries this is expected
through more stringent environmental requirements
to reduce emissions and waste and increase efficiency,
leading for example to greater lightweighting of transport
and electric vehicles. In developing countries, such as
India and in Southeast Asia, aluminium demand growth
is expected through greater urbanisation with more
infrastructure and construction.
34
AWAC Guidance
The following 2020 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¢ AUD/USD
Brazilian $ Sensitivity: + 1¢ BRL/USD
2020 Guidance
Approximately 12.7 million tonnes
Approximately 162,000 tonnes
Approximately 6.7 million BD tonnes
Approximately +$115 million EBITDA
Approximately -$90 million EBITDA
Approximately -$22 million EBITDA
Minimal impact
SGA shipments expected to be based on alumina price indices or spot
Approximately 97% for the year
AWAC sustaining capital expenditure
AWAC growth capital expenditure
AWAC Point Comfort after tax restructuring3, 4
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
Approximately $230 million
Approximately $35 million
Approximately $15 million
Approximately $55 million
Approximately $10 million
Approximately $40 million
Approximately $5 million
Approximately $20 million
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.
4. The closure of the Point Comfort refinery was announced on 17 December 2019.
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 2020 are that total receipts by Alumina Limited should
exceed its corporate needs.
In 2020, Alumina Limited anticipates there could be equity calls by AWAC entities in relation to working capital support.
However, this is subject to market conditions.
35
ALUMINA LIMITED ANNUAL REPORT 2019OPERATING AND FINANCIAL REVIEW Letter by Chair of
Compensation Committee
Dear Shareholders,
I am pleased to present Alumina Limited’s 2019 remuneration report.
Company Performance in 2019
In 2019, Alumina Limited reported a third successive
year of strong returns for shareholders. Following the
record results in 2018, the Company reported a profit of
$214 million and distributed fully franked dividends to
shareholders of US 8 cents. Although this is less than
the dividends paid in 2018, it represents a yield of 5.0%
to shareholders for 2019. These outcomes for shareholders
are pleasing given the average alumina price for 2019
was $332 per tonne, as alumina prices weakened due
to increased supply. (This compared with an average
alumina price of $473 per tonne in 2018).
Remuneration Strategy and Structure
Alumina Limited’s remuneration structures and levels of
remuneration have been designed to reflect the unique
nature of the company, the role of the executives, and
their focus on longer term value creation for shareholders.
In any one financial year, the Company’s financial result
is heavily determined by global commodity prices.
For these reasons, the Company’s remuneration
is designed:
• To pay fixed remuneration at a competitive level that
will attract and retain high calibre executives (typically
with strong leadership, relationship and influencing
skills, proven track record in commercial and M&A
transactions, ability to grasp the detail of complex
matters yet think strategically and tactically).
• To offer meaningful incentives but to avoid large
windfall gains as a result of factors outside of
management’s control (i.e. world alumina price
rises or exchange rates); and
• To provide a meaningful part of the total remuneration
package in equity that is earned and released over
the medium to longer term to provide alignment with
shareholders (hence the use of Conditional Rights
(CR) (with 3 year lock) for the CEO and CFO, and for
participating execs within STI’s a requirement for
50% to be reinvested in equity, and LTI’s delivered
wholly in equity).
• With reference to the non-operating nature of the
Company, as benchmarks are considered when setting
remuneration levels for for participating executives.
In 2019, the Compensation Committee reviewed a number
of topics including LTI performance vis-à-vis testing
periods and the commodity cycle and NED equity policies.
No changes to these policies resulted from the review, but
the work enabled the company to have a more detailed
understanding of the impacts of different scenarios and
to be comfortable with the continued relevance of its
remuneration policies and their alignment with
Alumina’s business context.
Remuneration Decisions and Outcomes
CEO Remuneration Outcomes
The CEO received no incentive payments in 2019. This
is because he does not participate in an STI, and was not
employed at the time of the FY17 LTI grant (which fell
due for testing in 2019).
The CEO was awarded an increase of 6.0% to his total
reward opportunity effective in 2020 reflecting his
maturity, and strong performance in the role since his
appointment in 2017. The majority of this increase is
delivered in equity, either in the form of restricted
conditional rights or performance tested LTI. Even with
this increase, his total reward opportunity would remain
in the lowest quartile, in accordance with Board discipline.
New CFO Remuneration Structure
In 2019, Alumina Limited was pleased to appoint Mr Grant
Dempsey to the role of CFO. Grant was chosen following a
structured recruitment process which allowed for market
testing of remuneration structure and quantum. The
structure of his remuneration mirrors that of the CEO,
which is comprised of fixed pay, an annual grant of
conditional rights (that are restricted for 3 years) and a
modest LTI. Notably, the CEO and CFO do not participate
in an STI which has been a specific design decision due
to the unique nature of Alumina Limited’s business.
Performance Under the LTI
The FY17 LTI was tested in 2019 (testing period December
2016 to December 2019) with 100% of the total award
vesting. This outcome reflected shareholder experience
over the period with the Company growing in market
capitalization from a $3.3 billion to a $6.4 billion company,
and record high profits being posted during the period
(in 2018).
36
Senior Executives – Performance under STI
After transitioning the new CFO to the same structure as
the CEO, the STI applies to only two KMP. As a result of
the scorecard assessment, reviewed by the Compensation
Committee, $443,000 was awarded in 2019 (in 2018 those
same KMP received $392,000). Achievements on projects
regarding Tailings Dams Integrity and JV value
optimisation underpinned the 2019 STI decisions.
Now that the STI scheme at Alumina has less applicability,
in this year’s report we have chosen to structure our
narrative to give more prominence to base remuneration
and our LTI scheme ahead of STI.
2020 NED Committee Fees
Following 8 years of unchanged director base
remuneration, to ensure Committee fees are market
competitive to continue to attract high calibre NEDs
to the Alumina Board, the Compensation Committee
decided to make modest increases to some
Committee fees.
I am grateful for the dialogue we have had with
stakeholders in 2019, and as always we’re pleased to
receive thoughts from shareholders and the wider
community. I look forward to continuing to work
with you.
Emma Stein • Chair
37
ALUMINA LIMITED ANNUAL REPORT 2019 REMUNERATION REPORT
The Remuneration Report is presented in the following sections:
1. Remuneration Framework
1.1. Persons Covered by this Report
1.2. Remuneration in Business Context
1.3. Remuneration Strategy, Components and Mix
2.
Company Performance and Executive
Remuneration Outcomes
2.1. Company Performance
39
39
40
43
2.2.
Remuneration Decisions and Outcomes for 2019 45
2.3. CEO, CFO and Senior Executives Performance
under the LTI Plan
2.4. Senior Executives (excluding CEO and CFO)
2.5.
2.6.
Performance Under the STI Plan
CEO and Senior Executives Statutory
Remuneration
Actual “Take Home” 2019 Remuneration
Awarded to CEO and Senior Executives
3. Non-Executive Directors Remuneration
3.1. Remuneration Outcomes in 2019
3.2. Non-Executive Directors Share Holdings
45
47
50
52
54
56
4. Additional Disclosures
4.1.
4.2.
4.3.
4.4.
4.5.
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
4.6. Cessation of Employment
4.7. Change of Control
4.8. Clawback Policy
4.9. Share Trading and Hedge Prohibition
56
57
57
58
59
60
60
60
60
38
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 Director – CEO
• Other Senior Executives considered KMP.
Name
Role
Non-Executive Directors
Peter Day
Non-Executive Chairman
John Pizzey
Non-Executive Chairman (retired)
Appointed Chairman 1 April 2018
Director since 1 January 2014
Chairman from 1 December 2011 to 31 March 2018
Director from 8 June 2007 to 31 March 2018
Emma Stein
Non-Executive Director
Appointed 3 February 2011
Chen Zeng
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
Chief Executive Officer (CEO)
Appointed CEO from 1 June 2017
Other KMP
Grant Dempsey
Chief Financial Officer (CFO)
Appointed 1 July 2019
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)
19 November 2018 to 30 June 2019
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.
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.
Alumina Limited owns a 40 per cent interest in the
multibillion-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 56,000
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.
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.
39
ALUMINA LIMITED ANNUAL REPORT 2019 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
RELEVANCE
Our remuneration is designed to aid
alignment of Company, Executive, Board
and Stakeholders interests.
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.
Alignment of the CEO’s and CFO’s Remuneration Structure
In 2019, Alumina appointed a new CFO, Grant Dempsey, who
brings an extensive range of relevant skills and commercial
experience to help deliver Alumina’s strategic objectives.
The CFO succession presented the Board with opportunity
to align the CFO’s remuneration structure with that of
the CEO.
The CEO’s and CFO’s remuneration packages have been
specifically designed to exclude an STI, which has been
replaced with the restricted equity grant.
This design reflects the unique nature of the Company,
the requirements of these critical leadership roles to
create long term shareholder value, their responsibility
for the relationship with our joint venture partner and
influence the strategic direction of joint venture
development and growth.
The decision to remove the STI component from CEO and
CFO remuneration structure continues to align with Alumina
Limited’s remuneration strategy, in particular ensuring that
swings in the commodity cycle do not excessively impact
remuneration outcomes and rewarding longer term value
creation through increased exposure to equity-based
remuneration.
The Board continues to set specific annual objectives
for the CEO. Progress is reviewed quarterly and at the
end of the year. These steps ensure there is a formal and
transparent process from which to assess, discuss and
hold accountable CEO performance.
The Board has further refined its approach to the CEO’s
performance assessment framework, so that reward and
recognition decisions for the CEO are underpinned by
the performance assessment process.
The same principle will be adopted for the CFO performance
assessment. The alignment of the CFO remuneration
structure and performance assessment framework
with that of the CEO, is intended to promote a stronger
leadership structure focusing on the value creation
activities and eliminate potential prioritisation of the
short-term goals over longer term strategic objectives.
The Board considered and maintained its discipline of
setting overall level of remuneration at modest levels (lowest
quartile). Having aligned the CEO and CFO remuneration
structures in 2019, the remuneration structures for Alumina’s
General Counsel and GM Strategy & Development who
make up the other KMP remain unchanged.
40
KMP Remuneration Components and Pay Mix
The table below sets out the different components of remuneration for the Alumina Limited’s KMP, the performance
measures used to determine the amount of remuneration executives will receive and how they are aligned with Alumina
Limited’s remuneration strategy.
Fixed Remuneration
(“FAR”)
Long-Term
Incentive (LTI)1
CEO & CFO Equity
Based Award
Short-Term Incentive
for Senior Executives1
Executive
Remuneration
Components
Strategic
Intent
Performance
Measure
Attract and retain
executives with
the capability and
experience to
deliver our strategy.
FAR is set based on
market relativities,
reflecting
responsibilities,
qualifications,
experience and
effectiveness.
Align performance focus
with the long-term
business strategy and
shareholders experience.
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).
Align performance
focus with the
long-term business
strategy and
shareholder
experience.
Transfer of shares
is conditional on
a minimum of
12 months service
period.
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.
Delivery
Cash Payment
Performance Rights
Conditional Rights
Performance incentive
directed to achieving
Board approved targets,
reflective of market
circumstances.
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.
Mix of cash and equity
• GE Strategy &
Development:
100% cash
• Company Secretary:
50% cash, 50% equity
with three years trade
restriction period
1. More detail on the STI and LTI remuneration components and their link to company performance is included in section 2 of this report.
CEO
The CEO’s remuneration package comprises FAR, an
annual grant of Conditional Rights subject to dealing
restrictions, and an LTI.
% of potential total remuneration
FAR 60%
Conditional Rights 19%
Restriction period
LTI Performance Rights 21%
Year 1
Year 2
Year 3
C
A
S
H
E
Q
U
I
T
Y
The remuneration structure for the CEO includes
remuneration elements most aligned with the role of
the CEO at Alumina Limited and the skills and experience
of the individual in the role. 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 and LTI) drives long-term focus and
a provides a better measure of the CEO’s performance. The
equity component value will change over time and mirror
the experience of shareholders.
41
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT As a part of the CEO performance assessment, the Board
conducted a structured review of CEO effectiveness in the
role, not only for 2019, but over the period of his appointment.
Since his appointment in 2017, which followed the
separation of Alcoa Inc in late 2016, Mr Ferraro’s priority
was to engage with Alcoa to assess the potential growth
and synergies within the alumina and bauxite segments,
optimising and investing in AWAC’s core assets, whilst
maintaining good working relationships with our joint
venture partner. Significant progress was achieved in
the areas of long term gas sourcing, risk management,
sustainability and residue disposal area management.
Mr Ferraro’s leadership of Alumina in terms of the quality
of investor and stakeholder relationships was assessed.
The Board view was reaffirmed through canvassing
the views of investors by the Chairman. The conclusion
was that Mr Ferraro has matured in the role and his
outperformance should be reflected in 2020’s
remuneration decision.
As a final test for the appropriateness and the quantum
of CEO remuneration decision, a market comparison
was conducted against the CEO remuneration of the
ASX51-100, the Company’s preferred comparator group
that comprises companies with a market capitalisation
of approximately 70% to 150% of Alumina Limited.
The CEO’s revised 2020 total reward opportunity would
have positioned him at the 12th percentile of the ASX51-
100 comparator group and at the 8th percentile of the
ASX51-75 comparator group.
CFO
As previously mentioned, the Board took an opportunity
to align the CFO remuneration structure to that of the CEO.
As with the CEO package, the CFO’s remuneration
package comprises a fixed cash component of $877,500,
an equity component delivered via conditional rights and
performance rights valued at $236,250 each at the time
of the grant.
% of potential total remuneration
FAR 65%
Conditional Rights 17.5%
Restriction period
LTI Performance Rights 17.5%
Year 1
Year 2
Year 3
C
A
S
H
E
Q
U
I
T
Y
The CEO’s 2019 FAR positions him at the 46th percentile
of the ASX51-100 comparator group and at the 34th
percentile of the ASX51-75 comparator group, whilst his
total reward opportunity positions him at 8 percentile
for both comparator groups.
Restructuring of the CFO remuneration package resulted
in a reduction of the overall potential quantum of the
package (from $1,525,440 to $1,350,000), whilst doubling
the exposure to the equity component (delivered via
replacement of cash STI to Conditional Rights).
Whilst the Board remains of the view that due to
the non-operating nature of Alumina’s business it is
appropriate to maintain the total CEO reward opportunity
positioning in the lowest quartile, the Board also considers
the increased complexity and demand for proactive
participation and contribution in certain areas of
JV governance and operations.
On this basis, the Board thought the CEO’s 2020
remuneration package should be revised to further
increase CEO exposure to equity in the Company thus
reflecting on the future strategic intent of the role.
The revision of the CEO remuneration package results
in a 6% increase of the total reward opportunity and
includes the following changes:
• 2.2% FAR increase;
• 12.5% increase in the value of conditional rights; and
• 11% increase in the value of LTI Performance rights.
The Board is satisfied that the CFO’s target remuneration
is appropriate to attract, retain and motivate a high
calibre, and with appropriate skill-set CFO. The revised
CFO remuneration package was validated through
external benchmarking.
Potential total remuneration
N
E
W FAR: $877,500
Conditional
Rights:
$236,500
Performance
Rights – LTI:
$236,500
O
L
D
FAR: $726,400
STI: $508,480
Performance
Rights – LTI:
$290,560
42
Senior Executives
Senior Executive remuneration packages comprise FAR,
STI and 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 Company strategic, financial and non-financial
objectives are identified.
At the end of the year performance is evaluated based
on the status of completion of objectives and individual
performance relevant to the specific objective.
In the Board’s opinion this approach directs Executive
focus to the most significant business priorities, promote
teamwork and present a transparent and equitable basis
of the performance assessment.
% of potential total remuneration
C
A
S
H
E
Q
U
I
T
Y
FAR 48%
STI 16.5%
STI Shares 16.5%
LTI 19%
FAR 55.5%
STI 28%
LTI 16.5%
Company Secretary
GM Strategy & Development
2.
Company Performance and Executive Remuneration Outcomes
2.1. Company Performance
Some Company objectives are weighted differently for
each of the KMP depending on the expected level of
input and responsibilities assigned. In terms of financial
performance, Alumina Limited has continued its recent
history of strong results. Despite a softer alumina market,
Alumina Limited recorded a profit of US$214.0 million.
The profit decreased 66% compared to the record 2018
profit of US$635.4 million due to lower alumina prices and
charges associated with the closure of the Point Comfort
refinery in Texas.
A low cost, tier one portfolio of assets, supports AWAC’s
ability to remain profitable despite lower alumina prices
and has facilitated cash distributions of US$471.9 million to
Alumina Limited during 2019. Whilst dividend distributions
in 2019 were down compared to the record distributions
of 2018, the chart shows that Alumina Limited’s three-year
dividend yield of 8.6% continues to compare favourably
to peers. Additionally, Alumina Limited’s TSR compared to
relevant ASX indices, demonstrates a track record of solid
returns to investors since 2016 following AWAC’s asset
portfolio transformation.
Alumina Limited vs Peers Avg Dividend Yield1
Past three calendar years, excl. franking credits
8.6
7.2
4.5
3.2
1.8
1.4
No dividends
Alumina
Rio
Tinto
South32
Alba
Norsk
Hydro
Rusal
Alcoa
Corp.
Century
Aluminium
1. Dividend yield calculated as the average dividend declared from 26-Feb-17
to 26-Feb-20 divided by the average share price during that period.
43
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT
Alumina Limited (including Franking Credits) (A$) 2014–2019 ASX200 Materials Company TSR's (Incl. Franking Credits) (A$)
400
350
300
250
200
150
100
50
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Alumina Ltd. TSR
ASX 200 Materials Index 25th percentile
ASX 200 Materials Index 50th percentile
ASX 200 Materials Index 75th percentile
Alumina Limited undertook a number of actions to strengthen its balance sheet during 2019. The syndicated bank
facility was renegotiated, and as a result Alumina Limited now has facilities totalling US$350 million, with the earliest
tranche not maturing until October 2022.
Alumina Limited also redeemed the A$125 million note and early terminated the associated CCIRS. These actions give
Alumina Limited greater flexibility and enhanced access to liquidity. As at 31 December 2019, Alumina Limited’s net debt
was US$54.8 million, equating to 3.0% gearing.
Alumina Limited’s Board and Management continue to remain abreast of industry trends and developments in order
to refine the future strategy of the business. We continue 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 and contributed to discussion and analysis of various potential projects within AWAC.
Our investment in AWAC’s portfolio of low cost assets, together with a very strong balance sheet, allows Alumina Limited
to deliver consistent returns through the cycle while also investing for the long term. Changes to the AWAC distribution
policies negotiated in 2016 provided greater certainty and control over cash flows to Alumina Limited and ultimately
to its shareholders.
Alumina Limited 2019 TSR Compared to ASX Indices
400
350
300
250
200
150
100
50
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Alumina Ltd. TSR (including franking credits)
ASX 100 Accumulation Index
ASX 200 Materials Accumulation Index
44
2.2. Remuneration Decisions and Outcomes for 2019
Fixed Remuneration
2019 Outcomes
Short Term Incentive
2019 Outcomes
Long Term Incentive
2019 Outcomes
Fixed remuneration for the CEO and Senior Executives increased in 2019 by 2.5%, which was
generally in line with the increases applied to the broader staff in the Company, except for two
staff members who received a higher increase in base remuneration due to changes in their
respective responsibilities.
The CFO’s fixed remuneration was reviewed on appointment and details are set out in section 1.3.
Ms Kraeva was appointed interim CFO for the period 19 November 2018 to 30 June 2019.
Ms Kraeva’s FAR was set at $600,000 per annum whilst she remained in the role.
In 2019, STI payments were assessed against a range of corporate objectives, including financial
strategic and non-financial objectives.
“Corporate Gate” requirements were satisfied therefore STI was assessed based on 100% of the
potential award. Senior Executives, achieved on average 75% of the maximum STI.
The FY17 LTI was tested in 2019 (testing period December 2016 to December 2019) with 100%
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 above top ranked
peer company.
2.3. CEO, CFO and Senior Executives Performance under the LTI Plan
2019
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
upon exercising of the Right.
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 nine 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, Hindalco Industries, Century Aluminium, Norsk Hydro, China Hongqiao Group,
Arconic, Yunnan Aluminium ‘A’ (CNY), Aluminium Corporation of China, United Company Rusal.
45
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT 2.3. CEO, CFO and Senior Executives Performance under the LTI Plan (continued)
2019
Key Features of the LTI Plan (continued)
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
Between 50th and 75th
(ASX Comparator Group)1
Equal to or greater than 75th
Percentage of Vesting in (applies
individually to each comparator group)
0%
50%
An additional 2% of award for
each percentile increase
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.
Percentage of FAR (%)
CEO
CFO
Interim CFO
Company Secretary
GE Strategy & Development
Approx 35
Approx 27
20
40
30
Performance
Levels2
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 CEO, CFO and Senior Executives under the LTI plan for the relevant year.
Alumina Limited’s performance resulted in 100 per cent of the total potential entitlement vesting in 2019. 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
7 December 2016 – 6 December 2019
USD1
65.54%
81.34%
84.48%
67.24%
37.98%
Above top ranked peer company
(10.51%)
(26.80%)
1. TSR for the International comparator group is calculated using prices and dividends converted to US dollars on a daily basis.
46
KMP
Michael Ferraro
Grant Dempsey
Galina Kraeva
Stephen Foster
Andrew Wood
Number of Performance
Rights Vested in 20191
A$ Value of Performance
Rights Exercised2
–
–
36,600
125,600
66,500
–
–
86,376
–
156,940
1.
Performance Rights vested in 2019 were issued based on 2016 employment. Mr Ferraro was appointed CEO from 1 June 2017, Mr Dempsey
was appointed CFO from 1 July 2019, therefore performance rights granted to them are still subject to future performance testing. Ms
Kraeva was appointed Interim CFO for the period 19 November 2018 until 30 June 2019, and therefore the Performance Rights vested
reflect LTI grants granted to her prior to her becoming a KMP.
2.
The value of Performance Rights exercised is determined by the number of Rights vested in 2019 multiplied by the market price at the
exercise date. Mr Foster did not exercise his rights as yet. Had he done so on the vesting date the value of his respective performance
rights would have been $296,416.
2.4. Senior Executives (excluding CEO and CFO) Performance Under the STI Plan
2019
Key Features of the STI Plan
Description
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.
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:
• 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.
47
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT 2.4. Senior Executives (excluding CEO and CFO) Performance Under the STI Plan (continued)
2019
Key Features of the STI Plan
Opportunity Levels
Level of Performance
Percentage of FAR (%)
Interim CFO
Company Secretary/
General Counsel
GE Strategy &
Development
Below expectations
Corporate gate not met
(50% of Target)
Corporate gate satisfied
(100% of target)
Maximum
0
12
24
30
0
28
56
70
0
17.5
35
50
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 2019.
2019 STI Scorecard
Performance Measure
Weighting
Performance Assessment
Strategic objectives:
• Engage with Alcoa to assess the potential growth and synergies
57%
within the alumina and bauxite segment
Partially Achieved:
Greater focus on sustainability
and climate change achieved;
however full strategy review
delayed till 2020.
18%
At target
25%
At target
• Implement Alumina Limited Risk Management plan and Contribute
to risk management planning and actions undertaken in AWAC
• Work with Alcoa on review of residue disposal areas and provide
input into the recommendations and their implementation plans
• Agree the climate change and sustainability strategy for AWAC
Financial objectives:
• Ensure the cash distributions required under the AWAC Joint
Venture agreements for 2019 are received and equity contributions
properly assessed
• Maintain key financial metrics
• Develop funding strategy for growth
Non-Financial objectives:
• Effective and good working relationship is maintained and
enhanced with Alcoa
• Undertake successor and contingency planning, including
additional resources to meet the future needs of the Company
48
In 2019 the Board has given a greater weighting to
the strategic objectives that were designed to focus
management efforts on influence over the target AWAC’s
future development. The Management team, led by the
CEO had achieved most of their set objectives at the target
level, which resulted in a higher percentage of STI paid
compared to 2018. However, the total STI awarded to senior
executives was down in 2019, primarily due to re-alignment
of the CFOs remuneration package.
The actual remuneration outcomes reflect a balanced
approach to objective setting, whereby short-term awards,
particularly STI, are not being unduly impacted by current
market environment and prices, but rather recognises
ongoing effort on strengthening JV operations, thus
improving Company performance and matching our
shareholder’s experience over
the long term horizon.
2019 STI Outcomes
KMP
Chris Thiris (previous CFO)1
Galina Kraeva (Interim CFO)2
Stephen Foster (Company Secretary)
Andrew Wood (GE Strategy & Development)
Total Executive STI
Year
2018
2019
2018
2019
2018
2019
2018
2019
2018
6 Year Dividend Percentage STI Award History
U
S
C
e
n
t
s
/
S
h
a
r
e
25
20
15
10
5
0
250
200
P
e
r
c
e
n
t
a
g
e
150
100
50
0
2014
2015
2016
2017
2018
2019
Dividend
% Target STI
% Opportunity STI
STI Paid
A$
Paid as a Percentage
of Maximum Award
Forfeited as a
Percentage of
Maximum Award
335,420
70,000
16,000
302,000
270,000
141,000
122,000
513,000
743,420
66%
78%
73%
78%
71%
68%
60%
75%
68%
34%
22%
27%
22%
29%
32%
40%
25%
32%
1. Mr Thiris retired and ceased employment with Alumina Limited on 31 December 2018.
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 30 June 2019.
49
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT
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$)
Post Employment Benefits
(A$)
Share Based Payments
Total Remuneration
FAR1
STI
Non Monetary2
Other3
Total
Superannuation
and termination4
Conditional
Rights5
Performance
Rights6
Mike Ferraro
Grant Dempsey7
Chris Thiris
Galina Kraeva8
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1,318,833
1,286,610
428,249
701,400
289,734
70,239
–
–
–
335,420
70,000
16,000
531,300
302,000
517,700
270,000
394,333
141,000
384,710
122,000
2,962,449
513,000
2,960,659
743,420
34,689
33,047
14,758
27,607
9,088
1,482
477
(8,156)
12,950
17,402
71,962
71,382
7,702
13,261
–
–
–
–
–
–
–
–
7,702
13,261
1,361,224
1,332,918
443,007
1,064,427
368,822
87,721
833,777
779,544
548,283
524,112
3,555,113
3,788,722
20,767
20,290
10,501
452,402
10,266
2,488
25,000
25,000
20,767
20,290
87,301
520,470
420,250
507,222
59,063
–
–
–
–
–
–
–
479,313
507,222
276,118
181,536
–
10,256
19,868
4,923
131,932
135,253
72,583
72,998
500,501
404,966
(A$)
Total
696,368
688,758
59,063
10,256
19,868
4,923
131,932
135,253
72,583
72,998
979,814
912,188
(A$)
2,078,359
2,041,966
512,571
1,527,085
398,956
95,132
990,709
939,797
641,633
617,400
4,622,228
5,221,380
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 payment (payment in lieu) for Mr Chris Thiris
in 2018.
5.
The CEO’s and CFO’s remuneration packages 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.
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 Dempsey appointed CFO from 1 July 2019.
8. Ms Kraeva appointed Interim CFO from 19 November 2018 to 30 June 2019.
50
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.
Mike Ferraro
Grant Dempsey7
Chris Thiris
Galina Kraeva8
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1,318,833
1,286,610
428,249
701,400
289,734
70,239
–
–
–
335,420
70,000
16,000
531,300
302,000
517,700
270,000
394,333
141,000
384,710
122,000
2,962,449
513,000
2,960,659
743,420
34,689
33,047
14,758
27,607
9,088
1,482
477
(8,156)
12,950
17,402
71,962
71,382
7,702
13,261
–
–
–
–
–
–
–
–
7,702
13,261
(A$)
Total
1,361,224
1,332,918
443,007
1,064,427
368,822
87,721
833,777
779,544
548,283
524,112
3,555,113
3,788,722
KMP
Year
Short-Term Benefits
Post Employment Benefits
(A$)
Share Based Payments
(A$)
Total Remuneration
(A$)
FAR1
STI
Non Monetary2
Other3
Superannuation
and termination4
Conditional
Rights5
Performance
Rights6
20,767
20,290
10,501
452,402
10,266
2,488
25,000
25,000
20,767
20,290
87,301
520,470
420,250
507,222
59,063
–
–
–
–
–
–
–
479,313
507,222
276,118
181,536
–
10,256
19,868
4,923
131,932
135,253
72,583
72,998
500,501
404,966
Total
696,368
688,758
59,063
10,256
19,868
4,923
131,932
135,253
72,583
72,998
979,814
912,188
2,078,359
2,041,966
512,571
1,527,085
398,956
95,132
990,709
939,797
641,633
617,400
4,622,228
5,221,380
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.
5.
6.
Superannuation and termination reflect the SGC contributions for all KMP and termination payment (payment in lieu) for Mr Chris Thiris
in 2018.
The CEO’s and CFO’s remuneration packages 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.
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 Dempsey appointed CFO from 1 July 2019.
8. Ms Kraeva appointed Interim CFO from 19 November 2018 to 30 June 2019.
51
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT 2.6. Actual “Take Home” 2019 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
at the vesting date);
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
• LTI vested and exercised (being the number of performance rights that vested and were exercised multiplied by
the market price at the exercise date).
These values differ from the executive statutory remuneration table and have not been prepared in accordance
with statutory requirements and Australian Accounting Standards.
KMP
Year
Short-Term Benefits (A$)
Share Based Payments (A$)
Total “Take Home”
Remuneration, Excluding
Remuneration
Termination (A$)
Total
(A$)
FAR including
superannuation
STI
Other
Total
Conditional
Rights
Performance
Rights
Mike Ferraro
Grant Dempsey1
Chris Thiris2
Galina Kraeva3
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
1,339,600
1,306,900
438,750
726,400
300,000
72,727
556,300
542,700
415,100
405,000
3,049,750
3,053,727
–
–
–
335,420
70,000
16,000
302,000
270,000
141,000
122,000
513,000
743,420
7,702
13,261
–
–
–
–
–
–
–
–
7,702
13,261
1,347,302
1,320,161
438,750
1,061,820
370,000
88,727
858,300
812,700
556,100
527,000
3,570,452
3,810,408
1. Mr Dempsey appointed CFO on 1 July 2019.
2. Termination payment for Mr Thiris is included in the table on page 50.
3. Ms Kraeva appointed Interim CFO from 19 November 2018 to 30 June 2019.
52
379,160
333,508
–
–
–
–
–
–
–
–
379,160
333,508
–
–
–
–
–
502,331
202,578
156,940
198,526
827,518
700,857
Total
379,160
333,508
502,331
202,578
–
–
–
156,940
198,526
1,206,678
1,034,365
468,000
468,000
1,726,462
1,653,669
438,750
1,564,151
572,578
88,727
1,326,300
812,700
713,040
725,526
4,777,130
4,844,773
2,078,359
2,041,966
512,571
1,099,683
398,956
95,132
990,709
939,797
641,633
617,400
4,622,228
4,793,978
2.6. Actual “Take Home” 2019 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
at the vesting date);
• Other short-term benefits comprised of the personal financial advice allowance and travel allowance;
the market price at the exercise date).
• LTI vested and exercised (being the number of performance rights that vested and were exercised multiplied by
• Conditional Rights vested (being the number of conditional rights that vested multiplied by the market price
These values differ from the executive statutory remuneration table and have not been prepared in accordance
with statutory requirements and Australian Accounting Standards.
termination payments;
• STI cash payment;
KMP
Year
Short-Term Benefits (A$)
Share Based Payments (A$)
Total “Take Home”
Remuneration, Excluding
Termination (A$)
Total
Remuneration
(A$)
FAR including
superannuation
STI
Other
Total
Conditional
Rights
Performance
Rights
Mike Ferraro
Grant Dempsey1
Chris Thiris2
Galina Kraeva3
Stephen Foster
Andrew Wood
Total Executive
Remuneration
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
1,339,600
1,306,900
438,750
726,400
300,000
72,727
556,300
542,700
415,100
405,000
3,049,750
3,053,727
–
–
–
335,420
70,000
16,000
302,000
270,000
141,000
122,000
513,000
743,420
7,702
13,261
–
–
–
–
–
–
–
–
7,702
13,261
1,347,302
1,320,161
438,750
1,061,820
370,000
88,727
858,300
812,700
556,100
527,000
3,570,452
3,810,408
1. Mr Dempsey appointed CFO on 1 July 2019.
2. Termination payment for Mr Thiris is included in the table on page 50.
3. Ms Kraeva appointed Interim CFO from 19 November 2018 to 30 June 2019.
379,160
333,508
–
–
–
–
–
–
–
–
379,160
333,508
1,726,462
1,653,669
438,750
1,564,151
572,578
88,727
1,326,300
812,700
713,040
725,526
4,777,130
4,844,773
2,078,359
2,041,966
512,571
1,099,683
398,956
95,132
990,709
939,797
641,633
617,400
4,622,228
4,793,978
–
–
–
502,331
202,578
–
Total
379,160
333,508
–
502,331
202,578
–
468,000
468,000
–
156,940
198,526
827,518
700,857
–
156,940
198,526
1,206,678
1,034,365
A LUMINA LIMITED ANNUAL REPORT 2019
53
REMUNERATION REPORT 3. Non-Executive Directors Remuneration
3.1. Remuneration Outcomes in 2019
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 $1,176,500 was paid in Non-Executive Director fees in 2019. Other than the Chairman, who receives a single base fee of
$410,000 (inclusive superannuation), Non-Executive Directors receive a base fee plus additional fees for membership of
Board Committees and superannuation contribution. Non-Executive Directors do not participate in incentive plans or
receive any retirement benefits other than statutory superannuation contributions.
As a result of a Director fee review, the Board resolved to increase Board Committees membership fees for 2020, whilst
keeping the Director base fee and Chairman fee unchanged. These increases were made so that the composition of NED
fees at Alumina are appropriate relative to market (whilst still having regard to the non-operating nature of Alumina’s
business), and so that fees remain competitive to attract and retain high calibre directors. This is the first increase in
fees since 2011 and does not require an increase to the Director fee pool.
Base fee
Compensation Committee – Chair
Compensation Committee – Member
Audit and Risk Management Committee – Chair
Audit and Risk Management Committee – Member
Sustainability Committee – Chair
Sustainability Committee – Member
Nomination Committee – Chair
Nomination Committee – Member
2019
A$
150,000
30,000
5,000
30,000
5,000
–
–
10,000
–
2020
A$
150,000
35,000
10,000
35,000
10,000
–
10,000
10,000
–
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.
54
The table below provides a 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
Peter Day2,3
Emma Stein4
Deborah O’Toole3
Chen Zeng
John Bevan4
John Pizzey2
Total Non-Executive
Director Remuneration
Year
Short-Term Benefits (A$)
Post Employment
Benefits (A$)
Fees
Non-Monetary
Total
Superannuation1
Total
Remuneration
(A$)
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2018
2019
2018
389,233
338,472
185,000
187,500
185,000
178,750
160,000
160,000
170,000
167,500
97,488
1,089,233
1,129,710
–
–
–
–
–
–
–
–
–
–
–
–
–
389,233
338,472
185,000
187,500
185,000
178,750
160,000
160,000
170,000
167,500
97,488
1,089,233
1,129,710
20,767
410,000
19,672
17,575
17,813
17,575
16,981
15,200
15,200
16,150
15,912
5,012
358,144
202,575
205,313
202,575
195,731
175,200
175,200
186,150
183,412
102,500
87,267
1,176,500
90,590
1,220,300
1. The applicable superannuation contribution rate for 2019 and 2018 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.
4.
Mr Day 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 Stein 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.
55
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT 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 the
Director’s base fee within five years from their appointment as a Director.
Non-Executive
Director
Year
Number of Shares
as at 1 January1
Number of Shares
Acquired During
the Year
Number Of Shares
as at 31 December1
Policy Compliance
Date2
Peter Day
Emma Stein
Deborah O’Toole
Chen Zeng2
John Bevan
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
75,720
75,720
84,794
84,794
8,000
–
4,804
4,804
300,154
300,154
–
–
–
–
–
8,000
–
–
–
75,270
75,720
84,794
84,794
8,000
8,000
4,804
4,804
300,154
300,154
03/11/2014
24/02/2014
01/12/2024
–3
01/01/2018
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. Date on which compliance with Director shareholding policy is required or has been satisfied.
3. 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 and CFO
KMP
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 Year 4
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)
Grant Dempsey
(CFO)
2019
169,268 183,515
(169,268)
– 183,515
420,250
(379,160)
2018
122,164
169,268
(122,164)
– 169,268
410,000
(333,508)
2019
–
49,842
–
–
49,842
118,125
–
–
–
–
–
–
–
1.
2.
3.
Mr Ferraro receives Conditional Rights replacing an STI component. The number of Conditional Rights is determined by dividing the set
value of $420,250 (2018: $410,000) by a Volume Weighted Average Price (VWAP) of $2.29 (2018: $2.42), independently calculated by
Mercer. Mr Ferraro’s FAR increased by 2.5% in 2019 therefore the total value of the Conditional Rights grant increased.
Mr Dempsey receives Conditional rights. The number of Conditional Rights is determined by dividing the set value of $236,250 pro rated for
2019 by a VWAP of $2.37. Mr Dempsey received a pro-rated allocation in 2019 calculated from his commencement date of 1 July 2019 as CFO.
The terms of Conditional Rights granted were not altered during 2019. The number of Conditional Rights vested is the number granted
in the prior years, following the completion of the required conditions. For both Mr Ferraro and Mr Dempsey there is a three-year trading
restriction on the shares from grant date as long as they remain 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 satisfied the required conditions multiplied by the share price at
the time of vesting. In 2019, for Mr Ferraro, it was 169,268 Conditional Rights by the share price of $2.24 on 7 January 2019. In 2018, it was
122,164 Conditional Rights by the share price of $2.73 on 8 June 2018.
7.
The maximum value of the Conditional Rights is based on the number of rights that vest and are released at the expiration of the
conditional period, multiplied by the share price on the date of release.
56
4.2. Value Change Over Time of the CEO’s and CFO’s Conditional Rights
KMP
Year
Number
of Rights
Mike Ferraro
(CEO)
Grant Dempsey
(CFO)
2019
2018
Total
2019
Total
183,515
169,268
352,783
49,842
49,842
Granted During the Year1,2
As at Vesting Date3
As at December 20194
Value of Rights (A$)1
420,250
410,000
830,250
118,125
118,125
–
379,160
379,160
–
–
422,085
–
422,085
114,637
114,637
1.
The number of Conditional Rights is determined by dividing the set value of $420,250 (2018: $410,000) by a VWAP of $2.29 (2018: $2.42),
independently calculated by Mercer. Mr Ferraro’s FAR increased by 2.5% in 2019 therefore the total value of the initial Conditional Rights
grant increased.
2.
The number of Conditional Rights is determined by dividing the set value of $236,250 by a VWAP of $2.37, independently calculated by
Mercer. Mr Dempsey received a pro-rata allocation in 2019 calculated from his commencement date of 1 July 2019 as CFO.
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 2019 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
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
2019
339,900
213,300
2018
141,900
198,000
–
–
–
–
Chris Thiris
2018
405,900
127,900
(230,381)
(141,769)
Galina Kraeva
2019
114,487
31,500
(86,687)
–
2018
88,300
27,800
–
(1,613)
553,200
339,900
161,650
59,300
114,487
–
–
–
–
50,087
553,200
339,900
161,650
59,300
64,400
Stephen Foster
2019
393,159
98,000
(172,059)
–
319,100
125,600
193,500
2018
303,200
95,500
–
(5,541)
393,159
172,059
221,100
Andrew Wood
2019
120,000
54,900
(66,500)
–
108,400
2018
160,500
53,500
(91,067)
(2,933)
120,000
–
–
108,400
120,000
1.
2019 include Performance Rights granted on 21 January 2019 (2018: 18 January 2018) for the three-year performance test period
concluding 12 December 2021. (2018: 4 December 2020).
2.
Includes the number of Performance Rights granted that were subject to testing in 2019.
3.
4.
5.
The terms of Performance Rights granted were not altered during 2019. 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 under the LTI plan for the relevant year.
The number of Performance Rights that vested in 2019 due to testing of Tranche 17. For the rights tested against the ASX Comparator
Group, 100 per cent vested and 100 per cent vested in relation to the International Comparator Group.
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 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.
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.
57
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT KMP
Year1
Value of Performance Rights (A$)
Mike Ferraro
Chris Thiris
Galina Kraeva
Stephen Foster
Andrew Wood
2019
2018
2018
2019
2018
2019
2018
2019
Granted
During
the Year1
283,689
282,150
Exercised
During
the Year2
Lapsed
During
the Year2
Yet to be
Exercised1
–
–
–
–
182,258
502,331
(176,693)
41,895
202,578
–
39,615
–
(1,274)
39,569
130,340
468,000
–
129,368
136,088
–
(4,377)
135,927
73,017
156,940
–
76,238
198,526
(2,317)
–
–
–
–
–
–
Minimum
Value of Grants
Yet to Vest3
Maximum Value
of Grant Yet to
Vest or to be
Exercised1
–
–
–
–
–
–
–
–
–
828,354
544,665
184,569
81,510
77,313
266,428
265,456
149,255
144,733
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 exercised is determined by the number of Rights multiplied by the market price at the exercise 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 January2
Acquired
During the
Year Under LTI2
Acquired
During the
Year CEO
Conditional
Rights
Other Shares
Acquired
During
the Year
Sold During
the Year
Total as at
31 December
Mike Ferraro
Grant
Dempsey
Chris Thiris
Galina Kraeva
2019
2018
2019
2018
2019
2018
190,164
68,000
–
900,000
25,770
25,770
–
–
–
230,381
86,687
–
Stephen Foster
2019
798,234
172,059
Andrew Wood
2018
2019
2018
765,748
289,033
197,966
–
66,500
91,067
169,268
122,164
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,486
–
–
–
–
–
–
–
–
–
–
–
–
359,432
190,164
–
1,130,381
112,457
25,770
970,293
798,234
355,533
289,033
1.
2.
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.
For 2019, includes 2017 vested Performance Rights that were tested in December 2019 and Rights vested in prior years, which were
exercised during 2019. For 2018, includes vested 2016 vested Performance Rights that were tested in December 2018 and exercised in 2018.
58
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.
Grant Dempsey, 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
– A payment equivalent to six months Base Remuneration; or
month notice from Mr Dempsey and Mr Foster.
– A payment comprising:
• Four month notice from the Company,
two month notice from Mr Wood.
• Three month notice from the Company,
three month notice from Ms Kraeva.
– 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 executive’s 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 Mr Dempsey;
and FAR + STI at target for Mr Foster, Mr Wood and Ms Kraeva.
The above termination entitlements are subject to any restrictions imposed by the Corporations Act.
59
ALUMINA LIMITED ANNUAL REPORT 2019REMUNERATION REPORT
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
24 March 2020
60
The Company’s strong balance sheet and joint
venture distribution arrangements have been
crucial in delivering another year of healthy
dividends to shareholders.
61
ALUMINA LIMITED ANNUAL REPORT 2019 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 20–35 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
24 March 2020.
All press releases, financial reports
and other information are available
at our Investor Centre on our website:
www.aluminalimited.com.
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 2019
About This Report
Group structure and AWAC performance
1. Segment Information
2.
3.
Investment in Associates
Investments in Controlled Entities
Financial and Capital Risk
4. Financial Assets and Liabilities
5. Financial Risk Management
6. Capital Management
Key Numbers
7. Expenses
8.
Income Tax Expense
9. Equity
10. Cash Flow Information
Additional Disclosures
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 and
Interpretations not yet Adopted
Signed Reports
Directors’ Declaration
Independent Auditor’s Report
to the Members of Alumina Limited
41
42
43
44
45
46
47
50
51
53
57
58
58
61
62
63
64
65
65
65
65
67
69
69
70
62
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
2(c)
General and administrative expenses
Change in fair value of derivatives/foreign exchange losses
Finance costs
Profit before income tax
Income tax expense
7(b)
8
Profit for the period 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 post-employment benefit obligations accounted for
using the equity method
Other comprehensive (loss)/income for the period, net of tax
Total comprehensive income for the period attributable to the owners
of Alumina Limited
Earnings per share for profit from continuing operations attributable
to the ordinary equity holders of the Company:
2019
2.5
232.0
(12.1)
(1.0)
(7.3)
214.1
(0.1)
214.0
2018
1.6
653.5
(11.6)
(1.4)
(6.7)
635.4
–
635.4
9(b)
1.8
(33.2)
0.4
(217.6)
(3.4)
(0.5)
(34.8)
179.2
(217.7)
417.7
Basic earnings per share
Diluted earnings per share
9(a)
9(a)
7.4¢
7.4¢
22.1¢
22.1¢
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 2019
63
Consolidated Balance Sheet
Current Assets
Cash and cash equivalents
Other assets
Total current assets
Non-Current Assets
Investment in associates
Total non-current assets
Total Assets
Current Liabilities
Payables
Borrowings
Derivative financial instruments
Provisions
Other liabilities
Total current liabilities
Non-Current Liabilities
Borrowings
Provisions
Total non-current liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Treasury shares
Reserves
Retained earnings
Total Equity
Notes
US$ Million
2019
2018
4(a)
2(c)
4(b)
4(c)
4(b)
9(a)
9(a)
15.2
1.8
17.0
183.8
1.1
184.9
1,836.8
1,836.8
1,853.8
2,060.2
2,060.2
2,245.1
0.9
–
–
0.3
–
1.2
70.0
0.5
70.5
71.7
1,782.1
1.2
88.0
19.0
0.2
0.4
108.8
–
0.5
0.5
109.3
2,135.8
2,682.9
2,682.9
(0.8)
(1.2)
(1,283.9)
(1,252.0)
383.9
1,782.1
706.1
2,135.8
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
64
ALU MI NA LI MI TE D Y EAR ENDED 31 DE CE M BER 20 19
Consolidated Statement of Changes in Equity
Balance as at 1 January 2018
Profit for the period
Other comprehensive loss for the period
Transactions with owners in their capacity as owners:
Dividends paid
Movement in treasury shares
9(a)
Movement in share based payments reserve
Notes
Contributed
and Other
Equity1
US$ Million
Reserves
Retained
Earnings
Total
2,682.0
(1,034.7)
586.7
2,234.0
–
–
–
(0.3)
–
–
635.4
635.4
(217.2)
(0.5)
(217.7)
–
–
(0.1)
(515.5)
(515.5)
–
–
(0.3)
(0.1)
Balance as at 31 December 2018
2,681.7
(1,252.0)
706.1
2,135.8
Balance as at 1 January 2019
Profit for the period
Other comprehensive loss for the period
Transactions with owners in their capacity as owners:
Dividends paid
Movement in treasury shares
9(a)
Movement in share based payments reserve
2,681.7
(1,252.0)
706.1
2,135.8
–
–
–
0.4
–
–
(31.4)
–
–
(0.5)
214.0
214.0
(3.4)
(34.8)
(532.8)
(532.8)
–
–
0.4
(0.5)
Balance as at 31 December 2019
2,682.1
(1,283.9)
383.9
1,782.1
1 Comprises of contributed equity and treasury shares.
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
65
ALUMINA LIMITED ANNUAL REPORT 2019 Consolidated Statement of Cash Flows
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
Notes
US$ Million
2019
2018
(11.9)
0.5
381.7
–
(8.3)
(3.3)
3.3
2.6
(10.7)
0.4
657.2
0.2
(8.1)
(5.1)
5.7
1.7
Net cash inflow/(outflow) from operating activities
10(a)
364.6
641.3
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
Net payments related to cross currency interest rate swap
Dividends paid
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase 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.
(51.0)
90.2
39.2
325.0
(341.2)
(21.7)
(0.9)
(532.8)
(571.6)
(167.8)
183.8
(0.8)
15.2
(108.8)
129.6
20.8
75.0
(75.0)
(1.2)
–
(515.5)
(516.7)
145.4
40.0
(1.6)
183.8
66
Notes to the Consolidated Financial Statements for the Year Ended 31 December 2019
About this Report
The Notes to 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 2019 was authorised for issue in accordance
with a resolution of the Directors on 24 March 2020.
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 period beginning
1 January 2019.
• 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.
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 Alcoa World Alumina and
Chemicals (“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.
• Additional Disclosures: 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.
Accounting Policies, Critical Accounting
Estimates and Judgements
Significant and other accounting policies that summarise
the measurement basis used and are relevant to the
understanding of the financial statements, as well as
critical accounting estimates and judgements are provided
throughout the notes to the financial statements.
67
ALUMINA LIMITED ANNUAL REPORT 2019 About This Report (continued)
Foreign Currency Translation
The consolidated financial statements are presented in
US dollars, which is Alumina Limited’s presentation and
functional currency.
• assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet.
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:
• 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 forms one reportable segment. A full description of
Alumina Limited’s business model is included in the Operating and Financial Review on pages 20–35 of the annual report.
The equity interest in AWAC is represented by investments in a number of entities in different geographical locations.
2019
Investments in associates
Other assets
Liabilities
Australia
1,118.1
7.3
(71.7)
US$ Million
Spain
114.0
–
–
Brazil
570.6
9.5
–
Consolidated net assets
1,053.7
580.1
114.0
2018
Investments in associates
Other assets
Liabilities
Australia
1,150.0
184.3
(109.3)
US$ Million
Spain
127.0
–
–
Brazil
649.9
0.3
–
Other
34.1
0.2
–
34.3
Other
133.3
0.3
–
Total
1,836.8
17.0
(71.7)
1,782.1
Total
2,060.2
184.9
(109.3)
Consolidated net assets
1,225.0
650.2
127.0
133.6
2,135.8
68
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
2. Investment 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
2019
2018
Alcoa of Australia Limited
Bauxite, alumina and aluminium production
Australia
Alcoa World Alumina LLC
Bauxite and alumina trading and production
USA
Alumina Espanola S.A.
Alumina production
Alcoa World Alumina Brasil Ltda. Bauxite and alumina production
Spain
Brazil
AWA Saudi Ltda.
Bauxite and alumina production
Hong Kong
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, adjustments are made to
convert the accounting policies under US GAAP to Australian
Accounting Standards. The principal adjustments are 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 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.
69
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 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
recoverable amount of the investment in AWAC using
a discounted cash flow model (“DCF model”); and
• Comparing the resulting value to the carrying value.
The key assumptions used in the DCF model to estimate
future cash flows are those relating to future alumina and
aluminium prices, exchange rates, energy prices and
other input prices. 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 2019 2. Investment in Associates (continued)
As a final check, the carrying 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
2019 and 31 December 2018.
(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 associates 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
Carrying value
Reconciliation of carrying amount:
Opening carrying value 1 January
Net additional (return)/funding in AWAC entities
Share of net profit of associates accounted for using the equity method
Other comprehensive (loss)/income for the year
Dividends and distributions paid
Closing carrying value
2019
1,355.4
5,191.7
(1,072.9)
(1,490.9)
3,983.3
40%
1,593.4
175.8
100.6
(33.0)
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)
1,836.8
2,060.2
2,060.2
(39.3)
232.0
(34.4)
(381.7)
1,836.8
2,301.0
(20.8)
653.5
(216.1)
(657.4)
2,060.2
70
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
2. Investment in Associates (continued)
Summarised Statement of Profit or Loss and Other Comprehensive Income
US$ Million
Revenues
Profit from continuing operations
Profit for the year
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Reconciliation to share of net profit of associates:
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
2019
2018
5,215.8
6,749.4
583.8
583.8
(84.2)
499.6
40%
233.5
(2.1)
0.6
1,637.5
1,637.5
(540.2)
1,097.3
40%
655.0
(2.1)
0.6
Share of net profit of associates accounted for using equity method
232.0
653.5
(d) Commitments and Contingent Liabilities for AWAC
Contingent liabilities – claims
There are potential obligations 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 the 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.
The Australian Taxation Office (ATO) has undertaken a
transfer pricing examination in respect of certain historic
third-party alumina sales made by Alcoa of Australia
Limited (AoA) over a 20 year period.
As a result of this examination, the ATO has issued a
statement of audit position (SOAP) to AoA, in which the
ATO proposes a tax payment of approximately A$212
million (excluding interest and penalties).
The SOAP is currently the subject of an independent
review process within the ATO. At the completion of this
review the ATO may or may not issue a tax assessment
in respect of this matter. If a tax assessment is issued,
it is expected that AoA would pay 50% of the disputed
tax amount to the ATO. AoA could then object to the
assessment and pursue all available dispute resolution
methods up to and including the filing and conduct of
Court proceedings. Should AoA succeed in its defence, it
would receive a refund of any payment made to the ATO.
Alumina Limited (as the owner of 40% of the capital of
AoA) disagrees with the position taken in the SOAP, and
understands that AoA will defend its position. No charge
has been recognised by AoA in relation to this matter.
Commitments
AWAC has outstanding bank guarantees and letters
of credit primarily related to environmental and leasing
obligations, legal matters, and customs duties,
among others.
The total amount committed under these instruments,
which automatically renew or expire at various dates,
before 2021, was $135.9 million at December 31, 2019.
AWAC has outstanding surety bonds primarily related
to customs duties. The total amount committed under
these bonds, which automatically renew or expire at
various dates, between 2020 and 2024, was $6.7 million
at December 31, 2019.
71
ALUMINA LIMITED ANNUAL REPORT 2019 3. Investments in Controlled Entities
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Alumina Limited as
at 31 December 2019 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 2019 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
Percentage
Ownership
2019
2018
A
A
B
C
A
D
B
D
D
VIC, Australia
VIC, Australia
Delaware, USA
VIC, Australia
VIC, Australia
Brazil
Delaware, USA
Brazil
UK
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 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.
72
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
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.
2019
Cash and cash equivalents – Note 4(a)
Receivables
Total financial assets
Payables
Borrowings – Note 4 (b)
Total financial liabilities
Net financial assets/(liabilities)
2018
Cash and cash equivalents – Note 4(a)
Total financial assets
Payables
Borrowings – Note 4 (b)
Derivative financial instruments – Note 4(c)
Total financial liabilities
Net financial assets/(liabilities)
At Fair Value
Through Profit
or Loss
At
Amortised
Cost
US$ Million
–
–
–
–
–
–
–
15.2
–
15.2
(0.9)
(70.0)
(70.9)
(55.7)
At Fair Value
Through Profit
or Loss
At
Amortised
Cost
US$ Million
–
–
–
–
(19.0)
(19.0)
(19.0)
183.8
183.8
(1.2)
(88.0)
–
(89.2)
(108.2)
94.6
75.6
Total
15.2
–
15.2
(0.9)
(70.0)
(70.9)
(55.7)
Total
183.8
183.8
(1.2)
(88.0)
(19.0)
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.
73
ALUMINA LIMITED ANNUAL REPORT 2019 4. Financial Assets and Liabilities (continued)
(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
(b) Borrowings
US$ Million
2019
15.2
–
15.2
2018
2.8
181.0
183.8
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. Refer to note 5(b).
Bank loans
Fixed rate note
Total borrowings
US$ Million
2019
70.0
–
70.0
2018
–
88.0
88.0
Bank loans
In June 2019 Alumina Limited rolled over a tranche of the bank facility that was due to mature in July 2020 and established
a new tranche under the same facility.
As a result, Alumina Limited has a US$350 million syndicated bank facility with three tranches maturing in October 2022
(US$100 million), July 2023 (US$150 million) and July 2024 (US$100 million). As at 31 December 2019 there was US$70 million
drawn against the syndicated facility so the undrawn available facility amount as at 31 December 2019 was $280 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.
On 30 July 2019, as permitted under the terms and conditions, the Company redeemed the outstanding principal amount
plus interest accrued to 30 July 2019. There was no penalty incurred to redeem the Note early. The Company also terminated,
by cash settlement, the CCIRS which was used to mitigate the currency and interest rate exposure in relation to the note.
The total cash required to repay the Note and the CCIRS was equivalent to US$108.4 million plus accrued interest. The
funds used to repay the Note and CCIRS were drawn down from an existing bank facility.
74
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
4. Financial Assets and Liabilities (continued)
(c) Derivatives
Derivatives are only used for economic hedging purposes and not as trading or speculative instruments. Derivatives are
classified at fair value through profit or loss as they are not designated as hedges. They are presented as current assets or
liabilities if they are expected to be settled within 12 months after the end of the reporting period. The Company terminated
the Cross-currency interest rate swap which was used to mitigate the currency and interest rate exposure in relation to
Fixed rate note which was redeemed on 30 July 2019, refer note 4(b).
To provide an indication about the reliability of the input used in determining the fair value, the Group has classified its
financial instruments into three levels prescribed under the accounting standards. An explanation of each level follows
underneath the table.
Level 1
Level 2
Level 3
Total
2019
US$ Million
Cross-currency interest rate swap (CCIRS AUD/USD)
Total financial liabilities at fair value through profit or loss
2018
Cross-currency interest rate swap (CCIRS AUD/USD)
Total financial liabilities at fair value through profit or loss
–
–
–
–
–
–
19.0
19.0
–
–
–
–
–
–
19.0
19.0
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 are not observable market data, the instrument is included in level 3.
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
Financial assets and liabilities denominated
in a currency other than US$
Cash flow forecasting
& sensitivity analysis
Cross-currency interest
rate swaps
Market risk:
interest rate
Credit risk
Long-term borrowings at fixed rates
Sensitivity analysis
Cash and cash equivalents, and derivative
financial instruments
Credit ratings
Liquidity risk
Borrowings and other liabilities
Cash flow forecasting
Cross-currency interest
rate swaps
Credit limits, letters
of credit, approved
counterparties list
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.
75
ALUMINA LIMITED ANNUAL REPORT 2019 5. Financial Risk Management (continued)
(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 was issued in Australian dollars. To mitigate the exposure to the AUD/USD exchange rate and
Australian interest rates the Group had 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$, was as follows:
2019
Cash and cash equivalents
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial assets/(liabilities)
Derivative financial instruments (notional principal)
Net financial assets/(liabilities)
2018
Cash and cash equivalents
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial assets/(liabilities)
Derivative financial instruments (notional principal)
Net financial assets/(liabilities)
USD
AUD
Other
Total
US$ Million
5.7
5.7
–
–
–
5.7
–
5.7
1.1
1.1
(0.9)
(70.0)
(70.9)
(69.8)
–
(69.8)
8.4
8.4
–
–
–
8.4
–
8.4
15.2
15.2
(0.9)
(70.0)
(70.9)
(55.7)
–
(55.7)
USD
AUD
Other
Total
US$ Million
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
76
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
5. Financial Risk Management (continued)
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.
On the 30th July 2019, the Company redeemed the outstanding A$125 million fixed rate note principal amount plus
interest accrued. The Company also terminated, by cash settlement, the CCIRS which was used to mitigate the currency
and interest rate exposure in relation to the note.
The consolidated entity’s exposure to interest rate risk and the effective weighted interest rate after the effect of derivative
instruments is set out below:
2019
Cash and cash equivalents
Receivables
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial assets/(liabilities)
Weighted average interest rate before derivatives
Weighted average interest rate after derivatives
2018
Cash and cash equivalents
Total non-derivative financial assets
Payables
Borrowings
Total non-derivative financial liabilities
Net non-derivative financial assets/(liabilities)
Weighted average interest rate before derivatives
Weighted average interest rate after derivatives
Floating
Interest
Fixed
Interest
Non-Interest
Bearing
US$ Million
15.2
–
15.2
–
–
–
15.2
3.7%
3.7%
–
–
–
–
(70.0)
(70.0)
(70.0)
5.5%
4.4%
–
–
–
(0.9)
–
(0.9)
(0.9)
Floating
Interest
Fixed
Interest
Non-Interest
Bearing
US$ Million
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)
Total
15.2
–
15.2
(0.9)
(70.0)
(70.9)
(55.7)
Total
183.8
183.8
(1.2)
(88.0)
(89.2)
94.6
Had interest rates on floating rate debt during 2019 been one percentage point higher/lower than the average, with all
other variables held constant, pre-tax profit for the year would have been US$0.8 million lower/higher (2018: US$0.6 million
lower/higher).
77
ALUMINA LIMITED ANNUAL REPORT 2019 5. Financial Risk Management (continued)
(b) Credit Risk
Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial
institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.
For banks and financial institutions, only independently rated parties with a minimum rating of ‘A-‘ are accepted, and
exposure limits are assigned based on actual independent rating under Board approved guidelines.
Credit risk further arises in relation to cross guarantees given to wholly owned subsidiaries (see Note 17 for details). Such
guarantees are only provided in exceptional circumstances and are subject to Board approval. The carrying amount of
financial assets recorded in the financial statements, net of any allowances for losses, represent the Group’s maximum
exposure to credit risk.
(c) Liquidity Risk
Prudent liquidity risk management requires maintaining sufficient cash and credit facilities to ensure the Group’s
commitments and plans can be met. This is managed by maintaining committed undrawn credit facilities to cover
reasonably expected forward cash requirements. Management monitors rolling forecasts of the Group’s liquidity,
including undrawn borrowing facilities and cash and cash equivalents on the basis of expected cash flows.
The Group had the following undrawn borrowing facilities at the end of the reporting period:
2018
–
250.0
250.0
Total
0.9
70.0
70.9
–
1.2
88.0
89.2
19.0
Expiring within one year
Expiring beyond one year
Total undrawn borrowing facilities
The table below details the Group’s remaining contractual maturity for its financial liabilities.
US$ Million
2019
–
280.0
280.0
2019
Trade payables
Borrowings
Total non-derivative financial liabilities
Derivative financial liabilities
2018
Trade payables
Borrowings
Total non-derivative financial liabilities
Derivative financial liabilities
Less Than
6 Months
6–12
Months
1–2
Years
2–5
Years
US$ Million
–
–
–
–
–
88.0
88.0
19.0
–
–
–
–
–
–
–
–
–
70.0
70.0
–
–
–
–
–
0.9
–
0.9
–
1.2
–
1.2
–
78
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
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 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 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 gearing ratios at 31 December 2019 and 31 December 2018 were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt/(cash)
Total borrowings
Total equity
Total capital
Gearing ratio
(b) Dividends
Interim dividend of US4.4 cents fully franked at 30% per fully paid share declared
23 August 2019 and paid on 12 September 2019 (2018: US8.6 cents fully franked at
30% per fully paid share declared 23 August 2018 and paid on 20 September 2018)
Final dividend of US14.1 cents fully franked at 30% per fully paid share declared
21 February 2019 and paid on 14 March 2019 (2018: US9.3 cents fully franked at
30% per fully paid share declared 22 February 2018 and paid on 15 March 2018)
US$ Million
2019
70.0
(15.2)
54.8
70.0
1,782.1
1,852.1
3.0%
US$ Million
2019
126.7
2018
88.0
(183.8)
(95.8)
88.0
2,135.8
2,223.8
(4.3%)
2018
247.7
406.1
267.8
Total dividends
532.8
515.5
Since the year-end the Directors have recommended the payment of a final dividend of US3.6 cents per share (2018:
US14.1 cents per share), fully franked based on the tax paid at 30%. The record date to determine entitlements to the
dividend is 2 March 2020. The aggregate amount of the dividend paid on 17 March 2020 from retained earnings at
31 December 2019, which has not been recognised as a liability at the year-end, is $103.7 million.
(c) Franked Dividends
Franking credits available for subsequent financial years,
based on a tax rate of 30% (2018: 30%)
US$ Million
2019
383.5
2018
473.2
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.
Fully franked dividends received from AWAC in the financial year
381.7
657.2
79
ALUMINA LIMITED ANNUAL REPORT 2019 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 the 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 upon 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 percent 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
(b) Finance Costs
US$ Million
2019
2018
0.2
5.0
5.2
0.2
5.5
5.7
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
8. Income Tax Expense
(a) Income Tax Expense and Deferred Taxes
US$ Million
2019
2018
4.6
2.3
0.4
7.3
4.3
2.1
0.3
6.7
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 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.
80
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
Current tax
Deferred tax
Aggregate income tax expense
US$ Million
2019
(0.1)
–
(0.1)
2018
–
–
–
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
2019
–
–
0.5
–
0.4
0.9
0.9
(0.9)
–
2018
(5.6)
(5.6)
0.2
5.7
0.1
6.0
0.4
(0.4)
–
Deferred tax assets are recognised only to the extent of deferred tax liabilities existing at the 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.
81
ALUMINA LIMITED ANNUAL REPORT 2019 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:
US$ Million
2019
214.1
(64.2)
2018
635.4
(190.6)
Share of equity accounted profit not assessable for tax
(232.0)
(653.5)
Foreign income subject to accruals tax
Share of Partnership income assessable for tax
Amounts non-assessable for tax
Timing differences not recognised
Tax losses not recognised
Non-deductible expenses
Previously unrecognised tax losses now recouped to reduce current tax expense
Net movement
Consequent decrease in charge for income tax at the rate of 30%
Under provision of tax in prior years
Aggregate income tax expense
4.9
–
–
5.8
9.4
1.0
(3.2)
(214.1)
64.2
(0.1)
(0.1)
2.2
0.2
(0.1)
–
13.9
1.9
–
(635.4)
190.6
–
–
(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 Not Recognised
Tax losses – revenue
Tax losses – capital
Total unused tax losses
Potential tax benefit – revenue
Potential tax benefit – capital
Total potential tax benefit
82
US$ Million
2019
0.8
(2.1)
(1.3)
US$ Million
2019
1,204.0
944.7
2,148.7
290.9
283.4
574.3
2018
0.2
(0.5)
(0.3)
2018
1,155.7
951.5
2,107.2
280.7
285.4
566.1
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
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.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
Movement in Share Capital
Number of Shares
US$ Million
Balance brought forward
2,879,843,498
2,879,843,498
Movement for the period
–
–
Total issued capital
2,879,843,498
2,879,843,498
2019
2018
2019
2,682.9
–
2,682.9
2018
2,682.9
–
2,682.9
Treasury shares
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$2.55
per share (2018: A$2.32 per share))
Employee performance rights vested
Total treasury shares
2019
689,267
484,500
2018
700,445
684,500
(738,399)
435,368
(695,678)
689,267
2019
1,247,997
874,248
1,335,992
786,253
2018
906,873
1,241,548
(900,424)
1,247,997
The weighted average number of ordinary shares used as the denominator in the calculation of basic earnings per share
is calculated as the weighted average number of ordinary shares outstanding during the financial year, adjusted for
treasury shares issued.
Number of Shares
2019
2018
Weighted average number of ordinary shares used as the denominator
in the calculation of basic and diluted earnings per share
2,879,143,308
2,878,674,535
(b) Other Reserves
Other Reserves include assets revaluation reserve, capital reserve, option premium on convertible bonds reserve,
share-based payments reserve, cash-flow hedge reserve and foreign currency translation reserve.
Foreign currency translation reserve
The foreign currency translation reserve represents exchange differences arising on the translation of non-US dollar
functional currency operations within the Group into US dollars.
Balance at the beginning of the financial year
Currency translation differences arising during the year
Balance at the end of the financial year
US$ Million
2019
(1,321.8)
(33.2)
(1,355.0)
2018
(1,104.2)
(217.6)
(1,321.8)
83
ALUMINA LIMITED ANNUAL REPORT 2019 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 the 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 other assets
(Decrease)/increase in payables
(Decrease)/increase in other liabilities
(Decrease)/increase in provisions
Net cash inflow from operating activities
US$ Million
2019
214.0
(232.0)
381.7
0.8
1.4
365.9
(0.7)
(0.3)
(0.4)
0.1
364.6
2018
635.4
(653.5)
657.4
0.8
0.5
640.6
0.7
–
–
–
641.3
(b) Non-Cash Financing and Investing Activities
There were no non-cash financing and investing activities during the year.
In 2018 there was a $100 million loan between two AWAC entities (100% AWAC level), which the borrower repaid using
partners’ equity contributions ($40 million Alumina Limited’s share). Proceeds from the loan repayment were distributed
back to the partners by the lender.
(c) Net Debt Reconciliation
This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.
Cash and cash equivalents
Borrowing – repayable within one year
Borrowings – repayable after one year
Net (debt)/cash
Cash and liquid investments
Gross debt – fixed interest rates
Net (debt)/cash
US$ Million
2019
15.2
–
(70.0)
(54.8)
15.2
(70.0)
(54.8)
2018
183.8
(88.0)
–
95.8
183.8
(88.0)
95.8
84
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
Net debt as at 1 January 2018
Cash flows
Borrowings reclassification
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2018
Cash flows
Foreign exchange adjustments
Other non-cash movement
Net cash as at 31 December 2019
ADDITIONAL DISCLOSURE
11. Related Party Transactions
US$ Million
Cash/Bank
Overdraft
Borrowings Due
Within 1 Year
Borrowings Due
After 1 Year
40.0
145.4
–
(1.6)
–
183.8
(167.8)
(0.8)
–
15.2
–
–
(98.4)
9.4
1.0
(88.0)
86.3
–
1.7
–
Total
(58.4)
145.4
–
7.8
1.0
95.8
(98.4)
–
98.4
–
–
–
(70.0)
(151.5)
–
–
(0.8)
1.7
(70.0)
(54.8)
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 38-60 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 2019 of 0.6952 (2018: 0.7475) has been used for conversion.
Directors and Senior Executives
US$ 000’S
Short-term employee benefits
Post-employment and termination benefits
Share based payments
Total
2019
3,229
121
681
4,031
2018
3,676
457
682
4,815
(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
2019, between the Group, its related parties, the Directors or key management personnel (2018: Nil).
85
ALUMINA LIMITED ANNUAL REPORT 2019 12. Share-Based Payments
The Group provides benefits to employees (including the 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 38 to 60 of this annual report.
Set out below are summaries of performance rights granted under the ESP.
2019
Grant
Date
Expiry
Date
Balance
at Start of
the Year
Number
Granted
During
the Year
Number
20/1/2017
6/12/2019
454,480
1/6/2017
31/5/2020
141,900
18/1/2018
4/12/2020
467,408
–
–
–
21/1/2019
12/12/2021
–
454,300
Vested
During
the Year
Number
(454,480)
–
–
–
1,063,788
454,300
(454,480)
Lapsed
During
the Year
Number
Balance at
End of
the Year
Number
Yet to Be
Exercised
at the End
of the Year
Yet To Vest
at The End
of the Year
Number
–
–
–
–
–
–
125,600
–
141,900
467,408
454,300
–
–
–
141,900
467,408
454,300
1,063,608
125,600
1,063,608
Total
2018
Grant
Date
Expiry
Date
19/12/2016
7/12/2018
20/1/2017
6/12/2019
Balance
at Start of
the Year
Number
839,664
506,674
Granted
During
the Year
Number
Vested
During
the Year
Number
Lapsed
During
the Year
Number
Balance at
End of
the Year
Number
Yet to Be
Exercised
at the End
of the Year
Yet To Vest
at The End
of the Year
Number
–
–
–
(813,765)
(25,899)
–
240,251
–
–
–
–
(52,194)
454,480
–
141,900
(84,092)
467,408
–
–
–
454,480
141,900
467,408
1/6/2017
31/5/2020
141,900
18/1/2018
4/12/2020
–
551,500
Total
1,488,238
551,500
(813,765)
(162,185)
1,063,788
240,251
1,063,788
The weighted average remaining contractual life of performance rights outstanding at the end of the period was 1.3 years
(2018: 1.4 years).
In addition to the ESP, the CEO’s and CFO’s remuneration includes an annual conditional share right component. This
component is conditional on a minimum of 12 months service and subject to three years trading restriction from the
date of the grant.
For further details refer to the remuneration report on page 41 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
CFO annual conditional share rights grant
Total
US$ 000’S
2019
500
292
41
833
2018
417
379
–
796
86
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
13. Remuneration of Auditors
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:
Audit and review of financial reports
Overseas taxation services
Total
US$ 000’S
2019
2018
380
3
29
13
425
397
3
29
7
436
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.
14. Commitments and Contingencies
16. Parent Entity Financial Information
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 2019 and 31 December 2018, other than
as disclosed in Note 2(e) and Note 16(b).
15. Events Occurring after the Reporting Period
The COVID-19 pandemic announced by the World
Health Organisation subsequent to 31 December 2019
is having a negative impact on global stock markets and
business activity, which may have a flow-on effect to the
operations of AWAC, its financial performance and its
cash flows. In the current market environment, there
is a continuing risk of fluctuations in exchange rates,
disruption to the customer base and trade flows, a decline
in the market prices of bauxite, alumina and aluminum
and additional political and regulatory requirements.
The timing and extent of the impact of the pandemic
and the associated recovery process is unknown. Alumina
continues to monitor the situation and no estimate of
its financial effect can be made at this stage.
Except as above or disclosed in the Directors’ report or
elsewhere in the Financial Statements, there have been
no significant events occurring since 31 December 2019.
Please refer to Note 6(b) for the final dividend
recommended by the Directors.
The financial information for the parent entity has been
prepared on the same basis as the consolidated financial
statements, except as set out below.
Investments in subsidiaries, associates and joint
venture entities
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.
Intercompany loans
Loans granted by the parent entity to its subsidiaries are
classified as non-current assets.
Tax consolidation legislation
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.
87
ALUMINA LIMITED ANNUAL REPORT 2019 (a) Summarised Financial Information
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
(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 (40%) guarantee
the payment of Espanola’s contracted gas pipeline utilisation
over the four years of the commitment period. This
guarantee expired on 15 July 2019.
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. The Guarantee
expires upon economic completion date, which has now
occurred. There were no existing/ongoing obligations.
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.
US$ Million
2019
2018
7.3
3,779.0
1.2
77.5
2,682.9
236.3
782.3
3,701.5
363.9
363.9
184.2
3,985.8
108.8
114.9
2,682.9
236.8
951.2
3,870.9
639.5
639.5
Alumina Limited, at the request of Alcoa of Australia
has also entered into a guarantee for the performance
of Espanola through an inter-company short-term loan
agreement if required. This will expire on the
27 September 2022.
No liability was recognised by the parent entity of the
group in relation to the abovementioned 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 2019 or 31 December 2018. 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 2019.
88
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
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 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
US$ Million
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
2019
381.7
2.4
(11.7)
(1.0)
(7.5)
363.9
–
363.9
–
363.9
2019
818.5
363.9
(532.8)
649.6
2018
657.4
1.4
(11.0)
(1.4)
(6.9)
639.5
–
639.5
–
639.5
2018
694.5
639.5
(515.5)
818.5
89
ALUMINA LIMITED ANNUAL REPORT 2019 17. Deed of Cross Guarantee (continued)
(b) Consolidated Balance Sheet
US$ Million
2019
2018
5.8
234.6
1.5
241.9
1,631.3
1,773.1
3,404.4
3,646.3
0.9
–
–
0.3
1.2
75.8
0.6
76.4
77.6
3,568.7
2,682.9
236.2
649.6
3,568.7
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
Current assets
Cash and cash equivalents
Receivables
Other assets
Total current assets
Non-current assets
Investment in associates
Other financial assets
Total non-current assets
Total assets
Current liabilities
Payables
Borrowings
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
90
NOTE S TO THE CONS OLI DATE D FI NANC IAL STATE M E NT S
FOR TH E YEAR E NDED 31 DECE M BE R 2 01 9
18. New Accounting Standards and Interpretations
i) Adopted by the Group
The group has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2019:
• AASB 16 Leases
• AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation
• AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures
• AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle
• AASB 2018-2 Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement
• Interpretation 23 Uncertainty over Income Tax Treatments.
The group also elected to adopt the following amendments early:
• AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material.
The change in accounting policies and amendments listed above did not have any impact on the amounts recognised
in prior periods and are not expected to significantly affect the current or future periods.
ii) Not Yet Adopted by the Group
Certain new accounting standards and interpretations have been published that are not mandatory for the 31 December
2019 reporting period and have not been early adopted by the Group. These standards are not expected to have a material
impact on the entity in the current or future reporting periods and on foreseeable future transactions.
Directors’ Declaration
In the Directors’ opinion:
a) the financial statements and notes set out on pages 62 to 91 are in accordance with the Corporations Act 2001,
including:
(i)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2019 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 3 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.
The financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required
by section 295A of the Corporation Act 2001.
This declaration is made in accordance with a resolution of the Directors.
W Peter Day • Chairman
24 March 2020
91
ALUMINA LIMITED ANNUAL REPORT 2019 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 (Alumina or 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 2019 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 balance sheet at 31 December 2019;
• the consolidated statement of profit or loss and other comprehensive income for the year then ended;
• 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; and
• 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 (including Independence Standards) (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.
92
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’s sole business undertaking is investing globally in bauxite mining and 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 (including Alcoa of Australia Limited) 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’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
Audit Scope
Key audit matters
For the purpose of our audit we
used overall Group materiality
of $17.2 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.
We utilised a 5% threshold
based on our professional
judgement, noting it is within
the range of commonly
acceptable thresholds.
The Group engagement team directed the involvement
of the component audit teams, which performed an
audit of the financial information of Alcoa of Australia
and AWAC.
We, the Group engagement team, determined and
undertook an appropriate level of involvement in the
work performed by the component audit teams, in
order for us to be satisfied that sufficient audit evidence
had been obtained to support our opinion on the
Group financial report as a whole. We had regular
communication with the component audit teams
throughout the year and performed a review of their
audit working papers.
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.
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. We
communicated the key audit
matters to the Audit and
Risk Committee.
Materiality
Key audit
matters
Audit
Scope
93
ALUMINA LIMITED ANNUAL REPORT 2019 Key Audit Matter
How our Audit Addressed the Key Audit Matter
Equity accounting for Alumina Limited’s investment
in AWAC (Refer to note 2)
Alumina Limited’s equity accounted investment in
AWAC is carried at $1.8 billion and its current year share
of the net profit of AWAC accounted for using the equity
accounting method is $232 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 Australian Accounting Standards (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 for Alumina Limited’s
investment in AWAC 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 asset retirement
obligation provisions, reversal of Brazil asset uplift and
defined benefit superannuation plans.
To assess the equity accounting for the Group’s 40%
investment in AWAC, we performed the following procedures
amongst others:
• Considered the appropriateness of the equity
accounting method.
• Agreed the financial information of Alcoa of Australia
Limited accounted for under AAS to the equity accounting
schedule prepared by the Group.
• Agreed the financial information of AWAC accounted for
under US GAAP 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.
• Considered 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.
Impairment Indicator Assessment for Alumina
Limited’s Equity Accounted Investment in AWAC
(Refer to Note 2c)
To evaluate the Group’s impairment indicator assessment
of the AWAC investment we performed the following
procedures amongst others:
Alumina’s equity accounted investment in AWAC
($1.8 billion) is the most material balance sheet item
in the consolidated financial report.
• Developed an understanding of the process by which the
Group conducted the impairment indicator assessment.
• Considered key assumptions including the Group’s long
Under Australian Accounting Standards, Alumina Limited
is required to perform an impairment assessment to
determine whether there are indicators that the equity
accounted investment in AWAC could be impaired.
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
at 31 December 2019, noting that market capitalisation
exceeded net assets by approximately $2.9 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.
The Group’s impairment indicator assessment considers
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, other key inputs include energy prices
and exchange rates.
Alumina’s conclusion was that there was no indicator
for impairment for the year ended 31 December 2019.
We considered the impairment assessment a key audit
matter because Alumina’s equity accounted investment
in AWAC ($1.8 billion) is the most material balance sheet
item in the consolidated financial report and significant
judgement is required to estimate future alumina and
aluminium prices, energy prices and exchange rates.
94
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 2019,
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 the 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 38 to 60 of the Directors’ report for the year ended
31 December 2019.
In our opinion, the remuneration report of Alumina
Limited for the year ended 31 December 2019 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 24 March 2020
95
ALUMINA LIMITED ANNUAL REPORT 2019 Details of Shareholdings and Shareholders Listed Securities – 28 February 2020
Alumina Limited has 2,879,843,498 issued fully paid ordinary shares.
Range of Units as of 28/02/2020
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 Over
Rounding
Total
Total Holders
Units
% of Issued Capital
19,850
21,495
7,132
7,566
378
56,421
9,247,606
55,466,345
54,440,655
189,681,805
2,571,007,087
2,879,843,498
0.32
1.93
1.89
6.59
89.28
0.01
100.00
Of these, 6,291 shareholders held less than a marketable parcel of $500 worth of shares (258) a total of 931,588 shares.
In accordance with ASX Business Rules, the last sale price on the Company’s shares on the ASX on 28 February 2020
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
BNP PARIBAS NOMINEES PTY LTD
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