2015 was a significant year for Alumina Limited, and its AWAC joint venture with Alcoa. The year saw continued the asset portfolio reshaping (following on from the closure of the Point Henry smelter in 2014) to exit high-cost operations and to add new low-cost alumina refinery capacity. In addition, approximately 75 per cent of smelter grade alumina sales are now linked to alumina pricing index (API)/spot pricing: leading to higher price realisations in 2014. Furthermore, the capital structure of the Company has been significantly repositioned to reduce debt levels, reduce interest expenses and extend maturities.
In 2015, our lower cost base and higher production from our lowest cost refineries combined to lift profit margins and cash flows. Alumina Limited’s full year net profit after tax was $258.2 million, excluding significant items. The curtailment of the Suralco and Point Comfort refineries, the closure of the Anglesea Power Station and other restructuring charges reduced the net profit after tax to $88.3 million. While alumina prices declined significantly, AWAC cash from operations increased 70 per cent on the prior year. This enabled payment of a final dividend of US1.8 cents per share, bringing the total dividend for the year to US6.3 cents per share.
AWAC distributed $106.3 million in dividends, distribution and capital returns, and a further $29.5 million in January 2016 (2014: 119.2 million). AWAC’s cash from operations increased by $333 million dollars to $808.9 million dollars in 2015. This was an excellent outcome, particularly as it included the $300 million instalment for the gas supply agreement. Capital expenditure for AWAC was lower at $178.4 million (2014: $237.9).
Corporate costs for Alumina Limited were lower at $11.9 million (2014: $13.5 million), assisted by a stronger US dollar and deregistration from the Securities and Exchange Commission in the US in 2015. Funding cost also declined to $6.6 million from $13.6 million in 2014.
Alumina’s net profit/loss principally comprises a return on our equity investment in the AWAC joint venture. Other revenues are limited to small amounts of interest income and occasional one-off revenue associated with hedging activities. This revenue is itemised separately on Alumina’s profit and loss statement.
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Sustainable performance at a glance
|Alumina result area||2015||2014||2013||2012||2011||2010||2009|
|Net profit/(loss) ($US)||$88m||($98.3m)||$0.5m||$(55.6m)||$126.6m||$34.6m||$(23.7m)|
|Dividend payments received from AWAC ($US)||$61.4m||$119m||$100m||$86m||$232m||$234m||$136m|
|Dividend payments to shareholders ($US)||$171.2m||Nil||Nil||$73.2m||$146.4m||$146.4m||$42.8m|
|Fully franked dividends declared ($US)||6.3 cents/share||1.6 cents/share||Nil||Nil||6 cents/share||6 cents/share||1.8 cents/share|
|Wages and payments to suppliers ($US)||$11.9m||$13.5m||$17.2m||$19m||$17.6m||$14.7m||$10.5m|
|AWAC result area|
|Alumina production (tonnes)||15.1m*||15.9m||15.8m||15.6m||15.7m||15.2m||13.5m|
|Aluminium production (tonnes)||163,000**||269,000**||354,000||358,000||357,000||356,000*||368,000|
|Capital expenditure ($US)||$178.4m||$237.9m||$323m||$375m||$392m||$298m||$666m|
*Decreased alumina production in 2015 due to the sale of the Jamaican refinery in December 2014 and the curtailment of production at the Suralco refinery in Suriname in November 2015.
** Aluminium production declined in 2014 due to the closure of the Pt. Henry smelter in August 2014.
Excluding significant items, a profit of $258.2 million (2014: $91.1m) after tax would have been recorded. Significant items, essentially relating to restructure included charges related to the curtailment of the Suralco and Point Comfort refineries and the closure of the Anglesea power station. Restructuring charges reflect efforts to improve AWAC's portfolio mix through the closure or curtailment of higher cost operations.
After the closure of the Point Henry smelter, Alcoa of Australia Limited‘s Anglesea coal mine and power station operated as a stand-alone facility and sold electricity into the National Electricity Market after successfully being registered as a scheduled market generator in August 2014. Alcoa of Australia Limited sought a buyer for the Anglesea coal mine and power station however a decision was ultimately made to close the mine and power station in August 2015. Under a Memorandum of Understanding, a strategic review of the Suralco mining and refining operations commenced with the Government of Suriname in the second half of 2014. A final decision by the Government of Suriname has not been made however a decision was made to fully curtail production at the refinery. Also in light of prevailing market conditions including a fall of the Alumina Price Index by approximately 40 percent, it was decided to curtail production at the Point Comfort refinery in Texas.
Investing in AWAC for sustainable growth
During December 2014, the Ma’aden joint venture refinery became fully operational using bauxite from its own mine. The refinery produced 846 thousand tonnes (AWAC's share is 212thousand tonnes) of alulmina in 2015 and should be one of the lowest cash production cost per tonne refineries in AWAC's portfolio. The 2015 results included $46.5 million of equity losses related to start and ramp up activities compared to $33.9 million in 2014.
The San Ciprian refinery in Spain completed its conversion of energy source from oil to natural gas in February 2015. As a result of the conversion, San Ciprian's production costs should be $20 per tonne lower, compared to historic levels.
Broader economic contribution
Alumina Limited directly contributes economic value through dividends to shareholders as well as payments to employees, suppliers and service providers.
In 2015 we distributed $171.2 million (2014: $44.9 million) in dividend payments to approximately 59,000 shareholders. In 2013 Alumina Limited did not pay a dividend to shareholders due to the underlying level of profitability and recognising the continuing low proces for AWAC's products.
During 2015, Alumina Limited corporate costs continuned to decline to $11.9 million (2014: $13.5 million). Most of Alumina Limited’s general and administrative costs are incurred in Australian dollars. The decrease in costs reflects both the weaker Australian dollar against the US dollar and lower expenses.Corporate costs have been progressively falling since 2012 when they amounted to $19 million and $17.2 million in 2013.
Combined payments to suppliers and employees declined in 2015 to $12.1 million dollars compared to $15 million in the prior year. (2014 value includes CEO retirement payments).
In 2015 AWAC employed 6,438 people, contributing directly to the economy of the many communities and seven countries in which it operates. In the normal course of its operations, AWAC also supports regional economic growth through paying taxes and royalties. Local communities benefit from grants and financial assistance offered in community projects and infrastructure development.
Alumina Limited Dividends
Generally the Board intends, on an annual basis, to distribute cash from operations after debt servicing and corporate costs commitments have been met. The Board will also consider the capital structure of Alumina Limited, the capital requirements for the AWAC business and market conditions. Dividends paid will be fully franked for the foreseeable future.
A final fully franked dividend of US 1.8 cents was declared by the Directors for 2015. The dividend to be paid in or around March 2016. On 19 August 2015, the Directors declared a 2015 first half fully franked dividend of US 4.5 cents per share. No dividend was paid for the same period for 2014. The decision to resume dividends reflects the directors' current view of the business outlook for AWAC and the Company's capital structure and requirements.
No dividends were declared in respect of the 2013 year however the final dividend for 2011 was paid in 2012.