ER 2389 Alumina A/R WEB.qx 25/3/03 5:54 PM Page 1
Wednesday 11th December 2002 ER 2389 Alumina A/R WEB.qx 25/3/03 5:08 PM Page 2
Alumina Limited – Concise Annual Report 2002 ER 2389 Alumina A/R WEB.qx 25/3/03 5:08 PM Page 3
‘Independence Day’
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Alumina Limited – Concise Annual Report 2002
Alumina Limited is a rare investment opportunity: a new company with a strong financial history. It provides a direct interest in the world’s leading alumina business. It was formed following the demerger of WMC Limited on 11 December 2002: Alumina’s ‘Independence Day’.
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Alumina Limited – 2002
Alumina Limited’s strength is our 40% interest in Alcoa World Alumina and Chemicals (AWAC), which has a worldwide network of refineries providing 25% of global production capacity.
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Alumina Limited – Concise Annual Report 2002
AWAC provides consistent and reliable results, driven by an outstanding business. Historically, shareholders have been rewarded with strong growth and high dividends.
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Alumina Limited – 2002
AWAC is the market leader because it has the technology, systems, assets and management to drive operational excellence and meet its worldwide customer needs.
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Alumina Limited – Concise Annual Report 2002
AWAC’s growth is driven by a strategy of low-risk, high-return brownfield expansion. This strategy allows AWAC to maintain its 25% share of global production capacity.
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Alumina Limited – 2002
Independence gives Alumina Limited’s management the opportunity to focus on the AWAC business with one goal in mind: creating and delivering value to shareholders.
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Alumina Limited – Concise Annual Report 2002
Contents
Alumina Limited: a snapshot 9 Performance 2002 in brief 10 Chairman’s Report 11 Chief Executive Officer’s Report 13
1. A New Company 16 6. Creating and Delivering Value 38 The demerger 16 Senior management 38 Timeline 17 Alumina Limited representation in AWAC 39 The business 18 AWAC Strategic Council 39
2. AWAC: 25% of the Global Market 20 7. Corporate Governance 40 AWAC’s interests 20 Alumina Limited and the Board 40 AWAC’s global interests 23 Ethical standards 41 Share trading 42 3. Consistent and Reliable Results 26 Disclosure 42 Returns and cash flows 26 Conflicts of interest 42 Returns to shareholders 26 Managing business risk 42 Managing expenditure 27 Managing financial exposures 42 Operational performance 27 Political donations 42 Reducing costs 28 Board of directors 44 Operating in a difficult market 30 Former WMC directors 45 Other significant events 30 Remuneration 46 Scheme booklet 2002 forecast 30 Shareholders 51 Shareholder communication 51 4. Market Leader 32 Dividends 51 Share enquiries 51 Sources of competitive advantage 32 American Depositary Receipts 51 Leaders in: 34 Mining 34 8. Directors’ Report 52 Refining 34 Independent audit report 55 Business systems 34 Consolidated statements of financial 55 Safety 34 performance 56 Consolidated statements of financial position 57 5. Growth and Strategy 36 Consolidated statements of cash flows 58 Expansion of existing operations 36 Notes to and forming part of the concise 58 Incremental growth 37 financial statements 59 Acquisitions 37 Other growth opportunities 37 Glossary 68
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‘Our 40 per cent interest in AWAC provides investors with a substantial and direct investment in the attractive alumina industry.’
Alumina Limited: a snapshot An investment in Alumina Limited is an investment in the world’s largest producer and supplier of alumina.
Alumina Limited is a partner in Alcoa World Alumina and This report Chemicals (AWAC). AWAC with Alcoa currently produces 23 per cent of the world’s alumina. Our 40 per cent interest in The purpose of this report is to introduce Alumina Limited to AWAC provides investors with a substantial and direct invest- investors. It also outlines our performance during 2002. Due ment in the attractive alumina industry. Alumina Limited’s to the demerger and the necessary legal and accounting partnership with Alcoa is a business of mining bauxite ores, treatment, the financial results represent 11 months of the refining the ore to produce alumina and further processing combined WMC Limited before demerger, plus one month of the alumina to produce aluminium metal and alumina of the new Alumina Limited. In the financial results, all WMC based chemicals. Alcoa holds a 60 per cent stake in AWAC. Resources Ltd businesses are shown as discontinuing opera- tions and the results of continuing operations reflects the A significant proportion of AWAC’s alumina production is in assets now held by Alumina Limited. The text does not include the lowest-cost quartile. AWAC’s interests include operations description of WMC Resources Ltd activities or analysis of in Australia, the United States, the Republic of Guinea, the performance of WMC Resources Ltd for the period. For Suriname, Jamaica, Brazil and Spain. an account of the nickel, copper and fertilizer businesses of WMC Resources Ltd, refer to the WMC Resources Ltd Annual Alumina Limited was created on 11 December 2002 when Report (see www.wmc.com). 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 Actual 2002 EBIT Contribution by Segment alumina and aluminium business. Our small and commer- cially experienced team is focused on delivering value through: strategic participation in the AWAC business with our 5% partner Alcoa maintaining AWAC’s position as market leader 21% paying substantial dividends to shareholders (aiming for 100 per cent of Alcoa of Australia’s fully franked dividends to be distributed as far as practicable) growing AWAC through planned and sustainable Alumina & chemicals expansion Aluminium 74% ensuring the value of the AWAC business is understood Other by the market and reflected in our share price. Source: AWAC Results
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Performance 2002 in brief
What we produce Alumina (AWAC refineries have 25% of world production capacity; Alumina Limited share = 10%) Alumina Chemicals Aluminium
Our goals in 2002 Create Alumina Limited through WMC demerger and create value for WMC’s shareholders Maintain partnership and active strategic involvement in AWAC Continue to match production to market conditions Maintain AWAC’s industry leadership position Complete transfer of Reynolds’ assets to AWAC
Key events Continued uncertainty in global economy Aluminium price fell by 6.0% to an average US$0.61/lb (US$1350 per tonne) Strengthening Australian dollar First full year of expanded production at San Ciprian refinery Announced Jamalco expansion of 250,000 tonnes of alumina Announced expansion of joint venture with BHP Billiton in Suriname
We delivered Demerger overwhelmingly approved by shareholders Alumina Limited listed on 11 December 2002 Share price has outperformed ASX200 and industry indices After-tax profit from continuing operations of $209.7m, 25% down on 2001 Alumina Limited received dividends of $281m, down 25% on previous year Final dividend of 13 cents per share AWAC increased alumina production by more than 3% to 12.3m tonnes and aluminium by 1.5%
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Alumina Limited – Concise Annual Report 2002
Chairman’s Report
Creating a new company and direct investment in a world leader with a global network of bauxite, alumina, alumina chemicals and aluminium operations. 2002 was a year of enormous challenge and change. As WMC Limited and now as Alumina Limited we have a 40- Shareholder approval of WMC’s demerger in November 2002 plus-year history of successful partnership with Alcoa, which owns created two separately listed companies: Alumina Limited and the remaining 60 per cent of AWAC and manages its day-to- WMC Resources Ltd. This was a major achievement under onerous day operations. We will continue to build on these years of success conditions, made possible through the dedication of WMC’s to productively develop and grow AWAC to generate strong cash directors and staff. Their performance and commitment during flows, profits and dividends. this time was exceptional. The demerger separated WMC’s nickel, copper and fertilizer businesses from the alumina interests, in order to maximise value to shareholders for each of these assets. The intention was to create a clearer and more transparent valuation of the alumina business and allow shareholders to receive full value for their WMC interests in the event of a takeover offer. The two new resource companies provide shareholders with greater investment flexibility and choice and allow the two management teams, WMC Resources Ltd and Alumina Limited, to concentrate on their underlying business. The demerger was planned to occur in mid-2002. The timing was delayed to enable shareholders to benefit from Australian demerger tax relief legislation. Since the demerger we have created a new organisation, with The listing of Alumina Limited has been well received by the finan- its own distinct identity and objectives and organisational structure. cial markets and we are making progress against our initial goals. Led by CEO John Marlay, Alumina Limited has a committed and competent team. The new management team is developing its The new Alumina Limited own close working relationship with its counterparts at Alcoa and is focused on maintaining and enhancing shareholder value. Alumina Limited is a partner in Alcoa World Alumina and Chemicals (AWAC), the world’s largest alumina producer. Through In 2002 AWAC continued its progress on the dual goals of our 40 per cent interest in AWAC, shareholders have a substantial maintaining the low-cost profile of the AWAC operations and
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continuing to grow the AWAC business. The improvements in The Demerger Scheme Booklet provided a forecast of profit for operations are discussed in the CEO’s report. 2003 based upon expectations at the time of world economic growth. Geopolitical developments since that time have weakened A key objective for 2003 is to increase the market’s under- world economic activity and these circumstances may impact on standing of the long-term strength of the AWAC business and the company’s results for 2003. to have this recognised in Alumina Limited’s share price. We believe that shareholders will see the value of the AWAC business However, with AWAC’s world-class assets operating efficiently through consistent returns in terms of dividends, profits and share and with our operating objectives firmly in place for 2003, we are price growth. confident that Alumina Limited will continue to deliver excellent value to shareholders. Returns to shareholders Alumina’s profit for 2002 fell compared to the previous year but was consistent with the forecast made in the Demerger Scheme Booklet. Dividends of 18 cents a share were declared including a 13 cent final dividend. Our intention is to fully distribute to shareholders, to the extent practicable, all fully franked dividends received from AWAC. Donald Morley Chairman Since AWAC was established in 1995, more than 100 per cent of net income has been distributed in dividends and capital returns to AWAC’s owners (annual dividends to Alumina averaged $226 million since 1995). Of these distributions, 86 per cent of dividend distributions have been fully franked. Historically, Alumina AWAC 100% Capex and Net Cash flow Limited’s AWAC interest has rewarded shareholders with share price growth as well as dividends and we intend that this continue. (1995–2002)
Board Developments The high standards of corporate governance and ethics that we US$m adhered to before the demerger will continue under the new Board and management. I am delighted that Peter Hay, Ron McNeilly 600 and Mark Rayner have been elected to Alumina Limited’s Board. They have the knowledge and background that we require. 500
Executive remuneration is strongly linked to company perform- 400 ance so that the interests and long-term returns to shareholders remain paramount. We will continue to outline remuneration 300 practices in the Annual Report to ensure a high degree of transparency. 200 The Board and management are committed to working closely 100 together so that the complementary skills of directors and
management are fully utilised. The Board recognises the contri- 0 bution of our dedicated employees and their commitment to the 995 996 997 998 999 000 002 1 1 1 1 1 2001 company’s success. 2 2
Outlook Capital expenditure The outlook for 2003 is somewhat uncertain, with the outcome Net cash flow of global political issues and economic growth affecting most markets. World commodity markets and the fragile recovery of Source: AWAC Audited Statements the US economy reflect this situation.
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Alumina Limited – Concise Annual Report 2002
Chief Executive Officer’s Report
Results meet targets aluminium prices were the major contributor to the reduced profit in 2002. AWAC’s world-class assets delivered a solid return on It was a remarkable year, with WMC transforming into a new equity of 19 per cent in 2002, an excellent result especially during company – Alumina Limited – to focus solely on its alumina and a low point in the economic and market cycles. aluminium interests. Shareholders now have a direct investment in a worldwide resources business with strategic strength and a Cash flows (before capital contributions and dividends paid to history of consistent performance. partners) for AWAC for the year were US$348 million and an average of US$380 million over the last 5 years. AWAC’s debt is minimal and the level of capital expenditure required in 2002 was again relatively low at US$112 million. The AWAC 2003 Business Plan includes sustaining capital expenditure less than depreciation. It is AWAC’s strong and consistent cash flows that generate reliable returns for shareholders.
AWAC’s operational strength As the CEO of Alumina Limited, I am impressed with AWAC management’s focus on achieving world’s best practice through- out its business activities. The financial results for 2002 were assisted by a relentless drive to improve cash operating costs, a commitment to customer needs 2002 results and to continually improving what already is a successful business. AWAC’s leading position in the worldwide alumina market and Employee know-how and technological skills contributed to its low-cost operations have returned a strong financial result for increased production in 2002 of 12.3 million tonnes, partly as a Alumina Limited in a challenging environment. result of production creep and de-bottlenecking. New record Alumina Limited’s financial results for the year were in line with production levels were achieved at the San Ciprian, São Luis, targets and expectations. Profit after tax, from continuing oper- Jamalco and Suralco refineries, and at the Portland aluminium ations, was $210 million. This result is in line with the Demerger smelter. The ability to utilise technology and other improvements Scheme Booklet forecast, but is 25 per cent lower against the throughout AWAC’s network contribute to a capital efficient performance of the business in 2001. Weakening alumina and increase in production capacity.
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Alumina Limited – Concise Annual Report 2002
Chief Executive Officer’s Report
(CONTINUED)
The effort undertaken to increase labour productivity and reduce residents, local shires and the Western Australian Government bauxite costs at both Point Comfort and Jamalco in 2002 will to address these concerns, including establishing an employee position AWAC well in 2003. Total production and sales volumes rehabilitation program and community consultation processes. are expected to rise in 2003. AWAC acquired in 2002 a further 6 per cent interest in Halco Planned and sustainable growth and a further 5 per cent interest in MRN, adding to the company’s We believe that AWAC has the investment options and capability bauxite assets. to retain and enhance its market position, currently 25 per cent AWAC’s integrated worldwide network spans bauxite mining to of global production capacity. With AWAC’s strategy to expand marketing alumina. AWAC delivers what their customers need – its operations and continuously improve costs, there are several high quality alumina. AWAC’s flexibility in production capacity, opportunities to meet increased demand for alumina. location and quality of product is an important strength as a long- For example, the agreement reached with the Jamaican Govern- term supplier to many of the world’s largest alumina customers, ment on a substantial reduction in bauxite royalties, together with including the three largest western non-integrated smelters. a workforce restructuring and improved production efficiency, AWAC is a world leader in safety. In 2002, lost workdays declined has enabled a 250,000 tonne expansion of the Jamalco refinery to 0.70 per million hours from 0.85 in the previous year. The to 1.25 million tonnes during 2003. This gives Jamalco an excell- Jamalco refinery had no recordable injuries in 2002, a superb ent future as a lower-cost producer and potential for further achievement. The Victorian aluminium smelting operations also expansion. recorded 2.5 million hours free of lost workdays. AWAC has been developing a number of strategic initiatives to Alcoa of Australia has publicly advised that emissions from the secure long-term growth. A letter of intent was signed in 2002 liquor burner at the Wagerup refinery have been reduced by with BHP Billiton that will permit the expansion of the joint venture more than 90 per cent since it was installed in 1996. A signifi- Suralco refinery in East Suriname. Developments in West Suriname cant investment in plant at the Wagerup refinery to reduce are also promising, with AWAC participating in work on the odour emissions from the plant was completed prior to June feasibility of development of a new integrated hydroelectric power 2002 and is successful. Since that time this operation has facility. continuously operated well below the licence requirements for odour emissions and complaints from the local community have Significant brownfield expansion of production at Jamalco, materially reduced. Alcoa of Australia takes the concerns of its Pinjarra and Wagerup in Australia and São Luis in Brazil are employees and nearby residents of Wagerup seriously and its available. This growth will involve the use of proven AWAC objective is to provide certainty that the community’s environ- technology and operational processes that reduce the investment ment is a safe one. It has worked closely with employees, risk and cost.
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Clarification area – Wagerup
Plans for 2003 This growth is a result of the significant rise in domestic aluminium consumption, and that trend in consumption is expected to AWAC will continue to review its operations to ensure they continue for the foreseeable future. The demand for Chinese continue to meet performance targets and fits within long-term alumina imports has created short-term market tightness and a strategy. This process has identified AWAC’s specialty chemical consequent rise in spot alumina prices in recent months. business as a sale opportunity. Alumina Limited expects no abnormal costs as a result of the divestment as the assets are AWAC’s long-term safety goal is to have zero workplace injuries. expected to be sold at full value. AWAC management has iden- In 2003, specific new initiatives to reduce the ergonomic risk tified further improvements in operating costs in 2003. The in all operations are being implemented and we are also strengthening of the Australian dollar in early 2003, if continued seeking to continue to reduce the cause of environmental non- through the year, would adversely affect profit for 2003. compliance incidences. The program of property acquisition adjacent to the Wagerup refinery and the government and Following the demerger, Alumina Limited had approximately community consultation processes are being actively managed. $535 million of bank financed debt. This is low cost funding and we will continue to review our funding structure to ensure it Alumina Limited’s management are committed to ensuring continues to be the most economical available. AWAC continues to be successful in delivering superior returns. I believe AWAC’s position and potential for growth are unique In early 2003, LME aluminium prices have traded at slightly with its well established world-class assets, excellent cash flow, above second half 2002 prices. It remains difficult to gauge the and a leading market position. Alumina Limited’s strong balance direction for alumina and aluminium markets in 2003. The sheet and prospects for growth make this an attractive investment expectation is for an increase in worldwide aluminium production for our shareholders. in 2003 but the level of demand and stocks will be highly dependent on improving economies in most countries. Alumina spot prices have sharply increased during the first quarter of 2003 to above US$200 per tonne. The majority of AWAC’s alumina is sold under long-term contracts to its cust- omers. It is difficult to predict the full year impact on aluminium and alumina prices at this time. We expect further growth in western-world alumina demand to continue in 2003. Demand for smelter grade alumina in China John Marlay continues to grow substantially above western-world demand. Chief Executive Officer
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Alumina Limited – Concise Annual Report 2002
SECTION – 1. A New Company
‘Alumina Limited represents an outstanding opportunity to invest in the largest single-purpose alumina company in the world and the third largest resource company in Australia.’
Alumina Limited is a rare investment opportunity: a new company shares in WMC immediately after the demerger, however those with a strong financial history. It provides a direct interest in the shares traded under the new name of Alumina Limited on the world’s leading alumina business. It was formed following the ASX from 4 December 2002. Shares in WMC Resources Ltd also demerger of WMC Limited on 11 December 2002: Alumina’s commenced trading on the ASX on that date. The combined ‘Independence Day’. share price of the two companies since that date has endorsed the demerger decision. Alumina Limited is not a typical ‘new’ company. As part of WMC Limited, it has a history going back more than 40 years. It has The demerger was originally intended to occur earlier than a strong financial history and market position. Yet, the new start December 2002. However, the demerger was delayed until that was delivered following demerger enables the management Australian demerger tax relief legislation was enacted. That of Alumina Limited to pursue a business strategy independent of legislation gave tax relief to WMC shareholders who held their other WMC businesses. Management’s initial focus has been to WMC shares on capital account. establish Alumina Limited as a stand-alone entity. An important function is to generate a better understanding among share- holders and the financial markets of Alumina Limited’s business and why they can expect Alumina Limited to deliver excellent long-term returns to shareholders. Alumina Limited represents an outstanding opportunity to invest in the largest single-purpose Before demerger After demerger alumina company in the world and the third largest resource company in Australia. WMC Limited Alumina Limited The demerger Copper-uranium Alumina (AWAC interests) Alumina The demerger of WMC in December 2002 resulted in the Nickel formation of two separate entities: Alumina Limited and WMC WMC Resources Ltd Fertilizers Resources Ltd. Alumina Limited’s principal asset is the 40 per Copper-uranium Development projects cent interest in the operating entities that form Alcoa World Nickel Alumina and Chemicals (AWAC). Fertilizers Following the demerger, eligible WMC shareholders received Development projects one WMC Resources Ltd share for each WMC share that they held. These shareholders continued to hold the same number of
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Operator closing valve in clarification area – Wagerup
Alumina Limited – 2002
Timeline Key events/dates of Alumina Limited’s involvement in the alumina industry:
Late Joint exploration (with two other Australian 1984 AoA – Wagerup alumina refinery 1950s companies) of bauxite deposits and secured commissioned. other resources. 1986 50 millionth tonne of alumina shipped. 1961 Formation of the integrated aluminium Production begins at Portland Smelter. company, Alcoa of Australia (AoA), with WMC holding a 20% interest, and the 1990 WMC progressively increased its holding in Aluminum Company of America with a AoA to 48.25%. 51% interest and the obligation to provide the technology, aluminium industry 1994 Alcoa World Alumina and Chemicals (AWAC) expertise and finance. formed. WMC’s interest in AWAC is 40% AoA – Construction begins at Kwinana and (including 39.25% of AoA). Point Henry. 1995 100 millionth tonne of alumina shipped. 1963 AoA – First ingot poured at Point Henry, using US-sourced alumina. 1998 AWAC acquires Inespal’s refinery in Spain.
1964 AoA – First export shipment of Kwinana 1999 AoA – expansion at Wagerup completed. alumina to Japan. Annual operating capacity is increased from 1.75 million tonnes to 2.2 million tonnes. 1972 AoA – Pinjarra alumina refinery commissioned. 2002 Demerger of WMC results in formation of Alumina Limited.
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Alumina Limited – Concise Annual Report 2002
1. A New Company
(CONTINUED)
Relative Performance Since Listing Indices Rebased to 100
115
110
105
100
95
90
85
80 an 03 Feb 03 Dec 02 3 Jan 03 3 Jan 2 Feb 03 4 Dec 02 13 J 23 Jan 03 23 Jan 12 22 Feb 03 14 24 Dec 02
Alumina Limited ASX/Standard & Poor’s 200 Index Bloomberg Europe Metals and Mining Index Global Aluminium Index
Source: Share price and indices data from Bloomberg
The business Alumina Limited’s partnership with Alcoa is a business of mining bauxite ores, refining the ore to produce alumina and further processing of the alumina to produce aluminium metal and alumina-based chemicals.
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Alumina Limited – 2002
Haulpak at bauxite mine – Willowdale Mechanical repairs – Willowdale
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Alumina Limited – Concise Annual Report 2002
SECTION – 2. AWAC: 25% of the Global Market
‘AWAC’s global interests include operations in Australia, the United States of America, the Republic of Guinea, Suriname, Jamaica, Brazil and Spain.’
Alumina Limited’s strength is our 40% interest in Alcoa World approximately 13.2 million tonnes a year. Of that, about 7.8 Alumina and Chemicals (AWAC), which has a worldwide network million tonnes are in Australia, 2.3 million tonnes in the United of refineries providing 25% of global production capacity. States of America, 1.3 million tonnes in Spain, 1.0 million tonnes in Suriname, 0.5 million tonnes in Jamaica and 0.2 million tonnes AWAC was formed on 1 January 1995 and comprises a series in Brazil. AWAC’s management continues to pursue AWAC’s of operating entities (including Alcoa of Australia) in which Alcoa historic practice of increasing production capacity over time. has a 60 per cent interest and Alumina Limited a 40 per cent However, this is done with full regard to current and expected interest (39.25 per cent interest in the case of Alcoa of Australia). market conditions. AWAC’s flexible contract arrangements and AWAC’s global interests include operations in Australia, the work practices enable production levels to be adjusted in either United States of America, the Republic of Guinea, Suriname, direction to respond to market demand. In 2002, AWAC employed Jamaica, Brazil and Spain. Their alumina production capacity is more than 11,000 people worldwide.
AWAC’s interests
Alumina Limited’s Ownership in AWAC Within Australia In Australia, bauxite is sourced from AWAC’s 100 per cent owned Alumina Limited 40% Alcoa Inc. 60% Huntly and Willowdale bauxite mines, located in the Darling Ranges, south of Perth. They supply AWAC’s three alumina refineries in Western Australia. The Kwinana, Pinjarra and Alcoa World Alumina and Chemicals (AWAC) Wagerup refineries have capacities of 2.1 million tonnes, 3.4 million tonnes and 2.3 million tonnes, respectively. Total alumina Bauxite mines production in 2002 for the three refineries was virtually the same as in 2001. Pinjarra increased production to a record level, while production declined slightly at Wagerup and Kwinana. Alumina refineries Alumina produced in Australia by AWAC is shipped to its primary Alumina-based chemicals aluminium smelters at Point Henry and Portland in Victoria, or to overseas customers, principally in the United States, Canada, Aluminium smelters the Middle East, Europe and South Africa. AWAC also produces primary aluminium in Victoria. Through Alcoa of Australia, AWAC owns and manages the smelter at Point Henry, near Geelong,
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and holds a 55 per cent controlling interest and management Republic of Guinea – Halco of a smelter at Portland. In 2002, Portland production increased AWAC has a 43 per cent interest in Halco, a Guinean bauxite by 3 per cent. Point Henry production for 2002 was similar to mining company. Halco is an international mining consortium 2001. Nearly half of this is sold to the neighbouring Kaal Australia that owns 51 per cent of Compagnie Bauxite de Guinée, the rolling mill. manager of a number of bauxite mines at Boké in Guinea, West Africa. The Republic of Guinea owns the remaining 49 per cent United States of America – Point Comfort Refinery of Compagnie Bauxite de Guinée. Long-term agreements to Alcoa World Alumina LLC owns 100 per cent of an alumina purchase bauxite mined by Compagnie Bauxite de Guinée refinery at Point Comfort in Texas. It has a nominal capacity of expire after 2011. 2.3 million tonnes a year and is the swing capacity in the AWAC system. Most of the refinery's smelter grade alumina is sold to Suriname – Suralco smelters in the United States. With increasing demand from United AWAC owns 100 per cent of Suralco, which owns 55 per cent of States smelters, Point Comfort was able to increase alumina a 1.9 million tonne capacity alumina refinery at Paranam, bauxite production during 2002. During the year, AWAC completed mines in north-east Suriname and south of Paranam, and hydro- favourable changes in Point Comfort’s contract price for bauxite electric facilities at Afobaka Lake. The refinery is owned by a and introduced greater flexibility in staffing. joint venture held 55 per cent by Suralco and the remainder by
San Ciprian alumina plant – Spain
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Alumina Limited – Concise Annual Report 2002
2. AWAC: 25% of the Global Market
(CONTINUED)
5.
1.
16. 6,7,8. 3. 4.
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Alumina Limited – 2002
an affiliate of BHP Billiton PLC. Suralco acts as manager of the AWAC’s Global Interests joint venture and operates the refinery. Production for 2002 was slightly above the previous year. AWAC Bauxite and Alumina Operations Jamaica – Jamalco USA AWAC has a 50 per cent interest in Jamalco, the owner and 1. Point Comfort R manager of bauxite mines, an alumina refinery and port facilities in Jamaica. The other 50 per cent is owned by Clarendon, a Jamaica Jamaican Government company. Jamalco's alumina refinery has 2. Clarendon B R a nominal capacity of 1.0 m tonnes a year. AWAC is currently Brazil expanding the Jamalco refinery by 25 per cent to 1.25 m tonnes 3. São Luis R a year at a cost of US$115 million. A bauxite levy was removed, 4. Trombetas B effective from the beginning of 2003, assuming the planned mechanical completion of the expansion occurs by December Spain 2003. Increased production is due to commence in 2004. The 5. San Ciprian R removal of this levy and the expansion will significantly lower Suriname costs. A further expansion of the Jamalco refinery is currently 6. Paranam R being evaluated. The refinery produces smelter-grade alumina, 7. Moengo B with AWAC’s share of production for 2002 increasing signif- 8. Accaribo B icantly. The production in 2001 was affected by a labour strike late in that year. Australia 9. Kwinana R Brazil – Abalco Huntly B 10. Abalco, an AWAC entity in Brazil, is a participant (18.9 per cent) 9,10,11,12,13. 11. Pinjarra R in a consortium that owns the Alumar alumina refinery at São 12. Willowdale B Luis in north-eastern Brazil. Abalco has disproportionate rights 13. Wagerup R in any expansion of the Alumar refinery. The refinery has a 14. Portland S nominal production capacity of 1.3 million tonnes of smelter- 15. Point Henry S grade alumina a year and AWAC believes there are opportunities Guinea to expand beyond this production capacity. Approximately half 16. Sangaradi B of the output is consumed at an adjacent smelter with the remainder exported to third-party customers. There was an B AWAC Bauxite Mines increase in AWAC’s share of alumina production for 2002 to R AWAC Alumina Refineries more than 240,000 tonnes. Production in 2001 was affected by S AWAC Aluminium Smelters energy rationing caused by drought conditions affecting hydro- electric power generation.
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Alumina Limited – Concise Annual Report 2002
2. AWAC: 25% of the Global Market
(CONTINUED)
Spain – San Ciprian refinery AWAC has 100 per cent ownership of the San Ciprian alumina refinery, which is located on the eastern coast of Spain. The refinery has an annual production capacity of 1.3 million tonnes having completed a 0.22 million tonne expansion in 2001. This expansion enabled alumina production to increase in 2002. Approximately 70 per cent of alumina produced at the San Ciprian refinery is sold to Alcoa's smelters in Spain. The balance of production is mainly sold as commodity-hydrate alumina to AWAC's chemicals business and to other chemical manufacturers in Europe.
Alumina-based chemicals AWAC is a major producer of alumina-based chemicals. The majority of chemical-grade alumina for AWAC’s chemical plants is sourced from the Point Comfort, San Ciprian and Kwinana Milling area – Pinjarra alumina refineries. AWAC sells industrial chemicals to customers in a broad spectrum of markets for use in refractories, ceramics, abrasives, polymer additives, chemicals processing and other speciality applications. AWAC also has interests in 17 alumina- based chemicals plants in Australia, the United States of America, the Netherlands, Germany, Spain, Japan, India and China.
Shipping AWAC owns and operates a shipping business that provides transportation services to AWAC’s alumina business and to third parties, including Alcoa. Operating both owned and chartered vessels, the shipping business transports dry and liquid bulk cargoes, including bauxite, alumina, caustic soda, fuel oil, petroleum, coke and limestone.
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Alumina Limited – 2002
Maintenance on stock pile conveyer – Pinjarra
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Alumina Limited – Concise Annual Report 2002
SECTION – 3. Consistent and Reliable Results
‘During 2002, Alumina Limited delivered strong financial results that were on target. This was due to AWAC’s robust operational performance during difficult market conditions.’
AWAC provides consistent and reliable results, driven by an out- The AWAC Agreements provide that AWAC must distribute standing business. Historically, shareholders have been rewarded through dividends in each financial year at least 30 per cent of with strong growth and high dividends. the net income of the prior year and AWAC must endeavour to distribute dividends above 30 per cent of the net income of During 2002, Alumina Limited delivered strong financial results AWAC consistent with prudent financial management and in the that were on target. This was due to AWAC’s robust operational context of the strategic and business objectives of AWAC. performance during difficult market conditions.
Returns and cash flow Alumina Limited’s equity share of AWAC* after tax profit in 2002 Dividends Received by Alumina Limited was $216 million compared to $279 million in the previous year, (Franked and unfranked) a drop of 23 per cent. Cashflow from operating activities for continuing operations in 2002 was $273 million, down 27 per A$million cent from $374 million in 2001. 400 This was due to lower realised alumina and aluminium prices, 350 and a stronger A$/US$ exchange rate, but was in line with the forecast provided in the Demerger Scheme Booklet. 300 250 * Alumina Limited accounts for its interests in the AWAC joint venture on an equity accounting basis. 200 150 Returns to shareholders 100 Alumina Limited’s share of dividends received from AWAC for 50 2002 was also lower at $281 million, down $96 million from 0 the record dividends received in 2001. Around 93 per cent of these 995 996 997 998 999 000 002 1 1 1 1 1 2001 dividends were fully franked. Directors declared a dividend of 2 2 18 cents a share for the year. Franked Unfranked Based on AWAC’s strong cash flows, we intend as far as practic- able to continue distributing to shareholders all fully franked Source: Alumina Limited dividends received.
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AWAC Alumina Yearly Production
‘000 tonnes
15,000
12,000
9,000
6,000
Quality control at Kaal Australia rolling mill 3,000
0
The practice of AWAC, confirmed by the Strategic Council in 995 996 997 998 999 000 002 1 1 1 1 1 2001 2 2 September 2002, has been to distribute 100 per cent of cash flow from the AWAC entities. Alumina Limited expects AWAC to Year continue this practice while it is consistent with the prudent Source: Alumina Limited financial management of AWAC.
Managing expenditure
AWAC had cash of US$96 million and debt of US$50 million as AWAC Alumina Capacity at 31 December 2002. Alumina Limited’s borrowings were $535 million at 31 December 2002, lower than forecast in the Excludes St. Croix Demerger Scheme Booklet due to the timing of dividend receipts. ‘000 tonnes Capital expenditure of US$112 million in 2002 was 72 per cent of depreciation compared with 68 per cent in 2001. AWAC’s 15,000 sustaining capital expenditure in 2003 is again expected to be
less than depreciation. Disciplined capital expenditure helps 12,000 AWAC to continue generating high levels of dividends. AWAC earned an impressive 19 per cent return on equity in 2002 9,000 when alumina and aluminium prices were at low levels. 6,000 Operational performance 3,000 AWAC’s robust operational performance in 2002 resulted from increased production partly offsetting the impact of falling prices on profits. Alumina production declined in 2001 as demand for 0 995 996 997 998 999 000 002
alumina fell. As demand increased in 2002, AWAC lifted alumina 1 1 1 1 1 2001 2 2 production levels by 3%. Capacity Increased production: Alumina Limited’s equity share of alumina production increased by 3.5 per cent to 4.9 million tonnes. Source: Alumina Limited AWAC’s total production was 12.3 million tonnes.
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Alumina Limited – Concise Annual Report 2002
3. Consistent and Reliable Results
(CONTINUED)
The first full year of expanded production at San Ciprian (220,000 tonnes of extra capacity) contributed to this result as did the return to normal production levels at Jamalco following a strike in the fourth quarter of 2001. Aluminium production in Australia increased in 2002, with record aluminium production being achieved at Portland in the second half of 2002.
Reducing costs The total cost of alumina and aluminium production in 2002 in US$ terms was similar to the previous year. Increased production from Jamalco after resolution of the labour dispute offset the
Exchange Rate 1998–2002
0.7
0.6
0.5 002 002 002 002 998 998 998 998 999 999 999 999 000 000 000 000 2001 2001 2001 2001 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
US$/AU$ Source: 98 Fx Converter 99 Onwards WMC Limited/Bloomberg
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Alumina Limited – 2002
Stacker in standing area – Pinjarra Precipitation tanks – Pinjarra
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Alumina Limited – Concise Annual Report 2002
3. Consistent and Reliable Results
(CONTINUED)
increased production from the higher cost facility at Point titanium dioxide project (Corridor Sands) located in Mozambique Comfort. The recent large increases in crude oil prices will have from Southern Mining Corporation Limited. Following successful an impact on energy costs at San Ciprian and Jamalco refineries, completion of the feasibility study, WMC Resources Ltd agreed which utilise fuel oil for energy production. At Point Comfort, on 9 December 2002 to acquire 100 per cent of Corridor Sands. natural gas cogeneration facilities purchase gas on both long- The first tranche of the cost of acquisition of US$62.5 million and short-term contracts. was satisfied through the issue of 14,080,604 shares in both Alumina Limited and WMC Resources Ltd. The final tranche of Operating in a difficult market up to US$25 million will be paid by WMC Resources Ltd. Poor market sentiment and sluggish United States and European Scheme Booklet 2002 forecast economic growth, a downturn in equity markets and anticipated higher exports of aluminium production from China, all impacted Alumina Limited performed in line with the forecasts that on lower LME prices. were outlined before the demerger in the Demerger Scheme Booklet. Key comparisons are: The benchmark LME cash price for aluminium averaged US$0.61/lb for 2002, a drop of US$0.04/lb from 2001. The aluminium price in the first half of 2002 traded between Alumina Limited Pro forma Actual US$0.61/lb–US$0.64/lb. From mid-July to late-October, it Forecast 2002 weakened and traded in the range of US$0.58/lb–US$0.61/lb. 2002
In the last quarter of 2002, the aluminium price moved up into Net profit attributable to members 218.5 209.7 the US$0.63/lb–US$0.64/lb range, supported by cuts in US$ of Alumina Limited $million interest rates and a devaluing US dollar. However, prices continue to face capping by high inventory levels, which have crept up Alumina Limited’s dividend received 256.4 281.0 from a ratio of approximately 10 weeks of consumption in early from AWAC $million 2001 to a closing level for 2002 of over 11 weeks. Net cash flow after tax and before 157.4 199.7 financing activities $million AWAC sells approximately 40 per cent of its alumina production to Alcoa’s primary metal group. The price paid for most of AWAC AWAC (100% basis) production is based on a weighted average of external AWAC Profit after tax (US$million) 374.9 363.6 sales. Most of the remaining production is sold by contract to third ( ) parties. Most of AWAC’s long-term contracts include terms with Alumina production ‘000 tonnes 12,440 12,310 pricing components linked to differing LME aluminium prices, Aluminium production (‘000 tonnes) 376 378 fixed prices and spot prices. Market assumptions Other significant events LME Aluminium (US$/lb) 0.61 0.61 US$/A$ 0.542 0.544 Prior to the company’s demerger, WMC conducted a feasibility exchange rate study to determine the viability of acquiring and developing a
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Aluminium Price 2000–2002 US$/tonne 2000
1500
LME 1000 Source: Alumina Limited Jul 2001 Jul 2002 Jul 2000 Jan 2001 Apr 2001 Oct 2001 Jan 2002 Apr 2002 Oct 2002 Jan 2000 Apr 2000 Oct 2000
Alumina refinery – Pinjarra
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Alumina Limited – Concise Annual Report 2002
SECTION – 4. Market Leader
‘A network of refineries across the globe, which enable AWAC to respond and cater to the needs of customers everywhere.’
AWAC is the market leader because it has the technology, A network of refineries across the globe, which enable AWAC systems, assets and management to drive operational excellence to respond and cater to the needs of customers everywhere. and meet its worldwide customer needs. Low-cost production, with the average alumina production cost Sources of competitive advantage position straddling the first- and second-lowest cost quartiles on a global basis. AWAC’s management is focused on further strengthening its position as number one alumina producer in the world. This Three of the world’s six lowest-cost refineries: Pinjarra, Wagerup involves identifying and continually evaluating AWAC’s sources and Kwinana. of competitive advantage. These sources include: Management that consistently delivers strong performance in Large long-life bauxite reserves that are sufficient to meet the safety, the environment, cost reduction, disciplined and profit- expected requirements of the alumina-refining operations for able growth, and return on capital. the foreseeable future. Technological leadership, with continued use of the world’s best available technology in order to increase capacity, reduce the cost of production and operate more efficiently in all stages of the production process.
Integrated operations, with significant synergies achieved through integration of bauxite, alumina and aluminium oper- ations. While the cost of purchase and transport of bauxite is a major factor for many producers, AWAC is able to take advantage of the proximity of ore source to much of its refining capacity.
As a global operation with mining, refining, smelting and chemical operations ranging across many cultures, AWAC encourages the cross-sharing of ideas and problem resolution to maximise returns.
AWAC is ungeared (with gross debt of US$50 million as at 31 December 2002 offset by cash of US$96 million at AWAC’s shipping business services both AWAC and third parties balance date).
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Pot room – Portland
Alumina Limited – 2002
Leading Alumina Producers Alumina Industry Estimated Cash Cost Curve
‘000 tonnes US$/tonne
15,000
12,000
9,000
6,000
3,000
0 aiser Alcan K AWAC Chalco Rio Tinto Glencore BHP Billiton 2002 world production Company production (kt/a) AWAC Position Source: Brook Hunt Source: Brook Hunt
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Alumina Limited – Concise Annual Report 2002
4. Market Leader
(CONTINUED)
Leaders in mining AWAC invests heavily in the future, with its bauxite mines having ABS is an integrated and effective process that embeds improved a life of up to 80 years. In mining bauxite, AWAC utilises the productivity, technology enhancement and capital intensity across latest technology and systems. For example, in 2002, AWAC used the business. It integrates the marketing of alumina to customers, world-first Fourier Transform Infra-Red (FTIR) Robotics technology operating efficiency, the application of technology and capital for the exploration drilling analyses of chemical properties. FTIR investment decisions. facilitates the sampling of large numbers of bauxite ore samples prior to mining. It provides a detailed profile of the ore body Leaders in safety and results in tighter mining practices which in turn lead to a AWAC is committed to leading the way in the area of workplace reduction in the flow of impurities into the refinery system. safety. AWAC’s safety management systems provide for continued At the Kwinana refinery, an eight-stage process of moving bauxite improvement in the identification, assessment and control of ore from the train into the refinery was reduced to five stages health and safety risks. with the acceptance of just-in-time principles and the utilisation In 2002, AWAC once again achieved further improvements in its of Alcoa Business System methodologies of standardised proc- safety results. For the year of 2002 the lost workday rate average esses, visual controls and binary communication. was 0.70 per million hours worked, down from 0.85 for 2001 and has halved since 1999. Elimination of injuries is always the goal. Leaders in refining One area that AWAC is targeting with particular vigour is AWAC’s refineries are among the largest and most efficient in ergonomic-related injuries. Ergonomic-related injuries, particularly the world. All AWAC refineries have received ISO9000 quality sprains and strains, comprise a major component of serious accreditation. injuries within AWAC’s worldwide interests. AWAC has developed a strategy aimed at reducing such injuries. The strategy includes Leaders in business systems education and training, risk identification, hazard analysis and Alcoa Business System control, managing work-related musculo-skeletal disorders, The key to AWAC’s efficiency, and the factor that most sets it record keeping and technology transfer. apart from its competitors, is the Alcoa Business System (ABS). An indication of AWAC’s commitment to safety in all its operations ABS has been designed to provide customers with exactly what is the fact that the Jamalco refinery had no recordable injuries they need, when they need it and at the lowest cost. To achieve for 2002. this lower cost, ABS provides a disciplined method of eliminating waste, in all forms, throughout the organisation.
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Alumina Limited – 2002
Stacker operator in standing area – Pinjarra Milling area – Pinjarra
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Alumina Limited – Concise Annual Report 2002
SECTION – 5. Growth and Strategy
‘These potential expansion opportunities exceed a total of three million tonnes of alumina capacity.’
AWAC’s growth is driven by a strategy of low-risk, high-return ups. Yet they can be expected to produce the same, if not better, brownfield expansion. This strategy allows AWAC to maintain its operating results. AWAC is currently expanding its operations at 25% share of global production capacity. the Jamalco refinery. Potential brownfield expansion opportunities exist at operations at Wagerup and Pinjarra, and in Suriname, AWAC is a significant global business with a history of strong profits and growth, delivered through a consistent business São Luis and a further expansion of Jamalco. These potential strategy. Key elements of the growth strategy are brownfield expansion opportunities exceed a total of three million tonnes expansion of existing operations and increasing capacity through of annual alumina capacity. This expansion capacity equates to operational improvements. approximately two years of recent growth in the global alumina market. Expansion of existing operations On 17 October 2002, AWAC announced that it had signed a Brownfield expansions typically require less than half the per unit letter of intent with BHP Billiton, its 45 per cent partner in a joint capital expenditure, and are of lower risk, than greenfield start- venture in Suriname, covering several issues, including:
Pinjarra refinery
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Continuation of mining and refining of bauxite in eastern Suriname beyond the existing term of the current joint venture agreement (2006). Preparation for an approximate 12 per cent expansion of operations at the Paranam refining facility, to capture operating- cost efficiencies. Investigation of bauxite mining and refining opportunities in western Suriname over the next two years. Separately, AWAC will explore the feasibility of establishing hydroelectric power opportunities in western Suriname that can be used for future development needs.
Incremental growth AWAC has successfully pursued a strategy of achieving increm- ental growth in refinery capacity. Basically, a small annual increase through each site can prove just as profitable, and far less costly than investing in greenfield operations. This growth is achieved by a combination of de-bottlenecking operations and improved efficiencies. De-bottlenecking involves optimising a process plant through minor capital expenditure and procedural change.
Acquisitions AWAC has the expertise, borrowing capacity and track record to acquire under-performing assets and improve their relative cost position and profitability. In late 2002, as forecast in the Demerger Scheme Booklet, Alumina Limited contributed A$24 million to AWAC for the acquisition of a further 6 per cent interest in Halco (a bauxite mining asset in Guinea), as well as A$48.6 million to AWAC for the acquisition of a further 5 per cent interest in MRN (a bauxite mining asset in Brazil). These purchases result from the Alcoa merger with Reynolds Metals and the subsequent transfer of Reynolds’ bauxite assets to AWAC.
Other growth opportunities A decision by Alcoa and Chalco to proceed with the 50/50 joint venture with respect to Chalco’s bauxite alumina and aluminium facilities at Pingguo in China may be formalised in the second half of 2003. Any decision by AWAC on the acquisition of the Pingguo bauxite and alumina assets is still to be made and is subject to a successful conclusion to negotiations on the joint venture. The Pingguo alumina refinery is being expanded in 2003 to a capacity of 850,000 tonnes per annum. Alcoa acquired a greenfield bauxite deposit in Juruti, Brazil in 2000 as a result of its merging with Reynolds in 2000. Alumina Limited and Alcoa continue to have discussions on the Juruti deposit. Pot room operator – Portland
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Alumina Limited – Concise Annual Report 2002
SECTION – 6. Creating and Delivering Value
‘An experienced management team who understand the environment within which they operate and how to achieve the goal of creating and delivering value.’
Independence gives Alumina Limited’s management the John Marlay BSc GAICD opportunity to focus on the AWAC business with one goal in joined WMC in August 2002, following mind: creating and delivering value to shareholders. Chief Executive Officer: a role as Head of Strategy for RMC Group PLC in London. Mr Marlay was previously Executive General Manager Business Senior management Integration, Hanson PLC from 2000 – 2001, and Executive The job of creating and delivering value to shareholders is in the General Manager, Europe for Pioneer International Ltd from hands of an experienced management team who understand 1997– 2000. He has held senior management roles with James the environment within which they operate and how to achieve Hardie Industries Limited and Esso Australia Ltd. the goal of creating and delivering value. The senior management team is: Robert Davies CMA, Canadian designation Chief Financial Officer: responsible for finance, accounting, treasury, investor relations and tax. Mr Davies was with WMC for over six years with his final position being General Manager – Treasury and Tax, also being responsible for investor relations and risk management. Mr Davies previously held the position of Treasurer at WMC and held various corporate and operations finance roles over a 20 year period with Utah International and then BHP in Canada, United States, Chile and Australia.
Stephen Foster BCom LLB(Hons) GdipAppFin – (Sec Inst) General Counsel & Company Secretary: responsible for legal, company secretarial, shareholder services, insurance and human resources, joined WMC Limited in November 2002, following more than three years with Village Roadshow Ltd as Business Affairs Manager (Projects). Mr Foster previously held legal positions with WMC’s Legal and Treasury departments from 1990 –1999 John Marlay Robert Davies Stephen Foster and with Arthur Robinson & Hedderwicks (now Allens Arthur Robinson) from 1987–1990.
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Alumina Limited representation in AWAC Alumina Limited – 2002 Alumina Limited has proportional representation on the Board of Directors of Alcoa of Australia and on the holding company for American operations. While Alumina Limited has the right to proportional representation on the board of directors of any AWAC entity, Alumina Limited generally only seeks representation Alumina – Strategic Partner on boards of entities whose revenue exceeds 25 per cent of the consolidated revenue of AWAC. Strategic Council Alumina Limited’s objectives are to seek to ensure: (Alcoa and Alumina) Strategy – Investments – Dividends the AWAC business continues to be managed as a world leader in safety and its leading market position produces strong dividends for shareholders AoA – AWALLC the development of a long-term strategy that results in growth (Alcoa and Alumina) in AWAC that provides the potential for capital growth in Governance – Performance shareholder equity in Alumina Limited the continuation of the close joint venture relationship with Alcoa AWAC Management shareholders are well informed on the value of AWAC and that this is reflected in the share price (Alcoa) Marketing – Operations the development of a range of options to facilitate the expansion of production to meet the growth in worldwide alumina demand. Alcoa Business System (ABS) AWAC Strategic Council The strategic direction and business of AWAC is managed by the Strategic Council, a five-member body, which is established under, and governed by, the AWAC Agreements. Three members are appointed by Alcoa, of whom one is Chairman, and two by Alumina Limited, of whom one is the Deputy Chairman. The role of the Strategic Council is to consider decisions relating to: the long-term strategy for AWAC the development, acquisition and disposal of assets funding and dividend policy capital, operating budgets and equity calls of AWAC companies.
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Alumina Limited – Concise Annual Report 2002
SECTION – 7. Corporate Governance
Alumina Limited is committed to protecting and enhancing In meeting their obligations relevant to their duties and respons- shareholder value and adopting benchmark governance ibilities as an Alumina Limited board member, directors may policies and practices. This includes ensuring that all regulatory seek independent professional advice at the company's expense, requirements are met and ethical standards maintained. We after consultation with the Chairman. manage resources responsibly, and seek to provide a high level of transparency in reporting to shareholders and stakeholders. Board changes
Alumina Limited and the Board Mr Don Morley, Mr Peter Hay, Mr Ronald McNeilly and Mr Mark Rayner were elected to take office as non-executive directors on The Board, working with senior management, is responsible to 11 December 2002 and Mr John Marlay was also elected to shareholders for our overall business performance. It approves take office as director and appointed Chief Executive Officer on company goals and direction, strategic plans, operating budgets 11 December 2002. Mr Robert Davies was appointed as alternate and performance targets. The Board ensures that appropriate director for Mr Mark Rayner on 11 December 2002. policies, procedures and systems are in place to manage risk, optimise business performance and maintain high standards of Chief Executive Officer ethical behaviour and legal compliance. Our most senior employee, the Chief Executive Officer, is selected Board composition by the Board and is subject to annual performance reviews by the non-executive directors. The Chief Executive Officer recom- The Alumina Board has five directors – four non-executive mends policy, strategic direction and business plans for Board directors, including the Chairman, and one executive director. approval and is responsible for managing day-to-day operations. The Board considers relevant experience, diverse perspectives and complementary business skills when nominating and Board and committee meetings appointing new directors. A balance is sought between indep- endent business experience and industry knowledge. Details of Board meetings are held monthly (except January) and on other each director’s skills and experience are set out on pages 44 occasions, as required. To increase business knowledge, it is and 45 of this report. intended that Board visits will be made to operational sites. Directors are subject to re-election by rotation at annual general The Audit Committee consists of four non-executive directors, meetings and retire at 72 years of age, as stipulated in the and meets at least four times a year. The committee assists the Corporations Act. There is no maximum term for directors and Board in fulfilling its responsibilities for company accounts and no share qualification. external financial reporting. This is achieved by ensuring that
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Conveyer belt storage area – Pinjarra
appropriate processes are in place to support the Board to The Compensation Committee also determines actual payments exercise due care, diligence and skill in relation to Alumina to all directors and reviews director remuneration annually based Limited’s reporting of financial information, applying accounting on independent external advice with regards to market practices, policies, financial management and internal financial control relativities, and the duties and accountabilities of directors. systems. The Committee operates under a charter, which is Ad hoc Board Committee meetings may be convened occasionally available to shareholders of the company on request. The Committee is responsible for the appointment and compensation to consider appropriate matters. of external auditors. It reviews the adequacy of audit programs Directors’ attendance at board and committee meetings is detailed conducted by independent external auditors annually, particularly on page 47 of this report. in relation to the scope and quality of the external audit. The Committee also annually reviews the internal audit function to The Nomination Committee consists of four non-executive ensure it is adequately resourced, used effectively and coordinated directors, and meets as necessary. Its role is to review the member- with the external auditors. The Committee also meets regularly ship of the Board, having regard to the present and future needs with management, and internal and external auditors, to ensure of the company and to make recommendations to the Board on that adequate controls and practices are in place. its composition. If a new director is required, the Committee is to identify for the Board potential candidates with the appropriate The Compensation Committee consists of four non-executive mix of skills and experience, with the assistance of external directors, and meets at least two times a year. Its role is to establish consultants as necessary or desirable. and review company remuneration and compensation plans, policies and practices, including remunerating non-executive Ethical standards directors, the Chief Executive Officer and senior executives, and succession planning. On behalf of the Board, the Committee The Alumina Limited Code of Conduct sets parameters for ethical considers remuneration strategy in relation to employees generally behaviour and business practices for directors, employees and with regard to community and industry standards and, where contractors. The Board reviews and updates the code (if necessary possible, verifies its appropriateness using external information or appropriate). The Board is also available to any employee for and advice to ensure that: guidance on ethical issues. employee interests are aligned to corporate objectives the company can attract, develop and retain motivated and talented employees the integrity of the company's reward program is maintained.
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Alumina Limited – Concise Annual Report 2002
Corporate Governance
(CONTINUED)
Share trading The Company has established a policy on the trading of its shares approved by the Chief Financial Officer. In addition, work invol- by its directors and employees. Directors and employees are ving fees between $50,000 and $250,000 also requires approval prohibited from engaging in short-term trading of any Alumina from the Chief Executive Officer and Audit Committee Chairman. Limited securities, or buying or selling Alumina Limited shares if For work where fees exceed $250,000, the proposed services must they possess unpublished price-sensitive information. In addition, be put to a competitive tender with a requirement for the Chief directors and senior management must not buy or sell Alumina Financial Officer, Chief Executive Officer and Audit Committee Limited shares in the period between the end of the half or full Chairman to approve inclusion of PricewaterhouseCoopers in financial year and the release of those results. Directors and senior the tender list. Any such work undertaken by Pricewaterhouse- management must also receive approval from the Chairman, Coopers must also be reported to the next Audit Committee Chief Executive Officer or Company Secretary before buying or meeting. During 2002, we paid PricewaterhouseCoopers selling company shares. $704,000 to audit the parent entity and controlled entities; and $4,412,000 for other services, primarily for work on the WMC Disclosure demerger and taxation issues. The PricewaterhouseCoopers partner responsible for the Company’s audit has recently been The company has in place comprehensive policies and procedures rotated and there will be periodic rotation of the audit partner. for the purposes of compliance with its continuous and periodic disclosure obligations under the Corporations Act, and the ASX Managing business risk Listing Rules, including a Continuous Disclosure Policy. Our risk management policy and procedures cover safety, health, The Board also recognises its disclosure obligations under the environment, property, financial reporting and internal control. Corporations Act and the Australian Stock Exchange and New York Stock Exchange Listing rules and has comprehensive policies Our internal audit plan is being developed with particular and procedures in place to meet these obligations. The Company emphasis on financial reporting and internal controls. Secretary has primary responsibility for meeting stock exchange disclosure requirements. Managing financial exposures The Board's objective for managing financial exposure is to Conflicts of interest preserve the value to shareholders of their direct interest in Alumina Limited’s directors are required to disclose to the Board AWAC and the financial results of the AWAC business. Our details of transactions that may create a conflict of interest. policy is to not hedge price risk exposures. Directors do not participate in Board discussions or vote on matters in which they have a material personal interest. The Political donations Board has in place procedures to assist directors in meeting We have previously donated to political parties having regard to their obligations to disclose potential conflicts of interest. policies that impact on our company and shareholders. No Any work undertaken by the external auditors, Pricewaterhouse- political donations were made during 2002. In future, donations Coopers, that does not directly relate to auditing, must be will not be made by the company to political parties.
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Alumina Limited – 2002
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Alumina Limited – Concise Annual Report 2002
Corporate Governance
(CONTINUED)
Don Morley Peter Hay Ronald McNeilly Mark Rayner
Board of directors Company directors in office at 31 December 2002 were: Mr Ronald J McNeilly BCom MBA FCPA FAICD Director: Elected as director (non-executive) of Alumina Limited Mr Don Morley BSc MBA FAuslMM effective on 11 December, 2002. Deputy Chairman BHP Steel Limited; Executive Director Global Markets BHP Billiton Limited Chair: Elected as director (non-executive) and appointed from 2001–2002; Executive Director and President of BHP Chairman of Alumina Limited effective on 11 December, 2002. Minerals from 1999– 2001; Chairman of Ausmelt Limited; Director of WMC as the Director of Finance from 1983 until Director of GH Michell Holdings Pty Ltd; Deputy Chairman of April 2001, Chief Financial Officer from April 2001– April 2002 Worley Limited; Chairman of Melbourne Business School Limited; and an Executive Officer of WMC from May 2002–October Past Director of BHP Billiton Limited, QCT Resources Limited and 2002. Mr Morley retired from his executive duties with WMC Tubemakers of Australia Limited. Mr McNeilly is a member on 31 October 2002. Mr Morley is also a director of Iluka of the Audit Committee and Chair of the Compensation and Resources Ltd. Mr Morley is a member of the Audit Committee, Nomination Committees. Compensation Committee and the Nomination Committee.
Mr Mark R Rayner BSc (Hons) ChemEng FTSE FAusIMM FIEA FAICD Mr Peter A F Hay LLB Director: Elected as director (non-executive) of Alumina Limited Director: Elected as director (non-executive) of Alumina Limited effective on 11 December, 2002. Director of Pasminco Limited effective on 11 December, 2002. Chief Executive Officer and since 1989 and Chairman since 1992; Director of Mayne Nickless member of the board, and former National Executive Chairman, Limited from 1995–2002 and Chairman from 1997–2002; of the national law firm Freehills; Director of Pacifica Group Director of Boral Ltd since February 1996; Director of National Limited; and former Chairman of the Board of Freehill Hollingdale Australia Bank Limited from 1985–2001 and Chairman from & Page, Melbourne. Mr Hay is a member of the Audit Committee, 1997– 2001. Mr Rayner is a member of the Nomination Commit- Compensation Committee and the Nomination Committee. tee, Compensation Committee and Chair of the Audit Committee.
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Andrew G Michelmore BEng(Chem) MA(Oxon) FIEAust FIEChemE A director since August 2002 until his resignation on 11 December 2002.
Tommie C-E Bergman DipEng DipMktg FAIM FAICD A non-executive director since January 2001 until his resignation on 11 December 2002.
Professor Adrienne E Clarke AO PhD FAA FTSE A non-executive director since July 1996 until her resignation on 11 December 2002.
Peter J Knight CitWA BEHon FlEAust CPEng FTSE FAICD FAIM A non-executive director since August 1997 until his resignation on 11 December 2002.
M John Phillips AM BEc FCPA FAIB A non-executive director since July 1996 until his resignation on 18 June 2002.
Roger A G Vines CitWA BE HonDSc FAIM FAuslMM FTSE John Marlay A non-executive director since February 1999 until his resignation on 11 December 2002.
Ian E Webber AO FTSE FCIT FAIM A non-executive director since June 1997 until his resignation on Mr John Marlay BSc GAICD 11 December 2002. Chief Executive Officer: Elected to take office as director and David E Meiklejohn BCom DipEd FCPA FAIM FAICD appointed Chief Executive Officer on 11 December, 2002. Joined WMC in August 2002, following role as Head of Strategy A non-executive director since April 2002 until his resignation for RMC Group PLC in London. Mr Marlay was previously on 11 December 2002. Executive General Manager Business Integration, Hanson PLC from 2000–2001. He has held senior management roles with Mr John Phillips, a non-executive director since 1996, retired on Pioneer International Ltd, James Hardie Industries Limited and 18 June 2002, and accordingly, the appointment of Mr Donald Esso Australia Ltd. Morley as an alternate director for Mr Phillips also ceased on that date. Mr Morley was subsequently appointed as alternate Former WMC directors director for Mr Tommie Bergman on 11 July 2002. Mr Morley resigned as alternate director on 4 September 2002. The directors of WMC Ltd (as Alumina Limited was formerly known before the demerger) resigned as directors on 11December 2002.
lan G R Burgess AO BSc FTSE HonDSc A non-executive director since 1993 and Chairman since April 1999 until his resignation on 11 December 2002.
Hugh M Morgan AC LLB BCom FCPA FTSE FAusIMM FAIM ComplEAust A director since 1976 and Chief Executive Officer since December 1990 until his resignation on 11 December 2002.
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currently 9 per cent of their fees and will not receive any other Alumina Limited – Concise Annual Report 2002 retirement benefits.
Executive director and senior executive remuneration Prior to demerger Prior to demerger, long-term performance incentives were based on option plans established under the WMC Employee Share Corporate Governance Scheme which usually allotted five-year options annually. All share (CONTINUED) allotments to executive directors were subject to shareholder approval. On 13 August 2002, WMC announced its decision to suspend future option allotments to senior management under the WMC Employee Share Scheme.
Remuneration After demerger In February 2003, a share plan for employees was introduced. Non-executive director fees The plan provides reward for employees based on Alumina Prior to demerger Limited’s performance against two peer indices. Actual rewards Total remuneration for non-executive directors is determined by depend upon the performance of Alumina Limited exceeding resolution of shareholders. The maximum aggregate remuner- the performance of a percentage of companies in an index ation approved for directors is currently $950,000. During 2002, on a total shareholder return basis. All rewards for employees $852,422 was paid. through this plan are directed to purchasing Alumina Limited’s shares, with executive officers required to hold shares equivalent After demerger in value to 0.5 times their salary. These Alumina Limited shares The compensation committee determines actual payments to may only be released to executives once the multiple is exceeded directors and reviews director remuneration annually based on and then only those shares over the multiple. The total gross cost independent external advice with regards to market practices, (pre tax) of the Share Plan in 2003 is expected to be approximately relativities, and the duties and accountabilities of directors. $460,000, assuming all shares granted vest to employees. The remuneration for each non-executive Alumina Limited director Alumina Limited executives receive competitive remuneration is $85,000 per annum. The remuneration for the Chairman, Mr packages, which include a fixed annual salary, inclusive of Morley, is $212,500. It is intended that non executive directors superannuation benefits, a variable short-term incentive which is will have the capacity to direct part of their fees towards the performance related, and annual long-term incentive taking the purchase of shares in Alumina Limited. Directors do not receive form of participation in the Alumina Employee Share Plan, any payment for participation in Board Committees. which is based on achieving long-term goals for shareholder return with mechanisms to ensure ongoing significant holdings Non-executive director retirement benefits of Alumina Limited shares. The cost and value of overall remun- Prior to demerger eration components are considered as a whole and are designed Non-executive directors with more than five years service were to ensure an appropriate balance between fixed and variable previously entitled to retirement benefits equalling the total fees performance-related components, in the short- and long-term. paid in the three years before retirement. Directors with three to The Alumina Limited Compensation Committee reviews these five years service previously received pro rata benefits. Non- executive remuneration packages and other employment terms executive directors also received the 9 per cent superannuation annually. This review is based on performance goals set at the levy. Mr M John Phillips retired during the year and received an start of the year, relevant market information and independent additional retirement benefit for his services with the company expert advice. based on the above calculation. Alumina Limited’s variable remuneration is based on achieve- After demerger ment of key performance indicators applicable to the individual Non-executive directors will receive a superannuation guar- and the company. Rewards to executives are linked to creating antee contribution, required by government regulation, which is value for shareholders.
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Stacker service personnel in standing area – Pinjarra
Alumina Limited Directors’ Attendance At Meetings January To December 2002
Board Board Audit Compensation Board of WMC meeting committee committee committee Superannuation meetings meetings meetings Fund Pty Ltd
Directors Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended to attend to attend to attend to attend to attend
T C-E Bergman 16 14 – – – – 5 4 – – I G R Burgess 16 16 – – – – 5 5 – – A E Clarke 16 13 – – 4 4 – – – – P A F Hay 1 1 – – – – 1 1 – – P J Knight 16 15 – – 4 4 – – – – J Marlay 1 1 – – – – – – – – D E Meiklejohn 13 13 – – 4 4 – – – – A G Michelmore 7 7 3 3 – – – – – – R J McNeilly 1 1 – – – – 1 1 – – H M Morgan 16 16 5 5 – – – – – – D M Morley 4 4 2 2 – – 1 1 – – M J Phillips 6 5 – – 1 1 – – – – M R Rayner 1 1 – – – – 1 1 – – I E Webber 16 14 – – – – 5 4 – – R Woodall 3 3 – – – – – – – – R A G Vines 16 16 – – – – 5 4 – –
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Alumina Limited – Concise Annual Report 2002
Corporate Governance
(CONTINUED)
Chief Executive Officer contract arrangement to review and board approval. Under the terms of his contract, Mr John Marlay was appointed Chief Executive Officer of Alumina certain relocation costs are also payable to Mr John Marlay. Limited on 11 December 2002. His contract is for 3 years on an WMC Resources annual salary of $700,000 in 2003 with an annual performance- based short-term incentive and a performance-based award of The tables of director and executive remuneration includes Alumina Limited shares under the long-term incentive. Both of information in respect of former directors of the company (who these performance-based benefits which have a combined max- were also directors of WMC Resources Ltd) and also executives imum payout of 100 per cent of fixed annual reward are assessed of WMC Resources Ltd for an 11 month period. This information against individual and company performance and will be subject is also available in the Annual Report of WMC Resources Ltd.
Directors’ interests as at 31 December 2002, directors interests’ in company shares were:
Director D M Morley P A F Hay M R Rayner 2002 2001 2002 2001 2002 2001 Fully paid shares 310,492 74,492 1,200 – 10,000 –
Partly paid shares Issue price Call on or before 1987 share issue $5.82 21 December 2002 – 66,000–––– 1988 share issue $4.98 25 November 2002 – 45,000–––– Total partly paid shares – 111,000 ––––
Options Issue price Expiry date 1997 option issue $2.90 22 December 2002 – 125,000–––– 1998 $2.88 21 December 2003 125,000 125,000–––– 1999 $4.52 20 December 2004 150,000 150,000–––– 2000 $4.04 18 December 2005 120,000 120,000–––– Total options issued 395,000 520,000––––
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Remuneration information Executive director and senior executive remuneration accrued and payable for year ended 31 December 2002
Fixed Other Total Option Exercise Date of Remuneration Compensation Remuneration Grant Price First $1 $2 $(Number)3 $4 Exercise
Current executive directors John Marlay, Chief Executive Officer, Alumina Limited (from 11/12/02) 5 259,848 127,624 387,472 0 n/a n/a
Current senior executives Robert Davies, Chief Financial Officer 6 340,200 435,624 775,824 0 n/a n/a
Stephen Foster, General Counsel and Company Secretary (from 11/12/02) 7 40,238 10 40,248 0 n/a n/a
Former executive directors 8 Hugh Morgan, Chief Executive Officer (until 11/12/2002) 1,510,353 7,282,448 8,792,801 400,000 9.35 30/11/02
Andrew Michelmore, EGM - Business Strategy & Development (until 11/12/02) 9 650,833 1,125,322 1,776,155 150,000 9.35 30/11/02 Donald Morley, Chief Financial Officer/Executive Officer 10 717,635 3,441,896 4,159,532 250,000 9.35 30/11/02
Former senior executives Bruce Brook, EGM - Finance/Chief Financial Officer (from 18/3/02 until 11/12/02) 11 443,386 787,577 1,230,963 150,000 9.35 30/11/02
Alan Dundas, EGM - Operations (until 11/12/02) 618,750 839,322 1,458,072 150,000 9.35 30/11/02
Greg Travers, EGM - Group Services (until 11/12/02) 482,625 873,239 1,355,864 150,000 9.35 30/11/02
John Parry, EGM - Exploration (until 31/1/02) 72,174 272,25812 344,432 n/a n/a n/a
1. Includes superannuation. Mr Morgan, as a member of the defined benefit category of 5. Although Mr Marlay was elected as a director, and appointed as Chief Executive the WMC Superannuation Plan (Plan), had a notional surchargeable contribution Officer, with effect only from 11 December 2002 in connection with the demerger, certain included in his fixed remuneration. Those members of the accumulation category of the emoluments accrued from the date of his selection as director and Chief Executive Plan have a 20 per cent superannuation allowance included in their fixed remuneration. Officer-elect in August 2002, and were paid accordingly. 2. Other Compensation includes incentive, retention and attraction payments consistent 6. Mr Davies was appointed as Chief Financial Officer of the Company on 11 December with contractual entitlements, relocation allowances, parking, telephone, health man- 2002 in connection with the demerger. Prior to that, Mr Davies served as General agement, executive indemnity insurance and personal financial planning advice. Manager – Treasury & Tax of the Company. Details of the emoluments received by Mr Short-term incentive bonuses and share plan purchases for 2002 are included. Davies in both capacities are set out in the table. On 11 December 2002, Mr Davies was also appointed as an alternate director of the Company for Mark R Rayner. 3. Options convey the right to buy WMC Limited ordinary shares at the exercise price specified. These options cannot be exercised for 12 months following the date of 7. Although Mr Foster was appointed as General Counsel and Company Secretary with allotment, after which the exercise of options by executive directors and senior directors effect only from 11 December 2002 in connection with the demerger, certain emoluments is subject to company performance hurdles and employee trading policies, including accrued from November 2002. specified embargo periods. These options lapse five years from the allotment date. 8. Each former executive director (other than Mr Morley) and each other former executive Executive General Managers received options on equivalent terms to the 2001 Option officer resigned from office in connection with the demerger. plan in May 2002. Messers Morley and Morgan received allocations under the Stock Appreciation Plan which emulates the Option plan. 9. Mr Michelmore was appointed as a director on 13 August 2002. The options and stock appreciation grants relate to the 2001 option allotment held over 10. See note 3 to the table ‘Non-executive director remuneration’ for a description of Mr from December 2001 due to market speculation at that time. Morley’s service with the Company. This table describes the emoluments received prior to the Demerger by Mr Morley as an executive of the Company. Details of the emoluments Features of the scheme mean that there is no simple, single method of valuing the received by Mr Morley in has capcity as a non-executive director of the Company options. As ASIC guidelines require a valuation, WMC has applied a range of valuation (ie from 1 December 2002) are set out in the table on page 50 ('Non-executive director models resulting in values varying from $1.21 to $4.00. Models used include: Income remuneration'). Tax Assessment Act 1936 s139; Black Scholes; Binominal lattice option pricing; and Bloomberg. In accordance with Unitied States of America Accounting Principles Board 11. Mr Brook was appointed as EGM – Finance on 18 March 2002, and as Chief Financial Opinion No.25, the company does not recognise a compensation cost for share options Officer on 7 June 2002 because the exercise price equals the market price on the date of grant. 12. Other compensation for Messrs Morgan, Morley and Parry includes any annual variable bonus, and retirement payments, including statutory entitlements and contractual 4. The exercise price provided relates to the WMC Limited Share. Post-demerger, the exercise price has been split to reflect the change into two companies with the total exercise payments. price remaining at $9.35. 13. For former executive directors and executives, a proportionate amount of remuneration has been included up to 30 November 2002.
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Alumina Limited – Concise Annual Report 2002
Superannuation Alumina Limited has established the Alumina Superannuation Plan, which is an accumulation plan. Corporate Governance Superannuation entitlements are provided via a master trust, (CONTINUED) which provides employees with increased flexibility and control over their entitlements.
Non-executive directors remuneration accrued and payable for the year ended 31 December 2002
Director's fee 1 Other 2 Total
Current non-executive directors Don Morley 3 17,708 1,604 19,312 Peter Hay (from 11/12/02) 7,083 610 7,694 Ronald McNeilly (from 11/12/02) 7,083 610 7,694 Mark Rayner (from 11/12/02) 7,083 610 7,694
Former non-executive directors 4 Ian Burgess (until 11/12/02) 213,568 18,161 231,730 Tommie Bergman (until 11/12/02) 130,464 11,217 141,681 Adrienne Clarke (until 11/12/02) 76,083 6,546 82,629 Peter Knight (until 11/12/02) 76,083 6,720 82,803 David Meiklejohn (until 11/12/02) 53,657 4,777 58,434 M John Phillips (until 18/6/02) 38,267 232,239 5 270,506 Roger Vines (until 11/12/02) 76,083 6,633 82,716 Ian Webber (until 11/12/02) 81,583 7,011 88,594 784,747 296,739 1,081,487
1. Includes director's and committee fees 2002. On 3 July 2002, Mr Morley was appointed as an alternate director for Tommie C-E Bergman. He resigned from that position on 4 September 2002. This 2. Includes superannuation and executive indemnity insurance table describes the emoluments received by Mr Morley in his capacity as a non- 3. Mr Morley was elected as a non-executive director with effect from 11 December executive director of the Company (ie from 11 December 2002). Details of the 2002 in connection with the Demerger. Prior to that, Mr Morley served as Chief emoluments received previously by Mr Morley as an executive of the Company are Financial Officer until 7 June 2002, and as an Executive Officer until 31 October set out in the table Executive director and senior executive remuneration. 2002, at which time he retired from his executive duties. Mr Morley was an executive director of the Company until 11 April 2001, when he resigned. 4. Each former non-executive director (other than Mr Phillips, who retired in June Immediately thereafter he was appointed as an alternate director for M John 2002) resigned as a director upon implementation of the Demerger. Phillips, and ceased acting in that capacity upon Mr Phillips’ retirement on 18 June 5. Mr Phillips received a payment of $229,064 following his retirement in June 2002
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Alumina Limited – 2002
Shareholder Information
(CONTINUED)
Shareholders Share enquiries Alumina Limited has more than 104,000 shareholders, with the Investors seeking information about their Alumina Limited share- 20 largest holding 72.35 per cent of the 1.12 billion shares on holding or dividends should contact Computershare Investor issue. Some 94.84 per cent of these shareholders have registered Services Pty Limited: addresses in Australia. A more detailed analysis of our share- Mail to GPO Box 2975, Melbourne, Victoria 3001, Australia holders is available in the full financial report, available on request, or on our website (www.aluminalimited.com). Our shares Telephone +61 (0) 3 9615 5970 are listed on the Australian and New York stock exchanges. or 1300 556 050 for callers within Australia Facsimile +61 (0) 3 9611 5710 Shareholder communication Email to [email protected] We place considerable importance on timely and effective When seeking information, shareholders must provide their communication with our shareholders and the market. Shareholder Reference Number or Holder Identification Number, The company uses internet-based information systems to improve which is recorded on their shareholding statements. communication with our shareholders and the investment comm- unity. Examples include posting company announcements on our American Depositary Receipts website, usually within an hour of lodgement with the Australian Alumina Limited shares are traded on the New York Stock Stock Exchange, and web-casting our financial presentations Exchange as American Depositary Receipts (ADRs). This facility and briefings. Shareholders may elect to receive company reports enables American investors to conveniently hold and trade by mail or email. Alumina Limited securities. Each ADR represents four Alumina Limited shares. Investors seeking information on our ADRs Dividends should contact our depositary, the Bank of New York, telephone The Board determines dividends paid to shareholders, based on +1 (212) 815 2293, facsimile +1 (212) 571 3050, or visit the our performance and current business conditions. Prior to the bank’s website (www.bnyadr.com). demerger, WMC generally paid between 50 and 60 per cent of profit after tax, before abnormal items, to shareholders as dividends, franked to the greatest possible extent. Alumina Limited’s intention is, to the extent practicable, to fully distribute to shareholders all fully franked dividends received by Alumina Limited from AWAC.
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Alumina Limited – Concise Annual Report 2002
SECTION – 8. Directors’ Report
The financial statements and specific disclosures included in this The following directors were appointed on 11 December concise financial report have been derived from the full financial 2002 and have held office until the date of this report: report. The concise financial report cannot be expected to provide as full an understanding of the financial performance, D M Morley (Chairman) financial position and financing and investing activities of the J Marlay (Chief Executive Officer) entity as the full financial report. Refer Note 9. P A F Hay The Directors present their report for the financial year ended R J McNeilly 31 December 2002 on the consolidated entity consisting of M R Rayner (Alternate R D J Davies) Alumina Limited (‘the company’) and the entities it controlled during or at the end of the financial year (the ‘group’). (b) Particulars of the qualifications, experience and special res- ponsibilities of each director are set out on pages 44 and 45. Directors (c) Particulars of the numbers of meetings of the company’s (a) The names of each person holding the position of director directors (including meetings of committees of directors) of the parent entity during the financial year are: and the number of meetings attended by each director, are The following directors were in office from 1 January 2002 detailed on page 47. until 11 December 2002, or as indicated: (d) Particulars of shares held by the directors of the company in I G R Burgess AO (Chairman) the company or in any related body corporate as at the date H M Morgan AC (Chief Executive Officer) of this report are set out on page 48. A G Michelmore (Director from 13 August 2002) D E Meiklejohn (Director from 19 April 2002) Remuneration of directors and executives T C-E Bergman (Alternate D M Morley from 3 July (e) The policy and basis for the remuneration of directors and 2002 to 4 September 2002) senior executives is set by the board’s compensation A E Clarke AO committee. Refer to Section 7 Corporate Governance on P J Knight page 46. M J Phillips AM (retired on 18 June 2002; Alternate D M Morley to 18 June 2002) Insurance of officers R A G Vines (f) During or since the end of the financial year, the group has I E Webber AO paid part of the premiums in respect of a contract to insure
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directors and officers of the group against liabilities incurred retained the alumina assets (the 40% interest in the AWAC in the performance of their duties on behalf of the group. joint venture) and changed its name to ‘Alumina Limited’. WMC Resources Ltd now holds all of the non-alumina assets The officers of the group covered by the insurance policy (i.e. nickel, copper/uranium and fertilizer businesses, and include any natural person acting in the course of duties for exploration and development interests, including the finance the group who is or was a director, secretary or executive companies holding assets and liabilities relating to those officer as well as senior and executive staff. The company is operations). To effect the demerger, Alumina Limited, on 2 prohibited, under the terms of the insurance contract, from December 2002, distributed to its shareholders all of its disclosing details of the nature of liability insured against interest in WMC Resources Ltd through a Scheme of Arrange- and the amount of the premium. ment and capital reduction and dividend. Dividends (l) The sale of St Ives and Agnew gold royalty rights with book value of $29.6 million. Proceeds from the sale were $45.0 Details of the dividends paid during the financial year are (g) million, producing an after-tax profit of $15.4 million. referred to in Note 6. (m) The sale of the Long/Victor nickel mines at Kambalda with Principal activities a book value and associated costs of sale of $2 million. Proceeds from the sale were $14 million, producing an (h) The principal activities of the group relate to its 40% interest after-tax profit of $9.4 million. (39.25% in Alcoa of Australia Ltd) in the series of operating entities forming Alcoa World Alumina and Chemicals (n) Central Norseman Gold Corporation Ltd was sold during (‘AWAC’). AWAC has interests in bauxite mining, alumina the year with a book value and associated cost with the sale refining, alumina-based chemicals and two operating of $8.4 million. Proceeds from the sale were $33.5 million, aluminium smelters. During the year the company disposed producing an after-tax profit of $25.1 million. of its interest in WMC Resources Ltd and the entities acquired by WMC Resources Ltd as part of the demerger. Events after the end of the year (o) In January 2003, AWAC announced that it conducted a Review of operations and results portfolio review of its businesses and the market they serve (i) The financial results for Alumina Limited include the twelve and decided to divest its specialty chemicals business. The months results of AWAC and associated corporate activities assets are expected to be sold at full value which will result and eleven months (prior to the demerger) results of the in no significant losses for the group. There would be no activities of WMC Resources Ltd, and the entities sold to material impact on future earnings of the group as a result WMC Resources Ltd as part of the demerger. of the sale. The financial effect of this event has not been recognised during the year ended 31 December 2002. (j) The Group’s net profit attributable to members of Alumina Limited was $174.5 million (2001: $401.7 million). The At the date of this report no further matters or circumstances Group’s net profit attributable to members of Alumina Limited have arisen since 31 December 2002 which significantly from continuing operations (AWAC and associated corporate affected or may significantly affect: activities) was $209.7 million (2001: $281.4 million). (i) the operations of the group; or For further information on the operations of the group (ii) the results of those operations; or during the financial year and the results of these operations, (iii) the state of affairs of the group in future years. refer to section 3 of this concise annual report set out on pages 26 to 31. Likely developments In the opinion of the directors it would prejudice the interests Significant changes in the state of affairs (p) of the group to provide additional information, except as (k) The demerger of WMC Limited into two separate ASX listed reported in this Directors’ Report, relating to likely develop- entities, Alumina Limited and WMC Resources Ltd, was imp- ments in the operations of the group and expected results of lemented in December 2002, with an accounting effective those operations in the financial years subsequent to the date of 30 November 2002. As a result, Alumina Limited financial year ended 31 December 2002.
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can be exercised in any year. If a request to exercise options Alumina Limited – Concise Annual Report 2002 has not been made to the company within five years of the allotment date, the options will lapse. Details of Alumina Limited ordinary shares issued following the exercise of options and paying up of partly paid shares under the terms of the WMC Employee Share Scheme are as follows: Directors’ Report
(CONTINUED) No of partly Issue Number Issue paid shares price of options price paid up exercised During the financial year 629,000 Various 4,802,490 Various Environment Since the balance date – – 253,800 Various (q) 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, The shares resulting from paying up the partly paid shares, waste emission and disposal, environmental impact assess- and exercise of the options mentioned above, are fully paid. ments, mine rehabilitation, and access to and use of ground All partly paid shares were converted to fully paid shares water. In particular, most operations are required to be during the year. licensed to conduct certain activities under the environ- mental protection legislation of the state in which they Rounding of amounts operate, and such licenses include requirements specific to (s) The company is of a kind referred to in the Australian Secur- the subject site. ities and Investments Commission Class Order 98/0100. Amounts shown in the concise financial report and this Outstanding options issued under the WMC Directors’ Report have been rounded off to the nearest Employee Share Scheme hundred thousand dollars, except where otherwise required, (r) Options over Alumina Limited ordinary shares issued under in accordance with that Class Order. the WMC Employee Share Scheme at the date of this report This report is made in accordance with a resolution of the are: directors.
Allotment date Number Exercise Expiry price date 21 Dec 1998 1,262,020 $2.62 21 Dec 2003 20 Dec 1999 3,704,600 $4.52 20 Dec 2004 18 Dec 2000 5,779,000 $4.04 18 Dec 2005
30 Nov 2001 9,854,700 $5.02 30 Nov 2006 Donald M Morley 7 May 2002 600,000 $5.02 30 Nov 2006 Chairman
Total 21,200,320
The majority of these options are held by WMC Resources Ltd employees. The above options are exercisable by the employee after one year from the date of allotment, at the issue price. Restrictions John Marlay exist for certain employees on the number of options which Chief Executive Officer 26 February 2003
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Independent audit report to the members of Alumina Limited FOR THE YEAR ENDED 31 DECEMBER 2002
Alumina Limited and controlled entities
Audit opinion In our opinion, the concise financial report of Alumina Limited selecting and examining evidence, on a test basis, as for the year ended 31 December 2002, set out on pages 56 required by auditing standards, to support amounts, to 67 complies with Australian Accounting Standard AASB discussion and analysis, and other disclosures in the 1039: Concise Financial Reports. concise financial report which were not directly derived from the full financial report. We did not examine every This opinion must be read in conjunction with the following item of available evidence explanation of the scope and summary of our role as auditor. reviewing the overall presentation of information in the Scope and summary of our role concise financial report.
The concise financial report – responsibility Our audit opinion was formed on the basis of these and content procedures. The preparation and content of the concise financial report Independence for the year ended 31 December 2002 are the responsibility of the directors of Alumina Limited (the Company). As auditor, we are required to be independent of the Company and its controlled entities and free of interests which could The auditor’s role and work be incompatible with integrity and objectivity. In respect of this engagement, we followed the independence require- We conducted an independent audit of the concise financial ments set out by The Institute of Chartered Accountants in report in order to express an opinion on it to the members Australia, the Corporations Act 2001 and the Auditing and of the Company. Our role was to conduct the audit in Assurance Standards Board. accordance with Australian Auditing Standards to provide reasonable assurance as to whether the concise financial In addition to our statutory audit work, we were engaged to report is free of material misstatement. undertake other services for the Company and its controlled entities. In our opinion the provision of these services has We have also performed an independent audit of the full not impaired our independence. financial report of the Company for the financial year ended 31 December 2002. Our audit report on the full financial report was signed on 26 February 2003, and was not subject to any qualification. Our audit did not involve an analysis of the prudence of business decisions made by the directors or management. In conducting the audit of the concise financial report, we carried out a number of procedures to assess whether in all PricewaterhouseCoopers material respects the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. The procedures included: testing that the information included in the concise financial report is consistent with the information in the Tim Goldsmith Melbourne full financial report Partner 26 February 2003
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Consolidated Statements of Financial Performance FOR THE YEAR ENDED 31 DECEMBER 2002
Consolidated Alumina Limited and controlled entities Millions of dollars
Continuing Discontinuing operations operations Total Notes 2002 2001 2002 2001 2002 2001
Sales revenues – – 2,220.9 2,816.9 2,220.9 2,816.9 Proceeds from sale of assets other than goods – 12.1 101.0 673.8 101.0 685.9 Other revenue from outside the operating activities 1.3 2.8 186.3 190.6 187.6 193.4
Revenue from ordinary activities 1.3 14.9 2,508.2 3,681.3 2,509.5 3,696.2
Cost of goods sold – – (1,650.9) (2,232.4) (1,650.9) (2,232.4) Selling and distribution – – (143.7) (165.8) (143.7) (165.8) General and administrative (6.3) (3.4) (327.5) (237.9) (333.8) (241.3) Exploration and evaluation – – (34.3) (95.1) (34.3) (95.1) Other expenses from ordinary activities (1.3) (10.4) (272.0) (607.5) (273.3) (617.9) Borrowing costs (0.6) – (140.0) (295.2) (140.6) (295.2) Share of net profits of associates accounted for using the equity method 216.3 279.1 – – 216.3 279.1
Profit/(loss) from ordinary activities before income tax 209.4 280.2 (60.2) 47.4 149.2 327.6 Income tax credit 0.3 1.2 24.3 75.1 24.6 76.3
Net profit/(loss) 209.7 281.4 (35.9) 122.5 173.8 403.9 Net profit/(loss) attributable to outside equity interest – – 0.7 (2.2) 0.7 (2.2)
Net profit/(loss) attributable to members of Alumina Limited 209.7 281.4 (35.2) 120.3 174.5 401.7
Net exchange differences on translation of financial reports of self sustaining foreign operations (42.9) 71.4 48.9 (42.8) 6.0 28.6 Equity share of movements in reserves of associates 29.4 (8.8) – – 29.4 (8.8)
Total revenues, expenses and valuation adjustments attributable to members of Alumina Limited and recognised directly in equity (13.5) 62.6 48.9 (42.8) 35.4 19.8
Total changes in equity other than from those resulting from transactions with owners as owners 196.2 344.0 13.7 77.5 209.9 421.5
Basic earnings per share 5 15.7c 36.4c Diluted earnings per share 5 15.6c 36.3c Dividends per share 6 18.0c 29.0c Special dividend per share 6 73.0c –
The above consolidated statement of financial performance should be read in conjunction with the accompanying notes, and Section 3 set out on pages 26 to 31.
The financial statements and specific disclosures included in this concise financial report have been derived from the Alumina Limited Annual Report 2002 – Financial Report. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position, and financing and investing activities of the entity of the financial report. Refer Note 9 for further details.
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Consolidated Statements of Financial Position AS AT 31 DECEMBER 2002
Consolidated Alumina Limited and controlled entities Millions of dollars 2002 2001
CURRENT ASSETS Cash assets 23.2 214.4 Receivables 2.3 496.0 Other financial assets –20.1 Inventories – 410.2 Other 0.9 230.5 Total current assets 26.4 1,371.2 NON-CURRENT ASSETS Receivables – 481.4 Investments in associates 1,668.7 1,675.6 Other financial assets –21.7 Inventories –82.4 Exploration and evaluation –64.5 Property, plant and equipment – 4,775.3 Deferred tax assets – 303.7 Other – 1,236.5 Total non-current assets 1,668.7 8,641.1 TOTAL ASSETS 1,695.1 10,012.3 CURRENT LIABILITIES Payables 2.6 856.4 Interest-bearing liabilities 534.8 584.3 Current tax liabilities 1.7 7.7 Provisions 0.1 220.7 Other –13.2 Total current liabilities 539.2 1,682.3 NON-CURRENT LIABILITIES Payables – 1,197.7 Interest-bearing liabilities – 1,737.7 Deferred tax liabilities 2.2 434.9 Provisions 0.2 97.0 Other – 9.3 Total non-current liabilities 2.4 3,476.6 TOTAL LIABILITIES 541.6 5,158.9 NET ASSETS 1,153.5 4,853.4 EQUITY Parent entity interest: Contributed equity 220.2 3,190.9 Reserves: – group 102.6 129.9 – associates 101.3 71.9 Retained profits: – group 382.9 1,042.3 – associates 346.5 409.4 Equity attributable to members of Alumina Limited 1,153.5 4,844.4 Outside equity interests in controlled entities – 9.0 TOTAL EQUITY 1,153.5 4,853.4
The above consolidated statement of financial position should be read in conjunction with the accompanying notes, and Section 3 set out on pages 26 to 31.
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Consolidated Statements of Cash Flows FOR THE YEAR ENDED 31 DECEMBER 2002
Consolidated Alumina Limited and controlled entities Millions of dollars
Continuing Discontinuing operations operations Total 2002 2001 2002 2001 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers – – 2,193.5 2,981.0 2,193.5 2,981.0 Proceeds from interest rate swap close-out – – 71.2 11.7 71.2 11.7 Payments to suppliers and employees (8.1) (3.4) (1,823.9) (2,209.3) (1,832.0) (2,212.7) Interest received – – 27.6 51.5 27.6 51.5 Borrowing costs (0.3) – (149.7) (204.9) (150.0) (204.9) Dividends received from associates 281.0 377.0 – – 281.0 377.0 Income taxes paid – – (3.2) (6.7) (3.2) (6.7) Proceeds from insurance claims Payments for: – – 35.0 34.3 35.0 34.3 – exploration (grassroots) – – (17.1) (57.2) (17.1) (57.2) – exploration (additional, supporting existing operations) – – (3.4) (19.3) (3.4) (19.3) Net cash provided by operating activities 272.6 373.6 330.0 581.1 602.6 954.7 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment – – (412.3) (426.8) (412.3) (426.8) Proceeds from the sale of the St Ives and Agnew gold operations – – – 432.0 – 432.0 Proceeds from the sale of Three Springs Talc Operation – – – 56.0 – 56.0 Proceeds from sale of Mondo Minerals – – – 122.2 – 122.2 Proceeds from sale of Central Norseman Gold Corporation (net of cash divested) – – 25.7 – 25.7 – Proceeds from sale of investments – – – 24.9 – 24.9 Proceeds from sale of non-current assets – – 67.6 64.2 67.6 64.2 Proceeds from insurance claims – – 15.7 23.6 15.7 23.6 Proceeds from/(payments for) gold hedge close out – – (34.4) 21.7 (34.4) 21.7 Proceeds from/(payments for) short-term investments – – 2.6 (8.6) 2.6 (8.6) Payments for research and development – – (0.4) – (0.4) – Payments for evaluation expenditure – – (4.4) (30.1) (4.4) (30.1) Payment for Halco and MRN shares (72.9) – – – (72.9) – Cash reserves retained by WMC Resources Ltd upon demerger – – (65.2) – (65.2) – Net cash provided by/(used in) investing activities (72.9) – (405.1) 279.1 (478.0) 279.1 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of shares 38.5 67.6 – – 38.5 67.6 Proceeds from borrowings 537.9 – 1,278.7 277.2 1,816.6 277.2 Repayment of borrowings (600.0) – (1,366.1) (1,055.5) (1,966.1) (1,055.5) Dividends paid (199.7) (396.4) – – (199.7) (396.4) Distributions to outside equity interests – – – (1.0) – (1.0) Net cash used in financing activities (223.3) (328.8) (87.4) (779.3) (310.7) (1,108.1) Net (decrease)/increase in cash held (23.6) 44.8 (162.5) 80.9 (186.1) 125.7 Cash at the beginning of the financial year 46.8 2.0 167.4 84.1 214.2 86.1 Effects of exchange rate changes on foreign currency cash balances – – (4.9) 2.4 (4.9) 2.4 Cash at the end of the financial year 23.2 46.8 – 167.4 23.2 214.2 (a) Reconciliation of cash For the purposes of the statements of cash flows, cash represents cash on hand, at the bank and on short-term deposit (maturity of three months or less) less bank overdrafts: Cash assets 23.2 214.4 Bank overdrafts – (0.2) 23.2 214.2
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes, and Section 3 set out on page 26.
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002
Alumina Limited and controlled entities
NOTE 1 BACKGROUND AND BASIS OF ACCOUNTING
Background The demerger of WMC Limited into two separate ASX listed and the gold operations disposed of in 2001 and 2002 (as entities, Alumina Limited and WMC Resources Ltd, was discontinuing operations). implemented in December 2002. As a result WMC Limited retained the alumina assets (interest in the AWAC joint Basis of accounting venture) and changed its name to ‘Alumina Limited’. WMC Resources Ltd now holds all of the non-alumina assets (ie The concise financial report has been prepared in accordance nickel, copper/uranium and fertilizer businesses, and explor- with the Corporations Act 2001, Accounting Standard AASB ation and development interests, including the finance 1039 ‘Concise Financial Reports’ and applicable Urgent companies holding assets and liabilities relating to those Issues Group Consensus Views. The financial statements and operations). To effect the demerger, Alumina Limited, on 4 specific disclosures required by AASB 1039 have been derived December 2002, distributed to its shareholders all of its from the consolidated entity’s full financial report for the interest in WMC Resources Ltd through a scheme of arrange- financial year. ment and capital reduction and dividend. The concise financial report has been prepared on the basis Prior to effecting the demerger, through a series of internal of historical cost. The accounting policies have been consist- transactions, Alumina Limited sold to WMC Resources Ltd its ently applied by each entity in the consolidated entity and, share in the legal entities which held the copper/uranium unless stated otherwise, are consistent with those of the and fertilizer businesses, WMC Finance Limited, WMC previous year. Finance (USA) Ltd as well as Alumina Limited’s exploration The preparation of financial statements in conformity with and development interests other than those relating to AWAC. generally accepted accounting principles (GAAP) requires These sales were made at fair value in return for shares in management to make estimates and assumptions that affect WMC Resources Ltd. To consummate the demerger, Alumina the reported amounts of assets and liabilities and disclosure Limited effected a capital reduction and dividend to its of contingent assets and liabilities at the dates of the financial shareholders in an amount equivalent to the value of WMC statements and the reported amounts of revenues and Resources Ltd after the internal transfers were completed. expenses during the reporting periods. Actual results could The entitlement of Alumina Limited’s shareholders to the differ from those estimates. capital reduction and dividend was ultimately satisfied in the demerger through the distribution to Alumina Limited’s A full description of the accounting policies adopted by the shareholders of shares in WMC Resources Ltd on a one-for- consolidated entity may be found in the consolidated entity’s one basis. full financial report.
Presentation of financial statements As a consequence of the demerger, Alumina Limited’s primary assets are its 40 per cent interest in the series of operating entities forming AWAC (39.25 per cent in the case of Alcoa of Australia Ltd). The financial statements as presented reflect the results of the AWAC and associated corporate activities for the full period to 31 December 2002 (as Continuing Operations) plus the results of the activities of the entities sold to WMC Resources Ltd, for the period to 30 November 2002
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 2 CHANGES IN ACCOUNTING POLICY
Change in accounting policy for providing for dividends The company has applied AASB 1044 Provisions, Contingent mended by the directors on or before the end of the period Liabilities and Contingent Assets (issued October 2001) for but not distributed at balance date, a provision was also the first time from 1 January 2002 in accordance with a written made for dividends to be paid out of retained profits where election by the directors under subsection 334(5) of the the dividend was proposed, recommended or declared Corporations Act 2001. In accordance with this new standard, between the end of the period and the completion of the provisions are recognised for the amount of any dividend financial report. declared, determined or publicly recommended by the A restatement of consolidated retained profits and total directors on or before the end of the year but not distributed dividends provided for, or paid showing the information that at balance date. would have been disclosed had the new accounting policy In previous periods, in addition to providing for the amount always been applied, is set out below: of any dividends declared, determined or publicly recom-
Year ended 31 December $A million
2002 2001 Restatement of retained profits Opening retained profits as previously reported 1,451.7 1,368.3 Change in accounting policy for providing for dividends 144.1 219.6 Restated retained profits at the beginning of the year 1,595.8 1,587.9 Net profit attributable to members of WMC Limited 174.5 401.7 Transfer from reserves 33.3 2.6 Distribution on demerger of WMC Resources Ltd (56.8) – Total available for appropriation 1,752.1 1,992.2 Dividends declared and paid during period (1,022.7) (396.4) Restated retained profits at the end of the year 729.4 1,595.8
Restatement of total dividends provided for or paid Previously reported total dividends provided for or paid during the year 878.6 320.9 Adjustment for change in accounting policy 144.1 75.5 Restated total dividends declared during period 1,022.7 396.4
Restatement of current liabilities – provisions Previously reported carrying amount at the end of the year 0.1 220.7 Adjustment for change in accounting policy – (144.1) Restated carrying amount at the end of the year 0.1 76.6
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 3 Consolidated SIGNIFICANT ITEMS Millions of dollars 2002 2001 Profit from ordinary activities after income tax, includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the entity due to their size or nature: Demerger costs – advisor fees and other costs (46.0) – Income tax benefit 13.8 – (32.2) – Proceeds from sale of Central Norseman Gold Corporation Limited 33.5 – Book value of assets disposed and costs associated with the sale (8.4) – Profit on sale 25.1 – Income tax expense –– 25.1 –
Proceeds from the sale of right to gold royalty received from the sale of St Ives and Agnew operations 45.0 – Book value (29.6) – Profit on sale 15.4 – Income tax expense –– 15.4 –
Proceeds from the sale of the Long/Victor mines at Kambalda 14.0 – Book value of assets disposed and costs associated with the sale (2.0) – Profit on sale 12.0 – Income tax expense (2.6) – 9.4 –
Insurance proceeds (material damage and business interruption) received in relation to the fire at the Olympic Dam solvent extraction plant in October 2001 62.3 – Income tax expense (18.7) – 43.6 – Costs associated with lost production due to fire at Olympic Dam solvent extraction plant (92.5) – Income tax benefit 27.8 – (64.7) –
Proceeds received from early termination of interest rate swaps 75.9 – Income tax expense (22.8) – 53.1
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 3 Consolidated SIGNIFICANT ITEMS Continued Millions of dollars 2002 2001
Proceeds from the sale of the St Ives and Agnew gold operations – 457.0 Book value of assets disposed of and costs associated with sale – (218.2) Net loss on the early termination of commodity and currency hedging associated with the gold operations – (103.2) Profit on sale – 135.6 Income tax benefit – 34.4 – 170.0
Proceeds from the sale of Three Springs Talc operation – 56.0 Book value of assets disposed – (37.4) Profit on sale – 18.6 Income tax benefit – 1.4 – 20.0
Write-off of assets and costs associated with the fire at Olympic Dam solvent extraction plant – (71.8) Income tax benefit – 21.5 – (50.3)
Proceeds from sale of equity interest in Mondo Minerals – 122.2 Carrying value of investment in Mondo Minerals – (61.0) Profit on sale of equity interest – 61.2 Income tax expense – (10.1) – 51.1
Cost of redundancies and closure costs associated with the restructuring of the Alumina service and exploration functions – (21.5) Income tax benefit – 4.8 – (16.7)
Equity share of write-down of AWAC refining and chemical assets and associated provisions – (88.0) Equity share of income tax benefit – 7.1 – (80.9)
–– Total significant items after tax 49.7 93.2
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 4 Year ended 31 December 2002 FINANCIAL REPORTING BY SEGMENT Millions of dollars
Copper/ Alumina/ Consolidated Uranium Aluminium Nickel Fertilizers Consolidated
Revenue Segment revenues 682.9 – 1,206.3 401.9 2,291.1 Unallocated revenue 107.4 Less insurance proceeds ––––(67.2) Less proceeds from sale of non-current assets ––––(101.0) Less other sundry revenue ––––(9.4) Operating revenues 2,220.9 Result Segment result (19.6) (6.3) 198.9 (50.1) 122.9 Share of net profit or loss/result of equity accounted investments – 216.3 – – 216.3 Unallocated profit 45.4 Unallocated corporate expenses: New business (32.0) Regional exploration (26.1) Corporate (109.1) Finance and other costs (25.1) Net borrowing costs (42.4) Profit from ordinary activities before income tax but after outside equity interest 149.9 Income tax benefit 24.6 Net profit 174.5
Depreciation and amortisation 212.8 17.7 195.9 56.5 482.9 Unallocated 7.0 Consolidated depreciation and amortisatgion 489.9
Other non-cash expenses 13.1 – 37.6 9.3 60.0
Assets Segment assets – 26.4 – – 26.4 Equity accounted investments – 1,668.7 – – 1,668.7 Consolidated total assets 1,695.1
Liabilities Segment liabilities – 541.6 – – 541.6 Consolidated total liabilities 541.6
Acquisitions of non-current assets 189.3 – 174.7 43.0 407.4 Unallocated 9.3 Total acquisitions of non-current assets 416.7
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 4 Year ended 31 December 2001 FINANCIAL REPORTING BY SEGMENT Continued Millions of dollars
Copper/ Alumina/ Consolidated Uranium Aluminium Nickel Fertilizers Consolidated
Revenue Segment revenues 812.8 – 1,217.4 379.1 2,409.3 Unallocated revenue 1,123.4 Less insurance proceeds ––––(23.1) Less proceeds from sale of non-current assets ––––(685.9) Less other sundry revenue ––––(6.8) Operating revenues 2,816.9 Result Segment result 47.9 (3.4) 147.4 (89.4) 102.5 Share of net profit or loss/result of equity accounted investments – 279.1 – – 279.1 Unallocated profit 282.4 Unallocated corporate expenses: New business (43.7) Regional exploration (63.7) Corporate (68.9) Finance and other costs (21.4) Net borrowing costs (140.9) Profit from ordinary activities before income tax but after outside equity interest 325.4 Income tax benefit 76.3 Net profit 401.7
Depreciation and amortisation 181.9 17.7 222.5 66.0 488.1 Unallocated 125.8 Consolidated depreciation and amortisation 613.9
Other non-cash expenses 80.3 6.0 36.0 21.9 144.2
Assets Segment assets 2,811.1 – 1,691.1 1,137.3 5,639.5 Equity accounted investments – 1,675.6 – – 1,675.6 Unallocated corporate assets and other assets 2,697.2 Consolidated total assets 10,012.3
Liabilities Segment liabilities 387.6 – 431.8 78.7 898.1 Unallocated corporate liabilities 4,260.8 Consolidated total liabilities 5,158.9
Acquisitions of non-current assets 75.3 – 227.1 42.3 344.7 Unallocated 112.2 Total acquisitions of non-current assets 456.9
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 5 EARNINGS PER SHARE Consolidated 2002 2001
Basic earnings per share cents 15.7 36.4 Diluted earnings per share cents 15.6 36.3
Weighted average number of ordinary shares outstanding during the year used in the calculation of earnings per share Basic earnings per share 1,112,878,659 1,103,323,901 Effect of options and partly paid shares on issue 2,905,619 2,997,478 Diluted earnings per share 1,115,784,278 1,106,321,379 (a) Information concerning classification of securities The partly paid shares carried the right to participate in dividends in proportion to the amount paid relative to the total issue price (for partly paid shares issued in 1987 relative to the nominal value), and to that extent they have been recognised as equivalents of ordinary shares in the determination of basic earnings per share. At balance date there were no partly paid shares (2001: 629,000) callable at the option of the holders, and which at balance date were considered dilutive for the purpose of the calculation of diluted earnings per share. The employee options issued during the year were not potentially dilutive as they can only be exercised one year after the date of issue. Options issued in previous financial years are considered dilutive.
(b) Conversion, call, subscription or issue after 31 December 2002 In the period from 31 December 2002 to 21 February 2003, the following movements in share capital and options on issue have taken place:
Number of options Exercise price Options exercised 253,800 Various Options lapsed 94,500 Various Consolidated Millions of dollars
2002 2001
(c) Net profit used in the calculation of earnings per share Net profit attributable to members of Alumina Limited used in the calculation of basic and diluted earnings per share 174.5 401.7
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 6 Consolidated DIVIDENDS Millions of dollars 2002 2001
Interim Dividend No. 46 of 5 cents fully franked at 30% per fully paid share declared 13 August 2002 and paid 10 September 2002 (2001: 16 cents fully franked at 30% per fully paid share declared 14 August 2001 and paid 6 September 2001). 55.6 176.8 Final Dividend No. 45 of 13 cents fully franked at 30% per fully paid share, paid on 15 May 2002 and recognised as a liability at 31 December 2001 but adjusted against retained profits at the beginning of the financial year on the change in accounting policy for providing for dividends (refer Note 2). 144.1 144.1 Special unfranked dividend of 73 cents distributed to effect the demerger (refer Note 1). 823.0 – 1,022.7 320.9 (a) For all dividends referred to above, the relevant proportion as determined in accordance with the WMC Employee Share Scheme was declared and paid in respect of partly paid shares issued thereunder. (b) Franking account Balance of franking account adjusted for franking credits which will arise from the payment of income tax provided for in these financial statements: Class ‘C’ (30%) franking credits 37.1 (124.3) The fully franked dividends received from Alcoa of Australia Limited (‘AofA’) in the financial year were: 261.8 314.0 Due to changes in the Australian Tax Legislation, the franking account is maintained on a tax paid basis from 1 July 2002. These changes required an adjustment to the company’s franking account balance at that date, being a decrease of $2.4m The franking account balance at 31 December 2001 as disclosed for comparative purposes has not been restated. The new Tax Consolidation Regime will, should the Alumina Limited Group decide to adopt the Regime, impact the franking account balances of the Company and wholly-owned Australian resident subsidiaries. The potential impact of the new Tax Consolidation Regime has not been taken into account in determining the balance of the Company’s franking account.
(c) Dividends not recognised at year end In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend No. 47 of 13 cents fully franked at 30% per fully paid share, declared 26 February 2003 and payable on 8 April 2003. The aggregate amount of the proposed dividend expected to be paid out of retained profits at 31 December 2002, but not recognised as a liability at year end as a result of the change in accounting policy for providing for dividends (refer note 2) is $146.7 million.
NOTE 7 DEFERRED LOSSES – HEDGING CONTRACTS Deferred losses in relation to hedging contracts are reported within other current assets and other non-current liabilities in the Statement of Financial Position. Consolidated As at 31 December 2002, there were no deferred hedging gains or losses. Millions of dollars 2001 The deferred losses as at 31 December 2001 were: Current 157.7 Non-current 1,188.2 1,345.9
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Notes to and forming part of the Concise Financial Statements FOR THE YEAR ENDED 31 DECEMBER 2002 (CONTINUED)
Alumina Limited and controlled entities
NOTE 8 DIRECTORS’ DECLARATION SUBSEQUENT EVENTS
Sale of speciality chemicals business In January 2003, AWAC announced that it had conducted a In the opinion of the directors of Alumina Ltd the accomp- portfolio review of its businesses and the market they serve anying concise financial report of the consolidated entity, and decided to divest its specialty chemicals business. The comprising Alumina Limited and its controlled entities for the assets are expected to be sold at full value which will result year ended 31 December 2002, set out on pages 52 to 67: in no significant losses for the group. There will be no material a) has been derived from and is consistent with the full impact on future earnings of the group as a result of the financial report for the year ended 31 December sale. The financial effect of this event has not been recognised 2002; and during the year ended 31 December 2002. b) complies with the Accounting Standard AASB 1039 ‘Concise Financial Reports’. NOTE 9 FULL FINANCIAL REPORT The concise financial report cannot be expected to provide as full an understanding of the financial performance, fin- This concise report has been derived from the Alumina ancial position and financing and investing activities of the Limited Annual Report 2002 – Financial Report for the year consolidated entity as the full financial report, which as ended 31 December 2002. The full financial report and indicated in Note 9 is available on request. auditor’s report will be sent on request, free of charge. Please telephone +61 (03) 8699 2600. Copies can also be This declaration is made in accordance with a resolution of requested or downloaded from our website the directors. (www.aluminalimited.com).
Donald M Morley Chairman
John Marlay Chief Executive Officer 26 February 2003
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Chalco means Aluminium Corporation of China Limited. Alumina Limited – Concise Annual Report 2002 Clarendon means Clarendon Alumina Production Limited. Compagnie Guinée means Compagnie des Bauxites de Guinée. Commodity cost curves plot global production against cost of production less intermediate and co-product revenue. Cumulative production is expressed as a percentage, usually divided into Glossary of Terms quartiles. The lower a producer is placed on the cumulative
(CONTINUED) production curve, the higher its margins at a given price. De-bottlenecking is optimising a process plant through minor capital expenditure and procedural change. Demerger means the separation of WMC’s AWAC interest from its non-AWAC businesses resulting in two independent entities separately listed on the stock market conducted by the ASX.
Alumina Limited Alumina Limited (ABN 85 004 820 419). Greenfield exploration is the search for ore bodies away from existing operations. AoA means Alcoa of Australia Limited (ABN 93 004 879 298). Halco means Halco (Mining) Inc. ABS (Alcoa Business System) The Alcoa Business System is an integrated set of systems, tools and language organised to Hydrate is an aluminium oxide with three molecules of chemically encourage unencumbered transfer of knowledge across combined water. businesses and borders. It focuses on serving customer demand Inespal means Industria Española del Aluminio. by emphasising the elimination of all waste and making what the customer wants, when the customer wants it. Jamalco means the joint venture between Alcoa Minerals of Jamaica LLC and Clarendon. Alcoa means Alcoa Inc of 201 Isabella Street, 7th Street Bridge, Pittsburgh, Pennsylvania, USA, a company incorporated in the LME or London Metal Exchange means the international Commonwealth of Pennsylvania. trading body that facilitates the worldwide open-market buying and selling of metals. Alloy means a substance with metallic properties, composed of two or more chemical elements of which at least one is a metal. MRN means Mineração Rio do Norte SA. More specifically, aluminium plus one or more other elements, produced to have certain specific, desirable characteristics. Ore is a mineralisation that can be profitably mined and treated. Alumina means aluminium oxide produced from bauxite by an Pot In aluminium production: the electrolytic reduction cell, intricate chemical process. It is a white powdery material that commonly called a ‘pot’, in which alumina dissolved in molten looks like granulated sugar. Alumina is an intermediate step in cryolite is reduced to metallic aluminium. A series of cells the production of aluminum from bauxite and is also a valuable connected electrically is called a potline. chemical on its own. SEC means the US Securities and Exchange Commission. AWAC means the unincorporated joint venture between Suralco means Suriname Aluminum Company LLC. Alumina Limited and Alcoa known as Alcoa World Alumina and Chemicals.
AWALLC means Alcoa World Alumina L.L.C., a company Designed and produced by ERD. Concept & content consultant Writers incorporated in Delaware USA. in Residence. Photography by Joe Vittorio. Scans by Eastern Studios. Printed by Gunn & Taylor. Bauxite means an ore from which alumina is extracted and from which aluminium is eventually smelted. Alumina is extracted The paper used in this report is Precision by Spicers Paper, an Australian- from bauxite ore in varying quantities depending on the geo- made uncoated paper. The mills from which this paper was produced graphic location of the bauxite deposit. are ISO 14001 accredited, and the paper is produced with alkaline sizing, which provides a neutral pH (acid free). Brownfield expansion is developing existing operations.
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Alumina Limited Registered corporate head office Level 12, IBM Centre 60 City Road Southbank Victoria 3006 GPO Box 5411, Melbourne Victoria 3001 Australia Telephone +61 (0)3 8699 2600 Facsimile +61 (0)3 8699 2699 Website www.aluminalimited.com
Share Registry Computershare Investor Services Pty Limited GPO Box 2975 Melbourne Vic. 3001 Australia Telephone +61 (0)3 9615 5970 or 1300 556 050 for callers within Australia Facsimile +61 (0)3 9611 5710 Email to [email protected]