Perennial takeover fancy, Alumina has duly reported downgraded earnings, as signalled late last year in its second or third revision for the year, and snuck in the first downgrade, of sorts, for 2008, by warning of the impact of higher costs on its earnings in the year ahead.
The company is a partner in the world's biggest producer of alumina with Alcoa and has long been fancied by many in the market as a logical candidate for a succession of rumoured suitors, from BHP Billiton, to Alcoa, to private equity groups, or Russian or Chinese aluminium producers.
But nothing has happened: perhaps they have been put off by the relationship with Alcoa, or the higher than anticipated price for the shares, or the company's financial performance which has been frequently revised downwards in the past couple of years.
Alumina is the rump of WMC and was for years one of the attractions of that group. WMC Resources was snapped up by BHP Billiton several years ago to get its hands on the huge Olympic Dam mine and deposits in South Australia.
Alumina's forecast of lower year and second half earnings for the year to December came true with yesterday's statement: second-half profit slumped 39% because of higher costs and the stronger Australian dollar.
The company said the profit fell due to higher operating costs at its 40% owned associate, Alcoa World Alumina and Chemicals (AWAC), and the impact of a stronger Australian dollar.
Net income declined to $152 million for the six months ended December 31 from $251 million earned in the back half of 2006.
Alumina said it had a 14.6% fall in earnings for the full year and says it's likely to incur higher operating costs in 2008, due to rising energy prices and shipping costs.
Net profit for calendar 2007 was $436.40 million, down from $511.10 million the previous year.
The company said "Underlying Earnings after tax declined 29% to $405.6 million, which is calculated by deducting from Net Profit after Tax an amount of $30.8 million, representing the net total of non-cash items for the revaluation of embedded derivatives and retirement benefit obligations, which do not reflect the year's operations".
Alumina shares fell 21c to $5.29 after the result was digested. It had earlier risen by around 1.1% to $5.56.
Energy prices rose by 15% last year and shipping freight rates on average doubled.
Some brokers believe this year's earnings could fall by more than 20% because of the impact of higher energy costs at its alumina refineries and the impact of the weaker US dollar (and higher Australian dollar).
In fact the company said in its statement that the weakness in the US dollar will continue to pressure operating costs in the coming year.
Looking to the year ahead Alumina said AWAC's costs were forecast to increase by about $US24 a tonne, due to currency impacts, higher average energy and caustic prices and increased bauxite shipping costs.
AWAC says it's looking for 2008's alumina production and sales to increase by half a million tonnes to 14.8 million tonnes, with the Pinjarra refinery in Western Australia operating at full capacity.
"The alumina industry is expected to continue to experience significant increases in energy prices, shipping freight rates and caustic soda prices during 2008, as well as continued strong currency pressures," Alumina said.
Alumina said its own earnings in 2008 would reflect those factors.
The company said it has killed off its existing Dividend Reinvestment Plan and will introduce a new plan.
"Under the new DRP, shareholders may elect to have their dividends invested in new shares issued by the Company. New shares will be issued under the new DRP at an undiscounted price relative to the market price during the pricing period. The Company has contracted with UBS for the underwriting of the issue of shares for the dividend payable on 31 March 2008, and intends that the 2008 Interim Dividend, expected to be paid in September 2008, would also be underwritten.
"The introduction of the new DRP, and underwriting of the issue of shares in relation to the two dividend payments, recognises the substantial investment the Company is currently making in new AWAC production capacity, and will assist in maintaining the Company's financial position while continuing our policy to promptly distribute franking credits."
It's cheaper and easier to raise money from shareholders than banks these days.
