The annual results for Alumina Ltd, the minority partner of the Alcoa World Alumina & Chemicals (AWAC) group, contains a message for all investors in resource companies large and small.
It’s tough and it’s going to get tougher before there’s any improvement.
Alumina shares have already been sold off heavily by investors as the aluminium price has slumped and shares in Alcoa and other big metal producers have fallen as well.
It’s actually the first local company to report for the 2008 year, especially the 2008 back half when prices went south in the great slide, and then more as the financial crunch turned into an economic slump, hitting China, Japan, South Korea and Taiwan as well as the US and Europe.
BHP Billiton reports its 2008-09 interim later today will give us an update as well.
Yesterday Alumina shares fell 4 cents to $1.04 as the company (AWC) delivered a drop in full-year profit and said it will not pay a final dividend for 2008 in order to conserve cash.
Profit during the twelve months to December 31 fell 61.5% on the previous corresponding year to $168 million due to declining demand and commodity prices and higher costs.
Underlying earnings after a non-cash charge of $39 million was $202 million for the 2008 fiscal year, down from $405.6 million in the 2007 year.
Alumina has decided not to pay a final dividend for 2008 in order to conserve cash amid the global economic crisis.
"This decision not to declare additional dividends in respect of 2008 has been taken to conserve cash and is consistent with other cash conservation measures, including curtailment of high cost production and the deferral of growth projects already announced,” Alumina chief executive John Bevan said in a statement.
Alumina said the reduction from 2007 "is largely as a result of the reduced alumina price in the second half of the financial year and higher average production costs.
"Underlying earnings are calculated by removing the impact of the revaluation of retirement benefit obligations and embedded derivatives from net profit after tax."
US-based metal giant, Alcoa is the operator of AWAC, an international network of alumina refineries, and holds a 60% interest in the joint venture, with Alumina holding the balance.
AWAC has a network of alumina refineries in the United States, Brazil, Suriname, Jamaica, Spain and Australia.
Alumina said aluminium demand in 2009 was expected to decline by a further 2% after a 3% fall over 2008.
"We have implemented measures to respond to the deterioration in external market conditions,” Mr Bevan said." The overall focus of these measures is to conserve cash and reduce costs of production.”
AWAC, which produced 14.4 million tonnes of alumina in 2008, has cut annual output by about 1.5 million tonnes in response to declining demand.
AWAC expects alumina production costs to decline by more than $US50 per tonne in 2009 due to energy price declines and a weaker Australian dollar.
Alumina’s debt at December 31 was $981 million, compared with $977 million at the beginning of 2008.
Mr Bevan said in a statement to the ASX with the profit figures that the first half of 2008" was characterised by strong demand and a corresponding increase in input costs.
"The second half saw a rapid fall in metal prices as demand declined in response to the global economic contraction.
“AWAC moved fast and early in response to the deterioration in global markets. Higher cost production has been curtailed and growth projects deferred to conserve cash.
"Alumina Limited’s equity raising in the second half of the year has enabled us to invest in our share of the substantial completion of AWAC’s existing growth projects, and further strengthened our balance sheet so that we enter 2009 in a stronger position than we commenced 2008”, Mr Bevan said.
He said "No final dividend will be paid for 2008. The total dividend of 12 cents per share, which was paid as an Interim Dividend in October, represents a dividend payout of 82 per cent of 2008 NPAT.
“This decision not to declare additional dividends in respect of 2008 has been taken to conserve cash and is consistent with other cash conservation measures, including curtailment of high cost production and the deferral of growth projects already announced.
"The Board will continue to review the dividend at each half year in light of current and expected business conditions”.
Alumina said its debt at 31 December 2008, net of cash, was $981 million, compared with $977 million at the beginning of 2008. Cash held at 31 December 2008 was $67 million. Undrawn committed facilities as at 31 December 2008 were $1,091 million. US$304 million of these facilities mature during 2009, and Alumina Limited has obtained agreement on the extension of US$229 million of these maturing facilities, the majority until July 2012.
Looking to the outlook, the company said the recent weakening in the aluminium price has resulted in curtailment of higher cost production, and the prospect of continuing low global demand in 2009 is expected to result in further worldwide global alumina and aluminium curtailments while the aluminium market remains in surplus.
"Following the 3% decline in aluminium demand over 2008, demand is forecast to decline by a further 2% in 2009. The decline in demand has resulted in increased inventory stock piles.
"Although the near term outlook for alumina and aluminium markets is one of reduced demand, longer term expectations are for the market to return to growth to meet the demand
