Our first year as an independent company was a success for Alumina Limited and our shareholders. Focused solely on our 40 per cent ownership of AWAC, we achieved our key objectives of delivering value to shareholders and establishing Alumina Limited as a major, quality resources company.

Delivering value to shareholders
In 2003 we took the first steps in building a record of strong performance. Our profit after tax was $236.9 million; an increase of 13 per cent over 2002. This result demonstrates that the scale and low-cost position of the AWAC business can deliver strong returns, even in the face of challenging currency and energy markets in 2003.

Fully franked dividends of 20 cents per share were declared to shareholders for the 2003 year. AWAC generated a cash flow of $719 million, with $284 million of dividends paid to Alumina Limited. AWAC’s low level of debt and capital expenditure during the year enabled it to pay 108 per cent of profits as dividends. AWAC has distributed 94 per cent of its profits to shareholders since formation in 1994. Alumina Limited’s intention is to pay substantial dividends to shareholders and pass on to shareholders all fully franked dividends received, to the extent practicable.

During the year we worked to ensure that investors understood the value of the AWAC business and its potential for growth. This has enabled a clearer valuation and understanding of the AWAC business, which is reflected in our market capitalisation and share price. Our market capitalisation increased from $5.5 billion at the start of 2003 to $7.5 billion at year end. During the year, Alumina’s total shareholder returns were among the top 10 per cent of the Australian Stock Exchange’s ASX50 index, and among the top 20 per cent of the Global Mining Index. While the share market value of Alumina Limited may change over time for many reasons, it is pleasing to note a growing recognition of the quality of the AWAC business and the benefits of holding Alumina Limited shares.

Operating performance delivered an excellent return on equity of 20 per cent in 2003, above the 18 per cent achieved in 2002.

After adjusting for price, exchange rate and interest rate sensitivities, the 2003 profit was in line with the forecast provided in the Demerger Scheme Booklet. The Australian dollar rose rapidly in 2003 against the USD. The average AUD/USD exchange rate of 0.65 was higher than the Scheme Booklet forecast of 0.58.

Alumina Limited’s corporate costs of $12.6 million, were higher than the $8.2 million estimated in the Demerger Scheme Booklet. Corporate costs included an amount of $2.6 million relating to stock appreciation rights held by former WMC Limited employees, which was not included in the Demerger Scheme Booklet forecast and increased due to the strength of the share price. These rights are not an additional liability for shareholders as a result of demerger but represent Alumina’s share of obligations that existed prior to demerger. Management pursued issues including Alumina Limited participating in AWAC growth and strategy, investment decisions, AWAC dividend policy and communicating the value of the AWAC business to shareholders. These activities as well as the acquisition of QBE’s 0.75 per cent interest in Alcoa of Australia and divestment of the Specialty Chemicals business have been directly related to increasing shareholder value in 2003. Certain costs were incurred in the first year of operation which will not be repeated and we are planning for lower costs in 2004. In November 2003 AWAC announced the sale of its Specialty Chemicals business to Rhone Capital LLC. The sale is expected to be completed in the first quarter of 2004.

AWAC increased both alumina and aluminium production in 2003. The higher level of alumina production, together with a rising AUD/USD exchange rate, higher energy and raw materials costs, contributed to an increase in AWAC’s costs in 2003.

AWAC has successfully reduced odour emissions at the Wagerup refinery in Western Australia, with emission levels well below licence requirements. A number of actions taken since 1997 have seen a more than 95 per cent reduction in odour emissions. AWAC continues to work to address community concerns on environmental, health and safety issues regarding Wagerup.

AWAC is a truly global business. This was evident in 2003 with the completion of an expansion to alumina capacity in Jamaica, and the announcement of further expansions in Suriname, and Pinjarra, Western Australia. In addition to these growth projects, our own strong balance sheet and that of AWAC, which has net debt of only US$25m, allows us to take advantage of growth options.

We are reviewing a potential equity participation in the Bahrain aluminium smelter company, Alba. It is a low-cost smelter which can offer excellent long term returns. However the investment must meet our strategic and financial requirements. The transaction would significantly increase alumina sales to Alba, one of AWAC’s key customers. A final decision on our participation is expected by mid 2004.

In December 2003 we acquired an additional 0.75 per cent shareholding in Alcoa of Australia, the entity which holds AWAC’s Australian assets. AWAC’s Australian alumina refineries and aluminium smelters are among the lowest cost in the world, and, following the acquisition, all assets in the AWAC joint venture are now held on a 60/40 basis. We issued approximately 18 million shares to QBE for a total cost of $108 million.

As at 31 December 2003 Alumina’s gross debt was a modest $467 million. We have maintained a conservative financial structure and an A-credit rating with Standard & Poor’s. Our financial flexibility will be further strengthened following the sale of the specialty chemicals assets. We will use this financial flexibility to pursue profitable growth options, reduce debt or return funds to shareholders.

Governance
Our governance structures and procedures are designed to ensure that management of Alumina Limited generates long-term shareholder value and protects shareholder interests. Our board comprehensively reviewed our corporate governance arrangements in 2003. Our corporate governance practices are summarised in Section 5 of this report, are included on our website, and comply with the Australian Stock Exchange best practice guidelines.

Market conditions/Outlook
The alumina and aluminium markets strengthened considerably in 2003, as the demand for commodities generally improved over the year. We enter 2004 with higher aluminium prices, a weaker US dollar and high energy prices. The US economy continued its recovery and demand for alumina and aluminium in China continues to grow strongly.

Alumina Limited believes the near-term outlook is for increasing alumina and aluminium consumption and supply tightness in the alumina market.

The majority of AWAC’s alumina is sold under long-term contracts. The Company’s key profit sensitivities remain the aluminium price and AUD/USD exchange rate. For each one cent per pound movement in the aluminium price and one cent movement in the AUD/USD exchange rate, Alumina’s 2004 net profit will change by $A11m for each movement. AWAC’s 2003 alumina production of 13.1 million tonnes is planned to be exceeded in 2004, with Point Comfort planned to be operating for the full year at capacity, the Jamaica expansion contributing an additional 125,000 tonnes and production capacity creep at most refineries.

AWAC’s focus is on improving its already low-cost position and participating in the projected growth in the alumina market.

Our thanks go to Alumina’s employees for their dedication and enthusiasm for the company.

Looking forward, AWAC’s world-class assets and low level of debt ensure we are well placed to effectively participate in the growing alumina market and deliver substantial returns to shareholders. AWAC has a number of low-cost alumina refineries which can be expanded to meet expected growth in alumina demand. This allows Alumina Limited’s shareholders to participate in a potentially exciting future
of profitable growth for AWAC.

Don Morley Chairman	John Marlay Chief Executive Officer