Lower profits but higher dividend, Alumina (ASX:AWC) share price lifts on 1H21 results

Despite a fall in profits, Alumina dividends are on the first in 1H21.

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The Alumina Limited (ASX: AWC) share price has tipped 1.52% higher to $1.675 this morning after the company released its half-year FY21 result.

The company invests worldwide in bauxite mining, alumina refining and aluminium smelting through its 40% ownership of Alcoa World Alumina and Chemicals (AWAC).

Alumina share price higher on solid dividends and positive outlook

The first half proved to be a challenging period for the Alumina share price as record bauxite and alumina outputs were offset by higher freight costs. Key financial highlights include:

  • Net profit after tax (NPAT) of US$73.6 million, down 19% on the prior corresponding period
  • Free cash flow available for dividends of US$98 million, up 21%
  • Closing debt US$5.7 million (1H20: US$77.4 million)
  • Interim dividend of 3.4 US cents per share, up 21%

What happened to Alumina in 1H21?

AWAC's refineries performed strongly in the first half, achieving record production of 6.4 million tonnes. Cash costs of alumina production increased half on half due to a combination of factors including currency movements, new energy contracts and higher raw material costs, which was partially offset by an increase in the average realised price of alumina.

Alumina flagged that higher freight costs have had a negative impact on the Chinese alumina import parity price, which has caused a decline in prices over the latter part of the first half.

The company believes that when the factors such as disrupted shipping schedules, COVID protocols and low availability of ships is resolved, prices are likely to improve.

Overall, the decline in profit was largely a result of higher cash costs of production, partially offset by higher realised alumina prices.

Management commentary

Alumina's CEO Mike Ferraro commented on the first half performance saying:

In challenging market conditions, Alumina Limited has been able to increase its dividend to shareholders by 21 percent.

AWAC's low-cost assets were able to produce record bauxite and alumina outputs for a half year. Realised alumina prices were higher but API was constrained by significantly higher freight costs contributed to by global shipping disruptions. In addition, returns were offset by higher costs due to currency movements and unplanned outages. However, AWAC's cash costs continue to remain in the lowest quartile of the global cost curve and our alumina refinery portfolio has the lowest CO2 emissions intensity amongst major refiners.

What's next for Alumina

The Alumina share price has struggled to make headway this year, down 9.84% year-to-date.

The company is optimistic about the outlook of the global aluminium market, saying:

Global aluminium demand is now back to pre-virus levels, largely due to economies recovering post-COVID, helped by Government stimulus packages. This is expected to grow with further economic recovery and greater demand for aluminium in a decarbonising world, largely due to its lightweight properties and recyclability.

Investors can look forward to a solid dividend, with an ex-dividend date of Friday, 28 August.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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