There probably aren’t too many cushier jobs in corporate Australia than working at Alumina. As Stephen Mayne has noted, Alumina is effectively a post-box company, with its primary function being ownership of a passive stake in Alcoa World Alumina and Chemicals (AWAC). AWAC is managed by Alcoa and pays a “dividend” to Alumina. Because of its 40% stake, Alumina accounts for the holding as an “associate”, with its profit and loss statement noting that the company earned $494.6 million from its interest in AWAC and $2.6 million in interest revenue. It does not earn any other revenues and does not seem to be interested in diversifying its business away from its AWAC stake.
It is interesting to compare Alumina’s performance to that of a similar “cash box” style company – Warren Buffett’s Berkshire Hathaway. While Berkshire is most famous for its holdings in publicly listed companies, the majority of its investments are now in diverse operating businesses. In 2007, Berkshire and its 78 subsidiary companies earned revenue of US$118 billion and reported earnings of US$13 billion. Companies owned by Berkshire employ more than 225,000 people. Like Alumina, Berkshire is a company which primarily exists to invest in other companies, although it is slightly more active than Alumina. In the past five years, Berkshire’s market capitalisation (notwithstanding a 64% drop in first quarter 2008 profit) has increased by around 90%.
To manage Berkshire’s investments, its corporate head office is staffed by a grand total of 19 people. Berkshire CEO, Warren Buffett, is paid a miserly US$100,000 per year. Berkshire’s annual reports don’t specify its head-office spend, possibly because the figure is so small in comparison to its revenues and assets.
By contrast, Alumina’s share price has increased by around 1% in the past five years. Unlike Berkshire, Alumina hasn’t been particularly acquisitive, preferring to hold onto its AWAC stake and do little else. To watch over their interest, Alumina shareholders pay $13.8 million in administrative costs. Alumina CEO, John Marley, earned $1.56 million in 2007 (and $1.52 million in 2006) for doing what appears to be not all that much.
Admittedly, it isn’t all bad for Alumina shareholders. Dividends have increased from 23 cents-per-share in 2003 to 24 cents-per-share in 2007.