A diversified portfolio that is delivering consistent performance in a challenging market.
My vision for the future is to continue to fulfil Vedanta’s potential while helping to advance the world’s largest democratic developing nation economically, socially and sustainably. India is richly-endowed with the natural resources that will fuel its future growth and raise the living standards of its population of 1.2 billion people. We are working with our employees, communities and Government to help unlock India’s vast resource potential.
This year I was delighted to welcome Tom Albanese to his position as Vedanta’s Chief Executive. His strong industry experience is already making a difference and he has demonstrated that he shares my vision for building an ethical, sustainable business.
The election of a new government in India is also beginning to have a positive impact on the business environment we operate in and I believe that the country will benefit from the progressive reforms being proposed by the Government.
This Government is firmly committed to supporting a fast-growing Indian economy, to shape business policy and make it easier for the private sector to create economic value. We are among the largest contributors to the exchequer in India and play a strong role in nation building. Vedanta makes important, long-term contributions to local and regional economies, paying around US$15 billion in taxes, royalties and other levies in total over the past three years alone.
Reflecting on another productive year, we have proven that we are well-positioned to capitalise on India’s abundant natural resource opportunities. Despite the volatility in global commodity prices, we have delivered a sound financial and operating performance. To reflect this challenging market environment, we have implemented a series of initiatives aimed at reducing capital and operating costs across the Group, which will maintain our financial strength.
Throughout this year, we have remained focused on our stated strategic priorities. We have started to ease back on capital expenditure and concentrated on increasing production through optimising our core assets.
We’ve seen unprecedented declines in oil and iron ore prices, though zinc and aluminium prices were relatively more resilient. These affected Group EBITDA, which decreased by 17% to US$3.7 billion (FY2014: US$4.5 billion). However, our diversified portfolio allowed us to maintain robust adjusted EBITDA margins of 38% on the back of our diversified portfolio.
The substantial drop in oil prices during the year has led to a revaluation of our Oil & Gas business and a US$4.5 billion (net of tax) writedown. This is a reflection on the reality of oil prices today and doesn’t affect our strategy in any way. We remain committed to being a diversified resources player, capitalising on our strengths.
Gross debt reduced by US$0.2 billion in FY2015 and US$0.6 billion in H2 FY2015. However, net debt has increased by US$0.5 billion, mainly due to US$0.8 billion spent on increasing our stake in Vedanta Limited (formerly Sesa Sterlite) and Cairn India during H1 FY2015. Our final dividend of 40 US cents per share, taking the full year dividend up by 3%, reflects our continued confidence in the strength and prospects of the business.
The fundamentals for our business remain sound, but we have to navigate this downturn. We operate in cyclical markets and at this point in the cycle our focus is on productivity, efficiency and preserving value and I am confident that this will happen given the strength of our businesses and dedication of our people.
We will continue to implement initiatives to contain capital expenditure and operating costs to maintain financial strength during this period of weaker commodity prices. At the same time we will preserve our portfolio of assets with attractive long-term growth prospects and a strong resource position. We also aim to maintain a strong balance sheet, with a focus on maximising free cash flows, deleveraging and returns to investors.
We continue to contain capital expenditure and operating costs to maintain financial strength.
Since IPO in 2004, Vedanta has grown production across its portfolio supported by its well-invested expansion programme and continued focus on increasing R&R over production each year.
1 All commodity and power capacities rebased to copper equivalent capacity (defined as production X commodity price/ copper price) using average commodity prices for FY2015. Power rebased using FY2015 realisations, copper custom smelting capacities rebased at TC/RC for FY2015, iron ore volumes refers to sales with prices rebased at average 56/58% FOB prices for FY2015.
2 PF refers to pro forma for Cairn India acquisition.
I am amazed at what we have achieved over the past 11 years. We have created a value-based and empowered organisation that is well-positioned for its next stage of growth.
Dividends have been paid out every year, across the commodity cycle, increasing progressively from 17.0 US cents per share 11 years ago to 63.0 US cents per share this year.
3 In FY2004, a single dividend of 5.5 US cents per share was paid, for the four months since listing, equivalent to an annual payment of 16.5 US cents per share.
Sustainable development is at the core of Vedanta’s operations. Our Sustainability Framework comprises of four pillars: Responsible Stewardship, Building Strong Relationships, Adding and Sharing Value and Strategic Communications. Our Sustainability Framework has a set of policies, with technical and management standards aligned to international standards, to enable significant improvement in the way we do business.
Social development is fundamental to any country’s growth and we are focused on platforms for education, healthcare, nutrition and sanitation that benefit around four million people every year. We work closely with local governments, NGOs and academic institutions to help ensure that our programmes benefit as many people as possible around our communities. I remain committed to collaborating on mutually beneficial partnerships that will further our positive impact on communities and uphold our licence to operate in all our areas of operations with rising expectations of corporate social responsibility.
Vedanta now employs, either directly or indirectly, approximately 82,000 people globally. While we are encouraged that there is an improvement in the safety performance of the Group this year, I am saddened that we experienced eight fatalities. Our efforts across Vedanta, to achieve a ‘Zero Harm’ culture is a personal priority for our CEO, Mr Tom Albanese and me.
In 2014, we welcomed Katya Zotova, who joined the Vedanta Board as a Non-Executive Director, and became a member of the Nominations and Remuneration Committees. She brings a wealth of oil & gas sector experience to the Board and her perspective will be invaluable as we drive sustainable improvement and growth in our global business.
Diversity is a business imperative as well as an expectation by society. We have set ourselves some challenging targets in this area and I am pleased with the progress we are making. Today, we have a strong management team with diverse backgrounds, including three female executives in front line positions.
I’d like to thank my energetic and hard-working Vedanta team – I am amazed at what we have achieved over the past 11 years and their contribution is immense. Together we have created a value-based and empowered organisation that is well-positioned for the next stage of its growth. I would also like to acknowledge all my fellow Directors for their sound guidance and contribution.
The winds of change for economic growth in India are blowing strongly. A country of almost 1.2 billion people, India is the largest democracy in the world, rich in human and natural resources. Vedanta has a very important role to play in ensuring that India is able to benefit from these resources and become self-sufficient in energy supply. India spends a significant proportion of its foreign exchange on importing oil, and local resources companies including Vedanta can help redress this balance.
The new Government has a mandate for economic growth and job creation. We support its reforms, such as the auctioning of natural resources and the ‘Make in India’ programme, which is designed to transform India into a global manufacturing hub. India has so much to offer, and by implementing important changes such as making it an easier place to do business, by opening up the country to foreign investment, and improving infrastructure and productivity, it will inevitably create jobs, particularly for our young people, and bring further prosperity to the country.
Going forward, our overall strategic priorities remain the same, to build a resilient portfolio which enables us to withstand a volatile commodity environment and continue to deliver long-term value to our shareholders. Group simplification is key and looking forward over the next year, Tom Albanese and I will be putting greater focus on this. The recent name change of Sesa Sterlite Limited to Vedanta Limited is a significant milestone, which reflects Vedanta’s commitment to strengthen the linkage between our businesses, communities and stakeholders across the globe.
In terms of market conditions, India is at an inflection point, with its metals and energy demand poised to explode as its GDP potentially doubles over the next decade. Vedanta is a vehicle for new potential investment opportunities in a fast growing economy. Over the next few years, we are likely to see the demand for all our commodities and commercial power increase substantially as the Government of India’s focus on ‘Make in India’ and infrastructure investments start yielding results. As a large and responsible corporation, Vedanta is well-positioned to participate in this journey, and I look forward to our future.