29th Jan 2016 13:02
LONDON (Alliance News) - Multi-commodity firm Vedanta Resources PLC on Friday said earnings fell by more than 40% in the first three quarters of its financial year as the group contended with a poor commodities market.
Vedanta shares were trading up 1.7% to 239.79 pence per share Friday afternoon, bucking a down day in London for most large mining stocks.
Vedanta, like its peers within the natural resource sector, has been hit hard by lower commodity prices, and the situation appeared to worsen for Vedanta in the most recent quarter to the end of December, as its earnings and revenue fell steeper than in for the full first nine months of the year.
Vedanta is one of only a few major firms that both digs for metals and drills for oil - meaning the company is not only contending with lower prices for metals such as copper and iron ore, but also with the dramatic fall in oil prices since the middle of 2014.
The majority of Vedanta's operations are in India, where it produces all of its oil and gas and mines multiple resources including zinc, lead, silver, copper, iron ore and aluminium. Vedanta also has a power business selling to the Indian domestic market.
Its other operations, all of which are focused on mining, lie in Zambia, South Africa, Namibia, Liberia, Sri Lanka, Australia and Ireland.
The FTSE 250 company said group revenue for the third quarter to the end of December fell by over 27% year-on-year to USD2.44 billion from USD3.36 billion, with every single one of its commodity segments reporting declines.
That led to earnings before interest, tax, depreciation and amortisation to more than halve to USD493.6 million from USD1.01 billion a year earlier. Although revenue fell from all of Vedanta's divisions in the quarter, its small iron-ore division reported a 59% rise in Ebitda whilst the copper segment experienced a 21% lift.
Production in the quarter was mixed, with lower commodity prices either offsetting production growth or exacerbating production falls.
Average daily interest production of oil and gas in the quarter was down 6% year-on-year, with all three of Vedanta's Indian fields reporting decreases, but the power division in the country saw sales increase 10% in the period.
Zinc production from India was up 5% in the quarter but its assets outside of the country reported a large 36% drop in zinc production. Vedanta's copper assets in India produced 11% less in the quarter than a year ago, but its copper operations outside of the country managed to increase production by 1%.
Those results brought Vedanta's revenue in the first nine months of the current financial year to USD8.13 billion from USD9.81 billion a year ago, representing a 17% fall as weaker commodity prices hampered the company across the board.
The only segment of Vedanta to report a rise in revenue in the last nine months of 2015 was its power business in India, which reported a 5% year-on-year rise as power sales increased 19%. Unsurprisingly, the oil and gas division reported the largest fall in revenue, of 46%, thanks to lower production and a 48% fall in the average price Vedanta received for its product.
Iron ore, which also has seen prices plummet since a year ago and only accounts for a small amount of Vedanta's business, reported a 17% fall in revenue in the period whilst the copper division experienced a 14% fall. However, copper also was the company's only commodity to see earnings grow in the current financial year.
Ebitda for the first nine months of the financial year fell by 43% to USD1.77 billion from USD3.12 billion - with copper being the only division to manage a rise in earnings, of 18%, solely driven by its operations in India and Australia, offsetting a substantial Ebitda fall from the division's operations in Zambia.
Despite its 59% improvement in Ebitda in the third quarter, the small iron ore division's Ebitda almost halved in the full nine-month period, whilst the much-larger oil and gas division's Ebitda dropped a staggering 65%.
Vedanta's much larger zinc division generates almost half of the company's overall earnings and is primarily driven by its assets in India. The division reported an 18% year-on-year fall in Ebitda in the first three quarters to USD856.1 million from USD1.04 billion, as revenue dropped 10% to USD1.96 billion from USD2.19 billion.
The miner's Indian zinc operations accounts for the majority of the division's earnings and reported a 3% fall in revenue in the nine-month period and a 10% fall in Ebitda, whilst its zinc operations outside of India saw revenue fall 36%, leading to a 64% fall in Ebitda.
Production remained resilient in the first three quarters, although many segments reported small falls.
Average daily interest oil and gas production, which comes from Vedanta's flagship India operations, was down 3% in the nine months, as declines in production from the Cambay and Rajasthan fields offset a 5% lift from the Ravva field.
Refined zinc and lead production from Vedanta's mines in India both increased by 17% each in the first nine months, whilst silver production rose by 23% - however silver prices were 18% lower than a year earlier. Zinc production from operations outside of India offset those gains, reporting a 24% year-on-year fall.
The copper division saw production from its Indian operations rise 6% whilst the assets in Zambia produced 13% more than a year ago. Iron ore production and sales also were both significantly up from a year ago, with sales more than doubling.
"In the weak commodity price environment, we remain committed to optimising our operations, leveraging our high-quality asset base, and proactively managing our balance sheet," said Tom Albanese, Vedanta's chief executive.
"I am encouraged to see the positive results of our cost-reduction programme gaining momentum, and believe that this relentless focus on efficiency will not only make our business more resilient through the cycle but position us favourably for any future improvement in market conditions," he added.
At the end of 2015, Vedanta's financial position "remains robust", it said, despite gross and net debt rising to USD16.80 billion and USD8.60 billion, respectively, from USD16.50 billion and USD7.50 billion at the end of September 2015.
Debt rose in the final quarter of the year due to project capital expenditure, the "unwinding of working capital", external dividend payments by subsidiaries, and the translation of rupee-denominated cash balances being hit by foreign exchange rates.
By Sam Unsted; [email protected]; @SamUAtAlliance. Updated by Joshua Warner; [email protected]; @JoshAlliance.
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