4th Jul 2017 13:48
Vedanta Resources plc
16 Berkeley Street
London W1J 8DZ
Tel: +44 (0) 20 7499 5900
Fax: +44 (0) 20 7491 8440
www.vedantaresources.com
4 July 2017
Vedanta Resources plc (the 'Company')
Publication of Annual Report and Accounts FY2017
Following the release, on 24 May 2017, of the Company's preliminary results for the year ended 31 March 2017, the Company announces that it has published its Annual Report and Accounts FY2017 which is available to view on the Company's website at www.vedantaresources.com.
Hard copies of the Annual Report and Accounts FY2017 will be sent, in due course, together with the Notice of 2017 Annual General Meeting and other ancillary documents in respect of the 2017 Annual General Meeting to those shareholders who have elected to continue to receive paper communications.
A copy of the Annual Report and Accounts FY2017 has been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.
The Company's 2017 Annual General Meeting will be held at 3.00 p.m. on 14 August 2017 at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.
The Appendix to this announcement contains the following additional information which has been extracted from the Annual Report and Accounts FY2017 for the purposes of compliance with DTR 6.3.5 only:
· a description of principal risks and uncertainties;
· a note on related party transactions; and
· the Directors' Responsibilities Statements.
The Appendix should be read in conjunction with the Company's preliminary results announcement issued on 24 May 2017 (including the notice on forward looking statements included in that announcement). Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts FY2017. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts FY2017 and terms defined in that document have the same meanings in these extracts.
Appendix
Related Party Transactions
Sterlite Technologies Limited ('STL')
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Sales to STL | 127.8 | 140.4 |
Recovery of expenses | 0.0 | 0.2 |
Purchases | 2.6 | 1.1 |
Net Interest Income | 1.3 | 0.2 |
Net amounts receivable at year end | 4.0 | 0.2 |
Net amounts payable at year end | 0.2 | 1.4 |
Outstanding advance received at year end | 2.1 | 0.0 |
Dividend Income | 0.1 | 0.0 |
Investment in Equity Share | 9.2 | 6.5 |
Sterlite Technologies Limited is related by virtue of having the same controlling party as the Group, namely Volcan. Pursuant to the terms of the Shared Services Agreement dated 5 December 2003 entered into by the Company and STL, the Company provides various commercial services in relation to STL's businesses on an arm's length basis and at normal commercial terms. For the year ended 31 March 2017, the commercial services provided to STL were performed by certain senior employees of the Group on terms set out in the Shared Services Agreement. The services provided to STL in this year amounted to US$0.03 million (2016: US$0.02 million).
Sterlite Power Transmission limited ('SPTL').
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Sales to SPTL | 2.6 | - |
Purchases | 0.4 | - |
Investment in Equity Share | 1.5 | - |
Sterlite Power Transmission limited ('SPTL') is related by virtue of having the same controlling party as the Group, namely Volcan.
Vedanta Foundation
During the year US$10.2 million was paid to the Vedanta Foundation including the value of land and a flat given as donation. (2016: US$0.5 million). The Vedanta Foundation is a registered not-for-profit entity with a broad focus mainly on education, nutrition and livelihood. The Vedanta Foundation is a related party as it is controlled by members of the Agarwal family who control Volcan. Volcan is also the majority shareholder of Vedanta Resources plc.
Sesa Goa Community Foundation Limited
Following the acquisition of erstwhile Sea Goa Limited, the Sesa Goa Community Foundation Limited, a charitable institution, became a related party of the Group on the basis that key management personnel of the Group have significant influence on the Sesa Goa Community Foundation Limited. During the year ended 31 March 2017, US$0.3 million (2016: US$0.4 million) was paid to the Sesa Goa Community Foundation Limited.
Sterlite Iron and Steel Limited
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Loan balance receivable | 0.7 | 0.7 |
Net amount receivable at year end (including interest) | 1.9 | 1.8 |
Net Interest Income | 0.1 | 0.1 |
Sterlite Iron and Steel Limited is a related party by virtue of having the same controlling party as the Group, namely Volcan.
Vedanta Medical Research Foundation
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Donation | 5.2 | 2.7 |
Vedanta Medical Research Foundation is a related party of the Group on the basis that key management personnel of the Group exercise significant influence.
Volcan Investments Limited
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Net amount receivable at the year end | 0.4 | 0.2 |
Recovery of expenses | 0.2 | 0.3 |
Dividend paid | 93.7 | 75.0 |
Volcan Investments Limited is a related party of the Group by virtue of being an ultimate controlling party of the Group.
Bank guarantee has been provided by the Group on behalf of Volcan in favour of Income tax department, India as collateral in respect of certain tax disputes of Volcan. The guarantee amount is US$17.7 million (2016: US$17.3 million).
Ashurst LLP
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Services received during the year | - | 0.1 |
Ashurst LLP is a related party of the Group on the basis that an independent director of the Group was a partner in the legal firm Ashurst LLP during the year ended 31 March 2016. It ceased to be a related party from 1 May 2015 onwards.
Employees Provident Fund Trust
Details of transactions during the year with post retirement trusts. The below mentioned trusts are related parties because these are employee trusts.
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 | |
Balco Employees Provident Fund Trust | 0.7 | 1.7 | |
Hindustan Zinc Ltd. Employee Contributory provident fund trust | 4.6 | 5.0 | |
Sesa Group Employees Provident Fund | 3.6 | 2.4 | |
Sesa Resources Limited Employees Provident Fund | 0.2 | 0.3 | |
Sesa Mining Corporate Limited Employees Provident Fund | 0.3 | 0.3 | |
Remuneration of Key Management Personnel
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Short-term employee benefits | 20.0 | 20.0 |
Post-employment benefits | 1.0 | 0.9 |
Share-based payments | 3.9 | 3.6 |
| 24.9 | 24.5 |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise).
Other related party#
(US$ million)
| Year ended 31 March 2017 | Year ended 31 March 2016 |
Salary paid | 1.2 | 1.1 |
# close relative of the executive chairman
In addition to above sitting fees & commission of US$34,726 (previous year US$34,371) was also paid.
Principal Risks
As a global natural resources organisation, our businesses are exposed to a variety of risks. We recognise the importance of identifying and actively managing the risks facing the Group. It is therefore essential to have in place the necessary systems and a robust governance framework to manage associated risks, while balancing the relative risk reward equation demanded by stakeholders.
Our risk management framework serves to identify, assess and respond to the principal and emerging risks facing the Group's businesses. It is designed to be simple and consistent and provide clarity on managing and reporting risks to the Board. Our management systems, organisational structures, processes, standards and Code of Conduct and Ethics together form the system of internal control that governs how the Group conducts its business and manages the associated risks. The Board regularly reviews the internal control system to ensure that it remains effective. The Board's review includes the Audit Committee's report on the risk matrix, significant risks and actions put in place to mitigate these risks. Any weaknesses identified by the review are addressed by enhanced procedures to strengthen the relevant controls and these are in turn reviewed at regular intervals.
The effective management of risk is critical to support the delivery of the Group's strategic objectives. Risk management is therefore embedded in critical business activities, functions and processes. The risk management framework helps the organisation meet its objectives by aligning operating controls with the mission and vision of the Group set by the Board.
Materiality and risk tolerance are key considerations in our decision-making. The responsibility for identifying and managing risk lies with all the managers and business leaders.
The Board has the ultimate responsibility for management of risks and for ensuring the effectiveness of internal control systems. The risk management framework is designed to manage rather than eliminate the risk of failure to achieve business objectives, and provides reasonable and not absolute assurance against material misstatement or loss. The Audit Committee aids the Board in this process by identification and assessment of any changes in risk exposure, review of risk control measures and remedial actions, where appropriate.
The Audit Committee is in turn supported by the Group-level Risk Management Committee which assists the Audit Committee in evaluating the design and operating effectiveness of the risk mitigation programme and the control systems. The Group Risk Management Committee (GRMC) comprises the Group Chief Executive Officer, Group Chief Financial Officer, Director of Finance and Director - Management Assurance and meets every quarter. The Group Head of HSE is invited to attend these meetings. GRMC discusses key events impacting the risk profile, emerging risks and progress against planned actions.
In addition to the above structure, other key risk governance and oversight committees include the following:
· CFO Committee which has an oversight of the treasury related risks. This committee comprises the Group CFO, business CFOs, Group Treasury Head and Treasury Heads at respective businesses;
· Group Capex Sub-Committee which evaluates the risks associated with any capital investment decisions and institutes a risk management framework in expansion projects; and
· Vedanta Sustainability Committee which looks at sustainability-related risks. The Sustainability Committee is chaired by a Non-Executive Director and the Group Chief Executive Officer is a member.
Vedanta's risk management and internal control system is aligned to the recommendations in the FRC's revised guidance 'Risk management, internal control and related financial and business reporting' (the Risk Guidance). The Group has a consistently applied methodology for identifying risks at the individual business level for existing operations and for ongoing projects.
The Group's risk appetite is set by the Board. It has been defined taking into consideration the Group's risk tolerance level and is clearly linked to its strategic priorities. The risk appetite forms the basis of the Board's assessment and prioritisation of each risk based on its likely impact on the business operations. A risk scale aligned to the Board's overall risk appetite and consisting of qualitative and quantitative factors has been defined to facilitate a consistent assessment of the risk exposure across the Group.
At a business level, formal discussions on risk management occur at review meetings held at least once a quarter. The respective businesses review their major risks, and changes in their nature and extent since the last assessment, and discuss the control measures which are in place and further action plans. The control measures stated in the risk matrix are also periodically reviewed by the business management teams to verify their effectiveness. These meetings are chaired by business chief executive officers and attended by CXOs, senior management and appropriate functional heads. Risk officers have been formally nominated at each of the operating businesses as well as at Vedanta level, whose role is to create awareness of risks at senior management level and to develop and nurture a risk management culture within the businesses. Risk mitigation plans form an integral part of the performance management process. Structured discussions on risk management also happen at business level with regard to their respective risk matrix and mitigation plans. The leadership team in the businesses is accountable for governance of the risk management framework and they provide regular updates to the GRMC.
Each of the businesses have developed its own risk matrix of Top 20 risks which is reviewed by their respective management committee/executive committee, chaired by their respective chief executive officers. In addition, each business has developed its own risk register depending on the size of its operations and number of SBUs/locations. Risks across these risk registers are aggregated and evaluated and the Group's principal risks are identified based on the frequency, potential magnitude and potential impact of the risks identified. Employees are also encouraged to take advantage of smart opportunities within the parameters of the risk appetite set by the Board.
This element has been an important component of the overall internal control process by which the Board obtains assurance. The scope of work, authority and resources of Management Assurance Services (MAS) are regularly reviewed by the Audit Committee. The responsibilities of MAS include recommending improvements in the control environment and reviewing compliance with our philosophy, policies and procedures. The planning of internal audit is approached from a risk perspective. In preparing the internal audit plan, reference is made to the risk matrix, inputs are sought from senior management, business teams and members of the Audit Committee. In addition, reference is made to past audit experience, financial analysis and the current economic and business environment.
Each of the principal subsidiaries has in place procedures to ensure that sufficient internal controls are maintained. These procedures include a monthly meeting of the relevant management committee and quarterly meeting of the audit committee of that subsidiary. Any adverse findings are reported to the Audit Committee. The Chairman of the Audit Committee may request MAS and/or the external auditor to focus their audit work and report to him on specific areas of risk identified by the risk management and internal control framework. The findings by MAS are presented monthly to the Executive Committee and to the Audit Committee periodically. Due to the limitations inherent in any system of internal control, this system is designed to meet the Group's particular needs and the risks to which it is exposed rather than eliminate risk altogether. Consequently it can only provide reasonable and not absolute assurance against material misstatement or loss.
Principal Risks and Uncertainties
Vedanta's principal risks and uncertainties as set out below may impact the following areas of the Group's business:
Area | Impact |
Business model (BM) | Ability to conduct our operations across the value chain in order to generate revenue and make profit from operations. |
Future performance (FP) | Ability to deliver on our financial plans in short/medium term. |
Solvency (S) | Ability to meet all our financial obligations. |
Liquidity (L) | Ability to meet our short-term obligations/liabilities as they fall due. |
Health, safety, environment and communities (HSEC) | Ability to send our employees and contractors home safe and healthy every day and work with our communities and partners to achieve the Group's sustainable development goals. |
Reputation (R) | Ability to maintain investor confidence and our social licence to operate. |
The order in which these risks appear in the section below does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their impact on our business. The risk direction of each risk was reviewed based on events, economic conditions, changes in business environment and regulatory changes during the year. While Vedanta's risk management framework is designed to help the organisation meet its objectives, there can be no guarantee that the Group's risk management activities will mitigate or prevent these or other risks from occurring. Our approach is not intended to eliminate risk entirely, but rather to provide the structural means to identify, prioritise and manage the risks involved in our activities in order to support our value creation objectives.
The Board with the assistance of management carries out periodic and robust assessment of the principal risks and uncertainties of the Group (including those that threaten the business model, future performance, solvency or liquidity) and tested the financial plans for the Group for each of the principal risks and uncertainties mentioned below
Risk and Impact | Risk direction | Impact criteria | Mitigation |
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Access to capital |
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The Group may not be able to meet its payment obligations when due or may be unable to borrow funds in the market at an acceptable price to fund actual or proposed commitments. A sustained adverse economic downturn and/or suspension of its operation in any business, effecting revenue and free cash flow generation, may cause stress on the Company's financing and covenant compliance and its ability to raise financing at competitive terms. Any constraints on upstreaming of funds from the subsidiaries to the Group may affect the liquidity position at the Group level. | ▼ | Future performance
Solvency
Liquidity
Reputation | n Focused team working on completing the near term refinancing, reducing cost of borrowing, extending maturity profile & deleveraging the balance sheet. n Track record of good relations with banks and of raising borrowings in last few years. n Structured ramp-up of facilities to give better margins and help in loan repayments/interest servicing. n Regular discussions with rating agencies. Ratings have been upgraded. n Vedanta Limited and Cairn India merger has become effective. The merger with Vedanta Limited will de-risk Cairn India by providing access to a portfolio of diversified Tier-I, low cost, long-life assets, to deliver significant near term growth, while retaining the substantial upside from our oil & gas business. n Early redemption of 2018 bonds in line with the stated strategy to deleverage at Plc level and extend average debt maturity. n Group generates healthy cash flows from its current operations which, together with the available cash and cash equivalents and liquid financial asset investments, provide liquidity both in the short term as well as in the long-term. n Continued compliance with the group's treasury policies which govern our financial risk management practices.
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Extension of Production Sharing Contract of Cairn beyond 2020 or extension at less favourable terms |
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Cairn India has 70% participating interest in Rajasthan Block. The production sharing contract (PSC) of Rajasthan Block runs till 2020. Challenges in extension of production sharing contract of Cairn (beyond 2020) or extension at less favourable terms may have implications. | ▼ | Business Model
Future performance
Liquidity
Solvency | n Ongoing dialogue with the Government and relevant stakeholders. n The Indian Government has notified PSC extension policy for pre-NELP exploration blocks. This policy is applicable to 10 pre-NELP exploration blocks which includes Rajasthan (RJ-ON-90/1). This is being studied. |
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Challenges to operationalise investments in Aluminium and Power business |
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Some of our projects have been completed (pending commissioning) and may be subject to a number of challenges during operationalisation phase. These may include challenges around sourcing raw materials. | ◄► | Business Model
Future performance
Liquidity
Reputation | n Have commenced operationalisation of Jharsuguda and BALCO facilities. n Jharsuguda II pot failure rectification is in process. The first line is expected to be ramped up by Q3 FY2018. n Execution in progress for gradual completion of potlines. n OEMs engaged for health check as well as remediation of issues. They are also studying and strengthening protection systems. n Continuous focus on plant operating efficiencies improvement program to achieve design parameters, manpower rationalization, logistics infrastructure and cost reduction initiative. n Continue to pursue developing sources of bauxite. n Augmentation of experienced resources for potroom. n Continuous augmentation of power security and infrastructure. n Supply of coal has commenced from the coal linkages secured earlier this year. n Rolled product facility at BALCO re-commenced its operations in Q2 FY2017. n Two streams of the Lanjigarh refinery operated during the year. n Continuing our efforts to secure key raw material linkages for our alumina/aluminium business. Various infrastructure related challenges are being addressed. n Strong management team continues to work towards sustainable low cost of production, operational excellence and securing key raw material linkages. n TSPL matters are being addressed in a structured manner by a competent team.
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Operational turnaround at KCM |
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Lower production and higher cost at KCM may impact our profitability. | ▲ | Business Model
Future performance
Liquidity
Reputation | n Management team reviewing operations and engaging with all stakeholders in light of operating challenges. Focus at Konkola is to improve efficiency, equipment availability, dewatering and enhance volumes. Committed to improving KCM operating performance. n Several cost-saving initiatives and restructuring reviews under way at KCM to preserve cash. n Process improvement actions put in place through focused operating teams to improve production performance. n Working on the engineering design for accelerated dewatering and development to increase production from the Konkola Mine n Elevated temperature leach project to improve recoveries at the Tailings Leach Plant, has been commissioned and is currently under stabilisation. Planning and engineering for phase II of the elevated temperature leach initiated. n Strategically working on outsourcing model for maintenance activities to improve asset availability. n Commenced trial mining at Nchanga underground mine and initial results for recovery and mining productivity promising n VAT refunds are being pursued.
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Discovery risk |
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Increased production rates from our growth oriented operations place demand on exploration and prospecting initiatives to replace reserves and resources at a pace faster than depletion. A failure in our ability to discover new reserves, enhance existing reserves or develop new operations in sufficient quantities to maintain or grow the current level of our reserves could negatively affect our prospects. There are numerous uncertainties inherent in estimating ore and oil & gas reserves, and geological, technical and economic assumptions that are valid at the time of estimation. These may change significantly when new information becomes available. | ◄► | Business Model
Future performance | n Strategic priority is to add to our reserves and resources by extending resources at a faster rate than we deplete them, through continuous focus on drilling and exploration programme. n Appropriate organisation and adequate financial allocation in place for exploration. n Dedicated exploration cell with continuous focus to enhance exploration capabilities. n Exploration-related systems being strengthened and new technologies being utilised wherever appropriate. n International technical experts and agencies are working closely with our exploration team to build on this target. n Continue to work towards long-term supply contracts with mines to secure sufficient supply where required.
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Transitioning our zinc and lead mining operations from open pit to underground mining |
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Our zinc and lead mining operations in India are transitioning from an open pit mining operation to an underground mining operation. Difficulties in managing this transition may result in challenges in achieving stated business milestones. | ▼ | Future performance
Liquidity | n Strong separate empowered organisation working towards ensuring a smooth transition from open pit to under-ground mining. n Internationally renowned engineering and technology partners on this project. n Strong focus on safety aspects in the project. n Geo-technical audits are being carried out by independent agencies. n Reputable contractors have been engaged to ensure completion of the project on indicated time lines. n Mines being developed using best in class technology and equipment and ensuring the highest level of productivity and safety. n Stage gate process to review risks and remedy at multiple stages on the way. Robust quality control procedures have also been implemented to check safety and quality of services/design/actual physical work.
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Fluctuation in commodity prices (including oil) |
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Prices and demand for the Group's products are expected to remain volatile/uncertain and strongly influenced by global economic conditions. Volatility in commodity prices and demand may adversely affect our earnings, cash flow and reserves. | ◄► | Business Model
Future performance
Solvency
Liquidity | n Pursue low-cost production, allowing profitable supply throughout the commodity price cycle n Structured cost reduction programme delivering transformational improvements will reset our cost base to the lowest possible level. n Continued focus on manpower rationalisation and deriving value out of procurement synergies across locations. n Group has a well-diversified portfolio which acts as a hedge against fluctuations in commodities and delivers cash flows through the cycle. n Vedanta considers exposure to commodity price fluctuations to be an integral part of the Group's business and its usual policy is to sell its products at prevailing market prices and not to enter into price hedging arrangements other than for businesses of custom smelting and purchased alumina, where back-to-back hedging is used to mitigate pricing risks. n The Group monitors the commodity markets closely to determine the effect of price fluctuations on earnings, capital expenditure and cash flows. The CFO Committee reviews all commodity-related risks and suggests necessary courses of action as needed by business divisions. n Continued compliance with the groups treasury policies which govern our financial risk management practices. n Continuous focus on cost control and cost reduction. |
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Currency exchange rate fluctuations |
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Our assets, earnings and cash flows are influenced by a variety of currencies due to the diversity of the countries in which we operate. Fluctuations in exchange rates of those currencies may have an impact on our financials.
| ◄► | Business Model
Future performance
Solvency
Liquidity | n Forex policy prohibits speculation in forex. n Robust controls in forex management to hedge currency risk liabilities on a back-to-back basis. n CFO Committee reviews our forex-related matters periodically and suggests necessary courses of action as may be needed by businesses from time to time, and within the overall framework of our forex policy. n Seek to mitigate the impact of short-term movements in currency on the businesses by hedging short-term exposures progressively based on their maturity. However, large or prolonged movements in exchange rates may have a material adverse effect on the Group's businesses, operating results, financial condition and/or prospects. n At the time of borrowing decisions, appropriate sensitivity analysis is carried out for domestic borrowings vis-à-vis overseas borrowings. n Notes to the financial statements in the Annual Report give details of accounting policy followed in computation of currency translation impact. We continue to monitor the currency translation impact and highlight this separately in the financials to give appropriate perspective. |
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Tax related matters |
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Our businesses are in a tax regime and changes in any tax structure or any tax related litigation may impact our profitability. | ◄► | Solvency
Liquidity
Reputation | n Robust organisation in place at Business Division and Group level to handle tax-related matters. n Engage, consult and take opinion from reputable tax consulting firms. Reliance is placed on appropriate legal opinion and precedence. n Continue to take appropriate legal opinions and actions on the tax matters to mitigate the impact of these actions on the Group and its subsidiaries.
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Breaches in information/IT security |
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Like many other global organisations, our reliance on computers and network technology is increasing. These systems could be subject to security breaches resulting in theft, disclosure or corruption of key/strategic information. Security breaches could also result in misappropriation of funds or disruptions to our business operations. A cyber security breach could have an impact on business operations. | ▲ | Future performance
Reputation | n Chief Information Security Officer (CISO) at Group level focuses on formulating necessary frameworks, policies, procedures and for leading any agreed group wide initiatives to mitigate risks. n Group level standards and policies to ensure uniformity in security stance & assessments n Various initiatives taken up to strengthen IT/cyber security controls in last few years. n Cyber security risk being addressed through increased standards, ongoing monitoring of threats and awareness initiatives throughout the organisation. n IT system is in place to monitor logical access controls. n Continue to carry out periodic IT security reviews by experts and improve IT security standards.
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Political, legal and regulatory risk |
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We have operations in many countries around the globe, which have varying degrees of political and commercial stability. The political, legal and regulatory regimes in the countries we operate in may result in higher operating costs, restrictions such as the imposition or increase in royalties or taxation rates, export duty, impact on mining rights/ban and change in legislation pertaining to repatriation of money. We may also be affected by the political acts of governments including resource nationalisation and legal cases in these countries over which we have no control. | ◄► | Business Model
Future performance
Reputation | n The Group and its business divisions monitor regulatory and political developments on an ongoing basis. n BU teams identify and meet regulatory obligations and respond to emerging requirements. n Focus has been to communicate our responsible mining credentials through representations to government and industry associations. n Continue to demonstrate the Group's commitment to sustainability by proactive environmental, safety and CSR practices. Ongoing engagement with local community/media/NGOs on these matters. n SOX compliant subsidiaries. n Online portal for compliance monitoring. Appropriate escalation and review mechanisms are in place. n Competent in-house legal organisation exists at all the businesses and the legal teams have been strengthened with induction of senior legal professionals at all businesses. n Standard Operating Procedures (SOPs) have been implemented across businesses for compliance monitoring. n Contract management framework has been strengthened with the issue of boiler plate clauses across the group which will form part of all contracts. All key contract types standardized. n Involvement of legal in decision making process is being reinforced. n Framework for monitoring performance against Anti Bribery& Corruption guidelines is also in place. |
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Community relations |
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The continued success of our existing operations and future projects are in part dependent upon broad support and a healthy relationship with the respective local communities. Failure to identify and manage local concerns and expectations can have a negative impact on relations with local communities and therefore affect the organisation's reputation and social licence to operate and grow. | ◄► | Business Model
Future performance
HSEC
Reputation | n CSR approach to community programmes is governed by the following key considerations: the needs of the local people and the development plan in line with the new Companies Act in India, CSR guidelines, UN Millennium Development Goals (UNMDG) and also CSR National Voluntary Guidelines of Ministry of Corporate Affairs, Government of India and UN's sustainable development goals. n Board level CSR Committee comprising Independent Directors, Full-Time Directors and CEO decides focus areas of CSR, budget and programmes of respective businesses. n Sustainable development programmes are driven by stakeholder engagement and consultation along with baseline studies and needs-based assessments. n Periodic meetings with existing and potential SRI Investors, lenders and analysts and hosting of maiden Sustainable Development Day in London helps in two-way engagement and understanding the material issues for stakeholders. n Every business has a dedicated CSR team. Key focus areas for CSR are health, nutrition, sanitation, education, sustainable livelihoods and female empowerment. Dedicated team of over 180 corporate social responsibility personnel. n Help communities identify their priorities through participatory need assessment programmes and work closely with them to design programmes that seek to make progress towards improvements in quality of life of local communities. n Our business leadership teams have periodic engagements with the local communities to build relations based on trust and mutual benefit. Our businesses seek to identify and minimise any potentially negative operational impacts and risks through responsible behaviour - acting transparently and ethically, promoting dialogue and complying with commitments to stakeholders. n Integration of sustainability objectives into long term plans.
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Emissions and climate change |
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Our global presence exposes us to a number of jurisdictions in which regulations or laws have been or are being considered to limit or reduce emissions. The likely effect of these changes will be to increase the cost for fossil fuels, impose levies for emissions in excess of certain permitted levels and increased administrative costs for monitoring and reporting. Increasing regulation of greenhouse gas (GHG) emissions, including the progressive introduction of carbon emissions trading mechanisms and tighter emission reduction targets is likely to raise costs and reduce demand growth. | ◄► | Business Model
Future performance
HSEC
Reputation | n Carbon forum with business representation monitors developments and sets out defensive policies, strategy and actions. n Defining targets and implementing action plans to reduce the carbon intensity of our operations. This will include: § Reduce emission intensity through technology, energy conservation and efficiency; § Increase renewable mix to the extent feasible; and § Increase green cover at our locations. n Engaging with government on carbon policies and innovation technologies. n Facilitate development and implementation of the adaptive measures in the community around our operations. n Institutionalize system to manage carbon risks and opportunities across the business over the life cycle of its products. n Engage with stakeholders in creating awareness and developing climate change solutions. n Monitor and report carbon emissions from the businesses in line with local standards as well as accepted international standards. n Increasing focus on renewable power obligations.
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Health, safety and environment (HSE) |
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The resources sector is subject to extensive health, safety, and environmental laws, regulations and standards. Evolving regulations, standards and stakeholder expectations could result in increased cost, litigation or threaten the viability of operations in extreme cases. | ◄► | HSEC
Business Model
Reputation | n Health, Safety and Environment (HSE) is a high priority area for Vedanta. Compliance with international and local regulations and standards, protecting our people, communities and the environment from harm and our operations from business interruptions are our key focus areas. n Vedanta has a Board level Sustainability Committee chaired by a non-executive director and of which the group CEO is a member which meets periodically to discuss HSE performance. n Appropriate policies and standards are in place to mitigate and minimise any HSE related occurrences. Structured monitoring and a review mechanism and system of positive compliance reporting are in place. n The Company has implemented a set of standards to align its sustainability framework with international practice. A structured sustainability assurance programme continues to operate in the business divisions covering environment, health, safety, community relations and human rights aspects and to embed our commitment at operational level. n HSE experts are also inducted from reputed Indian and global organisations to bring in best-in-class practices. n All businesses have appropriate policies in place for occupational health related matters supported by structured processes, controls and technology. Our operations ensure the issue of operational health and potential risk/obligations are carefully handled. Depending on the nature of the exposure and surrounding risk, our operations have different levels of processes, controls and monitoring mechanisms. n Strong focus on safety during project planning/execution with adequate oversight of contract workmen safety. n Report, investigate and share learnings from HSE incidents. Fatal accidents and injury rates have declined. n Building safety targets into performance management to incentivise safe behaviour and effective risk management n Leadership coaching being rolled out across businesses to make better risk decisions. n High potential actions closure and standards implementation discussed at Executive Committee level. n Critical environment controls being reviewed including measure, monitor and report requirements. n Leadership remains focused on a Zero-Harm culture across the organisation. Consistent application of 'Life-Saving' performance standards, introduction of making better risk decisions concept, quantitative risk assessments for critical risks and the formal identification of process safety risks with the focus on the implementation of controls are central to our improvement programme. We continue to improve on our safety investigations and follow-up processes.
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Talent/skill shortage risk |
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The Company's efforts to continue its growth and efficient operations will place significant demand on its management resources. Our highly skilled workforce and experienced management team is critical to maintaining its current operations, implementing its development projects and achieving longer-term growth. Any significant loss or diminution in the collective pool of Vedanta's executive management or other key team members could have a material effect on its businesses, operating results and future prospects. | ◄► | Future performance
Reputation | n Progressive HR policies and strong HR leadership have ensured that career progression, job rotation and job enrichment are focus areas for our businesses. n Continue to invest in initiatives to widen our talent pool. This is a priority area for the group. n Senior leadership actively involved in development of talent pool. n Talent management system in place to identify and develop internal candidates for critical management positions and processes to identify suitable external candidates. n Manpower optimisation across businesses ensuring proper skill development of employees. n Our performance management system is designed to provide reward and remuneration structures and personal development opportunities to attract and retain key employees. n Structured programme maps critical positions and ensures all such positions are filled with suitable candidates. n Established the Mining Academy in Rajasthan to develop an employee pool with enhanced underground mining skills. n Structured programme to develop a technically proficient employee pool. n Continued focus on improving diversity at all levels.
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Loss of assets or profit due to natural calamities |
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Our operations may be subject to a number of circumstances not wholly within the Group's control. These include damage to or breakdown of equipment or infrastructure, unexpected geological variations or technical issues, extreme weather conditions and natural disasters, any of which could adversely affect production and/or costs. | ◄► | Future performance
Reputation | n Vedanta has taken appropriate Group insurance cover to mitigate this risk. n External agency reviews the risk portfolio and adequacy of this cover and assists us in our insurance portfolio. n Our underwriters are reputed institutions and have capacity to underwrite our risk. n Established mechanism of periodic insurance review in place at all entities. However, any occurrence not fully covered by insurance could have an adverse effect on the Group's business. n Continue to focus on capability building within the Group.
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Tailings dam failure |
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A release of waste material leading to loss of life, injuries, environmental damage, reputational damage, financial costs and production impacts. Tailings dam failure is considered a catastrophic risk - i.e. a very high severity but very low frequency event that must be treated with the highest priority. | ◄► | Future performance
Reputation
HSEC
Business Model | n The Risk Management Committee included tailings dams on the Group Risk Register with a requirement for annual internal review and three-yearly external review. n Operation of tailings dams by suitable experienced personnel within the businesses. n Periodic audit of tailings dam facilities. n Management standard developed with business involvement. n Third-party expert assessment of the dams to identify tailings dams related risks largely completed across the group by reputable international firm and improvement opportunities / remedial work in line with best practice identified. "Dam Break" analysis to be done if needed to determine the impact should a dam fail and indicate the actions required to protect communities. n Individuals responsible for dam management have received training from reputed agency.
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Longer-Term Viability Statement
In accordance with provision C.2.1 of the UK Corporate Governance Code, the Directors have assessed the viability of the Group taking into account the Group's current position and the potential impact of the principal risks which could threaten the business model, future performance, solvency or liquidity of the Group.
Period of Viability Statement
As per provision C.2.2 of the UK Corporate Governance Code, the Directors have reviewed the length of time to be covered by the viability statement, particularly given its primary purpose of providing investors with a view of financial viability that goes beyond the period of the going concern statement. The Board of Directors have considered a three-year period appropriate for the longer-term viability testing on account of following key reasons:
· Commodity prices which are key to the Group's viability are difficult to forecast beyond three years.
· Capital allocation and refinancing plans are prepared for a period of three years.
· Conversion of exploration projects to mining typically requires three to five years.
· Internal financial modelling is performed over a three-year period.
In assessing the Group's longer-term viability, the going concern assumptions and financial model were used as the starting position. Severe but plausible risks were subsequently quantified both individually and in combination, to apply additional stress testing into the viability model. Details of the Group's principal risks are documented in the Principal Risks and Uncertainties part of this report. The Directors have considered the following risks as particularly relevant for assessing the longer-term viability:
· Decline in commodity prices.
· Delays in ramping up of aluminium production.
· Operational turnaround at KCM operations.
· Adverse outcomes of material legal and tax cases.
The Group remains viable under these severe but plausible scenarios taking into consideration the specific mitigations highlighted above and the Group's financing optionality. These include capital allocation and dividend policy flexibility and readily available access to lines of credit and alternative sources of finance.
Conclusion
While it is impossible to foresee all risks, and the combinations in which they could manifest, based on the results of this assessment and taking into account the Group's current position and principal risks, the Directors have assessed the prospects of the Group, over the next three years, and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over a period of three years from 1 April 2017.
Directors' Responsibility Statements
The Annual Report and Account FY2017 contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12. The responsibility statement is repeated here solely for the purpose of complying with DTR 6.3.5.
Each of the Directors in post as at 23 May 2017, the names and roles of whom are set out on pages 104-105 of the Annual Report and Accounts FY2017 confirms that to the best of their knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
For further information, please contact:
Communications | Finsbury |
Roma Balwani President - Group Communications, Sustainability and CSR Tel: +91 22 6646 1000
| Daniela Fleischmann Tel: +44 20 7251 3801 |
Investors |
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Ashwin Bajaj Director - Investor Relations
Sunila Martis Associate General Manager - Investor Relations
Veena Sankaran Manager - Investor Relations | Tel: +44 20 7659 4732 Tel: +91 22 6646 1531 |
About Vedanta Resources
Vedanta Resources plc ("Vedanta") is a London listed diversified global natural resources company. The group produces aluminium, copper, zinc, lead, silver, iron ore, oil & gas and commercial energy. Vedanta has operations in India, Zambia, Namibia, South Africa, Ireland and Australia. With an empowered talent pool globally, Vedanta places strong emphasis on partnering with all its stakeholders based on the core values of trust, sustainability, growth, entrepreneurship, integrity, respect and care. To access the Vedanta Sustainable Development Report 2016, please visit http://sustainabledevelopment.vedantaresources.com/content/dam/vedanta/corporate/documents/Otherdocuments/SDreport2015-16/Vedanta%20SDR%20FY%2015-16.pdf. For more information on Vedanta Resources, please visit www.vedantaresources.com
Disclaimer
This press release contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should" or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets including the London Metal Exchange, fluctuations in interest and/or exchange rates and metal prices; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements
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