Final Results - Part 1

16th May 2007 07:03

Vedanta Resources PLC16 May 2007 Vedanta Resources Plc Preliminary Results for the Year Ended 31 March 2007 • Another year of record financial performance - Group revenue up 75.6% to $6,502.2 million and Group EBITDA up 145.4% to $2,703.0 million, driven by better prices and strong volume growth - Underlying EPS up 151.2% at 327 US cents - Free cash flow increased by 137.0% to $1,504.2 million - ROCE (excluding project capital work in progress) significantly higher at 78.5%, up from 37.9% - Final dividend proposed at 20 US cents per share bringing full year dividend to 35 US cents per share • Sector leading organic growth - $7.5 billion investment programme - First phase of $2.2 billion completed on time and within budget - The next phase of $5.3 billion under implementation and on schedule o Lanjigarh alumina refinery completed and ramping up in progress o Work progressing well on $2.1 billion Jharsuguda aluminium project o Expansion projects in HZL ahead of schedule and KCM on track o Work on 2,400 MW independent power project commenced • Leveraging established skills - $1.0 billion acquisition of Sesa Goa post year-end provides entry into very attractive iron ore business (in US$ millions, except as stated)--------------------------------------------------------------------------------Consolidated Group Results FY 2007 FY 2006 Change--------------------------------------------------------------------------------Revenue 6,502.2 3,701.8 75.6%EBITDA 2,703.0 1,101.5 145.4%EBITDA Margin 41.6% 29.8% - Operating Profit 2,505.9 943.8 165.5%Attributable Profit 934.2 373.5 150.1%Basic Earnings per Share (US cents) 325.6 130.2 150.1%Earnings per Share on Underlying Profit (US cents) 327.0 130.2 151.2%ROCE (excluding project capital work in progress) 78.5% 37.9% - --------------------------------------------------------------------------------Final Dividend (US cents per share) 20.0 14.3-------------------------------------------------------------------------------- "Vedanta Resources is emerging as an exceptional diversified mining company witha world class resource base. Our record of delivery continues with strongfinancial results and project completions on time and within budget. The $2.2billion of growth projects that we set out at the time of our IPO haveessentially been completed and a further $5.3 billion of projects are wellunderway, taking us towards our goal of one million tonnes in each of ourmetals." said Mr. Anil Agarwal, Chairman, Vedanta Resources plc. "Our projectpipeline is unique in our industry as is our proven ability to deliver organicgrowth. Together with our successful diversification into iron ore and power, we are in a strong position to deliver superior returns to our shareholders." For further information, please contact:Sumanth Cidambi [email protected] Director - Investor Relations Tel: +44 20 7659 4732 / Vedanta Resources plc +91 22 6646 1531 Faeth Birch Tel: +44 20 7251 3801Robin WalkerFinsbury About Vedanta Resources plcVedanta Resources plc is a London listed diversified metals and mining group.Its principal operations are located throughout India, with further operationsin Zambia, Australia and Armenia. The major metals produced are aluminium,copper, zinc, lead, iron ore and gold. For further information, please visitwww.vedantaresources.com. DisclaimerThis press release contains "forward-looking statements" - that is, statementsrelated to future, not past, events. In this context, forward-looking statementsoften address our expected future business and financial performance, and oftencontain words such as "expects," "anticipates," "intends," "plans," "believes,""seeks," "should" or "will." Forward-looking statements by their nature addressmatters that are, to different degrees, uncertain. For us, uncertainties arisefrom the behaviour of financial and metals markets including the London MetalExchange, fluctuations in interest and or exchange rates and metal prices; fromfuture integration of acquired businesses; and from numerous other matters ofnational, regional and global scale, including those of a political, economic,business, competitive or regulatory nature. These uncertainties may cause ouractual future results to be materially different that those expressed in ourforward-looking statements. We do not undertake to update our forward-lookingstatements. CHAIRMAN'S STATEMENT Performance in 2007I am delighted to report that our group has delivered another excellent year'sresult. We reported revenues of $6.5 billion, up 76% over last year with arecord EBITDA of $2.7 billion, up 145%. Return on capital employed (excludingcapital work in progress) more than doubled to 78.5%. Our portfolio of existingassets and completed expansion projects continue to yield superior performanceand we continue to make investments that will drive sustainable long-termgrowth. We are emerging as an exceptional diversified mining company with worldclass resources. Our record of delivery continues with project completions ontime and within budget and strong financial results. Accelerating organic growthWe are implementing a $7.5 billion organic growth programme. The $2.2 billionexpansion programme announced at the time of our IPO in December 2003 inaluminium, zinc and copper pipeline is now almost complete. The next phase ofour expansion announced at a total cost of $5.3 billion is now well underway.Aimed at creating one million tonnes in each of our metals, with industryleading capital costs and record time to commissioning, this offers a solidfoundation for continued growth and value creation. These growth projects arefully funded and we believe will deliver superior returns on our capitalinvestment. Rigorous discipline in evaluating projects and maintaining thefinancial flexibility of a strong balance sheet continue to underpin everysingle capital investment that we make. We began construction of a 2,400MW Independent Power Project in Jharsuguda, atan estimated cost of $1.9 billion, scheduled for completion in 2010. India haslarge thermal coal resources of over 250 billion tonnes. The coal industry is inthe process of government deregulation, which will enable us to obtain coalblocks for our power plants. Diversification through leveraging established skillsI am delighted to announce our 51% acquisition of Sesa Goa Ltd. ("Sesa"), a highquality iron ore company in India, for $1.0 billion, shortly after the year end.This acquisition is a natural fit for Vedanta and provides us with strong growthpotential by leveraging our established project and mining skills. It providesus with a strategic leadership position in an important bulk commodity andplaces us in an ideal position to capitalise on India's huge iron ore reserves,the world's third largest. Consolidation of minoritiesThe consolidation of our corporate structure remains a key pillar of ourstrategy. We have made significant strides on this front, with our share ofattributable profits currently at 51.5%, up from 36.7% in September 2003.However, I believe further significant opportunities lie ahead of us, in respectof our buyouts of the minority stakes in BALCO, KCM and HZL. I look forward toreporting progress on these initiatives during the year. Also, our recentacquisition of Sesa was accompanied by an open offer to acquire an additional20% of that company, which we expect to conclude by July of this year. PeopleThe past year demonstrates the power of literally tens of thousands of highcalibre individuals working together to move our organisation forward. It givesme great satisfaction to see where we are as a company as well as greatenthusiasm for Vedanta's future. The women and men of our company have drivensuperior results by executing our ambitious targets, while remaining true to ourvalues. The success story that I am able to report in this statement is due totheir passion, commitment and contribution which deserve the highest praise andrecognition. I would also like to thank all my fellow directors for their invaluablecontribution to our decision making and the healthy and constructive directionand support they provide our management team. Sustainable developmentSustainable development is an integral part of our business philosophy. Theprocesses and performance on safety, health, environment and communitydevelopment continue to evolve in line with the vision set out as part of ourHSE and social policies. Efforts in the areas of lost time injuries andconservation of natural resources such as water and energy yielded particularlypositive results. We lay much emphasis on enhancing the quality of life for the communities inwhich we operate. Our focus on health and education continues in partnershipwith local and regional authorities. The midday meal scheme in Chittorgarh,Rajasthan positively impacting the lives nearly two hundred thousand children isan initiative that is especially close to my heart. OutlookGlobal demand for metals continues to be strong on the back of strongconsumption from China, India and other emerging markets, supported by increasedactivity from industrial and infrastructure sectors. Economic and industrialgrowth in India will continue to drive double digit growth in our commodities.With our recently concluded acquisition of Sesa, our product portfolio nowmirrors India's rich resource deposits. Our project pipeline is unique in ourindustry as is our proven ability to deliver organic growth, resulting insuperior returns to our shareholders. Anil AgarwalChairman 15 May 2007 BUSINESS REVIEW Business Overview We are a diversified metals and mining group with principal operations in India,Australia and Zambia. We primarily produce aluminium, copper, zinc and lead. Ourgoal is to create a world class metals and mining business and generate strongfinancial returns for our shareholders. We seek to achieve this by: • optimising and realising the full potential of our assets and reducing unit costs of production, including maximizing throughput, debottlenecking of existing capacities, increasing operational efficiencies and plant availability, reducing energy costs and consumption, increasing automation, improving recoveries, reducing raw material costs and seeking better utilisation of by-products;• completing our growth pipeline projects within budget and on time to capitalise upon the growing demand for metals in India and abroad, particularly in China, South East Asia and Middle East;• consolidating our group structure and continuing to increase our ownership in the underlying businesses; and• leveraging established skills by seeking further growth opportunities in India and outside India in the metals and mining and related businesses. The key strengths of our businesses are: • world-class, high quality resources of global scale;• focus on operational excellence;• a strong competitive position in the growing Indian and Asian markets with a diversified portfolio;• experience in operating and expanding our business, allowing us to capitalise on the growth and resource potential of India;• management and execution teams with proven track record for value delivery and improving operational efficiency and profitability;• a strong pipeline of expansion projects; and strong cash flows and robust balance sheet to pursue world class projects. FY 2007 Performance Highlights Summary performance in FY 2007 is set out in the table below.--------------------------------------------------------------------------------(in $ million, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------RevenuesAluminium 993.4 453.0 119.3%Copper 3,569.3 2,241.3 59.3%-------------------------------------------------------------------------------- - India/Australia 2,553.4 1,537.9 66.0% - Zambia 1,015.9 703.4 44.4%--------------------------------------------------------------------------------Zinc 1,888.1 875.5 115.7%Others 51.4 132.0 (61.1%)-------------------------------------------------------------------------------- 6,502.2 3,701.8 75.6%-------------------------------------------------------------------------------- --------------------------------------------------------------------------------(in $ million, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------EBITDAAluminium 415.4 135.3 207.0%Copper 833.9 425.3 96.1%-------------------------------------------------------------------------------- - India/Australia 365.6 219.0 66.9% - Zambia 468.3 206.3 127.0%--------------------------------------------------------------------------------Zinc 1,453.9 532.9 172.8%Others (0.2) 8.0 (102.5%)-------------------------------------------------------------------------------- 2,703.0 1,101.5 145.4%-------------------------------------------------------------------------------- Operating ProfitAluminium 358.4 102.8 248.6%Copper 746.6 340.3 119.4%-------------------------------------------------------------------------------- - India/Australia 333.3 177.3 88.0% - Zambia 413.3 163.0 153.6%--------------------------------------------------------------------------------Zinc 1,402.8 489.5 186.6%Others (0.3) 12.9 (102.3%)Unallocated corporate expenses (1.6) (1.7) (5.9%)-------------------------------------------------------------------------------- 2,505.9 943.8 165.5%-------------------------------------------------------------------------------- EBITDA MarginAluminium 41.8% 29.9% NACopper 23.4% 19.0% NA-------------------------------------------------------------------------------- - India/Australia 14.3% 14.2% NA - Zambia 46.1% 29.3% NA--------------------------------------------------------------------------------Zinc 77.0% 60.9% NA--------------------------------------------------------------------------------Group 41.6% 29.8% NA-------------------------------------------------------------------------------- Group revenues in FY 2007 were $6,502.2 million, an increase of 75.6% comparedwith the previous year with EBITDA more than doubled at $2,703.0 million.Operating profit in FY 2007 was $2,505.9 million, an increase of 165.5% comparedwith $943.8 million in the previous year. These increases were primarily due tohigher volumes and better prices realised across all metals. The major increasein volume was in the aluminium business due to a substantial increase inproduction from the new Korba smelter and in zinc mined production leading toadditional sales of zinc and lead concentrate during the year. The revenue mix in FY 2007 has also changed primarily due to an increase incontribution from the Aluminium and Zinc Businesses, which more than doubled inabsolute terms compared with FY 2006. Similarly, the absolute contribution ofthe Aluminium and Zinc Businesses to the EBITDA was also significantly higherdue to higher revenue growth and higher EBITDA margins in these businesses ascompared with FY 2006. Operating costs were stable in all businesses, despite significant industry costpressures due to increase in inflation, freight, power costs and raw materialprices, except in respect of our Copper - Zambia operations where they haveincreased. EBITDA margin increased to 41.6% from 29.8% in the previous year primarily dueto higher production volumes, better price realisations and a change in theproduct and business mix. Capital employed increased from $2,350.7 million to $3,718.7 million, anincrease of $1,368.0 million. This was due to capitalisation of Phase 1expansion projects, capital expenditure during FY 2007 incurred in Phase IIprojects and the consequent increase in working capital. Despite this increase,ROCE (excluding capital work in progress) was 78.5% in FY 2007, up from 37.9% inthe previous year mainly due to improved productivity and higher metal prices. Aluminium Business Demand and MarketsWorld primary aluminium consumption increased from 32.0 million tonnes inCY 2005 to 34.7 million tonnes in CY 2006, an increase of 8.4%, and is expectedto grow at similar levels in the coming year primarily due to increased demandin China. Global production of primary aluminium increased from 32.0 milliontonnes in CY 2005 to 34.0 million tonnes in CY 2006, an increase of 6.3%, and isexpected to reach c38.0 million tonnes in CY 2007 due to rapid implementation ofnew capacity projects, ramp-up of idle capacities in China, smelter restarts inUSA and Germany and further expansions in India, Middle East, Russia and SouthAmerica. The majority of aluminium produced in India is consumed in the building andconstruction, transport, electrical appliance and equipment and packagingindustries. Indian demand for primary aluminium increased at a compound annualgrowth rate of 12.0% between CY2001-2006 on the back of high demand from theelectrical, construction and transportation sector. Electrical applicationscontinue to be the largest end-use sector in India, consuming approximately 35%of aluminium production in CY 2006 as a result of the continuing drive toprovide electricity throughout the country. Transport is also a major consumer,contributing approximately 22% of demand, although the average aluminium use inIndian-made automobiles is still approximately one-third of that in western-madeautomobiles. The demand in India is likely to be robust on the back of strongGDP growth and will grow at similar levels. Business OverviewOur aluminium business comprises two operating companies, BALCO and MALCO. BALCOis a partially integrated aluminium producer with two bauxite mines, onerefinery, two smelters, a fabrication facility and two captive power plants atKorba in central India. MALCO is a fully integrated producer with two bauxitemines, a captive power plant and refining, smelting and fabrication facilitiesat Mettur in southern India. Our primary products are aluminium ingots, rods androlled products. The performance of our Aluminium Business in FY 2007 is set out in the tablebelow.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------Production volumes (kt)- Alumina 299 296 1.0%- Aluminium 351 210 67.1%Average LME cash settlement prices ($/t) 2,663 2,028 31.3%Unit costs ($/t)- BALCO Plant 1 1,510 1,497 0.9%- BALCO Plant 2 1,687 2,045 (17.5%)- BALCO Plant 2 (excluding costs of alumina) 740 885 (16.4%)- MALCO 1,664 1,671 (0.4%)--------------------------------------------------------------------------------Revenue 993.4 453.0 119.3%EBITDA 415.4 135.3 207.0%EBITDA margin 41.8% 29.9% NAOperating profit 358.4 102.8 248.6%-------------------------------------------------------------------------------- Production PerformanceProduction of 351,000 tonnes of aluminium in FY 2007 was significantly higherthan the previous year's production of 210,000 tonnes, an increase of 67.1%.This was primarily due to an increase in production due to the full ramp-up ofour new Korba smelter, which produced 208,000 tonnes during the year. Thestabilisation process of our new Korba smelter was quicker than estimated and asa result the plant has consistently achieved rated capacity in the last twoquarters with the fourth quarter output at 62,000 tonnes. Our existing smeltersat BALCO and MALCO produced 143,000 tonnes in FY 2007, marginally higher thantheir rated capacity, as a result of continuous improvement efforts. The captivepower plants at Korba continue to operate at their rated capacity. Unit CostsThe unit costs of BALCO's existing plant were broadly stable at $1,510 per tonnein FY 2007 compared with $1,497 per tonne in the previous year. The increase isprimarily on account of higher input prices of carbon and fluoride which waslargely offset by savings in power costs due to better operational efficienciesachieved at the power plants. Unit costs at MALCO were also affected by similarfactors and were $1,664 per tonne, marginally down from $1,671 per tonne. The unit costs of BALCO's new plant were $1,687 per tonne in FY 2007, asignificant reduction from $2,045 per tonne in the previous year, primarily dueto the full ramp-up of the new Korba smelter coupled with a softening in globalalumina spot prices. Manufacturing costs excluding alumina reduced appreciablyto $740 per tonne compared with $885 per tonne in FY 2006, despite pressure oninput costs. The reduction was mainly due to the stabilisation of operatingparameters in the smelter and operational efficiencies at the 540MW captivepower plant. We continue to source alumina from third party vendors and achievedan average consumption cost of $947 per tonne of aluminium produced, a reductionfrom $1,160 per tonne in the previous year, mainly due to gradual softening ofglobal alumina prices. SalesWith the ramp-up of the new Korba smelter, a challenge was to increase our salessubstantially in both the domestic and export markets. We were able to increaseour market shares in the domestic market and also develop export markets inSouth East Asia, the Middle East and Europe. We achieved export volumes close to100,000 tonnes in FY 2007. We also obtained the LME registration for thealuminium ingots of the new Korba smelter under the brand "BHARATAL". This hasimproved the acceptability of our product and enabled an increase in premiumsrealised. We continue to focus on improving our sales mix in terms of a higher tonnage ofvalue added products such as rolled products, which rose by 26.1% in FY 2007 to58,000 tonnes, including exports of hot rolled products. Sales of wire rods havealso increased to 107,000 tonnes on the back of higher production from existingrod plants. These efforts will continue to maximize the share of value addedproducts. Financial PerformanceRevenues in our Aluminium Business in FY 2007 increased by 119.3% to$993.4 million, with EBITDA at $415.4 million, an increase of 207.0% comparedwith FY 2006. The increase was primarily due to the substantial increase inproduction volumes from the new Korba smelter, improved product mix and higherrealisations. ProjectsLanjigarh Alumina RefineryWork on the $800 million alumina project at Lanjigarh, Orissa, which includes a1.0-1.4 mtpa alumina refinery with an associated captive power plant iscomplete. One unit of the captive power plant was commissioned in February 2007.Progressive commissioning of the refinery has also commenced with the chargingof sourced bauxite in the last week of March 2007 in the first of the twostreams. After completion of the processing cycle, output of alumina willcommence by the end of the first quarter of the current fiscal year. As regards the environmental clearances for developing the Lanjigarh bauxitedeposits, the Ministry of Environment and Forests (MOEF) has received reportsfrom its various nominated subcommittees and has made its recommendation to theSupreme Court of India. The matter is still to be heard and decided by theSupreme Court of India. We are hopeful of a positive resolution of this mattersoon. Jharsuguda Aluminium SmelterWork on the first phase of the green-field 500,000 tpa aluminium smelter andassociated 1,215MW captive power plant in Jharsuguda, Orissa, at an estimatedinvestment of $2.1 billion is progressing well. Orders for critical equipmentfor the smelter and captive power plant have been placed with vendors. Theproject is on schedule with commissioning of the first phase of 250,000 tpa andfive units of 135 MW each of the captive power plant expected in the second halfof CY 2009. The second phase of 250,000 tpa with four units of 135 MW each ofthe captive power plant is expected to be complete by the end of CY 2010. Copper Business Demand and MarketsGlobal refined copper consumption increased from 16.9 million tonnes in CY 2005to 17.5 million tonnes in CY2006, an increase of 3.5% and is expected to grow atthe same rate in CY 2007, driven mainly by demand from the construction andpower sectors. Asia, including China, and Western Europe together account fornearly 72% of global refined copper consumption. With a compound annual growthrate of 7.6% between CY 2001-2006, Asia is currently the fastest growing coppermarket in the world and is expected to grow even more strongly, dominated by itsuse in electric wires and cables. Global refined copper production increased from 16.6 million tonnes in CY 2005to 17.4 million tonnes in CY 2006, an increase of 4.8%. Global production isexpected to further increase to 19.2 million in CY 2007, primarily due to thecommissioning of new smelters mainly in China, Africa, India and Japan. In India, refined copper consumption increased at a compound annual growth rateof 8.9% between CY 2001-2006. It was supported by strong growth in user segmentssuch as winding wires, power cables and other applications in construction,infrastructure and alloy segments, offset by a decline in demand for copper usedin jelly filled telecom cables. Refined copper consumption in India is expectedto grow in line with GDP growth. Business OverviewOur Copper Business comprises three major operations - Sterlite's customsmelting operations in India, CMT's mining operations in Australia and the KCMoperations in Zambia. Sterlite is the leading copper producer in India.Sterlite's copper operations include a smelter, refinery, phosphoric acid plant,sulphuric acid plant and copper rod plant at Tuticorin in Southern India, arefinery and two copper rod plants at Silvassa in Western India. In addition, weown the Mt. Lyell copper mine at Tasmania in Australia, which provides a smallpercentage of our copper concentrate requirements at Sterlite. KCM is a largeintegrated copper producer operating three copper mines, a smelter, a refineryand a tailings leach plant in Zambia. Copper - India/Australia The performance of our Copper - India/Australia business in FY 2007 is set outbelow.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 Change--------------------------------------------------------------------------------Production volumes (kt)- Mined metal content 28 34 (17.6%)- Cathodes 313 273 14.7%- Rods 178 167 6.6%Average LME cash settlement prices ($/t) 6,984 4,099 70.4%Unit costs (USc/lb) 6.1 6.1 -Realised TC/RCs (USc/lb) 31.1 23.1 34.6%--------------------------------------------------------------------------------Revenue 2,553.4 1,537.9 66.0%EBITDA 365.6 219.0 66.9%EBITDA Margin 14.3% 14.2% NAOperating Profit 333.3 177.3 88.0%-------------------------------------------------------------------------------- Production PerformanceProduction of copper cathodes at our Indian operations was 313,000 tonnes inFY 2007, an increase of 14.7% compared with FY 2006, primarily due to theinnovative debottlenecking of our Tuticorin smelter to 400,000 tpa. Productionis steadily ramping up and contributed 89,000 tonnes in the fourth quarter withproduction close to rated capacity in March 2007. As announced earlier, ourTuticorin smelter was under planned shutdown for eight days in April 2007 forcarrying out modifications and improvements at the sulphuric acid plant. Thesmelter is currently producing at its rated capacity. The production of copperrods was 178,000 tonnes in FY 2007, an increase of 6.6% compared with FY 2006. Mined metal production at our Australian mines was 28,000 tonnes in FY 2007against production of 34,000 tonnes in FY 2006. Production in FY 2006 includesoutput of 4,000 tonnes from TCM. TCM's operations were closed in the first halfof FY 2006. The production at our CMT mine was also impacted due to a temporarytwo-week disruption in the mining activities as a result of minor rock fallincident. Post investigation of the incident by an independent expert, the sitewas declared safe and mining activities, restored in the month of March 2007,have now picked up to normal levels of production. CMT supplies c. 9% of thetotal concentrate requirements of our Indian copper smelting operations. Unit CostsUnit conversion costs, which consists of costs of smelting and refining,remained the same at 6.1 USc/lb. Higher energy prices which impacted costs wereoffset by higher credit for free metal due to higher LME prices. We anticipatecosts of production to reduce further with increased volumes and improvedproductivity. TC/RCWe were largely insulated from volatility in the spot market during FY 2006since a large part of our total concentrate requirement was sourced through longterm contracts with mines including captive supplies from our CMT operations.Our TC/RC realisation was 31.1 USc/lb in FY 2007, up from 23.1 USc/lb in FY 2006as a result of favourable market conditions. Spot TC/RCs started softening at the beginning of CY 2007 as the concentratemarket has now moved to deficit primarily due to lower mine production globally.We continued to make good progress in our strategy of securing a majority of ourconcentrate feed requirement under long term contracts with mines. SalesSales in the domestic market increased 10.4% to 117,000 tonnes in FY 2007,primarily due to an increase in demand from the electrical and power sector. Weexported 195,000 tonnes of copper cathodes and copper rods, to our key overseasmarkets - the Middle East, China, Japan, Philippines and Thailand. We continueto develop a large customer base for the export of copper rods. Financial PerformanceRevenues in our Copper - India/Australia business increased 66.0% to$2,553.4 million in FY 2007, with a corresponding EBITDA of $365.6 million, upby 66.9%, compared with FY 2006. The increase in EBITDA was attributable mainlyto better TC/RCs, higher volumes and increased contribution from CMT as a resultof high copper prices, have more than offset the reduction in import tariff oncopper from 7.5% to 5.0%. These became effective from the last week ofJanuary 2007. Copper - Zambia The performance of our Copper - Zambia Business in FY 2007 is set out in thetable below.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------Production volumes (kt)- Mined metal content 84 99 (15.2%)- Cathodes 142 164 (13.4%)Average LME cash settlement prices ($/t) 6,984 4,099 70.4%Unit costs (USc/lb) 173.6 127.9 35.7%--------------------------------------------------------------------------------Revenue 1,015.9 703.4 44.4%EBITDA 468.3 206.3 127.0%EBITDA Margin 46.1% 29.3% NAOperating Profit 413.3 163.0 153.6%-------------------------------------------------------------------------------- Production PerformanceThe production of copper cathodes at Zambia was 142,000 tonnes for FY 2007,lower by 22,000 tonnes as compared with FY 2006. The production from ourtailings leach plant was 54,000 tonnes during FY 2007, lower by 13,000 tonnes ascompared with FY 2006, primarily on account of unstable plant operations due toa minor fire in July 2006 and a temporary stoppage in November 2006 with timetaken to re-stabilise the plant and its operating performance in terms ofthroughput and recovery. The production from Nkana smelter was 101,000 tonnes,lower by 9,000 tonnes compared with FY 2006, primarily due to a planned shutdowntaken in the second quarter of FY 2007 to install a new CT hood and improveequipment availability. Mined metal production during FY 2007 was also lower at84,000 tonnes compared with 99,000 tonnes in the previous year, due to lowequipment availability, lower developed reserves and frequent flooding indeclines at one of our production shafts. The production at our Konkola operations fell short of our expectations inFY 2007. We are taking several initiatives and measures to improve the plantreliability and equipment availability as well as improving recoveries andoperational efficiencies. In addition to supplementing the operating managementteam, we have engaged global consultants of repute in the fields of assetoptimization and productivity to support our operational improvementinitiatives. With these actions currently underway, we expect to reachproduction levels equivalent to 200,000 tonnes per annum in FY 2008. Unit CostsUnit costs of production (including mining) were 173.6 USc/lb for the yearcompared with 127.9 USc/lb in FY 2006. The primary reasons for this increase inunit costs were lower mined metal and finished copper production, increase inwage costs and other operating expenditure. The increase in wage costs and otheroperating expenditure reflects to some extent an industry-wide trend where costshave increased by c. 35 USc/lb over the last two years. Financial PerformanceFY 2007 revenues at our Zambia - Copper business increased by 44.4% to$1,015.9 million with a corresponding EBITDA of $468.3 million, an increase of127.0%, compared with FY 2006, primarily on account of the significant increasein LME copper prices of approximately 70%. ProjectsThe work on KDMP expansion project to increase the copper ore output from theKonkola mine to 6 million tpa is progressing well with orders for all majoritems including the concentrator placed. Work on the head gear foundation andcollar for the main shaft is now complete. Shaft sinking is progressing as perschedule and the main shaft has been sunk to a level of over 76 metres withvarious pipes and ventilation shafts on track. The basic engineering for the250,000 tpa Nchanga smelter expansion project is complete. Statutory clearancesare in place and construction activities are in full swing with most of thepiling and concreting work completed. Zinc Business Demand and MarketsGlobal zinc consumption increased from 10.6 million tonnes in CY 2005 to11.3 million tonnes in CY2006, an increase of 6.6%, and is expected to grow atsimilar rates fuelled by double-digit growth in China, India and other emergingmarkets. The key growth driver is demand from the steel galvanizing market,which is growing primarily due to robust demand from the automotive andautomotive parts industries. Global zinc production increased from 10.1 million tonnes in CY 2005 to10.6 million tonnes in CY 2006, an increase of 4.9%, and is expected to furtherincrease to 11.6 million tonnes in CY 2007 due to commissioning of new smelters. Consumption of refined zinc in India increased at a compound annual growth rateof 9% between CY2003-2006, primarily by the galvanising sector, which currentlyaccounts for an estimated 70% of total consumption. Galvanising is primarilyapplicable for sheet, tube and structural products. Applications in theconstruction and infrastructure sector are also increasing which will boost theoverall growth of the market. Business OverviewOur Zinc business is operated by HZL, India's leading and only fully integratedzinc-lead producer. HZL's zinc operations include three lead-zinc mines, twozinc smelters, one lead smelter and one lead-zinc smelter in the state ofRajasthan in North West India and one zinc smelter in the state of AndhraPradesh in South East India. The performance of our Zinc business in FY 2007 is set out in the table below.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------Production volumes (kt)- Mined metal content 505 472 7.0%- Refined metal 348 284 22.5%Average LME cash settlement prices ($/t) 3,581 1,614 121.9%Unit costs ($/t)- Including royalty 862 691 24.7%- Excluding royalty 606 575 5.4%---------------------------------------------------------------------------------Revenue 1,888.1 875.5 115.7%EBITDA 1,453.9 532.9 172.8%EBITDA Margin 77.0% 60.9% NAOperating Profit 1,402.8 489.5 186.6%-------------------------------------------------------------------------------- Production PerformanceMined metal production from all our mines was 505,000 tonnes in FY 2007, anincrease of 7.0% from FY 2006, primarily due to an increase in output from ourRampura Agucha mine. Total refined zinc metal production during FY 2007 was348,000 tonnes, compared with 284,000 tonnes in FY 2006, up by 22.5%. Theincrease in refined metal production was primarily due to the ramp-up of our newChanderiya hydro smelter, which produced 136,000 tonnes in FY 2007 and achieved13,500 tonnes in the month of March 2007, close to its rated capacity. The production of lead during the year was 45,000 tonnes as compared withprevious year production of 24,000 tonnes. The Ausmelt plant has now beenstabilized and we expect to achieve its rated capacity by the end of the secondquarter of the current financial year. Unit CostsUnit cost of production excluding royalties in FY 2007 was $606 per tonne,higher by $31 per tonne compared with FY 2006. Unit costs rose primarily due tolower realisation for by-products and higher manufacturing expenses, which werelargely offset by benefits from stabilization of the power plant. Royalties,which are LME-linked, were $256 per tonne in FY 2007 compared with $116 pertonne in FY 2006. Overall costs were at $862 per tonne in FY 2007 as comparedwith $691 per tonne in FY 2006. SalesWe sold 350,000 tonnes of zinc metal during the year in the domestic and exportmarkets, an increase of 8.3% over FY 2006 on the back of increased productionfrom the new Chanderiya hydro smelter. In addition to refined zinc metal, wealso sold 254,000 dry metric tonnes of zinc concentrate containing 133,000tonnes of equivalent metal and 59,000 dry metric tonnes of lead concentratecontaining 28,000 tonnes of equivalent metal. Financial PerformanceRevenues at our Zinc business more than doubled to $1,888.1 million with acorresponding EBITDA of $1,453.9 million, in FY 2007, primarily due to higherLME zinc prices, which more than doubled compared with the previous year, andhigher metal volumes. ProjectsConstruction activities for our second 170,000 tpa smelter at Chanderiya withits associated captive power plant are in full swing and on track forcommissioning earlier than scheduled, with all orders placed. The roaster plant,which is the first stage of the smelting process, has been completed. Theleaching and purification plant and cell-house are also on track for completionearlier than scheduled. Work on the associated captive power plant, and at theRampura Agucha concentrator to raise the milling capacity to 5.0 million tpa, isprogressing well. Progress overall is good and we expect to commission theproject about three months ahead of our earlier declared schedule date of early2008. Work on the smelter debottlenecking project to increase the zinc capacity by anadditional 88,000 tonnes and the new captive power plant of 80MW at our Zawarlocation is progressing well. All critical orders are placed and project will becompleted as per schedule by early 2008. In respect of our green energy project in the State of Gujarat and Karnataka, aturnkey contract for 125MW of wind power has been placed for setting up theproject. The first phase of 38.4MW wind power project was commissioned in March2007 in the State of Gujarat and is working satisfactorily. The other projectsin the State of Gujarat and Karnataka are under execution and on schedule forprogressive commissioning during the current financial year. Other Businesses Power Transmission Conductor BusinessOur non-core Power Transmission Conductor business was sold effective1 July 2006 as a going concern together with all associated liabilities to SOTL,a related party of our Group, for a consideration of $32.3 million. The termsfor sale of this non-core business was negotiated with SOTL on an arm's lengthbasis based on an independent valuation report. The loss arising on this salewas $2.3 million. Gold BusinessIn August 2006, we completed our acquisition of a majority stake in SGL, acompany engaged in gold mining and processing and listed on the Toronto StockExchange in Canada. SGL's principal assets are located in Armenia and include anopen pit gold mine at Zod and a gold processing plant at Ararat. The Zod minehas the potential to be a world class mine, with existing development potentialin addition to exploration upside. The equivalent gold production in FY 2007 was 17,662 ounces with lower outputduring the fourth quarter at 1,923 ounces. Mining operations were suspended inthe last quarter of FY 2007 pending resolution of some of the key clauses of theimplementation agreement entered into with the Government of the Republic ofArmenia. Whilst we continue to negotiate with the Armenian Government to resolvethese issues, we are also evaluating our options to exit this business if ournegotiations do not prove fruitful. Commercial Energy BusinessDuring the year, we announced a project to enter into the commercial energybusiness in India. This project involves setting up a 2,400MW (600MW x 4) greenfield coal based thermal power plant in Jharsuguda, Orissa at an estimated costof $1.9 billion. The power generated will be sold to the State ElectricityBoards and power trading companies in India. Preliminary design for the projectis complete with detailed engineering under progress. Pre-constructionactivities including soil investigation and area grading have started and theEPC contracts for the project have also been placed. Overall, the project is ontrack and as per schedule for progressive commissioning from December 2009 asannounced. Group Structure We continue to seek to increase our direct ownership of our underlyingbusinesses to derive additional synergies as an integrated group. We arecontinuing our discussions with the Government of India to buy its 49% stake inBALCO. We also continue to explore legal and other options to resolve thismatter. We expect this exercise to be concluded in the next few months. Our call option to buy the Government of India's 29.5% stake in HZL became duefor exercise anytime after 11 April 2007. We currently intend to exercise thisoption and will inform the markets appropriately. Our efforts to buy out ZCI's 28.4% stake in KCM continue. Currently, the matteris under arbitration which we expect will be decided by June 2007. The valuationexercise is expected to be completed shortly thereafter and we will decide onour future course of action depending on the outcome of the valuation exercise. People Our vision is to build an organisation with world class capabilities and a highperformance culture. We believe that for an organisation to flourish andconsistently deliver high performance, it must follow an engaging and focusedstrategy - in our case, achieving one million tonnes production in each of ourmetals, deliver operational excellence - become a low cost producer, have aperformance oriented culture and be a fast, flexible and flat organisation. We have a talent pool of around 25,000 employees, with over 5,000 professionalsin engineering, business management, human resources and finance. We recruitedc. 1,700 engineers and over 200 management and finance professionals for varioustechnical and management positions in the last three years. We continue toemphasise a well-defined process for the leadership development of ouremployees, where challenging assignments with commensurate responsibilities aregiven to deserving employees, even at a younger age. The "Stars of Business" isone such initiative which supports the organisation by creating successfulmanagers and empowering them to move far beyond their current roles andresponsibilities and unleash their confidence and ability to contribute as themost successful "Business Leaders of Tomorrow". In FY 2007, we initiated our "Global Leadership Programme" within the group,aimed at providing challenging learning opportunities in an internationalenvironment to young high-potential candidates. This initiative was kicked offwith c. 25 employees being exchanged between our Copper - Zambia and Indianoperations. We have several ongoing initiatives in the areas of learning and development.These include deputations to leadership development programmes at premiermanagement institutes in India, supplemented by large scale training efforts inskills and knowledge enhancement in operational areas by deputing engineers andtechnicians to globally benchmarked plants and technology/equipment suppliers.We invited project proposals from all our employees across all levels of ourorganisation in order to tap and develop their entrepreneurial skills. There aremultiple project proposals, in different stages of implementation, which play animportant part in developing the individual and simultaneously adding value toour organisation. We offer best in class compensation packages to facilitate induction andretention of people. This is supplemented by various variable pay andperformance-linked bonus schemes. We have a stock award programme called theLong Term Incentive Plan ("LTIP") which not only covers senior management butextends to relatively younger professionals in the organisation. The firsttranche of our LTIP programme awarded in 2004 came out with an excellentperformance on the TSR score-card with 100% vesting. This has created wealth andsignificantly motivated our employees. The LTIP scheme is an ongoing programmewith options issued in FY 2006 and 2007 as well to employees. Exploration Our exploration team in India comprising 22 geo-scientists with relevantexpertise is focused on identifying and delineating near-mine resources whichhave the potential to add significant value to our existing mining operations. As part of our ongoing exploration efforts, we have revisited the historicaldata and inducted expertise and talent together with relevant technologyadvancements, to enable a vigorous search for new discoveries in green-fieldareas. We constantly upgrade our technical skills for exploration activitiesacross all sites. We also continued to increase the allocation of resources andfunds in the field of exploration. In FY 2007, we spent $6 million on ourexploration efforts compared with less than $3 million in FY 2006. The mainexploration activities in FY 2007 were conducted in our zinc business and tosome extent at our CMT mine in Australia. Total zinc-lead reserves of 69.2 million tonnes as on 31 March 2006 including53.4 million tonnes at Rampura Agucha have improved significantly as a result ofongoing exploration activities including 40,000 meter drilling by HZL,post-depletion to feed production during the year. The results are currentlybeing vetted by consultants and will be shared in the near future. The ongoingexploration work at Sindesar Khurd site is showing encouraging results which islikely to add upon indicated resources significantly. Sustainable Development Sustainable development is an integral part of our business philosophy. Ourprocesses and performance on health, safety and environment ("HSE") have evolvedin tandem with our sustainable development goals. We stay committed to furtherimprove our performance in line with our HSE and Social Policy. This year we took a step forward in bringing more clarity and transparency ofour reported performance. We have aligned some of our performance objectives andtargets in accordance with the Global Reporting Initiative (GRI G3) guidelinesand have reported 10 core non-economic indicators highlighting our sustainabledevelopment performance. Our performance has shown positive trends on mostaspects. A dedicated team of 288 HSE experts and 40 Community Development experts (plus126 village extension workers) employed across our operations steer thesefunctions. Resources wherever required were allocated. During the year we havespent US$ 49.7 million on HSE related projects, which includes expenditures ofUS$ 22 million for environmental protection and investments in environmentalimprovement projects. These are over and above normal operating costs in theseareas. During FY 2007, our efforts in the fields of environment, safety and communitydevelopment initiatives were appreciated and we have received several nationaland international accolades. Business Outlook Global metal demand continues to be healthy, on the back of strong demand fromChina and other emerging markets including India. India demonstrated a GDPgrowth of slightly over 9% in FY 2007 with corresponding industrial growth at11% and is poised to grow at similar levels in FY 2008, with a focus oninfrastructure development, faster industrialisation and other growthinitiatives including a deregulation of power sector. At current estimates oflonger-term metal demand growth, the world will need an additional 2.0 milliontonnes of aluminium, 0.75 million tonnes of copper and 0.5 million tonnes ofzinc approximately per year, which augers well for our growth initiatives. Metal production across all our operations will improve in FY 2008 as a resultof full capacity utilisation of the expansion and debottlenecking initiativescompleted in FY 2007. With the improvement in productivity consequent toimprovement in volumes supplemented by other procurement and supply managementinitiatives, unit costs of production are also expected to reduce, towards ourvision of achieving top decile costs of production in each of our metals. Work on all of our projects is progressing well and we expect that they will bedelivered on schedule. The progressive increase in volumes coupled with our lowcost of production provides us with an excellent opportunity to take advantageof global demand growth and relatively insulate from a downside in the commoditycycle. FINANCE REVIEW The Finance Review provides a balanced and comprehensive analysis, including thekey business trends and financial performance during FY 2007, together with adiscussion on some of the factors that could affect the future financialperformance of the business. Background Our financial statements are prepared in accordance with International FinancialReporting Standards ('IFRS') as adopted for use in the European Union. Ourreporting currency is the US dollar. Key Financial Performance Indicators*----------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 FY 2005 FY 2004----------------------------------------------------------------------------------EBITDA 2,703.0 1,101.5 454.0 322.7Underlying EPS (US Cents per share) 327.0 130.2 48.9 26.6Free Cash Flow 1,504.2 634.8 204.4 335.4ROCE (excluding project capital WIP) (%) 78.5 37.9 32.0 24.1Net (Cash)/Debt (432.7) 11.9 74.3 (422.3)----------------------------------------------------------------------------------*Figures for FY 2007, FY 2006 and FY 2005 are under IFRS and figures for FY 2004 are under UK GAAP Key Financial Highlights • Increased profitability driven by significant increased production and higher prices and stable operating costs,• Improved free cash flow of $1,504.2 million due to higher operational earnings sustained by the efficient management of working capital,• Strong balance sheet providing sufficient leverage for funding expansion projects and acquisitions• Net cash of $432.7 million from net debt of $11.9 million at 31 March 2006, primarily due to improved cash flows enabling early retirement of debt in subsidiaries• ROCE (adjusted for project capital work in progress) significantly higher at 78.5% in FY 2007 up from 37.9% in FY 2006. Summary of Financial Performance During FY 2007, our Indian operations in particular have recorded large gains involumes and were able to take advantage of the strong metal prices during theyear. As a result, EBITDA increased to $2,703.0 million, up from$1,101.5 million, a growth of 145.4%, whilst operating profits grew$2,505.9 million, up from $943.8 million, an increase of nearly 166%. OurZambian operations recorded higher operating profits during the current yearover the previous year due to higher copper prices. We generated free cash flows of $1,504.2 million, representing 56% of EBITDA andreflecting a minimum outflow on account of working capital despite higher metalprices and volumes. Increased free cash flows have enabled us to fund projectcapital expenditure of $934.5 million entirely from internal sources. Tax outflow in FY 2007 amounted to $475.6 million representing 19.1% of profitbefore tax, a rate marginally lower than in FY 2006. The effective tax rate inFY 2007 of 27.1% is lower the FY 2006 tax rate of 30.0%, primarily due toimproved tax management initiatives at some of our subsidiaries specifically,Sterlite and HZL. Underlying profit increased to $938.1 million in FY 2007 from $373.5 million inFY 2006 mainly due to strong operational results in all our businesses.Underlying earnings per share increased by 151.2% to 327.0 US cents. Amountsattributable to minority interests increased in FY 2007 because of betterfinancial performance at HZL and at BALCO where Vedanta's economic interest isrelatively lower. Capital productivity, measured in terms of ROCE (excluding capital work inprogress), improved to 78.5% in FY 2007 from 37.9% in FY 2006, reflecting betterasset utilisation, in terms of both fixed assets and working capital. We reported net cash of $432.7 million at 31 March 2007, a significantimprovement over net debt of $11.9 million at 31 March 2006. Good operatingprofits and working capital management resulted in strong cash flows enabling usto repay subsidiary debt of $345 million after investing $934.5 million inexpansion projects. With gross debt levels at just 41.6% of total equity and anet cash position of $432.7 million, we have adequate head room for growth andacquisition financing. A detailed discussion on the financial performance of the Group is set outbelow.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------Revenue 6,502.2 3,701.8 75.6%EBITDA 2,703.0 1,101.5 145.4% EBITDA margin (%) 41.6% 29.8% -Operating special items (1.7) - -Depreciation and amortisation (195.4) (157.7) ---------------------------------------------------------------------------------Operating profit 2,505.9 943.8 165.5%Share of loss of associate (1.3) (1.4) -Profit before interest and tax 2,504.6 942.4 165.8%Net interest charge (20.2) (7.7)--------------------------------------------------------------------------------Profit before tax 2,484.4 934.7 165.8%Income tax expense (672.7) (280.4) - Tax rate (%) 27.1% 30.0% -Minority Interest (877.6) (280.8) - Minority Interest rate (%) 48.4% 42.9% ---------------------------------------------------------------------------------Attributable to equity shareholders in parent 934.2 373.5 150.1%Basic earnings per share (US cents per share) 325.6 130.2 150.1%Underlying earnings per share (US cents per share) 327.0 130.2 151.2%-------------------------------------------------------------------------------- Our FY 2007 revenues were $6,502.2 million with corresponding EBITDA of$2,703.0 million. An analysis of revenues and EBITDA by business has beenprovided earlier in the Business Review section of this preliminary resultsannouncement. Group Operating ProfitGroup operating profit increased to $2,505.9 million up from $943.8 million, anincrease of 165.5%. Depreciation Depreciation charges increased to $195.4 million from $157.7 million mainly dueto capitalisation of expansion projects and increased sustaining capitalexpenditure. Special Items In FY 2007, we reviewed our financial exposure to IFL, an associate company,taking into consideration the financial condition of IFL. Sterlite had issuedcorporate guarantees on behalf of IFL. We estimated the fair value of theseguarantees and recognised a provision of $17.3 million on the basis of ourestimate of the probable future liability. Additionally on 1 July 2006, the Power Transmission Conductor division ofSterlite was sold to Sterlite Optical Technologies Limited, a company under thecontrol of Volcan for a consideration of $32.3 million based on a valuation byan independent valuer. This was identified as a non-core business at the time ofour IPO in December 2003. The transaction resulted in an immaterial loss of$2.3 million which has been recognised as a special item in the incomestatement. The sale of this non-core business does not materially impact ourrevenues or profits. In FY 2007, an amount of $2.6 million was incurred towards voluntary separationof employees. During the year, Sterlite also sold one of its old non-operatingmanufacturing facilities in the suburbs of Mumbai for $22.1 million, realising aprofit of $ 21.8 million on this transaction. Net Finance Costs Our net finance costs in FY 2007 were $20.2 million compared to $7.7 million inFY 2006 as a result of the full year impact of the convertible bond issue of$725 million issued in the second half of FY 2006 and general interest raterises, partially offset by the early repayment of debt in HZL and BALCO and theoptimum use of short term funding arrangements. Income from investments hasrisen sharply mainly due to generation of surplus cash from operations. Ourinvestment policy continues to emphasise on capital protection while maximisingyields by investment in innovative financial products. --------------------------------------------------------------------------------(in $ millions) FY 2007 FY 2006--------------------------------------------------------------------------------Net Finance CostsInterest payable 22.6 (124.1)Unwinding of discount and interest on defined benefitpension arrangements (10.1) (11.3)Interest and other investment income (74.1) 75.7Capitalisation of borrowing costs net of foreign exchangedifferences and interest income 41.4 52.0Net interest in income statement (20.2) (7.7)-------------------------------------------------------------------------------- Taxation Our effective tax rate for FY 2007 was lower at 27.1% compared with 30.0% inFY 2006, reflecting the various measures undertaken by us to improve ourefficiencies in tax management in general and specifically in some of our majorIndian operating subsidiaries such as Sterlite and HZL. During the year Sterliteset up a 100% Export Oriented Unit ("EOU") at Tuticorin and HZL established windenergy generating projects which enjoy considerable tax benefits. Despite alower effective tax rate over the previous year, current tax has remainedrelatively constant at c. 20% of profits before tax mainly because of anincrease in the amount of minimum alternative tax that we paid and a change inthe profit mix. Our tax rate is sensitive to the availability of variousincentives which differ due to differing tax rates in India and Zambia and alsoto a change in the profit mix between our subsidiaries. Minority Interests The pattern of profit contributions from subsidiaries underwent a change duringFY 2007 with higher contributions from HZL and BALCO, which have higher minorityinterests. The change in profit mix has led to an increase in minority interestsfrom 42.9% in FY 2006 to 48.4% in FY 2007, despite no change in the Vedanta'sshareholding in any of its subsidiaries during the year. Attributable and Underlying Profit Attributable profit for FY 2007 was $934.2 million against $373.5 million inFY 2006, an increase of 150.1%, the result of strong performances across all ourbusinesses. Underlying profit in FY 2007 was $938.1 million, an increase of151.2% over FY 2006. Underlying earnings exclude the effects of special itemsand their tax and minority impact and we believe this is an important tool tomeasure our recurring performance. Earnings per Share ("EPS") and Dividends EPS for the year increased to 325.6 USc per share, a growth of 150.1% comparedwith FY 2006. EPS on underlying profit rose by 151.2% over the previous year.The higher EPS reflects the good performance of all our businesses in returninghigher value to the shareholders. In line with our progressive dividend policy, our Board proposes a finaldividend of 20 USc per share for FY 2007, taking full year dividend to 35 UScper share. The total dividend is higher by 75% compared with FY 2006 dividend of20.0 US cents per share. The table below sets out the reconciliation to Underlying Profits.--------------------------------------------------------------------------------(in $ millions, except as stated) FY 2007 FY 2006 % change--------------------------------------------------------------------------------Profit for the year attributable to the equityholders of the parent 934.2 373.5 150.1% Special items 1.7 - NA Effect of taxation 3.7 - NA Effect of minority interests (1.5) - NAUnderlying profit for the year 938.1 373.5 151.2%EPS on profit for the year (USc per share) 325.6 130.2 150.1%EPS on underlying profit (USc per share) 327.0 130.2 151.2%-------------------------------------------------------------------------------- Balance Sheet Our summary balance sheet is presented below.--------------------------------------------------------------------------------(in $ millions) As at 31 March 2007 As at 31 March 2006--------------------------------------------------------------------------------Goodwill 12.1 12.1Property, plant and equipment 3,838.0 2,763.0Cash, cash equivalents and liquidinvestments 2,185.2 2,091.7Trade receivables 942.9 593.0Other current and non currentassets 1,093.5 775.3--------------------------------------------------------------------------------Total assets 8,071.7 6,235.1--------------------------------------------------------------------------------Trade payables (1,184.0) (958.1)Borrowings (1,726.8) (2,076.2)Other current and non current liabilities (1,009.5) (862.0)--------------------------------------------------------------------------------Total liabilities (3,920.3) (3,896.3)--------------------------------------------------------------------------------NET ASSETS 4,151.4 2,338.8-------------------------------------------------------------------------------- Equity attributable to equityholders of the parent 2,326.9 1,417.1Minority interests 1,824.5 921.7--------------------------------------------------------------------------------TOTAL EQUITY 4,151.4 2,338.8-------------------------------------------------------------------------------- Shareholders' equity as at 31 March 2007 stood at $2,326.9 million, up from$1,417.1 million as at 31 March 2006. Minority interests increased to$1,824.5 million from $921.7 million as at 31 March 2006. Net debt of$11.9 million as at 31 March 2006 became net cash of $432.7 million as at31 March 2007. Cash and cash equivalents including liquid investments as at31 March 2007 were $ 2,185.2 million. As a result of capital expenditure in FY 2007, our capital employed increased by$1,368.0 million to $3,718.7 million at 31 March 2007. The net book value of ourproperty, plant and equipment increased from $2,763.0 million at the end ofFY 2006 to $3,838.0 million at 31 March 2007. Nearly three-quarters of theincrease in capital employed was attributable to an increase in property, plantand equipment and the remainder to increases in working capital. The increase inworking capital was influenced by higher metal prices. ROCE on an adjusted capital employed basis (capital employed reduced by projectcapital work-in-progress) rose to 78.5% from the previous year of 37.9% dueprincipally to higher operational results aided by higher metal prices andhigher volumes. ROCE is affected by the timing of expansion projects beingdelivered during the year due to the time lag in capturing the full benefit ofadditional capacities. External debt held by operating subsidiaries was $560.8 million at 31 March 2007compared with $905.6 million at 31 March 2006. Cash flows generated fromoperations have been utilised to repay part of the subsidiary debt, particularlyin Sterlite, BALCO and HZL. HZL is now a debt-free company. Cash and cash equivalents, together with liquid investments were$2,185.2 million as at 31 March 2007 compared with $2,091.7 million as at31 March 2006. Strong cash flows, resulting from good operational profits andbetter working capital management, have resulted in generation of free cash of$1,504.2 million which was partly used to fund our expansion projects, retiredebt, and to acquire a majority stake in SGL. We remain focused on maintaining astrong balance sheet to fund our future growth. We continue to be awarded ratings from Moodys and Standard & Poors. Theseratings provide us with the financial flexibility and access to various sourcesof funding at competitive rates. Our current ratings and India current sovereignrating are as follows:--------------------------------------------------------------------------------Credit Rating Agency Vedanta India SovereignStandard & Poors BB BBBMoodys Ba1 Baa3-------------------------------------------------------------------------------- Fund Raising PlansSterlite has made substantial progress in its plans to raise funds from the UScapital markets. During FY 2007, Sterlite announced its intention to raisecapital through an ADR offering to be listed on the New York Stock Exchange("NYSE"). The proceeds of the offering will enable Sterlite to capitalise onattractive growth opportunities in India and maintain a strong balance sheet. It will allow Sterlite to exercise its call option to acquire the Government ofIndia's remaining interest in HZL, enable us to expand into the commercialenergy sector in India, reduce debt and to acquire complementary businesses thatwe determine to be attractive opportunities. We have filed the prospectus and weare hopeful of listing Sterlite securities on the NYSE in the near future aftercompleting all necessary steps and obtaining clearance from the US Securitiesand Exchange Commission. Cash Flows The summary cash flow statement is set out below.--------------------------------------------------------------------------------(in $ millions) FY 2007 FY 2006--------------------------------------------------------------------------------EBITDA 2,703.0 1,101.5 Special items 1.7 - Working capital movements (542.1) (169.7) Changes in long-term creditors and non-cash items 11.5 (17.1) Sustaining Capital Expenditure (194.4) (80.6) Sale of tangible fixed assets 28.9 0.7 Net interest paid (39.5) (20.5) Dividend received 10.7 7.0 Tax paid (475.6) (186.5)--------------------------------------------------------------------------------Free Cash Flow 1,504.2 634.8 Expansion Capital Expenditure (934.5) (605.5) Acquisitions (59.5) - Dividends paid to equity shareholders (84.3) (49.4) Dividends paid to minority shareholders (41.8) (8.9) Equity component of convertible loan notes - 123.3 Sale of non core business 32.1 - Deconsolidation of SEWT - cash and preference shares - (58.7) Other movements* 28.4 26.8--------------------------------------------------------------------------------Movement in net (debt)/cash 444.6 62.4--------------------------------------------------------------------------------*Project creditors of $2.3 million (FY 2006: $2.0 million) reclassified fromworking capital movements into other movements below free cash flow We delivered strong free cash flows of $1,504.2 million, an increase of$869.4 million, reflecting improved operating profits and working capitalmanagement. Working capital management is a key driver across our Group andongoing control measures to minimise working capital usage in the operations arein place in all our subsidiaries. Such measures have resulted in a reduction ingross working capital, i.e. inventory and receivables expressed as a percentageof turnover, from 30.5% to 28.0%. This reduction was achieved despite asignificant increase in volumes in our Indian aluminium and copper businessesresulting from expanded capacities and debottlenecking initiatives,respectively. We invested $194.4 million in sustaining capital expenditure during FY 2007primarily to achieve operational efficiencies including debottleneckinginitiatives and expenditure on mine development. Strong free cash flows have also enabled internal funding of project capitalexpenditure of $934.5 million, higher dividend payment of $126.1 million andearly repayment of subsidiary debt of $344.8 million. Gross debt was $1,726.8 million as at 31 March 2007, including $598.4 million inrespect of convertible bonds issued during the year. The equity component of theconvertible bond of $119.5 million is recorded as part of equity in the balancesheet. Cash and cash equivalents together with liquid investments were$2,185.2 million as at 31 March 2007. Projects During fiscal 2006, we announced four large expansion projects (Phase IIexpansion projects) including our expansion into power generation. We spent$208.0 million on Phase I expansion projects announced at the time of our IPO.Additionally, total capital expenditure during 2007 on Phase II expansionprojects was $726.6 million. Amounts committed but not yet spent on Phase IIexpansion projects at 31 March 2007 were $2,928.0 million. The total expenditure incurred to date on Phase 1 and Phase 2 expansion projectsis set out in the tables below.--------------------------------------------------------------------------------(in $ millions, Original except as stated) estimated Spent to Committed, but cost 31 March 2007 not yet spent Status --------------------------------------------------------------------------------Phase I expansion projectsAlumina Lanjigarh refinery 800.0 614.6 61.5 In progress Aluminium Korba smelter 550.0 475.9 10.2 Completed Korba power plant 350.0 292.7 CompletedCopper Tuticorin smelter 87.0 87.0 CompletedZinc-Lead Chanderiya smelter 335.0 267.8 Completed Rampura Agucha mine 90.0 45.2 Completed--------------------------------------------------------------------------------Total 2,212.0 1,783.2 71.7-------------------------------------------------------------------------------- --------------------------------------------------------------------------------(in $ millions, Original except as stated) estimated Spent to Committed, but cost 31 March 2007 not yet spent --------------------------------------------------------------------------------Phase II expansionprojectsAluminium Jharsuguda 2,100.0 249.3 1,254.8Copper Konkola mine 400.0 73.6 202.1 Nchanga smelter 280.0 91.6 152.9Zinc* Chanderiya 300.0 159.4 111.9 Wind power project 132.5 65.5 67.0Commercial energy Jharsuguda 1,900.0 136.0 1,139.3--------------------------------------------------------------------------------Total 5,112.5 775.4 2,928.0----------------------------------------------------------------------------------------------------------------------------------------------------------------Grand Total 7,324.5 2,558.6 2,999.7--------------------------------------------------------------------------------*Excludes HZL debottlenecking project at an estimated cost of $170 million Acquisitions and Divestments In FY 2007 we completed the acquisition of a majority stake in Sterlite GoldLimited, a company listed in Canada with its main operations in Armenia.Sterlite Gold is engaged in gold mining and processing. We first acquired 55% ofthe equity shareholding in Sterlite Gold Limited at a cost of $33.7 million andthen acquired an additional 25% stake through an open offer to existingshareholders at a cost of $15.8 million. Acquisition costs of $2.9 million wereincurred in the transaction. As at 31 March 2007, we hold 83.7% of theoutstanding equity of Sterlite Gold Limited. We have accounted for thisacquisition in accordance with IFRS 3 'Business Combinations'. The fair value ofthe assets and liabilities of the acquired business has resulted in creatingassets in the form of mining properties and leases of $71.7 million. Our non-core Power Transmission Conductor business was sold effective1 July 2006 as a going concern together with all associated liabilities toSterlite Optical Technologies Limited ("SOTL"), a related party controlled byVolcan for a consideration of $32.3 million. The terms for sale of this non-corebusiness was negotiated with SOTL on an arm's length basis based on anindependent valuation report. The loss on account of this sale was $2.3 millionwas recorded in the income statement as a Special Item. During the year, we also acquired a 100% stake in Sterlite Energy Limited("SEL") from Twinstar Infrastructure, a related party, for a consideration of$0.1 million. SEL is the vehicle for our expansion into the commercial energybusiness. Commodity Hedging We generally aim to sell our produces at prevailing market prices. We engage inhedging commodity price movements on a selective basis. During FY 2007, weentered into strategic hedging transactions for some quantities of copper andzinc and recognised losses of approximately $59.0 million on these transactions.Outstanding hedged quantities as at 31 March 2007 were 57,600 tonnes in respectof copper and 25,000 tonnes in respect of zinc, which we expect will be settledduring FY2008. Off Balance Sheet Arrangements and Transactions, Contingent Liabilities andCommitments We have no off-balance sheet entities. In the normal course of business, weenter into certain commitments for capital and other expenditure and certainperformance guarantees. The aggregate amount of indemnities and other guaranteeswas $438.3 million at 31 March 2007. Contingent liabilities include penalties and fines amounting to some$46.5 million that have been advised to AGRC by the Armenian Government in apreliminary notice recently. We understand that the notice is to undergo furtheranalysis and expert review at the relevant Armenian governmental agencies in thecoming weeks before it is served in final form upon AGRC. The mining plan ofAGRC has not been approved by the Armenian Government and as a result, AGRC'smining operations have been temporarily suspended, pending resolution of some ofthe key clauses of the implementation agreement entered into with the ArmenianGovernment. AGRC has previously received approval for each of the annual miningplans during the term of its Implementation Agreement with the ArmenianGovernment. Contractual Obligations Contractual cash obligations arising in the ordinary course of our business areset out below.--------------------------------------------------------------------------------(in $ millions) < 1 year 1-2 years 2-5 years > 5 years Total--------------------------------------------------------------------------------Payments due by periodBank loans and otherborrowings 249.1 76.2 769.7 631.8 1,726.8Deferred considerationfor KCM acquisition 5.2 5.2 - - 10.4Capital commitments 1,774.0 1,376.0 - - 3,150.0--------------------------------------------------------------------------------Total 2,028.3 1,457.4 769.7 631.8 4,887.2-------------------------------------------------------------------------------- Changes in Accounting Policies There have been no changes in accounting policies in the current year. Post Balance Sheet Events On 23 April 2007 we acquired a 51% controlling stake in Sesa Goa Limited ("SesaGoa") through the acquisition of a 100% equity stake in Finsider International,a UK company. Sesa Goa, a company listed on Indian stock exchanges is engaged inmining and exporting of iron ore from India. We paid a cash consideration of$981 million to acquire this 51% stake and in accordance with prevailing Indianregulations, we have made an open offer to shareholders to acquire an additional20% stake. This open-offer process is expected to take about three months toconclude. We will account for this transaction in accordance with IFRS 3 anddetailed disclosures, including those pertaining to any fair value adjustmentswill be included in our FY 2008 interim report. Consolidated Income Statement-------------------------------------------------------------------------------- Note Year ended Year ended 31 March 2007 31 March 2006 $ million $ million--------------------------------------------------------------------------------Continuing operationsRevenue 2 6,502.2 3,701.8Cost of sales (3,840.4) (2,591.4)--------------------------------------------------------------------------------Gross profit 2,661.8 1,110.4 Other operating income 102.1 41.5Distribution costs (106.7) (81.1)Administrative expenses (149.6) (127.0)Administrative expenses - special items 3 (1.7) ---------------------------------------------------------------------------------Operating profit 2 2,505.9 943.8Investment revenue 4 127.5 51.6Finance costs 5 (147.7) (59.3)Share of loss of associate (1.3) (1.4)--------------------------------------------------------------------------------Profit before taxation 2,484.4 934.7Tax expense 6 (672.7) (280.4)--------------------------------------------------------------------------------Profit for the year 1,811.7 654.3================================================================================Attributable to:Equity holders of the parent 934.2 373.5Minority interests 877.5 280.8-------------------------------------------------------------------------------- 1,811.7 654.3================================================================================ Basic earnings per ordinary share(US Cents) 7 325.6 130.2Diluted earnings per ordinary share(US Cents) 7 305.4 128.2 Consolidated Balance Sheet Note As at As at 31 March 31 March 2007 2006 $ million $ million--------------------------------------------------------------------------------ASSETSNon-current assetsGoodwill 12.1 12.1Property, plant and equipment 3,838.0 2,763.0Interest in associate - 1.8Financial asset investments 34.6 27.1Other non-current assets 27.3 27.3Other financial assets (derivatives) 72.1 63.2Deferred tax assets 28.3 71.9-------------------------------------------------------------------------------- 4,012.4 2,966.4--------------------------------------------------------------------------------Current assetsInventories 879.7 535.0Trade and other receivables 942.9 593.0Other current financial assets(derivatives) 51.5 49.0Liquid investments 10 600.4 244.4Cash and cash equivalents 10 1,584.8 1,847.3-------------------------------------------------------------------------------- 4,059.3 3,268.7--------------------------------------------------------------------------------TOTAL ASSETS 8,071.7 6,235.1--------------------------------------------------------------------------------LIABILITIESCurrent liabilitiesShort term borrowings 9, 10 (249.1) (239.8)Trade and other payables (1,172.4) (942.5)Other current financial liabilities(derivatives) (101.4) (114.7)Provisions - (12.2)Current tax liabilities (63.0) (34.7)-------------------------------------------------------------------------------- (1,585.9) (1,343.9)--------------------------------------------------------------------------------Net current assets 2,473.4 1,924.8--------------------------------------------------------------------------------Non-current liabilitiesMedium and long term borrowings 9, 10 (879.3) (1,236.0)Convertible bonds 10 (598.4) (600.4)Trade and other payables (11.6) (15.6)Other financial liabilities (derivatives) (94.8) (93.4)Deferred tax liabilities (425.3) (286.9)Retirement benefits (35.3) (38.2)Provisions (230.3) (222.5)Non equity minority interests (59.4) (59.4)-------------------------------------------------------------------------------- (2,334.4) (2,552.4)--------------------------------------------------------------------------------TOTAL LIABILITIES (3,920.3) (3,896.3)--------------------------------------------------------------------------------NET ASSETS 4,151.4 2,338.8================================================================================EQUITYShare capital 28.8 28.7Share premium account 18.7 18.6Share based payment reserves 7.3 4.1Convertible bond reserve 119.5 123.3Hedging reserves (29.7) (29.1)Other reserves 661.0 213.1Retained earnings 1,521.3 1,058.4--------------------------------------------------------------------------------Equity attributable to equity holders ofthe parent 2,326.9 1,417.1Minority interests 1,824.5 921.7--------------------------------------------------------------------------------TOTAL EQUITY 4,151.4 2,338.8================================================================================Approved by the Board on 15 May 2007 Consolidated Cash Flow Statement Note Year ended Year ended 31 March 31 March 2007 2006 $ million $ million-------------------------------------------------------------------------------- Operating activitiesProfit before taxation 2,484.4 934.7Adjustments for: - -Depreciation 195.4 157.7Investment revenue (127.5) (51.6)Finance cost 147.7 59.3Profit on disposal of property, plant and equipment (21.0) - Share based payment charge 5.6 1.6Loss on disposal of non core business 2.3 -Share of loss of associate 1.3 1.4Other non-cash items (12.0) 6.9-------------------------------------------------------------------------------- Operating cash flows beforemovements in working capital 2,676.2 1,110.0Increase in inventories (361.8) (190.1)Increase in receivables (410.4) (236.8)Increase in payables 222.5 231.6-------------------------------------------------------------------------------- Cash generated from operations 2,126.5 914.7Dividends received 10.7 7.0Interest income received 138.6 58.5Interest paid (193.4) (112.1)Income taxes paid (475.6) (186.5)Dividends paid (84.3) (49.4)-------------------------------------------------------------------------------- Net cash from operating activities 1,522.5 632.2-------------------------------------------------------------------------------- Investing activitiesAcquisition of subsidiary 11a (54.3) -Cash acquired with subsidiary 11a 0.8 -Proceeds on disposal of non core 11c 32.3 -businessCash disposed of with non core 11c (0.2) -businessPurchases of property, plant and equipment (1,154.5) (656.2)Proceeds on disposal of property,plant and equipment 28.9 0.7Dividends paid to minorityinterests of subsidiaries (41.8) (8.9)(Purchase) / disposal of liquid investments (345.1) 12.8Investment in associate - 0.1Purchase of financial asset (0.2) -investmentsDeconsolidation of cash held by SEWT - (19.5)-------------------------------------------------------------------------------- Net cash used in investing activities (1,534.1) (671.0)-------------------------------------------------------------------------------- Financing activitiesIssue of ordinary shares 0.2 -Proceeds from issue of convertible - 719.7bondsIncrease in short term borrowings 25.0 28.4Decrease in long-term borrowings (324.8) (20.9)-------------------------------------------------------------------------------- Net cash (used in) / from financingactivities (299.6) 727.2-------------------------------------------------------------------------------- Net increase/(decrease) in cash andcash equivalents (311.2) 688.4Exchange difference 48.7 (26.7)Cash and cash equivalents atbeginning of year 1,847.3 1,185.6-------------------------------------------------------------------------------- Cash and cash equivalents at end of 10 1,584.8 1,847.3year ================================================================================ Consolidated Statement of Changes in Equity------------------------------------------------------------------------------------------------------------------- Attributable to equity holders of the Company ----------------------------------------------------------------------------$ million Share Share Share Convertible Hedging Other Retained Total Minority Total capital premium based bond reserves reserves earnings interests equity payment reserve reserves -------------------------------------------------------------------------------------------------------------------At 31 March 2005 28.7 18.6 2.5 - - 43.9 1,016.8 1,110.5 636.2 1,746.7 Adjustment for adoption of IAS 39 - - - - (3.2) 0.9 (9.8) (12.1) (2.1) (14.2) -------------------------------------------------------------------------------------------------------------------At 1 April 2005 28.7 18.6 2.5 - (3.2) 44.8 1,007.0 1,098.4 634.1 1,732.5 Profit for the year - - - - - 373.5 373.5 280.8 654.3 Issue of convertible bond - - - 123.3 - - - 123.3 - 123.3 De-consolidation of SEWT - - - - - - (88.2) (88.2) 29.5 (58.7) Movement on increase in minority interests - - - - - - (0.4) (0.4) 24.6 24.2 Exchange differences on translation of foreign operations - - - - 0.2 (16.1) - (15.9) (14.1) (30.0) Transfers - - - - - 184.7 (184.7) - - - IPO related credit - - - - - - 0.6 0.6 - 0.6 Movement in fair value of cash flow hedges and financial investments - - - - (26.1) (0.3) - (26.4) (24.3) (50.7) Dividends paid - - - - - - (49.4) (49.4) (8.9) (58.3) Recognition of share based payment - - 1.6 - - - - 1.6 - 1.6 -------------------------------------------------------------------------------------------------------------------At 31 March 2006 28.7 18.6 4.1 123.3 (29.1) 213.1 1,058.4 1,417.1 921.7 2,338.8 =================================================================================================================== Consolidated Statement of Changes in Equity Attributable to equity holders of the Company ---------------------------------------------------------------------------- $ million Share Share Share Convertible Hedging Other Retained Total Minority Total capital premium based bond reserves reserves earnings interests equity payment reserve reserves -------------------------------------------------------------------------------------------------------------------At 1 April 2006 28.7 18.6 4.1 123.3 (29.1) 213.1 1,058.4 1,417.1 921.7 2,338.8 Profit for the period - - - - - - 934.2 934.2 877.5 1,811.7 Acquisition of a subsidiary - - - - - - - - 10.2 10.2 Gain on acquisition of subsidiary - - - - - - 0.3 0.3 - 0.3 Conversion of Convertible bond - 0.1 - - - - - 0.1 0.1 Convertible bond transfer - - - (3.8) - - 3.8 - - - Exchange differences on translation of foreign operations - - - - - 51.6 - 51.6 53.9 105.5 Transfers - - - - - 393.5 (393.5) - - Movement in fair value of cash flow hedges and financial investments - - - - (0.6) 2.8 - 2.2 3.0 5.2 Dividends paid - - - - - - (84.3) (84.3) (41.8) (126.1) Recognition of share based payment - - 5.6 - - - 5.6 - 5.6 Exercise of LTIP awards 0.1 - (2.4) - - - 2.4 0.1 - 0.1 -------------------------------------------------------------------------------------------------------------------At 31 March 2007 28.8 18.7 7.3 119.5 (29.7) 661.0 1,521.3 2,326.9 1,824.5 4,151.4 =================================================================================================================== This information is provided by RNS The company news service from the London Stock Exchange

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