Final Results

1st Jun 2006 07:03

Vedanta Resources PLC01 June 2006 1 June 2006 Vedanta Resources plc Results for the year ended 31 March 2006 Highlights • Record Financial Performance - Group Revenue up 96.5% to $3,702 million and Group EBITDA up 142.6% to $1,102 million, driven by better prices and strong volume growth - Operating profit up 187.7% to $944 million - Strong balance sheet with net assets of $2.3 billion and gearing of under 1% - ROCE (excluding project capital work in progress) significantly higher at 37.9% up from 32.0% - Basic EPS up 108.3% at 130.2 US cents, EPS on the basis of underlying profits up 166.3% - Final dividend proposed at 14.3 US cents per share bringing full year dividend to 20.0 US cents • Volume Led Growth - Phase 1 expansion projects in copper and zinc completed - Korba aluminium smelter production being ramped up progressively - Second phase of expansion projects totalling $3.1 billion announced during the year - 50,000 tpa lead plant commissioned making us India's largest primary producer of lead (in US$ millions, except as stated)--------------------------------------------------------------------------------Consolidated Group Results FY 2005 FY 2006 (restated)* Change--------------------------------------------------------------------------------Revenue 3,701.8 1,884.2 96.5%EBITDA 1,101.5 454.0 142.6%EBITDA Margins 29.8% 24.1% -Operating Profit 943.8 328.0 187.7%Attributable Profit 373.5 178.9 108.8%Basic Earnings per Share (US cents) 130.2 62.5 108.3%ROCE (excluding project capital work in 37.9% 32.0% progress)--------------------------------------------------------------------------------Final Dividend (US cents per share) 14.30 11.55 23.8--------------------------------------------------------------------------------(*. Restated for the impact of adopting IFRS) "I am delighted to report spectacular growth in revenues and profits this year,reflecting the strong growth in volumes and favourable commodity prices. Ibelieve we have only just started to realise our full potential. We have a clearstrategy for growth and the strength of our pipeline makes us unique in theindustry." said Mr. Anil Agarwal, Chairman, Vedanta Resources plc. "We are ontrack to becoming the only company producing 1mtpa in each of our three metals,as well as achieving cost leadership. We have already announced $3.1 billion ofinvestments this year and Vedanta is very well positioned to realise furtheropportunities in India. I am looking forward to another year of continuedgrowth." For further information, please contact: Sumanth CidambiAssociate Director - Investor Relations [email protected] Resources plc Tel: +44 20 7659 4732 / +91 22 6646 1531 James MurgatroydRobin WalkerFinsbury Tel: +44 20 7251 3801 Chairman's Statement Performance in 2006 I am privileged to be writing to you following a year of spectacular growth inyour company. Vedanta's market capitalisation now stands at over $7 billioncompared with under $2 billion at the time of the IPO in December 2003. Totalshareholder returns (TSR) during the year ended 31 March 2006 were 204% with thecompany achieving record EBITDA of over $1.1 billion. Using the TSR measure,Vedanta's 2006 returns were superior to all diversified mining and metalscompanies listed on the UK main market. I firmly believe we are unique due to the strength of our project growthpipeline. In our first phase of growth, the expanded Tuticorin copper smelter,the new zinc smelter at Chanderiya and the new aluminium smelter at Korba havebeen commissioned with capital costs and time frames ahead of industry norms.The next phase of our growth with investments of over $3 billion is well underway. These aspects make Vedanta a creator of value and 2006 saw significant newvalue created. I also believe that Vedanta's competitive advantage is its relentless focus onimproving the efficiency of its operations. Volume growth, productivity gainsand other continuous improvement measures will enable us to achieve our visionof being amongst the lowest cost producers. Demand and Markets Demand for metals continues to be robust. Primary and secondary metal demand isespecially supported by increased activity in the industrial and infrastructuresectors in emerging markets and Asia will clearly be a driver of growth formetals in the short to medium term. India is an attractive destination for metal producers in terms of being anatural resources hub, setting up capacities at attractive capital costs andproviding access to rapidly growing domestic and nearby Asian markets. TheIndian Government continues to maintain its policy of growth and liberalisation.The recently announced 2007 Union Budget promises a continuation of policies togrow the economy and encourage inward investment, by increasing budgetaryallocations for infrastructure spending specifically in roads, ports,telecommunications and urban infrastructure. We expect these measures to ensurecontinuing and accelerating Indian demand growth for metals and the Group iswell positioned to play a leading part in this growth. Growth We continue to remain focused on our vision of becoming a million-tonne-per-annumproducer of each of our key metals and remain firmly on track to achieve this. For this next phase of our growth, several major projects with a total investmentof $3.1 billion were announced last year and are now being implemented. We see a lot of promise in Zambia and believe that the copper industry willremain a major driver of its economy. The copper belt once produced nearly750,000 tpa of copper but this has since reduced significantly. We foresee thatwith its rich copper resource, Zambia can regain its position as a major globalproducer of copper. Vedanta is making a major contribution to the Zambianeconomy by developing the Konkola deep ore body, one of the richest in the worldwith over 215 million tonnes of resource at 3.8% grade, an investment of$400 million. Our investment in Zambia includes a further $280 million for asmelter expansion project which will increase our total smelting capacity to400,000 tpa at KCM. In India, we are investing in a new 170,000 tpa zinc smelter project atChanderiya and also in the development and construction of India's largestaluminium asset with its associated 1215 Mw captive power plant in Jharsuguda,Orissa. Upon completion, these projects will service the rapidly increasingdemand for these metals and strengthen our competitive position in the globalCopper, Zinc and Aluminium businesses. Closely aligned with our expansion plans is our exploration programme focused ondelivering adequate resources that meet and sustain our long-term metalproduction growth. We have put in place a sustainable exploration model bycreating scaleable infrastructure and allocating appropriate resources. Ibelieve these measures will yield good results. These are landmark projects not only for Vedanta but also for the countries inwhich we operate. In addition to commercial benefits from primary and secondaryeconomic activity, our investments will bring development to several regionalcommunities in India and Zambia on a previously unforeseen scale. The efficiency, with which our growth projects continue to be delivered at lowcosts of development, set against the backdrop of rapidly expanding growth inindustrial activity and infrastructure investment in India and Asia allows us tobenefit independent of the commodity cycle. One of the most important aspects of growth is the careful management of theGroup's finances. We manage our expansion programmes within conservative gearinglevels. Our issue of $725 million in convertible bonds in February 2006demonstrated our ability to obtain efficient financing that complements ourexpansion programme and optimises overall financing costs of the business. Whilst mergers and acquisitions are not the central platform of our growth, wewill evaluate inorganic opportunities that create compelling shareholder value.Given our demonstrated strength in the turn around of underperforming assets, wewill look at opportunities where we can add substantial value. Sustainable and Responsible Development Sustainable development is at the very heart of our business strategy. Whilst weare humbled by the vast impact of our industry towards the basics of life, wealso recognise the potential impact upon the environment and on occupationalhazards and safety for communities and habitats close to our operations. Our continued focus on safety has shown improvements, with the safety index(LTIFR) improving by 30% during the year. In spite of these efforts, weexperienced some fatalities at our operations during the year. Any loss of lifeis not tolerable and we have instituted guidelines and procedures to prevent therecurrence of such incidents. Sustainable development for us also encompasses conservation of naturalresources like water, especially in arid regions such as Rajasthan. We havetaken the utmost care in all our expansion projects in selecting energyefficient and environmentally friendly technologies. I am also pleased to report significant extensions in all parts of the company'ssocial, health and safety and environmental activities in Zambia. Our investmentin a company-wide community based HIV treatment programme and our sponsorshipof soccer have been both unprecedented and uplifting. In India, our involvementwith micro enterprise through the Self Help Groups ("SHG") especially with womenat Lanjigarh, Tuticorin and our other locations has been a great success. Over3,600 women have been trained for micro enterprise management and are a part ofover 180 SHGs. These SHGs play an active role in the development of thecommunities. We continue to support education for children through Bal Wadis,supplemented with midday meal schemes and health checkups. In ourstate-of-the-art hospitals and clinics at our various operating locations andthrough mobile health camps conducted in the surrounding villages, we providequality health care to over a quarter of a million people. With a conducive policy framework in place and a robust implementation andgovernance structure, we remain committed to raising the quality of life andsocial well being of all the communities in which we operate. Board and management We have a Board that brings together a broad range of backgrounds andexperience. Each Board member brings an individual outlook, which has improvedour collective decision making process. Given the increased scale of the group'soperations, the work of the several Board committees is an enormous task and Iwish to thank the chairmen and members of these committees for theircontribution in the year. I also remain grateful for the healthy andconstructive direction and support the Board continues to provide to ourmanagement team. In addition, specifically, I am pleased that Mr Kuldip Kaura's service contractwith the Company which was due to expire on 30 June 2006 has been extended to 31March 2008. People The successes that I have been able to report in this statement are due to theoutstanding commitment and contribution of our employees and I wish to thankthem on behalf of the entire Board. We are proud of the knowledge and intellectual capital that our youngprofessional workforce brings to the organisation. The challenging assignmentsthey are given at an early stage in their careers make them highly motivated,committed and enthusiastic. Our hands-on participative style of managementcontinues to strengthen our organisational culture and values through to thegrass roots level. Talent management remains a key driver of performance across Vedanta. Our accessto the substantial pool of high quality professional talent, especially inIndia, enables us to consistently attract world-class professionals. We havecreated attractive working environments with highly competitive incentivesapproaches, which ensure that we are amongst the most preferred employers in theregions in which we operate. I am particularly pleased to report that we haverecently issued long-term incentive options to a large proportion of ouremployees re-emphasising a collective commitment to align their interests to theenhancement of shareholder value over the long-term. Outlook In the last 24 months Vedanta has built a strong reputation for creating lastingshareholder value underpinned by delivery and growth. Looking ahead, we mustprogress the next phase of our growth in a responsible manner commensurate withour position as a leading mining and metals company while continuing to generatesuperior returns for our shareholders. In light of my comments on demand andmarkets I remain confident that we are well on our way to deliver on this. Business Review Group revenue has doubled to $3,701.8 million and EBITDA at $1,101.5 million hasincreased by 142.6% compared with the previous year. Operating profit at $943.8million is also higher as compared to $328.0 million in the previous year. Theseincreases are due to higher volumes from expanded facilities, better pricesacross all metals and a full year contribution from the operations at KCM.Operating costs are generally in line with our expectations at all businessesexcept the copper business in Zambia. EBITDA margin has increased to 29.8% from 24.1% in the previous year mainly dueto higher prices and product mix. Underlying profit has increased to US$ 373.5million from $140.1 million and EPS, based on underlying profit, to 130.2 UScents per share from 48.9 US cents per share. Capital employed has increased by $529.7 million during the year on account ofcapitalisation of expansion projects and the consequent increase in workingcapital. Despite this increase, ROCE (before capital work in progress) increasedto 37.9% from 32.0% in the previous year mainly due to improved productivity andhigher prices. Operations Aluminium The Aluminium Business comprises two companies, BALCO and MALCO. BALCO is afully integrated producer with its own bauxite mines, a captive power plant andrefining, smelting and fabrication facilities at Korba in the eastern part ofIndia. MALCO is also a fully integrated producer with two bauxite mines, acaptive power plant and refining, smelting and fabrication facilities at Metturin Southern India. This year was a milestone for our Aluminium business as the BALCO expansionproject comprising the new 250,000 tonne aluminium smelter with associated 540MW captive power plant came on stream. This project was completed in record timefrom ground breaking in May 2003 to the start of commissioning in May 2005. ByMarch 2006, 216 pots and all four units of the power plant were progressivelycommissioned. The production of 70,000 tonnes from the new smelter and overallgood performance of existing facilities resulted in a higher output of 211,000tonnes, an increase of 55.1% from the previous year. The existing plants at BALCO and MALCO have performed well and have operated tofull capacity during the year, producing 141,000 tonnes, an increase of 4%compared with the previous year. The new Korba plant has achieved production of14,000 tonnes in March 2006. However, as a result of power plant tripping due tostormy weather in the 3rd week of May 2006, the pot-line was destabilised.Efforts to stabilise the production from disrupted pots are ongoing. These willbe stabilised along with the commissioning of all pots progressively by thesecond quarter of the current financial year according to our presentassessment. As a result of this, the overall production effect is estimated tobe a reduction of by 25,000 tonnes. As all the four units of the new power plantramped up ahead of the smelter we exported surplus power to the local gridduring the year and will continue to do so until all of the pots are stabilised. Despite better capacity utilisation and higher output, the unit costs of BALCO'sexisting plant rose to $1,497 per tonne during the current year from $1,347 pertonne in the previous year on account of increased power costs due to a changein coal mix and higher coal prices coupled with an increase in the input pricesof caustic soda, fluoride and carbon, etc impacting the industry. We willcontinue to debottleneck and further improve output, which will partiallymitigate the trend of rising input costs. Unit costs of MALCO have also beenaffected by similar factors, increasing to $1,671 per tonne from $1,466 pertonne. The unit costs of BALCO's new plant were $2,045 per tonne. During the yearalumina was sourced from third party vendors at an average cost of $1,160 pertonne of metal produced. Other manufacturing costs were $885 per tonne. Thesecosts are progressively reducing with the increase in volumes, stabilisation ofoperating parameters and efficient running of the captive power plant and weexpect these to stabilise towards the end of the year. We expect a gradualsoftening of alumina prices during the year. We continue to focus on improving the sales mix in terms of a higher tonnage ofvalue added products such as rolled products which rose by 31% during the yearto 46,000 tonnes, thereby improving our contribution. We started exportingduring this year to countries including in South East Asia and the Middle East.We will continue to develop these and other markets as the production from ournew smelter ramps up. Revenues in the aluminium business increased by 60.8% to $453.0 million, withEBITDA at $ 135.3 million, an increase of 79.0% from the previous year. Theincrease in revenue and profitability is mainly due to better volumes, improvedproduct mix and higher LME prices which were about 14% higher than that in theprevious year. These factors have more than offset the higher alumina prices forthe new Korba smelter and other input costs and the reduction in import tariffon aluminium from 10% to 7.5% effective March 2006. Work on the $800 million alumina project at Lanjigarh, Orissa is progressingwell. This includes a 1-1.4 million tpa alumina refinery with an associatedcaptive power plant and bauxite mines. For the refinery and power plant, thedelivery of major equipment, vessels and materials are on schedule, withconstructive activities in full swing. We expect the mechanical completion ofthe refinery and power plant by the end of the second quarter of the currentfinancial year and, thereafter, we plan to start commissioning activities usingbauxite sourced from third parties. In respect of the mine, there have been public interest submissions to theHonourable Supreme Court of India sub-committee regarding certain environmentalaspects in 2004. After due process of investigation and deliberation, on 3February 2006, the Honourable Supreme Court of India has passed an order thatthe Ministry of Environment & Forests (MOEF) should consider this matter andsubmit its report to the Forest Advisory Committee. The next hearing is expectedto take place in July 2006 and we are hopeful of an early resolution of thematter. The green-field 500,000 tpa aluminium smelter and associated 1,215 Mw captivepower plant in Jharsuguda, Orissa, to be built at an investment of an estimatedat $2.1 billion, have been approved by the Board in December 2005. This projectwill be implemented in two phases of 250,000 tpa each. Construction of the firstphase, including 5 units of the 135 Mw each captive power plant, is expected tobe completed in the second half of 2009. The second phase comprising theremaining 4 units of the captive power plant is expected to be completed by theend of 2010. This investment includes the cost of the smelter, associated powerfacilities and all necessary infrastructures including a railway network, waterpipelines and a township for employees. Activities related to the ordering ofcritical equipment and regulatory clearances has commenced. Design engineeringand other pre-construction activities are also in progress. Copper The Copper Business consists of three major operations: the Sterlite smelter inIndia, the CMT copper mine in Australia and the KCM operations in Zambia.Sterlite is the leading copper producer in India. Sterlite's copper operationsinclude a smelter, refinery, phosphoric acid plant, and copper rod plant atTuticorin in Southern India, a refinery and two copper rod plants at Silvassa inWestern India and a copper mine at Tasmania in Australia. KCM is a largeintegrated copper producer operating three copper mines, a smelter, a refineryand a tailing leach plant in Zambia. Copper - India/Australia We completed the expansion of the Tuticorin smelter to 300,000 MT during theyear and quickly ramped up the production. From the third quarter onwards thesmelter has been operating at its capacity of 75,000 tonnes per quarter. Weproduced 273,000 tonnes of cathodes, an increase of 58.7% from the previousyear. From these, we produced 167,000 tonnes of copper rods, an increase of33.6% from the previous year. We continue to focus on increasing the productionof copper rods which was 61.2% of the total production. As planned, themaintenance shutdown of the Tuticorin smelter for a period of 21 days in April2006 has been completed and the smelter is back on line. Despite higher energy prices, unit conversion costs decreased to 6.1 cents/lbfrom 7.1 cents/lb in the previous year on account of higher volumes, betterrecovery of metal and improved realisation of by-products. We exported 165,000 tonnes of copper cathodes and copper rods, 60.4% ofproduction, against 89,000 tonnes in the previous year. Exports included 79,000tonnes of copper rods against 56,000 tonnes in previous year. The Middle East,China, Japan, Philippines and Thailand are our key export markets and wecontinue to develop a larger customer base for the export of copper rods. On the back of strong market conditions, TC/RC realisation increasedsubstantially to 23.1 c/lb, from 8.6 c/lb in the previous year. The effect ofstronger TC/RC globally in the first half of the year was felt mainly in thesecond half. We see a softening of TC/RC terms is likely to be reflected infuture settlements. We continue to make good progress in our strategy ofsecuring long term contracts with mines. Revenues at the Copper-India/Australia business more than doubled to $1,537.9million, with EBITDA of $219.0 million, an increase of 151.7% as compared to theprevious year primarily on account of significant increase in the LME copperprices by approximately 37% over the previous year. The increase in EBITDA isattributable mainly to better TC/RC's, improved product mix and a reduction inoverall unit costs of production. While import tariffs on copper were reduced from 10% to 7.5% effective March2006, the effect is negligible due to a corresponding reduction in import dutyon copper concentrate to 2% from 5%. Duty assistance on the export of copper isequivalent to import duty on copper concentrate. CMT produced 30,000 tonnes of copper in concentrate during the year, an increaseof 8.7% over the previous year production due to operational efficiencies andimproved grade. Australian mines contributed a total of 34,000 tonnes during theyear including marginal production from TCM in the first half of the year whichaccounted for about 11 % of total concentrate requirements of the Indian coppersmelter operations. Operations at TCM were closed and the processing plant wasdisposal off during the year along with associated liabilities. Copper - Zambia Copper cathode production in the year was at 164,000 tonnes, out of which110,000 tonnes was from the Nkana smelter and the balance of 54,000 tonnes wasfrom the tail leach plant. Mined metal production in the year was 99,000 tonnes.On the back of strong commodity prices, revenues at the Copper-Zambia businesswere $703.4 million for the year with EBITDA at $206.3 million. Overall production performance at KCM was not up to our expectations largely dueto the low head-grade in the ore which has affected concentrate production,lower acid soluble feed the for tail leach plant and lower equipmentavailability throughout all operations. Mining operations at the open pit werealso affected in last quarter of the financial year due to adverse weatherconditions. Unit costs of production (including mining) were at 127.9 cents/lb for the year,compared to 106.2 cents/lb for the 5 months period in the previous year. Apartfrom lower output, the main factors contributing to the increase in unit costswere the appreciation of about 30% in the Zambian Kwacha, local wage increasesand a higher expenditure on plant maintenance, higher crude and sulphuric acidprices. We have taken steps to reduce operating costs by increasing capacity utilisationand improving the efficiency of existing plants and the new sulphur based acidplant. Better recovery from the smelter and availability of improved grade fromthe Konkola mine will further help in reducing costs of production and enhancingoutput. Upgrading of tank houses at the tail leach plant, better slagmanagement, stabilisation of cranes and furnace, and replacement of the CT hoodand mouth at the Nkana smelter will enhance the plant availability and output.Similarly for the Konkola and Nchanga mines, we are making efforts to improvethe plant availability, de-bottlenecking their capacities and improving theoperating parameters to enhance mined metal output. During the year, we have commissioned the sulphuric acid plant and achieved therated output. This will increase our captive capacity of acid by 180,000 tonnesper annum which will help in reducing our dependence on acid procurement fromexternal parties at higher prices and thus reduce our overall costs for tailingleach plant production. The KDMP expansion project will increase the copper ore output from the Konkolamine by 4 million tpa to 6 million tpa at an estimated cost of $400 million.This project includes the sinking of a new shaft, widening an existing downcastshaft, installing a new headgear, establishing a new pumping station to expandcopper ore mining operations and 6 mtpa concentrator. All government approvalsfor KDMP have been received. The project is due for completion in late 2009 andactivities for ordering of major infrastructure contracts have commenced. After a detailed feasibility analysis, the concept of the augmentation andsmelting capacity has been modified to establish a new smelter at the Nchangamine premises with a capacity of 250,000 tpa. This shift in location will giveus an advantage in terms of locational synergies and savings in transportationcosts of the acid to the tail leach plant and for concentrate from KDMP. Afterthis, the overall smelting capacity at KCM will increase to 400,000 tpa, whichwill enable us to treat concentrate from other mines over and above that fromour captive mines. The overall project cost of this smelter, including theassociated facilities, is now estimated at $280 million and is expected to becompleted by mid 2008. The technology contract has been signed with Outokumpuand further tenders for detailed engineering have been released and the processof short-listing the vendors has started. Zinc The Zinc Business is operated by HZL, the third largest integrated producer inthe world. HZL's zinc operations include three lead-zinc mining complexes, onelead-zinc smelter and two zinc smelters in the state of Rajasthan in northwestIndia and one zinc smelter in the state of Andhra Pradesh in southeast India.HZL has a smelting capacity of about 400,000 tpa of zinc metal and 85,000 tpa oflead metal. The new hydro smelter at Chanderiya and the associated 154 MW coal based captivepower plant were commissioned in the year and ramped-up on time and belowbudget. The new smelter produced 71,000 tonnes of zinc in the year, operatingclose to its rated capacity in March 2006. The total zinc metal output duringthe year was 284,000 tonnes, an increase of 34.0% compared with the previousyear. We produced 472,000 of tonnes mined metal content, an increase of 33.0%from the previous year, primarily due to increased output from Rampura Aguchamines post-expansion. The Zinc business posted excellent all round results onaccount of higher volumes from mines and smelters, controlling of costs and highLME prices. Unit cost of production was at $691 per tonne, which is marginally lower thanthe previous year's level of $695 per tonne. During the year, cost reduction asa result of various positive improvement measures in terms of volumes,productivity, and savings in procurement costs, were offset by higher LME linkedroyalties impacting costs adversely by $35 per tonne. With the progressivestabilisation of volumes from the new plant, costs of production improvedappreciably towards the last quarter. We sold 323,000 tonnes of zinc metal in the year, 11.8% more than the prioryear, with the additional output coming from tolling activities. We maintained aleadership position in the domestic Indian market which accounted for about 96%of sales, and we exported small quantities to develop the near-by marketpotential. With double-digit growth in the domestic market, we will continue tosell most of our output domestically. In addition to refined zinc metal, we alsosold 195,000 dmt, of surplus zinc concentrate in the year, having zinc metalcontent of about 100,000 tonnes. Revenues at the Zinc business rose to $875.5 million from $486.4 million, anincrease of 80.0% with EBITDA for the year at $532.9 million, up from $218.5million, an increase of 143.9% compared with the previous year. The increase inrevenues is due to better metal volumes and increased zinc prices approximately46% from the previous year. The increase in EBITDA is mainly attributable tobetter volumes and realisation and partly to a reduction in unit costs ofproduction. The import tariffs on zinc were reduced from 10% to 7.5% effectiveMarch 2006 and tariff on lead remains the same at 5%. A new ausmelt lead smelter was commissioned in early February 2006 and isexpected to achieve its rated rate capacity by mid 2006. This has increasedcapacity from 35,000 tpa to 85,000 tpa of lead metal at the Chanderiya lead zincsmelter. We announced a second 170,000 tpa smelter to be built at Chanderiya, identicalto the hydro smelter recently commissioned at Chanderiya. Activities related toordering and regulatory clearances have commenced. 60% of ordering and 80% ofengineering is now complete and pre-construction activities are in full swing.The smelter and the captive power plant are expected to be commissioned by early2008. Others The Group's other activities include an aluminium conductor business which is adivision of Sterlite consisting of two power transmission aluminium conductorplants. During the year we sold 57,000 tonnes of conductors an increase of 14% from theprevious year. Revenues increased to $132.0 million, an increase of 30.2% fromthe previous year, mainly due to an increase in aluminium prices. EBITDAincreased to $8.0 million mainly due to increased profitability in the conductorbusiness attributable to increases in aluminium prices and lower costs. Group Structure We continue in our endeavours to acquire the outstanding minority stakes inBALCO and KCM. Upon completion of these two transactions, we will have furtherconsolidated our ownership in the aluminium and copper businesses. People We have invested in developing our organisation, processes and people to supportand sustain a growing business of global size and stature. The Group has an SBUbased flat organisation structure to promote empowerment, wider ownership and ahigher degrees of commitment and accountability. Our hands-on participativemanagement style and the involvement of top management continue to strengthenour operational architecture and value system down to grass-roots level. Arobust performance management system that aligns organisational and individualgoals sustains the development of employees and the organisation. The Group has 23,000 employees, of whom 4,000 are professionals in engineering,business management, HR and finance. It is a core belief for the Group toattract, develop and retain high quality talent to produce top quality results.The Group considers all management positions to be leadership positions wherepeople are expected to make a meaningful contribution in their respective work-areas as well as the organisation as a whole. There is a well-defined processfor the career development of employees whereby challenging assignments withcommensurate responsibilities are given to deserving employees, even at a youngage. As the Group charts an aggressive and determined course of action to growrapidly and achieve ambitious targets, each employee's contribution will be akey ingredient for the success of the Group. In this sense, the key to unlockingthe phenomenal potential that lies ahead of Vedanta rests with each one of ouremployees. Group management has a strong belief that the fruits of success mustbe shared with the employees. Towards this objective we have a unique programmecalled the Long Term Incentive Plan (LTIP) designed to create wealth for ouremployees. Under this plan, a large proportion of our employees are covered andthey stand to benefit from the superior performance of the Company reflected inhigher shareholder return- in comparison with its peers. Exploration The clear focus of exploration within the Vedanta Group is to deliver resourceswhich enable Vedanta to meet and sustain its long term metal production growthobjectives. The core commodities for exploration are copper, zinc and bauxite.During the year, exploration focused on identifying and delineating near mineresources which have the potential to add significant value to our existingmining operations, whilst also building a portfolio of green-field opportunitiesparticularly in zinc. The most significant success was increasing the resourcesat depth below the Rampura Agucha zinc deposit in Rajasthan, India. The Groupcontinues to increase the allocation of resources and funds in the field ofexploration. Sustainable Development We remain committed to managing our businesses in a socially responsible manner.The management of environment, employees, health and safety and communityissues, in respect of our operations is central to the success of ourbusinesses. Our commitment to quality, health, education and livelihoodopportunities for the communities where we operate has been consistent andprogressive. Awards and Recognition Our pursuit of excellence in all areas of our business has been widelyrecognised. We won the 2005 Recognition of Commitment Award from the Instituteof Internal Auditors, USA. This award values three attributes, Excellence,Quality and Outreach and recognises our demonstrated strengths and continuedfocus on assurance practices and process improvements, making us the onlymanufacturing company out of a total of four companies in India to have everreceived this award. In the areas of HSE, there have been a number of landmarks during the year,including: • Tuticorin copper smelter received the British Safety Council award for 2005 • Rampura Agucha mine received the National Energy Conservation Award for 2005 in the mining sector from the Ministry of Power, Govt. of India, the first ever given under this category. • The Confederation of Indian Industries (CII) has awarded the Sterlite copper operations the National Award for Excellence in energy management. • MALCO received the first place for excellent water efficiency at a national level and third place for leadership and excellence in HSE in Southern India, awarded by CII for year 2005. Future Outlook The current growth in the global copper, aluminium and zinc markets isconsistent with that in 2005-06 and markets are expected to remain expected tobe healthy in the future. Growth in all these metals will primarily be driven byAsia and emerging markets such as China and India. Real Indian GDP has grown atan average rate of 6% p.a. over the last ten years, and is now growing at almost8%. The Indian Government has continued its focus on investments, job creation,rural development, infrastructure growth, employment, health and education withrequisite stress on comprehensive economic reforms. Industrial growth in Indiahas risen by around 10% per annum and similar growth levels are expected tocontinue. Investments in the power generation and transmission, housing, realestate, automobile and transport sectors are expected to drive future growth forcopper, aluminium and zinc into double-digits, thus increasing the per capitaconsumption of these metals. In 2006-7 we expect to have higher production from our expanded capacities.Volume growth and productivity and process improvements through the use ofmodern tools such as six-sigma are expected to continue to improve our cost ofproduction. Our new projects are also progressing well and we expect will be delivered onschedule, thereby adding to volumes progressively until 2009-10 consistent withgrowing demand. Once these projects are completed our capacities in copper,aluminium and zinc will be closer to our vision of 1 million tpa in each ofthese metals. This increase in volumes will ensure growth and relativeinsulation from changes in commodity cycle. FINANCE REVIEW Key financial performance indicators +---------------+-----------+-----------+-----------+-----------+------------+|KPIs | |2005-06 |2004-05 |2003-04 |2002-03 |+---------------+-----------+-----------+-----------+-----------+------------+|EBITDA |$ million |1,101.5 |454.0 |322.7 |224.3 |+---------------+-----------+-----------+-----------+-----------+------------+|Underlying EPS |US cents |130.2 |48.9 |24.5 |11.9 || |per share | | | | |+---------------+-----------+-----------+-----------+-----------+------------+|Free Cash Flow |$ million |634.8 |204.4 |367.7 |144.2 |+---------------+-----------+-----------+-----------+-----------+------------+|ROCE (excluding|% |37.9 |32.0 |24.1 |14.6 ||project capital| | | | | ||work in | | | | | ||progress) | | | | | |+---------------+-----------+-----------+-----------+-----------+------------+|Net Debt/(Cash)|$ million |11.9 |74.3 |(422.3) |331.1 |+---------------+-----------+-----------+-----------+-----------+------------+ Note: Figures for 2005-06 and 2004-05 are under IFRS and figures for 2003-04 and2002-03 are under UK GAAP Key financial highlights •$725 million, 20-year convertible bonds issued at a coupon of 4.6%. The issue, the largest of its kind in the UK during the year, extended the maturity profile of Group debt and broadened the Company's investor base. •Net Debt was reduced to under $12.0 million and gearing to under 1% even after incremental project capex of $605.5 million •Record Free Cash Flow of $634.8 million due to higher operational earnings sustained by the efficient management of working capital.. Summary of financial performance Strong contributions from all of our metals resulted in an increase in profitbefore tax from $352.1 million (before special items) to $934.7 million, growthof 165.5%. Similarly, Underlying Earnings Per Share grew to US cents 130.2 upfrom US cents 48.9, an increase of 166.3%. Net Debt as at 31 March 2006 was $11.9 million, down from $74.3 million as at 31March 2005 as a result of record Free Cash Flow of $634.8 million and expansioncapex of $605.5 million. Free Cash Flow in 2005 was $204.4 million and theincrease of over $430.4 million was due to good operating results and managementof working capital balances partially offset by tax. Our Phase I capital investments of $2.2 billion are largely complete and at alevel below the budgeted amounts. Production has been ramped up at Tuticorin(copper) and Chanderiya I (zinc) and the ramp up of capacity at Korba(aluminium) continues. The refinery project at Orissa is also progressing.$211.2 million remains committed but as yet unspent on these projects. Phase II of our expansion programme is now underway with $3.1 billion ofprojects announced during the year. A significant proportion of funding for thisprogramme will be from operational cash flows. A summary of the Group's income statement is set out below: Summary of income statement 31 March 2006 31 March 2005 $ million $ million % change--------------------------------------------------------------------------EBITDA 1,101.5 454.0 142.6--------------------------------------------------------------------------EBITDA margin % 29.8 24.1Operating special items - (22.3)Depreciation and amortisation (157.7) (103.7)--------------------------------------------------------------------------Operating profit 943.8 328.0 187.7--------------------------------------------------------------------------Share of loss of associate (1.4) (5.6)Surplus from acquisition - 56.5--------------------------------------------------------------------------Profit before interest and tax 942.4 378.9 148.7--------------------------------------------------------------------------Net interest (7.7) 7.4--------------------------------------------------------------------------Profit before tax 934.7 386.3 142.0--------------------------------------------------------------------------Income tax expense (280.4) (87.0)Tax rate % 30.0 22.5Minority Interest (280.8) (120.4)Minority Interest rate % 42.9 40.2--------------------------------------------------------------------------Attributable to equity shareholders 373.5 178.9 108.8in parentBasic earnings per share (US cents/ 130.2 62.5 108.3share)--------------------------------------------------------------------------Underlying earnings per share(US cents/share) 130.2 48.9 166.3-------------------------------------------------------------------------- Note : The results of 31 March 2005 include five months of KCM's postacquisition earnings. A detailed discussion on the financial performance of the Group is set outbelow. Revenue Vedanta's full year revenue grew by 96.5 % to $3,701.8 million (2005: $1,884.2million) on account of, additional metal produced by all businesses, highermetals prices and the inclusion of KCM's full year revenues. In addition tooverall sales volume growth, the proportion of sales made up of value-addedproducts in the Aluminium and Copper businesses was increased as these productscommand a higher premium. Revenue by product 31 March 2006 31 March 2005 % change ($million) ($million)--------------------------------------------------------------------------Aluminium 453.0 281.7 60.8Copper 2,241.3 1,014.7 120.9Zinc 875.5 486.4 80.0Others 132.0 101.4 30.2--------------------------------------------------------------------------Total 3,701.8 1,884.2 96.5-------------------------------------------------------------------------- All metals continue to earn a premium over LME in both Indian and internationalmarkets and benefit from Indian import tariffs. The Group is organised into product segments and its production is marketed bothdomestically and internationally. A large portion of Copper production is soldprincipally to countries in Asia whereas Aluminium and Zinc are principally soldinto the Indian market. Revenues from sales to customers in India was $1,762.3million (47.6%), while sales to the rest of Asia were $1,448.1 million (39.1%)and to Europe were $353.5 million (9.5%). EBITDA and Operating Profit Higher volumes and better prices have led to EBITDA growth of 142.6% to $1,101.5million (2005: $454.0 million). While costs have been contained in our IndianCopper and Zinc businesses, unit costs in Aluminium have increased similar toother major global aluminium producers. Unit costs at our Zambian copperoperations increased due to low production levels and certain other externalfactors described more fully in the business review. Tariff reductions from 10%to 7.5% effective 28th February 2006 and applicable to all our metals other thanlead, had only a marginal impact on the results for the financial year. The EBITDA margin increased to 29.8 % from 24.1% as a result of better pricesincluding improved TC/RCs, a product mix skewed towards the higher margin zincbusiness and the management of costs in the Indian Copper business and the Zincbusiness. EBITDA by product 31 March 2006 31 March 2005 % change ($million ) ($million )--------------------------------------------------------------------------Aluminium 135.3 75.6 79.0Copper 425.3 163.0 160.9Zinc 532.9 218.5 143.9Others 8.0 (3.1) ---------------------------------------------------------------------------Total 1,101.5 454.0 142.6-------------------------------------------------------------------------- The increase in average metal prices achieved plus volume gains, (excluding KCMwhich was included in the 2004-5 results for 5 months) together contributed$521.7 million of the $647.5 million increase. Sales of surplus zinc concentrate having zinc metal content of about 100,000tonnes generated EBITDA of $130.1 million during the year. On the cost side, significant increases in mining royalties in the Zinc businessand the Copper mines in Australia were more than offset by cost savings despiteindustry-wide inflationary pressures. However the Aluminium business in Indiaexperienced a cross-industry surge in energy and other input costs as well asthe impact of a start-up phase at the new Korba smelter. The Zambian copperbusiness was adversely affected by the appreciation of the Zambian Kwachaagainst the US Dollar and higher labour costs. Group operating profit increased to $943.8 million up from $328.0 million, anincrease of 187.7 %. Depreciation charges increased to $157.7 million from$103.7 million reflecting a full year depreciation charge on KCM assets of $43.3million (2005: $24.2 million for five months) and projects commissioned duringthe year. The operating profit of the previous year included an impairmentcharge of $17.8 million for certain non-core assets and restructuring costs of$4.1 million. Operating profit on a comparable basis rose by $593.5 million or169.4%. Net Finance Costs Net finance costs were $7.7 million compared to net finance income of $7.4million in the previous year. Commissioning of new capacity borrowing costswhich had previously been capitalised are now charged to the income statement.In addition to general interest rate rises, the unwinding of the discount onenvironmental and other provisions related to the acquisition of KCM in theprevious year has contributed to the change in finance costs compared with lastyear. Net Finance Costs Year ended 31 Year ended 31 March 2006 March 2005 ($million) ($million)------------------------------------------------------------------Interest payable (124.1) (60.8) Unwinding of discount andinterest on defined benefitpension arrangements (11.3) (1.9) Interest and other investment 75.7 45.0income Capitalisation of borrowingcosts net of foreign exchangedifferences and interestincome 52.0 25.1------------------------------------------------------------------Net interest in income statement (7.7) 7.4------------------------------------------------------------------ Taxation The effective tax rate for the year is 30.0% which is higher than that of theprevious year at 26.4 % after adjusting for the surplus on the KCM acquisitionand 22.5% on an unadjusted basis. The main reason for the higher tax rate is thechange in profit mix, a higher tax charge for the copper operations in Indiawhere the business moved to a normal tax regime having achieved certainthreshold levels of profitability and due to changes in tax laws in somesubsidiaries. Of the overall tax charge, current tax has remained relativelyconstant at just under 20%.Minority interests The Group's ownership in subsidiaries has increased to 57.1% from 50.4% in theprevious year on a comparable basis (after adjusting for the treatment of theKCM surplus on acquisition in 2005). The full year impact in 2005-06 ofincreased ownership in Sterlite together with higher profits from companies inwhich there are lower minority shareholdings have affected the overall minorityinterest level. Attributable Profit Attributable profit for the year was $373.5 million against $178.9 million inthe previous year, an increase of 108.8 %. This has been the result of strongperformances across all our businesses. The increase in underlying earnings overthe previous year was $233.4 million, an increase of 166.6 % over the previousyear. Underlying earnings exclude the effects of special items and their tax andminority impact and we believe it is an important tool to measure the recurringperformance of the Group. Reconciliation to underlying profit 31 March 2006 31 March 2005 % change ($million) ($million)------------------------------------------------------------------------Profit for the year 373.5 178.9 108.8attributable to the equityholders of the parentSpecial items - 22.3Surplus on acquisition of KCM - (56.5)Taxation effect - (1.6)Minority interest impact - (3.0)Underlying profit for the year 373.5 140.1 166.6------------------------------------------------------------------------EPS on profit for the year(US cents per share) 130.2 62.5 108.3------------------------------------------------------------------------EPS on Underlying Profit (US 130.2 48.9 166.3cents per share)------------------------------------------------------------------------ Earnings per share and dividends EPS for the year increased to US cents 130.2 per ordinary share, a growth of108.3 % compared with the previous year. EPS on underlying profit rose by 166.3% over the previous year. Dilutive elements include adjustments for the convertible bond of 3.1 millionshares and 3.6 million shares to be issued under the LTIP. On this basis, thefully diluted EPS increased by 108.5 % compared with the previous year from 61.5US cents to 128.2 US cents. In line with the Company's progressive dividend policy, the Board proposes afinal dividend of 14.3 US cents per ordinary share for the year 31 March 2006giving a total dividend for the full year of US cents 20.0 per Ordinary Share.The total dividend is higher by 17.3% than the previous year's dividend of 17.05US cents per share. Cash flow The Group delivered strong Free Cash Flow of $634.8 million an increase of$430.4 million reflecting improved operating cash and working capitalmanagement. Cash inflows have been utilised in funding the Group's expansionprojects. Cash flow 31 March 2006 31 March 2005 ($million) ($million)--------------------------------------------------------------------------EBITDA 1,101.5 454.0Special items - (21.9)Working capital movements (169.7) (181.7)Changes in long term creditors and non-cash (17.1) 52.8itemsSustaining capital expenditure (80.6) (67.1)Sale of tangible fixed assets 0.7 14.1Net interest paid (20.5) 17.2Dividend received 7.0 2.8Tax paid (186.5) (65.8)--------------------------------------------------------------------------Free Cash Flow 634.8 204.4--------------------------------------------------------------------------Expansion Capital Expenditure (605.5) (734.4)Acquisitions - (30.6)Dividends paid to equity shareholders (49.4) (15.8)Dividends paid to minority shareholders (8.9) (7.7)Foreign exchange ( 7.7) (9.9)Equity component of convertible loan notes 123.3 -De-consolidation of SEWT - cash and (58.7) -preference sharesOther movements * 34.5 97.6--------------------------------------------------------------------------Movement in net(debt)/cash 62.4 (496.6)-------------------------------------------------------------------------- * Project creditors of $2.0 million (2005: $80.5 million) re-classified fromworking capital movements into other movements shown below Free Cash Flow. Working capital levels were affected by increased inventories at the Korbasmelter and at the expanded copper business at Tuticorin. In addition, highermetal prices and strong fourth quarter sales have led to higher levels of tradereceivables. The cash tax rate has been consistent to last year's levels. The Group has invested $80.6 million in Sustaining Capital Expenditure duringthe year for operational efficiencies and to meet HSE commitments. In addition,full year cash flows have been included for KCM. Gross debt was $2,103.6 million as at 31 March 2006, including $600.4 million inrespect of convertible bonds issued during the year. The equity component of theconvertible bond of $123.3 million is recorded as part of equity in the balancesheet. Cash and cash equivalents together with liquid investments were $2,091.7million as at 31 March 2006. We continue to remain focused on maintaining astrong balance sheet. Projects Total capital expenditure during the year on expansion projects announced at thetime of the IPO was $546.3 million. Expansion projects - Original Spent to Committed Statusannounced in estimated 31 March but not yetprevious years cost 06 spent ($million)($million) ($million)-------------------------------------------------------------------- Orissa (Alumina) 800.0 417.1 188.1 In progressKorba Smelter 550.0 471.5 14.6 In progress(Aluminium) Korba Power Plant 350.0 289.7 5.6 Completed(Aluminium)Tuticorin (Copper) 87.0 87.0 - CompletedChanderiya 335.0 264.7 2.9 Completed(Zinc-Lead)Rampura Agucha 90.0 45.2 - Completed(Zinc-Lead)--------------------------------------------------------------------Total 2,212.0 1,575.2 211.2-------------------------------------------------------------------- During the year, we have announced four large expansion projects with anestimated capital cost of $3,080 million. Funds spent on new projects announcedduring the year totalled to $48.8 million to March 2006. Commitments on thesenew projects at 31 March 2006 are $961.3 million. Expansion projects - announced during the year Estimated cost Spent to 31 Committed but March 06 not yet spent ($million) ($million) ($million)---------------------------------------------------------------------------Jharsuguda (Aluminium) 2,100.0 32.1 763.3Konkola Mine (Copper) 400.0 4.3 62.0Nchanga Smelter (Copper) 280.0 3.1 46.7Chanderiya (Zinc) 300.0 9.3 89.3---------------------------------------------------------------------------Total 3,080.0 48.8 961.3--------------------------------------------------------------------------- We believe such a strong growth pipeline is unparalleled in our industry. Acquisitions We have exercised our right to buy the 49% stake held by Government of India inBALCO. The value of this stake is to be determined by an independent valuer. Theindependent valuer's report has been submitted to the Government and on 30 March2006 Sterlite delivered a cheque to the Government for $246.3 million togetherwith a request for a transfer of shares. This amount is subject to finaldetermination by an arbitrator in respect of the interest included in theconsideration. As at the date of this report, the Government had not encashedthe cheque. In respect of this, no change in Sterlite's interest in BALCO isreflected in these financial statements. We have also sent a notice expressing our interest to acquire ZCI's stake of28.5% in KCM. The process of appointing an independent valuer is underway. Balance sheet Shareholders' equity as at 31 March 2006 stood at $1,417.1 million up from$1,110.5 million as at 31 March 2005. Minority interests increased to $921.7million (2005: $636.2 million) and Net Debt decreased to $11.9 million as at 31March 2006 as compared to $74.3 million at 31 March 2005. Cash and cashequivalents as at 31 March 2006 was $2,091.7 million which included $719.7million (net of issue cost) raised on the convertible bond issue. As a result of capital expenditure during the year, capital employed increasedby $529.7 million to $2,350.7 million. The net book value of the Group'sproperty, plant and equipment increased from $2,288.6 million at the end ofprevious year to $2,763.0 million as at 31 March 2006. Goodwill which arose as a result of the acquisition of Sterlite is carried inthe balance sheet at $12.1 million. Goodwill has not been impaired during theyear. Working capital increased in absolute terms for the reasons mentioned earlier. ROCE on an adjusted capital employed basis (capital employed reduced by projectcapital work-in-progress) rose to 37.9% from 32.0% due principally to higherprices and we expect an increased impact on account of projects delivered duringthis year 2006-07. ROCE is affected by the timing of expansion projects beingdelivered during the year as the full benefit of additional capacities is notcaptured. Capital Employed/ROCE 31 March 2006 31 March 2005 ($million) ($million)---------------------------------------------------------------Equity shareholders' funds ($ 1,417.1 1,110.5million)Minority interests 921.7 636.2Net Debt 11.9 74.3Capital Employed 2,350.7 1,821.0---------------------------------------------------------------ROCE (net of tax) (%) 28.1 % 13.9 %--------------------------------------------------------------- Adjusted Capital Employed/ROCE 31 March 2006 31 March 2005 ($million) ($million)---------------------------------------------------------------Capital Employed 2,350.7 1,821.0Less : Project capital work in (608.6) (1,028.9)progressAdjusted Capital Employed 1,742.1 792.1---------------------------------------------------------------Adjusted ROCE (net of tax) (%) 37.9% 32.0 %--------------------------------------------------------------- New debt of $725 million was raised during the year through the issue ofconvertible bonds at a coupon rate of 4.6 %. The bonds can be converted into oneordinary share each represented by a Depository Receipt ("DRs"). The bondholders earliest redemption option is after seven years. The holders of the DRswill not be entitled to exercise voting rights. The convertible bond has beenaccounted for in accordance with IFRS whereby the compound instrument has beensplit into equity and debt portions. The equity component has been valued at$123.3 million and the balance is treated as debt. External debt held by subsidiaries was $905.6 million on 31 March 2006 ascompared to $929.7 million on 31 March 2005. Cash flows generated fromoperations have been utilised to repay part of the subsidiary debt, particularlyin Sterlite and BALCO. Until 28 March 2006, Sterlite operated the Sterlite Employee Welfare Trust("SEWT"), a long term investment plan, the activities of which included grantingshare options in Sterlite to its senior management. The SEWT was previouslyconsolidated into the Group accounts by virtue of its status as an ESOP Trustcontrolled by the Group. On 28 March 2006, the Trustees decided to amend the SEWT's objectives to excludeshare option plans for Sterlite employees and to include social and charitableactivities. Vedanta reviewed the treatment of the SEWT under IFRS and concluded that due tothe change in its objectives it ceased to represent an ESOP Trust. Moreover, theSEWT is no longer controlled by the Group and therefore does not qualify forconsolidation in Vedanta's Group accounts. Deconsolidation of the SEWT resulted in a reduction in the Group's effectiveshareholding in Sterlite by 2.49% to 75.93%. At 28 March 2006, being the date ofdeconsolidation, the net assets of the Group were reduced by $58.7 million.Equity shareholders' funds reduced by $88.2 million. Consolidated income statement Note Year ended Year ended 31 March 31 March 2006 2005 $ million $ million---------------------------------------------------------------------Continuing operationsRevenue 2 3,701.8 1,884.2Cost of sales (2,591.4) (1,415.7)---------------------------------------------------------------------Gross profit 1,110.4 468.5 Other operating income 41.5 25.9Distribution costs (81.1) (51.5)Administrative expenses (127.0) (92.6)Administrative expenses - special items 3a - (22.3)---------------------------------------------------------------------Operating profit 2 943.8 328.0Investment revenue 4 51.6 37.5Finance costs 5 (59.3) (30.1)Share of loss of associate (1.4) (5.6)Special item - surplus on acquisition 3b - 56.5---------------------------------------------------------------------Profit before taxation 934.7 386.3Tax expense 6 (280.4) (87.0)---------------------------------------------------------------------Profit for the year 654.3 299.3---------------------------------------------------------------------Attributable to:Equity holders of the parent 373.5 178.9Minority interests 280.8 120.4--------------------------------------------------------------------- 654.3 299.3--------------------------------------------------------------------- Basic earnings per ordinary share (US Cents) 7 130.2 62.5 Diluted earnings per ordinary share 7 128.2 61.5(US Cents) Consolidated balance sheet As at As at 31 March 31 March 2006 2005 Note $ million $ million--------------------------------------------------------------------------ASSETSNon-current assetsGoodwill 12.1 12.2Property, plant and equipment 2,763.0 2,288.6Interest in associate 1.8 3.3Financial asset investments 27.1 24.8Other non-current assets 27.3 34.6Other financial assets (derivatives) 63.2 -Deferred tax asset 71.9 90.0-------------------------------------------------------------------------- 2,966.4 2,453.5--------------------------------------------------------------------------Current assetsInventories 535.0 337.7Trade and other receivables 593.0 339.6Other current financial assets 49.0 -(derivatives)Liquid investments 10 244.4 262.0Cash and cash equivalents 10 1,847.3 1,185.6-------------------------------------------------------------------------- 3,268.7 2,124.9--------------------------------------------------------------------------TOTAL ASSETS 6,235.1 4,578.4--------------------------------------------------------------------------LIABILITIESCurrent liabilitiesShort term borrowings 9 (239.8) (194.7)Convertible loan notes - (23.7)Trade and other payables (942.5) (675.0)Other current financial liabilities (114.7) -(derivatives)Provisions (12.2) (37.0)Current tax liabilities (34.7) (15.1)-------------------------------------------------------------------------- (1,343.9) (945.5)--------------------------------------------------------------------------Net current assets 1,924.8 1,179.4--------------------------------------------------------------------------Non-current liabilitiesMedium and long term borrowings 9 (1,236.0) (1,303.5)Convertible loan notes (600.4) -Trade and other payables (15.6) (41.2)Other financial liabilities (derivatives) (93.4) -Deferred tax liabilities (286.9) (234.9)Retirement benefits (38.2) (38.6)Provisions (222.5) (208.6)Non equity minority interests (59.4) (59.4)-------------------------------------------------------------------------- (2,552.4) (1,886.2)--------------------------------------------------------------------------Total liabilities (3,896.3) (2,831.7)--------------------------------------------------------------------------Net assets 2,338.8 1,746.7--------------------------------------------------------------------------EQUITYShare capital 28.7 28.7Share premium account 18.6 18.6Share based payment reserves 4.1 2.5Convertible bond reserve 123.3 -Hedging reserves (29.1) -Other reserves 213.1 43.9Retained earnings 1,058.4 1,016.8--------------------------------------------------------------------------Equity attributable to equity holders of 1,417.1 1,110.5the parentMinority interests 921.7 636.2--------------------------------------------------------------------------Total equity 2,338.8 1,746.7--------------------------------------------------------------------------The consolidated balance sheet was approved by the Board on 31 May 2006 Consolidated cash flow statement Year ended Year ended 31 March 31 March 2006 2005 Note $ million $ million---------------------------------------------------------------Operating activitiesProfit before taxation 934.7 386.3Adjustments for:Depreciation 157.7 103.7Investment revenue (51.6) (37.5)Finance costs 59.3 30.1Other non-cash items 8.5 (27.3)Other adjustments 1.4 6.1---------------------------------------------------------------Operating cash flows before 1,110.0 461.4movements in working capitalIncrease in inventories (190.1) (61.0)Increase in receivables (236.8) (79.1)Increase/(decrease) in payables 231.6 (18.1)---------------------------------------------------------------Cash generated from operations 914.7 303.2Dividends received 7.0 2.8Interest income received 58.5 57.8Interest paid (112.1) (64.1)Income taxes paid (186.5) (65.8)Dividends paid (49.4) (15.8)---------------------------------------------------------------Net cash from operating activities 632.2 218.1--------------------------------------------------------------- Investing activitiesAcquisition of subsidiary - (28.3)Cash acquired with subsidiary - 41.2Purchases of property, plant and (656.2) (535.3)equipmentProceeds on disposal of property, 0.7 14.1plant and equipmentDividends paid to minority (8.9) (7.7)interests of subsidiariesDisposal/(purchase) of liquid 12.8 (164.0)investmentsInvestment in associate 0.1 (6.2)Buyback of shares from minority - (2.3)interests of subsidiariesDeconsolidation of cash held by SEWT (19.5) ----------------------------------------------------------------Net cash used in investing activities (671.0) (688.5)---------------------------------------------------------------- Financing activitiesIssue of ordinary shares - 0.1Proceeds from issue of 719.7 -convertible loan notesIncrease/(decrease) in short term 28.4 (96.6)borrowings(Decrease)/increase in long-term (20.9) 607.0borrowingsProceeds from issue of shares to - 1.7minority interests ofsubsidiaries----------------------------------------------------------------Net cash from financing 727.2 512.2activities----------------------------------------------------------------Net increase in cash and cash 688.4 41.8equivalentsExchange difference (26.7) (3.5)Cash and cash equivalents at 10 1,185.6 1,147.3beginning of year----------------------------------------------------------------Cash and cash equivalents at end 10 1,847.3 1,185.6of year---------------------------------------------------------------- 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 * reserves reserve-----------------------------------------------------------------------------------------------------------At 31 March 2005 28.7 18.6 2.5 - - 43.9 1,016.8 1,110.5 636.2 1,746.7Adjustment for - - - - (3.2) 0.9 (9.8) (12.1) (2.1) (14.2)adoption of IAS39**-----------------------------------------------------------------------------------------------------------At 1 April 2005 28.7 18.6 2.5 - (3.2) 44.8 1,007.0 1,098.4 634.1 1,732.5Profit for the - - - - - 373.5 373.5 280.8 654.3yearIssue of - - - 123.3 - - - 123.3 - 123.3convertible bondDe-consolidation - - - - - - (88.2) (88.2) 29.5 (58.7)of SEWTMovement on - - - - - - (0.4) (0.4) 24.6 24.2increase inminorityinterestsExchange - - - - 0.2 (16.1) - (15.9) (14.1) (30.0)differences ontranslation offoreignoperationsTransfers - - - - - 184.7 (184.7) - - -IPO related - - - - - - 0.6 0.6 - 0.6creditMovement in fair - - - - (26.1) (0.3) - (26.4) (24.3) (50.7)value of cashflow hedges andfinancialinvestmentsDividends paid - - - - - - (49.4) (49.4) (8.9) (58.3)Recognition of - - 1.6 - - - - 1.6 - 1.6share basedpayment-----------------------------------------------------------------------------------------------------------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----------------------------------------------------------------------------------------------------------- * Other reserves comprise: Currency Merger Investment General Total translation reserve revaluation reserves reserve reserve-----------------------------------------------------------------------------------------At 1 April 2004 - 4.4 - 8.3 12.7Exchange differences on 13.2 - - - 13.2translation of foreign operations-----------------------------------------------------------------------------------------Transfer from retained earnings - - - 18.0 18.0At 31 March 2005 13.2 4.4 - 26.3 43.9Adjustment for adoption of IAS 39** - - 0.9 - 0.9-----------------------------------------------------------------------------------------At 1 April 2005 13.2 4.4 0.9 26.3 44.8Exchange differences on (16.1) - - - (16.1)translation of foreign operationsRevaluation of available-for-sale - - (0.3) - (0.3)investmentsTransfer from retained earnings - - - 184.7 184.7-----------------------------------------------------------------------------------------At 31 March 2006 (2.9) 4.4 0.6 211.0 213.1-----------------------------------------------------------------------------------------** Details of the accounting policy change are provided in note 38. *** Under Indian law, a general reserve is created through a year on year transfer from the income statement. The purpose of these transfers is to ensure that distributions in a year are less than the total distributable results for that year. This general reserve becomes fully distributable in future periods. Notes to the financial information 1. General information and accounting policies For accounting periods beginning on or after 1 April 2005, the Group is requiredto prepare consolidated financial statements in accordance with InternationalFinancial Reporting Standards ("IFRSs") in place of United Kingdom GenerallyAccepted Accounting Principles ("UK GAAP"). For these purposes, IFRSs comprisethe Standards and Interpretations issued by the International AccountingStandards Board ("IASB") and Interpretations issued by the InternationalFinancial Reporting Interpretations Committee ("IFRIC") that have been endorsedby the European Union by 31 March 2006. This preliminary results announcement is for the year ended 31 March 2006. Theannouncement, including all comparatives, has been prepared using the accountingpolicies consistent with all IFRS Standards and Interpretations which aremandatory for accounting periods beginning on or after 1 April 2005. Thefollowing Standards have been adopted early by the Group: • IFRS 6 'Exploration for and Evaluation of Mineral Resources' is applicable to the Group from 1 April 2006. However, the Group adopted this standard early from 1 April 2004. • IFRS 2 'Share based payments' has been adopted early by the Group from 1 April 2004, for its grant of equity instruments to its employees. The accounting policies and methods of computation followed in this announcementare those set out in the news release "Vedanta Resources plc Adoption ofInternational Financial Reporting Standards" published by the Company on 27September 2005. The news release is published on the Company's website,www.vedantaresources.com, and includes explanations of the significant UK GAAPto IFRS differences and reconciliations for: • total shareholders' equity as at 1 April 2004 (date of transition to IFRS), 30 September 2004 and 31 March 2005; and • profit attributable to shareholders for the period ended 30 September 2004 and the year ended 31 March 2005. While the financial information contained in this preliminary resultsannouncement has been computed in accordance with IFRS, this announcement doesnot itself contain sufficient information to comply with IFRSs. Thisannouncement does not constitute the Group's statutory accounts for the yearended 31 March 2006 but is derived from those accounts. The statutory accountsfor the year ended 31 March 2006 will be delivered to the Registrar of Companiesfollowing the Company's AGM. The auditors have reported on those accounts andtheir reports were unqualified and did not contain statements under Sections 237(2) or (3) Companies Act 1985. The information contained in this announcement for the year ended 31 March 2005does not constitute statutory accounts. A copy of the statutory accounts forthat year, which were prepared under UK GAAP, has been delivered to theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand did not contain statements under section 237(2) of the Companies Act 1985(regarding adequacy of accounting records and returns) or under section 237(3)(regarding provision of necessary information and explanations). 2. Segment information The Group's primary format for segment reporting is business segments. Thebusiness segments consist of non-ferrous metals i.e. aluminium, copper and zinc,with residual components being reported as others. Business segment dataincludes an allocation of corporate costs to each sector on an appropriatebasis. The risks and returns of the Group's operations are primarily determinedby the nature of the different activities that the Group engages in.Inter-segment sales are charged based on prevailing market prices. The Group'sactivities are organised on a global basis. (a) Business segments The following table presents revenue and profit information and certain assetand liability information regarding the Group's business segments for the yearsended 31 March 2006 and 2005. Year ended 31 March 2006 Continuing Operations --------------------------------------------------- Total$ million Aluminium Copper Zinc Other Elimination Operations-------------------------------------------------------------------------------------RevenueSales to external 453.0 2,241.3 875.5 132.0 - 3,701.8customersInter-segment sales 40.1 - - - (40.1) --------------------------------------------------------------------------------------Segment revenue 493.1 2,241.3 875.5 132.0 (40.1) 3,701.8-------------------------------------------------------------------------------------ResultOperating profit 102.8 338.6 489.5 12.9 - 943.8Net finance costs (7.7)Share of associate's (1.4)loss-------------------------------------------------------------------------------------Profit before taxation 934.7Tax expense (280.4)-------------------------------------------------------------------------------------Profit for the year 654.3from continuingoperations-------------------------------------------------------------------------------------Assets and liabilitiesSegment assets 1,214.1 2,001.4 1,223.3 811.5 - 5,250.3Interest in associate 1.8Unallocated assets 983.0-------------------------------------------------------------------------------------Total assets 6,235.1-------------------------------------------------------------------------------------Segment liabilities (745.7) (1,405.8) (319.5) (614.3) - (3,085.3)Unallocated (811.0)liabilities-------------------------------------------------------------------------------------Total liabilities (3,896.3)-------------------------------------------------------------------------------------Other segmentinformationAdditions to property, 540.5 96.6 49.0 - - 686.1plant and equipmentDepreciation (32.5) (80.6) (43.5) (1.1) - (157.7)------------------------------------------------------------------------------------- Year ended 31 March 2006 Continuing Operations --------------------------------------------------- Total$ million Aluminium Copper Zinc Other Elimination Operations-------------------------------------------------------------------------------------RevenueSales to external 281.7 1,014.7 486.4 101.4 1,884.2customersInter-segment sales 26.3 - - - (26.3) --------------------------------------------------------------------------------------Segment revenue 308.0 1,014.7 486.4 101.4 (26.3) 1,884.2-------------------------------------------------------------------------------------ResultOperating profit/ 57.4 103.2 190.6 (23.2) - 328.0(loss) Non-operating special 56.5items-------------------------------------------------------------------------------------Operating profit 384.5after special itemsNet finance revenues 7.4Share of associate's (5.6)loss-------------------------------------------------------------------------------------Profit before 386.3taxationTax expense (87.0)-------------------------------------------------------------------------------------Profit for the year 299.3from continuingoperations-------------------------------------------------------------------------------------Assets andliabilitiesSegment assets 965.9 1,703.2 877.5 712.0 4,258.6Interest in associate 3.3Unallocated assets 316.5-------------------------------------------------------------------------------------Total assets 4,578.4-------------------------------------------------------------------------------------Segment liabilities (694.7) (1,081.2) (337.8) (552.5) (2,666.2)Unallocated (165.5)liabilities-------------------------------------------------------------------------------------Total liabilities (2,831.7)-------------------------------------------------------------------------------------Other segmentinformationAdditions to 438.3 49.5 245.8 70.7 804.3property, plant andequipmentDepreciation (18.3) (55.9) (28.8) (0.7) (103.7)Impairment losses - - - (17.8) (17.8)------------------------------------------------------------------------------------- (b) EBITDA* by segment Year ended Year ended 31 March 2006 31 March 2005 $ million $ million------------------------------------------------------------------------- Aluminium 135.3 75.6Copper 425.3 163.0- India/Australia 219.0 87.0- Zambia 206.3 76.0Zinc 532.9 218.5Other 8.0 (3.1)-------------------------------------------------------------------------EBITDA 1,101.5 454.0Depreciation (157.7) (103.7)Operating special items - (22.3)-------------------------------------------------------------------------Group operating profit 943.8 328.0------------------------------------------------------------------------- * EBITDA represents operating profit before special items, depreciation andamortisation. (c) Geographical segmental analysis The Group's operations are located in India, Zambia and Australia. The followingtable provides an analysis of the Group's sales by geographical market,irrespective of the origin of the goods: Year ended Year ended 31 March 2006 31 March 2005 $ million $ million-------------------------------------------------------------------------Far East 963.8 487.1India 1,762.3 1,130.6Africa 136.6 19.0Other 839.1 247.5-------------------------------------------------------------------------Total 3,701.8 1,884.2------------------------------------------------------------------------- The following is an analysis of the carrying amount of segment assets, andadditions to property, plant and equipment, analysed by the geographical area inwhich the assets are located : Carrying amount of Additions to property, segment assets plant and equipment --------------- ------------------- Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 2006 2005 2006 2005 $ million $ million $ million $ million-------------------------------------------------------------------------Australia 163.1 112.8 3.8 2.4India 3,869.2 3,456.8 618.6 780.0Zambia 768.4 639.8 63.7 20.9Other 1,434.4 369.0 - 1.0-------------------------------------------------------------------------Total 6,235.1 4,578.4 686.1 804.3------------------------------------------------------------------------- 3. Special Itemsa. Administrative expenses Year ended Year ended 31 March 2006 31 March 2005 $ million $ million-------------------------------------------------------------------------Restructuring and redundancies - (4.1)Impairment of non-core assets - (17.8)Loss on sale of assets - (0.4)------------------------------------------------------------------------- - (22.3)------------------------------------------------------------------------- b. Others Year ended Year ended 31 March 2006 31 March 2005 $ million $ million-------------------------------------------------------------------------Release of surplus on acquisition * - 56.5------------------------------------------------------------------------- - 56.5------------------------------------------------------------------------- * As set out in the Group's financial statements for the year ended 31 March2005 as presented under UK GAAP, the Group acquired KCM in November 2004. Theassets and liabilities acquired were included at provisional fair values. Thedifference between the total consideration of $46.1 million and provisional fairvalue of net assets acquired ($102.0 million) was recognised in the UK GAAPfinancial statements as negative goodwill totalling $56.5 million. As explained in the press release dated 27 September 2005 (see note 1), underIFRS negative goodwill is not recognised in the balance sheet but is recognisedimmediately in the income statement. 4. Investment revenue Year ended Year ended 31 March 2006 31 March 2005 $ million $ million---------------------------------------------------------------------------Interest and other financial income 67.6 48.3Dividend income from other financial 7.0 2.8investmentsForeign exchange gain/(loss) on cash and liquid investments 1.1 (6.1)Expected return on defined benefit 1.1 0.9arrangementsCapitalisation of foreign exchange (25.2) (8.4)differences and interest income---------------------------------------------------------------------------Total investment revenue 51.6 37.5--------------------------------------------------------------------------- 5. Finance costs Year ended Year ended 31 March 2006 31 March 2005 $ million $ million---------------------------------------------------------------------------Interest on bank loans and overdrafts 75.6 49.8Interest on convertible loan notes 4.0 -Interest on other loans 44.5 11.0Unwinding of discount on provisions 5.6 -Unwinding of discount on KCM deferred 2.1 -considerationInterest on defined benefit arrangements 4.7 2.8Capitalisation of borrowing costs (77.2) (33.5)---------------------------------------------------------------------------Total finance costs 59.3 30.1--------------------------------------------------------------------------- 6. Tax Year ended Year ended 31 March 2006 31 March 2005 $ million $ million---------------------------------------------------------------------------Current tax:UK Corporation tax - (0.6)Foreign tax - India 177.8 65.3 Zambia 1.1 0.2 Other 7.1 0.5--------------------------------------------------------------------------- 186.0 65.4---------------------------------------------------------------------------Deferred tax:Current year movement in deferred tax 94.4 29.3Attributable to decrease in the rate of - (7.7)Indian corporation tax 94.4 21.6---------------------------------------------------------------------------Total tax expense 280.4 87.0---------------------------------------------------------------------------Effective tax rate 30.0% 22.5%--------------------------------------------------------------------------- Major components of income tax expense for the year ended 31 March 2006 are: Year ended Year ended 31 March 2006 31 March 2005 $ million $ million---------------------------------------------------------------------------Consolidated income statementCurrent taxCurrent tax charge 186.0 65.4 Deferred taxDeferred tax charged to income statement 94.4 21.6---------------------------------------------------------------------------Income tax expense reported in consolidated 280.4 87.0income statement---------------------------------------------------------------------------Consolidated statement of changes in equityDeferred tax reported in equity 13.5 ---------------------------------------------------------------------------- Overview of the Indian direct tax regime The following is an overview of the salient features of the Indian direct taxregime relevant to the taxation of the Group: • companies are subject to Indian income tax on a stand alone basis. There is no concept of tax consolidation or Group relief in India; • companies are charged tax on profits of assessment years which run from 1 April to 31 March. For each assessment year, a company's profits will be subject to either regular income tax or Minimum Alternative Tax ("MAT"), whichever is the greater; • regular income tax is charged on book profits (prepared under Indian GAAP) adjusted in accordance with the provisions of the Indian Income Tax Act. Typically the required adjustments generate significant timing differences in respect of the depreciation of fixed assets, relief for provisions and accruals, the use of tax losses brought forward and pension costs. Regular income tax is charged at 30% (plus surcharges) taking the effective tax rate to 33.66%. The corporate tax rate up to 2004-05 was 35% (plus surcharges) taking the effective tax rate to 36.59%. • MAT is charged on book profits but typically with a limited number of adjustments. MAT is charged at 7.5% (plus surcharges). From the year 2006-07, MAT will be charged at 10% (plus surcharges). However, MAT paid during a year can be set off against normal tax within a period of seven years succeeding the assessment year in which the MAT credit arose. • there are various tax exemptions or tax holidays available to companies in India. The most important to the Group are: (i) The industrial undertakings' exemption. Profits of newly constructed industrial undertakings located in designated areas of India can benefit from a tax holiday. A typical tax holiday would exempt 100% of the plant's profits for five years, and 30% for the next five years, and (ii) The power plants' exemption. Profits on newly constructed power plants can benefit from a tax holiday. A typical holiday would exempt 100% of profits in ten consecutive years within the first 15 years of the power plants' operation. The start of the ten-year period can be chosen by a company; • tax is payable in the financial year to which it relates; and • tax returns submitted by companies are regularly subjected to a comprehensive review and aggressive challenge by the tax authorities. There are appeals procedures available to both the tax authorities and taxpayers and it is not uncommon for significant or complex matters in dispute to remain outstanding for several years before they are finally resolved in the High Court or the Supreme Court. Overview of the Zambian Tax Regime • copper and cobalt mining companies pay company tax at 25%; • period for carry forward of tax losses for KCM and Smelterco is 20 years; • companies are charged tax on profits of accounting years; • income tax is charged on book profits (prepared under IFRS) adjusted in accordance with the provisions of the Income Tax Act 1996 as amended; and • tax returns are submitted on a self assessment basis to the Zambian Revenue Authority ("ZRA") which will review the return if found inadequate. Any disputes will be referred to the Revenue Appeals Tribunal and subsequently to the High Court or the Supreme Court. A reconciliation of income tax expense applicable to accounting profit beforeincome tax at the statutory income tax rate to income tax expense at the Group'seffective income tax rate for the year ended 31 March 2006 is as follows: Year ended Year ended 31 March 2006 31 March 2005 $ million $ million----------------------------------------------------------------------Accounting profit before income tax 934.7 386.3 At Indian statutory income tax rate of 314.6 141.433.66% (2005: 36.59%)Temporary difference not recognised in (6.0) 1.2deferred taxUtilisation of tax losses 0.6 (3.0)Disallowable expenses 7.1 12.7Non-taxable income (5.0) (26.5)Impact of tax rate differences (14.3) (15.4)Tax holiday and similar exemptions (17.8) (27.5)Dividend distribution tax on overseas 2.7 3.0subsidiariesMinimum Alternative Tax 1.7 1.1Adjustments in respect of previous years (3.2) -----------------------------------------------------------------------At effective income tax rate of 30.0% 280.4 87.0(2005: 22.5%)---------------------------------------------------------------------- 7. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary shareholders by the weighted average number of ordinaryshares outstanding during the year (adjusted for the effects of dilutiveoptions). The following reflects the income and share data used in the basic and dilutedearnings per share computations: Year ended Year ended 31 March 2006 31 March 2005 $ million $ million----------------------------------------------------------------------Net profit attributable to equity 373.5 178.9holders of the parent---------------------------------------------------------------------- Year ended Year ended 31 March 2006 31 March 2005 million million----------------------------------------------------------------------Weighted average number of ordinary 286.8 286.4shares for basic earnings per share Effect of dilution: Convertible loan notes 3.1 -Share options 3.6 1.5----------------------------------------------------------------------Adjusted weighted average number of 293.5 287.9ordinary shares for diluted earnings per share---------------------------------------------------------------------- (a) Earnings per share based on profit for the year Basic earnings per share on the profit for the year Year ended Year ended 31 March 2006 31 March 2005----------------------------------------------------------------------Profit for the year attributable to 373.5 178.9equity holders of the parent($ million)Weighted average number of shares of the 286.8 286.4Company in issue (million)----------------------------------------------------------------------Earnings per share on profit for the 130.2 62.5year (US cents per share)---------------------------------------------------------------------- Diluted earnings per share on the profit for the year Year ended Year ended 31 March 2006 31 March 2005----------------------------------------------------------------------Profit for the year attributable to 373.5 178.9equity holders of the parent ($ million)Adjustment in respect of convertible 2.7 -bonds of Vedanta ($ million)Adjustment in respect of convertible - (1.9)bonds in Sterlite ($ million)----------------------------------------------------------------------Profit for the year after dilutive 376.2 177.0adjustment ($ million)----------------------------------------------------------------------Adjusted weighted average number of 293.5 287.9shares of the Company in issue (million)----------------------------------------------------------------------Diluted earnings per share on profit for 128.2 61.5the year (US cents per share)---------------------------------------------------------------------- Shares issued during the year ended 31 March 2005 were 303,000 on 18 March 2005and 85,000 on 31 March 2005 pursuant to the exercise of the second tranche ofawards under the Reward Plan. Shares issued under the Long Term Incentive Planon 22 February 2006 were 2,506,350. The issue of these shares has been included in determining the 2006 weightedaverage number of shares. Profit for the year would be diluted if holders of the convertible bonds inVedanta exercised their right to convert their bond holdings into Vedantaequity. The impact on profit for the year of this conversion would be theinterest payable on the convertible bond. The outstanding awards under the LTIP are reflected in the diluted EPS figurethrough an increased number of weighted average shares. There have been no other transactions involving ordinary shares or potentialordinary shares since the reporting date and before the completion of thesefinancial statements. (b) Earnings per share based on Underlying Profit for the year The Group's Underlying Profit is the profit for the year after adding backspecial items and their resultant tax and minority interest effects, as shown inthe table below: Year ended Year ended 31 March 2006 31 March 2005 $ million $ million----------------------------------------------------------------------Profit for the year attributable to 373.5 178.9equity holders of the parentAdministrative expenses - special items - 22.3(note 3a)Special item - release of surplus on - (56.5)acquisition (note 3b)Tax effect of special items - (1.6)Minority interest effect of special - (3.0)items----------------------------------------------------------------------Underlying profit for the year 373.5 140.1---------------------------------------------------------------------- Basic earnings per share on Underlying Profit for the year Year ended Year ended 31 March 2006 31 March 2005----------------------------------------------------------------------Underlying profit for the year 373.5 140.1($million)Weighted average number of shares of the 286.8 286.4Company in issue (million)----------------------------------------------------------------------Earnings per share on Underlying Profit 130.2 48.9for the year (US cents per share)---------------------------------------------------------------------- Diluted earnings per share on Underlying Profit for the year Year ended Year ended 31 March 2006 31 March 2005---------------------------------------------------------------------- Underlying profit for the year ($ million) 373.5 140.1Adjustment in respect of convertible 2.7 -bonds of Vedanta ($ million)Adjustment in respect of convertible - (1.9)bonds in Sterlite ($ million)----------------------------------------------------------------------Underlying profit for the year after 376.2 138.2dilutive adjustment ($ million)----------------------------------------------------------------------Adjusted weighted average number of 293.5 287.9shares of the Company in issue (million)----------------------------------------------------------------------Diluted earnings per share on Underlying 128.2 48.0profit for the year (US cents per share)---------------------------------------------------------------------- 8. Dividends Year ended Year ended 31 March 2006 31 March 2005 $ million $ million-----------------------------------------------------------------------------Amounts recognised as distributions to equityholders:Equity dividends on ordinary shares:Final dividend for 2004-05 : 11.55 US cents 33.1 15.8per share (2003-04 : 5.5 US cents per share)Interim dividend paid during the year : 5.7 US 16.3 15.8cents per share (2004-05 : 5.5 US cents per share)----------------------------------------------------------------------------- 49.4 31.6----------------------------------------------------------------------------- Proposed for approval at AGM but not provided Equity dividends on ordinary shares:Final dividend for 2005-06: 14.3 US cents per 41.0 33.1share (2004-05: 11.55 US cents per share)----------------------------------------------------------------------------- 9. Borrowings As at As at 31 March 06 31 March 05 $ million $ million----------------------------------------------------------------------------Bank loans 700.7 815.6Bonds 567.6 615.9Other loans 207.5 66.7----------------------------------------------------------------------------Total 1,475.8 1,498.2----------------------------------------------------------------------------Borrowings are repayable as:On demand within one year (shown as current 239.8 194.7liabilities)In the second year 257.9 145.2In two to five years 949.6 1,004.4After five years 28.5 153.9----------------------------------------------------------------------------Total borrowings 1,475.8 1,498.2----------------------------------------------------------------------------Less: payable within one year (239.8) (194.7)----------------------------------------------------------------------------Medium and long term borrowings 1,236.0 1,303.5---------------------------------------------------------------------------- At 31 March 2006, the Group had available US$ 443.7 million (2005: $307.0million) of undrawn committed borrowing facilities in respect of which allconditions precedent had been met. 10. Movement in Net Debt (1) Debt due within one year Debt due after one year ------------------------ ------------------------US$ million Cash and Debt Debt Debt Debt Liquid Total cash carrying related carrying related investments Net equivalents value derivatives(2) value derivatives(2) US$ million Debt-------------------------------------------------------------------------------------------------------At 31 March 2005 1,185.6 (218.4) - (1,303.5) - 262.0 (74.3)IAS 32 and IAS 39 1.0 5.4 (15.1) 15.8 (17.5) - (10.4)adjustments-------------------------------------------------------------------------------------------------------Adjusted opening 1,186.6 (213.0) (15.1) (1,287.7) (17.5) 262.0 (84.7)balance sheet at 1April 2005Cash flow 688.4 (28.4) - (704.1) - (12.8) (56.9)Other non-cash changes (1.0) (2.0) 17.9 135.2 (12.7) - 137.4Foreign exchange (26.7) 3.6 - 20.2 - (4.8) (7.7)differences-------------------------------------------------------------------------------------------------------At 31 March 2006 1,847.3 (239.8) 2.8 (1,836.4) (30.2) 244.4 (11.9)------------------------------------------------------------------------------------------------------- (1) Net Debt being total debt after fair value adjustments under IAS 32 and 39 as reduced by cash and cash equivalents and liquid investments. (2) Debt related derivatives exclude commodity related derivative financial assets and liabilities. 5 Year Summary As per IFRS As per UK GAAP ------------ -------------- Year ended Year ended Year ended Year ended Year ended 31 March 31 March 31 March 31 March 31 March 06 05 04 03 02 $ million $ million $ million $ million $ million---------------------------------------------------------------------------------------Revenue 3,701.8 1,884.2 1,289.5 963.1 601.3---------------------------------------------------------------------------------------EBITDA 1101.5 454.0 322.7 224.3 109.7Depreciation (157.7) (103.7) (71.8) (59.2) (46.1)Goodwill amortisation/impairment - - (0.5) (0.4) (0.4)Exceptional/special items - (22.3) (13.3) (50.1) (5.0)---------------------------------------------------------------------------------------Operating profit 943.8 328.0 237.1 114.6 58.2Share of (loss)/profit in (1.4) (5.6) (1.2) (0.5) 0.3associateNon-operating exceptional/ - 56.5 (1.2) (0.7) -special items---------------------------------------------------------------------------------------Profit before interest and 942.4 378.9 234.7 113.4 58.5taxationNet finance (costs)/investment (7.7) 7.4 (1.3) (35.0) (35.3)revenues---------------------------------------------------------------------------------------Profit before taxation 934.7 386.3 233.4 78.4 23.2Taxation (280.4) (87.0) (76.0) (20.5) (6.7)---------------------------------------------------------------------------------------Profit after taxation 654.3 299.3 157.4 57.9 16.5Equity minority interests (280.8) (120.4) (85.1) (33.4) (15.3)---------------------------------------------------------------------------------------Profit attributable to equity 373.5 178.9 72.3 24.5 1.2shareholders in parentDividends paid during the year (49.4) (31.6) ----------------------------------------------------------------------------------------Retained profit 324.1 147.3 72.3 24.5 1.2---------------------------------------------------------------------------------------Basic earnings per share (UScents per share)Profit for the financial year 130.2 62.5 25.3 8.6 0.4Underlying Profit for the 130.2 48.9 26.6 11.9 2.2financial yearDividend paid during the year 17.25 11 .0 - -(US cents per share)--------------------------------------------------------------------------------------- Dividends declared in relation to year ended 31 March 2004 under UK GAAP of$15.8 million are included in the year ended 31 March 2005 on payment basis. The financial information for the years ended 31 March 2003 and 2002 has beenderived from the Listing Particulars without material change. The informationfor the year ended 31 March 2004 has been restated for the effect of UITFAbstract 38 "Accounting for ESOP Trusts" as disclosed in note 1 to the financialstatements for that year. No restatement has been made for 2003 and 2002. All numbers in the five year summary for the years ended 31 March 2005 and 31March 2006 are stated under IFRS and numbers for the years ended 31 March 2004,31 March 2003 and 31 March 2002 are stated under UK GAAP. The Group adopted IFRSwith effect from 1 April 2004. Production 000's mt 000's mt 000's mt 000's mt 000's mt----------------------------------------------------------------------------------------Aluminium 211 136 129 127 98 BALCO 174 100 97 96 68 MALCO 37 36 32 31 30Copper 437 240 179 156 114 Sterlite 273 172 179 156 114* KCM 164 68 - - -Zinc 284 212 221 207 ------------------------------------------------------------------------------------------* 9 months 2006 2005 2004 2003 2002------------------------------------------------------------------------------------------Cash costs of production US cents/lb US cents/lb US cents/lb US cents/lb US cents/lbAluminium - BALCO # 67.9 61.1 56.2 56.8 71.5Aluminium - MALCO 75.8 66.5 53.8 48.9 54.8Copper - Sterlite* 6.1 7.1 7.8 9.1 10Copper - KCM 127.9 106.2 - - -Zinc 31.3 31.5 25.9 30.1 38.6------------------------------------------------------------------------------------------# This excludes new smelter COP* Only smelting cost Glossary and Definitions Aluminium BusinessThe aluminium business of the Group comprising itsfully-integrated bauxite mining, alumina refining andaluminium smelting operations in India Attributable ProfitProfit for the financial year before dividends attributable to theequity shareholders of Vedanta Resources plc BALCOBharat Aluminium Company Limited, a companyincorporated in India BoardThe board of directors of the Company BusinessesThe Aluminium Business, the Copper Business andthe Zinc Business together Capital EmployedNet assets before Net (Debt)/Cash Cash Tax RateCurrent taxation as a percentage of profit beforetaxation CMTCopper Mines of Tasmania Pty Ltd, a companyincorporated in Australia Company or VedantaVedanta Resources plc Copper BusinessThe copper business of the Group comprising acopper smelter, two refineries and two copper rod plantsin India, two copper mines in Australia and anintegrated operation in Zambia consisting of threemines, a leaching plant and a smelter CSRCorporate social responsibility DirectorsThe directors of the Company Dollar or $United States dollars, the currency of the UnitedStates of America EBITDAEarnings before interest, taxation, depreciation,goodwill amortisation/impairment and special items EBITDA MarginEBITDA as a percentage of turnover Economic HoldingsThe Economic Holdings are derived bycombining the Group's direct and indirectshareholdings in the operating companies. EPSEarnings per Ordinary Share Expansion Capital ExpenditureCapital expenditure that increases the Group'soperating capacity Free Cash FlowCash flow arising from EBITDA after net interest,taxation, Sustaining Capital Expenditure and workingcapital movements GAAPGenerally Accepted Accounting Principles GearingNet Debt as a percentage of Capital Employed GovernmentThe Government of the Republic of India GroupThe Company and its subsidiary undertakings and,where appropriate, its associate undertaking HSEHealth, safety and environment HZLHindustan Zinc Limited, a company incorporated inIndia IFLIndia Foils Limited, a company incorporated in India IFRSInternational Financial Reporting Standards KCM or Konkola Copper MinesKonkola Copper Mines PLC, a company incorporatedin Zambia LIBORLondon Inter Bank Offered Rate ListingThe listing of the Company's Ordinary Shares on theLondon Stock Exchange on 10 December 2003 Listing ParticularsThe listing particulars dated 5 December 2003 issuedby the Company in connection with its Listing LMELondon Metal Exchange LSELondon Stock ExchangeLondon Stock Exchange plc LTIFRLost Time Injury Frequency Rate: the number of lost timeinjuries per million man hours worked LTIPThe Company's Long Term Incentive Plan MALCOThe Madras Aluminium Company Limited, acompany incorporated in India mt or tonnesMetric tonnes MwMegawatts of electrical power Net (Debt)/CashTotal debt after fair value adjustments under IAS 32 and 39,cash and cash equivalents and liquid investments Non-executive DirectorsThe non-executive directors of the Company Ordinary SharesOrdinary shares of $0.10 each in the Company Return on Capital Employed or ROCEProfit before interest, taxation, special items, taxeffected at the Group's effective tax rate as apercentage of Capital Employed Reward PlanThe Company's Reward Plan SEWTSterlite Employee Welfare Trust SOTLSterlite Optical Technologies Limited, a companyincorporated in India SOVLSterlite Opportunities and Ventures Limited, acompany incorporated in India Special itemsItems which derive from events and transactionsthat need to be disclosed separately by virtue oftheir size or nature SterliteSterlite Industries (India) Limited, a companyincorporated in India Sustaining Capital ExpenditureCapital expenditure to maintain the Group'soperating capacity TC/RCTreatment charge/refining chargeused to set smelting and refining costs tpaMetric tonnes per annum TCMThalanga Copper Mines Pty Limited, a companyincorporated in Australia Twin StarTwin Star Holdings Limited, a company incorporatedin Mauritius Twin Star Holdings GroupTwin Star and its subsidiaries and associatedundertaking Underlying EPSUnderlying profit per Ordinary Share Underlying ProfitProfit for the year after adding back specialitems and their resultant tax and minority interesteffects VALVedanta Alumina Limited, a company incorporated inIndia VFJLVedanta Finance (Jersey) Limited, a companyin Jersey VolcanVolcan Investments Limited, a company incorporatedin the Bahamas VRCLVedanta Resources Cyprus Limited, a company incorporatedin Cyprus VRFLVedanta Resources Finance Limited, a company incorporatedin the United Kingdom VRHLVedanta Resources Holdings Limited, a companyincorporated in the United Kingdom ZCIZambia Copper Investment Limited, a companyincorporated in Bermuda ZCCMZCCM Investments Holdings plc, a companyincorporated in Zambia Zinc BusinessThe zinc-lead business of the Group comprising itsfully integrated zinc-lead mining and smelting operations in India This information is provided by RNS The company news service from the London Stock Exchange

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