Interim Results

16th Nov 2006 07:03

Vedanta Resources PLC16 November 2006 16 November 2006 Vedanta Resources plc Interim Results for the Six Months Ended 30 September 2006 Highlights • Record Financial Performance - Group Revenue up 117% to $3.0 billion, driven by better prices and strong volume growth - Group EBITDA up 284% to $1.3 billion, driven by better prices and operational efficiencies - Operating profit up 355% to $1.2 billion - Attributable profit up 315% to $448 million - Basic EPS up 315% at 156.1 US cents, EPS on the basis of Underlying Profit up 330% to 161.5 US cents - Interim dividend proposed at 15.0 US cents per share - Free cash flows of $606 million - Strong balance sheet with net assets of $3.1 billion and nil gearing - ROCE (excluding project capital work in progress) significantly higher at 86% (annualised), up from 28% • Strong Operational Performance - Higher Aluminium, Zinc and Indian Copper production volumes - 245,000 tpa smelter at Korba fully restored - Lanjigarh refinery in final run up for commissioning by March 2007 - Ongoing exploration at Hindustan Zinc increases reserves • Strategic Initiatives - Entry into commercial energy business: $1.9 billion 2,400MW power project approved (in US$ millions, except as stated)------------------------------------- -------- -------- --------Consolidated Group Results H1 2007 H1 2006 Change------------------------------------- -------- -------- --------Revenue 3,004.5 1,384.6 117.0%EBITDA 1,290.5 336.5 283.5%EBITDA Margin 43.0% 24.3%Operating Profit 1,174.1 258.2 354.7%Attributable Profit 447.6 107.9 314.8%Basic Earnings per Share (US cents) 156.1 37.6 315.2%ROCE (excluding project capital work in progress) 86.0% 27.8% NA------------------------------------- -------- -------- --------Interim Dividend (US cents per share) 15.0 5.70 163.2%------------------------------------- -------- -------- -------- "These strong results demonstrate the benefits of Vedanta's unique growthprofile, our low cost base and our success in delivering on our expansions sincethe IPO," said Mr. Anil Agarwal, Chairman, Vedanta Resources plc. "The successof our strategy supports our move to continue expanding our business both in ourexisting metals, where we are implementing projects to develop a million tonnesof each metal and in commercial energy, where we are announcing our first majorproject." For further information, please contact: Sumanth Cidambi [email protected] Director - Investor Tel: +44 20 7659 4732 / +91 22 6646 1531Relations Vedanta Resources plc James Murgatroyd Tel: +44 20 7251 3801Robin WalkerFinsbury About Vedanta Resources plcVedanta Resources plc is a London listed diversified metals and mining group.Its principal operations are located throughout India, with further operationsin Zambia, Australia and Armenia. The major metals produced are Aluminium,copper, zinc, lead and gold. For further information, please visitwww.vedantaresources.com. DisclaimerThis communication shall not constitute an offer to sell or the solicitation ofan offer to buy securities, nor shall there be any sale of the securitiesdescribed herein, in any jurisdiction, including the United States, in whichsuch offer, solicitation or sale would be unlawful prior to registration orqualification under the securities laws of such jurisdiction. Sterlite has fileda registration statement in the United States under the Securities Act of 1933,as amended, in connection with the offer and sale of securities describedherein. Any public offering of the securities referred to herein to be made inthe United States will be made by means of a prospectus that forms a part ofthis registration statement and that contains detailed information aboutSterlite and its management, as well as financial statements. This press release contains "forward-looking statements" - that is, statementsrelated to future, not past, events. In this context, forward-looking statementsoften address our expected future business and financial performance, and oftencontain words such as "expects," "anticipates," "intends," "plans," "believes,""seeks," "should" or "will." Forward-looking statements by their nature addressmatters that are, to different degrees, uncertain. For us, uncertainties arisefrom the behaviour of financial and metals markets including the London MetalExchange, fluctuations in interest and or exchange rates and metal prices; fromfuture integration of acquired businesses; and from numerous other matters ofnational, regional and global scale, including those of a political, economic,business, competitive or regulatory nature. These uncertainties may cause ouractual future results to be materially different that those expressed in ourforward-looking statements. We do not undertake to update our forward-lookingstatements. Chairman's Statement The last six months has been a period of continuing growth for Vedanta. Themajority of our Phase I projects are complete, delivering a significant increasein capacity which coupled with firm metal prices are yielding unparalleledgrowth. Our continuing Phase II initiatives are on track to continue deliveringthis growth. EBITDA has more than trebled compared with the corresponding period last yearand attributable profits have increased by over 300%. Substantially highervolumes, increased metal prices and tight cost control continue to be thedrivers of this growth. Our clear roadmap continues to be to enhance shareholder value significantly byachieving annual production levels of 1 million tonnes in each of our primarymetals. An amount of $1.7 billion has already been either spent or committed aspart of our Phase II growth programme due to be completed by 2010. These PhaseII projects, most of which are close replicas of projects that we haveundertaken already, remain on track. Volumes have been increased substantiallyacross our Aluminium, Zinc and Indian Copper Businesses. I am also pleased to announce our plans to enter the commercial energy businessin India. The growth and development of India's electricity sector is a criticalcomponent of growth in the Indian economy. As part of our strategy to play aleading role in this growth and given our level of expertise in developing powerassets, the Group proposes to set up a 2,400MW coal based thermal power plant atJharsuguda, Orissa at a total cost of approximately $1.9 billion. This alsoallows us to bid for and participate in developing Ultra Mega Power Projectstendered by the Government of India. Throughout the first half, the domestic Indian economy and the economies of ourother main markets in Asia have continued to register healthy growth in demandand the outlook remains good. At this important half year stage, I would like once again to acknowledge theleading contribution of our employees to our continued growth. I would also liketo thank the communities in which we operate for their continued support. Withthe outlook being positive for the remainder of the year, I look forward tocommunicating further progress at the year-end. Anil AgarwalChairman London16 November 2006 Business Review Summary Production volumes for the Aluminium, Zinc and Indian Copper Businesses duringthe six months ended 30 September 2006 ("H1 2007") were higher than in thecorresponding six months of the previous year ("H1 2006") due to the progressivecommissioning and ramp up of our Phase I expansion projects at Korba, Chanderiyaand Tuticorin. While mined metal production at KCM improved as compared to thepreceding two quarters, refined copper production was lower primarily due to aplanned shutdown of our Nkana smelter. The de-bottlenecking project at our Tuticorin copper smelter to enhance capacityto 400,000 tpa is progressing well. The alumina refinery at Lanjigarh is in thefinal stages of commissioning. Our Phase II expansion projects are progressingon schedule with orders for critical equipment and packages placed and withpreconstruction activities having been commenced. Group revenues have more than doubled from the corresponding previous period andhave passed the $3.0 billion mark in H1 2007, with EBITDA at $1.3 billion andoperating profit at $1.2 billion surpassing the full previous year's EBITDA of$1.1 billion and operating profit of $0.9 billion. The key drivers of higherrevenue and EBITDA were the increase in volumes across the Aluminium, Copper andZinc Businesses due to capacity expansions and a significant increase incommodity prices, with ongoing focus operational efficiencies in reducing unitcosts. The EBITDA margin increased to 43.0% in H1 2007 from 24.3% in H1 2006, with anincrease in margins across all the Group's Businesses, on account of highercommodity prices and tight control on costs. Segmental revenues and EBITDA are presented in the table below. (in US$ millions, except as stated) H12007 H12006 ChangeRevenueAluminium 396.2 155.8 154.3%Copper- India/Australia 1190.2 596.5 99.5%- Zambia 488.2 304.9 60.1%Zinc 881.5 271.9 224.2%Others 48.4 55.5 (12.8%) 3004.5 1384.6 117.0% EBITDAAluminium 136.4 37.6 262.8%Copper- India/Australia 211.7 81.5 159.8%- Zambia 244.4 90.3 170.7%Zinc 703.5 124.0 467.3%Others (5.5) 3.1 NA 1290.5 336.5 283.5% Effective Interest/Minorities There has been no change in the Group's ownership in subsidiaries other than inrespect of newly acquired subsidiaries during H1 2007. The decrease in Vedantashareholders' share of profits from 57.1% at 31 March 2006 to 52.9% at30 September 2006 is entirely due to a change in profit mix with highercontribution to profits from subsidiaries where minority ownership is higherthan that in the previous full year. We are continuing to focus on increasing the Group's shareholding insubsidiaries. In the case of BALCO, Vedanta has exercised its call option to buythe 49% stake held by Government of India in BALCO and the independent valuer'sreport has been submitted to the Government. A dispute has arisen between theGovernment of India and Sterlite and both parties are currently in discussion toresolve the dispute. In the case of KCM, a notice expressing Vedanta's interest to acquire ZCI'sstake of 28.4% has been sent, and the process of appointing an independentvaluer is under way. A dispute has arisen as part of this process and ZCI havesubmitted a notice of arbitration. Dividend Vedanta has a progressive dividend policy in place, as announced at the time ofthe Group's IPO in December 2003. Taking account of the fact that, as a resultof the Group's exceptional performance, the dividend payout ratio has beendecreasing rapidly, the Board is proposing a half year dividend of 15.0 US centsper ordinary share. Outlook Demand for commodities is expected to remain healthy in the second half ofFY 2007. We expect volumes in our Indian Copper Businesses to increase progressively withthe additional debottlenecking of capacity. Additionally, mine production at CMTis expected to remain steady for the rest of the year. The ongoing stabilisationefforts at KCM are expected to yield results in the second half of FY 2007 andwe expect production levels to increase progressively. Zinc and lead productionvolumes are expected to increase in the second half of the year due to the rampup of the Chanderiya smelter. Aluminium production is expected to improvemarginally in the second half on the back of the full commissioning of the KorbaII smelter. TC/RCs are showing signs of softening globally due to low mine supply forecasts,which may affect smelter margins going forward. While there is pressure on input costs, we expect that unit costs of productionwill remain steady or show a slight improvement due to production efficienciesand continuous improvement measures. Aluminium (in US$ millions, except as stated) H12007 H12006 Change FY 2006 Revenue 396.2 155.8 154.3% 453.0EBITDA 136.4 37.6 262.8% 135.3EBITDA margin 34.4% 24.1% NA 29.9%Operating profit 109.6 27.8 294.2% 102.8Production volumes ('000 mt) - Alumina 150 142 5.6% 211- Aluminium 155 82 89.0% 296 Average LME cash settlement prices ($/mt) 2,565 1,810 41.7% 2,028 Unit costs($/mt) - BALCO 1,555 1,551 0.3% 1,497- MALCO 1,633 1,530 6.7% 1,671 Note: BALCO unit costs represents costs of old Korba plant only The existing plants at BALCO and MALCO continue to operate at their ratedcapacity and produced 70,000 tonnes in H1 2007. The new Korba smelter achieved production of 85,000 tonnes in H1 2007 withprogressive commissioning of pots that were disrupted in May 2006. All of thepots taken out of line as a result of the power tripping incident are now fullyrestored. As at 30 September 2006, a total of 265 pots were commissioned. Theperformance of all pots has been improving steadily and are expected to reachfull capacity of 245,000 tpa by the end of this financial year. All four unitsof the new 540 MW captive power plant continue to operate well. In spite of a sharp increase in input costs, mainly carbon and fluoride, theunit costs of BALCO 1 smelter were steady at $1,555 per tonne in H1 2007compared with $1,551 per tonne in H1 2006, primarily due to savings fromimproved operational efficiencies and a reduction in power generation costs.Unit costs at MALCO have also been affected by similar factors and together withthe impact of a planned power plant shutdown that required power to be drawnfrom the State grid, have increased costs to $1,633 per tonne. The unit costs of BALCO's new Korba smelter were $2,051 per tonne. We sourcedalumina from third party vendors, at an average cost of $1,239 per tonne ofaluminium metal produced in H1 2007. Other manufacturing costs were $812 pertonne. These costs are progressively reducing with increases in volumes and thestabilisation of pots, despite the increase in carbon and fluoride costs. Withinternational spot alumina prices softening and now below $300 per tonne levels,a reduction in overall costs is expected in the second half of the financialyear. Revenues in the Aluminium business increased by 154.3% to $396.2 million, withEBITDA at $136.4 million, an increase of 262.8% from the previous correspondingperiod. The increase in revenue and profitability was mainly as a result of anincrease in production volumes from BALCO's new Korba plant, higher LME pricesand operational efficiencies achieved. This was achieved despite the higherprices of the alumina sourced for the new Korba smelter from third party vendorsduring the period. The EBITDA margin for the Aluminium business was 34.4% inH1 2007 compared with 24.1% in H1 2006. The alumina refinery at Lanjigarh is in the final commissioning stage and isexpected to be commissioned before March 2007. As regards the issue ofenvironmental clearances for developing the Lanjigarh bauxite deposits, theMinistry of Environment and Forestry has now received reports from the varioussubcommittees and is expected to shortly give its recommendations on this matterto the Supreme Court. We are hopeful of a positive resolution of this matter inthe near future. Our greenfield 500,000 tpa aluminium smelter in Jharsuguda, Orissa, is beingconstructed in two phases. Phase I is due for commissioning in mid 2009 andPhase II in late 2010, at a total cost of $2.1bn. Each phase will involve theconstruction of a 250,000 tpa smelter and captive power plant (five units in thefirst phase and four in the second). Preconstruction activities are progressingwell and two-thirds of the orders have been awarded. Copper - India and Australia (in US$ millions, except as stated) H 1 2007 H 1 2006 Change % FY 2006 Revenue 1,190.2 596.5 99.5% 1,537.9EBITDA 211.7 81.5 159.8% 219.0EBITDA margin 17.8% 13.7% NA 14.2%Operating profit 175.2 62.3 181.2% 175.6Production volumes ('000 mt) - Mined metal content 15 18 (16.7%) 34- Cathode 137 124 10.5% 273 - Rod 87 80 8.8% 167Average LME cash settlement prices(USc/lb) 338.6 162.3 108.6% 185.9Unit costs(USc/lb) 5.2 6.5 (20.0%) 6.1Realised TC/RCs (USc/lb) 37.1 15.7 136.3% 23.1 Copper cathode production in the second quarter of 80,000 tonnes was the highestever produced. Together with the first quarter cathode production of 57,000tonnes due to a planned maintenance shutdown in April 2006, the copper smelterat Tuticorin has performed well and has produced 137,000 tonnes of cathode inH1 2007. De-bottlenecking of the smelter to expand its capacity to 400,000 tpa,is now mechanically complete with trial runs beings conducted. We expect this tobe fully operational by December 2006, as scheduled. Mined metal production atour Australian mine was 15,000 tonnes in HI 2007, lower than the correspondinghalf of the previous year, due to the planned closure of Thalanga Copper Minesin the second quarter of the previous year. Despite an increase in energy prices, copper unit costs were further reduced to5.2 USc/lb in H1 2007 compared with 6.5 USc/lb in H1 2006, primarily on accountof improved productivity and improved by-product management together with thehigher realisation for free metal. TC/RCs in H1 2007 improved significantly to 37.1 USc/lb from 15.7 USc/lb inH1 2006 on the back of strong market conditions. Revenues at the Copper business in India/Australia have nearly doubled to$1,190.2 million, with an EBITDA of $211.7 million. The increase in revenues wasprimarily due to a significant increase in LME prices. The increase inprofitability was mainly due to better TC/RC realisation, an increase in LMEprices for the Australian mining business and a reduction in unit costs. Thiswas despite the reduction in import tariffs from 10.0% to 7.5% affectingrealisation in domestic markets. The EBITDA margin for the Copper business inIndia/Australia has improved to 17.8% in H1 2007 compared with 13.7% in H1 2006. Copper - Zambia (in US$ millions, except as stated) H 1 2007 H 1 2006 Change % FY 2006 Revenue 488.2 304.9 60.1% 703.4EBITDA 244.4 90.3 170.7% 206.3EBITDA margin 50.1% 29.6% NA 29.3%Operating profit 216.8 63.3 242.5% 163.0Production volumes ('000 mt) - Mined metal content 43 54 (20.4%) 99- Cathode 70 81 (13.6%) 164Average LME cash settlement prices(USc/lb) 338.6 162.3 108.6% 185.9Unit costs(USc/lb) 143.9 113.2 27.1% 127.9 Mined metal output at KCM continued to show an improving trend with productionin the second quarter at 25,000 tonnes compared with 18,000 tonnes in the firstquarter. Mined metal production at 43,000 tonnes in H1 2007 was lower thanH1 2006, due to low head-grade ore and lower recoveries due to changes inmineralogy. Copper cathode production in H1 2007 was at 70,000 tonnes, lower than H1 2006,primarily due to a planned shutdown of the Nkana smelter for processimprovements. Production also fell due to a small fire at the tailings leachplant that caused one of the circuits to be taken out of line to restabiliseoperations. The circuit is now back to normal. There was also a leak in apipeline at the tailings leach plant, as a result of which the plant was shutdown. The pipeline was promptly repaired and related remedial work was carriedout. We are awaiting authorisation from the authorities to resume production atthe earliest opportunity. We continue our efforts to improve the operationalefficiencies in a planned and phased manner and expect to achieve a productionrun rate of 200,000 tpa by December 2006. Unit costs of production were at 143.9 c/lb in H1 2007, an increase from 113.2 c/lb in H1 2006. The increase in costs is due to an increase in wage costs,higher input prices and lower output. Revenues at the Copper business in Zambia increased by 60.1% to $488.2 milliondue to significant increase in commodity prices. The EBITDA of $244.4 million,increased by 170.7% from the previous corresponding period, primarily due to anincrease in the LME prices, despite the reduction in volumes and increase inunit costs of production. The EBITDA margin of the Copper business in Zambia wasimproved at 50.1%, as compared to 29.6% in the corresponding period for theprevious year. Under the Phase II programme, there are two major expansion projects in Zambiaunderway totalling $680 million in capex. The first is the Konkola Deeps mine ata cost of $400 million, which is currently being expanded by sinking a newshaft, widening an existing shaft, installing a concentrator, major equipmentchanges and the establishment of a pumping station. The Konkola mine expansionis scheduled to be completed in late 2009. The second major expansion project isthe construction of a new 250,000 smelter at Nchanga, expected to be completedin mid 2008. The concentrate feed for this smelter will come from the Konkolamine. Zinc (in US$ millions, except as stated) H 1 2007 H 1 2006 Change FY 2006 Revenue 881.5 271.9 224.2% 875.5EBITDA 703.5 124.0 467.3% 532.9EBITDA margin 79.8% 45.6% NA 60.9%Operating profit 681.4 102.0 568.0% 489.5Production volumes ('000 mt) - Mined metal content 256 220 16.4% 472- Refined metal 161 123 30.9% 284Average LME cash settlement prices($/mt) 3,333 1,286 159.2% 1,614Unit costs($/mt) 838 707 18.5% 691 Mined metal production was 256,000 tonnes in H1 2007, an increase of 16.4% ascompared with H1 2006 and in line with our expectations, primarily due to anincrease in output from the Rampura Agucha mines. Refined zinc production was161,000 tonnes in H1 2007, an increase of 30.9% as compared with H1 2006,primarily due to production from the new hydro smelter. The new hydro smelterproduced 61,000 tonnes in H1 2007. With the stabilisation of the new hydrosmelter, we expect it to reach its rated capacity by the end of December 2006.During the first half of the year, we sold zinc concentrate of 146,000 drymetric tonnes and lead concentrate of 30,000 dry metric tonnes. Unit costs of production excluding royalties were marginally lower at $600 pertonne in H1 2007 as compared with $608 per tonne in H1 2006, primarily due to anincrease in volumes, various productivity improvement initiatives and savings inprocurement costs. Royalties, which are LME-linked, amounted to $238 per tonnein H1 2007 compared with $99 per tonne in H1 2006, leading to total unit costsof production of $838 per tonne in H1 2007 as against $707 per tonne in H1 2006. Revenues for the Zinc business more than trebled to $881.5 million, primarilydue to an increase in metal volumes as a result of higher metal and minedproduction and significant increase in commodity prices. The EBITDA in H1 2007was $703.5 million, an increase of 467.3% over $124.0 million in H1 2006,primarily due to an increase in revenues and operational efficiencies. TheEBITDA margin in H1 2007 was 79.8%, compared with 45.6% in H1 2006. HZL continues to expand its exploration programme, focusing on the areaimmediately around its current mining operations in Rajasthan. As a result, itsreserves have been re-assessed at 31 March 2006 at 53.4 million tonnes at anaverage grade of 12.8%. Work on the new 170,000 tpa Chanderiya hydro smelter is moving forward asplanned, with basic and process engineering activities now completed and allmajor and critical orders placed. The project is progressing well, and thesmelter is on schedule for completion in early-2008. Financial Review Background The Financial Statements have been prepared in accordance with InternationalFinancial Reporting Standards ('IFRS') as adopted for use in the European Union.The reporting currency of Vedanta Resources plc is the US dollar. Key Financial Performance Indicators (in $ million, except as stated) 30 September 2006 30 September 2005 31 March 2006 EBITDA 1,290.5 336.5 1,101.5Underlying EPS (UScper share) 161.5 37.6 130.2Free Cash Flows 606.0 (38.6) 634.8ROCE* (excludingproject capitalwork-in-progress) 86.0% 27.8% 37.9%Net Debt / (Cash) (216.0) (455.7) 11.9*Annualised basis Key Financial Highlights • Underlying earnings of $463.2 million and operating profit of $1,174.1 million in H1 2007, an increase of 329.3% and 354.7%, respectively• Net Debt reduced significantly from under $12 million at 31 March 2006 to net cash of $216 million at 30 September 2006• Record Free Cash Flow of $606.0 million due to higher operational earnings sustained by the efficient management of working capital• Underlying EPS of 161.5 US cents (non annualized) up from 37.6 US cents (non annualized) in September 2005• ROCE (adjusted for project capital work in progress) significantly improves to 86.0% in H1 2007 from 37.9% in FY 2006 Summary of Financial Performance Successful completion of our Phase I projects in copper, aluminum and zinc hasresulted in strong growth in volumes in H1 2007 compared with H1 2006. Suchincreases in volumes in all the metals on the back of strong metal pricesresulted in an increase in profit before tax of 1,189.2 million (before specialitems) in H1 2007 from $257.1 million (before special items) in the comparativeperiod, representing a growth of 362.5%. Similarly, Underlying Earnings perShare grew to 161.5 US cents, up from 37.6 US cents, an increase of 329.5%. Costpressures continued in all operations, a consistent trend across the miningsector. However, Vedanta has been able to minimise the impact of the costincreases by effective use of its capital and maximising its productivity. Net Cash at 30 September 2006 was $216.0 million, up from $11.9 million of NetDebt at 31 March 2006, as a result of record Free Cash Flow of $606.0 millionand expansion capital expenditure of $285.8 million. Free Cash Flow for periodended 30 September 2006 increased by over $644.6 million in the comparativeperiod primarily due to good operating results and effective management ofworking capital balances, partially offset by income taxes. Vedanta's Phase I capital investments of $2.2 billion are largely complete andat levels of 15% to 20% below budged amounts for completed projects. Ramping upof Chanderiya (zinc) is almost complete and the Korba (aluminium) project is nowback on track. The alumina refinery project at Orissa is also progressing wellwith bauxite feed scheduled to commence in January 2007. Phase II of the expansion programme with $3.1 billion of projects announced lastyear, is now well under way and a significant proportion of funding for thisprogramme will be from operational cash flows. We have committed an amount of$1,652.4 million, which is 50% of the total capital outlay. Of this, $201.5million has already been spent and $1450.9 million remains committed but as yetunspent, as of 30 September 2006. We also plan to enter into commercial generation of energy and have announced a2,400 MW project in Jharsuguda, Orissa at a total cost of approximately$1.9 billion in this important venture. Power is an exciting opportunity for theGroup, given the demand-supply gap in India. The Government of India'sinitiatives to make available coal-blocks to private enterprises has made thisan attractive proposition. A new company, Sterlite Energy Limited, a 100%subsidiary of Sterlite, will be the vehicle for driving the Group's expansioninto the power business. A detailed discussion on the financial performance of the Group is set outbelow. Income Statement (in $ million, except as stated) H1 2007 H1 2006 Change Revenue 3004.5 1384.6 117.0%EBITDA 1290.5 336.5 283.5%EBITDA margin 43.0% 24.3% NAOperating special items (22.6) - NADepreciation and amortisation (93.8) (78.3) 19.8%Operating profit 1,174.1 258.2 354.7%Share of loss of associate (1.2) (0.3) 300.0%Profit before interest and tax 1,172.9 257.9 354.8%Net interest (charge) / income (6.3) (0.8) 687.5%Profit before tax 1,166.6 257.1 353.8%Income tax expense (320.5) (71.6) 347.6%Tax rate 27.5% 27.8% NAMinority interest (398.5) (77.6) 413.5%Minority interest rate 47.1% 41.8% NAAttributable to equity shareholders in parent 447.6 107.9 314.8%Basic earnings per share (US cents) 156.1 37.6 315.2%Underlying earnings per share (US cents) 161.5 37.6 329.5% Revenue Vedanta's revenue in H1 2007 grew by 117.0% to $3,004.5 million (2005: $1,384.6million) on account of higher metal prices and additional metal produced by Zincand Aluminium Businesses. In addition to overall sales volume growth, theproportion of sales made up of value-added products in the Aluminium and CopperBusinesses, which commanded a higher premium, increased. Segmental revenues are set out in the table below. (in US$ millions, except as stated)Revenue by segment 30 September 2006 30 September 2005 Change Aluminium 396.2 155.8 154.3%Copper- India/Australia 1190.2 596.5 99.5%- Zambia 488.2 304.9 60.1%Zinc 881.5 271.9 224.2%Others 48.4 55.5 (12.8%) 3004.5 1384.6 117.0% EBITDA and Operating Profit Increases in volumes from new projects in Zinc and Aluminium and sustainedhigher metal prices have led to EBITDA growth of 283.5% to $1,290.5 million inH1 2007 (H1 2006: $336.5 million). While costs have been contained in our IndianCopper and Aluminium Businesses, unit costs in the Zinc business have increasedmainly due to increase in royalty which is linked to LME prices. Unit costs atour Zambian copper operations increased due to increase in wage costs, higherinput prices and low production levels. Tariff reductions in India, from 10% to7.5% with effect from March 2006 and applicable to all metals other than lead,also adversely affected the profits for H1 2007. The EBITDA margin increased to 43.0% from 24.3% as a result of better prices,improved TC/RCs, a product mix skewed towards the higher margin Zinc businessand the management of costs in the Indian Businesses. (in US$ millions, except as stated)EBITDA by segment 30 September 2006 30 September 2005 Change Aluminium 136.4 37.6 262.8%Copper- India/Australia 211.7 81.5 159.8%- Zambia 244.4 90.3 170.7%Zinc 703.5 124.0 467.3%Others (5.5) 3.1 NA 1290.5 336.5 283.5% The increase in EBITDA of $954 million was primarily on account of an increasein average metal prices achieved and volume gains to amounting to$1,085.3 million, primarily offset by cost increases including higher royalties. Sales of zinc concentrate having zinc metal content of approximately 77,000tonnes and lead concentrate having lead metal content of approximately 14,000tonnes generated EBITDA of $205.2 million in H1 2007. Group operating profit before special items increased to $1,196.7 million upfrom $258.2 million in the corresponding period of the previous year,representing an increase of 363.5%. Depreciation charges increased to $93.8million from $78.3 million mainly due to commissioning of the new Korbaaluminium smelter. Vedanta has entered into strategic hedging of some quantities of copper andzinc. The outstanding hedged quantities as of 30 September 2006 were copper -81,625 tonnes and zinc - 78,525 tonnes, for the remainder of FY 2007 and forFY 2008. Special items During H1 2007, we reviewed our financial exposure to IFL, an associate company,taking into consideration the financial condition of IFL. Sterlite had issuedcorporate guarantees on behalf of IFL and during the six month period, weestimated the fair value of these guarantees. We have recognised a provision of$17.1 million on the basis of our estimate of the probable future liability. Additionally in H1 2007, the Power Transmission Line division of Sterlite wassold to Sterlite Optical Technologies Limited, a company under the control ofVolcan for a consideration of $32.3 million based on valuation by an independentvaluer. This was identified as a non-core business at the time of our IPO inDecember 2003, and the sale of the division has now been concluded, therebyenabling us to focus on mining and metals. The transaction resulted in a loss of$2.3 million which has been recognized as a special item in the incomestatement. The sale of this non-core business does not materially impact ourrevenues or profits. During the six month period, HZL and MALCO announced a voluntary separationscheme for its employees and 179 employees accepted the package under thescheme. A total cost of $2.5 million was incurred. Net Finance Costs Net finance costs in H1 2007 were $6.3 million compared to net finance costs of$0.8 million in H1 2006. General interest rate rises and the convertible bondissue of $725 million in the second half of FY 2006 have resulted in higherfinance costs compared with the prior period. In addition, borrowing costsattributable to expansion projects which were commissioned in the period havebeen charged to the income statement, whereas previously they were capitalised. Taxation The effective tax rate in H1 2007 has been brought down to 27.5% from theFY 2006 rate of 30.0%. The lower projected effective tax rate, as compared tothe full year rate, reflects the likely impact of tax planning measuresundertaken by us in some of our major operating subsidiaries. Of the overall taxcharge, current tax has remained relatively constant at around 20%.The tax rateis however sensitive to the availability of various incentives which differ fromsubsidiary to subsidiary, due to differing tax rates in India and Zambia andalso to change in the profit mix among subsidiaries. Attributable Profit Attributable profit for H1 2007 was $447.6 million against $107.9 million in thecorresponding period in the previous year, an increase of 314.8%. This has beenthe result of strong performances across all Group Businesses. The increase inunderlying earnings over the previous period was $355.3 million, an increase of329.3% over the previous period. Underlying earnings exclude the effects ofspecial items and their tax and minority impact and is an important tool formeasuring the recurring performance of the Group. Earnings per Share EPS for the period increased to 156.1 US cents per share in H1 2007, a growth of315.2%. EPS on underlying profit rose by 329.5%. The higher EPS reflects thegood performance of all the Businesses in returning higher value to theshareholders. Dilutive elements include adjustments for the convertible bond of 27.9 millionshares and 3.5 million shares to be issued under the LTIP. On this basis, thefully diluted EPS was 144.7 US cents, an increase of 287.9% compared with thefully diluted EPS of 37.3 US cents in the corresponding previous period. Balance Sheet Shareholders' equity as at 30 September 2006 stood at $1,809.3 million, up from$1,417.1 million as at 31 March 2006. Minority interests increased to $1,301.5million from $921.7 million as at 31 March 2006. Net Debt of $11.9 million as at31 March 2006 moved to net cash of $216.0 million as at 30 September 2006. Cashand cash equivalents including liquid investments as at 30 September 2006 were$2,219.8 million. As a result of capital expenditure during the six months period, capitalemployed increased by $544.1 million to $2,894.8 million. The net book value ofthe Group's property, plant and equipment increased from $2,763.0 million at theend of previous year to $3,054.7 million as at 30 September 2006. Thus,approximately half the increase in capital employed was attributable to fixedassets and the remainder to increases in working capital. Working capitalincreased in absolute terms for the reasons mentioned earlier. ROCE on an adjusted capital employed basis (capital employed reduced by projectcapital work-in-progress) rose to 86.0% (annualised basis) from the previousyear of 37.9% due principally to higher operational results aided by highermetal prices and higher volumes. ROCE is affected by the timing of expansionprojects being delivered during the year due to the time lag in capturing thefull benefit of additional capacities. Cash Flow and Debt (in US$ millions, except as stated) 30 September 2006 30 September 2005 EBITDA 1,290.5 336.5Special items (22.6) -Working capital movements (340.2) (270.1)Changes in long term creditors andnon-cash items (28.1) (20.9)Sustaining capital expenditure (94.5) (40.2)Sale of tangible fixed assets 1.7 -Net interest paid (25.2) (6.0)Tax paid (175.6) (37.9)Free Cash Flow 606.0 (38.6)Expansion Capital Expenditure (285.8) (315.1)Acquisitions (36.6) -Dividends paid (55.1) (42.1)Foreign exchange (5.0) (1.4)Other movements 4.4 15.8Movement in net(debt)/cash 227.9 (381.4) The Group delivered strong Free Cash Flow of $606.0 million, an increase of$644.6 million over the comparative period, reflecting improved operating cashand working capital management. Working capital expressed as percentage ofturnover has reduced to 7.3% down from 9.4% in the comparative period. Free cash flow expressed as percentage of EBITDA increased to 47% as compared tonegative free cash flows in the comparative period. Working capital in absoluteterms increased due to higher inventories at the new Korba smelter and at theexpanded Copper business at Tuticorin. In addition, higher metal prices andstrong second quarter sales have led to higher levels of trade receivables. Thecash tax rate has been consistent with last year's levels. The Group has invested $94.5 million in Sustaining Capital Expenditure inH1 2007 to improve operational efficiencies. Gross debt as at 30 September 2006 was $2,003.8 million which was lower than thegross debt of $2,103.6 million as at 31 March 2006. Cash and cash equivalents, together with liquid investments were $2,219.8million as at 30 September 2006 compared with $2,091.7 million as at31 March 2006. Strong cash flows, resulting from good operational profits andbetter working capital management, have resulted in generation of free cash of$606.0 million which has been used partly to fund the Group's expansionprojects, partly to retire debt, and to acquire a majority stake in SterliteGold. Vedanta continues to remain focused on maintaining a strong balance sheet. External debt held by subsidiaries, not including Vedanta Finance (Jersey)Limited was $808.3 million on 30 September 2006 compared with $908.2 million on31 March 2006. Cash flows generated from operations have been utilised to repaypart of the subsidiaries' debt, particularly in Sterlite and BALCO. Acquisitions During H1 2007, we completed the acquisition of a majority stake in SterliteGold Limited, a company listed in Canada with its main operations in Armenia.Sterlite Gold is engaged in gold mining and processing. We first acquired 55% of the equity shareholding in Sterlite Gold Limited at acost of $33.7 million and then acquired an additional 25% stake through an openoffer to existing shareholders at a cost of $15.8 million. Acquisition costs of$2.9 million were incurred in the transaction. As at 30 September 2006, we held80.9% of the outstanding equity of Sterlite Gold Limited. We have accounted for this acquisition in accordance with IFRS 3 "BusinessCombinations". The fair value of the assets and liabilities of the acquiredbusiness has resulted in creating assets in the form of mining properties andleases of $71 million. We believe that this acquisition gives us a highlyprospective gold mining asset in Armenia. We intend to carry out majorexploration activity in Armenia to tap the full potential of this asset. ProjectsTotal capital expenditure in H1 2007 on Phase II expansion projects was$152.6 million. Additionally, we spent $143.6 million on Phase I expansionprojects announced at the time of our IPO. Amounts committed but not yet spenton Phase II expansion projects at 30 September 2006 were $1,450.9 million. (in US$ millions, except as stated)Expansion projects announced Original Committed at Spent to Committedin earlier years estimated 30 September 30 September but not cost 2006 2006 yet spent Lanjigarh alumina refinery 800.0 569.2 549.1 20.1Korba aluminium smelter 550.0 486.1 474.6 11.5Korba power plant (aluminium) 350.0 295.3 295.3 -Tuticorin copper smelter 87.0 87.0 87.0 -Chanderiya zinc lead smelter 335.0 267.6 267.6 -Rampura Agucha zinc lead mine 90.0 45.2 45.2 -Total 2,212.0 1,750.4 1,718.8 31.6 (in US$ millions, except as stated)Expansion projects announced Original Committed at Spent to Committedduring the year estimated 30 September 30 September but not cost 2006 2006 yet spent Jharsuguda aluminium smelter 2,100.0 1,070.1 93.2 976.9Konkola Deep copper mine 400.0 211.0 32.0 179.0Nchanga copper smelter 280.0 165.0 34.0 131.0Chanderiya zinc smelter 300.0 206.3 42.3 164.0Total 3,080.0 1,652.4 201.5 1,450.9 Consolidated Income Statement----------------------- ----- ------------- ------------- ------------ Note Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006----------------------- ----- ------------- ------------- ------------ $ million $ million $ million----------------------- ----- ------------- ------------- ------------Revenue 3,004.5 1,384.6 3,701.8Cost of sales (1,723.6) (1,055.2) (2,591.4)----------------------- ----- ------------- ------------- ------------Gross profit 1,280.9 329.4 1,110.4 Other operating income 57.6 16.2 41.5Distribution costs (52.5) (30.2) (81.1)Administrative expenses (89.3) (57.2) (127.0)Administrativeexpenses -special items 4 (22.6) - ------------------------ ----- ------------- ------------- ------------Operating profit 3 1,174.1 258.2 943.8Investment revenues 60.8 22.3 51.6Finance costs (67.1) (23.1) (59.3)Share of lossof associate (1.2) (0.3) (1.4)----------------------- ----- ------------- ------------- ------------Profit before taxation 1,166.6 257.1 934.7Income tax expense 5 (320.5) (71.6) (280.4)----------------------- ----- ------------- ------------- ------------Profit for theperiod/year 846.1 185.5 654.3======================= ===== ============= ============= ============Attributable to:Equity holdersof the parent 447.6 107.9 373.5Minority interests 398.5 77.6 280.8----------------------- ----- ------------- ------------- ------------ 846.1 185.5 654.3======================= ===== ============= ============= ============Earnings per shareBasic (US Cents) (notannualised) 6a 156.1 37.6 130.2Diluted (US Cents) (not annualised) 6a 144.7 37.3 128.2 Consolidated Balance Sheet------------------------- ----- ------------- ------------- --------- Note As at As at As at 30 September 30 September 31 March 2006 2005 2006------------------------- ----- ------------- ------------- --------- $ million $ million $ million------------------------- ----- ------------- ------------- ---------ASSETSNon-current assetsGoodwill 11.7 12.1 12.1Property, plant andequipment 3,054.7 2,550.9 2,763.0Interest in associate - 2.9 1.8Financial assetinvestments 34.4 27.3 27.1Other non-current assets 24.7 21.0 27.3Other financial assets(derivatives) 68.3 37.5 63.2Deferred tax assets 28.8 87.7 71.9------------------------- ----- ------------- ------------- --------- 3,222.6 2,739.4 2,966.4------------------------- ----- ------------- ------------- ---------Current assetsInventories 941.2 646.8 535.0Trade and otherreceivables 740.5 441.1 593.0Other current financialassets (derivatives) 72.1 - 49.0Liquid investments 205.7 292.9 244.4Cash and cash equivalents 10 2,014.1 1,166.3 1,847.3------------------------- ----- ------------- ------------- --------- 3,973.6 2,547.1 3,268.7------------------------- ----- ------------- ------------- ---------TOTAL ASSETS 7,196.2 5,286.5 6,235.1------------------------- ----- ------------- ------------- ---------LIABILITIESCurrent liabilitiesShort term borrowings (179.3) (516.5) (239.8)Convertible loan notes - (5.9) -Trade and other payables (1,160.5) (817.0) (942.5)Other current financialliabilities (derivatives) (66.1) (46.6) (114.7)Provisions (29.7) (12.8) (12.2)Current tax liabilities (93.9) (19.6) (34.7)------------------------- ----- ------------- ------------- --------- (1,529.5) (1,418.4) (1,343.9)------------------------- ----- ------------- ------------- ---------Net current assets 2,444.1 1,128.7 1,924.8------------------------- ----- ------------- ------------- ---------Non-current liabilitiesMedium and long termborrowings (1,205.1) (1,349.8) (1,236.0)Convertible loan notes (601.5) - (600.4)Trade and other payables (11.6) (12.1) (15.6)Other financialliabilities (derivatives) (92.1) (76.9) (93.4)Deferred tax liabilities (335.6) (245.8) (286.9)Retirement benefits (39.3) (40.8) (38.2)Provisions (211.3) (226.0) (222.5)Non equity minorityinterests (59.4) (59.4) (59.4)------------------------- ----- ------------- ------------- --------- (2,555.9) (2,010.8) (2,552.4)------------------------- ----- ------------- ------------- ---------Total liabilities (4,085.4) (3,429.2) (3,896.3)------------------------- ----- ------------- ------------- ---------Net Assets 3,110.8 1,857.3 2,338.8========================= ===== ============= ============= =========EQUITYShare capital 28.7 28.7 28.7Share premium account 18.8 18.6 18.6Share based paymentreserves 7.1 3.1 4.1Convertible bond reserve 123.1 - 123.3Hedging reserve (23.7) (19.9) (29.1)Other reserves 501.9 164.3 213.1Retained earnings 1,153.4 957.6 1,058.4------------------------- ----- ------------- ------------- ---------Equity attributable toequity holders of theparent 1,809.3 1,152.4 1,417.1Minority interests 1,301.5 704.9 921.7------------------------- ----- ------------- ------------- ---------Total Equity 3,110.8 1,857.3 2,338.8========================= ===== ============= ============= ========= Consolidated cash flow statement-------------------------- ---- ------------- ------------- ----------- Note Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006-------------------------- ---- ------------- ------------- ----------- $ million $ million $ million-------------------------- ---- ------------- ------------- -----------Operating activitiesProfit before taxation 1,166.6 257.1 934.7Adjustments for:Depreciation 93.8 78.3 157.7Investment revenues (60.8) (22.3) (51.6)Finance costs 67.1 23.1 59.3Other non-cash items (24.1) (6.0) 8.5Share of loss in associate 1.2 0.3 1.4-------------------------- ---- ------------- ------------- -----------Operating cash flows before movements inworking capital 1,243.8 330.7 1,110.0Increase in inventories (447.7) (304.1) (190.1)Increase in receivables (159.3) (96.2) (236.8)Increase in payables 262.8 106.9 231.6-------------------------- ---- ------------- ------------- ----------- Cash generated fromoperations 899.6 37.3 914.7Dividend received 5.5 - 7.0Interest income received 72.2 20.5 58.5Interest paid (103.0) (26.6) (112.1)Income taxes paid (175.6) (37.9) (186.5)Dividends paid (41.0) (33.1) (49.4)-------------------------- ---- ------------- ------------- -----------Net cash from operatingactivities 657.7 (39.8) 632.2-------------------------- ---- ------------- ------------- ----------- Cash flows from investingactivitiesAcquisition of subsidiary 8 (36.6) - -Cash acquired withsubsidiary 8 0.8 - -Disposal on non corebusiness 9 1.1 - -Purchases of property,plant and equipment (410.4) (270.7) (656.2)Proceeds on disposal ofproperty, plant andequipment 1.8 - 0.7Dividends paid to minority interests ofsubsidiaries (14.1) (9.0) (8.9)Disposal /(purchase) ofliquid investments 39.3 (32.3) 12.8Investment in associate - - 0.1Deconsolidation of cash held by SEWT - - (19.5)-------------------------- ---- ------------- ------------- -----------Net cash used in investingactivities (418.1) (312.0) (671.0)-------------------------- ---- ------------- ------------- ----------- Cash flows from financingactivitiesProceeds from issue ofconvertible loan notes - - 719.7(Decrease)/increase in short term borrowings (11.8) 258.9 28.4Redemption of preferenceshares in subsidiary (42.1) - -Increase/(decrease) inlong-term borrowings 7.8 80.8 (20.9)-------------------------- ---- ------------- ------------- -----------Net cash from financingactivities (46.1) 339.7 727.2-------------------------- ---- ------------- ------------- -----------Net (decrease)/increase in cash and cashequivalents 193.5 (12.1) 688.4-------------------------- ---- ------------- ------------- -----------Effect of foreign exchange rate changes (26.7) (7.2) (26.7)Cash and cash equivalents at beginning ofperiod/year 1,847.3 1,185.6 1,185.6-------------------------- ---- ------------- ------------- -----------Cash and cash equivalents at end of period/year 10 2,014.1 1,166.3 1,847.3========================== ==== ============= ============= =========== Consolidated statement of changes in equity --------------------------------------------- Attributable to equity holders of the Company ---------------------------------------------$ million Share Share Share Hedging Other Retained Total Minority Total capital premium based reserve reserve* earnings interests equity payment reserves------------------------ ------- ------- -------- ------- -------- -------- ------- --------- -------As at 31 March 2005 28.7 18.6 2.5 - 43.9 1,016.8 1,110.5 636.2 1,746.7Adjustment for adoption of IAS 39 - - - (3.2) 0.9 (9.8) (12.1) (2.1) (14.2)As 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 period - - - - - 107.9 107.9 77.6 185.5Movement on increase inminority interests - - - - - 0.2 0.2 16.8 17.0Exchange differences ontranslation of foreignoperations - - - - (5.5) - (5.5) (4.0) (9.5)Transfers - - - - 125.0 (125.0) - - -IPO related credit - - - - - 0.6 0.6 - 0.6Movement in fair value of cash flow hedges andfinancial investments - - - (16.7) - - (16.7) (10.6) (27.3)Dividends paid - - - - - (33.1) (33.1) (9.0) (42.1)Recognition of share based payment - - 0.6 - - - 0.6 - 0.6------------------------ ------- ------- -------- ------- -------- -------- ------- --------- -------As at 30 September 2005 28.7 18.6 3.1 (19.9) 164.3 957.6 1,152.4 704.9 1,857.3======================== ======= ======= ======== ======= ======== ======== ======= ========= ======= --------------------------------------------- Attributable to equity holders of the Company ---------------------------------------------$ million Share Share Share Convertible Hedging Other Retained Total Minority Total capital premium based bond reserve reserves earnings interests equity payment reserve * reserves ------------------------ ------- ------- -------- --------- ------- -------- -------- ------- --------- -------As at 31 March 2005 28.7 18.6 2.5 - - 43.9 1,016.8 1,110.5 636.2 1,746.7Adjustment for adoption of IAS 39 - - - - (3.2) 0.9 (9.8) (12.1) (2.1) (14.2)As 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 year - - - - - - 373.5 373.5 280.8 654.3Issue of convertiblebond - - - 123.3 - - - 123.3 - 123.3Deconsolidation of SEWT - - - - - - (88.2) (88.2) 29.5 (58.7)Movement on decrease inminority interests - - - - - - (0.4) (0.4) 24.6 24.2Exchange differences ontranslation of foreignoperations - - - - 0.2 (16.1) - (15.9) (14.1) (30.0)Transfers - - - - - 184.7 (184.7) - - -IPO related credit - - - - - - 0.6 0.6 - 0.6Movement in fair value of cash flow hedges andfinancial investments - - - - (26.1) (0.3) - (26.4) (24.3) (50.7)Dividends paid - - - - - - (49.4) (49.4) (8.9) (58.3)Recognition of share based payment - - 1.6 - - - - 1.6 - 1.6------------------------ ------- ------- -------- --------- ------- -------- -------- ------- --------- -------As at 31 March 2006 28.7 18.6 4.1 123.3 (29.1) 213.1 1,058.4 1,417.1 921.7 2,338.8======================== ======= ======= ======== ========= ======= ======== ======== ======= ========= ======= Consolidated statement of changes in equity (continued) --------------------------------------------- Attributable to equity holders of the Company ---------------------------------------------$ million Share Share Share Convertible Hedging Other Retained Total Minority Total capital premium based bond reserve reserves earnings interests equity payment reserve * reserves ----------------------- ------- ------- -------- -------- ------- -------- -------- ------- -------- -------As at 1 April 2006 28.7 18.6 4.1 123.3 (29.1) 213.1 1,058.4 1,417.1 921.7 2,338.8Profit for the period - - - - - - 447.6 447.6 398.5 846.1Acquisition of a subsidiary - - - - - - - - 12.4 12.4Conversion of convertible bond - 0.2 - (0.2) - - - - - -Exchange differences on translation offoreign operations - - - - (0.6) (23.9) - (24.5) (22.4) (46.9)Transfers - 311.6 (311.6) - - -Movement in fair value of cash flow hedges andfinancial investments - - - - 6.0 1.1 - 7.1 5.4 12.5Dividends paid - (41.0) (41.0) (14.1) (55.1)Recognition of share based payment - - 3.0 - - - - 3.0 - 3.0----------------------- ------- ------- -------- -------- ------- -------- -------- ------- -------- -------As at 30 September 2006 28.7 18.8 7.1 123.1 (23.7) 501.9 1,153.4 1,809.3 1,301.5 3,110.8======================= ======= ======= ======== ======== ======= ======== ======== ======= ======== ======= * Other reserves comprise currency translation reserve, merger reserve,investment revaluation reserve and the general reserves established in thestatutory accounts of the Group's Indian subsidiaries. Under Indian law, ageneral reserve is created through a year-on-year transfer from the incomestatement. The purpose of these transfers is to ensure that distributions in ayear are less than the total distributable results for that year. This generalreserve becomes fully distributable in future periods. Notes to the financial information 1. Basis of preparation The financial information in this interim financial report is prepared underInternational Financial Reporting Standards ('IFRS'). The interim condensedconsolidated financial information does not constitute statutory accounts asdefined in Section 240 of the Companies Act 1985. The financial information for the full preceeding financial year has beenderived from the statutory accounts for the financial year ended 31 March 2006as filed with the Registrar of Companies. The auditors' report on the statutoryaccounts for the year ended 31 March 2006 was unqualified and did not containstatements under section 237(2) of the Companies Act 1985 (regarding adequacy ofaccounting records and returns) or under section 237(3) (regarding provision ofnecessary information and explanations). The financial information prepared under IFRS in respect of the six months ended30 September 2006 and 30 September 2005 is unaudited but has been reviewed bythe auditors and their report is set out on page 33. 2. Accounting policies This interim financial report, including all comparatives, has been preparedusing the same accounting policies and methods of computation as followed in theannual financial statments for the year ended 31 March 2006 as published by theCompany. These financial statements are covered by IFRS 1 First-time adoption ofInternational Financial Reporting Standards, because they form part of theperiod included in the Group's first IFRS financial statements for the yearending 31 March 2006. In addition, this interim report for the six month periodended 30 September 2006 has been prepared under International AccountingStandard ('IAS') 34 Interim financial reporting. IFRS and International Financial Reporting Interpretations Committee ('IFRIC')interpretations are subject to ongoing review and possible amendment orinterpretative guidance which may affect the financial statements for the yearending 31 March 2007. Foreign exchange rates The following exchange rates to US dollar ($) have been applied: ----------------- --------- --------- -------- --------- --------- -------- Average rate Average rate Average rate As at As at As at to six months to six months to year ended 30 September 30 September 31 March ended ended 31 March 30 September 30 September 2006 2005 2006 2006 2005 2006----------------- --------- --------- -------- --------- --------- --------Indian Rupees 45.96 43.65 44.28 45.96 43.99 44.61 Australian dollar 1.33 1.31 1.32 1.34 1.31 1.40----------------- --------- --------- -------- --------- --------- -------- 3. Segmental analysis (a) Business segments The following tables present revenue and profit information regarding theGroup's business segments for the six months ended 30 September 2006 and30 September 2005 and for the year ended 31 March 2006. Items after operatingprofit are not allocated by segment. Six months ended 30 September 2006----------------- -------- -------- ------ ------- --------- ---------- Aluminium Copper Zinc Other Elimination Total OperationsRevenueSales to externalcustomers 396.2 1,678.4 881.5 48.4 - 3,004.5Inter-segmentsales 27.1 - - - (27.1) ------------------ -------- -------- ------ ------- --------- ----------Segment revenue 423.3 1678.4 881.5 48.4 (27.1) 3,004.5----------------- -------- -------- ------ ------- --------- ----------Result Operatingprofit 109.2 392.0 679.3 (6.4) 1,174.1----------------- -------- -------- ------ ------- --------- ---------- Six months ended 30 September 2005----------------- -------- -------- ------ ------- --------- ---------- Aluminium Copper Zinc Other Elimination Total Revenue OperationsSales to externalcustomers 155.8 1,010.9 271.9 55.5 - 1,384.6Inter-segmentsales 14.5 - - - (14.5) ------------------ -------- -------- ------ ------- --------- ----------Segment revenue 170.3 1,010.9 271.9 55.5 (14.5) 1,384.6----------------- -------- -------- ------ ------- --------- ----------Result Operatingprofit 27.8 125.6 102.0 2.8 - 258.2----------------- -------- -------- ------ ------- --------- ---------- Year ended 31 March 2006----------------- -------- -------- ------ ------- --------- ---------- Aluminium Copper Zinc Other Elimination Total OperationsRevenueSales to externalcustomers 453.0 2,241.3 875.5 132.0 - 3,701.8Inter-segmentsales 40.1 - - - (40.1) ------------------ -------- -------- ------ ------- --------- ----------Segment revenue 493.1 2,241.3 875.5 132.0 (40.1) 3,701.8----------------- -------- -------- ------ ------- --------- ----------Result Operatingprofit 102.8 338.6 489.5 12.9 - 943.8----------------- -------- -------- ------ ------- --------- ---------- (b) EBITDA(1) by Segment Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 $ million $ million $ million ------------------- ------------ ------------ -----------Aluminium 136.4 37.6 135.3Copper 456.1 171.8 425.3------------------- ------------ ------------ ------------ India/Australia 211.7 81.5 219.0- Zambia 244.4 90.3 206.3------------------- ------------ ------------ -----------Zinc 703.5 124.0 532.9Others (5.5) 3.1 8.0------------------- ------------ ------------ -----------Group EBITDA 1,290.5 336.5 1,101.5Depreciation (93.8) (78.3) (157.7)Operating special items (22.6) - -------------------- ------------ ------------ -----------Group operatingprofit 1,174.1 258.2 943.8=================== ============ ============ =========== (1) EBITDA being Earnings before interest, taxation, depreciation andamortisation, and special items (note 4). 4. Special items Administrative expenses Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 $ million $ million $ million------------------------ ------------ ------------ -----------Restructuring andredundancies (2.5) - -Impairment of investment in associate (0.4) - -Provision for guaranteesgiven on behalf ofassociate (17.1) - -Loss on sale of property,plant and equipment (0.3) - -Loss on disposal of non core business (note 9) (2.3)------------------------ ------------ ------------ ----------- (22.6) - -======================== ============ ============ =========== 5. Income tax expense ------------------------ ------------ ------------ ----------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006------------------------ ------------ ------------ ----------- $ million $ million $ million------------------------ ------------ ------------ -----------Current tax:UK Corporation tax - 0.4 -Foreign tax:- India 227.7 40.3 177.8- Zambia 1.2 0.4 1.1- Others 14.4 1.6 7.1------------------------ ------------ ------------ ----------- 243.3 42.7 186.0------------------------ ------------ ------------ -----------Deferred tax:Current year 77.2 28.9 94.4------------------------ ------------ ------------ ----------- 77.2 28.9 94.4------------------------ ------------ ------------ -----------Total income tax expense 320.5 71.6 280.4------------------------ ------------ ------------ -----------Effective tax rate 27.5% 27.8% 30.0%======================== ============ ============ =========== 6. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theperiod attributable to ordinary equity holders of the parent by the weightedaverage number of Ordinary Shares outstanding during the period. 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 period (adjusted for the effects of dilutiveoptions). The following reflects the income and share data used in the basic and dilutedearnings per share computations: ---------------------------- ---------- ---------- ---------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006---------------------------- ---------- ---------- ---------- $ million $ million $ million---------------------------- ---------- ---------- ----------Net profit attributable toequity holders of the parent 447.6 107.9 373.5-------------------------- ---------- ---------- -------- 6. Earnings per share (continued) ---------------------------- ---------- ---------- ---------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006---------------------------- ---------- ---------- ---------- million million million---------------------------- ---------- ---------- ----------Weighted average number of Ordinary Shares for basic earnings per share 286.8 286.8 286.8Effect of dilution:Convertible loan notes 27.9 - 3.1Share options 3.5 1.4 3.6---------------------------- ---------- ---------- ----------Adjusted weighted average number of Ordinary Shares for diluted earnings pershare 318.2 288.2 293.5============================ ========== ========== ========= (a) Earnings per share based on profit for the period/year -------------------------------- ---------- ---------- ---------Basic earnings per share on the Six months Six months Year endedprofit for the period/year ended ended 30 September 30 September 31 March 2006 2005 2006-------------------------------- ---------- ---------- ---------Profit for the period attributable to equity holders of the parent($ million) 447.6 107.9 373.5Weighted average number ofOrdinary Shares of the Company in issue (million) 286.8 286.8 286.8-------------------------------- ---------- ---------- ---------Earnings per share on profitfor the period/year (UScents per share) 156.1 37.6 130.2================================ ========== ========== ========= ---------------------------------- ---------- ---------- ---------Diluted earnings per share on the Six months Six months Year endedprofit for the period/year ended ended 30 September 30 September 31 March 2006 2005 2006---------------------------------- ---------- ---------- ---------Profit for the period/yearattributable to equity holders of the parent ($ million) 447.6 107.9 373.5Adjustment in respect ofconvertible bonds of Vedanta ($ million) 12.8 - 2.7Adjustment in respect ofconvertible bonds ofSterlite ($ million) - (0.4) ----------------------------------- ---------- ---------- ---------Profit for the period/yearafter dilutive adjustment 460.4 107.5 376.2---------------------------------- ---------- ---------- ---------Adjusted weighted average number of Ordinary Shares of the Company in issue (million) 318.2 288.2 293.5---------------------------------- ---------- ---------- ---------Diluted earnings per share onprofit for the period/year(US cents per share) 144.7 37.3 128.2================================== ========== ========== ========= Profit for the period 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 period of this conversion would be theinterest payable on the convertible bond. The outstanding awards under the Long Term Incentive Plan ('LTIP') are reflectedin the diluted EPS figure through an increased number of weighted averageshares. There have been no other transactions involving Ordinary Shares or potentialOrdinary Shares since the reporting date and before the completion of thisfinancial information. 6. Earnings per share (continued) (b) Earnings per share based on Underlying Profit for the period/year The Group's Underlying Profit is the profit for the period/year after addingback special items and their resultant tax and minority interest effects, asshown in the table below: --------------------------- ---------- ---------- --------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006--------------------------- ---------- ---------- --------- $ million $ million $ million--------------------------- ---------- ---------- ---------Profit for the period/yearattributable to equity holders of the parent 447.6 107.9 373.5Administrative expenses -special items 22.6 - -Tax effect of special items (1.7) - -Minority interest effect ofspecial items (5.3) - ---------------------------- ---------- ---------- ---------Underlying profit for theperiod/year 463.2 107.9 373.5=========================== ========== ========== ======== ---------------------------------- ---------- ---------- ---------Basic earnings per share on Six months Six months Year endedUnderlying Profit for the period/ ended endedyear 30 September 30 September 31 March 2006 2005 2006---------------------------------- ---------- ---------- ---------Underlying profit for theperiod/year ($ million) 463.2 107.9 373.5Weighted average number of Ordinary Shares of the Company inissue (million) 286.8 286.8 286.8---------------------------------- ---------- ---------- ---------Earnings per share on UnderlyingProfit for the period/year(US cents per share) 161.5 37.6 130.2================================== ========== ========== ======== --------------------------------- ---------- ---------- ---------Diluted earnings per share on Six months Six months Year endedUnderlying Profit for the period/ ended endedyear 30 September 30 September 31 March 2006 2005 2006--------------------------------- ---------- ---------- ---------Underlying profit for theperiod/year ($ million) 463.2 107.9 373.5Adjustment in respect of convertible bonds of Vedanta ($ million) 12.8 2.7Adjustment in respect ofconvertible bonds ofSterlite ($ million) - (0.4) ---------------------------------- ---------- ---------- ---------Underlying profit for theperiod/year after dilutiveadjustment ($ million) 476.0 107.5 376.2--------------------------------- ---------- ---------- ---------Adjusted weighted average numberof Ordinary Shares of the Company in issue (million) 318.2 288.2 293.5--------------------------------- ---------- ---------- ---------Diluted earnings per share onUnderlying Profit/year for the period (US cents per share) 149.6 37.3 128.2================================= ========== ========== ======== 7. Dividends Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006 $ million $ million $ million---------------------------------- ---------- ---------- ---------Amounts paid as distributions toequity holders:Final dividend paid for 2005-06 : 14.3 US cents per share (2004-05: 11.55 US cents per share) 41.0 33.1 33.1Interim dividend paid for 2005-06 :5.7 US cents per share - - 16.3---------------------------------- ---------- ---------- --------- 8. Business combination The Group acquired the following companies during the period ended30 September 2006: Names of company Principal Date of Proportion Cost ofacquired activity acquisition of shares acquisition acquired ($ million) Welter Trading Limited Investment 22 May 2006 100.0% - holding company Twinstar InternationalLimited Investment 23 August 2006 100.0% 33.7* holding company * $2.9 million of acquisition expenses were additionally incurred in theacquisition of Twinstar International Limited and its subsidiaries. Vedanta acquired 100% of Welter Trading Limited, a company incorporated inCyprus, on 22 May 2006. On 23 August 2006, Welter Trading Limited acquired 100%of Twinstar International Limited ('TSI'), a company incorporated in Mauritiusand 100.0% owned by Volcan Investments Limited ('Volcan'). Volcan holds 54% ofthe equity of Vedanta. TSI held 55.09% of Sterlite Gold Limited ('Sterlite Gold'), a companyincorporated in Canada and listed on the Toronto Stock Exchange. By virtue ofWelter Trading Limited acquiring 100% of TSI, Sterlite Gold became a subsidiaryof Vedanta with an effective date of 23 August 2006, being the date at whichcontrol passed to Vedanta. As a result, the financial information of TSI andSterlite Gold has been consolidated from 23 August 2006. From the date of acquisition, Sterlite Gold held 100.0% interests in thefollowing companies: • First Dynasty Mines (USA) LLC• First Dynasty Mines Armenia Limited• AGRC Services Limited• First Dynasty Mines Holding Company Limited• Myanmar First Dynasty Mines Limited• Ararat Gold Recovery Company LLC ('AGRC') AGRC is a company involved in gold mining activities and is incorporated inArmenia. All other companies listed above are non-operating. On 30 September 2006, the Group acquired a further 25.8% interest in the equityof Sterlite Gold for $16.7 million (inclusive of $0.9 million of acquisitionexpenses). The Group's total holding in Sterlite Gold following this transactionand at 30 September 2006 was 80.89%. There was no material change in the consolidated net assets of TSI between 31August and the acquisition of the further 25.8% interest in Sterlite Gold on30 September 2006. 8. Business combination (continued) The consolidated net assets of TSI acquired are detailed in the table below. $ million Book value Fair value Fair adjustments value----------------------------- --------- ---------- --------AssetsNon-current assetsProperty, plant and equipment 11.4 71.7 83.1Financial asset investments 4.7 - 4.7----------------------------- --------- ---------- -------- 16.1 71.7 87.8----------------------------- --------- ---------- --------Current assetsInventories 2.7 - 2.7Trade and other receivables 2.7 - 2.7Cash and cash equivalents 0.8 - 0.8----------------------------- --------- ---------- -------- 6.2 6.2----------------------------- --------- ---------- --------LiabilitiesCurrent liabilitiesTrade and other payables (2.9) - (2.9)----------------------------- --------- ---------- -------- (2.9) - (2.9)----------------------------- --------- ---------- --------Non current liabilitiesBorrowings from VedantaResources Plc (10.2) - (10.2)Deferred tax liabilities - (14.3) (14.3)Provisions (1.8) - (1.8)----------------------------- --------- ---------- -------- (12.0) (14.3) (26.3)----------------------------- --------- ---------- --------Net assets 7.4 57.4 64.8----------------------------- --------- ---------- --------Less : minority interestsrecognised on first acquisition (29.1)Add: Reduction in minorityinterests on secondacquisition 16.7----------------------------- --------- ---------- -------- 52.4----------------------------- --------- ---------- --------Satisfied by :Cash consideration on firstacquisition 33.7Cash consideration onsecond acquisition (payableat 30 September 2006) 15.8Acquisition expenses 2.9----------------------------- --------- ---------- -------- 52.4----------------------------- --------- ---------- -------- Since the date of acquisition, Sterlite Gold has contributed $0.6 million to therevenue and $(0.5) million to the net profit of the Group for the period ended30 September 2006. If TSI Group had been acquired at the beginning of theperiod, the revenues of the Group would have been $3,009.0 million and the netprofit of the Group would have been $845.9 million. 9. Disposal of non core business The Board of Sterlite passed a resolution on 21 August 2006 to divest its noncore aluminum conductor business, a reporting unit classified in the Group's'Other' segment. The Group sold the business to SOTL, a company owned andcontrolled by Volcan Investments Limited and a related party, for $32.3 million.The loss on this sale was $ 2.3 million. The carrying values of the assets andliabilities disposed of were as follows: ------------------------------------------ --------- $ million------------------------------------------ ---------Property, plant and equipment 18.6Current assets 83.4------------------------------------------ ---------Total assets 102.0Debt 23.1Current liabilities 44.3------------------------------------------ ---------Total liabilities 67.4------------------------------------------ ---------Net assets disposed 34.6Less: consideration received (32.3)------------------------------------------ ---------Loss on disposal (note 4) 2.3------------------------------------------ --------- 10. Movement in net debt (1) ----------------- ------- ------ ------- ------ ------- ------- ------- Debt due within one year Debt due after one year ------------------------ -----------------------$ million Cash Debt Debt related Debt Debt related Liquid Total net and cash carrying derivatives(2) carrying derivatives(2) investments (debt)/cash equivalents value value ------------------ ------- ------ ------- ------ ------- ------- ------- Opening balance at 1 April 2005 1,185.6 (218.4) - (1,303.5) - 262.0 (74.3)IAS 32 and IAS39 adjustments 1.0 5.4 (15.1) 15.8 (17.5) - (10.4)------------------ ------- ------ ------- ------ ------- ------- -------Adjusted openingbalance sheetat 1 April 2005 1,186.6 (213.0) (15.1) (1,287.7) (17.5) 262.0 (84.7)Cash flow 688.4 (28.4) - (704.1) - (12.8) (56.9)Other non-cashchanges (1.0) (2.0) 17.9 135.2 (12.7) - 137.4Exchange difference (26.7) 3.6 - 20.2 - (4.8) (7.7)------------------ ------- ------ ------- ------ ------- ------- -------Opening balance at 1 April 2006 1,847.3 (239.8) 2.8 (1,836.4) (30.2) 244.4 (11.9)Cash flow 193.5 53.9 - (7.8) - (39.3) 200.3Disposal of non corebusiness - 23.1 - - - - 23.1Other non-cashchanges - (20.9) 2.9 20.4 6.6 0.5 9.5Foreign exchangedifferences (26.7) 4.4 - 17.2 - 0.1 (5.0)------------------ ------- ------ ------- ------ ------- ------- -------As at 30 September 2006 2,014.1 (179.3) 5.7 (1,806.6) (23.6) 205.7 216.0================== ======= ====== ======== ====== ======== ======= ======= ----------------- ------- ------ ------- ------ ------- ------- ------- Debt due within one year Debt due after one year ------------------------ -----------------------$ million Cash Debt Debt related Debt Debt related Liquid Total net and cash carrying derivatives(2) carrying derivatives(2) investments debt equivalents value value ------------------ ------- ------ ------- ------ ------- ------- -------Opening balance at 1 April 2005 1,185.6 (218.4) - (1,303.5) - 262.0 (74.3)IAS 32 and IAS39 adjustments 1.0 5.4 (15.1) 15.8 (17.5) - (10.4)------------------ ------- ------ ------- ------ ------- ------- -------Adjusted openingbalance sheetat 1 April 2005 1,186.6 (213.0) (15.1) (1,287.7) (17.5) 262.0 (84.7)Cash flow (12.1) (258.9) - (80.8) - 32.3 (319.5)Other non-cash changes (1.0) (52.7) 11.7 14.0 (21.9) - (49.9)Exchange difference (7.2) 2.2 - 4.8 - (1.4) (1.6)------------------ ------- ------ ------- ------ ------- ------- -------As at 30 September 2005 1,166.3 (522.4) (3.4) (1,349.7) (39.4) 292.9 (455.7)================== ======= ====== ======== ====== ======== ======= ======= (1) Net debt being total debt after fair value adjustments under IAS 32 and 39as reduced by cash and cash equivalents and current asset investments. (2) Debt related derivatives exclude commodity related derivative financialassets and liabilities. 11. Other disclosures Capital commitmentsContractual commitments to acquire fixed assets were $1,813.0 million at30 September 2006 (30 September 2005: $ 434.2 million; 31 March 2006: $1,233.4million). Contingent liabilitiesThere were no material changes in contingent liabilities during the periodexcept in case of certain guarantees issued on behalf of IFL against which aprovision of $17.1 million has been made (note 4). Related party transactionsThe information below sets out transactions and balances between the Group andvarious related parties for the period. These related parties include SterliteOptical Technologies Limited ('SOTL'), which is related by virtue of having thesame controlling party as the Group, namely Volcan. As India Foils Limited('IFL') is an associate of the Group, it is also regarded as a related party. The Group acquired TSI and Sterlite Gold on 22 August 2006. As a result, with aneffective date of 23 August 2006, TSI and Sterlite Gold became subsidiaries ofthe Group and ceased to be related parties. The tables below set out transactions with related parties that occurred in thenormal course of trading. SOTL Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006------------------------- ---------- ---------- ---------- $ million $ million $ million------------------------- ---------- ---------- ---------- Sale of goods to SOTL 20.5 2.6 3.0Sale of aluminium conductordivision 32.3 - -------------------------- ---------- ---------- ----------Amounts receivable atperiod/year end 31.1 1.9 5.6------------------------- ---------- ---------- ---------- Volcan------------------------- ---------- ---------- ---------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006------------------------- ---------- ---------- ---------- $ million $ million $ million------------------------- ---------- ---------- ----------Reimbursement of bankcharges (0.1) 0.2 (0.5)------------------------- ---------- ---------- ----------Amounts receivable/(payable)at period/year end (0.1) - 0.1------------------------- ---------- ---------- ---------- IFL------------------------- ---------- ---------- ---------- Six months Six months Year ended ended ended 30 September 30 September 31 March 2006 2005 2006------------------------- ---------- ---------- ---------- $ million $ million $ million------------------------- ---------- ---------- ----------Sales to IFL 20.7 16.2 34.1Net interest received - 0.3 0.5------------------------- ---------- ---------- ----------Trade receivables 6.9 2.9 0.6Loan balance receivable - 6.2 6.2------------------------- ---------- ---------- ----------Amounts receivable atperiod/year end 6.9 9.1 6.8------------------------- ---------- ---------- ---------- 11. Other disclosures (continued)Related party transactions (continued) In addition, a limited number of employees are seconded from Sterlite to IFL,SOTL and Sterlite Gold and similarly from IFL, SOTL and Sterlite Gold toSterlite. The company which benefits from the seconded employee bears theiremployment costs. During the year ended 31 March 2005, Sterlite advanced loans to IFL amounting to$6.2 million for working capital purposes. The loans were advanced from 2 April2004 to 7 February 2005 and are repayable within two years. The loans bearinterest at 7% per annum and interest accrued during the period ended30 September 2006 amounted to $ nil million (30 September 2005: $ nil;31 March 2006: $0.6 million). The loan was classified as an investment inassociate and has been fully impaired. During the period ended30 September 2006, Sterlite advanced no further loans to IFL. The Group has given corporate guarantees to certain banks and financialinstitutions in relation to IFL, an associate of the Group, against which aprovision of $ 17.1 million has been recognised (30 September 2005 : $ nil,31 March 2006 : $ nil). Transactions with VolcanIn relation to the shares of Sterlite held by Twin Star, MALCO issued guaranteesto the Income Tax Department of India, at the request of Volcan. The amountreceivable/ (payable) for the period ended was $ 0.1 million (30 September 2005:$ nil; 31 March 2006: $(0.1) million). Transactions with Sterlite Gold and SOTLPursuant to the terms of the Shared Services Agreement dated 5 December 2003entered into by the Company, Sterlite, SOTL and Sterlite Gold, the Company andSterlite provide various commercial services in relation to SOTL's and SterliteGold's businesses on an arms length basis and at normal commercial terms. For the period from 1 April 2005 to 31 March 2006, the commercial servicesprovided to SOTL and Sterlite Gold were performed by certain senior employees ofthe Group on terms set out in the Shared Services Agreement. The servicesprovided to SOTL and Sterlite Gold during this period amounted to $20,895 and$16,700, respectively. There was no material charge during the six months ended30 September 2006 (30 September 2005: $ nil). Political and Public Awareness TrustDuring the period, the Group did not contribute to the Political and PublicAwareness Trust (30 September 2005: $ nil, 31 March 2006: $0.1 million). Thistrust makes contributions to political parties and related causes. The trust isa related party as it is controlled by members of the Agarwal family. Sterlite FoundationDuring the period, $0.3 million was paid by the Group to the Sterlite Foundation(30 September 2005: $0.3 million, 31 March 2006: $0.6 million). The SterliteFoundation is a registered not-for-profit entity engaged in computer educationand other related social and charitable activities. The major activity of theSterlite Foundation is providing computer education for disadvantaged students.The Sterlite Foundation is a related party as it is controlled by members of theAgarwal family. Vedanta FoundationDuring the period, $ nil (30 September 2005: $ nil; 31 March 2006: $ 0.1million) was paid by Sterlite to the Vedanta Foundation. The Vedanta Foundationis a registered not-for-profit entity engaged in social and charitableactivities and is a related party as it is controlled by members of the Agarwalfamily. 11. Other disclosures (continued)Related party transactions (continued) Twin Star International (TSI)During the period, the Group advanced a loan of $ 10.3 million(30 September 2005: $ nil; 31 March 2006: $ 5.0 million) to TSI. The loancarries an interest rate of LIBOR plus 100 basis points and the interest accruedwas $ 0.2 million (30 September 2005: $ nil; 31 March 2006: $ 32,688) Sterlite Energy LimitedDuring the period, the Group advanced $ nil million (30 September 2005: $ nil;31 March 2006: $ 0.4 million) to Sterlite Energy Limited. Sterlite Energy is arelated party as it is controlled by the members of the Agarwal family.Twinstar Overseas Limited As part of the acquisition of TSI and its subsidiaries, the Group acquired abalance of $0.2 million payable to Twinstar Overseas Limited. Twinstar OverseasLimited is a related party as it is controlled by the members of the Agarwalfamily. Twinstar International Investments Limited As part of the acquisition of TSI and its subsidiaries, the Group acquired abalance of $0.1 million payable to Twinstar Investments Limited. TwinstarInvestments Limited is a related party as it is controlled by the members of theAgarwal family Independent review report to Vedanta Resources plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprise the consolidated incomestatement, the consolidated balance sheet, the consolidated cash flow statement,the consolidated statement of changes in equity and related notes 1 to 11. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority and the requirements of IAS 34 whichrequire that the accounting policies and presentation applied to the interimfigures are consistent with those applied in preparing the preceding annualaccounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. (Signature)Deloitte & Touche LLPChartered AccountantsLondon15 November 2006 Glossary and definitions Adjusted profitProfit before write back of negative goodwill to income statement Aluminium BusinessThe aluminium business of the Group comprising its fully-integrated bauxitemining, alumina refining and aluminium smelting in India Attributable ProfitProfit for the financial year before dividends to the shareholders of VedantaResources plc BALCOBharat Aluminium Company Limited, a company incorporated in India BoardThe board of directors of the Company BusinessesThe Aluminium Business, the Copper Business and the Zinc Business together Capital EmployedNet assets before net (debt)/cash Cash Tax RateCurrent taxation as a percentage of profit on ordinary activities beforetaxation CMTCopper Mines of Tasmania Pty Ltd, a company incorporated in Australia Company or VedantaVedanta Resources plc Copper BusinessThe copper business of the Group comprising a copper smelter, a refinery and twocopper rod plants in India, a copper mine in Australia and an integratedoperation in Zambia consisting of three mines, a leaching plant and a smelter CSRCorporate social responsibility DirectorsThe directors of the Company Dollar or $United States dollars, the currency of the United States of America EBITDAEarnings before interest, taxation, depreciation, goodwill amortisation andspecial items (see note 3) EBITDA MarginEBITDA as a percentage of turnover Economic Holdings or Economic InterestThe economic holdings/interest are derived by combining the Group's direct andindirect shareholdings in the operating companies. The Group's Economic Holdings/Interest is the basis on which the Attributable Profit and net assets aredetermined in the consolidated accounts Glossary and definitions (continued) EPSEarnings per Ordinary Share Executive DirectorsThe executive directors of the Company Expansion Capital ExpenditureCapital expenditure that increases the Group's operating capacity Free Cash FlowCash flow arising from EBITDA after net interest, taxation, Sustaining CapitalExpenditure and working capital movements (see Financial Review) 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, itsassociate undertaking HSEHealth, safety and environment HZLHindustan Zinc Limited, a company incorporated in India IFLIndia Foils Limited, a company incorporated in India IFRSInternational Financial Reporting Standards Interest CoverEBITDA divided by finance cost KCM or Konkola Copper MinesKonkola Copper Mines PLC, a company incorporated in Zambia LIBORLondon Inter Bank Offered Rate ListingThe listing of the Company's Ordinary Shares on the London Stock Exchange on 10December 2003 Listing ParticularsThe listing particulars dated 5 December 2003 issued by the Company inconnection with its Listing LMELondon Metals Exchange Glossary and definitions (continued) London Stock ExchangeLondon Stock Exchange plc LTIPVedanta Resources Long Term Incentive Plan MALCOThe Madras Aluminium Company Limited, a company incorporated in India mt or tonnesMetric tonnes MWMegawatts of electrical power 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, tax effected at the Group'seffective tax rate as a percentage of Capital Employed Reward PlanVedanta Resources Share Reward Plan SEWTSterlite Employee Welfare Trust, a long-term investment plan for Sterlite seniormanagement, not controlled by the Group. SOTLSterlite Optical Technologies Limited, a company incorporated in India SOVLSterlite Opportunities and Ventures Limited, a company incorporated in India Special itemsItems which derive from events and transactions that need to be disclosedseparately by virtue of their size or nature SterliteSterlite Industries (India) Limited, a company incorporated in India Sustaining Capital ExpenditureCapital expenditure to maintain the Group's operating capacity TC/RCTreatment charge/refining charge being the terms used to set the smelting andrefining costs tpaMetric tonnes per annum Glossary and definitions (continued) TCMThalanga Copper Mines Pty Limited, a company incorporated in Australia Twin StarTwin Star Holdings Limited, a company incorporated in Mauritius Twin Star Holdings GroupTwin Star and its subsidiaries and associated undertaking Underlying ProfitProfit for the year after adding back special items and their resultant tax andminority interest effects VALVedanta Alumina Limited, a company incorporated in India VolcanVolcan Investments Limited, a company incorporated in the Bahamas VRHLVedanta Resources Holdings Limited, a company incorporated in the United Kingdom ZCIZambia Copper Investment Limited, a company incorporated in Bermuda ZCCMZCCM Investments Holdings plc, a company incorporated in Zambia Zinc BusinessThe zinc-lead business of the Group comprising its fully integrated zinc-leadmining and smelting operations in India This information is provided by RNS The company news service from the London Stock Exchange

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