Chief Executive Officer
I am pleased to report significant revenue and EBITDA growth, driven by a supportive market coupled with strong production through the year. The record volumes at our Zinc and Aluminium businesses resulted in an excellent financial performance and ensured strong shareholder returns.
This upward trajectory in production is expected to continue into FY2019 with ramp-ups at our Zinc India operations, the commissioning of Gamsberg and growth in our Oil & Gas business.
Commodity prices saw solid appreciation over the year, fuelled by supply-related reforms and disruptions, stable demand, a weakening dollar and bullish global growth indicators. Our commodity basket benefited from the favourable price movement and we further capitalised on this opportunity by increasing our value-added production in segments such as Aluminium. However, alongside improving prices, we have experienced inflationary headwinds for input commodities. These impacted our costs, especially at Aluminium, and in response, we are focusing on operational improvements and have implemented a structured approach to optimise controllable costs, which will yield results in the coming year, barring further cost inflationary pressures.
The year gone by has paved the way for an exciting 2019. We remain committed to developing all the growth opportunities available to us, especially in the Oil & Gas and Zinc businesses, which will add significantly to volumes. With a strong balance sheet and the continued focus on disciplined capital allocation, we are confident of delivering yet another strong year.
Health, safety and environment
We have a workforce of over 65,000 people and our overriding goal is that every one of them goes home safe every single day. Our ‘zero harm’ policy puts health and safety firmly at the forefront of our operations.
2018 saw Vedanta deliver a robust performance, creating a clear pathway for sustainable growth.
It is therefore with great sadness that we reported a total of seven fatalities during the year’ which is discouraging to our safety programme. No injury, much less a loss of life, is ever acceptable and we continue to invest in training and skill enhancement to prevent accidents before they can happen. The need for improvement, and our determination to achieve zero harm means that this priority is receiving the direct attention of the Executive Committee. Specifically, we have:
- Rigorous implementation of safety standards and management of high-risk areas;
- Reinforced our HSE organisation by recruiting HSE experts with global experience. We have hired 10 such experts during the year; and
- Provided training to both employees and contractors. Last year, both groups underwent around 890,389 hours in safety training. Our training programmes have focused on getting our employee make better risk decisions so that they can start identifying behaviours that result in injuries and fatalities.
In FY2017, we rolled out performance standards and targets for water, energy and carbon management and in FY2018 we achieved or exceeded them:
- We achieved 140% of our water savings target, saving 1.3 million m3 of water.
- We surpassed our energy savings target, achieving to 280% (2.44 mn GJ) of the savings expected.
- Last year, we stated that we had targeted reducing our GHG intensity by 16%1 by 2020, from a 2012 baseline. I am pleased to inform you that nearly two years before the target date, we are already at 14% and have built real momentum towards achieving our goal.
This is part of a wider aim to see our businesses continue to improve their sustainability practices. On the Dow Jones Sustainability Index for the Metal & Mining sector, Hindustan Zinc improved its overall ranking to 11th and was inducted into the prestigious Dow Jones Yearbook. In the Environmental Category, Hindustan Zinc moved from the 11th to the 3rd place and Vedanta Limited improved its ranking from 17th to 15th.
1 Reduction expectations are calculated on GHG/tonne of product to ensure that non-production related factors such as change in prices do not influence the GHG numbers and as a result, they are a reflection of actual efficiency gains in the system
FY2018: A productive year
At Vedanta, our portfolio ranks alongside some of the best Tier-I assets in the world. In FY2018, we displayed our ability to deliver record production across those assets while maintaining our place in the lower half of the cost curve across most of our businesses.
At Zinc India, record production exceeded our guidance for the year, with Rampura Agucha successfully transitioning to underground production. Record silver production also surpassed our original guidance with excellent output at Sindesar Khurd.
Record production also continued at Copper India and in Aluminium, where we exited with a run rate of around 2 mt.
However, our strong progress in increasing volumes was to some extent offset by rising raw material input costs, in particular, for coal and alumina. We are actively engaging in enhancing operating efficiencies, by producing more captive alumina, achieving better materialisation of coal linkages and thereby working towards reducing the controllable costs.
At Goa, our iron ore operations are currently shut down. The Honourable Supreme Court of India directed the halting of all mining operations in the state, effective March 16, 2018, pending the granting of fresh mining leases and environmental clearances. Given our commitment in the region and the considerable impact on the local economy, we hope that the Government will provide clarity around the process to apply for the licences and facilitate restarting operations as soon as possible. Due to the uncertainty around this process, the Company has taken an impairment of ` 1,726 crore in FY2018.
At Tuticorin, our copper smelting operations were shut at the end of March, initially for scheduled maintenance activities. The shutdown has since been extended as the Company’s annual renewal of its consent to operate was rejected by the Tamil Nadu State Pollution Control Board, pending additional clarifications. The Company is working with the relevant regulatory authorities to expedite the restart of the operations.
Employee at operational site, Cairn Oil & Gas
We focused on debottlenecking our assets, adopting technology and digitalisation, strengthening people practices and enhancing the vendor and customer base and spendbase optimisation.
Our growth agenda
This year, we also invested significantly in the next phase of our growth and have made delivering on our various growth opportunities a strategic priority as detailed below:
- Oil & Gas: Our vision is to contribute 50% of the country’s domestic crude oil production by increasing our gross production to 500,000 boepd. Working towards this goal, we announced growth projects, including Enhanced Oil Recovery (EOR), tight oil and gas projects, upgrade of liquid-handling facilities and exploration, for which key contracts have been awarded to world-class partners. These projects, along with an exit run rate of 200,000 boepd in March 2018, will pave the way to achieve 300,000 boepd in the near-term and 500,000 boepd in the medium-term.
- Zinc: Our current expansion will take us to over 1.5 mtpa of zinc production with Zinc India ramping up to 1.2 mt and Gamsberg to 250 kt in the near-term. Our expanding reserve and resource base at both Zinc India and Gamsberg provides us with an opportunity to increase production beyond this level to about 2 mt in the medium-term. With this in mind, the Zinc India board has approved the expansion from 1.2 mt to 1.35 mt and corresponding silver production potential of over 900 tonnes.
- Aluminium: We achieved a record run-rate of 2 mt as we exited the year and are now focused on delivering a steady production of 2 mt. We also hope to proceed with the expansion of the Lanjigarh refinery, subject to further clarity on bauxite supply.
- Copper: We are continuing our Tuticorin II expansion by 400 ktpa. When complete (target: FY2020), we will be one of the world’s largest single-location copper smelters.
- We moved to acquire Electrosteel towards the end of the year and this is now subject to regulatory approvals. We see favourable market dynamics for steel in India and, together with integration efficiencies with our iron ore business, we regard this acquisition as value-accretive for Vedanta.
As we deliver on growth across our various businesses, we continue to maintain our disciplined approach to investment: potential projects will be evaluated against a range of metrics, including operational and technical factors, pricing and market considerations and robust return on capital.
Oil & Gas Vision
of India’s production
Commitment to construct
Deleveraging and strengthening our
In FY2018, we also delivered on our strategic priority to deleverage our balance sheet, with a reduction of gross debt at Vedanta Limited by ` 8,512 crore as a result of strong cash flows and productive utilisation of cash and investment balances.
However, increased shareholder returns at both Hindustan Zinc and Vedanta Limited, and the corresponding tax and dividend outflow, resulted in higher net debt. This year, a strategic priority will be to optimise capital allocation and strengthen our balance sheet through strong business cash flows.
During the year, we delivered a ROCE of 17.5% as compared to 15% last year. Vedanta’s balance sheet is amongst the strongest amidst global diversified peers and the best in India, with respect to ND / EBITDA and gearing. We were pleased to see our rating outlook improve from ‘stable’ to ‘positive’ (by CRISIL, an S&P company) and India Ratings provided a current rating of ‘AA/Positive’.
This year, we also invested significantly in the next phase of our growth and have made delivering on our various growth opportunities a strategic priority.
In FY2018, we also delivered on our strategic priority of asset optimisation. We focused on debottlenecking our assets, adopting technology and digitalisation, strengthening people practices and enhancing the vendor and customer base and spend-base optimisation. We are making concerted efforts to drive all-round operational excellence, benchmarking our operations with global leaders to ensure we attain the true potential of our assets and have made this one of our strategic priorities. Achieving the lowest cost, with no compromise on safety or quality, is our operating philosophy and there is an ongoing focus on asset optimisation and process innovation.
For example, in the Oil & Gas business, we have partnered with large service providers and have provided our partners with end-to-end responsibility for project management, providing incentives on measurable outcomes of production, delivery and safety. Digitalisation is opening up exciting opportunities at several of our leading mines. At Gamsberg, for example, the project will have leading-edge systems that report the state of the mine, the quality of ore, the conditions of the concentrator and the quality of the concentrate, all in real-time to enable minute-by-minute decisions. We also completed piloting digital technology at Sindesar Khurd, transforming it into a fully automated mine that will reduce costs while elevating safety.
Reaching out to communities
My personal experience of Vedanta stretches over 15 years and I have always been proud to work with a company so focused on contributing to the communities around it. In FY2018, we invested and helped to achieve more than ever before in the areas of childcare, health, education and development, empowerment for women and other social programmes.
These activities, in India and Africa both, are covered in more detail in the Chairman’s statement.
In India, the Nand Ghar project, one of our most focused initiatives, is working towards building and transforming stateof- the-art, grassroots day care centres with multi-media facilities to support education for children. To date, we have built 154 centres in Rajasthan, Uttar Pradesh and Madhya Pradesh, and we are perfecting the pilot. Vedanta has committed to constructing 4,000 modernised Anganwadis (child care centres) across the country and we are working with resolve towards achieving this goal.
With various growth opportunities in the pipeline, our performance in FY2019 will be even stronger, with a further improvement in volumes and reduced costs. Our focus on efficiency, cost control and operational excellence will yield results during the year as we build a strong foundation for our next phase of growth. We will also continue to set the bar higher for ourselves in critical areas such as safety and in corporate governance.
We believe that the market environment we enjoyed in FY2018 will also characterise FY2019, giving us a supportive climate as we continue to ramp up production and advance our growth agenda. We expect to increase investments y-o-y, in a measured and reasoned way and focus on organic growth in areas where we have deep expertise: principally, oil & gas and zinc. Equally, we continue to monitor markets and make our decisions with a strong sense of realism. Our investments are largely selffunded and are not market-dependent; we are always ready for cyclical volatility and meanwhile, we focus on factors within our control, such as costs and safe expansion.
Our ability to meet these commitments comes entirely from the effort, skills and vision of our people and I compliment all our employees for their dedication and hard work. Together, we will continue to benefit from, and contribute to, one of the fastest growing economies in the world and add value for our shareholders.
Chief Executive Officer
May 3, 2018