A resilient portfolio through the cycle

We calibrated capital expenditures. Focused on improving efficiency to rationalise costs, control wastage and protect margins. We maximised free cash flows, while protecting and preserving our licence to operate.

The long-term outlook for Vedanta remains robust. India continues to be the world’s fastest growing economy, requiring huge investment in technology, natural resources, roads, rail, energy, telecoms, water and sanitation. At Vedanta, our sights are set on being an important contributor to this growth.

Our resilient and diversified portfolio enables us to help accelerate socio-economic development world wide within the framework of our operations. In FY 2015-16, we did so, responsibly.

Capex optimised across the business.

Delivered strong free cash flow.

During the period of weak commodity prices, Vedanta maintained a disciplined approach to capital allocation, prioritising high-return low-risk projects to maximise cash flows. Our well-invested assets are on track to deliver near-term growth with marginal incremental capital expenditure. We retain the option to fund further growth projects, such as Enhanced Oil Recovery (EOR) and gas projects at Oil & Gas business, Lanjigarh alumina refinery expansion and the additional 400kt copper smelter at Copper India.

In FY 2015-16, capex was optimised to reduced levels of US$ 0.6 bn. Most of this was invested in high-return projects, such as the expansion at Zinc India, the Mangala EOR programme at Oil & Gas and smaller amounts to complete the Aluminium and Power projects.

Capital investment in Gamsberg, one of the world’s largest zinc deposits was rephased and only US$ 16 mn was deployed in FY 2015-16. We have also made significant progress in reducing Gamsberg capex over the life of the project, reducing capex by US$ 200 mn primarily through reengineering and re-negotiation of contracts leveraging the current commodity environment. The project comprises a 250 ktpa mine, propelling Southern Africa into a leading supplier of zinc globally. First ground was broken in July 2015, with initial production expected in early 2018.

Cash flow pre-capex and Growth capex profile (US$ bn)

FY 2014-15

 

15

FY 2015-16

21

FY 2015-16

 

0.6

 

2.4

Capex
Free cash flow pre-capex

A relentless focus on operational efficiency has resulted in reduced cost of production across our businesses, mitigating the impact of falling commodity prices throughout the year.

The ramping up of the Jharsuguda-II and Korba-II smelters reflected well in the record full year aluminium production of 923 kt. It also led to the reduction in cost of production (CoP) by 10%. Robust production at the Lanjigarh alumina refinery achieved a record operating level at 97% of permitted capacity of 1 mt.

Good progress on the mine expansion in Rampura Agucha and the Sindesar Khurd mine and continued higher volumes from Rampura Agucha open pit resulted in, record zinc production. Integrated lead and silver also saw higher volumes at the Sindesar Khurd mine. We are now one of the top 20 silver producers in the world at our current volumes.

Our focus on efficiency has resulted in our positioning on the 1st or 2nd quartile of the global cost curve.

Competitive position on global cost curve

In line with the Group's long-term strategic priority to de-lever and increase cash flow, Vedanta continued to make good progress against these objectives. The focus on optimising operating and capital expenditure together with robust working capital management contributed to record free cash flow of
₹ 11,572 Crore after growth capex during FY 2015-16. This enabled reduction of ₹ 6,254 Crore in net debt, when compared to March 2015.

An ambitious target to deliver cost and marketing savings of US$ 1.3 bn was set. In FY 2015-16 alone, we took over 900 specific initiatives including consolidation of spend and reduction of vendors, contract renegotiation and efficient logistic solutions across our business.
These delivered savings US$ 250 mn.

Several operations have been restructured to protect free cash flow. These include the temporary shutdown of the BALCO rolled product facility, and one line at the Lanjigarh alumina refinery to drive down aluminium costs.

Cost savings of

US$ 250 Mn

We continue to focus on embedding a culture of sustainability across the Group. This is an essential feature of our licence to operate. We believe that sustainability and long-term value creation go hand-in-hand. We deploy resources, impart skills and extend financial contributions to support our people; and the communities where we operate.

We are also steadily enhancing our investments to minimise our environmental footprint. Together with this, we deploy an unwavering focus on occupational health and safety.

In FY 2015-16, 485,900 hours of safety training were delivered to employees and contractors across various parameters. We also focused on building a strong understanding of Vedanta Safety Performance Standards and Incident Investigation among our people. We are seeing tangible outcomes of this safety drive, with fewer fatalities and lost time injuries.

Our community investments focus on health, education, livelihoods and environment. In FY 2015-16, we invested ₹ 160 Crore benefiting over 1.75 mn people globally through multiple initiatives. Our employees also contribute to community initiatives through volunteering efforts, which has fostered a greater sense of responsibility; and helped create a more motivated team and united culture.

By adopting world-leading practices, we aim to reduce and minimise the environmental impact of our operations. Our goal is to obtain ISO 14001 certification at all sites by this year (as on date 43 out of 47 operations are certified). Systems to reduce water and energy consumption, minimise land disturbance, and waste production, contain pollution and conduct successful mine closures are in place. We are implementing Biodiversity Action Plans at all our sites and are also finding new and innovative ways to recycle waste from our operations including fly ash, red mud, phosphor and gypsum, among others.

In line with our site closure plan strategy, we are starting the rehabilitation programme for the Lisheen mine that ceased production this year, in consultation with employees, local authorities and local environment groups.

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Project Nandghar is designed in line with the Prime Minister of India's vision of Beti Bachao Beti Padhao, Digital India, Swachh Bharat and Skilling India.

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LTIFR incidents (per mn person-hour worked)

15-16

0.44*

14-15

0.41

13-14

0.42

* as per revised ICMM definition LTIFR stands at 0.49