OUR FOCUS HAS BEEN AND WILL CONTINUE TO REMAIN ON DELEVERAGING OUR BALANCE SHEET AND MAXIMISING FREE CASH FLOW.
This year we successfully lowered production costs across all businesses, while achieving record annual production at Zinc India and of Aluminium, Power and Copper cathodes. This is the result of our continued efforts to drive innovation, to optimise our existing low-cost operations across our Tier 1 assets that position us strategically to benefit from future demand in India and globally. Our focus has been and will continue to remain on deleveraging our balance sheet and maximising free cash flow.
I have seen the commodity cycle turn many times during my career. Having said that, FY 2015-16 has been disappointing, from a market perspective. The slide that began in FY 2014-15, continued. Several factors such as the overcapacity in China, the downgrading of many emerging economies and slower growth across Europe, all contributed to a depressed environment for commodities.
However, such cyclical downturns are part of the territory for us in the industry, and we only come out stronger, aided in particular by three factors.
The first being our cost optimisation initiatives across the board, which helped us protect cash flows and has ensured that despite softer prices, we were able to maintain 1st or 2nd quartile positions in the cost curves.
Our cost reduction is a direct result of the collective efforts of business programmes, operational excellence and modernisation of supply chains. It also reflects the ideas and execution of over 10,000 professionals. This is a collective effort that has an imprint of contributions from every level at Vedanta.
Secondly, a major portion of our capex programme was largely completed over a year ago. Going forward, our current requirements are low with FY 2016-17 capex expected to be around US$ 1 bn, half of which would be across the high return zinc projects at Gamsberg and Zinc India. In turn, and unlike some peers, our low capex levels allow us to focus on reducing net debt.
This leads me to our third strength. Our businesses – our Tier 1 assets with long mine lives and continued strong cash flows, give us a buffer against economic impacts.
Vedanta will be a major participant in the building up of India. With a portfolio of relevant assets that are critical for infrastructure, Vedanta is well positioned to capitalise on the accelerated demand that is expected to result from this.
The long-life nature of our resource base underpins our track record of adding more to our reserves and resources (R&R). We continue to use our exploration skills to expand the potential of our ore bodies and petroleum reservoirs going forward.
Economic reforms in India are moving at a slow, but steady pace. There is progress on project approvals, and that has helped Vedanta accelerate our business objectives. The resumption of mining, power-sector reforms and the policy direction with respect to resources all point toward a well-thought intent by the Government of india. We expect that these efforts will be sustained, and will translate into visible ground action, especially in infrastructure and power offtake kick-starting manufacturing activity once again.
India is witnessing a focused financial inclusion drive that is designed to drive demand from the level up, using technology to bring a vast number of people into the formal economy. This innovation is enabling a faster pace of growth as far as consumer demand is concerned, and if the monsoon holds out, as is being predicted, the takeoff should happen. As an American living in India, I have been hugely impressed with how quickly the latest global innovation becomes embedded.
Vedanta will be a major participant in the building up of India. With a portfolio of relevant assets that are critical for infrastructure, as well as manufacturing industries, Vedanta is well positioned to capitalise on the accelerated demand that is expected to result from this.
We were equally committed to health and safety across the organisation, as well as preserving and protecting our license to operate during the year; and community initiatives continue to be a key focus area for me.
No personal injury – much less, a fatality – is ever acceptable and we have been leading a ‘Zero Harm’ campaign to bring about a new culture of safety across the Company.
It was therefore with deep regret that we recorded nine fatalities during FY 2015-16. The majority were employees of contractors, but of course we make no distinction. Zero-incidents on our sites is the only acceptable outcome, and we are doubling our efforts to instil safety awareness, driven by every leader at every site.
The markets have acknowledged the way we delivered on the operational front, and our commitment on ramping up of production is on track. The aluminium business has seen tough times due to weak market conditions. However, we managed to stay ahead of the curve due to significant re-engineering and cost reduction, along with stabilising our operations. We received the required approvals to use power from the 2,400 MW Jharsuguda power plant for captive purposes and we therefore commenced the ramp-up at the 1.25 mtpa Jharsuguda smelter.
Further, due to significant cost reductions, we have also begun the ramp up of the 325kt smelter at BALCO. Our 1,200 MW power plant at BALCO and 1,980 MW at Talwandi Sabo were also fully commissioned during the year. It is important to take cognizance of the fact that we now have a large built-up capacity of over 9,000 MW, which is more than most other companies.
We were also able to resume iron ore mining in Goa and significantly lower our costs, compared to what we had three years ago before the mining ban. We continue to engage with the state government for allocating a higher mining limit to us and to remove duplication of taxes, i.e. the Goa permanent fund and district mineral fund. Our other businesses also continued to build on good performances in FY 2015-16, such as the underground mine development at HZL; and first excavation at Gamsberg, the site of one of the world’s largest undeveloped zinc deposits. At Cairn, we successfully completed our enhanced oil recovery project - the world’s largest polymer injection oil project.
At the beginning of last fiscal, we had set three key priorities on the operations side. I am pleased to report good progress on two of these, while there is still work to be done on the third.
With requisite approvals in place, we began to ramp- up our world-class smelter at Jharsuguda, Odisha. This ramp-up is proceeding according to plan.
We have also ramped up our iron ore business. Our talks with the government and other stakeholders are headed in the right direction and we expect further momentum on this business as the regulatory scenario eases.
Our third priority was to secure a stable local source of bauxite for our aluminium smelters locally. Unfortunately, we have not succeeded in this respect so far. Nevertheless, we continue to explore a number of other options, but believe that Odisha is blessed with some of the best bauxite resources in the world, both in terms of quality and quantity. Our vision is to operate a fully integrated aluminium facility, with the best technology, and with the full consent of local communities
We will be eventually driven by the future state of our markets. We are reasonably sure that the worst in terms of adverse macro factors is behind us. We are now well positioned to take advantage of future opportunities, especially, as the cycle reverses. The long-term structural growth story in our consuming markets remains intact. India is taking rapid strides in all-round development and investments in infrastructure, all of which will need a large volume of natural resources and energy.
We are determined to build positive momentum, with an optimistic guidance from the market, going forward. Vedanta is sufficiently insulated to guard against unpredictable market vulnerabilities. We would like to see markets continue to improve, but we are certainly capable of running our business in weak markets. Our focus for this fiscal will continue to be optimising operational cost, simplifying our business structure and delivering on production targets.
We remain committed to generate maximum value for all stakeholders.
Chief Executive Officer