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Company Vedanta Resources PLC TIDM VED Headline Interim Results to 30 September 2009 Released 07:00 05-Nov-2009 Number 9981B07



 

Vedanta Resources Plc

Interim Results for the Six Months Ended 30 September 2009

Consolidated Group Results(in US$ million, except as stated)	H1 2010	H1 2009	% Change
Revenue	2,978.6	3,973.2	(25.0)
EBITDA	746.3	1,272.4	(41.3)
EBITDA margin (%)	25.0%	32.0%	-
Operating special items	(6.8)	-	-
Operating profit	490.2	1,015.9	(51.7)
Attributable Profit	188.2	350.0	(46.2)
Basic Earnings per Share (US cents)	68.5	121.4	(43.6)
Earnings per Share on Underlying Profit (US cents)	41.8	121.4	(65.0)
ROCE (excluding project capital work in progress)	18.8%	39.3%	-
Interim Dividend (US cents per share)	17.5	16.5	6.1

Mr Anil Agarwal, Chairman of Vedanta Resources plc said, "I am pleased to report robust results, which demonstrate the inherent strength of our business against the backdrop of challenging markets. We have grown volumes, maintained investment, reduced costs and generated strong returns. We have a strong balance sheet and we have demonstrated our ability to finance our dynamic growth pipeline. We continue to rigorously pursue operational excellence, strengthening our cost positions as we pursue profitable growth, and we are excited at the tremendous potential for Indian demand."

  For further information, please contact:

Ashwin Bajaj VP - Investor Relations Vedanta Resources plc	ashwin.bajaj@vedanta.co.in Tel: +44 20 7659 4732 / +91 22 6646 1437
Saurabh Kothari Investor Relations Vedanta Resources plc	kothari.saurabh@vedanta.co.in Tel: +91 22 6646 1436
Faeth Birch Robin Walker Finsbury	Tel: +44 20 7251 3801

About Vedanta Resources plc

Vedanta Resources plc ("Vedanta") is a London listed FTSE 100 diversified metals and mining major. The group produces aluminium, copper, zinc, lead, iron ore and commercial energy. Vedanta has operations in India, Zambia and Australia and a strong organic growth pipeline of projects. With an empowered talent pool of 30,000 employees globally, Vedanta places strong emphasis on partnering with all its stakeholders based on the core values of entrepreneurship, excellence, trust, inclusiveness and growth. For more information visit www.vedantaresources.com

Disclaimer

This press release contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should" or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets including the London Metal Exchange, fluctuations in interest and or exchange rates and metal prices; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

CHAIRMAN'S STATEMENT

Our financial results in the first half demonstrate the resilience of our business in very challenging market conditions. Our low cost, diversified operations generated solid returns and cash flows in a period of lower commodity prices. Furthermore, our strong balance sheet and liquidity position has facilitated continued investment in our organic growth programme. Where appropriate, we have responded quickly and decisively to lower our costs. Crucially, in a period when many of our peers were cutting back production and investments in growth, I am pleased to report continuing investment and volume growth across all commodities. Whilst we appear to be witnessing the early signs of economic recovery globally, I believe that our company remains very well placed to grow throughout the commodity cycle. 

Financial Performance

We have delivered revenues of close to US$3.0 billion and EBITDA of US$746 million in the first half of this year. Higher volumes were offset by lower realisations across all our operations compared to a year ago. Our operating profit was US$490 million and attributable profit was US$188.2 million, a 37.5% share of net income. 

We generated US$233.2 million of free cash flow, reflecting the continued investment in working capital to support the growth in the business. Expansionary capital expenditure in the period was US$1.79 billion in what we anticipate will be the peak year for the current organic growth programme. To support our growth initiatives, we successfully raised US$3.35 billion during the 2010 financial year to date by issuing equity and convertible bonds.

Net debt at the period end was US$969 million and our group cash position, including liquid investments, at the end of the half year was US$6.0 billion. We remain committed to a strong and liquid balance sheet and investment grade credit metrics.

Operational Performance

I have great pleasure in reporting excellent operational performance in our aluminium, zinc and iron ore businesses. Higher operational efficiencies, higher plant availability and improved mine management at our zinc and iron ore businesses, together with the closure of our high cost aluminium smelters has reduced overall costs of production. In the Copper - India business strong operational performance has partially offset much lower prices for by-products. In our Copper - Zambia Operations, we have made steady progress in reducing costs and are on course to deliver further cost reductions in the second half of this year.

Organic growth 

We continue to make excellent progress with our organic growth programme. It is, however, with great sadness that I have to report the tragic collapse of a power plant chimney that was under construction at BALCO through our subcontractor SEPCO. My sincerest condolences are offered to families of those affected. A full investigation is underway to ascertain the exact cause of this incident.

Ensuring the safety of all our employees is a key priority for us, and your board remains focused on improving our performance in this crucial area. 

We recently announced a 400ktpa expansion of our copper smelting capacity at Tuticorin, a pig iron expansion by 375ktpa, and the revival of the 1980MW Talwandi Sabo power projects. Estimated capex for these projects amount to US$ 2.8 billion.

Acquisitions

We were pleased with the opportunity to expand and consolidate our Iron Ore business by acquiring VS Dempo (VSD), one of the largest exporters of iron ore in Goa. VSD owns or has the rights to mineable reserves and resources estimated at 70 million tonnes of iron ore in Goa. VSD's Goa mining assets include processing plants, barges, jetties, transhippers and loading capacities at Mormugoa port. These facilities offer the potential for significant synergies with our existing Sesa Goa operations. 

In March 2009, we entered into a revised agreement with Asarco LLC, an integrated copper producer in Arizona, USA to purchase substantially all of its operating assets for US$1.7 billion. We offered a renegotiated purchase consideration of US$2.6 billion in September. We are awaiting a U.S. District Court Judge to rule on the transaction, where Grupo Mexico is the other bidder for these assets.

Group Structure

Share buybacks and purchases have increased holdings in some of our major subsidiaries during the period. Total investment in the period was US$219.5 million, taking our holding in both Sterlite and Sesa to 57%. During the period the group issued convertible bonds to fund its organic growth program and for general corporate purposes. Vedanta raised US$1.25 billion from a convertible bond issue in July 2009. Sterlite raised US$1.1 billion by issue of ADS in July, Sterlite and Sesa Goa each raised US$500 million from the issue of convertible bonds in October 2009. All bonds were issued at attractive coupons and are five year in tenure.

Corporate Social Responsibility

Sustainable development is a key part of our strategy and philosophy. It reflects in the way we operate and represents a core commitment of our management and employees. Consequently, we are continuously improving on our environmental and social performance.

Our health, safety and environment initiatives reflect this long term commitment. The result is a steady stream of operational and organizational initiatives over the near, medium and long term.

Our sustainable development efforts have positively impacted 427 villages that include 2.5 million people. We follow the 4P model of Public-Private-People-Partnership in our work with the communities, involving the Government, NGO's and beneficiaries. These initiatives include: Integrated Village Development Programmes in villages in Goa; preschool education, health and nutrition supplementation; Midday Meal Program in government schools providing a daily hot nutritious meal for children; women empowerment program through Self-Help Groups; and working closely with the Dongri Kondh Development Agency for the social- economic development of indigenous people.

We remain committed to working with all our stakeholders to ensure that Vedanta has a net positive effect on the communities and the environment in which we work. 

Dividend

We remain committed to our progressive dividend policy. An interim dividend of 17.5 UScents will be payable to shareholders on the share register on 11 December 2009.

Outlook

We have seen some recovery in metals prices and the fundamentals remain highly attractive. We expect that the economic and industrial growth in India will help underpin the demand for our products.

Our focus is to pursue operational excellence, preserving and strengthening our cost positions, and value creating growth. I look forward to reporting on further positive progress at the end of the year.

Anil Agarwal

Chairman

5 November 2009

Business Review 

Summary

Global economic conditions are showing early signs of improvement and we have seen a partial recovery in most commodity prices. In the first half of 2009, the Indian economy has shown tremendous resilience with metal consumption growing at annualised growth rates of ~20% for Aluminium, ~25% for Zinc and ~20% for Copper. Despite these early positive signs in the economic environment we continue to remain focused on our core strengths of high operational efficiency and low cost of production, while developing high value accretive projects.

We are pleased to report strong results in the six months ended 30 September 2009 ('H1 2010') as a result of increased volumes, better operational efficiencies, higher plant availability and improved mine management. In a challenging operating environment, we proactively shut-down our high cost aluminium production and reduced unit cash costs in our Copper-Australia, Aluminium and our iron ore businesses. Underlying unit costs were also lower in our zinc and copper-India operations, although efficiency gains were more than offset by significantly lower by-product credits. At KCM, we continue to make steady progress to reduce unit costs in line with our year end target. 

We spent US$1,786 million on our expansion programme during H1 2010 and have made excellent progress. The 500ktpa aluminium expansion project at Jharsuguda is under commissioning for completion by end FY 2010. We have also significantly increased our capacity in the Iron Ore business by de-bottlenecking of mining operations and logistics. 

We regret to report that construction at the 1,200MW captive power plant project site was temporarily disrupted following the collapse of a chimney under construction, in September 2009, which led to the tragic loss of lives. Independent investigations by the Contractor, Vedanta & the state Government are currently underway and we are absolutely committed to take all necessary actions to ensure the safety of our employees and contractors. In this business and across the whole group we are reviewing our safety procedures, conducting inter-unit audits and engaging more experienced safety professionals and independent consultants to ensure that our approach to safety is in line with the best in the industry. At this stage we do not anticipate a material delay in the progressive commissioning of the power plant. All our other projects are progressing well and we expect to commission them on time.

With the improved market conditions and significant Indian GDP growth, we have reviewed our capital expenditure plan and have decided to reactivate the 1,980 MW power plant at Talwandi commercial power project, which was put on hold last year. The Talwandi project will be fully completed within the earlier estimated capex of $2.15 billion and is expected to be commissioned by Q2 FY 2014. In view of rapidly growing copper consumption in India and to significantly reduce the power cost in existing smelting operations, we announced the expansion of our copper smelter at Tuticorin, with a capacity of 400ktpa MT along with a captive power plant of 160 MW with an estimated capex of $500 million. The project is expected to be commissioned by mid CY2011. We are expanding our pig iron production capacity by 375ktpa with an estimated capex of $150 million to be commissioned by mid 2011. We continue to follow our established policy of stringent and conservative project appraisal 

On 11 June, we also acquired V S Dempo's iron ore assets based at Goa. The Dempo acquisition offers significant growth opportunity and is expected to bring synergies through sharing of infrastructure with Sesa Goa thereby acting as a catalyst for further de-bottlenecking in logistics.

We made substantial progress in the period progressively securing all the funding required for our organic growth program. Our subsidiary Sterlite Industries raised $1.1 billion of fresh equity during the half year 2010 by issue of Sterlite ADS. In addition, Vedanta raised $1.25 billion through the issue of convertible bonds due 2016 in July 2009. Post the half year end we also announced $500 million convertible bonds at both Sesa Goa and Sterlite and an IPO in Indian bourses for Sterlite Energy, a 100% subsidiary of Sterlite. 

We are committed to ensure that our growth is funded conservatively through a mixture of internally generated cashflows, equity raising and long dated debt issued at the most advantageous cost to us. This reflects our commitment to achieving investment grade ratings from internationally recognised agencies by delivering our capital expenditure program on time and on budget while maintaining investment grade financial metrics.

We retain our focus on efficiency in an operating environment that has witnessed high volatility in both realisation and input costs. Unit cash costs were lower in our Copper-Australia, Aluminium and iron ore businesses, primarily due to better operational efficiencies and the shut-down of high cost aluminium production i.e., Malco and Balco Plant 1. At our zinc business and copper-India operations, better operating efficiencies and increased volumes, partially reduced the impact of lower by-product credits. At our copper Zambia operations, costs were lower when compared with the corresponding period but a little higher than our expectations on account of operational issues at the Nchanga smelter. Following the scheduled shutdown, we expect costs to go down on the back of increased volumes. 

On the Corporate Social Responsibility front we aim to work with communities and demonstrate through our actions the importance of local communities to the Group. We have developed the 4P model of Public-Private-People-Partnership as an integrated strategy in our work with communities. We recognize that only through collective efforts can we bring about a long term sustainable change in the socio economic condition of the communities in and around our plants.

We work in partnerships with the government (disbursing finds, enhance outreach and quality of services) Civil Society (work with 80 NGOs either as technical or implementation partners) and People.

We always recognise that our performance can be improved and we are committed to working together with all our stakeholders to ensure that our projects achieve the highest standards in terms of community and environmental impact.

Group Results

Group revenues in H1 2010 were US$2,978.6 million, a decrease of 25.0% compared with the six months ended 30 September 2008 ('H1 2009'). EBITDA was US$746.3 million in H1 2010, lower by 41.3% compared with H1 2009. Despite increased contribution from higher volumes in the Aluminium, Zinc and Iron Ore businesses, these gains were more than offset by lower commodity prices and by-product realisations across all operations. 

Higher volumes in most of our businesses contributed around US$120 million to EBITDA, and lower cost of production (COP) contributed around $110 million in H1 2010. These were more than offset by a US$670 million impact from lower LME and iron ore prices and $90 million from lower profits in phosphoric acid, pig iron, and others. Our EBITDA margin was 25.0% in H1 2010 compared with 32.0% in H1 2009, reflecting these factors.

Conversion of EBITDA to free cash flow for H1 2010 was 31.2% compared with 62.6% in H1 2009, primarily on account of increased working capital in our copper-India operations where working capital is directly linked to LME prices. The impact of the Copper-India working capital increase was around $123 million and we also invested $149 million in additional working capital at our new aluminium operations at Jharsuguda. Excluding these the free cash flow conversion was 67.6% of EBITDA.

We have retained our strong balance sheet and funding position, with cash and liquid investments totalling US$5.95 billion as at 30 September 2009. Furthermore, we generated free cash flows pre-expansion capex in H1 2010 of US$233 million. Net debt was US$969 million. Our gearing ratio remains strong at 9.0%, despite spending $1.79 billion on project expansions and the acquisition of Dempo for $361.3 million. 

Segmental revenue and EBITDA are presented in the table below.

(in US$ million, except as stated)	H1 2010	H1 2009	% change
Revenue
Aluminium	253.8	592.1	(57.1%)
Copper	1,629.6	2,086.0	(21.9%)
India/Australia	1,207.2	1,571.7	(23.2%)
Zambia	422.4	514.3	(17.9%)
Zinc	659.9	777.3	(15.1%)
Iron Ore	316.2	503.3	(36.9%)
Power	119.1	14.5	721.2%
	2,978.6	3,973.2	(25.0%)
EBITDA
Aluminium	45.9	179.7	(74.4%)
Copper	138.3	302.3	(54.3%)
India/Australia	70.0	231.4	(69.8%)
Zambia	68.3	70.9	(3.7%)
Zinc	373.4	451.2	(17.2%)
Iron Ore	130.5	322.9	(59.6%)
Power	59.0	7.1	731.5%
Others*	(0.8)	9.2	-
	746.3	1,272.4	(41.3%)

* unallocable corporate expenses.

ALUMINIUM

(in US$ million, except as stated)	H1 2010	H1 2009	Change	H2 2009	FY 2009
Production volumes (kt)
Alumina - Lanjigarh	378	250	51.2%	336	586
Alumina - Korba and Mettur	40	143	(72.0%)	98	241
Aluminium - Jharsuguda	109	7	1457.1%	75	82
Aluminium - Korba	136	180	(24.4%)	177	357
-     Aluminium - Mettur	-	19	(100.0%)	4	23
Average LME cash settlement prices (US$ per tonne)	1,652	2,865	(42.3%)	1,597	2,234
Average Exchange Rate (INR per US$)	48.54	42.77	13.5%	49.26	45.91
Unit costs
Aluminium Business - US$ per tonne1	1,421	1,960	(27.5%)	1,460	1,702
Aluminium Business - INR per tonne1	68,974	83,820	(17.7%)	71,893	78,139
BALCO Plant 2 Production Cost (US$ Per tonne)	1,347	1,796	(25.0%)	1,452	1,623
BALCO Plant 2 Production Cost (INR Per tonne)	65,384	76,806	(14.9%)	72,237	74,517
BALCO Plant 2- Smelting Cost2 (US$ per tonne)	762	958	(20.5%)	752	859
BALCO Plant 2- Smelting Cost2 (INR per tonne)	36,993	40,957	(9.7%)	37,041	39,436
Revenue	253.8	592.1	(57.1%)	345.0	937.1
EBITDA	45.9	179.7	(74.0%)	16.4	196.1
EBITDA Margin	18.1%	30.3%	-	4.75%	20.9%
Operating (Loss)/Profit	(2.1)	142.9	-	(25.7)	117.2

1. Excluding Jharsuguda operations production cost as smelter is under trial runs

2 Smelting cost comprises production cost excluding alumina cost

Production Performance

Production of 245,000 tonnes of aluminium in H1 2010 was the highest ever achieved in any H1 reporting period and an increase of 18.9% compared with the production in H1 2009. This increase is primarily attributable to the production of 109,000 tonnes from the new Jharsuguda aluminium smelter. Production from BALCO Plant 1 was 13,000 tonnes in H1 2010 against 55,000 tonnes in H1 2009 while Mettur production was NIL in H1 2010 against 19,000 tonnes in H1 2009 consequent to shut down of Balco Plant 1 and Malco. BALCO Plant 2 continues to operate at its rated capacity.

The Lanjigarh alumina refinery produced 378,000 tonnes of calcined alumina H1 2010, significantly higher than 250,000 tonnes in H1 2009. Current production levels largely meet our captive requirements of alumina. The Korba alumina refinery was ramped down consequent to the shut-down of the BALCO Plant 1 smelter. 

Sales in the domestic Indian market increased 14.0% to 187,000 tonnes in H1 2010, compared with 164,000 tonnes in H1 2009, in line with the increase in aluminium consumption in India. Sales realisation in domestic markets are higher than exports. 

Unit Costs

Better operational efficiencies, lower alumina and input prices, and the closure of high cost operations helped in reducing the overall cost of production. Unit costs of production in Indian rupee terms, the currency in which a majority of costs are incurred, decreased by 17.7% to INR 68,974 per tonne (or US$1,421 per tonne) in H1 2010 compared with H1 2009 primarily on account of lower caustic and carbon costs.; in dollar terms, the unit cost per tonne was lower by 27.5% in H1 2010 compared with H1 2009. The Aluminium business continues to focus on managing its overall cost of production by continuous improvements 

Financial Performance

Revenue in H1 2010 was US$253.8 million, down 57.1% compared with US$592.1 million in H1 2009. Accordingly, EBITDA in the period was also lower compared to H1 2009 at US$45.9 million.

Projects

Jharsuguda I Aluminium Smelter

Work on the first phase of the 500ktpa aluminium smelter and associated captive power plant at Jharsuguda, Orissa is progressing well. 50% of the pots have been brought on line supported by five units of the captive power plant. Work is ongoing and we expect to complete commissioning of the aluminium smelter by end FY 2010. 

Jharsuguda II Aluminium Smelter

The 1.25mtpa aluminium smelter project in Jharsuguda is progressing well with more than 70% of civil work completed. About 40% of equipment and materials are at site and are in various stages of installation. The project is on schedule for first metal tapping from March 2010. 

Lanjigarh Alumina Refinery

We are in a state of preparedness to commence the mining of Niyamgiri bauxite on receipt of final government clearances, expected in the current financial year. Progress on the 3mtpa alumina refinery expansion project and the 0.6mtpa de-bottlenecking project at Lanjigarh is on schedule for commissioning. 

Korba Aluminium Smelter 

325ktpa aluminium smelter project together with an associated 1,200 MW captive thermal power plant in Korba, Chattisgarh (the 'Korba III Project') is also progressing well. As mentioned earlier the construction at the 1,200 MW captive power plant site has been disrupted but at this stage we do not anticipate a material delay in the progressive commissioning of the power plant, expected to generate power from October 2010. 

COPPER

Copper-India/Australia

(in US$ million, except as stated)	H1 2010	H1 2009	Change	H2 2009	FY 2009
Production volumes (kt)
Cathode	169	149	13.4%	164	313
Rod	105	110	(4.6%)	110	220
Mined metal content	12	12	-	15	27
Average LME cash settlement prices (US$ per tonne)	5,276	8,064	(34.6%)	3,689	5,585
Average Exchange Rate (INR per US$)	48.54	42.77	13.5%	49.26	45.91
Unit conversion costs - US cents per lb	10.9	(4.9)	-	10.0	3.1
INR per tonne	11,696	(4,574)	-	10,859	3,138
Realised TC/RCs (US cents per lb)	13.2	12.4	6.5%	11.2	11.7
Revenue	1,207.2	1,571.7	(23.2%)	966.2	2,537.9
EBITDA	70.0	231.4	(69.8%)	62.3	293.7
EBITDA Margin	5.8%	14.6%	-	6.45%	11.6%
Operating Profit	49.2	209.3	(76.5%)	33.6	242.9

Production and Sales

Production of cathodes at Copper-India was 169,000 tonnes in H1 2010, an increase of 13.4% compared with H1 2009. This was primarily due to a 26 day bi-annual maintenance shutdown during H1 2009. 

Mined metal production at our Australian mine was 12,000 tonnes during H1 2010, same as compared with the corresponding period in the previous year. The production during the period has been impacted due to a mud rush in the mine resulting from heavy rainfall at the end of August 2009. The production has resumed as scheduled from end October 2009.

Sales in the domestic Indian market increased substantially to 96,000 tonnes in H1 2010, a significant increase of 41.2% compared with H1 2009, reflecting robust growth in Indian power sector, giving us better contribution vis-à-vis exports. 

Unit Costs

Net unit conversion cost, which comprises of the cost of smelting and refining after netting off by-product credits was 10.9 US cents per lb in H1 2010, as compared to a negative 4.9 US cents per lb in H1 2009, primarily on account of extreme fluctuation in the sulphuric acid credit. Average sulphuric acid prices were below US$10/MT in H1 2010 compared to US$135/MT in H1 2009, which partly neutralised the positive impact of reduction in gross cost by 6.4 US cents per lb. 

TC/RCs

TC/RCs received in H1 2010 were marginally better at 13.2 US cents per lb compared with 12.4 US cents per lb in H1 2009. We expect TC/RC's to remain close to current levels through the second half of FY 2010.

Financial Performance

EBITDA for H1 2010 was US$70.0 million as compared with US$231.4 million in H1 2009 primarily due to lower copper LME, and very low by-product credit, the impact of which were to some extent offset by lower gross costs of production. 

Projects

We announced the expansion of our copper smelting capacity at Tuticorin by 400kt per annum supported by a captive power plant of 160 MW. The project will cost an estimated $500 million and is expected to be commissioned by mid CY2011. 

COPPER-ZAMBIA

(in US$ million, except as stated)	H1 2010	H1 2009	Change	H2 2009	FY 2009
Production volumes (kt)
Mined metal content	38	42	(9.5%)	39	81
Cathode	78	73	6.9%	60	133
Average LME cash settlement prices (US$ per tonne)	5,276	8,064	(34.6%)	3,689	5,585
Unit costs (US cents per lb)	169.1	288.5	(41.4%)	222.3	258.3
Revenue	422.4	514.3	(17.6%)	258.8	773.1
EBITDA	68.3	70.9	(1.7%)	(141.7)	(70.8)
EBITDA Margin	16.2%	13.8%	-	(54.8%)	(9.2%)
Operating Profit	10.6	19.1	(44.5%)	(185.0)	(165.9)

Production Performance

Production of 78,000 tonnes of copper cathode in H1 2010 was about 6.9% higher than H1 2009, due to a 10% increase in production from tail leaching plant of 25,000 MT for H1 2010 and better production from the new Nchanga smelter. The one month planned maintenance shutdown in September 2009 of the Nchanga smelter is now complete and the smelter is ramping up well.

Unit Costs

Unit costs of integrated production in H1 2010 were 169.1 US cents per lb, a significant 41.4% reduction compared with H1 2009 on account of better cost control, decrease in the input prices, recovery of sulphuric acid and cobalt in the new Nchanga smelter and lower manpower costs subsequent to the reduction in manpower. 

Financial Performance

EBITDA in H1 2010 of US$68.3 million was only marginally lower than EBITDA of US$70.9 million in H1 2009, despite the 34.6% fall in LME and one month shut-down of the Nchanga smelter for repair. This was primarily due to the cost reduction programme by which unit costs reduced by 41.4%. 

Project

Work on the KDMP expansion project is progressing well, with the shaft sinking from surface to the depth of 1065m out of the 1140m required for commissioning of the mid shaft loading station (MSL). A Crushing Chamber EOT crane at 985m was commissioned on load at the end of September 2009, which is a major milestone. We expect to commission the MSL by end FY 2010 and full project completion by end 2011.

ZINC

(in US$ million, except as stated)	H1 2010	H1 2009	Change	H2 2009	FY 2009
Production volumes - zinc (kt)
Mined metal content	335	305	9.8%	346	651
Refined metal	280	249	12.5%	303	552
Production volumes - lead (kt)
Mined metal content	40	41	(2.4%)	43	84
Refined metal 1	31	32	(3.1%)	34	65
Silver (in m oz) 2	2.63	1.77	48.5%	1.98	4.24
Average LME cash settlement prices ($ per tonne)	1,621	1,941	(16.5%)	1,182	1,563
Average Exchange Rate (INR per US$)	48.54	42.77	13.5%	49.26	45.61
Unit costs
Zinc - US$ per tonne	782	672	16.4%	741	710
INR per tonne	37,970	28,739	32.1%	35,811	32,621
Zinc (Other than Royalty) - US$ per tonne	666	544	22.5%	662	609
INR per tonne	32,347	23,274	39.0%	31,835	27,973
Revenue	659.9	777.3	(15.1%)	431.8	1,209.1
EBITDA	373.4	451.2	(17.2%)	154.2	605.4
EBITDA Margin	56.6%	58.0%	-	35.7%	50.1%
Operating Profit	345.1	418.7	(17.6%)	129.60	548.3

1. Including captive consumption of 4kt vs. 2kt in H1 FY10 vs. H1 FY09

2. Including captive consumption of 710,000 oz vs. 323,000 oz in H1 FY10 vs. H1 FY09

Production and Sales

The operational performance of our Zinc business was excellent with increased production of mined metal and finished metal. This increase in mined and refined metal production was due to higher productivity and better plant performance.

Zinc refined metal production in H1 2010 was a record 280,000 tonnes, an increase of 12.5% over H1 2009, due to improved operational efficiencies. Production of refined lead in H1 2010 was 31,000 tonnes compared to 32,000 tonnes in H1 2009. We sold 96,000dmt and 21,000dmt of surplus zinc and lead concentrate in H1 2010.

The Production of silver during H1 2010 was also significantly higher at 2.63 million troy ounces, up 48.5% compared with 1.77 million troy ounces in H1 2009. This increase was primarily due to improvement in silver recoveries and higher production from our Pyro plant.

Unit Costs

The Zinc business continues to have improving trend in reduction of gross cost of production (excluding royalty) by around Rs.3700 per MT in H1 FY2010 when compared with H1 FY2009. However, negated by sharp fall in the acid credit, equivalent to around Rs.12,500 per MT of Zinc. The royalty cost which is linked with LME, was increased from 6.6% to 8.4% for Zinc and from 5.0% to 12.7% for lead, with effect from 13 August 2009.

Financial Performance

EBITDA for H1 2010 was US$373.4 million, 17.2% lower compared with US$451.2 million in H1 2009. This was largely due to a 16.5% fall in LME and sharp decline in by-product prices offset by better volumes in zinc and silver and depreciation of the Indian rupee. 

Projects

The Rampura Agucha mine expansion from 5mtpa to 6mtpa is progressing on schedule, with detailed engineering completed, orders placed for major equipment and equipment delivery started at site. Work at the 1.5 million tonne Sindesar Khurd mine expansion project is on schedule for progressive commissioning from mid 2010. Initial steps for opening Kayar mine are well on schedule.

Construction at the 210ktpa zinc smelter and 100ktpa lead smelter at Rajpura Dariba are progressing well, equipment erection at the roaster section is completed and piping and cabling works are in progress. Equipment erection in leaching, purification and the cell house areas of the zinc smelter are progressing well and the anode and cathode placement in cell house has started. Structural erection for the lead smelter has started and equipment has started arriving at site. The projects are on schedule for completion by mid 2010. 

IRON ORE

(in US$ million, except as stated)	H1 2010	H1 2009	Change	H2 2009	FY 2009
Production volumes (kt)
Saleable ore	8,204	7,127	15.1%	8,859	15,986
Pig iron	139	123	13.0%	94	217
Sales volumes (kt)
Iron Ore	6,354	4,639	37.0%	10,464	15,103
Pig iron	137	117	17.1%	107	224
Revenue	316.2	503.3	(37.2%)	567	1070.4
EBITDA	130.5	322.9	(59.6%)	234	557.1
EBITDA Margin	41.1%	64.1%	-	41.3%	52.1%
Operating Profit	40.8	216.6	(81.6%)	131	348

* Production and sales of iron ore in H1 2010, includes 246 kt and 160 kt from Dempo 

Production and Sales

Saleable iron ore produced during H1 2010 was over 8.20 million tonnes, the highest ever iron ore production so far in any H1. This was achieved through de-bottlenecking of mining operations and logistics. Production also includes 0.25 million tonnes production from Dempo, acquired in June 2009.  

Iron Ore sales were at a record 6.35 million tonnes, despite the seasonal monsoon, substantially higher than in H1 2009. Spot sales were at 5.95 million tonnes while LTC sales were at 0.40mt in H1 2010. 

In line with benchmark price settlements, most of the long-term contracts for the current year have been settled with a decrease of c33% and c45% for fines and lumps, respectively over last year's prices. After a sharp fall in October to December 08 and wide fluctuations thereafter, global iron ore prices seem to have stabilised at current levels and we expect the prices to remain at similar levels in second half of the year.

Financial Performance

Revenues in H1 2010 were US$316.2 million and EBITDA was US$130.5 million. Revenues and EBITDA were lower primarily due to a sharp fall in international iron ore prices the impact of which to some extent was reduced by increased volumes.

POWER

Our current operations in the power business include 270 MW and 100 MW of thermal power at Korba and Mettur, respectively and also 123 MW of wind power generators in the State of Gujarat and Karnataka. We sold 981 million units of power H1 2010 as compared with 141 million units in H1 2009 at an average realisation of Rs.4.9 per unit i.e. 10 US cents per unit. The average Plant Load Factor (PLF) for the thermal power plans was 96.1% and wind power generators operated at a PLF of 25.4%, which was in line with our expectations. 

Financial Performance

Revenue in H1 2010 was US$119.1 million, significantly higher from US$14.5 million in H1 2009. Accordingly, EBITDA in the period was also higher at US$59.0 million compared to US$7.1 million in H1 2009.

Projects

Work on the 2,400 MW (600 MW x 4) green field coal-based independent thermal power plant at Jharsuguda, Orissa is progressing well. The construction activities are in full swing and the first unit of 600MW is expected to get commissioned in Q4 FY 2010. The remaining units are expected to be progressively commissioned by the end of the calendar year 2010. 

Following the improved economic environment, we have revived the 1,980 MW thermal power plant project at Talwandi Sabo, in the State of Punjab in India.

 

Finance Review

We posted an EBITDA of $746.3 million on the back of volume growth and cost reduction despite low commodity prices. We have a robust balance sheet with $6.0 billion of cash and liquid investments which together with committed funding arrangements in place is amply sufficient to fund our growth projects. 

Background

Our interim financial report is prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted for use in the European Union. Our reporting currency is the US dollar.

Key Financial Performance Indicators

(in US$ million, except as stated)	H1 2010	H1 2009	FY2009
EBITDA	746.3	1,272.4	1,612.2
Underlying EPS (US cents per share)	41.8	121.4	119.7
Free Cash Flows	233.2	815.6	1,733.8
ROCE* (excluding project capital WIP) (%)	18.8	39.3	24.4
Net Debt/(Cash)	969.4	(788.7)	200.8

Our balance sheet continues to remain strong with cash and liquid investments of $5.95 billion. Despite one of the worst recessions, we have maintained our dividends and remain committed to our progressive dividend policy. Our gearing ratio remains low at 9.0% and our interest cover ratio (including capitalised interest) to EBITDA was 3.6 times. In the last couple of years we have successfully raised around $5 billion of which $3.9 billion was raised through long-term debt and convertibles and around $1.1 billion through equity. This has ensured a strong balance sheet and has enabled us to continue our growth projects consistently through the downturn, thereby ensuring proper balance between debt and equity, in our capital management program.

Our conservative policy of pre-funding capex has also supported us in the times when debt was relatively scarce and expensive. 

Income Statement 

(in US$ million, except as stated)	H1 2010	H1 2009	% change
Revenue	2,978.6	3,973.2	(25.0%)
EBITDA	746.3	1,272.4	(41.3%)
EBITDA margin (%)	25.0%	32.0%	-
Operating special items	(6.8)	-	-
Depreciation and amortisation	(249.3)	(256.5)	(2.8%)
Operating profit	490.2	1,015.9	(51.7%)
Net interest income	114.4	126.8	(9.8%)
Profit before tax	604.6	1,142.7	(47.1%)
Income tax expense	(103.4)	(266.3)	(61.2%)
Tax rate	17.1%	23.3%	-
Minority Interest	(313.0)	(526.4)	(40.5%)
Minority Interest rate	62.5%	60.1%	-
Attributable to equity shareholders in parent	188.2	350.0	(46.2%)
Basic earnings per share (US cents per share)	68.5	121.4	(43.3%)

Revenue

We had higher volumes in most of our businesses in H1 2010 compared with H1 2009, despite which our revenues in H1 2010 were US$2,978.6 million, down 25.0% from US$3,973.2 million in H1 2009, primarily on account of lower commodity prices in current period.

EBITDA and Operating Profit

We posted EBITDA of US$ 746.3 million in H1 2010, when compared with $1,272.4 million in H1 2009 despite sharp falls in commodity and by-product prices across the board (i.e. 50% fall in iron ore prices, 42% fall in aluminium prices, 35% fall in copper prices and 18% fall in zinc and lead prices). Furthermore, by product prices also fell sharply. We were able to reduce the impact of such sharp falls through higher volumes mainly in our Zinc, Iron Ore and copper-India operations, and lower gross costs of production achieved in all our businesses. Overall, this resulted in lower EBITDA margin in H1 2010 at 25.0% when compared with 32.0% in H1 2009. 

In the overall EBITDA pie, Zinc continues to contribute the majority of EBITDA at 50.7% of total EBITDA followed by Iron Ore and Copper each contributing around 18% and power contributing around 8%. 

Group operating profit in H1 2010 was US$ 490.2 million, lower than the US$1,015.9 million achieved in H1 2009, as a result of lower EBITDA. The depreciation charge in H1 2010 was at $249.3 million in line with depreciation charge of $256.5 million in H1 2009.

The Jharsuguda plant is under trial run, and accordingly the profit/loss arising from the operations has been capitalised as part of the project cost.

Net Interest Income 

Net interest income was US$114.4 million in H1 2010 compared with US$126.8 million in H1 2009.

Investment income decreased significantly to US$123.4 million in H1 2010, down from US$235.8 million in H1 2009, on account of a drop in investment returns and translation forex loss on US dollar deposits at CMT of $35.1 million, compared to a forex gain of $30.7 million in H1 previous year.

Our cash position has increased since 31 March 2009 on account of the recent US$1.25 billion convertible bond issue in July 2009 and $1.1 billion ADS issued by Sterlite, both of which were oversubscribed. 

Finance costs have decreased to US$9.0 million in H1 2010 sharply down from US$109.0 million in H1 2009, primarily on account of the exchange gains on foreign currency loans due to appreciation of Indian rupee against US dollar and also on account of reduced interest rates.

The average debt in H1 2010 was US$6,018.4 million, compared with H1 2009 levels of US$3,779 million. We raised new convertible debt of US$1.25 billion during H1 2009 mainly to meet our capex requirements and raised debt in some of our project companies to fund their expansion projects. The average debt maturity at 30 September 2009 was 3.8 years. 

Taxation

The effective tax rate for H1 2010 is 17.1%, lower than the effective tax rate of 23.3% in H1 2009. As reported in previous periods, we have taken several steps to improve our tax management efficiency and many of these have started yielding results. This reduced the cash tax rate to 23.3% in H1 2010 from 23.8% in H1 2009, despite the increase in Minimum Alternate Tax (MAT) rate in the current financial year from 11.3% to 17.0%. 

The deferred tax rate was a credit of 6.2% in H1 2010 compared to a credit of 0.5% in H1 2009, primarily on account of higher deferred tax credits on increased depreciation of mining reserves (fair value uplift at acquisition) at Sesa and deferred tax credits on tax losses at CMT which arose on translation of dollar deposits.

The overall tax rate differs from subsidiary to subsidiary, due to differing tax rates in India, Australia and Zambia and also due to changes in the profit mix among subsidiaries.

Attributable Profit

Attributable profit in H1 2010 was US$188.2 million, lower compared with US$350.0 million in H1 2009. The profit attributable to equity shareholders reduced from 39.9% to 37.5%, primarily due to the impact of the additional issue of shares by Sterlite in July 2009 as well as a change in the profit mix with higher profit contributions from Sesa Goa, HZL and BALCO which have higher minority interests.

Earnings Per Share ('EPS') and Dividend 

Basic EPS in H1 2010 was 68.5 US cents per share compared with 121.4 US cents per share in H1 2009, primarily due to the decrease in attributable profits.

Dilutive elements to EPS include adjustments for the convertible bond of 62.1 million shares and also include 4.0 million shares to be issued under the LTIP. On this basis, the fully diluted EPS in H1 2010 was 61.4 US cents per share against 111.4 US cents per share in H1 2009.

In line with our progressive dividend policy, the Board proposes an interim dividend of 17.5 UScents per share.

Balance Sheet

(in US$ million, except as stated)	30 September 2009	30 September 2008	31 March 2009
Goodwill	12.2	11.4	12.2
Tangible assets	12,019.2	8,495.2	9,348.4
Other non-current assets	343.3	108.6	177.0
Cash and liquid investments	5,950.8	5,383.1	4,912.6
Other current assets	2,232.5	2,604.3	1,726.3
Debt	(6,921.7)	(4,594.4)	(5,114.9)
Other current and non-current liabilities	(3,844.7)	(3,576.0)	(3,490.3)
Net assets	9,791.5	8,432.2	7,571.3
Shareholders’ equity	4,074.0	3,695.7	3,112.6
Minority interests	5,717.5	4,736.5	4,458.7
Total equity	9,791.5	8,432.2	7,571.3

PROJECTS 

Projects under execution

(in US$ million, except as stated)

Sector	Project	Capacity	Country	Completion Date	Project Cost	Spent to 30 Sep 09
Alumina	Lanjigarh I Alumina Refinery	1.4mtpa	India	Q4 FY 2009	1,015.3	874.6
	Debottlecking Lanjigarh I	0.6mtpa	India	March 2010	150.0	35.6
	Lanjigarh II Alumina Refinery	3.0mtpa	India	Mid 2011	1,570.0	411.5
Aluminium	Korba III Smelter	325 KT	India	September 2011	1,820.0	483.5
	Jharsuguda I Smelter	0.5mtpa 1,215 MW CPP	India	FY 2010	2,112.8	2,103.0
	Jharsuguda II Smelter	1.25mtpa	India	September 2012	2,920.0	960.4
Zinc	Smelting	2.1 ltpa Zinc	India	Mid 2010	720.0	432.0
		1.0 ltpa Lead	India	Mid 2010
		160 MW CPP	India	Mid 2010
	Mining	RA 5 to 6mtpa	India	Mid 2010
		SK - 1.5mtpa	India	Progressive from mid 2010
		Kayar- 1mtpa	India	End 2013
Copper	KCM KDMP Project	7.5mtpa	Zambia	End 2011	674.0	577.8
	KCM Nchanga Smelter	2.5 LTPA	Zambia	Q4 FY 2009	470.0	438.4
	SIIL Expansion Project	4.0 LTPA	India	Mid 2011	500.0	5.8
Power	Talwandi Saboo Power Project	1,980 MW	India	Q3 2014	2,150.0	77.9
	SEL IPP	2,400 MW	India	Q3 FY 2011	1,900.0	1,215.5
Iron Ore	Pig Iron Expansion	375ktpa	India	Mid 2011	150.0	-
	Total				16,152.1	7,616.0

Shareholders' equity at 30 September 2010 was US$4,074.0 million compared with US$3,112.6 million at 31 March 2009. The increase is primarily on account of $188.2 million profit generated, $331.9 from convertible bond proceeds raised (equity portion), $298.2 million from the ADS issue at Sterlite and appreciation of the Indian rupee against the US dollar from INR 50.95/US$1 at 31 March 2009 to INR 48.04/US$1 at 30 September 2009. The positive impact of such exchange movement on shareholders' equity is approximately US$290.0 million.

Minority interests increased to US$5,717.5 million at 30 September 2009 from US$4,458.7 million as at 31 March 2009, primarily due to subscription to the Sterlite ADS by minorities of $783.6 million, $313.1 million from profit generated and appreciation of the Indian rupee against the US dollar.

Tangible Fixed Assets

During H1 2010, we added approximately US$1.92 billion (excluding Dempo acquisition) to property, plant and equipment, which was primarily spent on our expansion projects amounting to US$1.79 billion and on maintenance and semi-expansion capex amounting to US$136.6 million. Details of expenditure on expansion projects are set out in the table above.

Commitments towards expansion projects at 30 September 2009 were US$4.31 billion. Our cash and liquid investments position at 30 September 2009 was approximately US$ 5.95 billion and we expect to further add to this by converting a large part of our EBITDA to cash in the coming quarters. 

With recovery in market conditions we have restarted Talwandi Sabo 1980 MW independent power projects which were temporarily deferred in previous year. 

Net Debt

At 30 September 2009, net debt was US$969.4 million, up from net debt of US$200.8 million at 31 March 2009. Net debt comprises US$5,950.8 million of cash and liquid investments offset by debt of US$6,921.8 million and debt related derivatives of $1.5 million. The net debt position has increased by US$768.6 million in H1 2010, due to US$1.8 billion spent on funding our project expansions, US$361.3 million spent on the acquisition of the VS Dempo and US$ 208.4 million on purchasing an additional 4.4% stake in Sesa. Our cash and liquid investments portfolio is conservatively invested with debt mutual funds and in cash and fixed deposits with the banks. Additionally, the investments portfolio is independently reviewed by CRISIL and our investment portfolio has been rated as "Very Good".

We raised convertible debt of US$1.25 billion during H1 2010 and US$ 1.60 billion through the Sterlite ADS of which Vedanta subscribed to US$0.50 billion.

During October we raised $500 million each in Sterlite and Sesa Goa by issue of convertible bonds with maturity in the year 2014. We are also looking at an opportunity to raise equity funds in our subsidiary Sterlite Energy which currently has 4,380 MW of power projects under construction. 

External debt held by operating subsidiaries was US$2,469.8 million as at 30 September 2009 compared with US$1,713.0 million at 31 March 2009, primarily due to additional non-recourse project finance in some of our subsidiaries, which are engaged in large capacity expansions. Of the $6.9 billion total debt, $1.5 billion consist of convertible bonds, which on conversion will reduce the debt.

We have amended a $1 billion loan facility via an amendment dated 2nd November 2009 with the lenders of the facility. The amendment changes one of the covenants i.e. the consolidated EBITDA to gross interest expense (including capitalised interest) ratio from 4 times to 2.25 times for the covenant computation on 30 September 2009 and 3.75 times for the covenant computation on 31 March 2010. The Company's ongoing borrowing costs under the facility remains the same. Due to the timing of the amendment being post 30 September 2009 we were required under IFRS to classify both this loan, and certain other loans "related" by virtue of cross-default clauses, as due in less than one year. However, based on the group's latest projections, the directors expect to comply with the revised covenant requirements for the foreseeable future. Accordingly, these loans are expected to be classified as non-current in the next reporting period and will not fall due prior to their original maturity. Note 9 to the interim consolidated financial statements provides more detail on this matter, including how our balance sheet would have looked if the said amendment had been reflected at 30 September 2009. 

Cash Flows

(in US$ million, except as stated)	H1 2010	H1 2009	FY 2009
EBITDA	746.3	1,272,4	1,612.2
Special items	(6.8)	-	(31.9)
Working capital movements	(436.0)	(151.8)	620.6
Changes in long term creditors and non-cash items	37.2	1.8	104.7
Sustaining capital expenditure*	(78.4)	(143.9)	(282.1)
Sale of tangible fixed assets	-	4.3	7.9
Net interest received including gains on liquid investments	73.7	66.9	(208.7)
Dividend received	58.2	54.5	241.9
Tax paid	(161.0)	(288.6)	(330.8)
Free Cash Flow	233.2	815.6	1,733.8
Expansion capital expenditure*	(1,786.3)	(1,415.6)	(3,021.3)
Semi-expansion capital expenditure**	(58.2)	(19.4)	(24.2)
Purchase of fixed asset investments	0.0	-	(85.4)
Acquisition of minorities	(108.1)	-	(316.8)
Acquisitions, net of cash and liquid investments acquired	(300.5)	(217.2)	-
Buy-back of shares of Vedanta Resources plc	(146.5)	-	(80.3)
ADS Sterlite	1,081.8	-	-
Dividends paid to equity shareholders	(70.2)	(71.8)	(118.8)
Dividends paid to minority shareholders	(65.8)	(60.2)	(56.1)
Other movements***	451.8	(385.4)	(374.4)
Movement in net cash	(768.8)	(1,354.0)	(2,343.5)

 

* On an accruals basis.

** Non-project capital expenditure.

*** Includes foreign exchange movements.

Free cash flow in H1 2010 was US$233.2 million lower primarily on account of increased working capital at our copper-India operations, which arose due to increase in LME prices from $4,035 per tonne to $6,136 per tonne, with the impact of such increase on working capital being around $122.7 million. We have invested $148.7 million in additional working capital at our new aluminium operations at Jharsuguda. We have invested US$78.4 million in sustaining capital expenditure during H1 2010 to modernise our plants and refurbish equipment, achieve operational efficiencies and to meet our HSE commitments. Sustaining capital expenditure at some of our locations such as KCM is high and is expected to yield better performance from mining equipment and improve plant efficiencies going forward.

Gross debt was US$6,921.8 million at 30 September 2009 up from US$5,114.9 million at 31 March 2009, primarily due to the new convertible debt of US$1,250.0 million raised in July 2009 and other smaller debts raised at our subsidiaries primarily to fund the capex requirements. Cash and cash equivalents together with liquid investments were US$5,950.8 million at 30 September 2009.

Other matters

Off-Balance Sheet Arrangements and Transactions, Contingent Liabilities and Commitments

We have no off-balance sheet entities. In the normal course of business, we enter into certain commitments for capital and other expenditure and certain performance guarantees. The aggregate amount of indemnities and other guarantees was US$636.6 million at 30 September 2009. Details of related party transactions, contingent liabilities and commitments are set out in note 10 of the accompanying interim financial statements.

Risks and Uncertainties

Our businesses are subject to a variety of risks and uncertainties which are no different from any other company in general and our competitors in particular. Such risks are the result of not only the business environment in which we operate but also of other factors over which we have little or no control. These risks may be categorised as operational, financial, environmental, health and safety, political, market-related and strategic. Details of the principal risks affecting our business and our actions to mitigate them have been detailed in our most recent Annual Report for the year ended 31 March 2009 and include: internal controls, treasury, commodity, political, legal, economic and regulatory, reserves and resources, delivery of expansion projects, asset use and continuity insurance, safety, health and environment, operational, liquidity, foreign currency, interest rate, counterparty and employee risk.

Currently there are general concerns about the quality of investments and other exposures which may negatively impact the quality of our financial assets. Vedanta's treasury policy revolves around three pillars - protect capital, maintain liquidity and maximise yields.

In addition to regular controls, we have introduced additional controls to monitor the quality of investments which are primarily in highly rated instruments issued by mutual funds. We do not foresee any specific risk on our investments. We regularly monitor our financial assets for exposures and believe they are not subject to any major risk.

More specifically for the second half of FY 2010, the risks which our Directors believe could have material impact on the financial performance and position of our businesses include: a decline in LME prices of copper, zinc, aluminium and lead; a decline in iron ore prices, a strengthening of Indian rupee against US dollar; a reduction in treatment and refining charges received in our Indian copper operations; as well as unexpected delays in the completion of our expansion projects and slow ramping up of production in newly expanded capacities.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in Operational Review in our last annual report on pages 8 to 31. These activities and factors have not materially changed since the issue of the last annual report.

The Group requires funds both for short-term operational needs as well as for long-term investment programmes mainly in growth projects. The Group generates sufficient cash flows from its current operations which, together with the available cash and cash equivalents and liquid financial asset investments, provide liquidity both in the short term as well as in the long term. Anticipated future cash flows and undrawn committed facilities of US$4,100 million, together with cash and liquid investments of US$ 5,950.8 million as at 30 September 2009, are expected to be sufficient to meet the ongoing capital investment programme and liquidity requirement of the Group in the foreseeable future.

The Group has a strong Balance Sheet that gives sufficient headroom to raise further debt should the need arise. The Group's current ratings from Standard & Poor's and Moody's are BB and Ba1 respectively. These ratings support the necessary financial leverage and access to debt or equity markets at competitive terms, taking into consideration current market conditions. The Group generally maintains a healthy net debt-equity ratio and retains flexibility in the financing structure to alter the ratio when the need arises. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, we have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing the Interim Financial Report.

Responsibility Statement

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34;

• the interim management report includes a fair view of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

• the interim management report includes a fair view of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

MS MEHTA                                                                                                                   DD JALAN

Chief Executive Officer                                                                                 Chief Financial Officer

5 November 2009                                                                                                   5 November 2009    

 

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period ended 30 September 2009 

(US $  million except as stated)	Note	Six months ended    30 September 2009	Six months ended 30 September 2008	Year ended 31 March 2009
Revenue	3	2,978.6	3,973.2	6,578.9
Cost of sales		(2,346.8)	(2,768.3)	(5,136.1)
Gross profit		631.8	1,204.9	1,442.8
Other operating income		43.1	30.3	115.9
Distribution costs		(59.0)	(101.0)	(163.0)
Administrative expenses		(118.9)	(118.3)	(256.8)
Special items	4	(6.8)	-	(31.9)
Operating profit	3	490.2	1,015.9	1,107.0
Investment revenues		123.4	235.8	456.2
Finance costs		(104.7)	(109.0)	(250.2)
Net exchange gains/(losses) on borrowings and capital creditors		95.7	-	(132.0)
Profit before taxation	3	604.6	1,142.7	1,181.0
Income tax expense	5	(103.4)	(266.3)	(280.5)
Profit for the period/year from  continuing activities		501.2	876.4	900.5
Attributable to:
Equity holders of the parent		188.2	350.0	219.4
Minority interests		313.0	526.4	681.1
		501.2	876.4	900.5
Earnings per share
Basic (US Cents) - Continuing operations	6a	68.5	121.4	76.4
Diluted (US Cents) - Continuing operations	6a	61.4	111.4	75.8

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 September 2009

(US $  million except as stated)	Six months ended 30 September 2009	Six months ended 30 September 2008	Year ended 31 March 2009
Profit for the period/year	501.2	876.4	900.5
Income and expenses recognised directly in equity:
Exchange differences arising on translation of foreign operations	564.7	(1,488.8)	(2,195.3)
Gains/(losses) in fair value of available-for-sale financial assets	99.0	-	(12.8)
Gains/(losses) in fair value of cash flow hedges deferred in reserves	14.2	(104.2)	22.5
Tax effects arising on cash flow hedges deferred in reserves	(5.0)	35.4	(5.5)
Total income/(expense) recognised in equity	672.9	(1,557.6)	(2,191.1)
Losses/(gains) in fair value of cash flow hedges transferred to income statement	34.3	(23.3)	(67.0)
Tax effects arising on cash flow hedges transferred to income statement	(12.0)	7.9	20.9
Total transferred to the income statement	22.3	(15.4)	(46.1)
Total comprehensive income for the period/year	1,196.4	(696.6)	(1,336.7)
Attributable to:
Equity holders of the parent	600.4	(365.8)	(847.7)
Minority interests	596.0	(330.8)	(489.0)

 

CONDENSED CONSOLIDATED BALANCE SHEET

(US $  million except as stated)	Note	At 30 September 2009	At 30 September 2008	At 31 March 2009
Assets
Non-current assets
Goodwill		12.2	11.4	12.2
Property, plant and equipment		12,019.1	8,495.2	9,348.4
Financial asset investments		197.8	24.1	91.6
Other non-current assets		18.8	23.7	21.4
Other financial assets (derivatives)		118.0	45.1	52.8
Deferred tax assets		8.7	15.7	11.2
		12,374.6	8,615.2	9,537.6
Current assets
Inventories		1,275.6	1,433.4	909.3
Trade and other receivables		848.1	1,122.1	735.0
Other current financial assets (derivatives)		108.8	48.8	82.0
Liquid investments	9	5,595.8	4,824.2	4,532.1
Cash and cash equivalents	9	355.0	558.9	380.5
		8,183.3	7,987.4	6,638.9
Total assets		20,557.9	16,602.6	16,176.5
Liabilities
Current liabilities
Short-term borrowings	9	(4,043.9)	(419.2)	(1,298.5)
Convertible loan notes	9	(1,515.6)	-	-
Trade and other payables		(2,091.5)	(1,925.2)	(1,967.7)
Other current financial liabilities (derivatives)		(128.5)	(127.6)	(114.7)
Provisions		(14.4)	(20.0)	(6.9)
Current tax liabilities		(26.2)	(35.1)	(47.6)
		(7,820.1)	(2,527.1)	(3,435.4)
Net current assets		363.2	5,460.3	3,203.5
Non-current liabilities
Medium and long-term borrowings	9	(1,362.2)	(3,565.3)	(3,212.3)
Convertible loan notes	9	-	(602.1)	(604.1)
Trade and other payables		(76.3)	(31.2)	(76.4)
Other financial liabilities (derivatives)		(117.1)	(49.4)	(59.7)
Deferred tax liabilities		(1,192.5)	(1,174.6)	(1,010.6)
Retirement benefits		(20.9)	(39.5)	(29.3)
Provisions		(165.4)	(169.3)	(165.5)
Non-equity minority interests		(11.9)	(11.9)	(11.9)
		(2,946.3)	(5,643.3)	(5,169.8)
Total liabilities		(10,766.4)	(8,170.4)	(8,605.2)
Net assets		9,791.5	8,432.2	7,571.3
Equity
Share capital		28.9	28.8	28.9
Share premium account		21.3	21.1	21.1
Share-based payment reserves		19.0	24.4	14.0
Convertible bond reserve		432.5	113.5	111.5
Hedging reserve		(18.6)	(49.6)	(39.6)
Other reserves		2,040.8	1,510.3	1,168.9
Treasury shares		(226.8)	-	(80.3)
Retained earnings		1,776.9	2,047.2	1,888.1
Equity attributable to equity holders of the parent		4,074.0	3,695.7	3,112.6
Minority interests		5,717.5	4,736.5	4,458.7
Total equity		9,791.5	8,432.2	7,571.3

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

(US $  million except as stated)	Note	Six months ended 30 September 2009	Six months ended 30 September 2008	Year ended 31 March 2009
Operating activities
Profit before taxation		604.6	1,142.7	1,181.0
Adjustments for:
Depreciation		249.3	256.5	473.2
Investment revenues		(123.4)	(235.8)	(456.2)
Finance costs, including foreign exchange		9.0	109.0	382.2
Share-based payment charge		5.0	8.8	13.1
Inventory net realisable value write down		-	-	79.0
Other non-cash items		32.3	(6.9)	12.6
Operating cash flows before movements in working capital		776.8	1,274.3	1,684.9
(Increase) /decrease in inventories		(303.5)	(315.3)	69.9
(Increase) /decrease in receivables		(36.8)	(141.8)	167.9
(Decrease)/Increase in payables		(95.6)	305.3	383.9
Cash generated from operations		340.9	1,122.5	2,306.6
Dividend received		58.2	54.5	241.9
Interest income received		91.7	164.5	130.2
Interest paid		(136.8)	(127.0)	(399.9)
Income taxes paid		(161.0)	(288.6)	(330.8)
Dividends paid		(70.2)	(71.8)	(118.8)
Net cash from operating activities		122.8	854.1	1,829.2
Cash flows from investing activities
Acquisition of subsidiary	8	(335.1)	-	-
Cash acquired with subsidiary	8	34.6	-	-
Purchases of property, plant and equipment		(1,332.7)	(1,461.4)	(2,799.6)
Proceeds on disposal of property, plant and equipment		-	4.3	7.9
Dividends paid to minority interests of subsidiaries		(65.8)	(60.2)	(56.1)
Purchases of liquid investments	9	(780.2)	(856.8)	(961.9)
Purchases of treasury shares		(146.5)	-	(80.3)
Buyout of minority interest		(108.1)	(217.2)	(316.8)
Purchase of financial asset investments		(0.7)	-	(85.4)
Net cash used in investing activities		(2,734.5)	(2,591.3)	(4,292.2)
Cash flows from financing activities
Issue of ordinary shares		-	-	0.1
Issue of depository receipts by subsidiary		1,081.8	-	-
Increase /(decrease) in short term borrowings	9	454.2	(807.9)	209.0
Increase /(decrease) in long-term borrowings	9	1,226.8	2,614.6	1,999.1
Net cash from financing activities		2,762.8	1,806.7	2,208.2
Net increase /(decrease) in cash and cash equivalents	9	151.1	69.5	(254.8)
Effect of foreign exchange rate changes	9	(176.6)	31.2	177.1
Cash and cash equivalents at beginning of period/year	9	380.5	458.2	458.2
Cash and cash equivalents at end of period/year	9	355.0	558.9	380.5

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Attributable to equity holders of the Company
US$ million	Share capital	Share premium	Treasury Shares	Share based payment reserves	Convertible bond reserve	Hedging reserve	Other reserves*	Retained earnings	Total	Minority interests	Total equity
At 1 April 2008	28.8	20.0	-	15.6	115.7	(9.1)	1,932.6	1,743.5	3,847.1	5,360.6	9,207.7
Total comprehensive income for the period	-	-	-	-	-	(40.5)	(675.3)	350.0	(365.8)	(330.8)	(696.6)
Conversion of convertible bond	-	1.1	-	-	(0.2)	-	-	-	0.9	-	0.9
Convertible bond transfer	-	-	-	-	(2.0)	-	-	2.0	-	-	-
KCM call option	-	-	-	-	-	-	213.2	63.3	276.5	(233.1)	43.4
Transfers **	-	-	-	-	-	-	39.8	(39.8)	-	-	-
Dividends paid	-	-	-	-	-	-	-	(71.8)	(71.8)	(60.2)	(132.0)
Recognition of share based payment	-	-	-	8.8	-	-	-	-	8.8	-	8.8
At 30 September 2008	28.8	21.1	-	24.4	113.5	(49.6)	1,510.3	2,047.2	3,695.7	4,736.5	8,432.2

*    Other reserves comprise the currency translation reserve, merger reserve, investment revaluation reserve and the general reserves established in the statutory accounts of the Group's Indian subsidiaries. 

**    Under Indian law, a general reserve is created through a year-on-year transfer from the income statement. The purpose of these transfers is to ensure that distributions in a year are less than the total distributable results for that year. This general reserve becomes fully distributable in future periods.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

	Attributable to equity holders of the Company
US$ million	Share capital	Share premium	Treasury Shares	Share based payment reserves	Convertible bond reserve	Hedging reserve	Other reserves*	Retained earnings	Total	Minority interests	Total equity
At 1 April 2008	28.8	20.0	-	15.6	115.7	(9.1)	1,932.6	1,743.5	3,847.1	5,360.6	9,207.7
Total comprehensive income for the period	-	-	-	-	-	(30.5)	(1,036.6)	219.4	(847.7)	(489.0)	(1,336.7)
Conversion of convertible bond	-	1.1	-	-	(0.2)	-	-	-	0.9	-	0.9
Convertible bond transfer	-	-	-	-	(4.0)	-	-	4.0	-	-	-
KCM call option	-	-	-	-	-	-	213.2	63.8	277.0	(233.1)	43.9
Transfers **	-	-	-	-	-	-	59.7	(59.7)	-	-	-
Dividends paid	-	-	-	-	-	-	-	(118.8)	(118.8)	(56.1)	(174.9)
Exercise of LTIP /STIP awards	0.1	-	-	(14.7)	-	-	-	14.7	0.1	-	0.1
Purchase of Treasury Shares	-	-	(80.3)	-	-	-	-	-	(80.3)	-	(80.3)
Additional Investment in Subsidiaries	-	-	-	-	-	-	-	21.2	21.2	(123.7)	(102.5)
Recognition of share based payment	-	-	-	13.1	-	-	-	-	13.1	-	13.1
At 31 March 2009	28.9	21.1	(80.3)	14.0	111.5	(39.6)	1,168.9	1,888.1	3,112.6	4,458.7	7,571.3

*    Other reserves comprise the currency translation reserve, merger reserve, investment revaluation reserve and the general reserves established in the statutory accounts of the Group's Indian subsidiaries. 

**    Under Indian law, a general reserve is created through a year-on-year transfer from the income statement. The purpose of these transfers is to ensure that distributions in a year are less than the total distributable results for the year. The general reserve becomes fully distributable in future periods.

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

	Attributable to equity holders of the Company
US$ million	Share capital	Share premium	Treasury Shares	Share based payment reserves	Convertible bond reserve	Hedging reserve	Other reserves*	Retained earnings	Total	Minority interests	Total equity
At 1 April 2009	28.9	21.1	(80.3)	14.0	111.5	(39.6)	1,168.9	1,888.1	3,112.6	4,458.7	7,571.3
Total Comprehensive income for the period	-	-	-	-	-	21.0	391.2	188.2	600.4	596.0	1,196.4
Issue of depository receipts by subsidiary***	-	-	-	-	-	-	-	298.2	298.2	783.6	1,081.8
Issue of Convertible Bond (note 9)	-	0.2	-	-	327.6	-	-	-	327.8	-	327.8
Conversion of convertible bond	-	-	-	-	(0.2)	-	-	-	(0.2)	-	(0.2)
Convertible bond transfer	-	-	-	-	(6.4)	-	-	6.4	-	-	-
Transfers **	-	-	-	-	-	-	480.7	(480.7)	-	-	-
Dividends paid	-	-	-	-	-	-	-	(70.2)	(70.2)	(65.8)	(136.0)
Purchase of Treasury Shares	-	-	(146.5)	-	-	-	-	-	(146.5)	-	(146.5)
Additional Investment in Subsidiaries	-	-	-	-	-	-	-	(53.1)	(53.1)	(55.0)	(108.1)
Recognition of share based payment	-	-	-	5.0		-	-	-	5.0	-	5.0
At 30 September 2009	28.9	21.3	(226.8)	19.0	432.5	(18.6)	2,040.8	1,776.9	4,074.0	5,717.5	9,791.5

*    Other reserves comprise the currency translation reserve, merger reserve, investment revaluation reserve and the general reserves established in the statutory accounts of the Group's Indian subsidiaries. 

**    Under Indian law, a general reserve is created through a year-on-year transfer from the income statement. The purpose of these transfers is to ensure that distributions in a year are less than the total distributable results for that year. This general reserve becomes fully distributable in future periods.

**    In June 2009, Sterlite raised US$ 1081.8 million via the issuance of American Depository Receipts. This resulted in a reduction of Vedanta's shareholding in Sterlite from 61.35% to 56.62%. This reduction has not resulted in any change in control and hence Sterlite continues to be consolidated in Vedanta's consolidated financial statements. This reduction has been accounted in Vedanta's consolidated financial statement as an equity transaction. The carrying amount of the minority interest has been adjusted to reflect the change in Vedanta's interest in Sterlite's net assets. The difference between the amount by which the minority interest is adjusted and the net consideration received of $ 298.2 million is recognised directly in equity and attributed to equity holders of Vedanta.

Notes to the Financial Information

1. Basis of preparation 

The financial information in this interim financial report is prepared under International Financial Reporting Standards ('IFRS') as adopted by the European Union. The interim condensed consolidated financial information for the period ended 30 September 2009 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985.

The financial information for the full preceding financial year has been derived from the statutory accounts for the financial year ended 31 March 2009 as filed with the Registrar of Companies. The auditors' report on the statutory accounts for the year ended 31 March 2009 was unqualified, did not draw attention by way of emphasis of matter and did not contain statements under section 237(2) of the Companies Act 1985 (regarding adequacy of accounting records and returns) or under section 237(3) (regarding provision of necessary information and explanations). 

The financial information prepared under IFRS in respect of the six months ended 30 September 2009 and 30 September 2008 is unaudited but has been reviewed by the auditors and their report is set out on page 48.

This general purpose financial report for the half-year ended 30 September 2009 is unaudited and has been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted by the EU. 

The half-year financial statements represent a "condensed set of financial statements" as referred to in the UK Disclosure and Transparency Rules issued by the Financial Services Authority. Accordingly, they do not include all of the information required for a full annual report and are to be read in conjunction with the most recent annual financial report.

The Company published full financial statements that comply with IFRS as adopted by the European Union for the year ended 31 March 2009.   

The condensed set of financial statements included in the interim financial report has been prepared using the going concern basis of accounting for the reasons set out in the Going Concern section of the Financial Review.

2. Accounting policies

This interim financial report, including all comparatives, has been prepared using the same accounting policies and methods of computation as followed in the annual financial statements for the year ended 31 March 2009 as published by the Company. 

IFRS and International Financial Reporting Interpretations Committee ('IFRIC') interpretations are subject to ongoing review and possible amendment or interpretative guidance which may affect the financial statements for the year ending 31 March 2010.

Adoption of new standards

In the current financial period the Group has adopted the following new standards:

IFRS 8 "Operating Segments": IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The adoption of IFRS 8 has resulted in the disclosure of a new power segment which represents the sale of commercial power and the Copper segment has been split into Copper India & Australia and Copper Zambia. The introduction of IFRS 8 has resulted in further disclosures on each of these segments and these are set out in Note 3. The comparatives have been restated accordingly.

IAS 1 "Presentation of Financial Statements" (revised 2007): Requires the presentation of a statement of comprehensive income. 

IAS 23 "Borrowing Costs (revised)": IAS 23 (revised) requires that all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset must be capitalised. The Group's existing accounting policy is to capitalise such amounts, and so the adoption of the standard has not had an impact on the Group's financial results.

Foreign Exchange Rates

The following exchange rates to US dollar ($) have been applied:

	Average  rate to six months ended 30 September 2009	Average  rate to six months ended 30 September 2008	Average rate to year ended 31 March 2009	As at 30 September 2009	As at 30 September 2008	As at 31 March 2009
Indian rupee	48.54	42.77	45.91	48.04	46.94	50.95
Australian dollar	1.25	1.09	1.27	1.14	1.21	1.45

3. Segmental Reporting

The Group's reportable segments under IFRS 8 are as follows:

 

3. Segmental Reporting (cont.)

The following tables present revenue and profit information and certain asset and liability information regarding the Group's reportable segments for the six months ended 30 September 2009 and 30 September 2008 and for the year ended 31 March 2009. Items after operating profit are not allocated by segment.

Period ended 30 September 2009	Continuing Operations									Total Operations
US$ million	Aluminium	Copper-India/Australia	Copper-Zambia	Zinc	Iron Ore	Power	Other	Elimination
REVENUE
Sales to external customers	253.8	1,207.2	422.4	659.9	316.2	119.1	-	-		2,978.6
Inter-segment sales	1.0	-	7.5	-	-	-	-	(8.5)		-
Segment revenue	254.8	1,207.2	429.9	659.9	316.2	119.1	-	(8.5)		2,978.6
RESULT
Segment result before special items	2.7	49.2	10.6	345.1	40.9	48.9	-	-		497.4
Special items (note 4)	(4.8)	-	-	-	-	(2.0)	-	-		(6.8)
Segment result after special items	(2.1)	49.2	10.6	345.1	40.9	46.9	-	-		490.6
Unallocated corporate expenses										(0.4)
OPERATING PROFIT										490.2
Net finance income										114.4
PROFIT BEFORE TAXATION										604.6
Tax expense										(103.4)
PROFIT AFTER TAXATION										501.2
Segments Assets	6,250.2	3,761.4	1,927.6	3,690.7	2,942.0	1,612.3	-	-		20,184.2
Unallocated Assets										373.7
TOTAL ASSETS										20,557.9

3. Segmental Reporting (cont.)

Period ended 30 September 2008	Continuing Operations								Total Operations
US$ million	Aluminium	Copper-India/ Australia	Copper-Zambia	Zinc	Iron Ore	Power	Other	Elimination
REVENUE
Sales to external customers	592.1	1,571.7	514.3	777.3	503.3	14.5	-	-	3,973.2
Inter-segment sales	2.1	-	-	-	-	-	-	(2.1)	-
Segment revenue	594.2	1,571.7	514.3	777.3	503.3	14.5	-	(2.1)	3,973.2
RESULT
Segment result	142.9	209.3	19.1	418.7	216.6	7.1	-	-	1,013.7
Unallocated corporate expenses									2.2
OPERATING PROFIT									1,015.9
Net finance income									126.8
PROFIT BEFORE TAXATION									1,142.7
Tax expense									(266.3)
PROFIT AFTER TAXATION									876.4
Segments Assets	4,068.1	3,053.6	1,697.7	3,180.1	2,802.7	756.6	7.2	-	15,566.0
Unallocated Assets									1,036.6
TOTAL ASSETS									16,602.6

3. Segmental Reporting (cont.)

Year ended 31 March 2009	Continuing Operations								Total Operations
US$ million	Aluminium	Copper-India/ Australia	Copper-Zambia	Zinc	Iron Ore	Power	Other	Elimination
REVENUE
Sales to external customers	937.1	2,537.9	773.1	1,209.1	1,070.4	51.3	-	-	6,578.9
Inter-segment sales	4.4	-	1.7	-	-	-	-	(6.1)	-
Segment revenue	941.5	2,537.9	774.8	1,209.1	1,070.4	51.3	-	(6.1)	6,578.9
RESULT
Segment result before special items	117.2	245.9	(165.9)	548.3	376.9	17.6	-	-	1,140.0
Special items (note 4)	-	(3.0)	-	-	(28.9)	-	-	-	(31.9)
Segment result after special items	117.2	242.9	(165.9)	548.3	348.0	17.6	-	-	1,108.1
Unallocated corporate expenses									(1.1)
OPERATING PROFIT									1,107.0
Net Finance Income									74.0
PROFIT BEFORE TAXATION									1,181.0
Tax expense									(280.5)
PROFIT AFTER TAXATION									900.5
Segments Assets	4,718.4	2,479.6	1,803.3	3,129.9	2,471.0	1,103.7	-	-	15,705.9
Unallocated Assets									470.6
TOTAL ASSETS									16,176.5