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IGOV e d a n t a R e s o u r c e s p l c A n n u a l r e p o r t a n d a c c o u n t s F Y 2 0 1 5 Vedanta Resources plc Annual report and accounts FY2015 Vedanta Resources plc Annual report and accounts FY2015 Vedanta Resources plc is a UK listed global diversified natural resources company. Our vision To be a world-class, diversified resources company, providing superior returns to our shareholders with high-quality assets, low-cost operations and sustainable development. Our brand The refreshed logo signifies Vedanta’s approach to a triple bottom line that focuses on people, planet and prosperity in its areas of operations. A leaf, an unmistakable ‘symbol of life’ which has now been included in the Vedanta globe and the new colour green, symbolise Vedanta’s ethical credentials. The colour blue reflects Vedanta’s distinct virtues of integrity and professionalism. The globe represents the centricity and dependence on natural resources found in the earth as well as the responsibility that Vedanta has towards communities. Our assets Oil & Gas • Cairn India is one of India’s largest private sector oil & gas companies • Interest in seven blocks in India, and one each in Sri Lanka and South Africa • Contributes to ~27% of India’s domestic crude oil production Zinc-Lead-Silver • Zinc operations in India, Namibia, South Africa and Ireland • World’s second largest and India’s largest zinc miner • Operators of the world’s largest zinc mine at Rampura Agucha, India • One of the largest silver producers globally with an annual capacity of 16moz Iron Ore • Operations in India and Liberia • Goa iron ore exported, with Karnataka iron ore sold domestically • Large iron ore deposit in Liberia Copper • Smelting and mining operations across India, Australia and Zambia • Largest custom copper smelter and copper rods producer in India • Integrated copper mining and smelting operations in Zambia Aluminium • The largest aluminium producer in India with a capacity of 2.3mt • Strategically located large-scale assets with integrated power from captive power plants in the Indian states of Chhattisgarh and Odisha Power • 3.2GW of commercial power generation capacity • Largest supercritical unit in India operational at Talwandi Sabo Power plant • One of the largest producers of wind power in India see page 50 01 Strategic report We are Vedanta Business model Strategic framework Vedanta develops and operates world class resource assets, generating and sharing sustainable, long-term value for all its stakeholders across the resource lifecycle. see page 20 To deliver growth, long-term value and sustainable development through our diversified portfolio of large, long-life, low-cost assets. Strategic priorities • Production growth and operational excellence, with a focus on returns • Reduce gearing and improve free cash flow • Continue to add reserves and resources in our existing portfolio of assets to drive long-term value • Simplify Group structure through consolidation • Protect and preserve our licence to operate see page 24 Anil Agarwal, Chairman Tom Albanese, CEO see page 10 see page 13 My vision for the future is to continue to fulfil Vedanta’s potential, whilst helping to advance the world’s largest democracy economically, socially and sustainably. We have continued to focus on improving our operational performance and enhancing production, delivering record volumes of zinc and aluminium, despite volatile commodity markets. Strategic report Highlights Vedanta at a glance Essential to transforming India Chairman’s statement Chief Executive Officer’s statement Market overview Business model Strategic capabilities and relationships Strategic framework Key performance indicators Principal risks and uncertainties Sustainable development report Finance review Review of operations – Oil & Gas – Zinc-Lead-Silver – Iron Ore – Copper – Aluminium – Power Corporate governance and Directors’ reports 02 04 06 10 13 16 20 22 24 26 28 36 44 50 50 54 60 64 68 72 Board of Directors Executive Committee Corporate governance report Audit Committee report Nominations Committee report Sustainability Committee report Statement by the Remuneration Committee Chairman Directors’ remuneration policy report Annual report on remuneration The Directors’ report Directors’ responsibilities statement 76 78 80 92 98 101 103 104 109 116 120 Financial statements 121 126 Independent Auditor’s report Consolidated income statement Consolidated statement of 127 comprehensive income Consolidated balance sheet 128 130 Consolidated cash flow statement Consolidated statement of changes in equity 131 133 Notes to the financial statements Additional information Five year summary Production and reserves summary Glossary and definitions Shareholder information Contacts 210 214 221 226 IBC Investor presentations www.vedantaresources.com Online annual report ar2015.vedantaresources.com Sustainability website sustainability.vedantaresources.com Online sustainability report sd.vedantaresources.com/ SustainableDevelopment2014-15 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 02 Strategic report We are Vedanta Highlights Vedanta has produced a robust set of results in a volatile market and the fundamentals of our business remain strong. Group highlights Financial highlights • Revenue of US$12.9 billion in line with the previous year • EBITDA1 of US$3.7 billion (FY2014: US$4.5 billion), adjusted EBITDA margin of 38%2 (FY2014: 45%) • Underlying Earnings/(Loss) Per Share3 of (14.2) US cents (FY2014: 14.7 US cents) • Basic Earnings Per Share (EPS) of (654.5) US cents primarily on account of an impairment of US$4.5 billion (net of tax) – Non-cash impairment reflecting lower commodity price • Free cash flow after growth capex of US$1.0 billion (FY2014: US$1.3 billion) • Gross debt reduced by US$0.6 billion in H2 FY2015 and US$0.2 billion in FY2015 with gross debt at US$16.7 billion in FY2015 (FY2014: US$16.9 billion) • Net debt up by US$0.5 billion to US$8.5 billion; US$0.8 billion spent on increasing our stake in subsidiaries, Vedanta Limited and Cairn India Limited • Credit rating changed from BB to BB- by S&P, Moody’s retained at Ba1 with change in outlook to negative mainly on account of lower oil prices • Final dividend of 40 US cents per share, full year dividend 63 US cents per share, up 3% Business highlights • Record full-year mined metal production at Zinc India; better positioned for underground transition • Copper India: Record production • Copper Zambia: Production for the full year lower; KDMP Shaft # 1 back online and production improving at Konkola • Record full year aluminium and alumina production; started new Jharsuguda-II and Korba-II smelters • Recommenced iron ore production at Karnataka, final approval awaited at Goa; record annual production of pig iron • Iron ore export duty in India reduced from 30% to 10% for less than 58% Fe iron ore, effective 1 June 2015 • Oil & Gas production normalised after the planned shutdown in Q2 FY2015 Caption: Operator at packing area of Jharsuguda aluminium casthouse. Vedanta Resources plc Annual report and accounts FY2015 03 Revenue (US$bn) Consolidated Group results 15 14 13 12 11 EBITDA (US$bn) 15 14 13 12 11 12.9 12.9 14.6 14.0 11.4 3.7 4.5 4.9 4.0 3.6 Free cash flow post capex (US$bn) (in US$ millions, except as stated) Revenue EBITDA1 EBITDA1 margin (%) EBITDA margin excluding custom smelting2 (%) Operating profit before special items Loss attributable to equity holders Underlying attributable profit3 Basic (loss)/earnings per share (US cents) Earnings per share on underlying profit (US cents) ROCE (excluding project capital work in progress and exploratory assets and one-time impairment charge) (%) Total dividend (US cents per share) FY2015 FY2014 12,878.7 3,741.2 29.1% 38.0% 1,735.5 (1,798.6) (38.9) (654.5) (14.2) 12,945.0 4,491.2 34.7% 44.9% 2,288.1 (196.0) 40.2 (71.7) 14.7 8.7% 63.0 14.9% 61.0 15 14 13 12 (0.2) 11 0.1 1.0 1.3 1.5 1 Earnings before interest, taxation, depreciation, amortisation/impairment and special items. 2 Excludes custom smelting revenue and EBITDA at Copper and Zinc-India operations as custom smelting has different business economics. 3 Based on profit for the period after adding back special items and other gains and losses, and their resultant tax and non-controlling interest effects. In the prior period, the underlying attributable profit included the net tax benefit from the Sesa Sterlite merger offset by a deferred tax charge due to the change in tax rates at Cairn India. Dividend per share (US cents) 15 14 13 12 11 63.0 61.0 58.0 55.0 52.5 Throughout this year, we have remained focused on our stated strategic priorities. Our diversified portfolio has enabled us to withstand global volatility in commodity prices. Mr Anil Agarwal, Chairman of Vedanta Resources plc Group highlights Resilient performance in falling crude oil environment We have revised capex but continue to focus on opportunities, with Cairn delivering the largest exploration and appraisal programme in its history. We spent US$1.1 billion in FY2015 out of US$3 billion, retaining flexibility on spend going forward. see page 50 Ramping up aluminium Production reached record levels at Lanjigarh and we have initiated a number of innovative, cost-saving projects. The new Korba-II smelter and Jharsuguda-II smelter started production with significant ramp up planned in 2016. see page 68 Improving production volumes at Copper India Higher production volumes at Copper India, while maintenance work at Konkola reduced production in Zambia. An easing of documentation requirements for VAT refunds in Zambia will enable us to increase utilisation rates of the smelter. Resuming operations at Sesa Goa Production recommenced at Karnataka and in Goa, environment restrictions were lifted, with Vedanta allocated an interim annual mining quantity of 5.5mt of saleable ore. We are implementing cost reductions to counter the low-price environment. see page 64 see page 60 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com Vedanta Limited (formerly Sesa Sterlite Limited) Listed on NSE, BSE and NYSE 04 Strategic report We are Vedanta Vedanta at a glance 79.4% Konkola Mines One of the highest-grade large copper mines in the world Vedanta Resources Listed on LSE Copper Oil & Gas Zinc-Lead-Silver see page 64 see page 50 see page 54 Businesses Copper Zambia (KCM) Production volume Mined metal 116kt Finished copper 169kt EBITDA US$(4)m R&R life 25+ years Cost curve position 4th Quartile Large, long-life, low-cost, scalable assets Businesses Cairn India Production volume 212k boepd (average daily gross operating production) EBITDA US$1,477m R&R life 15+ years Cost curve position 1st Quartile Businesses Zinc India (HZL) Zinc International Production volume 887kt 312kt EBITDA US$1,193m US$181m R&R life 25+ years 20+ years Cost curve position 1st Quartile 2nd Quartile Vedanta Resources plc Annual report and accounts FY2015 05 62.9% Vedanta Limited (formerly Sesa Sterlite Limited) Listed on NSE, BSE and NYSE Iron Ore Copper Aluminium Power see page 60 see page 64 see page 68 see page 72 Businesses Tuticorin smelter, India Copper Mines of Tasmania (under care & maintenance) Production volume Copper cathodes 362kt EBITDA US$281m Cost curve position 2nd Quartile Businesses BALCO Jharsuguda and Korba Smelters Lanjigarh Refinery Production volume Aluminium 877kt Alumina 977kt EBITDA US$416m Cost curve position 2nd Quartile Businesses MALCO HZL Wind Power Jharsuguda and Talwandi Sabo Power Plants Power sales 9,859 million KWh EBITDA US$154m Businesses India Iron Ore Operations Liberia Iron Ore Project Production volume1 0.6mt EBITDA US$31m R&R life2 20+ years Cost curve position 1st Quartile 1 Production at Karnataka suspended until February 2015 and suspended for the full financial year at Goa. 2 Excluding Liberia. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 06 Strategic report We are Vedanta Essential to transforming India In 2014, the Indian Government launched a major national campaign, ‘Make in India’, to encourage companies to manufacture in India. The initiative is focused on 25 sectors of the economy and aims to create jobs and enhance skills. Aluminium Iron Ore Due to aluminium’s light weight and low cost, the metal is increasingly used in residences, buildings, automobiles and appliances. Aluminium demand is increasing in India, boosted by increased investment in infrastructure, power and transportation. In addition to aluminium ingots, Vedanta also produces a wide range of value- added products and aluminium alloys with huge potential in aerospace and defence industries. see page 68 0.9mt Aluminium produced by Vedanta’s aluminium smelters Iron ore, a key ingredient in steel making, is expected to benefit from increased demand in India as a result of higher consumption of consumer durables and the Government’s target to increase steel production to 300mt by 2025 to match India’s growing infrastructure needs. Vedanta has large iron ore mines in Goa and Karnataka and a pig iron plant in Goa. It is a major supplier to the domestic market with the Goa iron ore mine also serving the Chinese and Japanese export markets. see page 60 391mt Iron ore reserves & resources at Vedanta’s mines Vedanta Resources plc Annual report and accounts FY2015 07 Power The availability of power in India is increasing, but demand outstrips supply leading to a substantial power shortage. Around 280 million people in India do not have basic electricity connections and the Government aims to supply power to all homes by 2019. Vedanta is one of India’s largest private power generators. see page 72 8.7GW Power generation capacity at Vedanta StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 08 Strategic report We are Vedanta Essential to transforming India The new Indian Government has a mandate for economic growth and job creation. As a local resources company Vedanta can play a key role in supporting these Government initiatives. Zinc Galvanising accounts for more than 75% of zinc demand in India. The Indian Government’s focus on infrastructure projects such as upgrading railway stations, building new airports and roads; developing 100 smart cities; rural electrification projects and investment in transmission corridors will all boost the country’s zinc requirements. Vedanta is the leading producer of zinc in India with a 78% share in the domestic market. see page 54 78% Vedanta’s share in India’s domestic zinc market Vedanta Resources plc Annual report and accounts FY2015 09 Oil & Gas Oil & Gas contributes to approximately 37% of India’s primary energy consumption and the demand continues to rise, with 77% of requirement being imported. Vedanta produced 27% of India’s domestic crude oil in FY2015 and is well-positioned to reduce the country’s energy import burden. see page 50 27% India’s domestic crude oil produced by Vedanta Copper Copper demand in India is expected to grow at 9%–10%, ahead of economic growth in India. Vedanta can contribute by ensuring availability of the right quality of copper to the manufacturing sector. Currently Vedanta not only serves over 800 small and medium enterprises (SMEs) in the downstream industry for the critical electrical sector, but is also the major supplier of copper to the country’s defence sector. see page 64 800SMEs in India are supplied copper by Vedanta StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 10 Strategic report We are Vedanta Chairman’s statement A diversified portfolio that is delivering consistent performance in a challenging market. Anil Agarwal, Chairman My vision for the future is to continue to fulfil Vedanta’s potential while helping to advance the world’s largest democratic developing nation economically, socially and sustainably. India is richly-endowed with the natural resources that will fuel its future growth and raise the living standards of its population of 1.2 billion people. We are working with our employees, communities and Government to help unlock India’s vast resource potential. Highlights of the year This year I was delighted to welcome Tom Albanese to his position as Vedanta’s Chief Executive. His strong industry experience is already making a difference and he has demonstrated that he shares my vision for building an ethical, sustainable business. The election of a new government in India is also beginning to have a positive impact on the business environment we operate in and I believe that the country will benefit from the progressive reforms being proposed by the Government. Vedanta Resources plc Annual report and accounts FY2015 11 1 Production growth Copper equivalent (kt) 2 Progressive dividends (US cents per share) 2,500 2,000 1,500 1,000 500 0 R G A % C 2 8.8 x o r 2 FY 041 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 Zinc-Lead Silver Copper Aluminium FY 13 FY 11 FY 12 PF2 Power Iron Ore R G A 3 % C 1 We continue to contain capital expenditure and operating costs to maintain financial strength. 70 60 50 40 30 20 10 0 % 6 6 + FY 14 FY 15 Near term Oil & Gas This Government is firmly committed to supporting a fast-growing Indian economy, to shape business policy and make it easier for the private sector to create economic value. We are among the largest contributors to the exchequer in India and play a strong role in nation building. Vedanta makes important, long-term contributions to local and regional economies, paying around US$15 billion in taxes, royalties and other levies in total over the past three years alone. Reflecting on another productive year, we have proven that we are well-positioned to capitalise on India’s abundant natural resource opportunities. Despite the volatility in global commodity prices, we have delivered a sound financial and operating performance. To reflect this challenging market environment, we have implemented a series of initiatives aimed at reducing capital and operating costs across the Group, which will maintain our financial strength. Financial performance Throughout this year, we have remained focused on our stated strategic priorities. We have started to ease back on capital expenditure and concentrated on increasing production through optimising our core assets. We’ve seen unprecedented declines in oil and iron ore prices, though zinc and aluminium prices were relatively more resilient. These affected Group EBITDA, which decreased by 17% to US$3.7 billion (FY2014: US$4.5 billion). However, our diversified portfolio allowed us to maintain robust adjusted EBITDA margins of 38% on the back of our diversified portfolio. The substantial drop in oil prices during the year has led to a revaluation of our Oil & Gas business and a US$4.5 billion (net of tax) writedown. This is a reflection on the reality of oil prices today and doesn’t affect our strategy in any way. We remain committed to being a diversified resources player, capitalising on our strengths. Gross debt reduced by US$0.2 billion in FY2015 and US$0.6 billion in H2 FY2015. However, net debt has increased by US$0.5 billion, mainly due to US$0.8 billion spent on increasing our stake in Vedanta Limited (formerly Sesa Sterlite) and Cairn India during H1 FY2015. Our final dividend of 40 US cents per share, taking the full year dividend up by 3%, reflects our continued confidence in the strength and prospects of the business. The fundamentals for our business remain sound, but we have to navigate this downturn. We operate in cyclical markets and at this point in the cycle our focus is on productivity, efficiency and preserving value and I am confident that this will happen given the strength of our businesses and dedication of our people. We will continue to implement initiatives to contain capital expenditure and operating costs to maintain financial strength during this period of weaker commodity prices. At the same time we will preserve our portfolio of assets with attractive long-term growth prospects and a strong resource position. We also aim to maintain a strong balance sheet, with a focus on maximising free cash flows, deleveraging and returns to investors. 1 Production growth Since IPO in 2004, Vedanta has grown production across its portfolio supported by its well-invested expansion programme and continued focus on increasing R&R over production each year. 1 All commodity and power capacities rebased to copper equivalent capacity (defined as production X commodity price/ copper price) using average commodity prices for FY2015. Power rebased using FY2015 realisations, copper custom smelting capacities rebased at TC/RC for FY2015, iron ore volumes refers to sales with prices rebased at average 56/58% FOB prices for FY2015. 2 PF refers to pro forma for Cairn India acquisition. 2 Progressive dividends Dividends have been paid out every year, across the commodity cycle, increasing progressively from 17.0 US cents per share 11 years ago to 63.0 US cents per share this year. 3 In FY2004, a single dividend of 5.5 US cents per share was paid, for the four months since listing, equivalent to an annual payment of 16.5 US cents per share. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 12 Strategic report We are Vedanta Chairman’s statement continued I am amazed at what we have achieved over the past 11 years. We have created a value-based and empowered organisation that is well-positioned for its next stage of growth. Sustainability Sustainable development is at the core of Vedanta’s operations. Our Sustainability Framework comprises of four pillars: Responsible Stewardship, Building Strong Relationships, Adding and Sharing Value and Strategic Communications. Our Sustainability Framework has a set of policies, with technical and management standards aligned to international standards, to enable significant improvement in the way we do business. Social development is fundamental to any country’s growth and we are focused on platforms for education, healthcare, nutrition and sanitation that benefit around four million people every year. We work closely with local governments, NGOs and academic institutions to help ensure that our programmes benefit as many people as possible around our communities. I remain committed to collaborating on mutually beneficial partnerships that will further our positive impact on communities and uphold our licence to operate in all our areas of operations with rising expectations of corporate social responsibility. Vedanta now employs, either directly or indirectly, approximately 82,000 people globally. While we are encouraged that there is an improvement in the safety performance of the Group this year, I am saddened that we experienced eight fatalities. Our efforts across Vedanta, to achieve a ‘Zero Harm’ culture is a personal priority for our CEO, Mr Tom Albanese and me. Governance In 2014, we welcomed Katya Zotova, who joined the Vedanta Board as a Non-Executive Director, and became a member of the Nominations and Remuneration Committees. She brings a wealth of oil & gas sector experience to the Board and her perspective will be invaluable as we drive sustainable improvement and growth in our global business. Diversity is a business imperative as well as an expectation by society. We have set ourselves some challenging targets in this area and I am pleased with the progress we are making. Today, we have a strong management team with diverse backgrounds, including three female executives in front line positions. I’d like to thank my energetic and hard-working Vedanta team – I am amazed at what we have achieved over the past 11 years and their contribution is immense. Together we have created a value-based and empowered organisation that is well-positioned for the next stage of its growth. I would also like to acknowledge all my fellow Directors for their sound guidance and contribution. Vedanta’s role in transforming India The winds of change for economic growth in India are blowing strongly. A country of almost 1.2 billion people, India is the largest democracy in the world, rich in human and natural resources. Vedanta has a very important role to play in ensuring that India is able to benefit from these resources and become self-sufficient in energy supply. India spends a significant proportion of its foreign exchange on importing oil, and local resources companies including Vedanta can help redress this balance. The new Government has a mandate for economic growth and job creation. We support its reforms, such as the auctioning of natural resources and the ‘Make in India’ programme, which is designed to transform India into a global manufacturing hub. India has so much to offer, and by implementing important changes such as making it an easier place to do business, by opening up the country to foreign investment, and improving infrastructure and productivity, it will inevitably create jobs, particularly for our young people, and bring further prosperity to the country. Outlook Going forward, our overall strategic priorities remain the same, to build a resilient portfolio which enables us to withstand a volatile commodity environment and continue to deliver long-term value to our shareholders. Group simplification is key and looking forward over the next year, Tom Albanese and I will be putting greater focus on this. The recent name change of Sesa Sterlite Limited to Vedanta Limited is a significant milestone, which reflects Vedanta’s commitment to strengthen the linkage between our businesses, communities and stakeholders across the globe. In terms of market conditions, India is at an inflection point, with its metals and energy demand poised to explode as its GDP potentially doubles over the next decade. Vedanta is a vehicle for new potential investment opportunities in a fast growing economy. Over the next few years, we are likely to see the demand for all our commodities and commercial power increase substantially as the Government of India’s focus on ‘Make in India’ and infrastructure investments start yielding results. As a large and responsible corporation, Vedanta is well-positioned to participate in this journey, and I look forward to our future. Anil Agarwal Chairman 13 May 2015 Vedanta Resources plc Annual report and accounts FY2015 13 Chief Executive Officer’s statement Making progress against our strategic priorities. Tom Albanese, Chief Executive Officer We have continued to focus on improving our operational performance and enhancing production, delivering record volumes of zinc and aluminium, and delivering free cash flow in volatile commodity markets. At the end of my first year as Chief Executive, I am pleased with the progress we have made against the key operational priorities I set last year and the continued momentum of the Company towards its strategic objectives, against the backdrop of volatile global commodity markets. Progress against operational priorities The highlights for the year include the ramping up of our world-class aluminium assets, following the approximate US$8 billion investment programme, to reach record production levels. We are now well positioned for an accelerated growth in 2016 with progressive ramp up of the new smelters at Korba and Jharsuguda. The total mined metal production for zinc and lead also reached a historic high, supported by strong performance of the Rampura Agucha mine, one of the largest and lowest cost zinc mines in the world. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 14 Strategic report We are Vedanta Chief Executive Officer’s statement continued 1 Diversified portfolio A broad natural resources portfolio diversified across base metals, bulks and Oil & Gas has delivered consistent EBITDA margins in excess of 30% over the past 11 years. 1 Margins exclude custom smelting at Copper and Zinc India operations. 2 Cash flow and growth capex In a volatile commodity price environment, Vedanta is revising capex downwards and prioritising capital to high-return, low-risk projects. This will maximise cash flows, giving the flexibility to invest further as oil prices improve. 1 Consistent margins driven by diversification EBITDA by segment (US$m) 2 Optimising capex to drive cash flow generation (US$bn) 5,000 4,000 3,000 2,000 1,000 0 3.0 2.5 2.0 1.5 1.0 0.5 0 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY2014 FY2015 FY2016e original FY2016e revised Zinc-Lead Aluminium Iron Ore Power Copper Oil & Gas EBITDA margin1 Oil & Gas1 Zinc capex M&M capex2 Free cash flow3 The year also saw significant progress being made in development of underground mines at Rampura Agucha and Sindesar Khurd (SK). Our Oil & Gas business delivered a robust performance with Mangala and Aishwariya fields performing as expected, and strong contributions coming from offshore assets. Our Oil & Gas business will now reap the benefits from the high-impact Enhanced Oil Recovery (EOR) project in Rajasthan. Looking ahead, increasing gas production in the Raageshwari Deep Gas field and development at Barmer Hill will continue to provide us with growth options. Though our copper smelter in India recorded the highest-ever production and best-in-class operational efficiencies during the year, the turnaround at Konkola Copper Mines (KCM) in Zambia continues to present challenges. Volumes and ore grade were lower at the Nchanga mine complex and the rehabilitation programme of shafts have affected production in Konkola Deeps. However, with the new management team and operating strategy in place, we have already started seeing positive momentum in the last quarter. While it was disappointing that iron ore mining at Goa did not resume last year, this has had less of a material impact due to decline in iron ore prices globally. We have made some progress on this front during the year. Mining in Karnataka resumed in February 2015 and we have been allocated an interim annual capacity of 5.5mt of saleable ore in Goa where mining is expected to recommence post the monsoon season, after receipt of the remaining approvals from the Government. Export duty has now been reduced to 10% for <58% grade iron ore. 1 Capex net to Cairn India; subject to Government of India approval. 2 M&M refers to metals and mining and power, excludes zinc; excludes capex on Lanjigarh refinery expansion and Tuticorin smelter. 3 Free cash flow after sustaining capex but before growth capex. Market environment The volatility of global commodity prices has dampened our financial results, and this has slowed down the pace of our deleveraging programme. That said, I was pleased to see reduction in our gross and net debt in the second half, despite lower oil prices. Recognising the current commodity environment we are implementing a series of initiatives to reduce capital and operating costs across all our businesses to maintain financial strength and a strong balance sheet. Looking forward we see demand and supply rebalancing with more robust pricing as a consequence. China’s slowdown is moving to a more sustainable level of growth and Vedanta’s position as low-cost operator of long-life mines will serve it well as global demand returns to more normal levels. As a non-Indian, I had the privilege of being in India during the election campaign and I have great expectations that the new government will get India’s economy up and running, in contrast to the slowdown in China and stagnation in Europe. The pace of change has inevitably been slower than the early optimism suggested but progress on coal and energy policies and clarity on iron ore mining are encouraging. The step towards the auction of coal blocks, which we participated in, is a critical part of the journey to make India self-sufficient in coal. Today, India is one of the largest importers of coal, despite its huge reserves, and coal must be a key feature of the Government’s energy strategy. Vedanta Resources plc Annual report and accounts FY2015 Vedanta is well- positioned to meet India’s need for commodities, while operating at global standards of sustainable development. 15 Licence to operate Safety has been a key priority at Vedanta as it is a weak link in our otherwise robust sustainability programme. The best businesses are the safest businesses and there has been a marked improvement in our results this year. Although I am encouraged by our progress, I am saddened by eight fatalities and there remains much more to do on our journey towards achieving a ‘Zero Harm’ culture. My personal focus is on raising the levels of safety consciousness across the Group and ensuring that we invest more in safety management alongside raising standards, expectations and accountabilities. Maintaining our licence to operate is at the heart of the Group strategy and essential for our access to resources, people and capital. I am a firm believer that being a responsible miner is critical to a sustainable future and our corporate social responsibility (CSR) programme must be world class. In my first year as CEO, I have been struck by the sheer breadth and depth of our community development initiatives. We have very strong CSR programmes around child health care and education, water, sanitation, livelihood and the empowerment of women. The sector is now increasingly seeing ethics and integrity overlapping with the sustainable development agenda, and so we have added Strategic Communication as a fourth pillar to our sustainability model, to ensure transparent dialogue with our stakeholders. This reflects our commitment to become a corporate citizen who will not act without the consent of local communities. Our long-term success is only partly attributable to our core facilities; people, performance and innovation are all equally important. This year we have made great strides in water and energy management, with various improvement initiatives including enhanced operating efficiencies resulting in water and energy savings surpassing our targets. It is critical to our success that we have the highest quality of workforce and I have been incredibly impressed by the professional capability and leadership ability demonstrated by our employees – from our recent graduates to our senior executives. We have set up an innovation task force as part of our drive to encourage innovation across our business units. This includes the engineers within the Group and will extend to universities and other avenues. We have also invigorated the initiatives for developing high potential talents through our ‘ACT UP’ and Leaders Connect Programmes, to create leadership succession at all levels across the organisation. Progress against strategic priorities Our key strategic priorities remain unchanged. We have ramped up production and optimised opex and capex across our businesses and reduced gross debt by US$0.2 billion (US$16.7 billion in FY2015). We continue to focus on optimising our assets, maintaining positive free cash flows, efficiently refinancing upcoming maturities and deliver on our priority of deleveraging. The long-life nature of our resource base underpins our track record of adding more to our reserves and resources (R&R) than we extract and we continue to use our exploration skills to expand the potential of our ore bodies and petroleum reservoirs going forward. As we can only book reserves against the duration of our leases and our current oil & gas lease in Rajasthan expires in 2020, our oil & gas reserve schedule does not accurately reflect the strong exploration success and potential of the Rajasthan basin. The renewal of this lease is currently under consideration by the Government of India. I acknowledge shareholder feedback that we need to simplify Vedanta’s Group structure and we intend to put greater focus on this in the coming year to make Vedanta easier to understand and more attractive to invest in. Looking forward There is much to do on the operational front in FY2016; to move aluminium above its current operating level of 38% capacity, secure a local source of bauxite for our refineries and smelters, stabilise KCM, restart iron ore mining in Goa, and ensure our Oil & Gas business is positioned for robust performance notwithstanding weak oil prices. We need to continue strengthening our balance sheet through further deleveraging and delivering a simpler corporate structure. We will continue to have a relentless focus on costs alongside rising capacity utilisation thus driving value growth. Looking forward over the next few years, we expect the worst of the sector oversupply to be behind us and Vedanta will be well placed to take advantage of future growth in India and globally, as a premier developer and innovator of choice. This will position the Company and its shareholders for a long period of profitable value creation. Tom Albanese Chief Executive Officer 13 May 2015 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 16 Strategic report We are Vedanta Market overview Emerging markets continue to be key drivers of growth. 7.2% India’s economic growth in 2014. Global economy Global gross domestic product (GDP) increased by 2.6% in 2014, according to World Bank Global Prospect Report 2015. There was a notable divergence in performance, however, between the world’s major economies. The US started off weakly but the economy recovered through the spring and summer. The Chinese economy had a stronger start and slowed in the second half of the year, and growth dipped slightly below the government’s 7.5% target. Europe’s growth remained weak in 2014, and The European Central Bank announced significant easing measures in the summer. Activity remained fragile in emerging economies. According to the World Bank Global Prospects Report 2015, global growth is expected to rise moderately, to 3% in 2015 and average about 3.3% through 2017. High income countries are likely to see growth of 2.2% in 2015–17, up from 1.8% in 2014, on the back of gradually recovering labour markets, ebbing fiscal consolidation, and still-low financing costs. In developing countries, as the domestic headwinds that held back growth in 2014 ease and the recovery in high-income countries slowly strengthens, growth is projected to gradually accelerate, rising from 4.4% in 2015 and 5.4% in 2017. Lower oil prices will contribute to diverging prospects for oil exporting and importing countries, particularly in 2015. Indian economy As the world economy faces subdued conditions and uncertainties, the Indian economy is poised to accelerate. Growth is expected to rebound given political certainty, positive policy measures, low commodity prices and improved business confidence. Internally, the decisive outcome of the national elections buoyed sentiment and boosted expectations of major economic reforms. The Government has already initiated reforms including diesel price deregulation, natural gas price reforms, steps towards more flexible labour markets and reforms in the coal, mining and telecommunication sector. In addition, the launch of the ‘Make in India’ campaign has further boosted sentiment. The focus on infrastructure investment, aided by a focus on certain industries with significant impact on the overall economic growth, will drive demand for aluminium, zinc, copper and iron ore. As a large net importer of crude oil, the decline in crude prices has a positive impact in India. Going forward, this could improve growth prospects and ease inflation pressures increasing disposable incomes for consumers, lower input costs for energy-intensive sectors and lower current account deficit amongst others. Vedanta Resources plc Annual report and accounts FY2015 17 India: fastest growing major economy in 20151 2014 7.2 7.4 7.5 6.8 7.5 6.3 0.6 0.1 2015 (3.8) (1.0) 2016 (1.1) 1.0 India China Russia Brazil India’s metal consumption growth rate FY20152 (%) 6.6 Zinc Aluminium Copper 10.4 10.1 1 IMF World Economic Outlook Database, April 2015. 2 Includes secondary and value added consumption from all sources. Prices in US$ per tonne unless otherwise indicated FY2015 FY2014 % Change 6,558 1,890 2,177 2,021 18 70 85 7,103 1,773 1,909 2,092 21 115 108 (7.7) 6.6 14.0 (3.4) (14.3) (39.1) (21.3) In 2015, we expect a continued increase in demand, led by the Chinese expansion in automotive output and construction of mobile phone base stations, requiring lead-acid batteries for back-up power. Amid falling fuel prices and interest rates, as well as Government promotion for foreign investments, India is expected to be among the world’s top four auto-producers, leading to a substantial increase in lead consumption in the country. Copper World copper consumption is estimated to have totalled 22.6mt in 2014, 8% higher than 2013, despite slowing economic growth in key emerging economies. China remained the main driver of world copper consumption in 2014 accounting for 46% of the world’s refined copper consumption. The availability of copper concentrates increased during the year following the resumption of Indonesian exports and new mines such as Caserones and Sierra Gorda starting production and TC/RCs improved considerably over the year. World refined production is forecast to increase by 4.8% to 23.5mt in 2015, with moderating growth rates in China thereafter leading to growth in demand softening to 3.9%. Vedanta is one of the major exporters to China and also holds the highest market share in India where demand is expected to grow at 6%–8%. With its LME registered copper, Vedanta is well positioned to meet increasing demand for refined copper in India’s critical electrical sector. Copper Aluminium Zinc Lead Silver (TOz) Iron Ore (63 Fe Grade) Crude per bbl The IMF Survey in March 2015 estimates that real GDP growth will rise to 7.2% in 2014–2015, and continue at that level in 2015–2016, as a result of the revival in industrial and investment activity. The Indian Government is now focused on improving the business climate and reviving manufacturing growth, with the target of improving India’s ranking in the World Bank’s Ease of Doing Business survey. Initiation of economic reforms and renewed optimism, together with low crude oil prices, augurs well for the Indian economy. Zinc The global demand for zinc increased by 4.3% in 2014 to 13,881kt. Refined zinc production growth declined from 3.9% to 3.3% in 2014, highlighting the widening gap between the global zinc demand and its supply. Combined with reductions in LME stocks, this resulted in moderate price rises during the year. Global zinc consumption is expected to grow steadily by around 4%–5% in the coming years and the closure of some large mines such as Century and Lisheen, will create further shortage in supply. New mines and upcoming projects such as Vedanta’s Gamsberg project will help offset the gap to an extent. The outlook for demand in India remains positive with CAGR of around 6%, driven by a strong galvanising sector which accounts for 75% of demand. With a 78% share of the Indian market and a high quality rating for its LME registered brands, HZL is well positioned to take advantage of these positive developments. Lead During 2014, global lead demand increased to 11,621kt, a growth of 3.7%, while primary refined lead production growth was 4.9%. Chinese demand which accounted for about 45% of global lead demand in 2014, grew by 4.5% in 2014 compared to 6.6% in 2013. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 18 Strategic report We are Vedanta Market overview continued Aluminium demand in India is growing strongly, spurred by large infrastructure investments. Government programmes such as ‘Make in India’ and electricity and housing for all, will drive increasing demand from the electrical sector. Aluminium Global aluminium consumption rose by 7.6% to 54mt in 2014, primarily driven by China, which leads in supply as well as demand. World-wide aluminium supply is outpacing demand, with subsequent pressure on pricing and premiums. In 2014 LME aluminium cash prices remained almost flat at US$1,866 but high LME stocks and lead time for delivery led to higher metal premiums. Looking forward, primary aluminium demand is forecast to grow by 5% per annum up to 2020, driven by the transport sector and substitutions in favour of aluminium, but the release of LME inventories and consistently high production in China will keep prices soft over the coming year. Aluminium demand from India is growing strongly, spurred by large infrastructure investments. Government programmes such as ‘Make in India’ and ‘electricity and housing for all’ will drive increased demand from the electrical power, transport and construction industries. There are new opportunities for the downstream industry in India to develop value added products, including alloys for defence and automobile applications. Vedanta’s portfolio is focused more on the value added products and demand for its rods, billets and rolled products is likely to increase substantially. Iron ore The global iron ore trade is estimated to have increased 9% in 2014 to 1.3 billion tonnes supported by increases in supply from Australia and Brazil. Record iron ore production in 2014, combined with weak demand fundamentals in China, put pressure on prices which dropped by 47% during the calendar year. This reflected the market shift into oversupply with high stocks building in Chinese ports in addition to resilient domestic production. For 2015, lacklustre Chinese steel consumption growth is likely to dampen prices and the major miners are turning their focus to cutting production costs and increasing productivity. In India demand for steel is forecast to rise as the Indian Ministry of Steel plans to increase steel production to 300mt by 2025 and investment in new capacity is under way leading to a projected growth rate in demand for steel of 5.3%. As Vedanta iron ore mines come back into production, it will help service the projected demand growth. Vedanta Resources plc Annual report and accounts FY2015 19 Revenue by geography 61% India 10% China 9% Middle East Europe 5% 9% Far East others 2% Africa 1% Asia others 3% Others Revenue by commodity 23% Zinc-Lead 18% Oil & Gas 3% Iron Ore 36% Copper 16% Aluminium Power 4% Vedanta’s market position Vedanta is positioned well with a diversified spread across many commodity classes, enabling it to adjust to economic cycles and offset market downturns. The Government of India’s vision of higher domestic production to reduce India’s dependence on imports and the ‘Make in India’ programme are expected to accelerate demand in the Indian metal market, creating a positive environment for Vedanta in its domestic market in the near term and globally in the medium term. Oil & Gas Following three years of relative stability and averaging around US$100 per barrel, oil prices have fallen sharply since mid 2014, a result of supply side pressure. New supply sources, notably from North America, have added to this imbalance. For 2014, oil demand grew by just 0.7% vis-à-vis 2013 when it grew at 1.4%. However, 2015 is forecasted to see growth of 1.2%. The Indian oil & gas market is characterised by very high dependence on oil & gas imports, importing over 75% of its domestic requirements. Petroleum imports constitute more than 35% of India’s total gross imports, leading the Government of India to drive for increased domestic production to reduce the energy import burden of the country by at least 10% per annum, until 2022. As one of the largest crude oil producers in India, Vedanta is well- positioned to support this vision. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 20 Strategic report We are Vedanta Business model What we do and how we add value Vedanta operates across the value chain, undertaking exploration, asset development, extraction, processing and value addition with a primary focus on upstream operations. We capitalise on our strategic capabilities to create value for all our stakeholders: our shareholders; our employees; our customers; our lenders and the communities where we operate. We focus on maximising returns from our long-life, low cost, scalable assets where we are now delivering strong free cash flows from a well-invested asset base. We are committed to sustainable development in all aspects of our business with a well-developed sustainability framework which underpins everything that we do. Vedanta develops and operates world class assets, generating and sharing sustainable, long-term value for all its stakeholders across the resource lifecycle. Value Generation We invest in growing our existing assets and have an excellent track record of extending mine and reservoir life wherever possible. We develop world class assets, investing in the latest technology, productivity and focusing on continuous improvement to optimise costs and enhance access to market. Exploration and appraisal Asset development Licence to operate We invest in local infrastructure and water supplies to the benefit of local businesses and communities. Growing our assets generates direct and indirect employment through sourcing of local labour, goods and services. see page 38 see page 42 Vedanta Resources plc Annual report and accounts FY2015 21 We operate low cost mines and oil & gas fields, capitalising on our diverse portfolio to optimise production across commodity cycles, and capitalise on our strong position in India and our proximity to emerging markets. We focus on operational excellence and high asset utilisation to deliver top quartile cost performance and strong cash flow, selectively converting some of our primary metals into higher margin products such as sheets, rods, bars, and rolled products in our aluminium, copper and zinc businesses. We manage our long-life mines and assets to deliver value across the life cycle and return them back to a natural state after the end of their useful life. Extraction Processing and value addition End of life restoration Moving into full production generates value for all stakeholders: • We provide personal development, training and healthcare for employees • We invest in community initiatives around our assets • We initiate environmental projects to minimise the impact of our operations and increase bio-diversity • We develop close relationships with customers and suppliers • We generate a consistent dividend stream for shareholders and significant tax contributions to host governments We work closely with local communities and regional governments to rehabilitate our mines and restore the natural habitat. see page 40 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 22 Strategic report We are Vedanta Strategic capabilities and relationships Diversified mix of business – share of EBITDA FY2015 Strategic capabilities Relationships World class assets We have a diverse portfolio of high-quality assets that we invest in to secure long-term value delivery throughout the commodity cycle. Our long-life, low-cost assets have benefited from a significant investment programme over the last few years, with capital expenditure this year reduced to US$1 billion in line with subdued market conditions. This will maintain our competitive position in Tier one of the global cost curve for Zinc, Iron Ore and Oil & Gas and help move Aluminium and Copper into lower quartiles in the near term. A skilled workforce Key to our operational excellence is our 82,000 strong workforce, which includes over 11,000 skilled professionals such as geologists, mining engineers, technicians and commercial managers. We provided 756,643 hours in health & safety training, to ensure we develop and protect our people. We attract and retain the talent we need through high quality programmes such as the STAR programme that aims to develop 800+ high potential employees; the Mining Academy set up at Rajasthan to develop an employee pool with enhanced underground mining skills and Technical Act Up, a structured programme to develop technically proficient employees. Technology and innovation We encourage a culture of innovation both internally and through collaboration with external networks to drive productivity and maintain our competitive position. We test out new ideas in our R&D laboratory and invest in pilot scale studies, followed by feasibility studies for commercial viability. Financial strength We have a strong financial profile with cash and liquid investments of US$8.2 billion and a diversified, balanced debt portfolio with a net debt of US$8.5 billion. We are delivering positive free cash flow and continue to deleverage our balance sheet. Licence to operate Our investment in sustainability is key to our protecting and preserving our licence to operate. We promote a culture of transparency and integrity, focusing on protecting the health and safety of our employees, minimising our impact on the environment and investing in our local communities. Governments India The Indian Government is focused on easing the bureaucracy in doing business to attract new investments in infrastructure and to accelerate growth. Vedanta is working to get easier access to raw materials (e.g. coal and bauxite) where the new Mining and Mineral Regulation will provide for auctions of natural resources. Coal block auctions already conducted during the year were a step towards addressing the country wide coal issue. The Government is prioritising energy security and is taking steps in that direction including evaluation of revenue sharing models and uniform licensing policy for hydrocarbon reserves. Cairn India is currently working with the Government on the extension of the Profit Sharing Contract (PSC) in Rajasthan. Relationships with State Governments are equally important and we continue to work with the Governments of the states where we operate. Africa As a major employer in Zambia and Southern Africa, with nearly 16,000 employees and contractors, Vedanta is committed to working with the local Governments. Employees In addition to investing in training and development for its 82,000 employees, opportunities for employee engagement exist at every level within the Company. Over 2,000 employees have attended the Chairman’s workshop in the last five years, the CEO visits sites around the Company on a regular basis and there are forums to cover local issues including welfare, gender diversity, sustainability and safety. Customers and suppliers Vedanta has strong relationships with its customers and suppliers and also contributes to the industry by participating in industry bodies. Vedanta aims to set high standards for contractual integrity and quality of product. Supply chain management is treated as a critical skill, underpinned by investment in IT and integrated systems. 39% Oil & Gas 37% Zinc 11% Aluminium 5% Power 7% Copper 1% Iron Ore Diversified mix of business – share of EBITDA FY2014 52% Oil & Gas 30% Zinc 6% Aluminium 4% Power 8% Copper -1% Iron Ore Margins FY2015 Oil & Gas Zinc India Zinc International Aluminium Power Copper Zambia Iron Ore/Pig Iron 62% 51% 31% 20% 23% (0.4)% 10% Group (adjusted)1 38% 1 Excludes custom smelting at Copper and Zinc India Operation. Vedanta Resources plc Annual report and accounts FY2015 23 Competitive position on global cost curve I II III IV Vedanta’s economic contribution US$m Size of circle denotes EBITDA contribution and % denotes EBITDA margin in FY2015. Copper Zambia (0.4)% Dividends have been paid out every year, across the commodity cycle, increasing progressively from 17.0 US cents per share 11 years ago to 63.0 US cents per share this year. Lenders Vedanta has a balanced debt portfolio, with a diversified range of funding sources and a balanced maturity profile. It maintains close communications with its lenders, through meetings, presentations and ongoing communication throughout the year. Operating costs Employee wages and benefits Payment to providers of capital Net Finance costs (including other gains/losses) Dividend paid Payment to Governments – Income Tax Community investment (including donations) Economic value retained US$12,878.7m Revenue Zinc India 51% Oil & Gas 62% Zinc Intl. 31% Aluminium 20% Communities Key to our license to operate is our relationship with the communities where we operate. We work with local community groups and village councils to discuss any grievances, for example in relation to land and resettlement issues. Our community programmes benefit over 4.1 million people in India and Africa and we invested US$43.0 million this year on these community initiatives including building and supporting schools, hospitals and on environmental projects to improve bio-diversity around our assets. Shareholders The Company actively engages with shareholders to listen to their views with the Executive members of the Board undertaking an ongoing schedule of meetings with institutional investors, analysts and brokers. Over the last 11 years, Vedanta has returned US$1.6 billion to shareholders, an average return of 8% per annum. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 24 Strategic report We are Vedanta Strategic framework Strategy To deliver growth and sustainable development through our diversified portfolio of large, long-life, low-cost assets. , long-term value Progress against strategic priorities Strategic priorities What we said we would do1 What we have achieved Focus areas Production growth across the portfolio with a focus on returns Reduce gearing from increasing free cash flow Continue to add R&R in our existing portfolio of assets to drive long-term value • Commence and stabilise production from aluminium and power assets • Commence production from BALCO coal block • Resume Iron Ore operations at Goa • Continue focus in securing coal and bauxite • Provide a safe way to resume copper mining at Australia • Increase silver production • Work towards transitioning open pits to underground mining at Zinc India and taking the mined metal capacity to 1.2mtpa of zinc-lead metal by FY2017 • Achieved record annual production in alumina, aluminium • Achieve full capacity across businesses and at Copper India and Zinc India • Started idle aluminium smelting capacity progressively by ramping up 84 and 82 pots in Korba and Jharsaguda coal block • Aluminium and Power: Ramp-up pots; secure domestic bauxite and coal; commence production from Chotia respectively • Restarted iron ore operations in Karnataka • Secured coal blocks for BALCO in auction • Zinc India: Ramp-up of Rampura Agucha Underground and Sindesar Khurd mine • Oil & Gas: Ramp-up EOR at Mangala; increase gas production • KCM: Deliver operational turnaround • Iron Ore: Recommence operations at Goa • Deleverage balance sheet with increase in free cash flow (FCF) after • Gross debt reduced by US$0.2 billion in FY2015 • Maintain positive FCF despite current market volatility project capex • Optimising capex and opex across businesses • Renew efforts to reduce net gearing in the medium term • Achieve reserve replacement of 150% in the next three years at • Zinc India: net R&R addition of 10mt • Optimise oil exploration activities, while preserving Rajasthan Oil & Gas • Continue focus on exploration at all our mines • Oil & Gas: Gross 2P reserve addition of 16 million boe • Gamsberg 250kt project approved and commenced Simplify Group structure • Realise synergies of Sesa Sterlite merger • Pursue buy-out of HZL and BALCO minority interests Protect and preserve our licence to operate 1 Source of data: Annual Report FY2014. • Focus on eliminating fatalities • Target to reduce LTIFR (operations and projects) to 0.51 • All sites to review their needs and impact assessments and SEPs by 2015–16 • Ensure 100% coverage of Human Rights and Code of Conduct training for all new hires • Structured community development programme from current higher level post impairments • Efficiently refinance upcoming maturities growth options • Leverage expertise of central mining exploration group • Identify next generation of resources at Barmer Hill and satellite fields • Phased development of Gamsberg • Achieved synergies from Sesa Sterlite merger • Pursue further simplification • Realised synergies of US$50 million in operating costs and • Realise US$1.3 billion of procurement and marketing procurement in FY2015 synergies over four years • Decline in fatal accidents and LTIFR • Achieve zero harm • Achieved water and energy saving targets • Implement biodiversity management plans at all sites • Around four million beneficiaries of our community initiatives • Proactive engagement with local communities prior to accessing resources Vedanta Resources plc Annual report and accounts FY2015 25 Strategic priorities What we said we would do1 What we have achieved Focus areas Production growth across the portfolio with a focus on returns • Commence and stabilise production from aluminium and power assets • Commence production from BALCO coal block • Resume Iron Ore operations at Goa • Continue focus in securing coal and bauxite • Provide a safe way to resume copper mining at Australia • Increase silver production • Work towards transitioning open pits to underground mining at Zinc India and taking the mined metal capacity to 1.2mtpa of zinc-lead metal by FY2017 • Achieved record annual production in alumina, aluminium and at Copper India and Zinc India • Started idle aluminium smelting capacity progressively by ramping up 84 and 82 pots in Korba and Jharsaguda respectively • Restarted iron ore operations in Karnataka • Secured coal blocks for BALCO in auction Reduce gearing from increasing free cash flow • Deleverage balance sheet with increase in free cash flow (FCF) after project capex • Gross debt reduced by US$0.2 billion in FY2015 • Optimising capex and opex across businesses Continue to add R&R in our existing portfolio of assets to drive long-term value • Achieve reserve replacement of 150% in the next three years at Rajasthan Oil & Gas • Continue focus on exploration at all our mines • Zinc India: net R&R addition of 10mt • Oil & Gas: Gross 2P reserve addition of 16 million boe • Gamsberg 250kt project approved and commenced • Achieve full capacity across businesses • Aluminium and Power: Ramp-up pots; secure domestic bauxite and coal; commence production from Chotia coal block • Zinc India: Ramp-up of Rampura Agucha Underground and Sindesar Khurd mine • Oil & Gas: Ramp-up EOR at Mangala; increase gas production • KCM: Deliver operational turnaround • Iron Ore: Recommence operations at Goa • Maintain positive FCF despite current market volatility • Renew efforts to reduce net gearing in the medium term from current higher level post impairments Efficiently refinance upcoming maturities • • Optimise oil exploration activities, while preserving growth options • Leverage expertise of central mining exploration group • Identify next generation of resources at Barmer Hill and satellite fields • Phased development of Gamsberg Simplify Group structure • Realise synergies of Sesa Sterlite merger • Pursue buy-out of HZL and BALCO minority interests Protect and preserve our licence to operate 1 Source of data: Annual Report FY2014. • Focus on eliminating fatalities • Target to reduce LTIFR (operations and projects) to 0.51 • All sites to review their needs and impact assessments and SEPs by 2015–16 • Ensure 100% coverage of Human Rights and Code of Conduct training for all new hires • Structured community development programme • Achieved synergies from Sesa Sterlite merger • Realised synergies of US$50 million in operating costs and • Pursue further simplification • Realise US$1.3 billion of procurement and marketing procurement in FY2015 synergies over four years • Decline in fatal accidents and LTIFR • Achieved water and energy saving targets • Around four million beneficiaries of our community initiatives • Achieve zero harm • Implement biodiversity management plans at all sites • Proactive engagement with local communities prior to accessing resources Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 26 Strategic report We are Vedanta Key performance indicators Vedanta has identified the key performance indicators that it believes are useful in assessing how well the Group is performing against its strategic aims. They encompass both financial and non-financial measures. Revenue Description Revenue represents the value of goods and services provided to third parties during the year. in Karnataka and the commissioning of a new power plant at Talwandi Sabo helped EBITDA, this was more than offset by lower volumes in the Zinc businesses, Oil & Gas and Copper Zambia. Commentary Total revenue for the year FY2015 was US$12.9 billion, in line with the previous year despite a weaker commodity environment. Primarily, the fall in Oil & Gas revenue, as a result of lower Brent prices, has been offset by increased revenue in Zinc, Iron Ore, Copper, Aluminium and Power. Revenue was up in Zinc India 7.4% and Aluminium 16.6% due to higher prices and premia. Copper India volumes were higher. Lower volumes at our Copper Zambia and Zinc International businesses also reduced revenue. EBITDA Description Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) is a factor of volumes, prices and cost of production. This measure is calculated by adjusting operating profit for special items, and adding depreciation and amortisation. Commentary EBITDA for FY2015 was lower by 16.7% at US$3,741.2 million as compared to US$4,491.2 million in FY2014 primarily due to lower commodity and oil prices and a higher profit petroleum share to the Government of India. Whilst higher production volumes in Copper India, the recommencement of iron ore production Free cash flow post capex Description This represents net cash flows before investing in expansion projects and dividends paid out by Vedanta. This measure ensures that the profit generated by our assets is reflected by cash flow in order to fund future growth. Commentary Free cash flow post capex was US$1.0 billion in FY2015 as compared to US$1.3 billion in FY2014 and reduced mainly due to a lower EBITDA as a result of weaker commodity prices, with a lower amount spent on sustaining and growth capex to preserve cash in the challenging environment. Capex spent Description This represents the amount invested in our organic growth programme during the year. Commentary Expansion capital expenditure during the year was US$1,531 million as compared to US$1,425 million. ROCE Description This is calculated on the basis of operating profit before special items and net of tax as a ratio of capital invested in operations as at the balance sheet date, and excludes investment in project capital work in progress and exploration assets. The objective is to earn a post-tax return above the weighted average cost of capital consistently. To have consistency in comparison, the effect of one time non-cash impairment charges have been taken out in calculating ROCE for FY2015. Commentary ROCE without project capital work in progress and exploration assets in FY2015 was 8.7% as compared to 14.9% in the previous year. Revenue (US$bn) 15 14 13 12 11 EBITDA (US$bn) 15 14 13 12 11 12.9 12.9 14.6 14.0 11.4 4.5 4.9 3.7 4.0 3.6 Free cash flow post capex (US$bn) 15 14 13 12 11 0.1 (0.2) 1.0 1.3 1.5 Capex spent (US$bn) 15 14 13 12 11 1.5 1.4 2.0 2.4 2.5 ROCE (%) 15 14 13 12 11 8.7 14.9 17.5 11.3 21.0 Vedanta Resources plc Annual report and accounts FY2015 27 Underlying EPS (US cents) 15 14 13 12 11 (14.2) 14.7 0.1 (0.2) 135.0 142.0 263.0 Dividend per share (US cents) 15 14 13 12 11 63.0 61.0 58.0 55.0 52.5 LTIFR (million man hours) 15 14 13 12 0.46 0.54 0.55 Women in the workforce (%) 15 14 13 12 0.83 8.6 8.4 8.1 8.2 CSR footprint (million beneficiaries) 15 14 13 12 4.0 4.1 3.7 3.1 Underlying EPS Description This represents net profit attributable to equity shareholders and is stated before special items and their attributable tax (including taxes classified as special items) and minority interest impacts. By producing a stream of profits and EPS we will be able to pay a progressive dividend to our shareholders. Commentary Underlying EPS at (14.2) US cents per share was lower compared to the previous year of 14.7 US cents per share. This was reflected by weak commodity prices and lower volumes resulting in lower EBITDA, which includes one time provision of 7% Gridco receivables of US$44 million and US$88 million exploration costs written- off at Cairn India pertaining to a deep gas well in the Ravva production block. Furthermore, it reduced due to the higher tax charge which was partially offset by lower depreciation and amortisation and the lower net interest expense. Dividends Description Dividend per share is the total of final dividend recommended by the Board in relation to the year and interim dividend paid out during the year. Commentary We have been able to maintain our commitment to a progressive dividend policy, raising the total dividend to 63 US cents per share this year, up 3%. LTIFR Description The Lost Time Injury Frequency Rate (LTIFR) is the number of lost-time injuries per million man-hours worked. This includes our employees and contractors working in our operations and projects. Commentary We have been able to continue reducing LTIFR with a 0.46 in FY2015. The continuous fall in LTIFR shows our commitment towards zero harm work environment. Gender Diversity Description The percentage of women in the total permanent employee workforce. Commentary We nurture passionate talent and provide equal opportunities to men and women. During FY2015, the ratio of female employees increased to 8.6% of total employees. We initiated special recruitment drives to provide career advancement for women, including planned rotation through corporate functions. CSR footprint Description Total number of beneficiaries through our community development programmes across all our operations. Commentary We benefited around 4.0 million people this year through our community development projects comprising community health, nutrition, education, water and sanitation, sustainable livelihood, women empowerment and bio-investment. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 28 Strategic report We are Vedanta Principal risks and uncertainties Vedanta’s businesses are exposed to a variety of risks inherent to an international oil & gas mining and resources organisation. The nature of operations for resource companies operations is long-term, resulting in the identification of several ongoing risks. Resource companies also carry a significant element of constantly-evolving risks. Our risk management framework is designed to be a simple, consistent and clear format for managing and reporting risks from the Group’s businesses to the Board. It is essential to have in place necessary systems to manage these risks, while balancing the relative risk/reward equations demanded by stakeholders. Our management systems, organisational structures, processes, standards, and code of conduct together form our internal control systems, which govern how we conduct the Group’s business and manage all associated risks. Materiality and tolerance for risk are key considerations in our decision-making. Risk management is embedded in our critical business activities, functions and processes. It helps Vedanta meet its objectives through aligning operating controls with mission and vision. Our risk management framework is designed to be a simple, consistent and clear format for managing and reporting risks from the Group’s businesses to the Board. It is a multi- layered risk management framework, aimed at effectively mitigating the various risks our businesses are exposed to over the course of their operations and in their strategic actions. We identify risk at the individual business level for existing operations as well as for ongoing projects through a consistently applied methodology, using the Turnbull risk matrix. At least once a quarter, formal discussions on risk management take place in business level review meetings throughout the Group. At these meetings, each business reviews its risks, and any change in the nature and extent of the major risks since the last assessment, also control measures established for the risk and further action plans. Control measures in the Turnbull risk matrix are also periodically reviewed by business management teams to verify their effectiveness. All Vedanta risk management review meetings are chaired by business chief executive officers and attended by COO/CFO, senior management and functional heads. Risk officers are formally nominated at all operating businesses, and Group level. The role of the risk officer is to create awareness of risk at senior management level and to develop and nurture a risk management culture within all businesses. Risk mitigation plans form an integral part of the KRA/KPI process of process owners. Structured discussion on risk management also happens at SBU levels on their respective risk matrix and mitigation plans. Governance of the risk management framework in the businesses is anchored with their leadership team. The Board of Directors has the ultimate responsibility for management of risks and for ensuring the effectiveness of internal control systems. The Audit Committee aids the Board in this process by identifying and assessing any changes in risk exposure, reviewing all risk control measures and approving remedial actions, where appropriate. The Audit Committee is supported by the Risk Management Committee, which helps evaluate the design and operating effectiveness of the risk mitigation programme and control systems. Additional key risk governance and oversight committees include: • CFO Committee – has an oversight on any treasury-related risks. This committee comprises the Group Chief Financial Officer, business Chief Financial Officers and Treasury Heads at respective businesses. • Group Capex Sub-Committee – evaluates capex risks while reviewing any capital investment decisions, and institutes a risk management framework in all expansion projects. • Vedanta Board Level Sustainability Committee – looks at sustainability related risks. This committee is headed by a Non-Executive Director, and other members are the Group Chief Executive Officer and other business leaders. Every business division in the Group has developed its own risk matrix of Top 20 risks, which are reviewed at Business Management Committee level. Business divisions have developed individual risk registers, depending on the size of their operations and the number of SBUs/locations. These risks are reviewed in SBU level meetings. Our principal risks have been assessed according to impact and likelihood, and are described on the following pages. The order in which these risks appear does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their impact on our business. While our risk management framework is designed to help Vedanta meet its objectives, there can be no guarantee that our risk management activities will mitigate or prevent these or other risks from occurring. Vedanta Resources plc Annual report and accounts FY2015 29 Risk Impact Mitigation Delay in commencement of production facilities in aluminium business Some of our projects have been completed (pending commissioning) or are nearing completion. The timing, implementation and cost of these expansion projects is subject to a number of risks, including a delay in obtaining necessary approvals, which may delay or prevent us from commencing commercial operations at some of these projects, availability of power at commercially reasonable rates etc. Challenges in resumption, continuation of Iron Ore business The iron ore business has faced temporary suspension and Goa iron ore is yet to commence its operation. Transitioning of zinc and lead mining operations from open pit to underground mining Our zinc and lead mining operations in India are transitioning from an open pit mining operation to an underground mining operation. Difficulties in managing this transition may result in challenges in achieving stated business milestones. We continue our efforts to secure key raw material linkages for our alumina/aluminium business. We are also pursuing multiple options for bauxite sourcing with the Government of Odisha. Volumes are gradually ramping up across our Aluminium and Power businesses and we have received the approval to start our 1,200MW power plant in Korba. We are pursuing the deemed CPP route under the Electricity Act to resolve availability of power at Jharsuguda on commercially viable terms. Infrastructure-related challenges are being addressed, with requisite approvals for the commencement of production facilities being pursued. A strong management team is in place and continues to work towards sustainable low production costs, operational excellence and securing key raw material linkages. The Honourable Supreme Court (The Court) in India lifted the ban on mining in the State of Goa, in April 2014, subject to certain conditions. The Indian Ministry of Environment and Forests has also revoked its earlier order, which had kept environment clearances for iron ore mines in Goa in abeyance. Vedanta has been allocated with an interim annual mining quantity of 5.5mt of saleable ore based on the state wide cap of 20mtpa for FY2015 which the Group expects to be progressively increased in the coming years. Mining is expected to commence post monsoons, after receipt of remaining approvals from the Indian Government. We are working towards securing the necessary permissions for commencement of operations. Aggressive cost reduction initiatives are also under way at our Iron Ore business. We are working with internationally renowned engineering and technology partners towards ensuring a smooth transition from open pit to underground mining, with a major focus on safety aspects. Technical audits are being carried out by independent agencies. Reputed contractors have been engaged to ensure completion of the project on indicated time lines. These mines will be developed using best-in- class technology and equipment, and ensuring the highest level of productivity and safety. We are inducting employees and contractors in our system with underground mining expertise. Our employees are also gaining experience working abroad in underground mines to accentuate skill development. Stage gate process is in place to ensure we frequently review risk and remedy. Robust quality control procedures have also been implemented to check safety and quality of services, design, and actual physical work. Additional output from cut V of the open pit as well as ramp up from some of the mines is expected to smoothen this transition. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 30 Strategic report We are Vedanta Principal risks and uncertainties continued Risk Impact Mitigation Operational turnaround at KCM Lower production and higher cost at KCM may impact our profitability. We are reviewing our operations and engaging with all stakeholders in light of operating challenges, issues in VAT refunds and a new Mineral Royalty Tax regime. We are committed to improving KCM operating performance. We are implementing the pivot strategy at Konkola to focus on profitable areas of production and reviewing operations and engaging with all stakeholders. Government authorities are proceeding in resolving policy tangles in the resources industry and enabling faster approvals. Our focus is on improving equipment availability to increase extraction rates, and experienced operators are being introduced into critical positions. Several cost-saving initiatives and restructuring reviews are also under way at KCM to preserve cash. Discovery risk Extension of Production-Sharing Contract of Cairn beyond 2020 or extension at less favourable terms Reliability and predictability in operational performance The increased production rates from our growth oriented operations places demand on exploration and prospecting initiatives to replace reserves and resources at a pace faster than depletion. A failure in our ability to discover new reserves, enhance existing reserves or develop new operations in sufficient quantities to maintain or grow the current level of our reserves could negatively affect our prospects. There are numerous uncertainties inherent in estimating ore and oil & gas reserves, and geological, technical and economic assumptions that are valid at the time of estimation. These may change significantly when new information becomes available. Our strategic priority is to add to our reserves and resources by extending resources at a faster rate than we deplete them, through continuous focus on drilling and exploration programmes. In order to achieve this we have developed an appropriate organisation and allocated adequate financial resources for exploration. International technical experts and agencies are working closely with our exploration team to build on this target. We continue to work towards long-term supply contracts with mines. Cairn India has 70% participating interest in Rajasthan Block. The Production-Sharing Contract (PSC) of Rajasthan Block runs till 2020. Challenges in extending Cairn’s Production- Sharing Contract beyond 2020, or extension at less favourable terms, may have implications. We are in continuous dialogue with the Indian Government and relevant stakeholders. The Production- Sharing Contract has certain in-built options for extension; Cairn has already applied for an extension and the matter is being pursued with all stakeholders. Our operations are subject to conditions and events beyond our control that could, among other matters, increase our mining, transportation or production costs, disrupt or halt operations at our mines, smelters and power plants and production facilities for varying lengths of time or even permanently. These conditions and events include disruptions in mining and production due to equipment failures, unexpected maintenance problems and other interruptions, non-availability of raw materials of appropriate quantity and quality for our energy requirements, disruptions to or increased cost of transport services or strikes and industrial actions or disputes. Asset utilisation and cost of production (CoP) continues to be a priority. We carry out periodic benchmarking of CoP and other operational efficiencies with the objective of being in the top decile in all the businesses on CoP. We have employed reputable consultancy firms to advise on improving overall operational efficiencies. A structured asset optimisation programme operates in the Group, and the role of the asset optimisation function in each business has been enlarged and elevated in the organisation structure. We are also pursuing savings and synergy initiatives in procurement and marketing in order to reduce costs and improve performance of our operations. The procurement initiatives include aspects such as optimising supplier portfolio and combining purchasing at Group level, combining logistics activities, improve asset flexibility to process a wider range of commodities and develop closer relationships with key vendors to get benchmark performance. Vedanta Resources plc Annual report and accounts FY2015 31 Risk Impact Mitigation Fluctuation in commodity prices (including oil) Prices and demand for the Group’s products are expected to remain volatile/uncertain and strongly influenced by global economic conditions. Volatility in commodity prices and demand may adversely affect our earnings, cash flow and reserves. The Group has a well-diversified portfolio which acts as a hedge against fluctuations in commodities and delivers cash flows through the cycle. Vedanta considers exposure to commodity price fluctuations to be an integral part of the Group’s business and its usual policy is to sell its products at prevailing market prices and not to enter into price hedging arrangements other than for businesses of custom smelting and purchased alumina, where back-to-back hedging is used to mitigate pricing risks. In exceptional circumstances we may enter into strategic hedging but only with prior approval of the Executive Committee. The Group monitors the commodity markets closely to determine the effect of price fluctuations on earnings, capital expenditure and cash flows. The CFO Committee reviews all commodity-related risks and suggests necessary courses of action as needed by business divisions. Our focus is on cost control and cost reduction. Currency exchange rate fluctuations Our assets, earnings and cash flows are influenced by a variety of currencies due to the diversity of the countries in which we operate. Fluctuations in exchange rates of those currencies may have an impact on our financials. Although the majority of the Group’s revenue is tied to commodity prices that are typically priced by reference to the US dollar, a significant part of its expenses are incurred and paid in local currency. Moreover Group borrowings are significantly denominated in US dollars while a large percentage of cash and liquid investments are held in other currencies, mainly in the Indian rupee. Any material fluctuations of these currencies against the US dollar could result in lower profitability or in higher cash outflows towards debt obligations. Vedanta does not speculate in forex. We have developed robust controls in forex management to hedge currency risk liabilities on a back-to-back basis. The CFO Committee reviews our forex-related matters periodically and suggests necessary courses of action as may be needed by businesses from time to time, and within the overall framework of our forex policy. We seek to mitigate the impact of short-term movements in currency on the businesses by hedging short-term exposures progressively based on their maturity. However, large or prolonged movements in exchange rates may have a material adverse effect on the Group’s businesses, operating results, financial condition and/or prospects. Political, legal and regulatory risk We have operations in many countries around the globe, which have varying degrees of political and commercial stability. The political, legal and regulatory regimes in the countries we operate in may result in higher operating costs, restrictions such as the imposition or increase in royalties or taxation rates, export duty, impact on mining rights/ban and change in legislation pertaining to repatriation of money. We may also be affected by the political acts of governments including resource nationalisation and legal cases in these countries over which we have no control. Tax related matters Our businesses are in a tax regime and change in any tax structure may impact our profitability. Vedanta, together with its business divisions, monitors regulatory and political developments on a continuous basis. Our focus has been on communicating responsible mining credentials through representations to Government and industry associations. We continue to demonstrate the Group’s commitment to sustainability through actively engaging with proactive environmental, safety and CSR practices, including local community, media and NGOs. We are SOX and SEC-related compliant organisations. We have an online portal for compliance monitoring. Appropriate escalation and review mechanisms are in place. Competent in-house legal organisation exists at all the businesses. A framework for monitoring against Anti-Bribery and Corruption guidelines is also in place. Vedanta has a robust organisation in place at business and Group level to handle tax-related matters. We engage, consult and take opinion from reputed tax consulting firms. Reliance is placed on appropriate legal opinion and precedence. Recently the Government has taken an aggressive stance against some of our Group companies in regards to their tax matters. We continue to take appropriate legal opinions and actions on these matters to mitigate the impact of these actions on the Group and its subsidiaries. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 32 Strategic report We are Vedanta Principal risks and uncertainties continued Risk Impact Mitigation Breaches in information/ IT security Community relations Like many other global organisations, our reliance on computers and network technology is increasing. These systems could be subject to security breaches resulting in theft, disclosure or corruption of key/ strategic information. Security breaches could also result in misappropriation of funds or disruptions to our business operations. A cyber security breach could have an impact on business operations. The continued success of our existing operations and future projects are in part dependent upon broad support and a healthy relationship with the respective local communities. Failure to identify and manage local concerns and expectations can have a negative impact on relations with local communities and therefore affect the organisation’s reputation and social licence to operate and grow. Appropriate organisation is in place at respective businesses for information and IT security. IT security policies and procedures are defined at individual businesses. We seek to manage cyber security risk through increased standards, ongoing monitoring of threats and awareness initiatives throughout the organisation. An IT system is in place to monitor logical access controls. We continue to carry out IT security reviews by experts periodically and improve IT security standards. Establishing and maintaining close links with stakeholders is an essential part of our journey as a sustainable business. Our endeavour is to integrate our sustainability objectives into long-term planning. Vedanta’s approach to community development is holistic, long-term, integrated and sustainable, and is governed by two key considerations; the needs of the local people, and the development plan in line with the UN Millennium Development Goals. The Board’s Corporate Social Responsibility (CSR) Committee decides the focus areas of all CSR activities, budget and programmes to be undertaken by businesses. Our business leadership teams have periodic engagements with all local communities to establish relations based on trust and mutual benefit. Our focus is on local consent prior to accessing resources. We seek to identify and minimise potential negative operational impacts and risks through responsible behaviour – acting transparently and ethically, promoting dialogue and complying with commitments to stakeholders. We implement sustainability controls through the Vedanta Sustainable Development Framework aligned to IFC, ICMM and OECD standards. We work with and partner with global think tanks and institutional bodies such as WBCSD, CII and IUCN, and have introduced structured community development programmes to reduce water, energy and carbon consumption. We help communities identify their priorities through need assessment programmes and then work closely with them to design programmes that seek to make progress towards improvement in quality of life of the local communities. Further details of the Group’s CSR activities are included in the Sustainability section. Vedanta Resources plc Annual report and accounts FY2015 33 Risk Impact Mitigation Health, safety and environment (HSE) The resources sector is subject to extensive health, safety, and environmental laws, regulations and standards. Evolving regulations, standards and stakeholder expectations could result in increased cost, litigation or threaten the viability of operations in extreme cases. Health, Safety and Environment (HSE) is a high priority for Vedanta. Compliance with international and local regulations and standards, and protecting our people, communities and the environment from harm and our operations from business interruptions, are our key focus areas. Vedanta’s Board Sustainability Committee is chaired by a Non-Executive Director and includes the Group Chief Executive Officer, and meets periodically to discuss HSE performance. We have appropriate policies and standards in place to mitigate and minimise any HSE-related occurrences. Structured monitoring and a review mechanism and system of positive compliance reporting is in place. We have implemented a set of standards to align our sustainability framework in line with international practices. A structured sustainability assurance programme continues to operate in all business divisions. It covers environment, health, safety, community relations and human rights aspects, and embeds our operational commitment to HSE. HSE experts are also inducted from reputed Indian and global organisations to bring in best-in-class practices. Each business has an appropriate policy in place for occupational health-related matters, supported by structured processes, controls and technology. Our operations ensure the issue of operational health and consequential potential risk/obligations are carefully handled. Depending on the nature of the exposure and surrounding risk, our operations have different levels of processes, controls and monitoring mechanisms. There is a strong focus on safety during project planning/execution with adequate thrust on contract workmen safety. Fatal accidents and injury rates have declined. We are implementing programmes to eliminate fatalities and control injuries. Our leadership remains focused on a zero-harm culture across the organisation. Consistent application of ‘Life-Saving’ performance standards and quantitative risk assessments for all the critical areas/formal identification of process safety risks and focusing on the management of controls. We continue to improve on our safety investigations and follow-up processes. Further details of our HSE-related activities are included in the Sustainability section. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 34 Strategic report We are Vedanta Principal risks and uncertainties continued Risk Impact Mitigation Talent/skill shortage risk The Company’s efforts to continue its growth and efficient operations will place significant demand on its management resources. Our highly skilled workforce and experienced management team is critical to maintaining its current operations, implementing its development projects and achieving longer-term growth. Any significant loss or diminution in the collective pool of Vedanta’s executive management or other key team members could have a material effect on its businesses, operating results and future prospects. Loss of assets or profit due to natural calamities Our operations may be subject to a number of circumstances not wholly within the Group’s control. These include damage to or breakdown of equipment or infrastructure, unexpected geological variations or technical issues, extreme weather conditions and natural disasters, any of which could adversely affect production and/or costs. The change in carrying value of assets depends on various assumptions. The change in any of those assumptions may impact the useful life and its carrying value. The Group’s reported results could be adversely affected by the impairment of assets We continue to invest in initiatives to widen our talent pool. We have a talent management system in place to identify and develop internal candidates for critical management positions and processes to identify suitable external candidates. Our performance management system is designed to provide reward and remuneration structures and personal development opportunities to attract and retain key employees. A structured programme maps critical positions and ensures all such positions are filled with competent resources. Our progressive HR policies and strong HR leadership have ensured that career progression, job rotation and job enrichment are focus areas for our businesses. We have established the Mining Academy in Rajasthan to develop an employee pool with enhanced underground mining skills. We also have a structured programme to develop a technically proficient employee pool. Vedanta has taken appropriate Group insurance cover to mitigate this risk. We have appointed an external agency to review the risk portfolio and adequacy of this cover and to assist us in our insurance portfolio. Our underwriters are reputed institutions and have capacity to underwrite our risk. There is an established mechanism of periodic insurance review in place at all entities. However, any occurrence not fully covered by insurance could have an adverse effect on the Group’s business. We maintain a close watch on various business drivers that could impact impairment assessment. There is continuous focus, monitoring and periodic review of our assets. We also periodically review the assumptions, carry out testing and reassess the useful life of these assets with the help of reputable firms. Vedanta reviews the carrying value of its assets and long-term price assumptions. In view of the steep drop in oil prices, the Company has impaired US$4.5 billion (net of tax) of carrying values. Vedanta Resources plc Annual report and accounts FY2015 35 Risk Impact Mitigation Liquidity risk The Group may not be able to meet its payment obligations when due or be unable to borrow funds in the market at an acceptable price to fund actual or proposed commitments. A sustained adverse economic downturn and/or suspension of its operation in any business, effecting revenue and free cash flow generation, may cause some stress on the Company’s financing and covenant compliance and its ability to raise financing at competitive terms. Any constraints on upstreaming of funds from the subsidiaries to the Group may affect the liquidity position at the Group level. The Group generates sufficient cash flows from current operations which, together with the available cash and cash equivalents and liquid financial asset investments, provide short-term and long-term liquidity. The volume ramp up and our efforts to optimise opex and capex are expected to provide cash flow that will reduce gearing in the medium term. Cairn India has announced a reduction in capex, which will help to maintain positive free cash flows at current oil prices and retain the flexibility to invest in growth projects as oil price improves and costs are further optimised. Anticipated future cash flows and undrawn committed facilities 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 sufficient experience in raising and refinancing debt (c.US$35 billion over the past decade) and has in the past been able to tap diverse sources of funding to meet its needs. This will help mitigate the execution risk around this risk. The Group has a strong Balance Sheet that gives sufficient flexibility to raise further debt should the need arise. The Group is further committed to further simplify the structure which will help improve cash fungibility and hence lower liquidity risk. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 36 Strategic report We are Vedanta Sustainable development report Commit, Connect, Care. Our Approach to Sustainability Responsible Stewardship It is our responsibility to respect natural and human resources, at all stages of a project. Strategic Communications Adding and Sharing Value We have a purpose beyond profit and make an important contribution to socio-economic development Building Strong Relationships Connecting with stakeholders helps us build a business fit for the future. We are committed to partnering nations in their journey of growth, by exploring the potential of natural resources. In doing so, we are committed to ensure a zero harm culture for our planet and people. Our transparent and continuous engagement with our stakeholders connect working partnerships and builds long-lasting relationships with our stakeholders. We care by demonstrating a purpose beyond profits. COMMIT CONNECT CARE Sustainable Development Report 2014–15 Visit our interactive online Sustainable Development Report 2014–15 at sd.vedantaresources.com/ SustainableDevelopment2014-15 Our strategy to sustainable development Alongside delivering high-quality assets and low-cost operations, our Sustainable Development Model is integral to Vedanta’s core business strategy and helps us conduct our business in line with our values of trust, entrepreneurship, innovation, excellence, integrity and sustainability. It is made up of three pillars Responsible Stewardship, Building Strong Relationships and Adding & Sharing Value, based on our strategy to deliver long-term sustainability as shown in the diagram. In FY2015 we added a fourth pillar: Strategic Communications, this reflects our dedication to transparency and to engage with all stakeholders. All these pillars capture the steps we must take to ensure a long-term, successful future for our business – meeting our strategic goals of growth, long-term value and sustainable development. The development of our Sustainable Development Framework over the last few years provides us with a robust structure to deliver this supported by our Sustainable Development Model pillars. Our model and framework is aligned to global best practice standards, including the United Nations Global Compact’s (UNGC) 10 principles, the International Finance Corporation, the International Council on Mining and Metals and the Organisation for Economic Cooperation and Development. This consistently rigorous approach has helped us win over 40 awards from external agencies during the year, which are detailed in our Sustainable Development Report 2014–15. Implementing our strategy We have created a management framework to put our Sustainable Development Model into practice. We are committed to ensuring this Framework is followed and managed in all our operations and new projects as part of our sustainability journey. Our goal is for the Framework to be delivered by all employees and embedded in every decision we take, ensuring what we do is safe, ethical and transparent. Highlights of the year 4.0 million1 beneficiaries of our community investment (2014: 4.1 million) US$42 million invested in community development (2014: US$49 million) 40 million tonnes of CO2 equivalent carbon footprint (2014: 37 million tonnes of CO2 equivalent) 1 Some beneficiaries may have been involved in more than one project. Vedanta Resources plc Annual report and accounts FY2015 37 Looking ahead • Publish a tax report in the next financial year • Expand leadership training in ethics and integrity • Build more partnerships with best practice organisations such as the UN and WBCSD • Join collaborative industry initiatives to share best practice Our sustainability approach reflects the local needs and requirements of our communities and includes stakeholder feedback. Continuous internal auditing is fundamental to keeping us on track and the Vedanta Sustainability Assurance Programme (VSAP) drives compliance with the Framework. Results and action plans are reviewed by our Executive and Sustainability Committees. Going forward, global partnerships such as our involvement with the World Business Council for Sustainable Development, UNGC and the Global Reporting Initiative will become increasingly important to challenge ourselves to go further. We also intend to share more experiences with sector peers and other global businesses. Sustainability governance Embedding sustainability into day-to-day business requires leadership from all levels, and ultimate accountability lies with the Vedanta Board. The Board oversees and reviews sustainability performance of the Group through its Sustainability Committee and Executive Committee. The committee’s Chairman and Group CEO regularly updates the Board on its progress. Our policies and guidance notes are available to all employees through the corporate website, subsidiary portals and through periodic awareness-training sessions. Our business gives rise to a number of social and environmental impacts, both positive and negative. Along with our stakeholders, we prioritise which of these issues we will tackle, and when. The process by which we determine what is material, i.e. what is most significant to our stakeholders and our business is referred to as completing a materiality review, detailed in our Sustainable Development Report 2014–15. In FY2015, we repeated our materiality review to understand if stakeholder priorities had changed. We found that ethics and integrity, community engagement and impact, public policy and advocacy, child and forced labour have become more prominent issues over the year, while other priorities remain consistent with the previous year and therefore we have focused on providing greater detail on these issues in our SD Report. A fair and transparent business Our Code of Business Conduct and Ethics (the Code) provides a set of principles to guide our employees, while our Sustainable Development Framework outlines best practice standards that drive improvement consistently across all operations. The Code covers issues from human rights, insider trading and political contributions; to competition, conflicts of interest and confidentiality. It provides guidelines for all businesses to assist employees in meeting high standards of personal and professional integrity. Training in our Code is mandatory for all new hires. In total 24,068 man hours of training in Human Rights and Code of Business Conduct and Ethics was given to all our employee’s and contractors. A key focus is absolute intolerance to fraud, bribery and corruption and we welcome the Indian Government’s policy in recent years to confront this. Despite our predominant presence being in India, we are held to account by laws in the United States, United Kingdom and Europe, due to our dual listing. Therefore, if we suspect malpractice anywhere in our operations, we undertake a rigorous investigation under the UK Fraud and Bribery Act. We report to global standards of excellence In line with the Strategic Communications pillar of our Sustainable Development Model, our reporting is transparent, credible and rigorous. It covers the full scope of our operations; is aligned to the Global Reporting Initiative (GRI) G4 and is externally verified. It also integrates all 10 principles of the United Nations Global Compact and all eight Millennium Development Goals. 0.46 lost time injury frequency rate (2014: 0.54) US$61.5 million invested in environment initiatives (2014: US$57 million) 0 category 4 or 5 (severe) environmental incidents (2014: 1) US$4.6 billion2 tax payments to exchequers (2014: US$5.3 million). 2,325 full-time female employees (2014: 2,329) 100% periodic medical examinations for all applicable employees (2014: 100%) 2 This includes direct and indirect taxes. 88% of sites certified to ISO 14001 environmental standard (2014: 83%) 100% of subsidiary businesses have biodiversity management plans in place or in preparation (2014: 63%) 4,635 village meetings held (2014: 3,538) 756,643 safety training hours delivered to all staff (2014: 810,000) 55% non-hazardous waste recycling rate: (2014: 74%) 100% Assurance of all sites by our internal audit programme (VSAP) (2014: 100%) Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 38 Strategic report We are Vedanta Sustainable development report continued Responsible stewardship Objectives and targets FY2015 Status Performance FY2015 Objectives and targets FY2016 Occupational health and safety Achieve zero fatal accidents. 8 Fatalities (5 In India and 3 in Africa). Loss Time Injury Frequency Rate (LTIFR) to be less than or equal to 0.51. Behaviour-based safety training module to be rolled out to other businesses. Environment Water Savings – 2.49 MCM. Energy Savings – 0.87 Million GJ. By 2015-16, all sites to have Biodiversity Management Plan in place. LTIFR (Vedanta): 0.46. Successfully rolled out at HZL. Early commissioning of innovative water recovery initiatives and implementation of water resource management plan has led to a water saving of 7.38 MCM. Internal benchmarking and technological process intervention has led to an energy savings: 0.92 Million GJ. All our sites have either BMP in place or are on course to meet our FY2016 target. Achieved Not achieved In progress Achieve zero fatal accidents. Re-establish LTIFR base performance as per recently released ICMM reporting guidelines and enable future reduction in LTIFR targets. Implement Safety Interactions at two businesses in addition to HZL. Water Saving: 2.39 MCM. Energy Saving: 0.88 Million GJ. By 2015-16, all sites to have Biodiversity Management Plan in place. What we focus on: Environment Safety and health Responsible stewardship Water Energy and climate change Safety and health Protecting the safety, health and wellbeing of those who work for us is a business imperative. Our stakeholders recognise this and have rated safety and health as our highest strategic priority. In a geographically diverse business like ours, where attitudes to health and safety can vary, fostering a culture of zero harm is no easy challenge. Our Sustainable Development Framework points us to the highest recognised global standards, while continuous auditing and decisive leadership drive compliance. In FY2015, 756,643 hours of safety training were delivered to employees and contractors on subjects including working at height, permit to work, job safety analysis, first aid, incident reporting and safe behaviour. We are seeing tangible outcomes of this safety drive, with fewer fatalities and lost time injuries. However, any unsafe incident is entirely unacceptable and tragically, eight employees died due to work-related causes over the year. Five were in India and three in Africa. Each fatality has been fully investigated with each subsidiary company’s Chief Executive or Chief Operating Officer presenting a detailed appraisal of the root causes of each fatality to the Board’s Sustainability Committee and updating them on action plans in response. During the reporting year, all sites conducted medical examinations for staff. In Liberia we conducted screenings for Ebola and supported employees and their communities with aid parcels. A further 87 sites became OHSAS 18001 certified (FY2014: 85%) for occupational health and safety management. Looking ahead • Achieve zero fatal accidents • Re-establish LTIFR base performance as per recently released ICMM reporting guidelines and enable future reduction in LTIFR targets • Implement safety performance standards: >75% of critical elements in the standards to be implemented across the business • Implement Safety Interactions at two businesses in addition to HZL Environment We are conscious that our operations give rise to negative environmental impacts, from gas and particulate emissions and hazardous waste, to water extraction and landscape modification. We manage our footprint to the most stringent global standards throughout the project life cycle and, over FY2015, invested US$61.5 million to research new and innovative ways of protecting the environment and to bring efficiency savings to our bottom line. Vedanta Resources plc Annual report and accounts FY2015 39 We have developed specific environmental objectives and targets and review performance particularly with regard to energy and water management. We are proud to report zero serious environmental incidents over the year (compared to one in FY2014). Our goal is to obtain ISO 14001 certification at all sites and 46/52 operations are now certified. All subsidiary businesses have been assessed with environmental gaps identified in energy, water management, greenhouse gas emissions and biodiversity management plans. Action plans are now in place to address these. Water As well as championing the universal right to water, we also strive to reduce our operational consumption. Our mining, smelting and refining processes use considerable quantities of water, often in regions of drought. Our approach is outlined in our Water Policy and delivered through our Water Management Standard. We facilitate the integration of water management into decision-making processes for new and existing projects, which helps ensure all necessary measures to avoid, minimise or, in some cases, compensate for the impacts of our projects that are in place. This includes an obligation for all our subsidiary businesses to conduct a water screening assessment to identify sensitive water resources, aquatic habitats and any known or suspected water resource constraints in proximity to each operation. Most of our subsidiary businesses now have a Water Resources Management Plan in place to eliminate, minimise, mitigate and manage impacts on water resources. Total water conservation levels reached 7.38 million cubic meters (MCM), against a target of 2.49MCM for FY2015. Most of our operational processes have been designed to be ‘zero discharge’, where the generated waste water is treated and recycled for cooling and other applications. In addition to these initiatives, effluent and sewage treatment plants are installed at many locations for reusing water at primary locations. Energy and climate change As an extractive industry, we have a profound responsibility to address the planet’s undisputed warming and to adapt to future impacts. It remains a high-profile challenge, with many of our operating countries (such as India, Australia and African nations) predicted to experience the worst impacts of a changing climate. Our Energy and Carbon Policy mandates that all subsidiary businesses must apply global best practice to minimise greenhouse gas (GHG) emissions and energy use, looking to energy management standards such as ISO 50001, and deploying the latest technology to optimise efficiencies. Although reducing our GHG emissions is a challenge as the majority of our operating sites are in developing The right to water A staggering 1.8 billion people worldwide lack access to safe drinking water, while 4 billion are without adequate sanitation. In India, the Government has announced that all households will have ‘complete’ sanitation by 2019. In 2014–15, we pledged universal access to safe Water, Sanitation and Hygiene (WASH) in the workplace, an initiative of the World Business Council for Sustainable Development, which brings businesses together to create a sustainable future. Going forward, we will be using a modified version of the WASH water tool appropriate to our operations. “It has been highly valuable to have Vedanta Resources on board the WASH Pledge. The Company is at the forefront of leadership on WASH issues not only in the Indian business space but also in its industry. The Company is sending a strong message to the global business community that business can and should make a concrete contribution to the societal goals surrounding water, sanitation and hygiene.” Joppe Cramwinckel, Director of the WBCSD’s Water Cluster Green House Gas Emissions (tonnes of Co2 equivalent) Sector 2014-15 2013-14 2014-15 2013-14 Scope I Emission (tCO2e) Scope II Emission (tCO2e) Zinc India Zinc International Aluminium Copper India/Australia Copper Africa Iron Ore business Oil & Gas Sector Power Sector Total 4,774,105 48,019 19,450,763 1,221,132 107,597 2,437,164 1,242,675 8,993,299 38,274,754 4,576,813 40,034 18,317,289 1,230,907 110,512 1,378,925 1,051,143 9,243,526 35,949,149 160,924 703,955 583,164 74,175 5,460 6,813 45,025 2,188 1,581,703 174,083 770,296 15,419 174,593 13,513 5,515 7,347 6,444 1,167,209 countries where sources of renewable energy are limited, we fully support the global campaign to reduce GHG emissions. The management plans and improvement projects are in place to address this challenge. We calculate and report Green House Gas inventory i.e. Scope 1 (process emissions and other direct emissions) and Scope 2 (purchased electricity) as defined under the World Business Council for Sustainable Development (WBCSD) and World Resource Institute (WRI) GHG protocols. During FY2015, we conducted internal benchmarking on energy consumption among all our subsidiaries, and we are pleased to report that we met our energy targets over the year, saving 0.92 million gigajoules. Looking ahead • Implement actions identified in each business’s environmental management plan • Implement biodiversity management plans at all sites • Implement WASH pledge action plan • Explore potential further global or industry partnerships to share best practice COMMIT CONNECT CARE Sustainable Development Report 2014–15 For more information about our environment and impacts, approach and mitigation strategy, please refer to our online Sustainable Development Report 2014–15. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 40 Strategic report We are Vedanta Sustainable development report continued Building strong relationships Objectives and Targets FY2015 Status Performance FY2015 Objectives and targets FY2016 Community relations Implementation of SEP to be monitored. All sites to review their needs and impact assessments. Needs base assessment completed at major Indian sites whereas remaining sites to be completed. Implementation of grievance systems to be monitored. Community Grievance Management system at all Vedanta operations. Ensuring 100% coverage of Human Rights and Code of Conduct training for all new hires. Code of Conduct/Human Rights training for all new starters undertaken as part of induction programme. All sites to complete needs assessment. Pilot social impact assessment for Indian sites. Roll out of SAP based programme management tool for community grievance development and stakeholder engagement. Capacity building and refresher course- E-Learning module on Code of Conduct to be implemented. What we focus on: Community engagement Child labour Building Strong Relationships Human rights Land and resettlement Stakeholder engagement We stand by our philosophy of transparency and believe that anyone should be able to voice their opinions; that they should be listened to; and that they can expect a considered and constructive response. This is the basis for connecting with others and building strong relationships. To illustrate the importance we place in this, we have added Strategic Communications as a fourth pillar to our Sustainable Development Model. This reflects the emphasis we place on partnership- working and also global trends of consumerism in emerging markets meaning that more people than ever have an interest in commodity production. We have identified six stakeholder groups that have a significant interest in our operations, formally consulting with every group on other issues throughout the year. • Communities • Shareholders and investors • Industry (suppliers, customers, peers) • Employees • Civil society (non-governmental and other organisations) • Governments Looking ahead • Conduct an externally-moderated stakeholder engagement workshop on sustainability • Consolidate all stakeholder engagements through a centralised IT system Human rights Our Human Rights Policy is aligned to the UN Guiding Principles on Business and Human Rights and includes strict prohibition of child and forced labour – either directly or through contract labour. Additionally, our Code of Conduct commits us to comply with all relevant national laws and regulations, underpinning our approach to protecting the fundamental rights of our employees and contract workforce. Human rights training is an integral part of our Sustainable Development Framework with around 27,068 man hours of training on Human Rights and the Code of Conduct given in FY2015. We support collective bargaining and recognise unions, with systems for employee development, remuneration and grievance redress. Our rigorous Environmental and Social Impact Assessments (ESIA) include the obligation to undertake human rights screening in all new acquisition activities (none in FY2015). Under the leadership of the Vedanta Sustainability Committee, we carried out internal due diligence on the UN Human Rights principles for all Vedanta operations. This included risk assessments to Vedanta Resources plc Annual report and accounts FY2015Our ongoing dialogue with those affected by our presence is now firmly embedded in our Sustainable Development Model. Two-way communication, humility and transparency help us connect with stakeholders and build a business fit for the future. 41 identify potential human rights and child labour related risks. The assessment confirmed that the Human Rights Policy is being effectively implemented by all units. The assessment further highlighted the need for periodic internal capacity building around implementing our human rights standards. Protecting children and indigenous people Despite operating in countries where the risk of child labour may be high, during FY2015 no instances of child labour in our operations came to the Group’s attention. We ensure that contractors and vendors understand our expectations with guidance provided to sites to eliminate any breach. We also carry out periodic inspections of our remote mine locations and require age proof identification for all contract workers. The Group’s standards and guidance note on the subject was rolled out to support the implementation of our related technical standard. The core aim of the standard is to enable our project teams to engage, negotiate and partner with these vulnerable groups in a manner that avoids negative impacts and risks for all stakeholders, especially the indigenous peoples and vulnerable tribes. It also outlines our desire to create opportunities for positive economic and social development, within the context of the unique requirements of these groups. Community engagement We are privileged visitors to some of the world’s most remote and underdeveloped regions. We have a duty to respect, learn from and create a shared understanding with those who host us. Connecting with our communities is not just the right thing to do, it is fundamental to our licence to operate. We believe local communities, particularly indigenous peoples, have the right to participate in decision making about access to natural resources and engage with them through Group meetings, public hearings, grievance mechanisms, cultural events, and philanthropical activities via The Vedanta Foundation. Our community grievance processes are a key step in preventing concerns from escalating into significant issues or disputes, risking the viability of operations. Our community grievance processes are a key step in preventing concerns from escalating into significant issues or disputes, risking the viability of operations. All public grievances are resolved as per our Grievance Redressal Technical Standard. All community incidents and grievances are recorded and categorised as negligible (1), minor (2), moderate (3), serious (4) or disastrous (5), and captured on a monthly basis. Vedanta’s biggest-ever community needs assessment, India Understanding community needs and expectations is a complex and sensitive process. In FY2015, we completed our most comprehensive, structured and collaborative community engagement to date. In partnership with governmental and non-governmental organisations, a detailed needs assessment was carried out for every community adjacent to our sites. Drawing on dedicated local personnel to act as conduits between business and community, we undertook around 3,500 village and community meetings and around 260 panchayat meetings (village self-governments). Each community group had the opportunity to voice their opinions; the main concerns we heard were around livelihoods and the environment (primarily water and soil quality). Going forward, we will be working with communities to help them understand our business better, including a focus on environmental hazards. A challenge will be managing expectations arising from this consultation. For example, where we cannot provide employment we will explore vocational training, entrepreneurship options (focusing on women) and other employability routes. The needs assessment will be repeated in three to four years’ time. It will be followed with rigorous assessment of projects against the needs of the community. No category 4 or 5 incidents were recorded in FY2015, although lower-level incidents such as village road blockages and strikes were recorded, particularly related to employment and contractor issues, infrastructure projects and some operational issues including land and traffic management. COMMIT CONNECT CARE Sustainable Development Report 2014–15 Caption: Need base assessment exercise at TSPL, Punjab. For more information on how we engaged, material aspects identified and the progress we made on these material aspects, please refer to our online Sustainable Development Report 2014–15 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 42 Strategic report We are Vedanta Sustainable development report continued Adding and sharing value Objectives and Targets FY2015 Status Performance FY2015 Objectives and targets FY2016 Human Resources Roll-out of Technical ACT UP in all Group companies for the specified technical roles. Identification of next set of 50 stars for an intensive programme preparing the next generation for leadership roles. 25% of Vedanta Board to be female by 2015–16. Continue to focus on diversity with an objective to ensure 15% of women recruited are at a professional or graduate level. To include 1,000 eligible employees for the Technical Assessment. Pilot assessment completed for two skill sets (Smelting & Mining) in Sterlite Copper and HZL respectively. Roll-out plan for other skill sets in all the businesses are in place. Phase I of the programme successfully completed including 50 high-potential stars in a structured development programme. Phase II planned covering the next 50 high-potential stars for the next development programme. Ms Zotova joined Vedanta Board this year. 15% of women recruited were at a professional level. 25% of Vedanta Board to be female by 2015–16 (all appointments to be made on merit). Continue to focus on diversity with an objective to ensure 15% of women recruited are at a professional or graduate level. We care by demonstrating a purpose beyond profit. What we focus on: Economic value Broader economic benefit Adding and Sharing Values Community impact Supply chain management Employees Succession planning Training and development Labour rights and relations Economic value We make an important contribution to socio- economic development through job creation, taxes, access to commodities and infrastructure, community empowerment and social mobility. In doing so we demonstrate that our business has a purpose beyond profit. Employees Around 82,000 people work hard at Vedanta every day to make it the success that it is. Every single employee can expect to be inspired to meet their potential; to feel empowered and united under shared values. Our strategy is to build a culture of high- performance, entrepreneurial innovation, while caring for and supporting everyone who works with us. To safeguard our future competitiveness, we also seek to identify and develop leadership skills; create a fair workplace free from discrimination; and respect human rights above all else. We are proud of the diversity of backgrounds we come from – different perspectives help us solve the complex challenges we face and make us more responsive to future risks and opportunities. Creating an inclusive workforce starts in the community and continues through our talent and development programmes. It means focusing specifically on equal opportunities for women, where we know we need to significantly improve our performance. It is beneficial for our business to hire people who understand the market and can engage effectively with contractors and suppliers. Ensuring managers are from the local area is particularly important in helping us relate to the issues faced by neighbouring communities, thus connecting our business and sustainability strategies. Over the reporting period, across our business, the total percentage of senior management who are locally hired is: India (87%), Australia (nil), Zambia (67%), Namibia (nil), Ireland (100%) and South Africa (75%). We believe that we must invest in developing and retaining key talent to drive innovation and efficiency within the business. In this regard, our attrition rate has remained stable and this year was reported at less than 5%. Community impact The communities in and around our operations should get a fair share of the benefits, whether through employment, trade and enhanced infrastructure, or greater empowerment to voice opinion. Our community investment strategy focuses on health, education, livelihoods and environment. In FY2015, we invested US$42m benefiting around 4.0m people globally through building hospitals, schools and infrastructure, developing employability skills, and engaging in community programmes. Please refer to our online Sustainable Vedanta Resources plc Annual report and accounts FY2015 43 Development Report 2014–15 to find details and activities on areas of focus over the year. We believe that volunteering is a means of contributing to our local communities and a way to engage our employees, particularly when employees co-create community initiatives. Employee volunteering has brought many additional advantages: it has fostered a greater sense of responsibility among our staff and helped create a more motivated team and united culture. Our role in industry As the largest producer of aluminium, crude oil, copper and zinc-lead in India we make a significant contribution to the development and maturity of many markets. Due to the scale of our operations, we generate opportunities for downstream industries and support services, which has led to the growth of other industries which are capitalising on the increased availability of domestic raw materials. Sourcing locally benefits local economies and governments, contributes to reducing our carbon footprint and can improve skills development and training in areas such as health and safety, as well as making improvements to local infrastructure. All our activities are focused on ensuring customer needs are met in an appropriate and timely manner, including assisting our customers with technical issues and product development for first use. Customer satisfaction surveys are conducted periodically by external third parties. In FY2014, SAP – Supplier Relation Management systems – were rolled out across the business. No cases of non-compliance with relevant regulations, anti-competitive behaviour, anti-trust, monopoly and voluntary codes concerning the health and safety impacts of our products and services were reported. Similarly, no significant fines for non- compliance with laws and regulations concerning the provision and use of products and services were reported. Our role in society Positive relationships with our shareholders and lenders ensure that we are able, through access to finance, to expand and grow our business. As many lenders are aligned to the Equator Principles and International Finance Corporation standards, our Sustainable Development Framework and Model act as important tools. In order to meet the economic commitments that the business has with its finance providers, we invest in projects and businesses to drive the development of the Group asset base and increase production, and therefore sales. We have a progressive dividend policy and have returned US$1.6 billion in dividends to shareholders since the IPO in 2004. Since our IPO at 390 pence in December 2003, shareholders have seen a Total Shareholder Return of over 200% and we have paid Championing women entrepreneurs, India Sterlite Copper has been creating and supporting Sakhi (self-help groups) for rural women for 10 years and has formed 1,056 groups over this period, reaching 15,251 women participants. The Sakhis bring together governmental organisations and six non-governmental organisations (NGOs) under Vedanta’s vision of developing women entrepreneurs to create social mobility and economic empowerment. Training is offered in book-keeping, leadership and decision-making, and members receive assistance to grow income-generating enterprises ranging from prawn pickle processing to dried flower production; candle making to rabbit rearing. Groups are based on principles of fairness and democracy and are born out of a needs assessment to understand the issues and barriers facing women. For example, many women have reported a lack of access to credit as a barrier and thus microfinance has become a key focus of Sakhis. As a result of these self-help groups, women are earning an average of US$48 a month more than they were previously, a relatively large sum in rural Tamil Nadu. Furthermore, many have secured loans ranging from US$800 to over US$6,000 to grow their enterprises. The collective savings of the Group during the reporting period was US$642,000, a milestone in the Sakhi goal of being self-sufficient in funding. a progressive dividend that was increased in nine out of 10 years and held constant for one year. At a broader level, we are committed to contributing to the development of democracy and democratic processes in the countries where we operate. We do this in a number of ways, including through membership of industry organisations and international bodies. In addition to contributing US$4.6 billion to host governments in tax revenue over the year and employing around 82,000 people directly and indirectly, we also supported governments in building infrastructure such as roads, housing, sanitation and healthcare facilities. Caption: ‘Sakhi’ – Women self-help group members at Sterlite Copper – Tuticorin Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 44 Strategic report We are Vedanta Finance review Financial highlights • Revenue of US$12.9 billion • EBITDA of US$3.7 billion, EBITDA margin of 38%1 • Free cash flow after growth capex of US$1 billion • Gross debt reduced by US$200 million • Full year dividend of 63 US cents per share 1 Excluding custom smelting. Our total revenue for the year was US$12.9 billion, in line with the previous year and despite a weaker commodity environment. We believe this demonstrates the underlying strength of our diversified portfolio of assets. Vedanta delivered EBITDA of US$3.7 billion, a decrease of 17% due to the negative impact of the commodity price environment, lower volumes and consequently higher unit costs across a number of businesses, principally the Zinc operations, Cairn India and Copper Zambia. Average Brent for the year was down 21% and LME copper down 8%. Iron ore prices were down 39%, however this did not have a material impact on EBITDA given the low production volumes. Strong operational performances at Copper India and Aluminium and a better price environment for Zinc and Aluminium mitigated some of the downside. Average EBIDTA margin (excluding custom smelting) for the year continues to remain healthy at 38%, despite the weaker commodity prices largely due to continued strength in our Zinc Consolidated operating profit before special items (in US$ million, except as stated) FY2015 FY2014 % Change Oil & Gas Zinc India International Iron Ore Copper India/Australia Zambia Aluminium Power Others Total Group operating profit before special items Consolidated operating profit variance analysis (In US$ million) Operating profit before special items for FY2014 Volume – operations Volumes – CMT – temporary shutdown Prices – LME/LBMA/Brent – Premium Foreign exchange fluctuation Cash cost of production Profit petroleum Depreciation Amortisation Others Operating profit before special items for FY2015 206.6 1,129.2 1,059.4 69.8 (10.9) 38.5 229.5 (191.0) 275.9 88.0 8.2 933.6 1,106.3 1,030.2 76.1 (70.0) 140.6 155.8 (15.2) 112.6 69.3 (4.3) (77.9)% 2.1% 2.8% (8.4)% – (72.7)% 47.2% – 145.0% 27.0% – 1,735.5 2,288.1 (24.1)% (328.7) 146.7 2,288.1 (153.2) (37.2) (182.0) 87.1 (301.1) (121.3) 155.7 41.5 (42.1) 1,735.5 Note: Of the total operating profit variance above US$552 million, US$750 million (total operating profit variance less depreciation and amortisation variance as above) is the EBITDA variance. businesses and improving margins in Aluminium and Copper India. Special items principally include asset impairments of US$4.5 billion (net of tax) in FY2015. This largely relates to the Oil & Gas business, and was triggered by a steep fall in Brent prices which were down 50% in Q4 compared to the beginning of the year. Excluding special items, profit before tax was down only 12% despite a higher decline in EBITDA, largely owing to lower net interest and lower depreciation charges. Profit after tax at $751 million, was down 32%. The tax charge was higher in FY2015 in comparison to FY2014 primarily due to the effect of a one-off tax credit in FY2014. Underlying EPS at loss (14.2) US cents was lower than FY2014 at 14.7 US cents. Volumes Whilst higher production volumes in Copper India, the recommencement of iron ore production in Karnataka and the commissioning of a new power plant at Talwandi Sabo helped increase operating profit, this was more than offset by lower volumes in our Zinc businesses, Oil & Gas and Copper Zambia. In our Zinc International business, production was affected by a few unplanned maintenance shut downs and a fire at Skorpion in January 2015. Production also declined as the Lisheen mine nears the end of its life. In India, zinc production volumes in the first half of the year were affected by lower mined metal production and the temporary lower silver grades at Sindesar Khurd. In our Oil & Gas business, volumes were marginally lower as a result of a 10-day planned maintenance shutdown in the first half, and a temporary disruption of gas production. Production at Copper Zambia was primarily affected by remediation and critical maintenance being carried out on the shafts and lower grades at Nchanga. Together the above factors impacted operating profit before special items by US$153.2 million. CMT, our copper mines in Australia remains under care and maintenance following a mud rush incident in January 2014 reducing operating profit by US$37.2 million. Prices The operating profit before special items of a number of our businesses have been significantly affected by the changes in commodity prices. Oil & Gas: Brent prices fell sharply in the second half of FY2015 reducing operating profit by US$543 million. Vedanta Resources plc Annual report and accounts FY2015 45 Copper: Average LME copper prices were down 8% in FY2015 compared to the previous year adversely affecting Zambian operating profit by US$61 million. Lead and Silver: Average lead prices were down 3% and silver down 15%, together these reduced operating profit by US$40 million. Power: Lower energy prices, following reduced short-term demand, had an adverse effect of US$38 million. Indian rupee Australian dollar South African rand Kwacha Income statement Information regarding exchange rates against the US dollar Average FY2015 Average FY2014 61.15 0.87 11.06 6.45 60.50 0.93 10.11 5.54 As at 31.3.15 62.59 0.76 12.10 7.59 As at 31.3.14 60.10 0.93 10.58 6.25 These negative impacts totalling US$682 million were partly offset by increases in the average zinc and aluminium prices of 14% and 7% respectively. This, in combination with stronger premia in both the businesses, resulted in a positive offset of US$439 million (zinc US$279 million, aluminium US$160 million). Stronger TcRc’s in Copper India contributed US$39 million, giving an overall adverse net price impact of US$182 million. Foreign exchange fluctuation Local currencies weakened versus the US dollar, increasing our profitability by reducing locally denominated costs in US dollar terms. The Indian rupee: US$ exchange rate at the beginning of FY2015 was 60.10 Indian rupees per US$, closing at 62.59 Indian rupees per US$ at the year end. The average exchange rate for FY2015 was 61.15 Indian rupees per US$, a marginal increase of 1.1% compared to the average of 60.50 Indian rupees per US$ for FY2014. This improved operating profits by US$87 million. In FY2015 the movements in currencies other than the India rupee had a nil net impact compared to the prior year. Costs of production Unit costs across our businesses have been affected by lower volumes, regulatory headwinds in the form of higher royalties and coal availability: • Oil & Gas: Costs were adversely affected by US$99 million due to higher processing and well maintenance costs and the expense of the 10 day planned shutdown. • Zinc India: A negative effect of US$93 million, principally comprised higher royalty charges of US$56 million (including contributions to a new ‘District Mineral Fund’ at 33% of the royalty rate), together with long-term wage settlements and coal cost increases also driven by regulatory issues. • Aluminium: Whilst operating profit in our Aluminium business has improved on the back of stronger prices and premia, the business has suffered higher coal and alumina costs, due to regulatory sourcing issues leading to an overall adverse impact of US$75 million. • Copper Zambia: The additional costs incurred in addressing the shaft and equipment availability issues, combined with the US$15 million effect of the higher royalty rate, reduced profitability by US$55 million. (in US$ million, except as stated) FY2015 FY2014 % change Revenue EBITDA EBITDA margin (%) EBITDA margin without custom smelting (%) Special items Depreciation Amortisation Operating (loss)/profit Operating (loss)/profit w/o special items Net interest expense Other gains and (losses) 12,878.7 3,741.2 29.1% 38.0% (6,744.2) (1,254.6) (751.1) 12,945.0 4,491.2 34.7% 44.9% (138.0) (1,410.5) (792.6) (0.5)% (16.7)% – – – (11.1)% (5.2)% (5,008.7) 2,150.1 – 1,735.5 (554.6) (76.9) 2,288.1 (752.1) (279.9) (24.2)% (26.3)% – (Loss)/profit before taxation (5,640.2) 1,118.1 – Profit before taxation w/o special items Income tax expense – others Income tax credit (special items) Effective tax rate w/o special items (%) (Loss)/profit for the year Profit for the year w/o special items Non-controlling interest Non-controlling interest w/o special items Non-controlling interest w/o special items (%) Attributable (loss)/profit Attributable (loss)/profit w/o special items Underlying attributable (loss)/profit Basic (loss)/earnings per share (US cents per share) Earnings per share w/o special items (US cents per share) Underlying earnings per share (US cents per share) 1,104.0 (352.6) 2,205.1 31.9% 3,787.7 751.4 (1,988.1) 826.5 110.0% (1,798.6) (74.7) (38.9) 1,256.1 (158.0) 29.4 12.6% 989.4 1,098.1 1,185.4 1,221.1 111.2% (196.0) (123.0) 40.2 (654.5) (71.7) (27.2) (45.0) (14.2) 14.7 (12.1)% – – – – (31.6)% (32.3)% – – – – – – – The adverse cost impacts above, were partially mitigated by US$33 million of positive unit cost variances. These included higher acid credits at the Copper smelter at Tuticorin leading to lower net costs and improved efficiency at our power plant in Jharsuguda. The net effect of the above was an adverse impact of around US$301 million on the operating profit before special items. Profit petroleum The change in government share of profit petroleum in Rajasthan block at Cairn India from 30% to 40% in FY2015 resulted most of the increase. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 46 Strategic report We are Vedanta Finance review continued Consolidated revenue – detail (in US$ million, except as stated) FY2015 FY2014 % change Zinc India International Oil & Gas Iron Ore Copper India/Australia Zambia Aluminium Power Eliminations Revenue 2,943.9 2,357.0 586.9 2,397.5 326.5 4,777.8 3,700.7 1,077.1 2,081.9 671.9 (320.8) 2,856.8 2,195.4 661.4 3,092.8 267.1 4,676.2 3,404.8 1,271.4 1,785.4 621.7 (355.0) 3.1% 7.4% (11.3)% (22.5)% 22.2% 2.2% 8.7% (15.3)% 16.6% 8.1% – 12,878.7 12,945.0 (0.5)% Consolidated EBITDA The consolidated EBITDA by sector is set out in the table below: (in US$ million, except as stated) FY2015 FY2014 % Change 1,476.8 1,373.3 1,192.5 180.8 31.4 277.2 281.0 (3.8) 415.5 153.8 13.2 2,347.0 1,358.4 1,145.0 213.4 (24.2) 354.2 197.9 156.3 287.3 168.4 0.1 (37.1)% 1.1% 4.1% (15.3)% – (21.7)% 42.0% – 44.6% (8.7)% – 3,741.2 4,491.2 (16.7)% 29.0% EBITDA margin % FY2015 61.6% 46.6% 50.6% 30.8% 9.6% 5.8% 7.6% (0.4)% 20.0% 22.9% FY2014 75.9% 47.5% 52.2% 32.3% (9.1%) 7.6% 5.8% 12.3% 16.1% 27.1% – 34.7% Oil & Gas Zinc India International Iron Ore Copper India/Australia Zambia Aluminium Power Others1 Total 1 Includes port business. Balance sheet (In US$ million, except as stated) Goodwill Intangible assets Tangible fixed assets Other non-current assets Cash and liquid investments Other current assets Gross debt Other current and non-current liabilities Net assets Shareholders’ equity Non-controlling interests Total equity 31 March 2015 31 March 2014 16.6 101.9 23,352.0 1,807.0 8,209.8 3,501.6 (16,667.8) (8,063.7) 12,257.4 1,603.1 10,654.3 16.6 108.6 31,043.5 1,373.7 8,937.9 3,894.0 (16,871.2) (10,528.3) 17,974.8 4,010.4 13,964.4 12,257.4 17,974.8 Depreciation The Oil & Gas business realised a lower depreciation charge of US$120 million in the year. The expense is based on production, divided by the Group’s economic interest, which has increased as the interest accruing to partners has fallen in line with lower prices. In accordance with its accounting policy, the Group carried out a review of the useful life of its assets. This was based on technical studies performed by an independent external agency and applying their recommendations with effect from 1 October 2014 resulted in a US$71 million lower net charge compared to FY2014. The capitalisation of one unit of TSPL and 84 pots at Korba-II contributed to an increase in depreciation of US$8 million. The further commissioning of pots in Aluminium and the continued staged commissioning of power plants at BALCO IPP and TSPL, will increase the depreciation charge in FY2016. Amortisation The reduction in amortisation charges in FY2015 compared to the previous year was US$42 million, mainly attributable to lower volumes at Cairn India and Zinc International. Others An exploratory asset write off of US$129 million, largely pertaining to a deep gas well in the Ravva production block, offset by higher profitability from our smaller businesses (pig iron, phosphoric acids and precious metal), leads to a net reduction in operating profit before special items of US$42 million. Revenue Overall revenues, as explained earlier, were stable in FY2015. The table below indicates the movement by segment. Primarily, the fall in Oil & Gas revenue, as a result of lower Brent prices, has been offset by increased revenue in Zinc, Iron Ore, Copper, Aluminium and Power. EBITDA for FY2015 is lower by 16.7% at US$3,741 million. This was primarily due to reduction in Oil & Gas, Copper Zambia, Zinc International and Power businesses. Further detail on the year-on-year variations are provided in the operational review. EBITDA margin In FY2015 EBITDA margin was 29% as compared to 35% in FY2014. EBITDA margin excluding custom smelting was 38.0% and reduced from 44.5% in FY2014. The main drivers across key businesses were: • Oil & Gas: The sharp decline in crude oil prices and the Ravva exploration asset write off. Vedanta Resources plc Annual report and accounts FY2015 47 • Zinc India: Higher prices and premia offset by higher royalty and wage settlement costs. • Zinc International: Higher prices offset by unit cost increases. • Copper: Improvement in smelting margins in Copper India with higher TcRc’s; higher per unit costs as well as lower prices in Copper Zambia; and the full year effect of Australian assets being under care and maintenance. • Aluminium: Higher costs driven coal and bauxite sourcing offset by higher prices and premia. Special items Special items of US$6,744 million include a non-cash impairment charge of US$6,642 (US$4,504 million net of tax) relating to the Oil & Gas business and US$52 million in Copper Zambia. The impairment in Oil & Gas was triggered by the steep fall in Brent oil prices. The non-cash charge includes US$5,854 million (US$3,716 million net of tax) on the Rajasthan and other units which includes both producing and exploratory assets and US$788 million on the Sri Lankan exploratory block. Key assumptions include the short-term (five years) oil price and the long-term nominal oil price of US$84 per barrel increasing at 2.5% per annum. The assumptions selected were consistent with the various available analyst pricing. The charge at the Vedanta Resources plc level is greater than that announced previously by Vedanta Limited (formerly Sesa Sterlite Limited) as additional carrying value was previously recognised on the acquisition of Cairn India in FY2012, as under IFRS were on 100% basis with a corresponding non-controlling interest, whereas under Indian Generally Accepted Accounting Principles the fair value uplift only arose on the economic interest acquired. This non-cash impairment charge will not have any impact in the future operating or earnings capacity of the underlying assets. Copper Zambia impairment charge arose on the underground assets at Nchanga where the Upper Ore Body project started in 2008 was suspended due to ground conditions and existing mine infrastructure constraints. Other special items include the provision in respect of an investment in the cancelled coal block of the Company pursuant to a Supreme Court decision in September 2014, and a US$8 million provision in respect of a contractor dispute in Copper Zambia. Net interest Finance costs decreased by 4% to US$1,387 million in FY2015 (FY2014: US$1,440 million). This is largely due to refinancing at lower interest rates. The average borrowing cost of the Group is 7.5% per annum (8.0% in FY2014). Investment revenue increased to US$833 million, (FY2014: US$688 million), mainly at Zinc India and Cairn India, driven by higher treasury income on account of mark-to-market (MTM) gains accruing in a falling interest rate environment in India where most of the Group’s cash and investments reside. The combination of significantly higher investment revenues and lower finance cost led to a decrease of US$198 million in net interest expense for the year. Other gains and losses Other gains and losses include the impact of mark-to-market (MTM) on foreign currency borrowings, primarily at our Indian businesses and dollar denominated cash deposits at the Oil & Gas business. Depreciation in the Indian rupee against the US dollar during FY2015 was only around 1% against an unprecedented 10% in FY2014. The FY2015 MTM cost of US$77 million was thus significantly lower than US$280 million in FY2014. Taxation The Effective Tax Rate (ETR) in FY2014 was primarily lower as a result of a tax credit of US$176 million which arose on the restructuring of the Indian subsidiary Vedanta Limited (formerly Sesa Sterlite Limited). The tax charge, excluding special items, in FY2015 is US$352 million (effective tax rate 32%) compared with US$158 million (effect tax rate 13%) in FY2014. Tax charge (with special items) in FY2015 includes a credit of US$2,205 million relating to the corresponding non-cash impairment charge and other special items described earlier. Attributable (loss)/profit Attributable loss (before special items) was US$(75) million as compared to US$(123) million in the previous year, mainly driven by the weak commodity prices resulting in lower EBITDA, which includes a one time provision of 7% Gridco receivables US$45 million and exploratory asset write off at Cairn India US$88 million pertaining to a deep gas well in the Ravva production block. Further, it reduced due to the higher tax which was partially offset by lower depreciation and amortisation and the lower net interest expense. The attributable loss (including special items) at US$(1,799) million (FY2014 at US$196 million) is significantly greater largely due to the non cash impairments in the Oil & Gas business. Earnings per share Basic EPS at loss (654.5) US cents (FY2014 loss (71.7) US cents) decreased significantly primarily as a result of the special items described above. Excluding the impact of specials items and other gains and losses, the underlying EPS was loss (14.2) US cents per share (FY2014 14.7 US cents). Despite lower EBITDA, our average EBITDA margin excluding custom smelting remained healthy at 38%. Our net debt has reduced since FY2012 whilst our operating free cash flow in FY2015 was US$1 billion. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 48 Strategic report We are Vedanta Finance review continued Debt Particulars Total FY2016 FY2017 FY2018 FY2019 FY2020 Beyond FY2020 Debt at Vedanta Resources plc Debt at subsidiaries Total debt 7.8 8.4 16.2 0.4 2.1 2.5 2.0 1.3 3.3 1.0 1.7 2.7 2.6 1.7 4.3 0.3 0.7 1.0 1.5 0.9 2.4 The movement in fund flow is set out below. Fund flows (in US$ million, except as stated) Fund flow EBITDA Operating exceptional items Working capital movements Changes in non-cash items Sustaining capital expenditure Movement in capital creditors Sale of tangible fixed assets Net interest Tax paid Expansion capital expenditure1 Free cash flow post capex Acquisition of minorities Dividend paid to equity shareholders Dividend paid to non-controlling interests Sale of fixed asset investments Other movement2 Movement in net debt 1 On an accrual basis. 2 Includes foreign exchange movements. 31 March 2015 31 March 2014 3,741 (50) 131 203 (221) (288) 26 (362) (602) (1,531) 1,047 (819) (171) (340) – (258) (541) 4,491 (138) 395 151 (322) (320) 9 (710) (861) (1,425) 1,270 – (163) (346) 17 (82) 696 Shareholder’s equity was US$1,603 million at 31 March 2015 compared to US$4,010 million at 31 March 2014 reflecting largely the impact of the impairments and other special items of US$4,539 million, adverse currency translation impact due to depreciation of the operating currencies against US dollar (mainly, the Indian rupee) of US$291 million, a decrease in equity attributable to shareholders by US$175 million on account of both the Cairn share buyback and stake acquisition in Vedanta Limited (formerly Sesa Sterlite Limited) representing difference between acquisition price and book value and the US$171 million dividend payment. Tangible fixed assets During the year, we invested US$1,752 million in property, plant and equipment; comprising of US$1,531 million on our expansion and improvement projects and US$221 million spent on sustaining capital expenditure. Expansion project expenses were US$1,080 million in our Oil & Gas business at Cairn India; US$167 million at Zinc India; US$142 million in the Power business mainly at Talwandi Sabo, US$145 million in our Aluminium business. Net debt Gross debt as at 31 March 2015 was US$16,668 million (31 March 2014: US$16,871 million). This reduction was mainly driven by the repayment of maturing debt (c.US$500 million of FCCBs) in the Copper business out of operating cash flows and devaluation of rupee denominated debt largely offset by the increase in borrowings primarily to fund capital expenditure in projects and some short-term operational needs. The average debt in FY2015 was US$17,074 million. Given the significant repayments of debt in the second half of the year and lower capex in general, the closing debt position was lower at US$16,668 million. The debt reduction in the second half was approximately US$600 million, driven by strong capital rationing and working capital management in a difficult commodity price environment. Of our total gross debt (excluding working capital loans) of US$16.2 billion debt at our subsidiaries is US$8.4 billion, with the balance in the holding company. The future maturity profile of debt (in US$ billion) of Vedanta Resources plc is as follows: A US$350 million loan has been arranged with the State Bank of India (SBI) at Vedanta Resources plc (of which US$25 million had been drawn as at 31 March 2015), to meet the upcoming debt maturities. Of the US$2.1 billion debt maturing in subsidiaries during FY2016, almost US$1.6 billion is in the Aluminium and Power businesses. These maturities mainly relate to short-term loans which are expected to be refinanced from long-term sources in view of the softer interest rate regime in the Indian market. Cash and liquid investments were US$8,210 million at 31 March 2015 (31 March 2014: US$8,938 million). Net debt increased by US$540 million to US$8,460 million at 31 March 2015 (31 March 2014: US$7,920 million). This increase is mainly due to the outflow of US$820 million in first half of the year towards the share buyback by Cairn India and the acquisition of a 5% stake in Vedanta Limited (formerly Sesa Sterlite Limited) by Vedanta Resources plc. Vedanta Resources plc Annual report and accounts FY2015 49 Project capex Capex in progress Cairn India Total capex in progress – Oil & Gas Aluminium Sector BALCO – Korba-II 325ktpa Smelter and 1,200MW power plant (4x300MW) Status Phase wise completion (US$500 million to be spent in FY2016 and retain the flexibility to invest balance US$1.4 billion as oil prices improve and costs bottom out) Smelter: 84 post capitalised in September 2014 Lanjigarh Refinery (Phase II) – Awaiting approval 4mtpa Jharsuguda 1.25mtpa smelter Power sector Talwandi 1,980MW IPP Zinc sector Zinc India (mines expansion) Zinc International Gamsberg mining project Skorpion refinery conversion Total capex in progress – Metals & Mining Potline-wise commissioning: 1st phase of 50 pots started Unit II under trial run Phasewise completion Capex rephased Capex flexibility Status Copper sector Tuticorin smelter 400ktpa Total capex flexibility Total capex (excl. Cairn) Total capex (incl. Cairn) EC awaited The Group’s net gearing has gone from 30.6% to 40.8% with 7.3% of this change relating to the non-cash impairments in the year and their corresponding effect on net assets. Credit rating The downward pressure on metal and oil prices has impacted the Company’s credit rating. In January 2015, the rating agency Moody’s revised the outlook on the Company’s ratings to ‘Negative’ from ‘Stable’, while maintaining the rating at ‘Ba1’. S&P recently revised the Company rating to ‘BB-‘ from ‘BB’, with the outlook on the rating to ‘Negative’. Capex (US$Mn) Spent up to March 2014 Spent up to March 2015 Unspent as on 31 March 2015 3,030 3,030 – – 1,080 1,949 1,080 1,949 1,872 1,721 1,570 2,920 809 2,500 2,150 1,869 1,500 435 630 152 – – 98 – 35 142 167 5 4 53 761 385 139 898 625 148 10,794 7,334 451 3,009 Capex (US$mn) Spent up to March 2015 Spent in FY2015 Unspent as at 31 March 2015 367 367 11,161 14,191 129 129 7,463 7,463 – – 451 1,531 239 239 3,247 5,197 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 50 Strategic report We are Vedanta Review of operations Cairn delivered the largest exploration and appraisal programme in ıts history. Caption: Employee at Rajasthan Oil Field, Cairn India. Oil & Gas The reduction in oil prices over the past year cannot be ignored, and we have taken sensible steps to defer capex for the time being in line with the economic background. Mayank Ashar CEO, Oil & Gas 1 1 3 3 7 2 2 4 5 6 8 1 Rajasthan block 2 Ravva (PKGM-1) block 3 Cambay (CB/052) block Projects under development 1 Rajasthan block 2 Ravva (PKGM-1) block 3 Cambay (CB/052) block 4 KG-ONN-2003/1 block 5 KG-OSN-2009/3 block 6 PR-OSN-2004/1 block 7 MB-DWN-2009/1 block 8 SL 2007-01-001 block Vedanta Resources plc Annual report and accounts FY2015 Results During the year we achieved: • 211,671boepd, down 3%. • In the Rajasthan block, the Aishwariya field crossed a production threshold of 30,000boepd in Q4 FY2015. • Cairn India made 12 new discoveries and drilled and tested 1.5 billion boe of in-place hydrocarbons. • Focus on completing polymer flood EOR project at Mangala, infill drilling in onshore fields and maintenance projects at the Mangala Port Terminal. 51 Key metrics Production – Average daily gross operated production (boepd) 15 14 211,671 218,651 EBITDA (US$m) 15 14 1,477 2,347 Direct operating costs (US$/bbl) 15 14 3.9 5.8 Revised FY2016 capex from US$1.2 billion to US$0.5 billion. Caption: Employee at Ravva, Cairn India. 9 South Africa Block 1 9 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 52 Strategic report We are Vedanta Review of operations Caption: Employees at Mangala Processing Terminal, Cairn India. Production performance Gross production Rajasthan Ravva Cambay Oil Gas Net production – working interest Oil Gas Gross production Working interest production Operations Average Brent prices (US$/barrel) Financial Performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation Acquisition related amortisation Operating profit Share in Group operating profit (%) Capital expenditure Sustaining Projects Unit FY2015 FY2014 % Change boepd boepd boepd boepd bopd mmscfd boepd bopd mmscfd mboe mboe 211,671 175,144 25,989 10,538 204,761 41 132,663 130,050 16 77.3 48.4 218,651 181,530 27,386 9,735 209,378 56 137,127 134,116 18 79.8 50.1 (3.2)% (3.5)% (5.1)% 8.2% (2.2)% (25.5% (3.3)% (3.0)% (13.2)% (3.2)% (3.3)% FY2015 FY2014 % Change 85.4 107.6 (20.6)% FY2015 FY2014 % Change 2,397.5 1,476.8 61.6% 572.6 697.6 206.6 11.9% 1,080.1 – 1,080.1 3,092.8 2,347.0 75.9% 692.4 721.0 933.6 40.8% 649.4 – 649.4 (22.5)% (37.1)% – (17.3)% (3.2)% (77.9)% – 66.3% – 66.3% Oil & Gas Operations Average gross production for FY2015 was 211,671 barrels of oil equivalent per day (boepd), 3% lower than the previous year. This was largely on account of planned maintenance activity at Mangala Processing Terminal at Rajasthan, higher- than-expected water cuts at Bhagyam in Rajasthan and suspension of gas sales at Ravva for around three months as a result of the breakdown of the OMGC gas pipeline. This was partially offset by higher production at Cambay and better performance of the Mangala field in Rajasthan. In the Rajasthan block, the Aishwariya field crossed a production threshold of 30,000boepd in Q4 2015. Both offshore assets have performed exceptionally well during the year. The Ravva block achieved over 30,000bopd in Q4 FY2015 after three and a half years, driven by successful application of 4D seismic technology, better-than- expected results from the infill drilling programme and the contribution from the RE-6 exploration well. Production at Cambay grew 8% year-on-year, driven by successful well interventions and ramp-up. Gas development in the Raageshwari Deep Gas (RDG) field in Rajasthan continues to be a priority. Management Committee approval has been received for the RDG Field Development Plan for 100 million standard cubic feet per day (mmscfd) production and work on execution, planning and contracting is under way. In FY2015, RDG gas production was 16mmscfd and is expected to increase to 25mmscfd during FY2016. Crude oil prices fell sharply in the second half of FY2015 as a result of increasing supply, a lower demand outlook and OPEC’s decision to maintain production levels. Average Brent prices for the year reduced 21% to US$85.4/bbl compared to FY2014. Vedanta Resources plc Annual report and accounts FY2015 53 Financial performance Revenue for the year was US$2,398 million, (after profit and royalty sharing with the Government of India), driven by weaker crude prices. As a result, EBITDA for FY2015 was lower by 37% at US$1,477 million. Overall operating costs in Rajasthan were US$5.8/bbl, an increase compared with US$3.9/bbl in FY2014 due to higher processing and increased well maintenance costs. In line with global peers, we have revised capex for FY2016 from US$1.2 billion to US$0.5 billion, while deferring the rest. Of this around 45% has been allocated to core fields, 40% to growth projects and remaining 15% for exploration. Further, we will undertake projects that are economically viable at current oil prices, while actively re-engineering projects and renegotiating contracts to improve viability. We have spent US$1.1 billion in FY2015 out of the announced programme of US$3.0 billion, thus retaining the flexibility to invest the remaining US$1.4 billion in the future as oil prices improve and more projects clear investment thresholds. In the core fields, our focus continues to be completing the polymer flood EOR project at Mangala, continued infill drilling in our onshore fields and maintenance projects at Mangala Port Terminal. The Management Committee approved the Raageshwari Deep Gas FDP for 100mmscfd and contracting for this project is currently under way. The two key packages for this project will be the pipeline and the gas terminal EPCs. Likewise, an application has been submitted to PNGRB regarding the authorisation of a pipeline under their policy for Tie-in Provisions. The Terminal EPC is presently in the tendering process and the gas project is expected to be completed by the end of FY2017 subject to regulatory approvals. Exploration and development Since the recommencement of exploration in the Rajasthan block in March 2013, across FY2014–FY2015, Cairn India has made 12 new discoveries and has drilled and tested 1.5 billion boe of in-place hydrocarbons with an additional 0.8 billion boe drilled but yet to be tested. Additionally, Cairn has discovered 2C of 183 million boe in Rajasthan since resuming exploration. An additional 166 million boe of Prospective 2C has been drilled and awaits testing. In FY2015, Cairn delivered the largest Exploration and Appraisal programme in its history, with 12 exploration and 22 appraisal wells drilled; totalling 34 wells during the year. Of the exploration wells drilled in the year, nine encountered hydrocarbons. In FY2015, six additional discoveries were announced taking the total number of discoveries since resuming exploration to 12. During the next financial year, activity will continue to be focused upon appraisal of the Raageshwari Deep Gas Field and the key oil discoveries at DP, NL and V&V, with the objective of progressing these discoveries to development. Future programmes will also focus on identification of additional prospects that will act to replenish the inventory of exploration prospects. At the KG offshore block, detailed planning for the exploration drilling campaign is under way and drilling is anticipated in the first half of FY2016. In South Africa, the Group continues to interpret the 3D and 2D seismic data across its block and add to Prospective inventory with parallel discussions ongoing with our joint venture partner on contractual terms. In Sri Lanka, whilst the Group has taken a non-cash impairment charge, it will continue to seek solutions and options to farm out interests. The coming year Outlook Despite the partial deferral of capex, we expect production volumes to increase in FY2016 driven by our planned investment in the polymer flood at Mangala, the infill drilling across the Mangala Bhagyam and Aishwariya fields, infrastructure debottlenecking and maintenance projects. Additionally, production upside in the near-term will come from other growth projects where we retain the flexibility and agility to switch on projects as they clear investment thresholds as oil prices improve. In exploration, Cairn India will prioritise capital allocation for low-risk, high- potential prospects. Cairn India plans to spend around 15% of next year’s capex on appraisal, testing and seismic activity across our assets. Our strategic priorities • Rajasthan development. • Sustaining production at MBA fields through EOR, drilling campaign and facilities upgrade. • To target world-class recovery and next generation of resources at Barmer Hill. • Leverage gas potential through phased development ramp-up. • Increase recovery from mature assets through infill drilling, technology adoption and development of satellite fields. • Continue exploration and appraisal programme across the portfolio, focusing on Rajasthan. • Pursue extension of Production Sharing Contracts. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 54 Strategic report We are Vedanta Review of operations Vedanta is in the midst of a transition to underground mining. Caption: Employees at Sindesar Khurd mine, HZL. Zinc-Lead-Silver We are proud to have achieved a record mined metal production for the full year. We are expanding all our mines simultaneously to continue to increase our mined metal production capacity and are in the midst of a significant transition from open cast to underground mining. Akhilesh Josh CEO, Zinc India 3 2 1 4 5 1 Debari smelter 2 Chanderiya smelters 3 Rampura Agucha mine 4 Rajpura Dariba mine & smelters and Sindesar Khurd mine 5 Zawar mine Vedanta Resources plc Annual report and accounts FY2015 55 Key metrics Zinc India Production – Zinc mined metal (kt) 15 887 14 880 Production – Refined zinc (kt) 15 14 734 749 Production – Refined lead (kt) 15 14 127 123 Production – Saleable silver (moz) 15 14 10.53 11.24 R&R (mt) 15 14 EBITDA (US$m) 15 14 375.1 365.1 1,192.5 1,145.0 Unit costs (US$ per tonne) 15 14 978 1,093 Zinc International Production – Refined zinc (kt) 15 14 102 125 Production – Zinc-lead minted metal (kt) 15 14 209 239 EBITDA (US$m) 15 14 180.8 213.4 Unit costs (US$ per tonne) 15 14 1,167 1,393 While volumes lowered and production costs this year increased due to exceptional circumstances, there are some exciting new opportunities opening up. We continue to focus on increasing the mine life of our assets and are particularly excited about the potential from Gamsberg, which would replace depleted production from other mines. Deshnee Naidoo CEO, Zinc International & CMT 8 6 Skorpion mine, Namibia 7 Black Mountain mine, South Africa 6 7 8 Lisheen mine, Ireland Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 56 Strategic report We are Vedanta Review of operations Caption: Employees at underground mine, HZL. Production performance Production (kt) Total mined metal Zinc Lead Zinc refined metal – total Integrated Custom Lead refined metal – total1 Integrated Custom Saleable silver – total (moz)2 Integrated Custom FY2015 FY2014 % Change 887 774 113 734 721 13 127 105 22 10.53 8.56 1.97 880 770 110 749 743 6 123 111 12 11.24 9.66 1.58 0.8% 0.6% 2.7% (2.1)% (3.0)% 110.1% 3.7% (4.8)% 81.1% (6.3)% (11.4)% 24.8% 1 2 Excluding captive consumption of 8kt vs 7kt in FY2015 vs FY2014. Excluding captive consumption of 1,293 thousand ounces vs 1,232 thousand ounces in FY2015 vs FY2014. Operations Average zinc LME cash settlement prices (US$/T) Average lead LME cash settlement prices (US$/T) Average silver prices (US$/ounce) FY2015 2,177 2,021 18.1 FY2014 % Change 1,909 2,092 21.4 14.0% (3.4%) (15.3%) Unit Costs Unit costs1 Zinc (US$ per tonne) Zinc (other than royalty) (US$ per tonne) 1 With IFRIC 20 impact. FY2015 FY2014 % Change 1,093 868 978 817 11.7% 6.2% Zinc India Operations Mined metal production for the full year was 887,000 tonnes, marginally higher than a year ago, achieving a new annual record. Production in the second half of FY2015 was higher than the first half. This increase is in line with the mine plans for Rampura Agucha and Sindesar Khurd. Integrated refined zinc, lead and silver metal production reduced by 3%, 5% and 11% respectively over FY2014 due to lower mined metal production in the first half and lower silver grades at the Sindesar Khurd mine. In accordance with its mine plan, silver grade is expected to improve in the next year. However, higher mined metal production volumes over the second half of FY2015 added to the mined metal inventory, a large part of which will be consumed in FY2016. Zinc prices gathered strength during the year despite a weak start. This was driven by improving demand in India and the continued global demand-supply gap. LME zinc prices averaged US$2,177 per tonne compared to US$1,909 per tonne over the same period in FY2014, an increase of 14%. Lead average prices weakened by 3% on the back of marginally higher supply and lower demand. Average silver prices reduced significantly by 15% in line with the general weakness in precious metals against the backdrop of a stronger US dollar. Unit costs The unit cost of zinc production increased by 12% to US$1,093 per tonne, compared to FY2014. This was due to a higher royalty, higher landed coal cost and increased employee expense due to long-term wage settlements partly offset by higher acid credits and lower fuel costs. In India the zinc and lead royalty rates were increased from 8.4% to 10.0% and from 12.7% to 14.5% respectively, effective 1 September, 2014. At these levels, these are amongst the highest in the world and higher than other base metals. In addition, an amount equal to 35% of royalty was provided with effect from 12 January 2015 for the contribution to the proposed District Mineral Fund (DMF) (33%) and National Mineral Exploration Trust (NMET) (2%), ahead of notification for these under the Mines and Mineral Development and Regulation (Amendment) Act 2015 (MMDRA). Vedanta Resources plc Annual report and accounts FY2015 The cost of production excluding royalties is expected to remain stable. There would be an additional outflow to the District Mineral Fund and National Mineral Exploration Trust in accordance with the MMDRA 2015 as mentioned earlier. Our strategic priorities • Progress on brown field expansion of mines to achieve 1.2mtpa of mined zinc-lead. • Managing the transition from open-pit to underground mining at Rampura Agucha. • Ramping up silver production volumes. • Rampura Agucha open cast mine life extension. • Asset optimisation and operational efficiencies to maintain cost leadership. • And continuing focus on adding reserves and resources through exploration. 57 Financial performance EBITDA for FY2015 increased to US$1,193 million, compared with US$1,145 million during FY2014. This increase was mainly due to higher zinc LME prices and premia, which were partially offset by a reduction in lead and silver prices, lower metal sales volumes and higher cost of production. Projects HZL is in the midst of a transition from open cast to underground mining. Historically, open cast mining has accounted for about 80% of total MIC production, which in future will be replaced by underground mines. Open cast production will gradually taper off and by FY2021, all production will be from the underground mines. The announced expansion of Rampura Agucha open pit will extend open pit life giving a sufficient cushion for underground transition. The ultimate open pit depth will go down by 50 metres to 420 metres, with preparatory work having started in Q4 FY2015. Underground expansion is progressing well, and for FY2016, significant progress is expected in terms of mine development and ore production. HZL is enhancing its ore production capacity in Sindesar Khurd by 50%, from 2mt to 3mt. The shaft sinking project at Sindesar Khurd is ahead of schedule with the main shaft sinking almost complete, having reached the depth of over 1km of the planned depth of 1.05km. Development of associated infrastructure is also progressing well and production from the shaft is planned to commence ahead of schedule, in the latter half of 2018. Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation and amortisation Operating (loss)/profit before special items Share in group operating profit (%) Capital expenditure Sustaining Growth The progress of the underground shaft project at Rampura Agucha is behind schedule and has reached a depth of 650 metres of the planned depth of 950 metres. With the planned extension of the open cast mine, overall production from Rampura Agucha is expected to remain on track. Exploration During the year, gross additions of 19.4mt were made to reserves and resources (R&R), prior to a depletion of 9.4mt. Total R&R at 31 March 2015 were 375.1mt, containing 35.3mt of zinc-lead metal and 970moz of silver. Overall mine life continues to be over 25 years. Outlook Significant progress is expected in terms of mine development and ore production from the underground mine projects. Rampura Agucha will continue to provide the majority of mined metal in FY2016, although overall production from this mine will be less than in FY2015. The gap in production will be made up primarily by higher volumes from Sindesar Khurd. In FY2016, mined metal production is expected to be higher from FY2015, while integrated refined metal production, including silver, will be significantly higher as the Company will process the available mined metal inventory from the previous year. FY2015 FY2014 % Change 2,357.0 1,192.5 50.6% 133.2 1,059.3 61.0% 222.7 56.1 166.6 2,195.4 1,145.0 52.2% 114.8 1,030.2 45.0% 346.0 102.7 243.3 7.4% 4.1% – 16.0% 2.8% – (35.6)% (45.4)% (31.5)% Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 58 Strategic report We are Vedanta Review of operations Caption: Employee at Black Mountain mine. Production performance Total production (kt) Production – mined metal (kt) BMM Lisheen Skorpion (refined metal) Unit costs Zinc (US$ per tonne) CoP Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation Acquisition related amortisation Operating profit before special items Share in Group operating profit (%) Capital expenditure Sustaining Growth FY2015 FY2014 % Change 312 59 150 102 364 (14.3)% 67 172 125 (11.9)% (12.8)% (18.2)% FY2015 1,393 FY2014 % Change 1,167 19.4% FY2015 586.9 180.8 30.8% 85.7 25.4 69.7 4.0% 39.7 30.4 9.3 FY2014 % Change 661.4 213.4 32.3% 90.3 47.0 76.1 3.3% 44.6 29.3 15.3 (11.3)% (15.3)% – (5.1)% (46.0)% (8.4)% – (10.9)% 3.8% (39.2)% Zinc International Production performance Mined metal output for FY2015 was 14% lower compared with FY2014, primarily due to lower production at Lisheen by 22,000 tonnes, unplanned disruptions at Skorpion and lower ore grades. The Lisheen mine, which is near the end of its life, is expected to end production in mid-FY2016. At Skorpion, production was lower by 23,000 tonnes. This was primarily due to a fire incident in the cell house, resulting in the refinery shutting-down during January 2015 for 23 days, followed by a gradual ramp-up. The production loss was also due to a lower zinc feed grade (FY2015: 8.7% vs FY2014: 9.6%). The production at BMM was 12% down due to lower ore grades and the change in mining methods. Unit costs The unit cost of production increased to US$1,393 per tonne, up from US$1,167 per tonne in FY2014. This was mainly driven by reduced volumes and increasing treatment and refining charges. Due to unplanned disruptions, maintenance expenses were higher, resulting in increased cost of production. Financial performance EBITDA reduced by 15% to US$181 million for FY2015 due to lower volumes and higher costs, partially offset by higher zinc prices. Projects Gamsberg will partially replace the loss of production from Lisheen and restore production to over 300ktpa. Project execution is in the final stages of planning. Capex has been rephased in line with the Group strategy of optimising capex and focusing on critical pre-stripping and associated activities. The first ore production is planned for FY2018, and the ramp-up to full production will be in line with the revised capex profile. Vedanta Resources plc Annual report and accounts FY2015 59 Outlook In FY2016 production volume is expected to be c.220-230kt. Cost of production is expected to be in the range of c.US$1,450/t-US$1,500/t despite the mines going deeper. At Skorpion, plans are in place to extend the mine from FY2017 to FY2019. This is being achieved by deepening the current open pit to access additional reserves. Mine production will end in FY2019 and oxide ore processing will continue until FY2020 from stockpiles. At BMM, near-mine resource potential remains high. The Company is taking a focused approach to improve confidence in other deposits within the mining licence, to firm up its plan for the next five years. Our strategic priorities • Execution of the Gamsberg project in a phased manner. • Extending the mine life at Skorpion. • Smooth closure of the Lisheen mine. Caption: Skorpion mine operations. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 60 Strategic report We are Vedanta Review of operations Earnings in Vedanta’s iron ore business increased compared to a loss the year before. Iron Ore With limited production this year, we focused on aggressive cost reduction initiatives to reduce losses. As our mines return to production and domestic demand expands, we remain positive about the future. Kishore Kumar CEO, Iron Ore 1 2 1 Iron ore operations – Goa 2 Iron ore operations – Karnataka Caption: Iron Ore mine, Goa. Vedanta Resources plc Annual report and accounts FY2015 61 Key metrics Production (mt) 15 14 0.6 R&R – India (mt) 15 14 EBITDA (US$m) (24.2) 15 14 337 1.5 431 31.4 Results During the year we achieved: • Annual capacity of 2.29mtpa recommenced at Karnataka, with sales expected to resume Q1 FY2016. • Production of pig iron ramped up to record production of 611kt. • Increase in capacity at pig iron plant from 625kt to 700kt. • Operating losses comfortably lower at US$(10.9) million. In 2015, The Ministry of Environment and Forests revoked its earlier suspension order for iron ore mines in Goa and we are expecting to resume mining operations in Goa and recommencing exports. 3 Projects under development 3 Iron Ore project, Liberia Caption top: Employees at Sesa Iron Ore operations. Caption bottom: Employee at laboratory, Iron Ore operations. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 62 Strategic report We are Vedanta Review of operations Production performance Production Saleable ore (mt) Goa Karnataka Pig iron (kt) Sales Iron ore (mt) Goa Karnataka Pig iron (kt) Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation Acquisition related amortisation Operating (loss) before special items Share in Group operating profit (%) Capital expenditure Sustaining Growth FY2015 FY2014 % Change 0.6 – 0.6 611 1.2 – 1.2 605 1.5 – 1.5 510 0.0 – 0.0 544 (59.0)% – (59.0)% 19.8% – – – 11.3% FY2015 FY2014 % Change 326.5 31.4 9.6% 35.8 6.5 (10.9) (0.6)% 36.9 36.9 – 267.1 (24.2) (9.1)% 33.9 11.9 (70.0) (3.1)% 43.6 14.1 29.5 22.2% – – 5.7% (45.5)% (84.4)% – (15.2)% – – Caption top: Ore pile at Sesa Iron Ore operations. Iron Ore Operations At Karnataka, production recommenced at an annual capacity of 2.29mtpa on 28 February 2015, following receipt of all requisite clearances and approvals. About 0.3mt of saleable ore was produced during the quarter and the sales are expected to resume in Q1 FY2016 through the existing e-auction procedures managed by the Government. During the quarter, the Ministry of Environment and Forests revoked its earlier order which had kept the environment clearances for iron ore mines in Goa in abeyance. We have been allocated an interim annual mining quantity of 5.5mt of saleable ore. Mining is expected to commence after the monsoon season, following the expected receipt of the remaining approvals from the Government. With effect from 1 June 2015, the export duty on low grade iron ore (< 58% Fe) has been reduced from 30% to 10% and it will improve the prospects for Goan iron ore prices in this cycle of depressed iron ore prices. Production of pig iron ramped up from 510kt in FY2014 to a record production of 611kt. In March 2015, further de-bottlenecking of the pig iron plant was completed resulting in an increase in capacity from 625kt to 700kt. Iron ore spot prices averaged US$67.5 (FOB) for 62% Fe grade a tonne over FY2015 and price pressures intensified as the year progressed. Vedanta Resources plc Annual report and accounts FY2015 63 Financial performance EBITDA in FY2015 increased to US$31.4 million, compared with a loss of US$(24.2) million in the previous year, due to higher volumes and improved margin from the pig iron business. In FY2015 operating losses were significantly lower at US$(10.9) million. Outlook Approval for commencing production at 5.5mt saleable ore capacity received and expect to resume operations post monsoons. An aggressive cost- reduction agenda is being implemented to effectively counter the current low price environment. The pace of the Liberia project execution has been impacted by the Ebola virus situation for most of the year. The Company expects to progress exploration and commission a feasibility study in early FY2017. Our strategic priorities • Ramping-up Karnataka mines to its capacity. • Resuming mining operations in Goa and recommencing exports. • Work with Government for removal of cap on mining capacity. • Complete feasibility work at Western Cluster. Caption: Sesa Goa. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 64 Strategic report We are Vedanta Review of operations Earnings for Copper-India were significantly higher than the previous year. Caption: Employees at Tuticorin smelter. Copper I am pleased to announce that with our focus on operational efficiencies and cost of production, we have delivered a significant increase in EBITDA and operating profit. P. Ramnath CEO, Copper India 1 1 Silvassa refinery 2 Tuticorin smelter Projects under development 2 400ktpa Tuticorin smelter 2 2 Vedanta Resources plc Annual report and accounts FY2015 65 Key metrics Copper India and Australia Production – Copper cathodes (kt) 15 362 14 294 Production – Copper mined metal (kt) 15 14 18 0 EBITDA (US$m) 15 14 281.0 197.9 Unit costs (US cents per lb) 15 4.2 14 9.7 Copper Zambia Production – Mined metal (kt) 15 14 116 128 Production – Finished copper (kt) 15 169 14 177 It has been a difficult year for Copper Zambia due to higher unit costs of production, lower volumes and lower metal prices. We are working hard to improve operational costs and realise cost efficiency. We are also planning for the future and will start to examine new mining options for the year ahead. Steven Din CEO, Copper Zambia EBITDA (US$m) 15 (3.8) 14 Unit costs (US cents per lb) 15 14 238.4 156.3 257.7 Results During the year we achieved: • Copper cathode production at Tuticorin record 362,000 tonnes. • Cost of production at Tuticorin reduced due to higher volumes, lower input costs and higher by-product credits. • Mined metal in Zambia reduced due to maintainence shutdowns. 3 5 Mt Lyell mine, Australia 5 3 Konkola and Nchanga copper mines and Nchanga smelter, Zambia Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 66 Strategic report We are Vedanta Review of operations Production performance Production (kt) India – cathode Australia – mined metal content Operations Average LME cash settlement prices (US$ per tonne) Realised TCs/RCs (US cents per lb) Unit costs FY2015 FY2014 % Change 362 0 294 18 23.1% – FY2015 FY2014 % Change 6,558 21.4 7,103 16.6 (7.7)% 29.2% Unit conversion costs (CoP) – (US cents per lb) 4.2 9.7 (56.8)% FY2015 FY2014 % Change Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation and amortisation Operating profit before special items Share in Group operating profit (%) Capital expenditure Sustaining Growth FY2015 FY2014 % Change 3,700.7 281.0 7.6% 51.6 229.4 13.2% 29.6 29.6 – 3,404.8 197.9 5.8% 42.1 155.7 6.8% 56.2 37.3 18.9 (8.7)% 42.0% – 22.6% 47.2% – (47.3)% (20.6)% – Caption top: KCM Konkola Mine, Zambia. Copper India and Australia Operations FY2015 copper cathode production at Tuticorin was a record 362,000 tonnes, despite the 23-day planned maintenance shutdown in Q1. The 160MW power plant at Tuticorin continued to operate at a Plant Load Factor of 86%. Our copper mine in Australia remains under care and maintenance and we continue to evaluate various options for its restart. Over FY2015, average LME copper price fell by 8% while treatment and refining charges (TCs/RCs) increased by 29%. Unit costs At the Tuticorin smelter, the cost of production decreased from 9.7 US cents per lb to 4.2 US cents per lb, mainly due to higher volumes, lower input costs (fuel and power) and higher by-product credits. Recently, we have seen some pressure on copper prices but treatment and refining charges are expected to remain relatively strong. Global treatment and refining charges for 2015 have so far settled at higher levels compared to 2014, and we expect to realise over 24 US cents per lb for FY2016. Financial performance EBITDA for FY2015 was US$281.0 million, significantly higher compared with US$197.9 million in the previous year. This increase was mainly driven by higher volumes, with improved operational efficiencies, higher treatment and refining charges, and lower cost of production. Operating profit was US$229.4 million in FY2015, an improvement from US$155.7 million in the previous year. Outlook Production is expected to be stable around 400kt with no planned maintenance activities scheduled in FY2016. Our strategic priorities • Sustaining operating efficiencies and reducing our cost profile. • 400ktpa project to expand capacity along with the flexibility to handle multiple grades of concentrate. Vedanta Resources plc Annual report and accounts FY2015 67 Copper Zambia Production performance Production (kt) Mined metal Finished copper Integrated Custom Unit costs (integrated production) C1 cash costs (US cents per lb)1 Total cash costs (US cents per lb)2 FY2015 FY2014 % Change 116 169 117 52 128 177 124 53 (9.5)% (4.6)% (5.9)% (1.3)% FY2015 257.7 329.1 FY2014 % Change 238.4 334.0 8.1% (1.5)% 1 C1 cash cost, excludes royalty, logistics, depreciation, interest, sustaining capex. 2 Total cash cost includes sustaining capex. Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation and amortisation Operating (loss)/profit before special items Share in Group operating profit (%) Capital expenditure Sustaining Growth FY2015 FY2014 % Change 1,077.1 (3.8) (0.4)% 187.2 (191.0) (11.0)% 57.9 57.9 – 1,271.4 156.3 12.3% 171.5 (15.3) (0.7) 150.9 114.2 36.7 (15.3)% (102.4)% – 9.2% – – (61.6)% (49.3)% (100.0)% Operations FY2015 mined metal production was 10% lower at 116kt. Production at the Konkola underground mine was negatively affected as remediation and critical maintenance was being carried out at the shafts. Shaft #1 resumed partial hoisting in March 2015 and work at Shaft #4 is expected to be completed by Q3 FY2016. At Nchanga, FY2015 mined production was affected by lower grades and a transformer failure at the Tailings Leach Plant (TLP). During the year, TLP primary copper production was at 52,000 tonnes (56,000 tonnes in FY2014). Production from the Upper Ore Body at the Nchanga underground was suspended in November 2014 pending a review of an appropriate mining method to exploit this ore body. Copper custom production was marginally lower by 1%, constrained by blending challenges from concentrates available in the market. On 23 February 2015, the Government amended the documentation requirements to reclaim VAT on future exports. This will enable us to resume purchase and treatment of third-party concentrate and thereby increase the smelter utilisation. Unit costs (integrated production) The unit cost of production without royalty, logistics, depreciation, interest and sustaining capex increased to 257.7 US cents per lb in FY2015, 8.1% higher than the previous year. This was mainly due to the lower volumes and higher maintenance costs. Financial performance EBITDA in FY2015 was US$(4) million compared with US$156 million in the previous year, impacted by the lower volumes explained above, higher unit costs and lower metal prices. These factors also contributed to an operating loss before special items of US$191 million for FY2015. Outlook Konkola mine KCM is focusing on running the Konkola mining operations efficiently through its Pivot strategy, which focuses on three key production areas, thereby resulting in improved equipment availability and productivity. There is also a programme under way to increase the number of underground workshops and the training of frontline employees. Smelter and refinery While the Konkola mine ramps up production levels, we have the opportunity to increase the utilisation rate of the smelter by treating third party concentrates, from both within Zambia and from other countries. This has been positively assisted by the decision of the Government of Zambia to amend Rule 18, which has eased the documentation requirements for VAT refunds. Nchanga operations At Nchanga, we are focused on sustaining and improving the operations at the Tailings Leach Plant by treating copper refractory ore stockpiles and old tailings. Open pit and underground operations at Nchanga are approaching the end of their economic life, and therefore experiencing low grades and high unit costs. Production is expected to ramp-up after first quarter. FY2016 total production is expected to be 190-210kt with integrated production of 120-130kt at C1 cost of 225 US cents per lb. Our strategic priorities • Focus on profitable production at Konkola, with the ‘Pivot strategy’ and maintenance work around the shaft infrastructure and mobile fleet to increase capacity. • Ensure that Tailings Leach Plant operations continue reliably, and roll-out an effective preventative maintenance programme. • Increase smelter utilisation by filling spare capacity with purchased concentrates. • Realise cost efficiency, driven by volume growth and other measures • Improve productivity. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 68 Strategic report We are Vedanta Review of operations High metal premiums and additional volumes have helped drive up earnings. Caption: Employees at Jharsuguda 2900MW Power Plant. Aluminium Our aluminium business is currently operating in the second quartile of the global cost curve and is well positioned to significantly improve their costs and contribution to EBITDA as we ramp up new capacities and build the captive raw material linkages. S.K. Roongta CEO, Aluminium & Power 3 3 1 2 2 1 Lanjigarh alumina refinery 2 500ktpa Jharsuguda smelter & power plant 3 245ktpa Korba smelter & power plant Projects under ramp up 2 1.25mtpa Jharsuguda smelter 3 325ktpa Korba smelter & power plant Vedanta Resources plc Annual report and accounts FY2015 69 Key metrics Production – Alumina (kt) 15 14 524 977 Production – Total aluminium (kt) 15 877 14 794 EBITDA (US$m) 15 14 287.3 415.5 Unit costs – Alumina (US$ per tonne) 15 14 356 358 Unit costs – Hot metal production (US$ per tonne) 15 14 1,658 1,755 Results During the year we achieved: • Record production at Lanjigarh, achieving 98% of permitted capacity of 1mt. • Stable production at Jharsuguda I and Korba I smelters. • Start-up of first pot line at Jharsuguda II smelter. • Improved operational efficiencies offset higher cost of production. We initiated a number of innovative and cost saving projects to increase operational efficiencies. Pot-lines and other facilities including billet and wire rods are now working at much higher than designed capacities, with improved recovery and quality. Caption top: Employees reviewing plan at BALCO. Caption bottom: Employee at BALCO cast house. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 70 Strategic report We are Vedanta Review of operations Caption: Employee with ingots at cast house, Jharsuguda. Production performance Production (kt) Alumina – Lanjigarh Aluminium – Jharsuguda I – Jharsuguda II1 Aluminium – Korba I – Korba II2 Total aluminium 1 Including trial run production of 19kt in FY2015. 2 Including trial run production of 24kt in FY2015. Unit costs (US$ per tonne) Alumina cost Aluminium hot metal production cost Jharsuguda I CoP Jharsuguda I smelting cost BALCO CoP BALCO smelting cost Average LME cash settlement prices (US$ per tonne) Financial performance (in US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation and amortisation Operating profit before special items Share in Group operating profit (%) Capital expenditure Sustaining Growth FY2015 FY2014 % Change 977 534 19 253 71 877 524 542 – 252 1 794 86.4% (1.4%) – 0.7% – 10.4% FY2015 FY2014 % Change 356 1,755 1,630 907 1,961 1,270 358 1,658 1,602 889 1,781 1,082 (0.6)% 3.6% 1.8%% 2.0% 6.9% 12.2% FY2015 FY2014 % Change 1,890 1,773 6.6% FY2015 FY2014 % Change 2,081.9 415.5 20.0% 139.6 275.9 15.9% 142.0 9.5 132.5 1,785.4 287.3 16.1% 174.7 112.5 4.9% 165.3 18.3 147.1 16.6% 44.6% – (20.1)% 145.1% – (14.1)% (47.9)% (9.9)% Aluminium Operations At the Lanjigarh Alumina refinery, FY2015 production reached record levels, allowing us to achieve 98% of the permitted capacity of 1mt. Production numbers for FY2015 are not comparable to the previous year, due to the temporary suspension of production which was lifted in July 2013. In FY2015, production was stable at the 500kt Jharsuguda I and 245kt Korba I smelters. We initiated a number of innovative and cost saving projects to increase operational efficiencies. Pot-lines and other facilities including billet and wire rods are now working at much higher than designed capacities, with improved recovery and quality. Unit costs In FY2015, alumina cost of production was US$356 per tonne, almost flat compared with FY2014. The cost of production of hot metal at Jharsuguda I was US$1,630 per tonne and increased by 2.0%, compared to US$1,602 per tonne in FY2014. The increase was due to higher purchased alumina prices and higher e-auction coal prices, partially offset by improved captive coal availability and lower power consumption. The cost of production at the 245kt Korba I increased to US$1,904 per tonne from US$1,781 per tonne in FY2014. This increase was due to higher alumina and coal costs, as captive coal availability reduced by a further 25% this year. However, this was partially offset by the improved operational efficiencies. Average LME prices for aluminium for the year were US$1,890, an increase of 7% on the previous year’s average price level of US$1,773. Caption top: Jharsuguda Plant. Vedanta Resources plc Annual report and accounts FY2015 71 Financial performance FY2015 EBITDA was up 44.6% at US$416 million, compared with US$287 million in the previous year. This was primarily due to higher LME prices and premia on metals, as well as additional volume from the new Korba II smelter. Projects During the year, progress was made in securing raw material for our alumina refinery, with the Government of Odisha granting Prospecting Licenses (PLs) for three laterite deposits. The exploration work is ongoing and we expect to start production in FY2016 after receipt of the Mining Leases (ML). The approval for expansion of the Lanjigarh Alumina refinery has reached the final stages and environmental clearance is expected soon. At the new 325kt Korba II smelter, 84 pots were commissioned during the year and produced 71,000 tonnes, which includes 19,000 under trial run. Ramp-up to full capacity will take place during H1 FY2016, along with the ramp-up of the 1,200MW power plant. Out of the two captive power units of 300MW each, the first unit is expected to be commissioned in Q1 FY2016. The BALCO 270MW power plant will be available for captive consumption as a back-up for pot ramp-up support. We have also commenced the start-up of the first pot line of 312.5kt of the 1.25mtpa Jharsuguda II smelter, using surplus power from the 1,215MW power plant. 82 pots have been started during the last quarter of FY2015 and are under trial run. Ramp-up of the remaining pots of the first pot-line is expected to commence in end of Q1 FY2016, using power from one 600MW unit of the 2,400MW power plant. In the recent coal block auctions conducted by the Government, BALCO was successful in securing two coal mines which are ready for production; Chotia Block with reserves of 15.5mt and annual production capacity of 1mtpa; and Gare Palma IV/1 Block with reserves of 44mt and capacity of 6mtpa. We will commence production at the Chotia mine over the next few months after transfer of the mining lease and other statutory approvals. BALCO has appealed regarding Government’s rejection of its winning bid for the Gare Palma IV/1 block and the matter is sub judice. Outlook During FY2016, the Company will focus on ramping up production from the Korba II and Jharsuguda II smelters as well as increasing the alumina production at Lanjigarh Refinery beyond 1mtpa post receipt of approvals. The Company has Prospecting Licences for three laterite mines in Odisha and exploration is in progress. We expect to commence mining in the second half of FY2016. Our strategic priorities • Secure captive refinery feed to realise the full potential of cost efficiencies and increase capacity utilisation. • Ramp-up Aluminium capacity. • Laterite mining. • Commencement of coal block operations at BALCO. • Lanjigarh refinery expansion to 4mpta. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 72 Strategic report We are Vedanta Review of operations With additional power units sold, we are pleased to have achieved strong EBITDA. Caption: Employees near turbine at Jharsuguda 2,400MW power plant. Power We are focused on completing the Talwandi Sabo power plant project. We also anticipate that with the improvement in the economic climate and industrial performance, demand and hence the open market price for power is expected to recover over the next few years. S.K. Roongta CEO, Power 3 2 1 MALCO power plant 2 Jharsuguda smelters & power plants 3 Talwandi Sabo power project Captive thermal power plant 1 Vedanta Resources plc Annual report and accounts FY2015 73 Key metrics Power sales in million kwh 15 14 9,859 9,374 EBITDA (US$m) 15 14 153.8 168.4 Unit costs (US cents/kwh) 15 14 3.5 3.7 Caption: Switchyard, 2,400MW Jharsuguda Power Plant. Caption: Employees at 2,400MW Power Plant. Results During the year: • 2,400MW power plant had lower plant load factor of 39% due to lower market demand. • Average power generation costs improved due to lower coal costs. • Commissioned first unit of Talwandi Sabo Power Plant. Over the next 12 months, we are focusing on enhancing access to power transmission facilities and completing the 1,980MW Talwandi Sabo power project. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation Power Operations The Jharsuguda 2,400MW power plant operated at a lower Plant Load Factor (PLF) of 39% during FY2015 due to lower market demand and transmission constraints for some regions. However, during FY2016 capacity utilisation is expected to go up significantly as we ramp-up the plant for additional aluminium pot-lines. Out of the two 300MW units of the 1,200MW Korba Power Plant destined for commercial power, one 300MW unit is currently under trial run, and will be commissioned during Q1 FY2016; the second commercial unit is expected to be commissioned during Q2 FY2016. At the Talwandi Sabo power plant, the first 660MW unit has started commercial power generation with another unit synchronised. The 1,980MW power plant is expected to ramp-up to capacity during FY2016. Unit sales and costs Average power sale prices were lower in FY2015 at 5.3 US cents per unit compared with 5.9 US cents per unit in the previous year due to lower demand. During FY2015, average power generation costs improved, falling to 3.5 US cents per unit compared with 3.7 US cents per unit in the previous year on account of a lower coal cost. 74 Strategic report We are Vedanta Review of operations Production performance Power Sales (MU) MALCO and Wind Energy BALCO 270MW 600MW1 Jharsuguda 2,400MW Talwandi Sabo (TSPL)2 1 Includes production under trial run 10 million units in FY2015. 2 Includes production under trial run 264 million units in FY2015. Unit sales and costs Sales realisation (US cents/kwh) Cost of production (US cents/kwh) Financial performance (US$ million, except as stated) Revenue EBITDA EBITDA margin (%) Depreciation and amortisation Operating profit before special items Share in Group operating profit (%) Capital expenditure Sustaining Project FY2015 FY2014 % Change 9,859 1,341 89 10 7,206 1,213 9,374 1,359 390 – 7,625 – 5.2% (1.3)% (77.2)% – (5.5)% – FY2015 FY2014 % Change 5.3 3.5 5.9 3.7 (9.1)% (5.2)% FY2015 671.9 153.8 22.9% 65.8 88.0 5.1% 142.2 – 142.2 FY2014 % Change 621.7 168.4 27.1% 99.1 69.4 3.0% 288.9 5.8 283.1 8.1% (8.7)% (33.6)% 26.8% – (50.8)% – (49.7)% Caption top: Turbine at Talwandi Sabo Power Plant. Vedanta Resources plc Annual report and accounts FY2015 75 Financial performance EBITDA remained at a similar level despite lower demand and tariffs, following additional power sold from the newly commissioned unit at the Talwandi Sabo power plant. Outlook During FY2016, we will continue to increase capacity utilisation at Jharsuguda and bring new capacity onstream at Korba and Talwandi Sabo. Our strategic priorities • Enhance access to power transmission facilities. • Complete the 1,980MW Talwandi Sabo power project. Port business The Vizag General Cargo Berth (VGCB) tonnage handled increased by 48% to 7mt as compared to 4.7mt in FY2014 and generated an EBITDA of US$13.0 million. VGCB is one of the deepest coal terminals on the eastern coast of India, which enables docking of large Capesize vessels. Caption: Turbine at 2,400MW Jharsuguda Power Plant. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 76 Corporate governance and Directors’ reports Board of Directors L-R Geoffrey Green Navin Agarwal Anil Agarwal Tom Albanese Euan Macdonald Deepak Parekh Aman Mehta Katya Zotova Committee membership key ✝ Audit Committee ✜ Nominations Committee ❖ Sustainability Committee ✱ Remuneration Committee Anil Agarwal, 62 ✜ Executive Chairman Background and experience Mr Agarwal founded the Group in 1976 and has over three decades of entrepreneurial and mining experience. He has helped to shape the Group’s strategic vision and under his leadership, Vedanta has grown from an Indian domestic miner into a global natural resources group with a world class portfolio of large, diversified, structurally low-cost assets which are capable of generating strong cash flow. Mr Agarwal is also a director of Sterlite Technologies Limited, Conclave PTC Limited and the Anil Agarwal Foundation. Date of appointment Mr Agarwal was appointed to the Board in May 2003 and became the Executive Chairman in March 2005. Mr Agarwal is Chairman of the Nominations Committee. Navin Agarwal, 54 Executive Vice Chairman Background and experience Mr Agarwal has over 25 years of senior management experience within the Group and is currently the Chairman of the Company’s principal subsidiary Vedanta Limited and Cairn India Limited. He is the Chairman of the Group’s Human Resources Advisory Committee and has championed personnel training and development initiatives to grow the talent pipeline for senior management succession planning within the Group. He has also been instrumental in promoting a culture of continuous improvement in business processes and nurtured the Management Assurance practice across the Group. He is a member of the Procurement, Marketing and Sustainable Development and Communications Advisory Committees. Mr Agarwal was formerly the Chairman of the Executive Committee until 31 August 2013. Date of appointment Mr Agarwal was appointed to the Board in November 2004 and became the Executive Vice Chairman in June 2005. Tom Albanese, 57 ❖ Chief Executive Officer Background and experience Mr Albanese is the Company’s Chief Executive Officer, Chairman of the Executive Committee, Chief Executive Officer of Vedanta Limited and Chairman of Konkola Copper Mines plc. He is responsible for implementing the strategy set by the Board to deliver growth of the business through sustained operational excellence within a safe, zero harm environment. Mr Albanese is also a non-executive director of Franco-Nevada Corporation, a Toronto-based gold and metal streaming company. Prior to joining Vedanta, Mr Albanese was chief executive officer of Rio Tinto plc from 2007- 2013, having joined Rio Tinto in 1993 on its acquisition of US energy company, Nerco Minerals, where he was chief operating officer from 1989-2000. At Rio Tinto plc, he held a series of management positions including overseeing the acquisition and integration of North Limited into the group’s operations, chief executive of the Industrial Minerals group in 2000, and chief executive of the copper group and head of exploration in 2004. Mr Albanese has also previously served on the Boards of Ivanhoe Mines Limited, Palabora Mining Company and Turquoise Hill Resources Limited. He holds a bachelor’s degree in mineral economics and a master’s degree in mining engineering from the University of Alaska. Date of appointment Mr Albanese was appointed to the Board in April 2014. Aman Mehta, 68 ✝ ✜ ✱ Senior Independent Director and Non-Executive Director Background and experience Mr Mehta is currently a Non- Executive Director of Jet Airways (India) Limited, Tata Consultancy Services Limited, PCCW Limited, Wockhardt Limited, Max India Limited, Godrej Consumer Products Limited and Cairn India Limited. He is also a member of the Board of Governors of the Indian School of Business in Hyderabad, India. Mr Mehta had an long career spanning over three decades at Hong Kong and Shanghai Banking Corporation (HSBC) where he held a number of executive positions such as chairman and chief executive officer of HSBC USA Inc, deputy chairman of HSBC Bank, Middle East and chief executive officer of HSBC Asia Pacific, a position he held until his retirement. He was also previously a non- executive director of MGF Emaar Limited, ING Group N.V. and a director of the Indian Council for research on international economic relations. Mr Mehta has a degree in economics from Delhi University. His strong financial background and global executive experience have been beneficial in providing effective oversight through rigorous challenge to the Board and the Audit Committee. Date of appointment Mr Mehta was appointed to the Board in November 2004 and is Chairman of the Audit Committee. Vedanta Resources plc Annual report and accounts FY2015 77 Euan Macdonald, 75 ❖ ✝ ✜ ✱ Non-Executive Director Background and experience Mr Macdonald has extensive corporate and financial knowledge having previously spent over 20 years with SG Warburg, specialising in emerging market finance. From 1995 to 1999, Mr Macdonald was chairman of SBC Warburg India, responsible for the bank’s activities in India, and from 1999 to 2001 he was executive vice chairman of HSBC Securities and Capital Markets, India. As Chairman of the Remuneration Committee, Mr Macdonald led the successful consultation with the Company’s major shareholders on executive remuneration to better understand and address shareholder concerns. He has a degree in economics from Cambridge University and a master’s degree in finance and international business from Columbia Business School. Date of appointment Mr Macdonald was appointed to the Board in March 2005 and is Chairman of the Sustainability and Remuneration Committees. Geoffrey Green, 65 ✱ Non-Executive Director Background and experience Mr Green was a partner of a leading international law firm, Ashurst LLP from 1983 to 2013 and served as Ashurst’s senior partner and chairman of its management board for 10 years until 2008. He was subsequently appointed as head of the firm’s expanding Asian practice from 2009 to 2013, based in Hong Kong. Mr Green is currently also the non-executive chairman of the Financial Reporting Review Panel, one of the main subsidiary bodies of the Financial Reporting Council. Mr Green has a wealth of knowledge in respect of the UK corporate governance, regulatory and strategic matters, having been a legal adviser to several major UK listed companies and their boards on a wide variety of corporate and governance issues. He has a degree in law from Cambridge University and qualified as a solicitor at Ashurst LLP. Date of appointment Mr Green joined the Board in August 2012. Deepak Parekh, 71 ✝ ✜ Non-Executive Director Background and experience Mr Parekh is the chairman of Housing Development Finance Corporation, India’s leading financial services conglomerate with a presence in banking, asset management, life insurance, general insurance, real estate, venture funds and education loans. He is the non-executive chairman of GlaxoSmithkline Pharmaceuticals and Siemens, in India. Mr Parekh also serves as a director on the Boards of Exide, Mahindra & Mahindra, Indian Hotels and the international Board of DP World in the UAE. In addition, he is on the advisory boards of several Indian and multinational corporations. Mr Parekh was the first international recipient of the Institute of Chartered Accounts in England and Wales outstanding achievement award in 2010. Date of appointment Mr Parekh joined the Board in June 2013. Ekaterina (Katya) Zotova, 37 ✜ ✱ Non-Executive Director Background and experience Ms Zotova has a wide range of commercial experience in the oil & gas industry including strategy, portfolio management, finance and mergers and acquisitions. She is currently a Principal at L1 Energy LLP, previously called Pamplona Global Energy Fund. Prior to this, Ms Zotova was Head of International Acquisitions and Divestments for Citigroup’s oil and gas division focusing on oil majors and national oil companies. She has also previously held a variety of upstream commercial roles during a 14 year career at Royal Dutch Shell including Head of Portfolio Management for upstream International. She has a summa cum laude degree in finance and management from the Academy of National Economy in Moscow and an MBA from Rotterdam School of Management/ Columbia Business School. Date of appointment Ms Zotova joined the Board in August 2014. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 78 Corporate governance and Directors’ reports Executive Committee The Executive Committee oversees the Group’s operations and implementation of the strategic initiatives which are set by the Board. It is led by Mr Albanese and comprises of the Executive Vice Chairman and the following members of senior management: Tarun Jain Director of Finance and Whole Time Director, Vedanta Limited (formerly Sesa Sterlite Limited) Mr Jain joined the Group in 1984 and has over 30 years of executive experience in finance, accountancy, audit, taxation and corporate governance. He is responsible for corporate finance, business development and mergers and acquisitions at Vedanta Limited. Mr Jain is a graduate of the Institute of Cost and Works Accountants of India and a fellow of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. DD Jalan Chief Financial Officer and Whole Time Director, Vedanta Limited Mr Jalan has over 36 years of senior management experience covering business improvement, corporate finance, accountancy, audit, taxation, corporate governance and legal matters. Prior to joining the Group in 2001, he was Executive Joint President of Birla Copper at the Aditya Birla Group. He is a fellow of the Institute of Chartered Accountants of India. Mayank Ashar Managing Director and Chief Executive Officer of Cairn India Limited (Cairn India) Mr Ashar was appointed as the Managing Director and Chief Executive Officer of Cairn India in November 2014. He has a wealth of experience spanning over 36 years in the international oil & gas industry. He has previously held various senior management and top leadership roles in global organisations such as British Petroleum, Petro-Canada and Suncor Energy and was formerly President of Irving Oil Limited. During his career, Mr Ashar has helped to deliver industry-leading business results and demonstrated expertise in driving strategic growth, delivering operational efficiency and executing large, complex capital intensive projects. In recognition of his operational excellence and large scale project management leadership in the oil sands with Suncor Energy, Mr Ashar was named as the Operations Executive of the Year by the Canadian Business Magazine in 2003. He has a masters in engineering and an MBA from the University of Toronto, Canada. Roma Balwani President-Group Communications, Sustainability and Corporate Social Responsibility Ms Balwani was appointed as President- Group Communications, Sustainability and Corporate Social Responsibility in April 2014. She has a rich and diverse experience with a career spanning over 30 years at Mahindra & Mahindra and Aptech. Prior to joining the Group, she was Chief Communications Officer at Mahindra & Mahindra Limited. Ms Balwani has received several prestigious communications related accolades and was the first Indian to receive the SABRE Award for outstanding individual achievement. She is a member of the global advisory committee of the World Communication Forum at Davos, the PR Committee of the Bombay Chamber of Commerce and Industry and the Association of Business Communicators of India. Mukesh Bhavnani Group Legal Counsel and Chief Compliance Officer Mr Bhavnani was appointed as Group Legal Counsel and Head of Compliance in April 2015. Prior to joining the Group, he was Group General Counsel and Company Secretary at Bharti Enterprises. He has over 37 years of senior management experience in legal, compliance, company secretarial and corporate affairs within organisations including Essar Group, Sony Entertainment, Max New York Life and Coca Cola India. Steven Din Chief Executive Officer and Whole Time Director, Konkola Copper Mines (KCM) Mr Din was appointed Chief Executive Officer of KCM in May 2014. He has over 20 years of experience in the natural resources industry, with over 15 years of African mining and oil & gas experience. Prior to joining the Group, Mr Din was chief executive officer of minerals for Essar in Zimbabwe. He was also previously managing director of Strategic Projects for Rio Tinto in Senegal, chief financial officer of Palabora Copper Mines in South Africa and managing director and president of Rio Tinto Simandou in Guinea. Vedanta Resources plc Annual report and accounts FY2015 M Siddiqi Group Director, Projects Mr Siddiqi joined the Group in 1991 and rising through several operational roles, he led the set-up of the Group’s large aluminium and power projects including BALCO smelters and captive power plants. He also played a key role in setting up the copper smelter at Tuticorin and copper refinery at Silvassa. Prior to his appointment as Group Director of Projects he was chief executive officer of the Group’s Aluminium division. Prior to joining the Group, Mr Siddiqi held senior positions in Hindustan Copper Limited. He has over 38 years of industry experience. Mr Siddiqi has a mechanical engineering degree from the Indian Institute of Technology, New Delhi and a PG Diploma in Management from AIMA, New Delhi. 79 Dilip Golani Director, Management Assurance Mr Golani currently heads the Group’s Management Assurance function, a position he had also previously held from April 2000 to July 2004. Mr Golani has over 25 years of experience and previously headed the Sales and Marketing function at Hindustan Zinc and the Group Performance Management function from August 2004 to November 2005. Prior to joining the Group in April 2000, Mr Golani was responsible for managing the Operations and Marketing functions for one of the export businesses of Unilever India. Mr Golani has a degree in mechanical engineering and a post graduate degree in industrial engineering and management. Akhilesh Joshi Chief Executive Officer and Whole Time Director, Hindustan Zinc Limited (HZL) Mr Joshi joined Hindustan Zinc Ltd in 1976 and was appointed as Chief Executive Officer and Whole Time Director of HZL in February 2012. In October 2008, he became Chief Operating Officer and Whole Time Director of HZL. Prior to this, he was the Senior Vice President (Mines), responsible for the overall operations at all mining units. Mr Joshi has a Mining Engineering degree from MBM Engineering College, Jodhpur and a Post Graduate Diploma in Economic Evaluation of Mining Projects from School of Mines, Paris. He also has a first class Mine Manager’s Certificate of Competency. He has received several prestigious awards for his outstanding contribution in the field of mining technology and non-ferrous metal sector in India. Rajagopal Kishore Kumar Chief Executive Officer, Iron Ore Mr Kumar joined the Group in April 2003 and has held various executive roles including Chief Executive Officer of Sterlite Copper from 2007 to 2008, Chief Executive Officer of KCM from 2008 to 2011, Chief Executive Officer of Zinc International from 2011-2013 and Chief Executive Officer, Africa (Base Metals) from 2013 to 2015. He was appointed as Chief Executive Officer of the Group’s Iron Ore businesses with effect from February 2015 and is leading the revival of profitable, low cost iron ore mining operations in Goa and Karnataka as well as developing the Liberian Project. Mr Kumar has nearly 30 years of experience and expertise in accountancy, commerce, marketing, supply chain management, mergers and acquisitions and human capital development. Prior to joining the Group, Mr Kumar worked at Hindustan Lever Limited for 12 years. Rajesh Padmanabhan President and Group Chief Human Resources Officer Mr Padmanabhan was appointed in June 2014 to spearhead the Group’s human resources function. His responsibilities include driving the Group’s people strategy and transformation, leadership building, talent management, capability building, total rewards and performance management. Prior to joining the Group, he was the Chief Human Resources Officer for Capgemini India since 2010. Mr Padmanabhan has over three decades of global industry experience in finance, systems and human resources in companies like Patni Computer Systems, The Oberoi Group, Essel Propack, and the ICICI group in a variety of roles. He has a double masters in finance and human resources from the University of Mumbai. Abhijit Pati Chief Executive Officer, Aluminium Mr Pati was appointed as Chief Executive Officer of the Group’s aluminum business in March 2015 and is responsible for the Jharsuguda Smelters, Lanjigarh Alumina and BALCO. He joined the Group in 2008 and, with his wealth of knowledge over 26 years in the industry, has been a significant driver of Jharsuguda’s growth. Mr Pati is a graduate chemical engineer from the University of Calcutta and holds an MBA from IMI Delhi. Sushil Kumar Roongta Managing Director of Aluminium & Power Mr Roongta is currently responsible for Vedanta’s aluminium and power business. Prior to joining the Group, Mr Roongta worked with the Steel Authority of India for almost four decades, before being appointed as its Commercial Director in 2004 and later as chairman of its board in August 2006. He is also an independent director on the Boards of ACC Limited, Jubilant Industries Limited and chairperson of the Board of Governors, IIT, Bhubaneswar. Mr Roongta has a bachelor’s degree in engineering and a post graduate diploma in business management in International Trade. Mr Roongta is due to retire from the Group in June 2015 following a long and successful career. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 80 Corporate governance and Directors’ reports Corporate governance report Anil Agarwal, Executive Chairman We have made encouraging progress in improving the Group’s safety record and reaching our goal of becoming a zero harm environment. This is a key part of good corporate governance which is embedded within the Vedanta culture. Dear Shareholder, I am delighted to introduce the Company’s 2015 Corporate Governance Report. I strongly believe that good corporate governance is a key driver of performance and is fundamental to the Group’s long-term success. We therefore endeavour to promote good corporate governance which is embedded within the culture of our organisation and underpins everything we do, rather than simply as the adherence to a set of rules. Vedanta business and brand alignment The Company’s key operating subsidiary, Sesa Sterlite Limited was renamed Vedanta Limited to harness the value of the Vedanta brand and strengthen the links between our business, communities and stakeholders. The rebranding is a significant milestone and helps to promote a united and aligned identity to enable us to deliver world class excellence with low cost operations and greater value for our shareholders. Sustainability and safety We have made encouraging progress during the year on improving the Group’s safety record and reaching our goal of becoming a zero harm environment. Whilst there has been a step change in safety consciousness across the Group, it is disappointing that despite our efforts we had eight tragic fatalities during the year and advancing safety management across the Group remains a key priority of management for the year ahead. Board composition As Chairman, I am responsible for leading the Company’s Board of Directors (the Board or the Directors) and ensuring that it operates effectively to deliver long-term value for shareholders. During the year, we undertook a review of the balance of skills, knowledge and experience on the Board. As Messrs Aman Mehta and Euan Macdonald have both served as Non-Executive Directors on the Company’s Board for over nine years, succession planning has been a key priority. We have been focused on the search for suitable candidates with relevant experience in the natural resources industry to succeed them and successfully appointed Katya Zotova as a Non-Executive Director on 1 August 2014. Ms Zotova has a wealth of experience in the oil & gas industry having previously worked at Royal Dutch Shell and Citigroup’s oil & gas division. Her industry knowledge and experience will be highly beneficial to the Board in developing the Group’s strategy. I am pleased that the Company continues to have a strong, well balanced and diverse Board with a wide range of skills and experience including mining, oil & gas, corporate financial, legal and regulatory experience. In line with our succession planning requirements, we continue to seek an additional candidate to join the Board with the relevant skills and experience to succeed Mr Mehta as the Chairman of the Audit Committee. As the majority of our businesses are based in India, we feel it would be beneficial to the Company to find candidates who have some experience of doing business in India while maintaining diversity of thought on the Board. We have appointed a Board recruitment consultant to identify suitable candidates with the relevant criteria determined by the Board and we hope to announce further appointments in due course. However, in order to promote smooth transition and orderly succession, we recommend that Messers Mehta and Macdonald be reappointed as Non-Executive Directors for another year until no later than the conclusion of the Company’s 2016 Annual General Meeting. The Nominations Committee undertook a thorough review of Messrs Mehta and Macdonald and concluded that they remain independent and continue to provide rigorous objective and constructive challenge to Board discussions. Vedanta Resources plc Annual report and accounts FY2015 81 Diversity and inclusion We have previously made a commitment to achieve a minimum 25% female representation on the Board by 2015 as we believe that significant benefit can be achieved from a well-balanced and diverse board. We have made progress towards that objective with the appointment of Ms Zotova during the year. We are aware that we can do more in respect of this and it remains a key priority of the Board to make further appointments based on merit taking into account the diversity and other requirements of the Board and candidates’ skills and experience. The Board also recognises the importance of encouraging diversity in all forms including gender as well as developing employees across the Group to provide for future succession to management roles. We continue to address the historical gender imbalance in leadership roles within the natural resources sector and have made a number of senior female appointments during the year including the President – Group, Sustainability, Corporate Social Responsibility and Communications, the Chief Executive Officer of Zinc International and Group Head of Treasury. Further information on our progress is given in the Nominations Committee report on pages 98 to 100. Talent development and senior management succession planning Our people are our biggest asset for the delivery of business results and long-term shareholder value. We have renewed our commitment to nurturing and developing talent within the Group and reviewed career growth opportunities, learning and development and reward and recognition programmes within the Group. The ‘Leadership Connect’ programme was started to build the Group’s leadership capability and ensure a pipeline of suitably qualified candidates for future succession to senior management positions within the Group. Another objective of the programme is to create leaders who can drive engagement within their teams to deliver superior performance for the Group. Board effectiveness and evaluation Following the external facilitation of our Board evaluation last year, we carried out a detailed review of the Board’s effectiveness which was managed wholly in-house this year. This was done through the use of targeted questionnaires and we have produced an action plan to address the issues raised and strengthen our Board processes. Further information on the process and outcome of the evaluation exercise is provided within this report on pages 88 to 89. Annual General Meeting The Company’s 2015 Annual General Meeting will be held at 3.00pm on 3 August 2015 at Ironmongers’ Hall and I would encourage you to attend and participate in the meeting. Yours sincerely, Anil Agarwal Executive Chairman 13 May 2015 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 82 Corporate governance and Directors’ reports Corporate governance report continued Compliance with the UK Corporate Governance Code The UK Corporate Governance Code (the Code) As a company with a premium listing on the London Stock Exchange, Vedanta is subject to and seeks to comply with the 2012 edition of the Code which is available on the Financial Reporting Council’s website at https://www.frc.org.uk/corporate/ukcgcode.cfm. The Company is required to report on how it has applied the main principles of good governance in relation to leadership and effectiveness of the Board, remuneration, accountability and relations with shareholders as set out in the Code. This Corporate Governance Report provides details of our approach to governance, our policies, processes and structures and explains how we have complied with the main principles of the Code. Further details of how the Company has applied the provisions of the Code are also contained in the reports of each Board Committee and the Directors’ Remuneration Report. Disclosures on share capital and related matters as required by the Disclosure and Transparency Rules (DTR 7.2.6) may be found in the Directors’ Report on pages 116 to 119. Statement of Compliance with the Code It is the Board’s view that the Company has, throughout the financial year ended 31 March 2015, fully complied with all the provisions of the Code, with the exception of the following: Code Provision A.3.1 Mr Anil Agarwal was appointed as Executive Chairman in 2005. Mr Agarwal was the founder of the businesses of Vedanta Resources and steered the growth of the Group since its inception in 1976 including the flotation of Vedanta Resources plc on the London Stock Exchange. This meant that Mr Agarwal did not meet the independence criteria as defined in the Code on his appointment in 2005 because he was previously the Chief Executive and, through Volcan Investments Limited (Volcan), members of his family have a controlling interest in the Company. Mr Agarwal is pivotal in helping to achieve the strategic objectives of Vedanta through his skills in seeking out value creating acquisitions and projects. In addition, the fact that he dedicates himself full time to his role of Executive Chairman enables him to balance his executive duties with providing leadership to the Board. As Executive Chairman Mr Agarwal encourages debate and challenge and sets high ethical standards. For these reasons the Board is unanimously of the opinion that his continued involvement in an executive capacity is important to the success of the Group. Code Provision B.1.1 Two of the Company’s Non-Executive Directors, Messrs Aman Mehta and Euan Macdonald have served on the Board for over nine years and Mr Mehta also serves as a non-executive director on the board of Cairn India Limited. As a consequence, the Board was mindful of the risk of their independence becoming compromised and undertook a particularly rigorous assessment of their independence and potential for conflicts of interest. Mr Mehta does not have any business relationship with the Group other than his directorship at Cairn India and Vedanta Resources plc. As he absents himself from discussions in the event of any conflict of interest and continues to actively participate in Board discussions and provide robust challenge to management, the Board concluded that his independent judgement was not compromised and he remained impartial. Mr Macdonald does not have any business relationship with the Group and is not involved in any transaction or circumstance that would interfere with the exercise of his independent judgement in carrying out the responsibilities of a Director. Accordingly, the Board is satisfied that the tenure of Messrs Mehta and Macdonald does not affect their ability to exercise independent judgement or act in the best interests of the Group and has determined them to be independent. Code Provision B.2.1 By virtue of the size of its shareholding in the Company, Volcan Investments Limited (Volcan) is a controlling shareholder for the purposes of the Listing Rules and was required to enter into an agreement with the Company to ensure compliance with the independence provisions set out in the Listing Rules (Relationship Agreement). Under the Relationship Agreement, Volcan will be consulted on all appointments to the Board. The Nominations Committee therefore works collaboratively with Volcan when making appointments to the Board and, to this extent, differs from the process set out in Code Provision B.2.1 which stipulates that the Nominations Committee should lead the process for Board appointments. Leadership and the role of the Board The Company is headed by a strong and effective Board of Directors which is collectively accountable to shareholders for promoting the long-term success of the Group through the creation and delivery of sustainable shareholder value. The Board does this by setting strategic priorities and risk appetite, ensuring that adequate resources are available for the attainment of the objectives and reviewing management’s performance in delivering the strategy. As part of its decision making processes the Board considers the long-term consequences of its decisions, the interests of various stakeholders including employees, the impact of the Group’s operations on the environment and the need to maintain high standards of business. This is achieved through a prudent and robust risk management framework and internal controls and strong governance processes. Duties of the Board The duties of the Board are set out in its terms of reference including those matters specifically reserved for decision by the Board. The Board’s terms of reference were reviewed and updated during the year and in addition to the above include: • Approval of the Group’s annual and half year reports and financial statements; • Declaration of the interim dividend and the recommendation of the final dividend; • Approval of any material restructuring or reorganisation of the Group; • Approval of major capital expenditure projects in excess of defined thresholds; • Approval of major acquisitions and disposals of assets in excess of defined thresholds; • Approval of a variety of major decisions that are determined by their nature to have a significant likely impact for the Group; • Approval of any appointments to or removals from the Board of Directors. The Board’s terms of reference also set out those matters which must be reported to the Board such as details of fatalities within the Group and the adoption or material amendment to the Group policies relating to business conduct, environment and health and safety. Vedanta Resources plc Annual report and accounts FY2015 83 Corporate governance framework The relationship between the shareholders, the Board, Board Committees and Management Committees and the reporting structure as shown below forms the backbone of the Group’s Corporate Governance framework. Board of Directors Executive Chairman see page 84 Chief Executive Officer see page 85 Finance Standing Committee see page 85 Board Committees Chairman’s Committee see page 86 Executive Committee see page 85 Nominations Committee see page 98 Audit Committee see page 92 Remuneration Committee see page 109 Sustainability Committee see page 102 Advisory Committees see page 85 Procurement Advisory Committee Marketing Advisory Committee Human Resources Advisory Committee Sustainable Development and Communications Advisory Committee Finance Advisory Committee Technology & Innovation Advisory Committee Role of the Board • Provide entrepreneurial leadership and set strategic direction for the Group • Review the Group’s risk environment and set risk appetite • Approve the Group’s business plans and capital expenditure budgets • Assess adequacy of financial and human resources to attain strategic objectives • Monitor delivery of strategic objectives by management • Support management in their delivery of objectives • Provide constructive challenge to management on assumptions • Provide oversight of risk management and internal control framework • Engage with and report to shareholders on business performance • Engage with and report to other stakeholders on their areas of concern Delegation Recommendation StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 84 Corporate governance and Directors’ reports Corporate governance report continued Board culture Debate • Open discussions • Consultative processes • Encouragement to question • Constructive challenge • Collective decision making High ethical standards Supported by sound governance policies such as Code of Business Conduct and Ethics Entrepreneurial spirit • Seeking out new business opportunities and acquisitions • Underpinned by strong risk management framework and internal control systems Professional approach • Different skill sets of Board members • Excellent relationships between Board members Board membership At the date of this Report, the Board is comprised of eight members, who will each seek re-election by shareholders at the forthcoming Annual General Meeting of the Company. This includes the Executive Chairman, Executive Vice Chairman, Chief Executive Officer and five independent Non-Executive Directors. There is a variety of skills and global executive experience represented on the Board including mining, oil & gas, strategic, financial, operational and governance as can be seen from the biographical details of the Directors which are set out on pages 76 and 77. Board balance Gender split of Directors 3 Executive 5 Non-executive 7 Male 1 Female Nationalities of Directors Board experience India 4 1 US 1 Netherlands 2 UK 3 Mining 1 Oil & gas 3 1 Finance and banking Legal and governance Division of responsibilities There is a clear division between the functioning of the Board in providing effective oversight and the executive responsibility for the operation of the Company’s business. The Board has an established policy which prescribes how it discharges its mandate. This policy sets out the roles and responsibilities of the Executive Chairman, Executive Vice Chairman, Chief Executive Officer, Senior Independent Director and Non-Executive Directors and was updated in 2014 following a review of all Group policies and procedures. The respective responsibilities are set out below: The role of the Executive Chairman The Executive Chairman is responsible for: • Leading the Board and ensuring that it has the resources required to function effectively; • Developing succession plans for Board appointments for Board approval; • Helping to identify strategic priorities to enhance shareholder value; • Formulating strategic plans for the Board’s consideration and approval; • Identifying new business opportunities in line with the strategic plans approved by the Board; • Engaging with the Company’s shareholders and other stakeholders such as governments, communities and employees to ensure that an appropriate balance is maintained between the various interests; • Providing leadership to the senior management team; • Upholding the highest standards of integrity, probity and governance at Board level and throughout the Group; • Facilitating active engagement by all Directors and fostering an environment in which Non-Executive Directors can freely provide constructive challenge; • Evaluating the performance of the Board, Board committees and individual Directors and acting on the results of such evaluation; • Reviewing the training needs of the Directors for the fulfillment of their duties; and • Ensuring that new Directors participate in a full, formal and tailored induction programme. The role of the Executive Vice Chairman The Executive Vice Chairman supports the Executive Chairman in his leadership of the Board and is responsible for: • Supporting the Executive Chairman in ensuring that the Board functions effectively; • Supporting the Executive Chairman in identifying new business opportunities; • Supporting the development of the Group’s oil & gas strategy; • Supporting the development of the Group corporate structure to greater align strategic priorities and enhance shareholder value; • Guiding the execution of the Group’s manpower strategy; • Providing oversight of the development of top talent throughout the Group; and • Strengthening the Group’s procurement capability and focusing management attention on critical areas. Vedanta Resources plc Annual report and accounts FY2015 85 The role of the Chief Executive Officer The Chief Executive Officer is responsible for: • Ensuring effective implementation of Board decisions; • Developing operational business plans for Board approval; • Providing leadership to the senior management team for the delivery of the Group’s operational business plans following Board approval; • Providing oversight and management of all of the Group’s operations, business activities and performance including environmental, social, governance, health and safety, sustainability, investor relations and external communications; • Managing the Group’s risk profile in line with the risk appetite set by the Board; • Ensuring that prudent and robust risk management and internal control systems are in place throughout the Group; • Recommending annual budgets to the Board for approval; • Making recommendations to the Remuneration Committee on remuneration policy and executive remuneration; and • Supporting the Executive Chairman in maintaining effective communications with various stakeholders. The role of the Senior Independent Director The Senior Independent Director plays a key role in achieving a balance between the Company’s Executive and Non-Executive Directors. He is responsible for: • Providing a channel of communication between the Executive Chairman and the Non-Executive Directors; • Acting as an intermediary for shareholders who wish to raise concerns that they have been unable to resolve through the normal channels of communication; • Acting as a sounding board for the Executive Chairman and serving as an intermediary for the Non-Executive Directors where necessary; and • Meeting with the Non-Executive Directors at least once a year to appraise the Executive Chairman’s performance and on such other occasions as are deemed appropriate. The role of the Non-Executive Directors The Non-Executive Directors are responsible for helping to develop the Company’s strategy and providing rigorous, objective and constructive challenge to create accountability and drive performance. The responsibilities of the Non-Executive Directors include: • Helping management to develop the Company’s strategic objectives by drawing on their own business and commercial experience and challenging assumptions; • Scrutinising management’s performance in delivering against the strategy; • Satisfying themselves on the integrity of financial information and ensuring that risk and control systems are robust; and • Determining appropriate levels of remuneration, succession planning and participating in the appointment of Executive Directors. Board Committees The Board delegates certain responsibilities to Board Committees which operate within their defined terms of reference. The main Board Committees are the Audit, Nominations, Remuneration and Sustainability Committees (together, the Board Committees). All of the Board Committees are authorised to obtain legal or other professional advice as necessary at the expense of the Company, to secure the attendance of external advisers at their meetings and to seek information from any employee of the Company in order to perform their duties. Under the terms of reference of each of the Board Committees only the members of each committee have the right to attend committee meetings. However, other Directors, management and advisers may attend meetings at the invitation of the Committee chair. The Group Company Secretary acts as the secretary to the Board, Audit, Nominations and Remuneration Committees while the President- Group Communications, Sustainability and Corporate Social Responsibility acts as the secretary to the Sustainability Committee. The terms of reference of each of the Board Committees was reviewed and updated during the year and are available on the Company’s website at www.vedantaresources.com or by request to the Company Secretary. Details of the membership, terms of reference and attendance at the meetings of the Audit, Nominations, Remuneration and Sustainability Committees are given in their respective reports on pages 92 to 115. The Executive Committee The Executive Committee acts as a conduit between management and the Board and during the year ended 31 March 2015 comprised of the Executive Vice Chairman, the Chief Executive Officer and members of senior management whose biographies are given on pages 78 to 79. The Executive Committee meets monthly and is responsible for implementing strategic plans formulated by the Board, allocating resources in line with delegated authorities and monitoring the operational and financial performance of the Group. The Executive Committee therefore has a key role in putting the Board’s plans and policies into action. The Chief Executive Officer, Mr Albanese, keeps the Board informed of the Executive Committee’s activities through his standing reports to the Board. The Finance Standing Committee The Finance Standing Committee is an ad-hoc sub-committee to which authority is delegated by the Board for approval of certain matters such as routine bank and financing issues. It comprises five members; Executive Chairman, Executive Vice Chairman, Chief Executive Officer, Chief Financial Officer and Director of Finance. The Company Secretary provides an update on the Finance Standing Committee meetings to the Board at the subsequent Board meeting and the minutes of all Finance Standing Committee meetings are reviewed by the Board. Advisory Committees The Company has established a number of Advisory Committees which meet monthly to review and make recommendations to the Executive Committee regarding matters which significantly shape each business function of the Group at an operational level. The recommendations from the Advisory Committees define the overall scope and strategy within which each business function develops policies, procedures and guidelines. The Advisory Committees include Procurement, Marketing, Human Resources, Sustainable Development and Communications, Finance and Technology and Innovation Advisory Committees. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 86 Corporate governance and Directors’ reports Corporate governance report continued Chairman’s Committee The Chairman’s Committee meets monthly and comprises of Messrs Anil Agarwal, who chairs the Chairman’s Committee, Navin Agarwal, Tom Albanese, Tarun Jain and DD Jalan. The Committee is a management committee which was established to support the functioning of the Board and ensure that the business of the Board and its Committees is properly planned and aligned with management. The Chairman’s Committee provides a forum for the Chief Executive Officer to report to the Executive Chairman on the Company’s operational performance and key issues impacting performance and for the members to deliberate on how best to align performance with the strategic objectives set by the Board. How the Board operates The Board meets on a regular basis and met formally on six occasions during the year, of which five were scheduled Board meetings and one was called at short notice. As well as formal meetings, written resolutions are passed with the approval of the whole Board on routine matters as required in order to facilitate efficient decision making. In addition ad-hoc discussions take place between the Directors on a variety of topics throughout the year. The Non-Executive Directors, led by the Senior Independent Director also met during the year without the Executive Directors present to appraise the Executive Chairman’s performance amongst other matters. Strategy development During the year, a separate meeting was held by the Directors to consider and test the long-term strategy of the Company. At this strategy meeting, the Board considered its strategic direction in light of external factors such as regulatory environments and commodity market developments and agreed its strategic focus and priorities for the year ahead. In addition, the Non-Executive Directors made site visits to the Group’s operations at Cairn India and Hindustan Zinc to enable them to get a better understanding of the operational and strategic issues facing the businesses. The Executive Chairman, assisted by the Company Secretary, is responsible for ensuring that the Board receives accurate, timely and clear information on all relevant matters in order to make informed decisions and discharge its duties. Directors are provided with regular detailed briefings on the Group’s businesses, the markets within which it operates and the overall economic environment and updates on fiscal policy changes. Prior to a Board meeting the Board also routinely receives detailed information on business and financial performance, ongoing projects, fund raising initiatives, activities of the Board Committees and investor relations, with presentations and verbal updates given by the Executive Directors and senior management as appropriate. At the request of the Directors, the Chief Executive Officer also provides a monthly report to the Board on key operational issues and other matters of importance to the Group. Board activities during the year Strategy • Consolidation and simplification of Group structure; • Approval of capital expenditure for the Group’s Zinc International project at Gamsberg; • Review of corporate branding to achieve strategic brand alignment across the Group; • Consideration of the Group’s oil & gas strategy in low oil price environments; • Review of the Group’s aluminium and power strategy; • Review of the business turnaround strategy of the Group’s African copper business KCM; • Sustained operational excellence and cost efficiencies; • Focus on active engagements with governments on mining and regulatory developments; • Sustainable development and linkage of initiatives to license to operate philosophy; • Waste recycling strategy; • Coal block auctions by the Government of India; • Focus on talent management and senior management succession planning; and • Review of strategy in respect of the hire of contractors across the Group. Performance • Reviewing the progress of the Group’s restructuring plans; • Reviewing the progress of the Group’s major capital projects; • Reviewing the progress of the operational turnaround of KCM; • Monitoring the operational performance of the Group against the business plan for the year through production updates from the heads of the operating subsidiaries; • Monitoring the financial performance of the Group and the financing of debt, currency hedging and covenant compliance; • Reviewing and approving the Company’s preliminary announcement of its financial results, the annual report and accounts and half year report; • Approving the Group business plan for the year ahead; • Declaring the interim dividend and recommending the final dividend; • Monitoring the Group’s health and safety record and initiatives to promote a zero harm environment; • Reviewing the Group’s position following the receipt of a withholding tax claim by Cairn India from the Indian tax authorities; • Receiving updates on major litigation and their impact on the Group; and • Receiving a report from the Audit Committee on the effectiveness of the Group’s internal controls and risk management systems. Vedanta Resources plc Annual report and accounts FY2015 87 Governance • Review of the Group’s key corporate governance processes and documents; • Review of Directors’ independence and conflicts of interest; • Reviewing the composition of the Board and approving the appointment of a new Non-Executive Director; • Reviewing project proposals and approving Group capital expenditure in excess of applicable thresholds; • Receiving reports from each of the Board Committees; • Reviewing the results of the annual performance evaluation of the Board and its Committees and developing action plans which address the feedback received; • Receiving regular updates on corporate governance and other regulatory developments; and • Receiving updates from management in respect of investor sentiment, share price performance and investor feedback; and • Receiving updates on the reported allegations of corporate espionage against an employee of Cairn India and the implementation of the anti-bribery and corruption policy across the Group. Board attendance The Company requires its Directors to attend all meetings of the Board and any Board Committees on which they serve and to devote sufficient time to the Company’s business. The Directors are also required to disclose their other time commitments and seek the agreement of the Executive Chairman prior to accepting any additional appointments in order to ensure that they have sufficient time to fulfill their role as a Director. The Company’s Non-Executive Directors are expected to spend a minimum of 20 days per annum on the Company’s business with greater time commitment during periods of heightened strategic and commercial activity as set out in their letters of appointment. The Non-Executive Directors letters of appointment are available on request from the Company Secretary. The attendance of the Directors at Board meetings held during the year is shown in the following table and the Directors’ attendance at Board Committee meetings is provided in the respective Board Committee reports. Name Date of appointment Executive Directors Anil Agarwal1 Navin Agarwal Tom Albanese 16 May 2003 24 November 2004 1 April 2014 Non-Executive Directors Aman Mehta Euan Macdonald Geoffrey Green Deepak Parekh3 Katya Zotova2 24 November 2004 23 March 2005 1 August 2012 1 June 2013 1 August 2014 Attendance at Board meetings Percentage attendance 4/6 6/6 6/6 6/6 6/6 6/6 5/6 3/4 67% 100% 100% 100% 100% 100% 83% 75% 1 Mr Agarwal was unable to attend two meetings of the Board due to prior commitments and a meeting being called at short notice. 2 Since her appointment to the Board, Ms Zotova has attended all meetings of the Board except one which was called at short notice. 3 Mr Parekh was unable to attend one meeting of the Board due to a prior commitment and the meeting being called at short notice. Board independence In accordance with the Code, it is the Company’s policy that at least half the Board comprises of independent Non-Executive Directors to ensure that an appropriate balance is maintained between Executive and Non-Executive Directors for effective governance and no individual or small group of Directors can dominate the decision making process. The Board undertakes an evaluation of each Director’s independence on appointment, annually prior to recommending their re-election by shareholders as well as when any Director’s circumstances change and warrant a re-evaluation. The Board undertook a detailed evaluation of Ms Katya Zotova’s independence prior to her appointment in August 2014. As Ms Zotova had no prior connections with the Group, the Board was satisfied of her independence and concluded that she could act as an Independent Non-Executive Director on the Company’s Board. During the year, the Board also considered the independence of Mr Geoffrey Green who carries out occasional consultancy work for Ashurst LLP, a leading international law firm that is engaged by the Group to provide legal advice on various matters. As Mr Green had no involvement in advising the Group over the last five years, the Board was satisfied that he remains independent of character and judgement. The Board also considered Mr Green’s appointment as Chair of the Financial Reporting Review Panel and determined that there were no conflicts of interest arising out of the appointment. Two of the Company’s Non-Executive Directors, Messrs Aman Mehta and Euan Macdonald have served on the Board for over nine years and their independence was therefore subject to a particularly rigorous review. As Mr Mehta also serves as Non-Executive Director on the Board of Cairn India Limited, the Board considered the potential conflicts of interest arising from that appointment. As Mr Mehta absents himself from discussions in the event of any conflict of interest and continues to actively participate in Board discussions and provide robust challenge to management, the Board concluded that his independent judgement was not compromised and he remains impartial. Mr Macdonald does not have any business relationship with the Group and is not involved in any transaction or circumstance that would interfere with the exercise of his independent judgement in carrying out the responsibilities of a Director. Accordingly, the Board concluded that the tenure of Messrs Mehta and Macdonald does not materially affect their ability to exercise independent judgement or act in the best interests of the Group. Following the review of the Non-Executive Directors’ independence, the Board has determined that all of the current Non-Executive Directors are independent and free from any relationship or circumstance that could affect or appear to affect their independent judgement. Board succession planning has been at the forefront of Board considerations during the year and the search for new Non- Executive Directors to succeed Messrs Mehta and Macdonald is ongoing. While the Board is committed to refreshing the composition of the Board and the total length of appointments would not normally exceed nine years, in order to ensure a smooth transition the Board has invited Messrs Mehta and Macdonald to serve on the Board for up to a further year subject to approval by shareholders at the 2015 Annual General Meeting. It is anticipated that further appointments will be made during the year to allow Messrs Mehta and Macdonald to retire from the Board following a suitable transition period. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 88 Corporate governance and Directors’ reports Corporate governance report continued Directors’ conflicts of interest The Board has an established procedure for the disclosure of interests and other related matters in line with published guidance and the Companies Act 2006. Each Director must promptly disclose actual or potential conflicts and any changes to the Board which are noted at each Board meeting. The Board considers and authorises potential or actual conflicts as appropriate. Directors with a conflict do not participate in the discussion or vote on the matter in question. These procedures have proved to be effective during the year under review. Related party transactions, which include those in respect of any Director, are disclosed in Note 39 on pages 196 to 197. The Board reviewed any potential conflict of interest for Mr Geoffrey Green arising from his previous role as a partner of and current consultancy role at Ashurst LLP. The fees paid to Ashurst LLP during the year amounted to US$344,179 (2014: US$195,037) and, as the value of the expenditure incurred was determined to be immaterial and Mr Green was not directly involved in advising the Group, the Board authorised the potential conflict of interest in accordance with the Company’s Articles of Association. Relationship Agreement The Relationship Agreement which had originally been entered into at the time of admission of the Company’s shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange plc’s main market for listed securities (Listing) in 2003 between the Company and its majority shareholder, Volcan and was subsequently amended in December 2011 was reviewed and updated again in November 2014 in order to ensure compliance with the revised Listing Rules for the protection for minority shareholders which came into force in May 2014. The principal purpose of the Relationship Agreement is to ensure that the Group is able to carry on business independently of Volcan, the Agarwal family and their associates and that all agreements and transactions between the Company, on the one hand, and Volcan and/or any of its respective group undertakings and/or persons acting in concert with it or its group undertakings, on the other hand, will be at arm’s length and on a normal commercial basis. Under the terms of the Relationship Agreement, Volcan, the Agarwal family and their associates will not take any action that would prevent the Company from complying with its obligations under the Listing Rules. Furthermore, the Board and Nominations Committee will at all times consist of a majority of Directors who are independent of Volcan and the Agarwal family. Whilst the Remuneration and Audit Committees shall at all times comprise solely of Non-Executive Directors, Volcan is entitled to nominate for appointment as Director such number of persons as is one less than the number of Directors who are independent of Volcan, the Agarwal family and their associates. As the Board is comprised of a majority of independent Non-Executive Directors and Vedanta’s ability to operate independently of Volcan is protected by the Relationship Agreement, the Board considers that there are adequate safeguards for the protection of minority shareholder interests. The Audit Committee is responsible for reviewing matters arising in relation to the Relationship Agreement and related party transactions on behalf of the Board. During the year, there were no contracts of significance between the Company, or its subsidiary undertakings, and the controlling shareholder. The Company has complied with the independence provisions in the Relationship Agreement and so far as the Company is aware, the controlling shareholder and any of its associates have complied with the independence provisions and the procurement obligation included in the Relationship Agreement. Induction, training and development The Board is committed to the ongoing development of its employees and Directors. On appointment to the Board, each Director undergoes a comprehensive induction programme which is tailored to their individual needs but is intended to provide an introduction to the Group’s operations and the challenges and risks faced. During the year, Ms Zotova attended the induction and orientation programme consisting of meetings with and presentations from senior management, meetings with the Non-Executive Directors and a site visit to the operations of Cairn India, Hindustan Zinc and some of the Group’s corporate social responsibility projects. She also received induction materials including the Company’s articles of association, Board charter and terms of reference, Share Dealing Code, Cairn India Prospectus, Code of Business Conduct and Ethics, Vedanta Values and an update on the implementation of the anti-bribery policy across the Group. The Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are followed. The Company Secretary is also responsible for advising the Board through the Chairman on governance matters. The Directors also have access to the Company’s professional advisers whom they can consult where necessary for the discharge of their duties. During the year, the Directors received legal and regulatory updates on corporate governance developments and presentations from the senior management of KCM, BALCO, Zinc International, Hindustan Zinc and Cairn India. Mr Albanese’s structured induction programme has continued during the year with further site visits to various Group operations to develop his understanding of the business environment and the markets in which the Group operates, as well as to engage with employees and other stakeholders. The Board receives information in a timely manner in a form and of a quality appropriate to enable it to discharge its duties. Following feedback from the Directors, a programme of site visits to the Group’s operations will form part of the Board induction for all future Board appointments. Board evaluation The effectiveness of the Board is of paramount importance to the overall success of the Group and the Company undertakes a formal and rigorous annual evaluation of the Board and its Committees, the Directors and the Chairman to assess their performance. Following the external facilitation of the Board and Board Committee evaluations by Prism in 2014, this year the performance evaluations were led by the Executive Chairman supported by the Company Secretary. The review consisted of detailed questionnaires tailored to the Board and each Committee. Vedanta Resources plc Annual report and accounts FY2015 89 The findings from the evaluation exercise were discussed with the Executive Chairman and reviewed by the whole Board before a set of actions were agreed. The feedback from the Directors suggested that the underlying processes of the Board and its Committees were operating well overall with a collaborative and professional relationship between the Directors. The actions which were agreed following the Board and Committee evaluations include: Board composition The search for new Non-Executive Directors would continue as part of Board succession planning process to (a) encourage more women on the Board; (b) increase mining and other extractive industry experience on the Board; and (c) refresh the composition of the Board Committees. Strategic discussion The Board will dedicate additional time specifically to consider, develop and test the Group’s strategy particularly in light of the difficult operating environments and volatile markets. Operational Management will focus on delivering stability to the Group in a difficult operating environment through capital rephrasing, cost management initiatives, exercising financial and fiscal prudence; continuing the simplification of the Group’s financial structure and focus on deleveraging; focus on safety and linkage of corporate social responsibility initiatives to the Group’s license to operate. Board orientation and induction The induction programme for new Directors will be reviewed and strengthened to provide the Directors’ with a better understanding of their role and responsibilities, the Group’s businesses and the operational challenges faced. Board administration The Company will review its arrangements for the administration of Board and Committee meetings including the Board meeting materials and minutes. Directors’ performance The Executive Chairman reviewed the individual performance of each of the Executive Directors in their capacity as Directors and the Non-Executive Directors and concluded that they each make an active contribution to Board discussions and demonstrate full commitment to their role. Executive Chairman’s performance The Executive Chairman’s performance was evaluated by the Non-Executive Directors, led by the Senior Independent Director and the conclusions of the evaluation were fed back to the Executive Chairman with a number of actions to be completed over the year ahead. Accountability Financial and business reporting The Directors present a fair, balanced and understandable assessment of the Company’s position and prospects. The Group has a comprehensive financial reporting system, which is reviewed and modified in line with Accounting Standards to ensure that all published financial information is accurate. Vedanta’s financial reporting procedures are based on five main elements: 1) Financial information supplied by subsidiary companies and consolidated at central level: – Management accounts are prepared on a monthly basis and reviewed by the Executive Committee; – Management accounts are reviewed by the Board at least quarterly; – Performance is monitored against key performance indicators throughout the financial year and forecasts are updated as appropriate; and – Annual operational budgets are prepared by each operating subsidiary and consolidated into a Group Budget which is reviewed and approved by the Board. 2) External auditor assurance: – Full year audit and interim review are carried out on the published financial statements. 3) Review by the Audit Committee of: – Year-end reporting plans; – Legal, tax and accounting issues; – Consideration of the financial statements and disclosures in accordance with financial reporting standards; and – Going concern statements with supporting cash flow, liquidity and funding forecasts. 4) The Internal Audit function provides an independent assurance in respect of processes, physical verification and management information system accuracy for operating companies. 5) Review by the Audit Committee and the Board of the preliminary and half year announcements, the annual report and accounts and any other announcements including financial information. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 90 Corporate governance and Directors’ reports Corporate governance report continued The responsibilities, processes and information flows for ensuring that significant risks are recognised and reported up to the Board are shown below: The Board • Sets ‘risk appetite’ • Reviews significant reported risks The Audit Committee • Reviews the effectiveness of internal control/risk systems and reports to the Board • Reviews the risk matrix, significant risks, status of risks and mitigating factors • Considers and approves remedial actions where appropriate • Reviews action plans put in place to mitigate risks • Reviews significant findings reported by the internal audit function, Management Assurance Services (MAS) • Reviews internal audit plans • Assesses the effectiveness of the internal audit function • Reviews whistleblower reports presented by MAS Management Assurance Services (MAS) • Plans and carries out internal audits through arrangements with leading international accounting and audit firms • Recommends improvements to the Group’s internal control system • Reviews compliance with Group policies and procedures • Facilitates the update of the risk matrix • Reviews findings in respect of the risk management and internal control framework with senior management and reports to the Audit Committee • Investigates whistleblower cases The head of MAS attends all the Vedanta Executive Committee and Audit Committee meetings. During the year, the MAS team supported the respective business teams at Vedanta Limited and its subsidiaries towards compliance with the US Sarbanes-Oxley Act 2002 requirements (the Act), including documenting internal controls as required by section 404 of the Act. The effectiveness of internal controls is assessed by Vedanta’s own administration and certified by independent auditors, as set forth in the Act. Risk management and internal control The Board is responsible for setting the Group’s risk appetite and determining the nature and extent of the risks it is willing to take to achieve its strategic objectives. The Directors also have ultimate responsibility for ensuring that the Group maintains a robust system of internal control to provide them with reasonable assurance that all information within the business and for external publication is adequate. Authority for detailed monitoring of the internal control and risk management framework is delegated to the Audit Committee which reports to the Board regularly within the remit of its role. The Group’s risk management framework is designed to be a simple, consistent and clear mechanism for managing and reporting risks of the Group’s businesses to the Board. Risk management is embedded in all critical business activities, functions and processes. The framework helps the organisation meet its objectives through alignment of operating controls to the mission and vision of the Group. Management systems, organisational structures, processes, standards and code of conduct together form the system of internal control that govern how the Group conducts its business and manages the associated risks. The Group has a multi-layered risk management framework aimed at effectively mitigating the various risks which its businesses are exposed to in the course of their operations as well as in their strategic actions. Risks are identified at the individual business level for existing operations as well as for ongoing projects through a consistently applied methodology, using the Turnbull matrix. Risks are continually reviewed with formal discussion on risk management taking place at business level review meetings at least once in a quarter. The respective businesses review the risks, change in the nature and extent of the major risks since the last assessment, control measures established to mitigate the risk and further action plans. The control measures stated in the risk matrix are also periodically reviewed by the business management teams to verify their effectiveness. These meetings are chaired by business chief executive officers and attended by chief risk officers, senior management and functional heads. Risk officers have been formally nominated at all operating businesses as well as Group level whose role is to create awareness of risks at senior management level and to develop risk management culture within the businesses. They play an important role in ensuring that the organisation sustains its risk management initiatives and that the Group’s risk management framework matures and grows with the organisation. Risk mitigation plans form an integral part of the key performance indicators for process owners. The Audit Committee aids the Board in this process by reviewing the actions taken by management to identify risks, assess any changes in the Group’s risk exposure, reviewing risk control measures and by approving remedial actions, where appropriate. The Audit Committee is in turn supported by the Risk Management Committee which helps the Audit Committee in evaluating the design and operating effectiveness of the risk mitigation programme and the control systems. In addition to the above structure, other key risk governance and oversight committees include the following: • Group Treasury Risk Management Committee has an oversight on the treasury related risks. This committee comprises of Group Chief Financial Officer, business CFOs and Treasury Heads at respective businesses. • Group Capex Sub-Committee which evaluates the risks while reviewing any capital investment decisions as well as institutes a risk management framework in expansion projects. • Sustainability Committee which reviews sustainability related risks. This Committee is chaired by a Non-Executive Director and attended by the Chief Executive Officer, and other business leaders as its members. Vedanta Resources plc Annual report and accounts FY2015 91 As stated above, every business division in the Group has developed its own risk matrix of Top 20 risks which is reviewed at business management committee level. In addition, business divisions have also developed their own risk registers depending on size of operations and number of subsidiary business units/locations. Full details of principal risks and uncertainties are contained in the strategic report on pages 28 to 35. A consistently applied methodology is used to identify risks to operations and projects at the operating subsidiary level. MAS have arrangements with leading international accounting and audit firms excluding the Group’s external auditor for carrying out internal audits within the Group. This element has been an important component of the overall internal control process by which the Board obtains assurance. The scope of work, authority and resources of MAS are regularly reviewed by the Audit Committee. The responsibilities of MAS include recommending improvements in the control environment and reviewing compliance with the Group’s philosophy, policies and procedures. The planning of internal audit is approached from a risk perspective. In preparing the internal audit plan, reference is made to the Group’s risk matrix, inputs are sought from senior management, project managers and Audit Committee members and reference is made to past audit experience, financial analysis and the current economic and business environment. Each of the Group’s principal subsidiaries has in place procedures to ensure that sufficient internal controls are maintained. These procedures include a monthly meeting of the relevant management committee and quarterly meeting of the Audit Committee of that subsidiary. Any adverse findings are reported to the Audit Committee. The Chairman of the Audit Committee may request MAS and/or the external auditor to focus their audit work and report to him on specific areas of risk identified by the risk management and internal control framework. At a Group level, the findings by MAS are presented monthly to the Executive Committee and to the Audit Committee periodically. The Executive Committee and Audit Committee regularly review reports related to the Group’s internal control framework in order to satisfy the internal control requirements of the Code (Internal Control: Revised Guidance for Directors) and section 404 of the Sarbanes-Oxley Act 2002. Due to the limitations inherent in any system of internal control, this system is designed to meet the Group’s particular needs and the risks to which it is exposed rather than eliminate risk altogether. Consequently it can only provide reasonable and not absolute assurance against material misstatement or loss. In line with best practice, the Board has reviewed the internal control system in place during the year and up to the date of the approval of this report. The Board’s review includes the Audit Committee’s report on the risk matrix, significant risks and actions put in place to mitigate these risks. This review ensures that the internal control system remains effective. Where weaknesses are identified as a result of the review, new procedures are put in place to strengthen controls and these are in turn reviewed at regular intervals. Every risk has an owner who is responsible for ensuring that controls are put in place to mitigate the risk. Communications with shareholders The Company values communication with its shareholders and actively engages with them on a wide range of issues to ascertain their views. The Company maintains an ongoing dialogue and schedule of meetings with institutional investors, analysts, brokers and fund managers which is attended by the Chief Executive Officer and managed by the Investor Relations team. During the year, in order to further promote engagement with the Company’s investor community, a Capital Markets Day was held in London and attended by several members of the Executive Committee and senior management to provide a corporate and financial overview of the Group and updates on the key businesses by the respective business leaders. This was followed by a site visit to the Group’s operations at Hindustan Zinc, Cairn India and Jharsuguda. A Sustainable Development Investor Day has been planned for mid-2015 to enhance engagement with the Company’s stakeholders on sustainability and corporate social responsibility matters. The main channels of communication with the investment community are through the Executive Chairman, Chief Executive Officer, Chief Financial Officer and Director, Investor Relations. Upon request the Senior Independent Director and other Non-Executive Directors are available to meet with major investors to discuss any specific issues. The Board is also kept abreast of shareholder sentiment and views on various issues through periodic detailed investor relations reports to the Board. Routine engagement activities include: • Press releases to the market and media on key developments throughout the year; • Regular meetings between the Chief Executive Officer, Chief Financial Officer and institutional investors, analysts and brokers; • Site visits by institutional investor representatives, analysts and brokers to the Group’s major operations; • Ongoing dialogue with shareholders and other interested parties by email, letters and meetings arranged through the Investor Relations and Group Communications teams; • A wide range of information on the Company and its operations which is made available on the Company’s website including the annual report and accounts, half yearly results, sustainability report, market announcements, press releases, share price and links to subsidiary company websites; and The Board also welcomes the opportunity to communicate with the Company’s shareholders at the Annual General Meeting, leading to full and frank discussions on a variety of topics of interest to shareholders. All of the Directors, including the chairs of the Audit, Remuneration, Nominations and Sustainability Committees attend the AGM in order to answer questions from shareholders. The 2015 AGM will be held on at 3.00pm on 3 August 2015 at The Ironmongers Hall, Shaftesbury Place, London EC2Y 8AA. Further details are given in the Notice of Meeting accompanying this annual report including the business to be considered at the meeting. The notice is sent out at least 20 business days before the AGM. Voting at the AGM on all resolutions is by poll on a one share, one vote basis and the results of votes cast for, against and abstentions are available on the Group’s website following the meeting. The Board believes that voting by poll allows the views of all shareholders to be taken into account regardless of whether or not they can attend the meeting and shareholders are actively encouraged to register their votes electronically in advance of the meeting. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 92 Corporate governance and Directors’ reports Audit Committee report Aman Mehta, Chairman, Audit Committee The Audit Committee’s remit falls into four main areas: financial reporting, risk and the internal control environment and oversight of the external and internal audit processes. This Audit Committee report provides details of the role and responsibilities of the Audit Committee and the work it has undertaken during the year. Membership and attendance The Audit Committee comprises the following independent Non-Executive Directors and met on five occasions during the year. Aman Mehta, Chair Euan Macdonald Deepak Parekh Number of meetings attended Percentage attendance 5/5 5/5 4/5 100% 100% 80% As shown in his biography on page 76, Mr Mehta has had extensive executive and non-executive experience with a strong financial background in large listed companies. The Board is therefore satisfied that Mr Mehta has recent and relevant financial experience. Mr Parekh is a qualified Chartered Accountant and has ongoing executive experience. All members of the Committee have had extensive prior senior management experience in large international organisations and are financially literate. The Audit Committee assists the Board in the discharge of its responsibility for maintaining and monitoring the integrity of the Group’s financial statements, assessing the effectiveness of the Group’s system of risk management and internal controls and the independence and objectivity of the external auditor. In order to carry out its duties effectively, the Audit Committee receives high quality and detailed information from management and the internal and external auditor regularly which is reviewed, discussed and challenged by the Audit Committee as required. Responsibilities of the Audit Committee The Board has established formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the Company’s auditors. The Audit Committee’s remit falls into four main areas: financial reporting, risk and the internal control environment and oversight of the external and internal audit processes. The main responsibilities of the Audit Committee are to: • Monitor the integrity of the financial statements, including the Group’s annual and half-year results; • Where requested by the Board, review the content of the annual report and accounts and advise the Board on whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy; • Review the Group’s internal controls and risk management systems and consider the effectiveness of these systems; • Make recommendations to the Board concerning the appointment of the external auditor; • Review the independence of the external auditor; • Review the scope of Internal Audit work; • Develop the Group’s policy in relation to the provision of non-audit services by the external auditor and monitoring thereof; • Discuss with the external auditor the nature and scope of the audit; • Approve the remuneration of the external auditor; Vedanta Resources plc Annual report and accounts FY2015 93 • Consider any matters arising in respect of the Relationship Agreement and related party transactions; • Monitor the activities and effectiveness of the internal audit function and consider its reports; • Review the Group’s arrangements for its employees to raise concerns through its whistleblowing policy; • Monitor anti-bribery policies and procedures; and • Review reports from the audit committees of the Group’s main subsidiary companies confirming that there are no material adverse issues that are likely to impact the Group. The full terms of reference for the Audit Committee can be found on the Company’s website at www.vedantaresources.com and are also available on request from the Company Secretary. Operation of the Audit Committee The Audit Committee meets at least four times a year based on appropriate times in the financial reporting calendar. The Executive Directors, Chief Financial Officer, Director of MAS, other members of the senior management team and the external auditor regularly attend meetings at the invitation of the Audit Committee to report on issues and facilitate discussions with the external auditor. The Audit Committee meets with representatives from the external auditor without management being present bi-annually. The Chairman of the Audit Committee regularly reports to the Board on the Audit Committee’s activities. The Committee’s agenda is based on its remit outlined above as appropriate to the stage in the reporting cycle. The external auditor attends meetings of the Audit Committee to ensure effective communication of matters relating to the audit. Audit Committee activities during the year The main areas covered by the Audit Committee during the year are summarised below: Area of responsibility Activities Financial reporting It is one of the Audit Committee’s key duties to monitor the integrity of the Company’s financial statements. As part of this process it reviews in detail the preliminary results statements, the annual report and accounts and half year report. The appropriateness of accounting polices used is considered, accounting judgements are reviewed and the external audit findings discussed. Details of financial reporting procedures in place are given on page 89 of the Corporate Governance Report. Internal controls, risk management and governance Details of the Company’s internal control and risk management processes are discussed on pages 89 to 91. The Audit Committee reviews these processes and output from the regular review of risks carried out during the year by the internal audit function. • Review and approval of preliminary announcement, annual report and financial statements; • Review of key significant issues for year-end audit (further detail on pages 95 and 96); • Six monthly reviews of significant accounting issues and receipt of reports on key accounting issues; • Review and approval of the half year report; • Discussions on impairment reviews; • Review of pending tax issues; • Review of Audit Committee report for the annual report and accounts; • Review of legal cases to ensure appropriate provisions are made and disclosed; • Review of the going concern basis for the preparation of the financial statements including working capital forecasts, monthly projections and funding requirements. • Internal audit review including reviews of the internal control framework, changes to the control gradings within the Group and whistleblowing cases; • Review of the Group’s risk management infrastructure, risk profile, significant risks, risk matrix and resulting action plans; • Review of reports from subsidiary company audit committees; • Review of feedback from the performance evaluation of the Audit Committee; • Review of new regulatory requirements in respect putting the Company’s external audit contract out to tender; • Reviewing the Group’s cyber security controls; • Receiving updates on the implementation of the Vedanta Code of Business Conduct and Ethics and UK Bribery Act training across the Group. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 94 Corporate governance and Directors’ reports Audit Committee report continued Area of responsibility The audit and external auditor Internal audit Annual report review At the request of the Board, the Audit Committee considered whether the 2015 annual report and accounts was fair, balanced and understandable and whether it provided the necessary information for shareholders and stakeholders to assess the Company’s performance, business model and strategy. Such assessments are provided in the Chairman’s and Chief Executive Officer’s statement and the strategic report of this annual report. The Audit Committee and the Board are satisfied that the annual report and accounts meet this requirement as both positive and negative developments in the year were considered at length. In justifying this statement the Audit Committee has considered the robust process which operates in creating the annual report and accounts, including: • Evaluation and verification of the inputs from the business functions, to include the well-established financial reporting system within Vedanta to ensure accuracy and consistency; • Progress through various levels of review, including review by the Executive Committee and senior management across the Group; • Consideration is given to the completeness of the information and to ensuring that there are no significant omissions to enable shareholders to assess the Company’s performance; • Management Assurance Services conduct internal audit reviews with conclusions and recommendations presented to the Audit Committee; • Revisions to regulatory requirements are considered and incorporated to include the UK Corporate Governance Code; • Advice is also received by the Audit Committee from external advisers in order to make the recommendation to the Board that the annual report and accounts as a whole is fair, balanced and understandable; • Members of the Audit Committee receive an advance draft of the annual report enabling them to assess and challenge whether the various reports within the annual report are consistent and in line with their understanding of the business; Activities • Review of the significant audit risks with the external auditors during interim review and year end audit; • Consideration of external audit findings and review of significant issues raised; • Review of key audit issues and management’s report; • Review of the materiality figure for the external audit; • Review of the independence of the external auditor and the provision for non-audit services; • Performance evaluation of the external auditor and recommendation for reappointment of the external auditor; • Consideration of the external audit fee; • Review of the management representation letter; • Review of the audit plan, scope of the 2015 external audit of the financial statements and key risk areas for the 2015 audit. • Review of internal audit observations and monitoring of implementation of any corrective actions identified; • Review of the performance of the internal audit function; • Review of 2014–15 internal audit plan; • Review of the Group’s anti-bribery policy and its implementation; • Review of whistleblower cases. • A meeting of the Audit Committee is held to formally review and sign-off the draft annual report; and • A meeting of the Board is held to review and provide final sign-off. Whistleblowing procedure All Vedanta employees, regardless of position, are expected to observe high ethical standards. Each employee is expected to follow the Vedanta Code of Business Conduct and Ethics, and employees in key positions are required to complete the Annual Code of Conduct Certification form. The annual certification process reinforces our commitment to ethical practices and Code of Business Conduct and Ethics, promoting an ethical culture. The Group’s Whistleblower Policy forms part of the Code of Business Conduct and Ethics and supports the Group’s aim of working to the highest ethical standards. The policy allows employees of the Company, its subsidiaries and all external stakeholders to raise issues of concern in confidence. As per the Whistleblower Policy adopted by various businesses in the Group, all complaints are reported to the Director – MAS who is independent of operating management and businesses. Dedicated email addressess and a centralised database have been created to facilitate the receipt of complaints and for ease of reporting. The Company has a 24x7 ethics helpline where employees can place anonymous complaints against ethics violations as per the policy of the Company. All employees and stakeholders can register their integrity related concerns either by calling on a toll free number or by writing on the web based portal. The hotline also provides multiple local language options. Following an investigation, established cases are brought to the Group Ethics Committee for decision making. This Committee brings uniformity and consistency in the decision making process following investigation of the reported incidents. All cases are taken to their logical closure. A summary of cases along with outcome of the investigations and actions taken is presented periodically to the audit committees of respective businesses as well as at Group level. Vedanta Resources plc Annual report and accounts FY2015 95 During the year, the composition of the Group Ethics Committee which reviews the Group’s whistleblower programme was also refreshed to strengthen the Committee to carry out its role in promoting an uncompromising approach to integrity, ethics, compliance and good corporate governance. The Group Ethics Committee is comprised of Mr Akhilesh Joshi, Mr Dilip Golani, Mr Rajesh Padmanabhan, Mr Abhijit Pati, Mr Mukesh Bhavnani and Ms A Sumathi, Head of Environment. Fraud and UK Bribery Act The Company is committed to the elimination of fraud, with each suspected case thoroughly investigated and concluded. The Audit Committee reviews the actions taken by management in the elimination of fraudulent practices and to promote ethical working practices. During the year, the Audit Committee was made aware that the government authorities in India were investigating allegations of corporate espionage against an employee of Cairn India and employees of some other companies not connected with the Group. Cairn India has in place a comprehensive compliance programme and controls and follows the highest levels of integrity in the conduct of its businesses. Nevertheless, Cairn India is undertaking a further review of its controls in light of the allegations made in the matter. During the year, the Vedanta Code of Business Conduct and Ethics was also reviewed and updated to promote the zero tolerance approach and embed this within the culture of the Group. External auditor The Audit Committee is pivotal in monitoring the performance of the external auditor and the Group’s relationship with the external auditor. Details of how this is achieved are set out below: The audit process A detailed audit plan (the Audit Plan) is prepared by the external auditor, Deloitte LLP, (Deloitte) which is reviewed by the Audit Committee. The Audit Plan sets out the audit scope, key audit risks identified, materiality issues, the client team working on the audit and the audit timetable. The audit scope covers the significant components of the audit and audit plans for each component and geographical location. Each of the key audit risks and the external auditor’s response on how it will investigate these risks is considered by the Audit Committee. Significant issues The preparation of financial statements requires management to make judgements, estimates and assumptions, that affect the application of accounting policies and the reported amount of assets, liabilities, income, expenses and disclosures of contingent liabilities at the date of these financial statements and the reported amount of revenues and expenses for the years presented. The Committee reviews whether the Group’s accounting policies are appropriate, and management’s estimate and judgements applied in the financial statements are reasonable. The Committee also focused on the disclosures made in the financial statements. The views of statutory auditors on these significant issues were also considered by the Committee. The significant issues that were considered by the Audit Committee emerging from the audit process are outlined below: Significant issues How these issues were addressed Impairment assessment of: • Rajasthan producing assets in the Group’s Oil & Gas business • Copper operations in Zambia • Alumina refinery assets as Lanjigarh • Iron ore business at Goa and Karnataka Impairment assessment of Rajasthan producing assets within the Oil & Gas business was considered as a significant issue considering the significant decline in the crude oil prices. The Committee has reviewed the significant assumptions including the oil price and discount rate. An impairment charge of US$2,162.1 million has been recognised against these assets. More information is provided in Note 2(b) and Note 5 to the financial statements Impairment assessment of copper operations in Zambia was considered as a significant issue considering the decline in copper prices and other operational challenges. The significant assumptions of commodity prices and discount rate were reviewed by the Committee. An impairment charge of US$52.3 million has been recognised against these assets. Impairment assessment of alumina refinery assets at Lanjigarh was considered as a significant issue due to the pending environment clearances for the refinery expansion and delays in obtaining bauxite mining approvals. The significant assumptions of timing of approvals were put through a stress test by the Committee and other assumptions of discount rates and commodity prices were reviewed by the Committee. The mining operations at Karnataka were resumed towards the end of February 2015. The State Government of Goa has renewed the mining leases and the business is awaiting other approvals for the commencement of mining operations at Goa. The Committee reviewed the timing of start-up of operations post regulatory approvals which was the key consideration. The Committee was also informed that the impairment assessment approach and assumptions were consistent across all business segments. With the existence of sufficient headroom over carrying value of assets it was concluded that no impairment was required for Lanjigarh assets and Goa and Karnataka iron ore assets. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 96 Corporate governance and Directors’ reports Audit Committee report continued Significant issues How these issues were addressed Impairment assessment of evaluation and exploration (E&E) assets More information is provided in Note 2(b) and Note 5 to the financial statements Revenue recognition across the business: • provisional pricing for sale of goods; • oil & gas revenue; • power tariff with GRIDCO. Litigation, environmental and regulatory risks. Refer to Note 38 to the financial statements. Taxation. Additional information on these matters are disclosed in Note 38 to the financial statements Auditor independence The Audit Committee is responsible for reviewing the external auditor’s independence and assessing their continued effectiveness. The Audit Committee and the Board place great emphasis on the objectivity of the external auditor. The current external auditor, Deloitte LLP, has been the Company’s auditor since its listing in 2003. The rotation of the audit partner’s responsibilities within Deloitte is required by their profession’s ethical standards and there is also rotation of key members within the audit team. Deloitte are required to rotate the audit partner responsible for the Group’s audit every five years and the last audit partner rotation was in 2010. Accordingly, Mr A Kelly will retire as the audit partner for the Company’s audit and will be succeeded by Mr Chris Thomas. The audit partner responsible for the audit of the Indian subsidiaries was rotated in 2012, and the next rotation will take place in 2017. A key part of ensuring the independence of the external auditor is to have in place robust policies concerning matters that may affect their independence. The Company has in place policies on: • The independence and objectivity of the external auditor; • Employment of former employees of the external auditor; and • Appointment of the external auditor for non-audit services. Considering the significant downward pressure on oil and other commodity prices, the impairment of E&E assets is considered a significant issue. The significant assumptions of oil and iron ore prices and the discount rate were reviewed by the Committee. An impairment charge of US$3,691.9 million has been recognised against oil & gas E&E assets primarily relating to Rajasthan block. Further an impairment charge of US$788.1 million has been recognised relating to exploratory wells in Sri Lanka. Considering the excess of recoverable value over carrying value of assets it was concluded that that no impairment was required for the iron ore assets. The Committee reviewed the process and compliance around the Group revenue recognition policy and its consistent application. The Committee also sought management’s view on revenue recognition principles. The Committee was satisfied that the cut off procedures, transfer of risks and process followed for the pricing of goods were consistent and it concluded that these risks have been mitigated. Further receivables from GRIDCO, (which is under appeal following a tariff determination assessment by the Orissa Electricity Regulatory Commission) was assessed by the Committee together with revenue recognition in terms of the requirements of IAS 18. The tariff determination basis was also supported by an opinion from external legal counsel. A comprehensive legal paper was reviewed by the Committee and the mitigating factors were discussed with senior management, including head of legal. The Committee also reviewed the probable, possible and remote analysis carried out by management and the disclosure of contingent liabilities in the financial statements. In respect of all significant disputes, management’s assessment was supported by legal opinions from external legal counsel. A comprehensive tax paper outlining taxation disputes in respect of withholding taxes relating to past acquisitions, eligibility of tax incentives and output taxes and other matters was placed before the Committee for its consideration. The Committee discussed these tax issues and reviewed the assessment of probable, possible and remote analysis and the process followed by management. The contingent liability disclosure was also reviewed by the Committee. In certain cases, views of tax experts supporting the management assessment was also provided to the Committee. These policies are based on the APB Ethical Standards for Auditors and are regularly reviewed to ensure they are in line with best practice. These controls provide the Audit Committee with confidence that the independence of Deloitte in their audit function will be maintained. The Audit Committee was satisfied with the external audit process and that the independence of the external auditors was not compromised. Performance of the external auditor During the year, the Audit Committee reviewed the effectiveness of Deloitte LLP using a survey comprising a range of questions covering objectivity, quality and efficiency. The Audit Committee concluded that the results of the survey were positive and considered that they continue to provide a high quality audit. Vedanta Resources plc Annual report and accounts FY2015 As Deloitte LLP has served as the Company’s external auditor for over ten years, in accordance with transition provisions of the Competition and Markets Authority order, Deloitte LLP will resign as the Company’s external auditor following the completion of the external audit for the year ending 31 March 2016. The year ahead The Committee will be overseeing the tender process for the appointment of the external auditor for the fiscal year commencing 1 April 2016. The Committee is also focused on preparing for the new requirements that the Company will be expected to comply with under the 2014 UK Corporate Governance Code including the requirement for a Viability Statement. In addition, the Audit Committee’s objectives for the forthcoming year include: • implement findings from Board evaluation process; and • focus on oversight of anti-bribery policies and procedures. Aman Mehta Chairman, Audit Committee 13 May 2015 97 Reappointment of the external auditor The Committee has concluded that Deloitte LLP remain objective, independent and effective and accordingly recommended to the Board that a resolution to reappoint them be considered at the 2015 Annual General Meeting. Following approval by the Board, a resolution to reappoint the incumbent auditor, Deloitte LLP, has been proposed at the forthcoming Annual General Meeting. The Audit Committee is also responsible for determining the auditors’ remuneration on behalf of the Board, subject to the approval of shareholders at the forthcoming Annual General Meeting. Provision of non-audit services by the external auditor The Group’s policy on the provision of non-audit services by the external auditor specifies certain services which the external auditor is prohibited from undertaking in order to safeguard their objectivity and independence. This includes work relating to the financial statements that will ultimately be subject to audit and the provision of internal audit services. The policy also identifies those services which the external auditor is permitted to deliver to the Group. These include tax advisory services, and work on mergers, acquisitions and disposals. Of the permitted services any assignment in excess of US$100,000 may only be awarded to the external auditor with the prior approval of the Audit Committee. All other permitted non-audit services and the fees paid to the external auditor for non-audit work are reported to the Audit Committee on a six monthly basis. This report includes safeguards put into place to ensure that any threats to the independence of the external auditor are mitigated. The majority of non-audit services provided by the external auditor are tax advisory services, corporate finance matters or transaction related work. A separate team within Deloitte LLP is used to carry out non-audit work and overseen by a separate partner. An analysis of non-audit fees can be found in Note 10 to the financial statements. External audit tender Vedanta recognises the current requirements of the Code and transitional guidance in relation to audit tendering and rotation under the European Union text on Audit Regulation and Directive and the UK Competition Markets Authority Order. In order to ensure good corporate governance and that the services of the external auditor remained of the highest quality, the Audit Committee has recommended that the provision of external audit services be put to tender in 2015 in respect of the provision of external audit services for the financial year ending 31 March 2017. The timing of the tender process has been aligned with the rotation of the external audit contracts of the Group’s Indian subsidiaries in order to enhance the effectiveness and reduce any potential disruption of the tender process. Under the Indian Companies Act 2013, companies are required to rotate their external audit contract on completion of two terms of five years. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 98 Corporate governance and Directors’ reports Nominations Committee report Anil Agarwal, Chairman, Nominations Committee The Nominations Committee is responsible for reviewing the composition of the Board to ensure the right mix of skills, experience, diversity and independence is present. This Nominations Committee report provides details of the role and responsibilities of the Nominations Committee and the work it has undertaken during the year. Membership and Attendance The Nominations Committee comprises the following Directors and met on three occasions during the year. Anil Agarwal, Chairman Euan Macdonald Aman Mehta Deepak Parekh Katya Zotova1 Number of meetings attended Percentage attendance 3/3 3/3 3/3 3/3 1/1 100% 100% 100% 100% 100% 1 This refers to the number of meetings of the Nominations Committee attended during the year which the Director was entitled to attend following her appointment to the Committee. The Board considers that the composition and effective operation of the Board is a critical component for the delivery of long-term shareholder value. The Nominations Committee is responsible for reviewing the composition of the Board to ensure the right mix of skills, experience, diversity and independence is present. It also plays a key role in ensuring the development of talent within the Group. Responsibilities of the Nominations Committee The responsibilities of the Nominations Committee are set out in its terms of reference which can be found on the Company’s website at www.vedantaresources.com and are also available on request from the Company Secretary. The main responsibilities of the Nominations Committee are to: • Review the structure, size and composition of the Board, including the skills, experience and diversity of its members and recommend changes to the composition that are deemed necessary; • Review the policy in respect of diversity on the Board and consider Board composition in light of the benefits of diversity, including gender; • Consider candidates for appointment as either Executive or Non-Executive Directors and plan for succession in particular to the positions of the Executive Chairman and Chief Executive Officer; • Prepare a description of the role and capabilities required for appointments to the Board; • Identify suitable candidates for appointments to the Board and its Committees and consider the use of external advisers to facilitate the search for candidates from a wide range of backgrounds; and • Recommend to the Board whether to reappoint a Non-Executive Director either at the end of their term of office or when put forward for re-election, having regard to their performance and ability to continue to contribute to the Board. The Nominations Committee will confer with Volcan in this respect under the terms of the Relationship Agreement. Vedanta Resources plc Annual report and accounts FY2015 99 Operation of the Nominations Committee Other Executive Directors and members of the senior management team may attend meetings at the invitation of the Committee as appropriate. The Chairman of the Nominations Committee provides an update to the Board in respect of the Committee’s activities. Committee’s awareness of the tenure of its Non-Executive Directors. Both the Nominations Committee and Board have discussed at length the need for refreshing of the Board and at the recommendation of the Nominations Committee, one new Non- Executive Director was appointed to the Board in 2014. Nominations Committee activities during the year The focus this year has continued to be on issues of diversity, succession planning and Board composition due to the Nominations The main areas of activity of the Nominations Committee during the year are summarised below: Area of responsibility Item Board composition and succession planning Governance Non-Executive Director independence Recruitment process When considering new appointments to the Board, the Nominations Committee reviews the balance of skills, experience and diversity on the Board to identify those criteria which are determined to be key to strengthening the effectiveness of the Board. These criteria form the basis of the search for new appointments to the Board. During the year, the Nominations Committee continued its work with independent Board recruitment agency, Spencer Stuart to conduct a global search for new Non-Executive Directors to succeed Messrs Mehta and Macdonald who have served on the Board for over nine years. Spencer Stuart was provided with a brief to identify candidates that had relevant experience of the extractive industries. The brief also requested the inclusion of more female candidates on candidate shortlists to address the lack of gender diversity on the Board and meet the aspirational target of achieving 25% of women on the Board by 2015. While the Nominations Committee is committed to addressing the gender imbalance, the Board is of the view that any appointments to the Board should be based on merit rather than to fulfil targets. Following the recruitment drive, Ms Katya Zotova was appointed as a Non-Executive Director. Ms Zotova has a wealth of knowledge and experience in the oil & gas industry having previously spent over a decade at Royal Dutch Shell, working on a number of commercial upstream roles and as Head of International Acquisitions and Divestments for Citigroup’s oil & gas division. Ms Zotova’s experience is of significant benefit to the Group in developing its oil & gas strategy. Spencer Stuart has no other connection with the Group other than to provide recruitment consultancy services to the Nominations Committee. The search of additional Board candidates is ongoing and it is expected that further appointments will be made in due course. • Review of skills, experience and diversity and approving key search criteria for recruitment of new Non-Executive Directors; • Continued engagement of search consultancy to aid in recruitment process; • Review of candidates and recommendation of the appointment of a new Non-Executive Director; • Keeping under review potential candidates to address gender balance on the Board; • Review of succession planning for executive management. • Considering the results of the Nominations Committee’s annual evaluation; • Approval of disclosures in the Nominations Committee report in the Company’s annual report. • Review of the independence of each of the Non-Executive Directors prior to recommending their reappointment by shareholders at the Annual General Meeting. Succession planning As part of the Board’s succession planning arrangements, the Nominations Committee has initiated a review of the composition of the Board Committees and details will be announced in due course. In addition to ongoing Board succession planning, during the year there was also significant focus on succession planning for senior management roles across the Group. Tom Albanese, Chief Executive Officer has continued the leadership review to assess the current leadership of the businesses and identify potential successors as part of a drive to have the right leadership in place for the delivery of the Group’s strategic objectives. As Mr SK Roongta is expected to retire from the Group later in the year, Mr Abhijit Pati was appointed as CEO – Aluminium in March 2015. In May 2015, Mr Ajay Dixit was appointed as Chief Executive Officer, Power and will lead the consolidation of the Group’s entire Power operations and develop the Power vertical. Following the review, a number of changes were made to the senior management structure to help provide the necessary focus to grow our businesses and deliver superior value to all stakeholders. Mr Kishore Kumar was appointed as CEO-Iron Ore Business to lead the revival of the Group’s profitable low cost mining operations in Karnataka and Goa and to develop the Group’s Liberian Iron Ore project. In 2015, Ms Deshnee Naidoo was appointed as CEO, Zinc International. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 100 Corporate governance and Directors’ reports Nominations Committee report continued The year ahead The Nominations Committee objectives for the coming year are: • Review progress made on nurturing talent and improving the gender balance within the Group; • Continued focus on succession planning for the Board in order to ensure a balance of skills, experience and diversity; • A commitment to increasing the participation of women across all levels of the business, not least the Board of Directors; and • Appointment of additional Non-Executive Directors to succeed Messers Mehta and Macdonald. Anil Agarwal Chairman, Nominations Committee 13 May 2015 Talent development and senior management succession planning Our people are our biggest asset for the delivery of business results and long-term shareholder value. We have renewed our commitment to nurturing and developing talent within the Group and reviewed career growth opportunities, learning and development and reward and recognition programmes within the Group. The ‘Leadership Connect’ programme was started to build leadership capability and ensure a pipeline of suitably qualified candidates for future succession to senior management positions within the Group. Another objective of the programme is to create leaders who can drive engagement within their teams to deliver superior performance for the Group. Diversity The Board supports the importance of having diversity of thought and representation on its Board and it is one of the Nominations Committee’s tasks to ensure that this is achieved. Board diversity has been considered from a number of aspects, including but not limited to age, gender, race and ethnic origin, cultural and educational background. The Board has a wide range of knowledge and expertise including mining, oil & gas, corporate finance, banking, diplomacy and governance and the law. In terms of gender, the Company’s diversity policy has an aspirational target of achieving a minimum of 25% women on the Board by 2015. While we have made some progress towards this target following Ms Zotova’s appointment, we acknowledge that more needs to be done and this remains a top priority for the Nominations Committee. The Nominations Committee is also addressing the lack of gender diversity across its employee population and feel that it is essential to overcome the reasons for lack of female representation to date. These have included the fact that Vedanta operates within a traditionally male dominated industry. Furthermore, due to cultural constraints and the remote geographical location of some of our operations, we face a number of challenges in addressing the gender balance within the Group. Women currently comprise 8.64% of the overall employee population within the Group whereas the percentage of female representation across the Group’s professional population is 11.24%. In order to achieve our target for women on the Board, we ensure that female candidates are considered routinely as part of the recruitment process. We also actively encourage and monitor the progress of women in senior positions throughout the Group. Initiatives this year included reviewing the barriers to women with children in returning to work. By supporting equal opportunities we will ensure that the pool of women from which management can be drawn will increase. Ms Roma Balwani joined the Group as President – Group Communications, Sustainability and Corporate Social Responsibilty and Ms Deshnee Naidoo was appointed as the CEO of Zinc International. Vedanta Resources plc Annual report and accounts FY2015 101 Sustainability Committee report Euan Macdonald, Chairman, Sustainability Committee The Vedanta Sustainability Framework has enabled significant improvements in the way we do business. This Report provides details of the role and responsibilities of the Sustainability Committee and the work it has undertaken during the year. Vedanta’s business model is to deliver operational excellence while demonstrating world class standards for governance, safety and social responsibility in the locations of the operations. This approach is fundamental to gain and maintain our license to operate and is vital to capture loyalty and insulate the company against crisis. The Sustainability Model, comprising of three pillars: Responsible Stewardship, Building Strong Relationships and Adding & Sharing Value was further strengthened this year with the addition of a new fourth pillar – Strategic Communications, that reflects our commitment to complete transparency and emphasises our principles of community dialogue and mutual respect, including free prior informed consent to access natural resources. The Sustainability Model guides us to ensure a long-term, sustainable future of our business operations, meeting our growth targets, and creating long-term value for all our stakeholders. The Vedanta Sustainability Framework has enabled significant improvements in the way we do business. The Group’s vastly improved safety performance is testament that robust practices and processes can have a direct impact on performance. In 2014-15, we began to see tangible outcomes of our safety drive, with far fewer fatalities and lost time injuries. However, any unsafe incident is entirely unacceptable and I am deeply saddened that eight people lost their lives while working at Vedanta. Each subsidiary company’s Chief Executive presented a detailed appraisal of the root causes and action plans to the Committee. We maintained our focus on containing our impact on air, water and land use, to achieve our target for Water savings and Energy savings this year. As the businesses have met many of our goals, we have set escalated benchmarks. As we enter a new phase of our sustainability journey, the Committee recommended businesses to join WBCSD – WASH pledge, Global Compact Network – Women Empowerment Principles and other charters, to contribute towards establishing formal partnerships with national and international bodies on the cause of Sustainable Development. The Committee also advocated the internal committee to review gap assessment against UN principles of Human Rights and recognised that the subsidiary businesses need to improve their stakeholder engagement and management processes. We are using the Vedanta Sustainability Assurance Programme (VSAP) as our internal sustainability risk management tool to ensure framework compliance. As a result of follow up audit process, review and implementation of action plans each of the business – operational sites and mines have made the SMART objectives in line with our framework requirements and now monitor the performance at a regular intervals. I take this opportunity to thank the management across our businesses for their commitment to VSAP, which has been a demanding exercise. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 102 Corporate governance and Directors’ reports Sustainability Committee report continued Membership and attendance The Sustainability Committee comprises the following Directors and met on four occasions during the year. CSR acted as secretary of the Committee and group’s subsidiary companies’ Chief Executives or their representatives were invited to attend the meetings. Number of meetings attended Percentage attendance The main responsibilities of the Sustainability Committee are: • To advise on sustainability policies and framework, clearly setting Euan Macdonald, Chair Tom Albanese Kishore Kumar 4/4 4/4 4/4 100% 100% 100% The President – Group Communication, Sustainable Development and CSR acted as secretary of the Committee and all invited CEO’s or their HSE representatives attended the meetings. Responsibilities of the Sustainability Committee The responsibilities of the Sustainability Committee are set out in its terms of reference which are available on the Company’s website www.vedantaresources.com from the Company Secretary. The President, Group Communication, Sustainable Development and out the commitments of the group to manage matters of sustainable development effectively; • To review and approve targets for sustainability performance and report to the Board with respect to their appropriateness and assess progress towards achieving those targets; • To recommend initiatives required to institutionalise a sustainability culture through involvement of leadership, employees and communities at all levels; • To review and report to the Board, the performance of the Group and the Group companies with respect to the implementation of the Vedanta Sustainability Framework through the Sustainability Assurance Programme so that sustainability and reputation related risks are assessed, controlled and managed effectively; and • To approve the Sustainability Report prior to publication. Sustainability Committee activities during the year The main areas of activity of the Sustainability Committee during the year are summarised below: Area of Responsibility Item Sustainability Framework • Review and update Sustainable Development Policies; • Providing oversight of the progress made on the development of the sustainability model and framework; • Review the implementation of the action plan emerging from Vedanta’s Sustainability Assurance programme (VSAP); Health and Safety Environment System development systems and performance reporting • Review & approve sustainable development objectives and targets; • Review & approve sustainable development initiatives, charters and partnerships. • Review of safety incidents and performance; • Overseeing the implementation of action plans with respect to fatal accidents; • Ratification of Group’s safety performance standards; • Review of High Potential Incidents and other leading indicators. • Overseeing the Group’s initiatives for reduction in specific water and energy consumption; • Monitoring and follow ups of higher category environment incidents; • Review of fly ash management plans and statistics; • Review of biodiversity initiatives and action plans. • Reviewing the implementation of IESC close-out audit recommendations of URS final report (October 2013); • Overseeing the implementation of Group wide SAP-EHS IT Solution; • Review of performance evaluation of the Sustainability Committee and review of terms of reference; • Review and approval of the Group’s Sustainable Development Report 2013-14. Community relation and engagement • Ratification of the Group’s community relation framework; • Overseeing the implementation of strategic CSR projects; • Review the progress on the Group’s Human Right’s programme and initiatives; • Review of important stakeholder engagements. Details on each of the above initiatives can be found in the Company’s Sustainable Development Report 2014-15 and on the Company’s website at www.sustainability.vedantaresources.com/home. Euan Macdonald Chairman, Sustainability Committee 13 May 2015 Vedanta Resources plc Annual report and accounts FY2015 103 Statement by the Remuneration Committee Chairman For determining bonus, the business performance for the year has been evaluated in terms of the metrics approved for the year 2014-15. Following evaluation against the set metrics, the achievement of targets is 37.2% of the maximum, and subsequently a bonus of 55.8% of salary is proposed for the Executive Chairman and Vice Chairman. Mr Tom Albanese’s contract for the fiscal year 1 April 2014 to 31 March 2015, entitled him to an incentive bonus up to a maximum of 50% of salary. Considering his contributions and performance during the year, the Committee determined that he should receive a bonus payout of 37.20% of salary. Under the remuneration policy, all the Executive Directors’ bonuses will be paid half in cash, with the balance in deferred shares. Under the Company’s legacy Long-Term Incentive Plan (LTIP), the final 2011 award lapsed in August 2014 as a result of the TSR performance condition not being met. Remuneration for the year ending 31 March 2016 Recognising the challenging market context, the Remuneration Committee has determined that there should be no salary increases for the Executive Directors for this year. No changes will be made to the fees of the Non-Executive Directors. The Committee intends to make limited changes to the proposed implementation of the Remuneration Policy for this year. Consistent with our policy, this means a bonus maximum of 150% of salary for the Executive Directors, accompanied by a scorecard of targets which will be linked to our financial, sustainability and strategic performance. The Executive Directors will receive Performance Share Plan awards valued at 150% of salary this year, with vesting based entirely on Vedanta’s Total Shareholder Return (TSR) performance relative to a peer group of comparators. We have made some changes to the composition of the TSR comparators group to reflect those companies listed both in the UK and internationally, which are felt to be of most relevance to Vedanta’s diversified structure, and the new group is set out in the Annual Report on Remuneration. Conclusion Since we are not proposing any changes to our remuneration policy this year, there will only be an advisory vote on the Annual Report on Remuneration, which provides details of the remuneration earned by Directors in the past financial year as well as the way in which we propose to operate the policy in the coming year. However, for clarity, we have reproduced the Remuneration Policy which was approved by shareholders in 2014. We hope that we will receive your support the policy for the Annual Report on Remuneration at the forthcoming AGM. Yours sincerely, Euan Macdonald Chairman, Remuneration Committee Dear Shareholder, On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2015. The report sets out details of the Remuneration Policy, which received shareholder approval in 2014 (and is restated here for ease of reference), together with our Annual Report on Remuneration which details the remuneration paid to the Directors last year and the intended application of the policy for the current financial year. Role of the Remuneration Committee Following a full and detailed review of the Remuneration Policy during 2014, this was a quieter year for the Committee, in which we focused on ensuring that the new Remuneration Policy was implemented diligently. Particular matters which the Committee considered were as follows: • Introduction of the new PSP as set out in the policy last year; • Introduction of new share ownership guidelines of 200%; • Introduction of the Deferred Share Bonus Plan, requiring the deferral of 50% of the annual bonus for Executive Directors, and improvement to the structuring of the annual bonus plan including revision of its performance metrics; • Introduction of withholding and recovery provisions (claw-back) in both the annual bonus and LTIP; • Freezing of salary for 2015/16; • Introduction of a new subsidiary share plan for Vedanta Limited; and • Consultation relating to bonus metrics. Performance and Reward in the year to 31 March 2015 Despite the challenging macroeconomic environment, the Group’s performance on various financial and production parameters has been encouraging and noteworthy. Vedanta’s performance during 2014 is largely impacted on account of headwinds faced due to the significant fall in global commodity prices. The fall in short to medium-term oil prices has impacted on our reported financial results in respect of carrying some goodwill value of certain oil and gas assets with impairment charges booked in the income statement as set out in the financial review. We fully recognise the impact of the overall decline in market conditions has had on our shareholders. We propose, for our Executive Directors, for 2015 no increase to their fixed compensation. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 104 Corporate governance and Directors’ reports Directors’ Remuneration Policy report The Company’s Remuneration Policy was put to a vote at the 2014 AGM and was approved by 99.93% of shareholders which voted. There is no requirement to vote on the policy in 2015 unless any changes to the policy are proposed, and the Committee does not intend to make any such changes at this time. The policy is set out for information only; the charts showing remuneration scenarios on page 107 have been updated to reflect the intended implementation of the policy for 2015. Policy overview The key objective of the Group’s broad remuneration policy is to ensure that competitive and fair awards are linked to key deliverables and are also aligned with market practice and shareholders’ expectations. The Committee ensures that remuneration policies and practices are designed to attract, retain and motivate the Executive Directors and the senior management group, while focusing on the delivery of the Group’s strategic and business objectives. The Committee is also focused on aligning the interests of the Executive Directors and the senior management group with those of shareholders, to build a sustainable performance culture. When setting remuneration for the Executive Directors, the Committee takes into account the business performance, developments in the natural resources sector and, considering that the majority of the Group’s operations are based in India, similar information for high-performing Indian companies. The Committee has set remuneration taking into consideration both UK and Indian market practice to ensure it is globally competitive as the Executive Directors are based in India (with the exception of Mr Anil Agarwal, who is UK-based), along with the majority of the Group’s professional management team. The Committee also considers the inflation rates prevalent in UK and India in the setting of remuneration. The Committee recognises that financial performance of the Company is heavily influenced by macro-economic considerations such as commodity prices and exchange rate movements. These factors are therefore taken into consideration when setting executive remuneration. How the views of shareholders are taken into account The Committee considers the AGM to be an opportunity to meet and communicate with investors and considers shareholder feedback received in relation to the AGM each year and guidance from shareholder representative bodies more generally. This feedback, plus any additional feedback received during any meetings from time to time, is then considered as part of the Company’s annual review of remuneration policy. In addition, the Committee will seek to engage directly with major shareholders and their representative bodies should any material changes be proposed to the remuneration policy. Details of votes cast for and against the resolution to approve last year’s remuneration report and any matters discussed with shareholders during the year are set out in the Annual Report on Remuneration. How the views of employees are taken into account In setting the policy for Executive Directors’ remuneration, the Committee considers the pay and employment conditions across the Group, including annual base compensation increases across the general employee population and the overall spend on annual bonuses. Employees may be eligible to participate in the annual bonus arrangement and receive awards under the ESOP or LTIP. Opportunities and performance metrics may vary by employee level with specific business metrics incorporated where possible. The Committee does not formally consult with employees in respect of the design of the Executive Directors’ remuneration policy, although the Committee will keep this under review. Vedanta Resources plc Annual report and accounts FY2015 105 Summary of the remuneration policy for Directors The following table sets out the key aspects of the remuneration policy for Directors: Element of pay Purpose and link to strategy Operation Maximum opportunity Performance measures Base compensation1 Reflects individual’s experience and role within the Group. Reward for performance of everyday activities. Business and individual performance are considered when setting base compensation. There is no prescribed maximum annual increase. Base compensation increases are applied in line with the annual review and are competitive within the UK and Indian market and internationally for comparable companies. The Committee is also guided by the general increase for the employee population but on occasions may need to recognise, for example, development in role and/ or change in responsibility. The Committee reviews base compensation annually, taking account of the scale of responsibilities, the individual’s experience and performance. Changes are implemented with effect from 1 April each year. Base compensation is paid in cash on a monthly basis. Base compensation is typically set with reference to a peer group of UK- listed mining comparator companies. Comparisons are also made against positions of comparable status, skill and responsibility in the metals and mining industries globally, and in the manufacturing and engineering industries more generally. Taxable benefits To provide market competitive benefits. Benefits vary by role and are reviewed periodically. The value of benefits is based on the cost to the Company and is not pre-determined. n/a Pension To provide for sustained contribution and contribute towards retirement planning. Benefits are set in line with local market practices. Directors receive pension contributions into their personal pension plan or local provident scheme. Contribution rates are set in line with local market practices. n/a Annual contribution of up to 15% of base compensation for the Deputy Executive Chairman and 20% of base compensation for the Chief Executive Officer. The Executive Chairman does not receive post- retirement benefits. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 106 Corporate governance and Directors’ reports Directors’ Remuneration Policy report continued Element of pay Purpose and link to strategy Operation Maximum opportunity Performance measures Annual bonus Incentivises executives to achieve specific, predetermined goals during the financial year. Performance Share Plan (PSP) Encourage and reward strong performance aligned to the interests of shareholders. Share ownership guidelines To increase alignment between executives and shareholders. Up to 150% of base compensation per annum. Up to 150% of base compensation per annum. The bonus is measured against a balanced scorecard of performance metrics. At least 50% of the bonus potential will be based on financial performance and the remainder of the bonus potential will be based on operational, strategic and sustainability measures. The Committee has the ability to adjust the bonus outturn if it believes that the outturn is not reflective of the Group’s underlying performance or warranted based on the Health, Safety and Environment (HSE) record. PSP awards are subject to a performance condition based on relative total shareholder return (TSR). 30% of an award will vest for achieving median performance, increasing pro-rata to full vesting for the achievement of stretch performance targets. The Committee has the ability to adjust the PSP outturn if it believes that the outturn is not reflective of the Group’s underlying performance or warranted based on the HSE record. 200% of base compensation for Executive Directors2. n/a 50% paid in cash and 50% deferred into shares which will vest 40% after the first year, and 30% after the second and third years, subject to continued employment. Determined by the Committee after year-end, based on performance against the pre-determined financial and non- financial metrics. Not pensionable. Clawback provisions apply for overpayments due to misstatement or error and other circumstances. Annual grant of nominal- cost options which vest after three years, subject to Company performance and continued employment. There is an additional holding period of two years post-vesting. Clawback provisions apply for overpayments due to misstatement or error and other circumstances. Executive Directors are required to retain any vested shares (net of tax) under the Group’s share plans until the guideline is met. Any new Executive Director will have a period of five years from recruitment or promotion to the Board to build up their shareholding to the required level. Vedanta Resources plc Annual report and accounts FY2015 107 Element of pay Purpose and link to strategy Operation Maximum opportunity Performance measures Non-Executive Directors’ fees To attract and retain high calibre Non-Executive Directors through the provision of market competitive fees. Fees are paid in cash. Fees are determined based on the significant travel and time commitments, the risk profile of the Company and market practice for similar roles in international mining groups. As for the Executive Directors, there is no prescribed maximum annual increase. The Committee is guided by the general increase for the employee population but on occasions may need to recognise, for example, development in role and/ or change in responsibility. Business and individual performance are considered when setting fees. 1 Base compensation includes base salary plus fixed cash allowances and statutory benefits, which are a normal part of the fixed remuneration package for employees in India. 2 A similar requirement but with a lower salary multiple applies to members of the Executive Committee. Selection of performance metrics The annual bonus is based against a balanced scorecard of financial, operational, sustainability and strategic metrics. The mix of targets will be reviewed each year by the Committee to ensure that they remain appropriate to reflect the priorities for the Group in the year ahead. A sliding scale of targets is set to encourage continuous improvement and challenge the delivery of stretch performance. The PSP is based on relative TSR performance, which provides an external assessment of the Company’s performance against the market. It also aligns the rewards received by executives with the returns received by shareholders. A sliding scale of challenging performance targets is set. The Committee will review the choice of performance measures and the appropriateness of the performance targets prior to each PSP grant. The Committee reserves the discretion to set different targets for future awards, without consulting with shareholders, providing that, in the opinion of the Committee, the new targets are no less challenging in light of the circumstances at the time than those used previously. The targets for awards granted under this remuneration policy are set out for shareholder approval in the Annual Report on Remuneration. Remuneration scenarios for Executive Directors The charts below illustrate how the Executive Directors’ remuneration packages vary at different levels of performance under the ongoing policy, which will apply from 1 April 2015. Executive Chairman 2015/16 Maximum 26% 37% 37% £6,561,000 On-target 38% 35% 27% £4,551,000 Minimum 100% £1,737,000 Total fixed pay Annual bonus Performance share plan Deputy Executive Chairman 2015/16 Maximum 28% 36% 36% £4,395,754 On-target 41% 34% 25% £3,087,695 Minimum 100% £1,256,414 Total fixed pay Annual bonus Performance share plan Chief Executive Officer 2015/16 Maximum 30% 35% 35% £4,345,000 On-target 41% 34% 25% £3,095,000 Minimum 100% £1,345,000 Total fixed pay Annual bonus Performance share plan Notes 1 Base compensation levels are based on those applying on 1 April 2015. In the case of Navin Agarwal, who receives most of his salary in INR, the salary is converted at a rate of INR98.5641: £1. 2 The value of taxable benefits is based on the cost of supplying those benefits (as disclosed) for the year ending 31 March 2015 in the case of all the Executive Directors. 3 The value of pension receivable by the Deputy Executive Chairman and Chief Executive Officer in 2015/16 is taken to be 15% and 20% of base compensation respectively. 4 The on-target level of bonus assumed to be 2/3rd of the maximum annual bonus opportunity. 5 The on-target level of the PSP assumed to be 50% of the face value of the award at grant. 6 Share price movement and dividend accrual have not been incorporated into the values shown above. Approach to recruitment and promotions The remuneration package for a new Executive Director – i.e. base compensation, taxable benefits, pension, annual bonus and long-term incentive awards – would be set in accordance with the terms of the Company’s prevailing approved remuneration policy at the time of appointment and would reflect the experience of the individual. The base compensation for a new executive may be set below the normal market rate, with phased increases over the first few years, as the executive gains experience in their new role. Annual bonus potential will be limited to 150% of base compensation and long-term incentives will be limited to 150% of base compensation per annum. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 108 Corporate governance and Directors’ reports Directors’ Remuneration Policy report continued In addition the Committee may offer additional cash and/or share-based elements when it considers these to be in the best interests of the Company (and therefore shareholders) to take account of remuneration relinquished when leaving the former employer and would reflect the nature, time horizons and performance requirements attaching to that remuneration. For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue, provided that they are put to shareholders for approval at the earliest opportunity. For external and internal appointments, the Committee may agree that the Company will meet certain relocation expenses and continuing allowances as appropriate. For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved remuneration policy at that time. Service contracts for Executive Directors The Committee reviews the contractual terms for new Executive Directors to ensure these reflect best practice. Mr Anil Agarwal is employed under a contract of employment with the Company for a rolling term but which may be terminated by not less than six months’ notice. Provision is made in Mr Anil Agarwal’s contract for payment to be made in lieu of notice on termination which is equal to base compensation. Mr Navin Agarwal has a letter of appointment with the Company which is a rolling contract and may be terminated by giving six months’ notice. Mr Navin Agarwal has a service agreement with Vedanta Limited (Formerly known as (Sesa Sterlite Limited) which expires on 31 July 2018, with a notice period of three months or base compensation in lieu thereof. Mr Tom Albanese has a separate letter of appointment with the Company and Vedanta Limited (Formerly known as Sesa Sterlite Limited) on a fixed three year term which expires on 31 March 2017, but which may be terminated by not less than three months’ notice. Provision is made in Mr Tom Albanese’s contract for payment to be made in lieu of notice on termination which is equal to three months’ base compensation and benefits. It is the Group’s policy that the notice period in the Directors’ service contracts does not exceed 12 months. Copies of all Executive Directors’ service contracts and the letters of appointment of the Non-Executive Directors are available for inspection during normal business hours at the registered office of the Company, and available for inspection at the AGM. Payments for loss of office The Executive Directors’ service contracts provide for pay in lieu of notice in respect of base compensation, as set out above. The annual bonus may be payable with respect to the period of the financial year served although it will be pro-rated for time and paid at the normal payout date. Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant plan rules. The default treatment under the PSP is that any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, ill-health, disability, retirement or other circumstances at the discretion of the Committee, ‘good leaver’ status may be applied. For good leavers, awards will normally vest on the original vesting date, subject to the satisfaction of the relevant performance conditions at that time and reduced pro-rata to reflect the proportion of the performance period actually served. However, the Committee has discretion to determine that awards vest at an earlier date and/or to disapply time pro-rating, although it is envisaged that this would only be applied in exceptional circumstances. Any such incidents, where discretion is applied by the Committee, will be disclosed in the next year’s Annual Report on Remuneration. The default treatment for deferred annual bonus awards is that any outstanding awards lapse on cessation of employment. However, in certain ‘good leaver’ circumstances (as described under the PSP above) awards will normally vest in full on the original vesting date. In determining whether an executive should be treated as a good leaver or not, the Committee will take into account the performance of the individual and the reasons for their departure. In the event of a change of control all unvested awards under the deferred annual bonus and long-term incentive arrangements would vest, to the extent that any performance conditions attached to the relevant awards have been achieved. The award will, other than in exceptional circumstances, be pro-rated for the period of the financial year served. Letters of appointment for Non-Executive Directors The Non-Executive Directors have letters of appointment which may be terminated by either party by giving three months’ notice. The Non-Executive Directors’ letters of appointment set out the time requirements expected of them in the performance of their duties. Non-Executive Directors are normally expected to spend at least 20 days per year in the performance of their duties for the Company. There is no provision in the letters of appointment of the Non- Executive Directors for compensation to be paid in the event of early termination. Legacy arrangements For avoidance of doubt, in approving this Directors’ Remuneration Policy Report, authority is given to the Company to honour any commitments entered into with current or former Directors (such as the vesting of past share awards) that have been disclosed to and approved by shareholders in this and previous Remuneration Reports. Details of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise. Vedanta Resources plc Annual report and accounts FY2015 109 Annual report on remuneration (excluding VAT). This fee predominantly related to the development and roll out of the new Remuneration Policy and implementation of the new PSP and Deferred Bonus scheme, together with providing ad hoc advice to the Remuneration Committee. Other advisers to the Committee during the year and their roles are set out below. • Mr Rajesh Padmanabhan (President – Group HR) advises the Committee on general remuneration policies and practices followed in India and the global market, Executive Directors’ remuneration and benefits and remuneration policy applicable to the wider employee population within the Group. • The Executive Directors provide input on remuneration packages for the senior management group to ensure parity amongst senior management in different businesses but at similar roles. Executive Directors may attend meetings at the invitation of the Committee but no Director is present during discussions of their own remuneration. • Ernst & Young LLP review and confirm the Company’s TSR performance in respect of the Long-Term Incentive Plan. Ernst & Young also provide tax and internal audit services to the Group. Statement of shareholder voting At the 2014 Annual General Meeting, resolutions were proposed to shareholders to approve the Directors’ Remuneration Policy for the year ended 31 March 2014. This resolution received the following votes from shareholders: Directors’ Remuneration Policy Annual report on remuneration Votes cast in favour 240,062,105 99.93% 224,605,024 93.32% Votes cast against 6.68% Total votes cast Abstentions 0.67% 16,073,242 240,678,267 1,745,608 1,630,575 241,692,680 731,195 Votes cast in favour Votes cast against Total votes cast Abstentions PSP % 239,724,271 1,671,224 241,395,495 1,025,344 99.31 0.69 87.5 During the year, the Committee wrote to the Company’s major shareholders to provide detail, on the performance measures selected for the annual bonus, and to set out plans for a share scheme within the business. Those shareholders who responded indicated their support for the proposals under consultation, with constructive feedback which was duly considered by the Committee. This part of the report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and 9.8.6R of the UK’s Listing Rules. The Annual Report on Remuneration will be put to an advisory shareholder vote at the 2015 AGM. The information on pages 110 to 114 has been audited. Membership of the Remuneration Committee The members of the Remuneration Committee who served during the year, all of whom are independent Non-Executive Directors, are shown below together with their attendance at Remuneration Committee meetings: Name Euan Macdonald (Chairman) Aman Mehta Geoffrey Green Katya Zotova1 Meetings attended Percentage attendance 3/3 3/3 3/3 1/1 100% 100% 100% 100% 1 This refers to the number of meetings of the Remuneration Committee held during the year which the Director was entitled to attend following her appointment to the Committee. The Committee’s responsibilities are set out in its terms of reference, which are available on the Company’s website at www.vedantaresources.com or on request from the Company Secretary. The Committee’s terms of reference were reviewed during the year, and no further amendments have been made in the year ended 31 March 2015. The Committee’s responsibilities primarily include: • setting the Group’s overall policy on executive and senior management remuneration; • determining the remuneration packages for individual Executive Directors, including base compensation, performance-based short- and long-term incentives, pensions and other benefits; • approving the design and operation of the Company’s share incentive schemes; and • reviewing and determining the terms of the service agreements of the Executive Directors. Advisers to the Committee The Committee retained New Bridge Street (NBS), a trading name of Aon plc, to provide independent advice on remuneration matters. NBS is a signatory to the Remuneration Consultants Group’s Code of Conduct, which requires its advice to be objective and impartial. NBS does not provide any other services to the Company. Other pay information for employees below Board level is provided to the Company by Aon in India. The Committee considers that this enables a global perspective to be achieved. Where relevant, NBS reviews the work of Aon India to ensure that the advice is appropriate for a UK plc context and internally consistent. The Committee has reviewed the operating processes in place at NBS and is satisfied that the advice it receives is objective and independent. The Committee considers various external reports from NBS on remuneration in the UK as well as India to provide detailed insights that aid remuneration decisions. The fees paid to NBS in respect of work carried out in 2014/15 were £119,360 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 110 Corporate governance and Directors’ reports Annual report on remuneration continued Directors’ remuneration earned in 2014/15 (Audited) The table below summarises Directors’ remuneration received during the year ended 31 March 2015 and the prior year for comparison. Executive Directors Anil Agarwal1 Navin Agarwal2, 3 Tom Albanese4, 11 Non-Executive Directors6 Geoffrey Green Euan Macdonald Aman Mehta5 Deepak Parekh Katya Zotova (appointed 1 August 2014) Base compensation including salary or fees £000 Taxable benefits £000 Pension £0007 Annual bonus £0008 Long-term incentives £0009 Total £00010 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 1,608 1,608 968 916 1,000 0 95 92 140 131 140 137 102 83 68 129 14612 53 52 95 0 – – – – – – – – – – – 153 140 215 0 – – – – – – – – – 897 700 533 390 372 0 – – – – – – – – – – – – – – 0 – – – – – – – – – 2,634 2,454 1,707 1,498 1,682 0 95 92 140 131 140 137 102 83 68 1 Mr Anil Agarwal’s taxable benefits in kind include provision of a car, fuel and driver in the UK and India for business purposes, housing benefit (in India) and club membership and medical cover. 2 For the financial year ended 31 March 2015, Mr Navin Agarwal received a Vedanta Limited salary of INR8,56,33,845 excluding medical and leave travel allowances, Vedanta fees of £85,000, Cairn India Limited fees of INR1,40,000 as sitting fee and Hindustan Zinc Ltd fees of INR1,270,000. 3 Mr Navin Agarwal’s taxable benefits in kind include housing and related benefits, club membership, and use of a car and driver. 4 The taxable benefits paid to Tom Albanese include an amount of around £56,000 paid to him as part of personal taxation and legal advice that he received at the time of his recruitment, housing allowance, car and driver in India and medical cover. 5 The fees paid to Mr Aman Mehta excludes the salary of £78,850 paid by Cairn India Limited (2014: £78,530). 6 Non-Executive Directors are reimbursed for expenses incurred while on Company business. No other benefits are provided to Non-Executive Directors. 7 All of the Group’s pension schemes are based on cash contribution and do not confirm an entitlement to a defined benefit. Pension contributions are made into the Deputy Executive Chairman and Chief Executive Officer’s personal pension schemes (or local provident fund) and will become payable on the retirement, normally at age 58. The Executive Chairman does not receive pension benefits. 8 Amounts shown for 2014/15 relate to the payment of the annual bonus for the year ended 31 March 2015. Further details of this payment are set out below. As at the year end, £50,000 had been paid to Mr Tom Albanese with the remaining bonus amounts accrued. Further details of this payment are set out below 9 The LTIP award for 2011 lapsed in 2014 as the performance condition was not met. 10 The exchange rate applicable as at 31 March 2015 was INR98.5614 to £1 and at 31 March 2014 was INR96.2325 to £1. 11 Mr Albanese is entitled to a 3.67% Provident Fund contribution paid by the Vedanta Limited on his Indian salary as per India regulations. 12 Restated taxable benefit for 2013/14 relates to correction of the car allowance amount. Vedanta Resources plc Annual report and accounts FY2015 111 Annual bonus The annual bonus for the 2014/15 financial year was based on performance against a balanced scorecard of financial and sustainability measures and strategic projects. Performance against these targets is set out below: Factors Parameters Financial performance EBITDA Free cash flow Sustainability and safety scorecard Sustainability Safety Weighting as a percentage of total bonus 30.00% 30.00% Threshold performance hurdle (33% of maximum payable) 3,744 2,286 Actual achieved (£m) 3,744 2,519 On-target performance hurdle (70% of maximum payable) Achievement Payout (% of max) Payout % of total 5,349 70.00% 33.30% 10.00% 3,265 77.10% 42.00% 12.80% Subtotal financial 22.80% 7.50% 7.50% The safety target was not met so no bonus was payable under this element. 72.00% 5.40% 0.00% 0.00% Personal/strategic objectives Stakeholder management and regulatory 25.00% Parameters: PSA extension, divestment of Government share, simplification of Group structure, iron ore export duty and bauxite supply 36.00% Total Payout 100% Payout as a percentage of maximum payout opportunity Paid as a percentage of base pay (calculated as per total score) 150% Bonus payout table (payment scales as per approved bonus scheme) – financial performance elements Performance achievement against target Bonus as a % of maximum payout opportunity Bonus achieved Anil Agarwal Navin Agarwal Tom Albanese Threshold - 70% performance Bonus scheme Target - 100 % performance Stretched - 110 % performance 33.33% 70% 100% 9.00% 37.20% 55.80% Actual Refer to table above 37.20% % of salary 55.8% 55.8% 37.2% 1 For the financial elements, 33% is paid for threshold performance (which is 70% of target) increasing to full payout for stretch performance (110% of target). For other elements, zero bonus is paid for nil performance increasing to full payment at stretch performance. 2 Sustainability scorecard measures include resource use and management, stakeholder engagement and management, compliance and training, incident investigation and change management. 3 Stakeholder Management and Regulatory Development Scorecard includes PSA Extension, Divestment of Government Share, Simplification of Group Structure, Iron Ore Export Duty and Bauxite Supply. The bonus payment in relation to performance in the 2014/15 financial year will be payable 50% on cash and 50% in shares. For determining a bonus, the business performance for the year has been evaluated in terms of the metrics approved for the year 2014-15. Following evaluation against the set metrics, the achievement of targets is 37.2% of the maximum, and subsequently a bonus of 55.8% of salary is proposed for the Executive Chairman and Vice Chairman. Mr Tom Albanese’s contract for the fiscal year 1 April 2014 to 31 March 2015, entitled him to an incentive bonus up to a maximum of 50% of salary. Considering his contributions and performance during the year, the Committee determined that he should receive a bonus payout of 37.20% of salary. Under the remuneration policy, all the Executive Directors’ bonuses will be paid half in cash, with the balance in deferred shares. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 112 Corporate governance and Directors’ reports Annual report on remuneration continued Performance share plan awards granted during the year The following award was granted to the Executive Directors on 17 November 2014 under PSP Scheme: Anil Agarwal Navin Agarwal Tom Albanese Type of award Nominal-cost option Nominal-cost option Nominal-cost option Basis of award granted (% of base compensation) Share price at date of grant Number of shares over which award was at granted % of face value that would vest at threshold performance Face value of award (£’000) 113% 118% 138% £8.09 £8.09 £8.09 225,000 1,820,250 140,000 1,132,600 170,000 1,375,300 30% 30% 30% The performance condition attached to the above award is based on Vedanta Resources’ Relative TSR against a comparator group of industry peers. 30% of the awards will vest at median performance, with full vesting for upper quintile performance. The companies comprising the TSR comparator group are Anglo American, BHP Billiton, Rio Tinto, GlencoreXstrata, Vale, Antofagasta, Grupo Mexico, Hindalco, Alcoa, Dragon Oil, Boliden, First Quantum, Oz Minerals, Petrofac and Tullow Oil. Share plan awards The table below shows the Directors’ interests in the Company’s share plans: Anil Agarwal LTIP1 1 August 2011 24 September 2012 ESOP2 17 November 2014 PSP3 Navin Agarwal LTIP1 1 August 2011 24 September 2012 ESOP2 17 November 2014 PSP3 Tom Albanese 17 November 2014 PSP3 31 March 2014 Number of shares Granted in 2014/15 Number of shares Vested in 2014/15 Number of shares Lapsed in 2014/15 Number of shares 31 March 2015 Number of shares Exercise price US cents Award price £ Earliest/latest exercise date 73,500 22,500 – 57,500 15,300 – – – 225,000 – – 140,000 – 13,500 – – 9,180 – 73,500 – – 57,500 – – – 9,000 225,000 – 6,120 140,000 170,000 – – 170,000 0.1 0.1 0.1 0.1 0.1 0.1 0.1 17.20 10.56 8.09 1 Aug 14 – 1 Jan 15 24 Sep 13 – 16 Mar 16 16 Nov17 – 16 May 18 17.20 10.56 8.09 1 Aug 14 – 1 Jan 15 24 Sep 13 – 16 Mar 16 16 Nov17 – 16 May 18 8.09 16 Nov17 – 16 May 18 Total 168,800 535,000 22,680 131,000 550,120 1 The 2011 LTIP awards were subject to a TSR performance condition, Vedanta’s performance fell short of the median of the comparator group (which represented the threshold level of performance required for a vesting), and thus all the awards lapsed. 2 In respect of the ESOP awards made on 24 September 2012, as reported previously, the performance target was met and as a result 18% of the shares vested on 24 September 2013. 10.8% and 7.2% of the shares will vest on 24 September 2014 and 24 September 2015 respectively, subject to continued employment. 3 The vesting of PSP awards is subject to measurement of the Company’s performance in terms of TSR, as set out above External appointments The Board’s policy on external appointments is that an Executive Director may, only with the prior approval of the Board, accept an appointment external to the Group (other than any appointment as a Non-Executive Director to related parties or Volcan Investments Limited (Volcan) in the case of Messrs Anil Agarwal and Navin Agarwal) of a publicly listed company anywhere and that the fees for any such appointment may be retained by the individual. Mr Tom Albanese is a Non-Executive Director at Franco-Nevada Corporation where he is entitled to retain any remuneration paid to him. His fees for this position in 2014/15 were $22,500. Tom was granted 75,000 stock options on 19 August 2013. They vest 1/3 on each of the first, second and third anniversary of the date of grant. The exercise price is C$46.17 per option. None of the other Executive Directors currently receive fees for non-executive appointments with other companies. Vedanta Resources plc Annual report and accounts FY2015 113 Directors’ interests in ordinary shares The interests of the Directors in the shares of the Company as at the year end are set out below. Anil Agarwal1 Anil Agarwal2 Navin Agarwal1,4 Tom Albanese (appointed 1 April 2014) Geoffrey Green Euan Macdonald Aman Mehta Deepak Parekh Katya Zotova (appointed 1 August 2014) Beneficially owned at 31 March 2014 or on appointment Beneficially owned at 31 March 2015 or on departure Outstanding LTIP and ESOP Awards (not subject to performance) Shareholding as a % of base compensation3 Shareholding requirement met? 185,836,132 109,740 188,460 65,250 – – – – 187,488,102 123,240 249,300 82,700 – – – – – 9,000 6,120 – – – – – 583% 119% 41% n/a n/a n/a n/a Yes No No n/a n/a n/a n/a 1 Mr Anil Agarwal’s holding of 187,488,102 Vedanta ordinary shares are registered in the name of Volcan Investments Limited, which is a company owned by a family trust. 2 Mr Anil Agarwal and Mr Navin Agarwal each held nominee shares in direct and indirect subsidiaries. These holdings are non-beneficial. 3 Based on a share price of £5 as at 31 March 2015. 4 51,660 shares are held by Navin Agarwal’s son and wife as well, which were purchased from the market. No changes in the above Directors’ interests have taken place between 31 March 2015 and the date of this report. Payments to past Directors (audited) No payments were made to past Executive Directors during the year ended 31 March 2015. Payments for loss of office (audited) No payments were made in respect of loss of office during the year ended 31 March 2014. Mr MS Mehta left the business on 31 March 2014 and his remuneration was processed in line with his contractual terms and conditions. No payments for compensation or loss of office were paid to, or receivable by, any Executive Director. Percentage change in remuneration levels The table below shows the movement in base compensation, taxable benefits and annual bonus for the Executive Chairman between the 2013/14 and 2014/15 financial years, compared to that for the average employee. Executive Chairman Base compensation Taxable benefits Bonus Average per employee Base compensation Taxable benefits Bonus % change nil% –12% 26% 11% 11% 7% Relative importance of the spend on pay The table below shows the movement in spend on staff costs between the 2013/14 and 2013/14 financial years, compared to dividends. Staff costs Number of staff Dividends 2013/14 2014/15 % change US$801.6 29,154 812.6 27,717 US$162.5 US$171.4 +1.38% –4.93% +5.47% Performance graph and Executive Chairman pay The graph below shows the TSR in respect of the Company over the last five financial years, compared with the TSR for the FTSE All Share Mining Index. The FTSE All Share Mining Index was chosen as it is the most relevant to compare the Company’s performance against its peers. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 114 Corporate governance and Directors’ reports Annual report on remuneration continued Total shareholder return (£) 500 400 300 200 100 0 31 March 2009 31 March 2010 31 March 2011 31 March 2012 31 March 2013 31 March 2014 31 March 2015 Vedanta Resources plc FTSE All Share Mining Index Source: Thomson Reuters This graph shows the value, by 31 March 2015, of £100 invested in Vedanta Resources plc on 31 March 2009 compared with the value of £100 invested in the FTSE All Share Mining Index. The other points plotted are the values at intervening financial year-ends. The total remuneration figures for the Executive Chairman during each of the last six financial years are shown in the table below. The Executive Chairman’s remuneration is shown since he is the highest-paid Executive Director. Consistent with the calculation methodology for the single figure for total remuneration, the total remuneration figure includes the total annual bonus and long-term incentive award based on that year’s performance. The annual bonus payout and long-term incentive award vesting level as a percentage of the maximum opportunity are also shown for each of these years. £’000 Total remuneration Annual bonus (% of maximum) LTIP/ESOP vesting (%) Year ending 31 March 2010 2011 2012 2013 2014 2015 £1,378 30% n/a1 £2,066 43% 40% £2,010 39% n/a1 £2,556 40% 36% £2,454 44% nil% £2,634 37.2% Nil% 1 Due to the timings of long-term incentive grants, there were no awards with performance periods ending during these financial years. Remuneration decisions taken in respect of the financial year ending 31 March 2016 Base compensation In setting base compensation for 2015/16, the Committee considered external market data and the increase in base compensation for the senior management group and the workforce generally, where the average increase across the Group will be 10.6%. Given the challenging macro-economic environment, and following the consideration of the benchmark data, no increases will be made to the salaries of the Executive Directors for 2015. Anil Agarwal Navin Agarwal Tom Albanese Base compensation from 1 April 2014 £000 Base compensation from 1 April 2015 £000 1,608 1,046 1,000 1,608 1,046 1,000 % increase Nil Nil Nil Annual bonus awards to be granted in 2015/16 The annual bonus opportunity will be 150% of base compensation for Messrs Anil Agarwal, Navin Agarwal and Tom Albanese. The annual bonus will be based on the following metrics: Factor Financial performance (against target) Parameter EBITDA Free cash flow Personal objectives Sustainability & safety scorecard Strategic objectives & regulatory development initiatives Weighting 30% 30% 15% 25% The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include items which the Committee considers commercially sensitive. Full retrospective disclosure of the targets and performance against them will be seen in next year’s Annual Remuneration Report. Vedanta Resources plc Annual report and accounts FY2015 115 PSP awards to be granted in 2015/16 The Executive Directors’ 2015 PSP opportunity will be 150% of base compensation. The 2015/16 award will be subject to the following performance conditions: Performance condition Threshold target (30% vesting) Stretch target (100% vesting) End measurement point Relative TSR vs a bespoke group of Median Upper quintile Final three months of the performance period 20 companies i.e. three months to 31 March 2018 Comparator Group The Comparator Group comprises of companies in FTSE Worldwide Mining Index and also select companies in similar business operations and/or similar sector index. The percentage of the Shares comprised in the award that vest depends on the Company’s TSR relative to the companies in the Comparator Group on the basis of a ratio of 75:25 weighting as indicated below: Group 1 Weighting 75% Alcoa Dragon Oil Freeport McMoRan Anglo American Antofagasta First Quantum Glencore Xstrata Grupo Mexico Rio Tinto BHP Billiton Tullow Oil Vale Boliden Hindalco Industries Group 2 Weighting 25% Reliance Industries Ltd. Ultratech Cement Limited NMDC Ltd Coal India Ltd National Aluminium Co Ltd ONGC An underpin will operate where the PSP award may be scaled back at the discretion of the Committee if vesting is not reflective of the Group’s underlying performance or warranted based on the HSE record. As set out within the remuneration policy, a holding period will be attached to vested PSP awards, requiring the vested shares to be held (net of tax) for a further two years. Non-Executive Directors fees As detailed in the remuneration policy, fees for the Non-Executive Directors are determined by the Board, based on the significant travel and time commitments, the risk profile of the Company and market practice for similar roles in international mining groups. Following a review of fees, it was determined that no changes should be made for 2015/16, and accordingly the fees applying for this year are as follows: Board membership Non-Executive Director Senior Independent Non-Executive Director Committee membership Audit Committee Chairman Remuneration Committee Chairman Nominations Committee Chairman Sustainability Committee Chairman Member of Audit Committee Member of Remuneration Committee Member of Nominations Committee Member of Sustainability Committee 85 18 20 17.5 – 20 10 10 7.5 – Approval of the Directors’ Remuneration Report The Directors’ Remuneration Report, including both the Directors’ Remuneration Policy Report and Annual Remuneration on Report, was approved by the Board on 13 May 2015. Euan Macdonald Chairman, Remuneration Committee Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 116 Corporate governance and Directors’ reports The Directors’ report Purpose of the Directors’ report The Directors are pleased to present their annual report on the business of the Group, together with the financial statements and auditor’s report, for the year ended 31 March 2015. The purpose of the Directors’ report is to provide shareholders with certain statutory information about the Company, its Directors and operations. The strategic report informs shareholders and helps them assess how the Directors have performed their duty to promote the success of the Company. In addition, as a company listed on the London Stock Exchange, it is required to provide information which includes amongst other things, details of the Company’s share capital, voting rights, rules on Directors’ appointments and significant agreements that alter on change of control. Strategic report The strategic report has been prepared in accordance with the Companies Act 2006 which requires the Company to set out a fair review of the business of the Group during the financial year, including an analysis of the position of the Group at the end of the financial year and the trends and factors likely to affect the future development, performance and position of the business. The strategic report can be found on pages 1 to 75. Corporate governance In accordance with the Financial Conduct Authority’s Disclosure and Transparency Rules (DTR) 7.2.1 the disclosures required by DTR7.2.2R to DTR7.2.5 and DTR7.2.7 may be found in the Corporate Governance Report on pages 80 to 115. The Corporate Governance Report is incorporated into this Directors’ report by reference. Information referred to in DTR7.2.6 is located in this Directors’ report. The strategic report and other sections of this annual report contain forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company’s ability to control or predict. Forward looking statements and past performance are therefore not guarantees of future performance. The information contained in the strategic report has been prepared on the basis of information and knowledge available to the Directors at the date of preparation and the Company does not undertake to update or revise the content during the year ahead. Review of business, future developments and important post balance sheet events A review of the business and future developments of the Group is presented in the strategic report. Events since the balance sheet date are summarised in Note 43 on page 198 of the financial statements. Greenhouse gas emissions reporting Disclosures required in respect carbon dioxide emissions may also be found in the strategic report on page 39. Sector Zinc India Zinc International Copper India/Australia Copper Zambia Aluminium Power Oil & Gas Iron Ore Total FY2014-15 GHG Emission (Scope 1 and 2) 4,935,029 751,974 1,295,307 113,057 20,033,927 8,995,487 1,287,700 2,443,977 Revenue (US$ million) GHG Intensity Ratio 2,357 587 3,701 1,077 2,082 2,093.78 1,281.05 349.99 104.97 9,622.44 672 13,386.14 536.99 7,473.94 2,398 327 Total 39,856,457 13,201 3,019.20 Dividends The Directors recommend a final dividend for the year ended 31 March 2015 of 40.0 US cents per ordinary share (2014: 39.0 US cents per ordinary share). Subject to shareholders approving this recommendation at the Annual General Meeting on 3 August 2015, the final dividend will be paid on 12 August 2015 to shareholders on the register of members as at 10 July 2015. Taken together with the interim dividend of 23 US cents per ordinary share paid to shareholders on 22 December 2014, the total dividend for the year is 63.0 US cents per ordinary share (2014: 61.0 US cents per ordinary share). Directors The names, date of appointment, specific responsibilities and biographical details of the Company’s current Board of Directors are shown on pages 76 to 77 and details of the Directors who held office during the year ended 31 March 2015 are shown in the Corporate Governance Report on page 87. Details of the remuneration of the Directors, their interests in the shares of the Company and service contracts are contained in the Directors’ Remuneration Report on pages 103 to 115. Appointment and replacement of Directors The Company’s Articles of Association (the Articles) specify that the minimum number of Directors of the Company, unless determined by ordinary resolution, shall be two. There is no limit on the maximum number of Directors. The Company or the Board may appoint any person to be a Director. Any Director appointed by the Board shall hold office only until the next general meeting and is then eligible for election by the shareholders. The Articles specify that at least one-third of the Directors, or if their number is not three or multiple of three, the number nearest to one-third, shall retire from office at every Annual General Meeting. The Directors to retire by rotation are those who have been longest in office since appointment or reappointment. However, in accordance with the requirements of the UK Corporate Governance Code, all of the Directors will retire at the forthcoming Annual General Meeting and being eligible will offer themselves for re-election. Powers of the Directors Subject to the provisions of the Companies Act 2006 and the Company’s Articles and to any directions given by special resolution, the business of the Company is to be managed by the Board which may exercise all the powers of the Company. Vedanta Resources plc Annual report and accounts FY2015 117 Directors’ and officers’ liability insurance and indemnities The Company purchases and maintains liability insurance for its Directors and officers and those of the subsidiaries of the Group, as permitted by the Companies Act 2006. The insurance policy does not provide cover where the Director has acted fraudulently or dishonestly. The Company believes that it is appropriate to provide such cover to protect Directors from innocent error as the Directors carry significant liability under criminal and civil law and under the UK Listing, Prospectus and Disclosure and Transparency Rules, and face a range of penalties. In addition the Company’s Articles contain an indemnity provision in favour of the Directors against proceedings brought by third parties, subject to the Companies Act 2006, to allow the Company to pay legal defence costs for the Director where the Director is exonerated. Employees Information on the Group’s employees and its policies with respect to employees can be found in the Sustainable Development Report on page 42. Political donations It is the Board’s policy that neither Vedanta nor any of its subsidiary companies outside India may, under any circumstances, make donations or contributions to political organisations. Subsidiaries in India may make political donations or contributions as this is customary in India and permitted under local legislation. In exceptional circumstances, if political donations or contributions are deemed necessary in the United Kingdom and European Union for legitimate business reasons, they will not be made without the approval of the Board and shareholders at a general meeting. Any political donations made in India will be disclosed in the Company’s annual report. The Company and its subsidiaries did not make any political donations during the financial year ended 31 March 2015 (2014: US$3.7 million). Research and development The Group’s business units carry out research and development activities necessary to further their operations. Material shareholdings As at 31 March 2015 and 3 June 2015, the Company had received notifications of control of 3% or more over the Company’s total voting rights and capital in issue as set out below: Name of holder Nature of holding Number of ordinary shares of US$0.10 each Percentage of total voting rights1 Volcan Investments Limited Indirect 187,488,102 69.76% Standard Life Investments (Holdings) Limited Indirect 21,555,376 8.02% 1 The voting rights at 31 March 2015 were 268,756,369 ordinary shares (net of treasury shares and shares held in Global Depositary Receipt. Articles of Association, share capital and voting rights The following description summarises certain provisions in the Company’s articles of association (the Articles) and applicable English law concerning companies. This is a summary only and the relevant provisions of the Companies Act 2006, (the Act) or the Articles should be consulted if further information is required. Copies of the Company’s current Articles are available for inspection at the Company’s registered office during normal business hours (Saturdays, Sundays and public holidays excepted). They are also available from Companies House and the Company’s website at www.vedantaresources.com Amendments to the Articles The Company’s Articles may be amended only by special resolution passed by the Company’s shareholders. Share capital As at 31 March 2015 the issued share capital of the Company was comprised of 299,868,180 ordinary shares of US$0.10 each and 50,000 deferred shares of £1 each. Rights and obligations attaching to shares The rights and obligations attaching to the ordinary and deferred shares are set out in the Articles. Details of the authorised and issued share capital together with movements in the Company’s issued share capital during the year are shown in Note 35 of the financial statements. 6,904,995 ordinary shares of 10 US cents each were issued on the conversion of certain convertible bonds issued by one of the Company’s subsidiaries. These 6,904,995 ordinary shares are held through a global depository receipt and carry no voting rights. Apart from the above, each ordinary share carries the right to one vote at general meetings of the Company. Holders of deferred shares are not entitled to attend, speak or vote at any general meeting of the Company, nor are they entitled to the payment of any dividend or to receive notice of general meetings. Further details of the rights attaching to the deferred shares are set out in the Articles and summarised in Note 35 of the financial statements. Variation of rights Subject to the provisions of the Act, the rights attached to any class may be varied with the consent of the holders of three-quarters in nominal value of the issued shares of the class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the shares of the class. Deadlines for exercising voting rights Votes may be exercised at general meetings in relation to the business being transacted either in person, by proxy or, in relation to corporate members, by corporate representative. The Articles provide that forms of proxy shall be submitted not less than 48 hours before the time appointed for holding the meeting or adjourned meeting. Restrictions on voting and the transfer of shares No member shall be entitled to vote at a general meeting or at a separate meeting of the holders of any class of shares in the capital of the Company, either in person or by proxy, in respect of any share held by him unless all monies payable by him in respect of that share have been fully paid. Furthermore, no shareholder shall be entitled to attend or vote either personally or by proxy at a general meeting or at a separate meeting of the holders of that class of shares or on a poll if he has been served with a notice after failing to provide the Company with information concerning interests in his shares that is required to be provided under the Act. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 118 Corporate governance and Directors’ reports The Directors’ report continued With the exception of restrictions on the transfer of unpaid shares and ordinary shares held under the Company’s employee share incentive plans whilst the shares are subject to the rules of the plans, there are no restrictions on the transfer rights attaching to the Company’s ordinary shares or the transfer of securities in the Company. No person holds securities in the Company carrying special rights with regard to control of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions in the transfer of securities or voting rights. Issue of shares The powers of the Company’s Directors are subject to relevant legislation and, in certain circumstances (including in relation to the issue or buying back by the Company of its shares), are subject to authority being given to the Directors by shareholders in general meeting. At the Company’s 2015 Annual General Meeting, shareholders will be asked to renew the Directors’ authority to allot new securities. Details are contained in the 2015 Notice of Annual General Meeting (Notice of AGM). Subject to the provisions of the Act, the Company has authority under its Articles to allot new shares in the Company. Such authority would be exercised having regard to the Statement of Principles published by the Pre-emption Group. Shares held in uncertificated form Subject to the provisions of the Uncertificated Securities Regulations 2001, the Board may permit the holding of shares in any class of shares in uncertificated form and the transfer of title to shares in that class by means of a relevant system and may determine that any class of shares shall cease to be a participating security. Dividends and distributions Subject to the provisions of the Act, the Company may by ordinary resolution declare dividends in accordance with the respective rights of the members, but no dividend shall exceed the amount recommended by the Board. The Board may pay interim dividends if it appears to the Board that they are justified by the profits of the Company available for distribution. The treasury shares directly held by the Company are not entitled to receive a dividend. Dividends may be declared and paid in any currency or currencies that the Board shall determine. The Board may also determine the exchange rate and the relevant date for determining the value of the dividend in any currency. Dividend waiver There have been no arrangements applicable under which a shareholder agreed to waive future dividends during the year ended 31 March 2015. Purchase of the Company’s own shares The Directors had authority, under a shareholders’ resolution dated 1 August 2014, to make market purchases of up to approximately 10% of the Company’s ordinary shares. The authority expires at the conclusion of the Company’s 2015 Annual General Meeting or on 1 October 2015, whichever is the earlier. A resolution to obtain a further authority will be proposed at the 2015 Annual General Meeting. During the year the Company did not purchase any shares under its previously announced share buyback programme. As at 31 March 2015, the Company held a total of 24,206,816 ordinary shares in treasury equivalent to 8.07% (2014: 8.12%) of the issued share capital. Agreements: change of control There are a number of agreements that take effect, alter or terminate upon a change of control of the Company such as commercial contracts, bank loan agreements, and capital market borrowing. The following are considered to be significant in terms of their likely impact on the business of the Group as a whole: 1 The US$1.25 billion 5.50% guaranteed convertible bonds (current outstanding US$1,134.5 million) issued in July 2009 and the US$883 million 4.0% guaranteed convertible bonds (current outstanding US$8.1 million) issued in March 2010, where a change of control gives investors the option to require the issuer to redeem their bonds at the principal amount, together with any accrued and unpaid interest, or convert their bonds at an adjusted exchange price for a certain period following the relevant event. 2 The US$750m 6.75% bonds due in 2016, US$750 million 9.5% bonds due 2018, US$1,200 million 6% bonds due in 2019, US$900 million 8.25% bonds due in 2021, US$500 million 7.125% bonds due in 2023 where a change of control requires the Company to make an offer to purchase all of the outstanding bonds at 101% of the principal amount together with any accrued and unpaid interest with a rating decline. 3 In the financing arrangements for the acquisition of Cairn India Limited and various other financing facilities entered into by the Group where a change of control gives the majority lenders the right to declare the loans immediately payable. All of the Company’s employee share incentive plans contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions and pro rata reduction as may be applicable under the rules of the employee share incentive plans. There are no agreements between the Company and any of its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. Vedanta Resources plc Annual report and accounts FY2015 119 Disclosure of information to auditors In accordance with section 418 of the Act, each Director who held office at the date of approval of this Directors’ report confirms that: • so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and • he/she has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Reappointment of auditors A resolution to reappoint the auditor, Deloitte LLP, will be proposed at the forthcoming Annual General Meeting. The reappointment of Deloitte LLP has been approved by the Audit Committee, which will also be responsible for determining the auditors’ remuneration on behalf of the Board, subject to the approval of shareholders at the forthcoming Annual General Meeting. In order to ensure good corporate governance and that the services of the external auditor remained of the highest quality, the Audit Committee has recommended that the provision of external audit services be put to tender in 2015 in respect of the provision of external audit services for the financial year ending 31 March 2017. As Deloitte LLP has served as the Company’s external auditor for over 10 years, in accordance with transition provisions of the Competition and Markets Authority (CMA) order, Deloitte LLP will resign as the Company’s external auditor following the completion of the external audit of the financial statements for the year ending 31 March 2016. Policy on derivatives and financial instruments An explanation of the Group’s financial management objectives and policies together with details of the Group’s exposure to price risk, credit risk, liquidity and cash flow risk and foreign currency risk appears in Note 29 to the financial statements. Going concern 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, Moody’s and Fitch are BB, Ba1 and BB+ respectively, with Negative outlook from Standard and poor’s and Stable outlook from both Moody’s and Fitch . 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 liquidity, gearing 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 financing risks. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. Annual General Meeting The 12th Annual General Meeting of the Company will be held on 3 August 2015 at 3pm at Ironmongers’ Hall, Shaftesbury Place, London EC2Y 8AA. The Notice convening the Annual General Meeting accompanies this annual report and sets out details of the business to be considered thereof. By order of the Board Signed on behalf of the Board Deepak Kumar Company Secretary 13 May 2015 Interest capitalisation The interest capitalised by the Group during the year and treatment of any related tax relief are found in Note 7. Vedanta Resources plc 5th Floor, 6 St Andrew Street, London, EC4A 3AE Registered in England Number 4740415 Share allotments During the year, there have been not been any allotment for cash of equity securities otherwise than to holders of the Company’s equity shares and which has not been authorised by the Company’s shareholders. Share placing The Company has not participated in any share placing during the year ended 31 March 2015. Directors’ emoluments Details of the Directors’ emoluments and any waiver is included in the Directors’ Remuneration Report on page 110. Long term incentive scheme Details of the long-term incentive scheme operated by the Company are included in the Directors’ Remuneration Report on page 115. Relationship Agreement with the Company’s controlling shareholder Details of the Relationship Agreement between the Company and its controlling shareholder, Volcan Investments Limited are provided on page 88. During the year, there have been no contracts of significance between the Company or one of its subsidiaries and the controlling shareholder. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 120 Corporate governance and Directors’ reports Directors’ responsibilities statement The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement The Directors confirm that to the best of their knowledge: • the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; • the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and • the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. By order of the Board Chief Executive Officer Tom Albanese 13 May 2015 Chief Financial Officer D D Jalan 13 May 2015 Vedanta Resources plc Annual report and accounts FY2015 121 Independent Auditor’s Report To the Members of Vedanta Resources plc Opinion on financial statements of Vedanta Resources plc In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 March 2015 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and parent Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity, and the related Notes 1 to 59. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Going concern As required by the Listing Rules we have reviewed the Directors’ statement contained within the strategic report that the Group is a going concern. We confirm that: • we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; and • we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. Our assessment of risks of material misstatement The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. Risk Impairment of property, plant and equipment (PP&E) assets There is a risk associated with the assessment of the recoverable amount of certain operating assets included within PP&E, specifically: • the Rajasthan producing assets within the Oil & Gas business following a significant decrease in oil prices; • the Lanjigarh expansionary program within the Aluminium business unit which remains on hold pending environmental clearances being obtained; • the operations in Goa and Karnataka within the Iron Ore business unit as a result of lower iron ore prices and mining approval pending in Goa following state-wide bans on iron ore mining; and • the KCM operations in Zambia following lower copper prices and continuing operational challenges. The Group has recognised PP&E assets with a net book value of US$17,937.9 million at 31 March 2015 and has recorded impairments against PP&E of US$2,214.4 million in 2015. For more information see Notes 2(b), 5 and 17 in the financial statements that provide further details and disclosures to this matter. How the scope of our audit responded to the risk We have: • audited management’s assessment as to whether indicators of impairment exist for operating assets, specifically, in relation to the Rajasthan producing assets, the Lanjigarh expansionary project, the iron ore operations in Goa and Karnataka and the KCM copper operations in Zambia; • obtained and assessed the valuation models used to determine the higher of value in use or fair value less cost of disposal of the relevant asset by challenging the key assumptions made by management in relation to these models, including: – the expected timings of approvals and renewal of licences; – source of reserve and production estimates; – resources to reserves conversion ratios where applicable; – exchange rates; and – operating and capital expenditure estimates by reference to independent third party evidence and consultation with operational management; • benchmarking and analysis of commodity, oil and gas price assumptions against forward curves and analyst data; • recalculated and benchmarked discount rates applied to third party evidence and involvement of Deloitte valuation specialists; • testing the mechanical accuracy of the models used; • assessed whether assumptions had been determined and applied on a consistent basis across the Group; and • assessed the procedures performed by management during the year to progress the approval of environmental clearances where these remain outstanding. Impairment of evaluation and exploration (E&E) assets Following significant downward pressure on oil, gas and other commodity prices, which are a key assumption in the valuation of the recoverable value of E&E assets, a new risk has been included in our audit opinion in 2015. The assessment of the carrying value of E&E assets requires management to exercise judgement around complex areas, as described in the Group’s critical accounting judgements on page 144. Economic value can often be difficult to determine given the relatively early stages of development. The areas of judgement include the group’s intention to proceed with a future work programme for a prospect or licence, the likelihood of licence renewal or extension and the success of drilling and geological analysis. The net book value of E&E assets at 31 March 2015 is US$5,414.1 million after the Group has written off E&E assets totalling US$4,480.0 million in the year. For more information see Notes 2(b), 5 and 17 in the financial statements that provide further details and disclosures to this matter. StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 122 Financial statements Independent Auditor’s Report continued To the Members of Vedanta Resources plc We evaluated management’s assessment of the potential impairment indicators on its E&E assets with reference to the criteria of IFRS 6 Exploration for and Evaluation of Mineral Resources and the Group’s successful efforts accounting policy (see page 137). In 2015, the Group has reconsidered its exploration strategy and locations for future exploration focus in the context of a lower oil and commodity price environment and the availability of capital in these circumstances. Our procedures included understanding the Group’s ongoing E&E activity, by participating in meetings with operational and finance management at all key locations and obtaining evidence including reviewing minutes of board and executive committee meetings, confirmations of budget allocation, the results of on-going appraisal activity and the licensing status to assess E&E assets. Where indicators of impairment were identified, we determined whether management provided in full for the projects that are not expected to proceed or valuations were performed where the projects are progressing but the carrying value may not be fully recoverable. Where valuations were prepared, we challenged the key assumptions using the same approach as described under the impairment of PPE assets above. Revenue recognition IAS 18 Revenue and the Group’s revenue recognition policy permits revenue to be recognised only when the risks and rewards of ownership have transferred from the seller to the buyer. The risk is related to: • • inappropriate recognition of sales made during the year on a bill and hold or consignment basis; incorrect valuation of provisionally priced sales (where the pricing is only finalised based on market prices subsequent to the balance sheet date); • the value of regulated sales, and the resulting year-end receivable of US$114.0 million, made to the Grid Corporation of Odisha Limited (“Gridco”) where a dispute regarding the interpretation of the tariff agreement is pending appellate tribunal resolution; and • the calculation of Cairn’s oil and gas sales on an entitlement basis. For more information see Notes 2a and 4 in the financial statements that provide further details and disclosures to this matter. We have reviewed the application of the Group’s revenue recognition policy and: • reviewed the terms of bill and hold agreements to conclude on the point at which risk and reward transfer takes place; • recalculated the value of provisional pricing adjustments and validating the assumptions used to third party data where possible; • challenged management in respect of whether the Gridco trade receivables are recoverable through the review of state regulatory commission and the appellate tribunal rulings, review of the underlying power purchase agreements and the external legal opinions received and the involvement of Deloitte power specialists to re-assess the tariff calculations; and • reviewed the terms of Cairn’s profit sharing agreement and tested the underlying entitlement calculations. Litigation, environmental and regulatory risk As is the norm in extractive industries, there are a significant number of legal claims in the Group and a risk exists that the Group may not have provided adequately for liabilities. There is also a risk of the Group’s reputation being brought into disrepute resulting in financial and reputational damage. The Group continues to be involved in a high number of legal claims. It is not unusual for claims to remain outstanding for a number of years, with the regulatory environment becoming increasingly complex and regulators focusing on the environmental and social impacts. These ongoing claims, environmental and regulatory enquiries are a threat to the future operations as well as the Group’s current financial performance and reputation. For more information see Notes 30, 38 and 42 in the financial statements that provide further details and disclosures to these matters. We have: • reviewed management’s legal paper and challenged their assessment of the probability of success in these cases, the magnitude of any potential loss and their conclusions reached through discussions with the head of legal and operational management; inspected external legal opinions (where considered necessary) and other evidence that supports factual information in management’s responses; and • • focused our procedures on the terms and conditions of mining licenses and performed procedures to gain assurance over the compliance and validity of all mining licences and environmental clearances. We have assessed the appropriateness of provisions and considered the impact of the procedures performed above on the financial statements and whether the disclosures therein are in accordance with IAS 37 Provisions, contingent liabilities and contingent assets. Taxation There is a risk that the Group’s aggregated taxation exposure in all jurisdictions, including the exposure to withholding taxes following past acquisitions, financing and transfer pricing arrangements, sales taxes and recognition of deferred taxation assets and liabilities, may not have been adequately valued and disclosed in the financial statements due to the complexities, timescales for resolution and the need to negotiate with various tax authorities. In the current year, Cairn India received an order form the Indian Tax Authority for an amount of US$3,274.4 million relating to withholding taxes not paid on the acquisition of Cairn India by the previous owner, Cairn Energy plc. At 31 March 2015, US$2,588.7 million has been recognised as a deferred taxation liability, US$1,252.6 million has been recognised as a deferred taxation asset and US$34.1 million has been recognised as a net current tax payable, with a total tax credit of US$1,852.5 million recorded in the consolidated income statement. For more information see Notes 12, 31 and 38 in the financial statements that provide further details and disclosures to these matters. Vedanta Resources plc Annual report and accounts FY2015 123 An overview of the scope of our audit Total PBT (%) We reviewed the potential taxation exposures within the Group and, through discussions with the Group’s taxation department, the tax specialists within the audit team and review of relevant documentation, including external legal advice and correspondence with tax authorities, we evaluated the appropriateness of the provisions raised and contingent liability disclosures. We considered, in the context of our tax specialists’ prior experience of similar issues, the Group‘s exposure to withholding taxes following past acquisitions, the current tax exposure following the Group’s internal restructuring, transfer pricing arrangements and deferred taxation assets and liabilities recognised to assess whether these matters were appropriately reflected and disclosed in the financial statements. The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on page 95. Full scope Specific procedures Not scoped in 90% 1% 9% Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the Group to be US$50 million (2014: US$75 million), which is approximately 5% (2014: 5%) of normalised profit before tax, and below 1% (2014: 1%) of equity. Profit before tax has been normalised by adjusting for specific one-off items: the impairment charges recognised on the PP&E and E&E assets during the year following a significant decrease in commodity and oil and gas prices. Normalised profit before tax is considered a more appropriate and less volatile measure reflecting the underlying scale of the Group. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$1.0 million (2014: US$1.5 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. Total Revenue (%) Full scope Specific procedures Not scoped in 89% 10% 1% Net assests (%) Full scope Specific procedures Not scoped in 92% 2% 6% StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 124 Financial statements Independent Auditor’s Report continued To the Members of Vedanta Resources plc Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily on the audit work at 16 locations. 12 of these were subject to a full audit, whilst the remaining four were subject to an audit of specified account balances where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group’s operations at those locations. These 16 locations represent the principal business units and account for 94% (2014: 100%) of the Group’s net assets, 99% (2014: 100%) of the Group’s revenue and 91% (2014: 100%) of the Group’s profit before tax offset on consolidation by losses elsewhere in the Group. They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the 16 locations was executed at levels of materiality applicable to each individual entity and which were lower than Group materiality. At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances. Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters. Corporate Governance Statement Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the Company’s compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report arising from our review. Our duty to read other information in the annual report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • otherwise misleading. The Group audit team continued to follow a programme of planned visits that has been designed so that the Senior Statutory Auditor or a senior member of the Group audit team visits each of the locations where the Group audit scope was focused at least once every five years. At each six month reporting date we include the component audit partners and teams in our team briefing, discuss their risk assessment, and review documentation of the findings from their work. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Vedanta Resources plc Annual report and accounts FY2015 125 Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Andrew Kelly (senior statutory auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 13 May 2015 StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 126 Financial statements Consolidated Income Statement (US$ million except as stated) Revenue Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Special items Operating profit/(loss) Investment revenue Finance costs Other gains and (losses) [net] Profit/(loss) before taxation (a) Tax credit – special items Net tax expense – others Net tax credit/(expense) (b) Profit/(loss) for the year from continuing operations (a+b) Attributable to: Equity holders of the parent Non-controlling interests Note 4 5 6 7 8 12 12 12 9 Year ended 31 March 2015 Year ended 31 March 20141 Before special items Special items Total Before special items Special items Total 12,878.7 (10,463.9) – – 12,878.7 (10,463.9) 12,945.0 (10,043.2) – – 12,945.0 (10,043.2) 2,414.8 104.0 (245.2) (538.1) – 1,735.5 832.6 (1,387.2) (76.9) 1,104.0 – (352.6) – – – – (6,744.2) (6,744.2) – – – (6,744.2) 2,205.1 – 2,414.8 104.0 (245.2) (538.1) (6,744.2) (5,008.7) 832.6 (1,387.2) (76.9) (5,640.2) 2,205.1 (352.6) 2,901.8 84.0 (237.6) (460.1) – 2,288.1 687.7 (1,439.8) (279.9) 1,256.1 – (158.1) – – – – (138.0) (138.0) – – – (138.0) 29.4 – 2,901.8 84.0 (237.6) (460.1) (138.0) 2,150.1 687.7 (1,439.8) (279.9) 1,118.1 29.4 (158.1) (352.6) 2,205.1 1,852.5 (158.1) 29.4 (128.7) 751.4 (4,539.1) (3,787.7) 1,098.0 (108.6) 989.4 (74.7) 826.1 (1,723.9) (2,815.2) (1,798.6) (1,989.1) (123.0) 1,221.0 (73.0) (35.6) (196.0) 1,185.4 Profit/(loss) for the year from continuing operations 751.4 (4,539.1) (3,787.7) 1,098.0 (108.6) 989.4 Loss per share (US cents) Basic loss per ordinary share Diluted loss per ordinary share 1 Restated refer Note 1. 13 13 (27.2) (27.2) (627.3) (627.3) (654.5) (654.5) (45.0) (45.0) (26.7) (26.7) (71.7) (71.7) Vedanta Resources plc Annual report and accounts FY2015 127 Consolidated Statement of Comprehensive Income (US$ million) (Loss)/profit for the year from continuing operations Income and expenses recognised directly in equity: Items that will not be reclassified subsequently to income statement: Remeasurement of net defined benefit plans Tax effects on items recognised directly in equity Total (a) Items that may be reclassified subsequently to income statement: Exchange differences arising on translation of foreign operations Change in fair value of available-for-sale financial assets (Note 18) Change in fair value of cash flow hedges deferred in reserves Tax effects arising on cash flow hedges deferred in reserves Change in fair value of cash flow hedges transferred to income statement Tax effects arising on cash flow hedges transferred to income statement Total (b) Other comprehensive loss for the year (a+b) Total comprehensive loss for the year Attributable to: Equity holders of the parent Non-controlling interests Total comprehensive loss for the year Year ended 31 March 2015 Year ended 31 March 2014 (3,787.7) 989.4 (14.0) 4.6 (9.4) (582.0) 2.1 (27.4) 0.8 (17.8) 6.0 (4.2) 1.5 (2.7) (1,239.6) (0.1) (47.1) (3.7) (0.9) 0.3 (618.3) (1,291.1) (627.7) (1,293.8) (4,415.4) (304.4) (2,089.8) (2,325.6) (773.8) 469.4 (4,415.4) (304.4) Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 128 Financial statements Consolidated Balance Sheet (US$ million) Assets Non-current assets Goodwill Intangible assets Property, plant and equipment Financial asset investments Non-current tax assets Other non-current assets Financial instruments (derivatives) Deferred tax assets Current assets Inventories Trade and other receivables Financial instruments (derivatives) Current tax assets Liquid investments Cash and cash equivalents Total assets Liabilities Current liabilities Short-term borrowings Convertible bonds Trade and other payables Financial instruments (derivatives) Retirement benefits Provisions Current tax liabilities Net current assets Non-current liabilities Medium and long-term borrowings Convertible bonds Trade and other payables Financial instruments (derivatives) Deferred tax liabilities Retirement benefits Provisions Non-equity non-controlling interests Total liabilities Net assets As at year ended 31 March 2015 As at year ended 31 March 2014 Note 15 16 17 18 19 29 31 20 21 29 22 23 24 28 27a 29 33 30 24 28 27b 29 31 33 30 25 16.6 101.9 23,352.0 4.2 394.0 156.0 0.2 1,252.6 16.6 108.6 31,043.5 1.7 – 132.1 16.2 1,223.7 25,277.5 32,542.4 1,605.7 1,839.2 16.6 40.1 7,856.1 353.7 1,742.5 1,739.9 54.0 357.6 8,568.5 369.4 11,711.4 12,831.9 36,988.9 45,374.3 (3,179.2) – (4,730.0) (45.7) (12.7) (140.8) (74.2) (2,437.0) (1,921.5) (4,690.0) (118.7) (4.8) (88.7) (29.3) (8,182.6) (9,290.0) 3,528.8 3,541.9 (12,385.6) (1,103.0) (194.3) (0.1) (2,588.7) (61.9) (203.4) (11.9) (12,512.7) – (203.3) (27.4) (4,960.1) (58.1) (336.0) (11.9) (16,548.9) (18,109.5) (24,731.5) (27,399.5) 12,257.4 17,974.8 Vedanta Resources plc Annual report and accounts FY2015 129 (US$ million) Equity Share capital Share premium Treasury shares Share-based payment reserve Convertible bond reserve Hedging reserve Other reserves Retained earnings Equity attributable to equity holders of the parent Non-controlling interests Total equity Note 35 32 As at year ended 31 March 2015 As at year ended 31 March 2014 30.0 198.5 (556.9) 27.4 38.4 (74.7) 339.9 1,600.5 29.8 198.5 (556.9) 46.9 80.1 (50.4) 471.6 3,790.8 1,603.1 10,654.3 4,010.4 13,964.4 36 12,257.4 17,974.8 The financial statements of Vedanta Resources plc, registration number 4740415 were approved by the Board of Directors on 13 May 2015 and signed on their behalf by: Tom Albanese Chief Executive Officer Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 130 Financial statements Consolidated Cash Flow Statement (US$ million) Operating activities (Loss)/profit before taxation Adjustments for: Depreciation and amortisation Investment revenue Finance costs Other gains and (losses) [net] Loss on disposal of property, plant and equipment Write-off of unsuccessful exploration costs Share-based payment charge Impairment of mining reserves and assets Other non-cash items Operating cash flows before movements in working capital Decrease in inventories Increase in receivables Increase in payables Cash generated from operations Dividends received Interest income received Interest paid Income taxes paid Dividends paid Net cash inflow from operating activities Cash flows from investing activities Purchases of property, plant and equipment and intangibles Proceeds on disposal of property, plant and equipment Sale/(purchase) of liquid investments Sale of financial asset investments Net cash used in investing activities Cash flows from financing activities Issue of ordinary shares Dividends paid to non-controlling interests of subsidiaries Acquisition of additional interests in subsidiaries/share buyback by subsidiary Decrease in short-term borrowings Proceeds from long-term borrowings Repayment of long-term borrowings Net cash used in financing activities Net decrease in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 1 Restated refer Note 1. Year ended 31 March 2015 Year ended 31 March 20141 Note (5,640.2) 1,118.1 2,005.7 (832.6) 1,387.2 76.9 4.6 128.7 28.6 6,694.4 40.8 3,894.1 40.0 (134.5) 225.2 4,024.8 0.3 587.7 (1,334.0) (601.7) (171.3) 2,203.1 (687.7) 1,439.8 279.9 4.4 10.8 32.9 81.6 48.3 4,531.2 75.0 (123.4) 678.8 5,161.6 1.0 337.8 (1,115.3) (861.6) (162.5) 2,505.8 3,361.0 (2,289.1) 25.7 671.7 – (2,185.3) 9.3 (2,857.0) 18.2 (1,591.7) (5,014.8) 0.2 (340.4) (819.1) (818.8) 3,748.1 (2,698.0) 0.0 (345.9) – (2,832.7) 5,429.7 (2,299.0) (928.0) (47.9) (13.9) (1.8) 369.4 353.7 (1,701.7) (129.1) 2,200.2 369.4 26 26 26 26 26 26 23 Vedanta Resources plc Annual report and accounts FY2015 131 Consolidated Statement of Changes in Equity At 31 March 2015 30.0 198.5 (556.9) (US$ million) At 1 April 2014 Loss for the year Other comprehensive loss for the year Total comprehensive loss for the year Convertible bond transfer (Note 28) Transfers2 Dividends paid (Note 14) Additional investment in subsidiary/share buyback by subsidiary Exercise of LTIP awards Recognition of share- based payment (Note 32) (US$ million) At 1 April 2013 Profit/(loss) for the year Other comprehensive loss for the year Total comprehensive income/(loss) for the year Convertible bond transfers (Note 28) Repayment of Convertible bond Conversion of convertible bond Transfers2 Dividends paid (Note 14) Change in non- controlling interests due to merger (Note 36) Exercise of LTIP awards Recognition of share- based payment (Note 32) Attributable to equity holders of the Company Share capital (Note 35) Share premium Treasury shares Share- based payment reserves Convertible bond reserve Hedging reserve Other reserves1 Retained earnings Non- controlling interests Total Total equity 29.8 – 198.5 – (556.9) – 46.9 – 80.1 – (50.4) – 471.6 – 3,790.8 (1,798.6) 4,010.4 13,964.4 17,974.8 (3,787.7) (1,989.1) (1,798.6) – – – – – 0.2 – – – – – – – – – – – – – – – – – – – – (48.1) 28.6 27.4 – (24.3) (266.9) – (291.2) (336.5) (627.7) (24.3) (266.9) (1,798.6) (2,089.8) (2,325.6) (4,415.4) (41.7) – – – – – – – – – – – – 135.2 41.7 (135.2) – – – – – – – – – – (171.3) (171.3) (340.4) (511.7) (175.0) 48.1 (175.0) 0.2 (644.1) – (819.1) 0.2 – 28.6 – 28.6 38.4 (74.7) 339.9 1,600.5 1,603.1 10,654.3 12,257.4 Attributable to equity holders of the Company Share capital (Note 35) Share premium Treasury shares Share- based payment reserves Convertible bond reserve Hedging reserve Other reserves1 Retained earnings Non- controlling interests Total Total equity 29.8 – 196.8 – (556.9) – 29.0 – 302.9 – (22.2) – 789.3 – 3,632.6 (196.0) 4,401.3 14,467.7 18,869.0 989.4 (196.0) 1,185.4 – – – 0.0 – – – 0.0 – – – – 1.7 – – – – – – – – – – – – – – – – – – – – – (15.0) 32.9 46.9 – (28.2) (549.6) – (577.8) (716.0) (1,293.8) (28.2) (549.6) (196.0) (773.8) 469.4 (304.4) – – – – – – – – – – 110.7 – (3.9) (115.5) – 231.9 – (231.9) 1.2 – – – – – – (115.5) 1.2 – – – – – (162.5) (162.5) (345.9) (508.4) 626.8 15.0 626.8 0.0 (626.8) – – 0.0 – 32.9 – 32.9 (110.7) (111.6) (0.5) – – – – – 80.1 (50.4) 471.6 3,790.8 4,010.4 13,964.4 17,974.8 At 31 March 2014 29.8 198.5 (556.9) Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 132 Financial statements Consolidated Statement of Changes in Equity continued 1. OTHER RESERVES COMPRISE (US$ million) At 1 April 2013 Exchange differences on translation of foreign operations Remeasurements Transfer from retained earnings2 At 31 March 2014 Exchange differences on translation of foreign operations Revaluation of available-for-sale investments Remeasurements Transfer from retained earnings2 Currency translation reserve (1,064.2) (548.5) – – (1,612.7) (263.8) – – – Merger reserve3 Investment revaluation reserve 4.4 – – – 4.4 – – – – General reserves 1,847.9 – (1.1) 231.9 2,078.7 – – (4.5) 135.2 2,209.4 Total 789.3 (548.5) (1.1) 231.9 471.6 (263.8) 1.4 (4.5) 135.2 339.9 1.2 – – – 1.2 – 1.4 – – 2.6 At 31 March 2015 (1,876.5) 4.4 2 Under Indian law, a general reserve is created through an annual transfer of net income to general reserves at a specified percentage in accordance with applicable regulations. The purpose of these transfers is to ensure that the total dividend distribution is less than the total distributable results for that year. Transfer to general reserves also includes US$30 million of debenture redemption reserve and US$4.5 million of remeasurement reserve. 3 The merger reserve arose on incorporation of the Company during the year ended 31 March 2004. The investment in Twin Star had a carrying amount value of US$20.0 million in the accounts of Volcan. As required by the Companies Act 1985, Section 132, upon issue of 156,000,000 ordinary shares to Volcan, Twin Star’s issued share capital and share premium account have been eliminated and a merger reserve of US$4.4 million arose, being the difference between the carrying value of the investment in Twin Star in Volcan’s accounts and the nominal value of the shares issued to Volcan. Vedanta Resources plc Annual report and accounts FY2015 133 Notes to the Financial Statements 1. Presentation of financial statements General information Vedanta Resources plc (the Company) is a company incorporated and domiciled in the United Kingdom and is a London listed diversified global natural resources major. The Group produces aluminium, copper, zinc, lead, silver, iron ore, oil & gas and commercial power. Vedanta has operations in India, Zambia, Namibia, South Africa, Ireland, Liberia, Australia, UAE and Sri Lanka. These financial statements are presented in US dollars being the functional currency of the Company and all values are rounded to one decimal of the nearest million except where otherwise indicated. Compliance with applicable law and IFRS The financial statements have been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under International Financial Reporting Standards (IFRS), Article 4 of the IAS Regulation and IFRS as adopted by the European Union and related interpretations. Basis of preparation The financial statements have been prepared on a historical cost basis, except for derivative financial instruments, available-for-sale financial assets, fixed rate bonds and defined benefit pension obligations that have been measured at fair value as per the principles of Fair value measurement under IFRS 13. Restatement The Group has revised the presentation of forward premium on the forward covers within finance costs rather than other gains and losses, as these more appropriately reflects the substance of the transaction. US$84.1 million for the comparative year ended 31 March 2014 have been reclassified. The following Standards have been issued but not yet effective up to the date of authorisation of these financial statements (and in some cases had not yet been adopted by EU): IFRS 9 – Financial Instruments In July 2014, the International Accounting Standards Board issued the final version of IFRS 9, Financial Instruments. The standard reduces the complexity of the current rules on financial instruments as mandated in IAS 39. IFRS 9 has fewer classification and measurement categories as compared to IAS 39 and has eliminated the categories of held to maturity, available-for-sale and loans and receivables. Further it eliminates the rule based requirement of segregating embedded derivatives and tainting rules pertaining to held to maturity investments. For an investment in an equity instrument which is not held for trading, IFRS 9 permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss. It requires the entity, which chooses to measure a liability at fair value, to present the portion of the fair value change attributable to the entity’s own credit risk in the other comprehensive income. IFRS 9 replaces the ‘incurred loss model’ in IAS 39 with an ‘expected credit loss’ model. The measurement uses a dual measurement approach, under which the loss allowance is measured as either 12 month expected credit losses or lifetime expected credit losses. The standard also introduces new presentation and disclosure requirements. The effective date for adoption of IFRS 9 is annual periods beginning on or after 1 January 2018, though early adoption is permitted. IFRS 15 – Revenue from Contracts with Customers IFRS 15 – Revenue from Contracts with Customers outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard replaces most current revenue recognition guidance, including industry-specific guidance. The core principle of the new standard is for companies to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively including service revenues and contract modifications and improve guidance for multiple-element arrangements. The new Standard will come into effect on 1 January 2017 with early application permitted. Following other standard, improvements and amendments to the standards have been issued up to the date of authorisation of these financial statements. a) IFRS 14 – Regulatory Deferral Accounts b) Amendments to IAS 1: Disclosure Initiative c) Annual Improvements to IFRSs: 2012–2014 Cycle d) Amendments to IAS 27: Equity method in separate financial statements e) Amendments to IAS 16 and IAS 41: Bearer plants f) Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation g) Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations h) Amendments to IAS 19: Defined benefit plans: Employee Contributions The Group is evaluating the requirements of these standards, improvements and amendments and has not yet determined the impact on the consolidated financial statements. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 134 Financial statements Notes to the Financial Statements continued 1. Presentation of financial statements continued Adoption of new and revised standards The Group has adopted with effect from 1 April 2014, the following new and revised standards and interpretations. Their adoption has not had any significant impact on the amounts reported in the financial statements. Accounting pronouncements that became effective in the current year: Amendments to IAS 36 Impairment of Assets: Recoverable amount disclosure for Non-Financial Assets The amendment requires the disclosure of the recoverable amount of an asset (or CGU) only in periods in which impairment is recorded or reversed in respect of that asset (or CGU). The amendment also expands and requires the disclosure when an asset’s (CGUs) recoverable amount is determined on the basis of fair value less cost of disposal. Amendments to IAS 39 Financial Instruments: Recognition and measurement: Novation of Derivatives and Continuation of Hedge accounting The amendment states that the novation of hedging instrument should not be considered an expiration or termination giving rise to discontinuation of hedge accounting when a hedging derivative is novated. It provides relief from discontinuing an existing hedging relationship when a novation that is not contemplated in the original hedging documentation meets specific criteria. Amendments to IAS 32 Financial Instruments: Offsetting Financial Assets and Financial Liabilities The amendments to IAS 32 (amended) – offsetting financial assets and liabilities do not change the current offsetting model in IAS 32. The current offsetting model requires an entity to offset a financial asset and financial liability in the statement of financial position only when the entity currently has a legally enforceable right of set-off and intends either to settle the asset and liability on a net basis or to realise the asset and settle the liability simultaneously. Through these amendments, IASB has clarified the meaning of ‘currently have a legally enforceable right to set-off’ and ‘simultaneous realisation and settlement’. The amendments clarify that to result in offset of a financial asset and financial liability, a right to set off must be available today rather than being contingent on a future event and must be exercisable by any of the counterparties. It must be legally enforceable in the normal course of business. Amendments to IFRS 10, IFRS 12 and IAS 27 (October 2012) Investment entities The amendments define an investment entity and introduce an exception to consolidating the investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments in its consolidated and separate financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27. The amendments also introduce new disclosure requirements related to investment entities and provide scope exemption for investment entities from IFRS 3 Business Combinations. The Group has early adopted IFRIC 21 Levies which has been endorsed by the EU but is effective for the annual periods beginning on or after 17 June 2014 IFRIC 21 provides guidance for recognition of a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain. This interpretation clarifies that the obligating event that gives rise to a liability to pay a government levy is the activity that triggers the payment of levy as set out in the relevant legislation. An entity does not have constructive obligation to pay a levy that will be triggered by operating in a future period. However, it does not include income taxes, fines and other penalties, liabilities arising from emissions trading schemes and outflows within the scope of other Standards. This did not have any significant impact on the amounts reported in the financial statements. The Group has not early adopted any other amendments, standards or interpretations that have been issued but are not yet effective. Going concern The financial statements have been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting takes into consideration the Group’s current and forecast financing position, additional details of which are provided in the Going Concern section of the strategic report. Parent Company financial statements The financial statements of the parent Company, Vedanta Resources plc, incorporated in the United Kingdom, have been prepared in accordance with UK GAAP and UK company law. The Company Balance Sheet is presented in Note 47. Vedanta Resources plc Annual report and accounts FY2015 135 2(a) Accounting policies (i) Basis of consolidation Subsidiaries: The consolidated financial information incorporates the results of the Company and all its subsidiaries (the Group), being the companies that it controls. Control is evidenced where the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Power is demonstrated through existing rights that give the ability to direct relevant activities, which significantly affect the entity returns. The financial statements of subsidiaries are prepared for the same reporting year as the parent Company. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with accounting policies used by the Group. For non-wholly owned subsidiaries, a share of the profit for the financial year and net assets is attributed to the non-controlling interests as shown in the consolidated income statement, consolidated statement of comprehensive income and consolidated balance sheet. For acquisitions of additional interests in subsidiaries, where there is no change in control, the Group recognises a reduction to the non- controlling interest of the respective subsidiary with the difference between this figure and the cash paid, inclusive of transaction fees, being recognised in equity. In addition, upon dilution of controlling interests the difference between the cash received from sale or listing of the subsidiary shares and the increase to non-controlling interest is also recognised in equity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Joint arrangements A Joint arrangement is an arrangement of which two or more parties have joint control. Joint control is considered when there is contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group has joint operations within its Oil & Gas segment, the Group participates in several unincorporated joint operations which involve the joint control of assets used in oil & gas exploration and producing activities. The Group accounts for its share of assets, liabilities, income and expenditure of joint ventures in which the Group holds an interest, classified in the appropriate balance sheet and income statement headings. In addition, where the Group acts as operator to the joint venture, the gross liabilities and receivables (including amounts due to or from non-operating partners) of the joint operations are included in the Group balance sheet. (ii) Revenue recognition Revenue is measured at the fair value of consideration received or receivable and represents the net invoice value of goods and services provided to third parties after deducting discounts, volume rebates, outgoing sales taxes and duties, and are recognised when all significant risks and rewards of ownership of the asset sold are transferred to the customer or services have been provided. This is usually when the title passes to the customer as per the contract. Certain of the Group’s sales contracts provide for provisional pricing based on the price on the London Metal Exchange Limited (LME), as specified in the contract, when shipped. Final settlement of the prices is based on the applicable price for a specified future period. The Company’s provisionally priced sales are marked to market using the relevant forward prices for the future period specified in the contract with a corresponding adjustment to revenue. Revenue from oil, gas and condensate sales represent the Group’s share of oil, gas and condensate production, recognised on a direct entitlement basis, and tariff income received for third party use of operating facilities and pipelines in accordance with agreements. • Revenue from holding certificate contracts is recognised when goods have been delivered to a distribution warehouse or has been identified and kept separately, have been inspected by a nominee of the buyer and cash has been received. Under these arrangements, revenue is recognised once legal title has passed and all significant risks and rewards of ownership of the asset sold are transferred to the customer. • Revenue from the sale of power is recognised when the electricity is supplied and measured based on contractually agreed tariff rates as approved by the electricity regulatory authorities. • Revenues from sale of material by-products are recognised when the significant risks and rewards of ownership of the goods sold are transferred to the customer. • Dividend income is recognised when the shareholders’ right to receive payment is established. • Interest income is recognised on an accrual basis in the income statement. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 136 Financial statements Notes to the Financial Statements continued 2(a) Accounting policies continued (iii) Special items Special items are those items that management considers, by virtue of their size or incidence (including but not limited to impairment charges and acquisition and restructuring related costs), should be disclosed separately to ensure that the financial information allows an understanding of the underlying performance of the business in the year, so as to facilitate comparison with prior periods. Also tax charges related to Special items and certain one-time tax effects are considered Special. Such items are material by nature or amount to the year’s result and require separate disclosure in accordance with IAS 1 paragraph 97. The determination as to which items should be disclosed separately requires a degree of judgement. (iv) Business combinations The results of subsidiaries acquired or sold during the year are consolidated for the periods from, or to, the date on which control passed. Acquisitions are accounted for under the acquisition method. The acquirer’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the acquisition date, except certain assets and liabilities required to be measured as per the applicable standards. The identifiable assets, liabilities and contingent liabilities of a subsidiary, a joint arrangement or an associate, which can be measured reliably, are recorded at their provisional fair values at the date of acquisition. The difference between the fair value of the consideration transferred (including contingent consideration and previously held non-controlling interests) and the Group’s share of the fair value of the identifiable net assets on acquisition is recognised as Goodwill. Goodwill arising on acquisitions is reviewed for impairment at least annually. Where the fair values of the identifiable assets and liabilities exceed the cost of acquisition, the surplus is credited to the income statement in the period of acquisition. Where it is not possible to complete the determination of fair values by the date on which the first post-acquisition financial statements are approved, a provisional assessment of fair values is made and any adjustments required to those provisional fair values, and the corresponding adjustments to purchased goodwill, are finalised within 12 months of the acquisition date. Any non-controlling interest in an acquiree is measured at fair value or as the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, excluding goodwill. This accounting choice is made on a transaction-by-transaction basis. Acquisition expenses are charged to the income statement. If the Group acquires a group of assets or equity in a company that does not constitute a business combination in accordance with IFRS 3 Business Combinations, the cost of the acquired group of assets or equity is allocated to the individual identifiable assets acquired based on their relative fair value. (v) Intangible assets Intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses, if any. The Group determines the amortisation period as the period over which the future economic benefits will flow to the Group after taking into account all relevant facts and circumstances. Amortisation method, residual values and estimated useful life of intangible assets are reviewed annually or more frequently if events or changes in circumstances indicate a potential impairment. The Group does not have any indefinite life intangible assets. Intangible assets arising out of service concession arrangements are accounted for as intangible assets where the Company has a contractual right to charge users of services when the projects are completed and is measured at the cost of such construction services completed. Such assets are amortised on a straight-line basis over the balance of license period, usually between three to 30 years. (vi) Property, plant and equipment Relating to mineral assets – mining properties and leases The costs of mining properties and leases, which include the costs of acquiring and developing mining properties and mineral rights, are capitalised as property, plant and equipment under the heading ‘Mining properties and leases’ in the year in which they are incurred. When a decision is taken that a mining property is viable for commercial production (i.e. when the Group determines that the mining property will provide sufficient and sustainable returns relative to the risk and decides to proceed with the development), all further pre- production primary development expenditure other than land, buildings, plant and equipment is capitalised as part of the cost of the mining property until the mining property is capable of commercial production. From that point, capitalised mining properties and lease costs are amortised on a unit-of-production basis over the total estimated remaining commercial reserves of each property or group of properties. Exploration and evaluation assets acquired are recognised as assets at their cost of acquisition subject to meeting the commercial production criteria mentioned above and are subject to an impairment review on an annual basis. Exploration and evaluation expenditure incurred after obtaining the right to mine or the legal right to explore, is capitalised as property, plant and equipment and stated at cost less any impairment. Exploration and evaluation assets are transferred to the appropriate category of property, plant and equipment when the technical feasibility and commercial viability has been determined. Exploration and evaluation assets are assessed for impairment and impairment loss, if any, is recognised prior to reclassification. Exploration and evaluation expenditure incurred prior to obtaining the mining right or the legal right to explore are expensed as incurred. Vedanta Resources plc Annual report and accounts FY2015 137 2(a) Accounting policies continued Exploration expenditure includes all direct and allocated indirect expenditure associated with finding specific mineral resources which includes depreciation and applicable operating costs of related support equipment and facilities and other costs of exploration activities: a. Acquisition costs – costs associated with acquisition of licences and rights to explore, including related professional fees. b. General exploration costs – costs of surveys and studies, rights of access to properties to conduct those studies (e.g. costs incurred for environment clearance, defence clearance, etc.), and salaries and other expenses of geologists, geophysical crews and other personnel conducting those studies. c. Costs of exploratory drilling and equipping exploratory and appraisal wells. The stripping cost incurred during the production phase of a surface mine is deferred to the extent the current period stripping cost exceeds the average period stripping cost over the life of the mine and recognised as an asset if such cost provides a benefit in terms of improved access to ore in future periods and certain criteria are met. Deferred stripping costs are included in mining properties within property, plant and equipment and disclosed as a part of mining properties. After initial recognition, the stripping activity asset is depreciated on a unit of production method over the expected useful life of the identified component of the ore body. In circumstances where a mining property is abandoned, the cumulative capitalised costs relating to the property are written off in the period in which it occurs i.e. when the Group determines that the mining property will not provide sufficient and sustainable returns relative to the risks and the Group decides not to proceed with the mine development. Commercial reserves are proved and probable reserves as defined by the ‘JORC’ Code and ‘SAMREC’ Code. Changes in the commercial reserves affecting unit of production calculations are dealt with prospectively over the revised remaining reserves. Relating to oil & gas assets – Exploration & evaluation assets and developing/producing assets For oil & gas assets a successful efforts based accounting policy is followed. Costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the income statement. Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are held, are not amortised or depreciated, within exploration and evaluation assets until such time as the exploration phase on the licence area is complete or commercial reserves have been discovered. Exploration expenditure incurred in the process of determining oil & gas exploration targets is capitalised initially within property, plant and equipment – exploration and evaluation assets and subsequently allocated to drilling activities (under oil & gas properties and/or exploration and evaluation assets as appropriate). Exploration drilling costs are initially capitalised on a well-by-well basis until the success or otherwise of the well has been established. The success or failure of each exploration effort is judged on a well-by-well basis. Drilling costs are written off on completion of a well unless the results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are commercial. Following appraisal of successful exploration wells, if commercial reserves are established and technical feasibility for extraction demonstrated, then the related capitalised exploration costs are transferred into a single field cost centre within property, plant and equipment – development/producing assets (oil & gas properties) after testing for impairment. Where results of exploration drilling indicate the presence of hydrocarbons which are ultimately not considered commercially viable, all related costs are written off to the income statement. All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons has been demonstrated are capitalised within property, plant and equipment – development/producing assets (oil & gas properties) on a field-by-field basis. Subsequent expenditure is capitalised only where it either enhances the economic benefits of the development/producing asset or replaces part of the existing development/producing asset. Any remaining costs associated with the part replaced are expensed. Net proceeds from any disposal of an exploration asset are initially credited against the previously capitalised costs. Any surplus proceeds are credited to the income statement. Net proceeds from any disposal of development/producing assets are credited against the previously capitalised cost. A gain or loss on disposal of a development/producing asset is recognised in the income statement to the extent that the net proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset. Other property, plant and equipment The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bringing an asset to working condition and location for its intended use, including relevant borrowing costs and any expected costs of decommissioning. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are charged to the income statement in the period in which the costs are incurred. Major shut-down and overhaul expenditure is capitalised as the activities undertaken improve the economic benefits expected to arise from the asset. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 138 Financial statements Notes to the Financial Statements continued 2(a) Accounting policies continued (vii) Assets in the course of construction Assets in the course of construction are capitalised in the assets under construction account. At the point when an asset is operating at management’s intended use, the cost of construction is transferred to the appropriate category of property, plant and equipment and depreciation commences (see below). Costs associated with the commissioning of an asset and any obligatory decommissioning costs are capitalised where the asset is available for use but incapable of operating at normal levels until a period of commissioning has been completed. Revenue generated from production during the trial period is capitalised. Borrowing costs and certain foreign exchange gains or losses are in certain circumstances capitalised in the cost of the asset under construction. This policy is set out under ‘Borrowing Costs’. (viii) Depreciation and amortisation Relating to mining properties Mining properties and other assets in the course of development or construction, freehold land and goodwill are not depreciated or amortised. Capitalised mining properties and lease costs are amortised once commercial production commences, as described in ‘Property, plant and equipment – mining properties and leases’. Leasehold land and buildings are depreciated over the period of the lease or, if shorter, their useful economic life. Relating to oil & gas assets All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil & gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field-by-field basis or group of fields which are reliant on common infrastructure. Commercial reserves are proven and probable oil & gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proven and probable reserves and a 50% statistical probability that it will be less. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs required to access commercial reserves. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Others Other buildings, plant and equipment, office equipment and fixtures, and motor vehicles are stated at cost less accumulated depreciation and any provision for impairment. Depreciation commences when the assets are ready for their intended use. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows: Buildings operations and administration Plant and machinery – Continuous process plant – Other than Continuous process plant – Used in manufacture of non-ferrous metals Office equipment and fixtures Motor vehicles 15 years 40 years 25 years 5–10 years 8–10 years 30–60 years The Group reviews the residual value and useful life of an asset annually and, if expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. Major overhaul costs are depreciated over the estimated life of the economic benefit to be derived from the overhaul. The carrying amount of the remaining previous overhaul cost is charged to the income statement if the next overhaul is undertaken earlier than the previously estimated life of the economic benefit. Property, plant and equipment held for sale or which is part of a disposal group held for sale is not depreciated. Property, plant and equipment held for sale is carried at the lower of its carrying value and fair value less disposal cost and is presented separately on the face of the balance sheet. During the year ended 31 March 2015, in line with its accounting policy, the Group has carried out the review of the useful life of its assets. Considering the physical condition of the assets and benchmarking analysis, the Group has revised the useful life. The carrying value of the assets has been depreciated over the revised remaining useful life effective 1 October 2014. As a result the net depreciation charge for the year is lower by US$67.4 million and profit after tax is higher by US$44.5 million (net of deferred tax impact of US$22.9 million). The changes made to the useful economic lives is expected to have an impact on the depreciation charge going forward, although the quantum per asset class will vary depending on whether the useful life has increased or decreased. Vedanta Resources plc Annual report and accounts FY2015 139 2(a) Accounting policies continued (ix) Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the consolidated statements of income. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in the consolidated statements of comprehensive income is transferred to the consolidated statements of income on recognition of impairment. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in the consolidated statements of income. For available-for-sale financial assets that are equity securities, the change in fair value is recognised directly in the consolidated statements of comprehensive income. The allowance accounts in respect of trade and other receivables are used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly. Non-financial assets Impairment charges and reversals are assessed at the level of cash-generating units. A cash-generating unit (CGU) is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or group of assets. Formal impairment tests are carried out annually for goodwill. In addition, formal impairment tests for all assets are performed when there is an indication of impairment. The Group conducts an internal review of asset values annually, which is used as a source of information to assess for any indications of impairment or reversal of previously recognised impairment losses. External factors, such as changes in expected future prices, costs and other market factors are also monitored to assess for indications of impairment or reversal of previously recognised impairment losses. If any such indication exists then an impairment review is undertaken, the recoverable amount is calculated, as the higher of fair value less costs of disposal and the asset’s value in use. Fair value less costs of disposal is the price that would be received to sell the asset in an orderly transaction between market participants and does not reflect the effects of factors that may be specific to the entity and not applicable to entities in general. Fair value for mineral and oil & gas assets is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal, using assumptions that an independent market participant may take into account. These cash flows are discounted at an appropriate post tax discount rate to arrive at the net present value. Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal. The cash flows are discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted. Value in use is determined by applying assumptions specific to the Group’s continued use and cannot take into account future development. These assumptions are different to those used in calculating fair value and consequently the value in use calculation is likely to give a different result to a fair value calculation. The carrying amount of the CGU is determined on a basis consistent with the way the recoverable amount of the CGU is determined. The carrying amount includes the deferred tax liability recognised in the fair value of the assets acquired in a business combination. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognised in the income statement. Any reversal of the previously recognised impairment loss is limited to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had previously been recognised. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 140 Financial statements Notes to the Financial Statements continued 2(a) Accounting policies continued Exploration and evaluation assets: In assessing whether there is any indication that an exploration and evaluation asset may be impaired, the Company considers, as a minimum, the following indications: • the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; • substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; • exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; • sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale; and • reserve information prepared annually by external experts. When a potential impairment is identified, an assessment is performed for each area of interest in conjunction with the Group of operating assets (representing a cash-generating unit) to which the exploration and evaluation assets is attributed. Exploration areas in which reserves have been discovered but require major capital expenditure before production can begin, are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional exploration work is under way or planned. To the extent that capitalised expenditure is no longer expected to be recovered, it is charged to the income statement. (x) Non-current assets held for sale and discontinued operations Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when a sale is highly probable from the date of classification, management are committed to the sale and the asset is available for immediate sale in its present condition. Non-current assets are classified as held for sale from the date these conditions are met and are measured at the lower of carrying amount and fair value (less costs to sell). Any resulting impairment loss is recognised in the income statement as a special item. On classification as held for sale the assets are no longer depreciated. (xi) Government grants Government grants relating to property, plant and equipment are treated as deferred income and released to the income statement over the expected useful lives of the assets concerned. Other grants are credited to the income statement as and when the related expenditure is incurred. (xii) Inventories Inventories and work-in-progress are stated at the lower of cost and net realisable value. Cost is determined on the following basis: • Purchased copper concentrate is recorded at cost on a first-in, first-out (FIFO) basis; all other materials including stores and spares are valued on weighted average basis; except at Cairn where stores and spares are valued on a FIFO basis. • Finished products are valued at raw material cost plus costs of conversion, comprising labour costs and an attributable proportion of manufacturing overheads based on normal levels of activity; and by-products and scrap are valued at net realisable value. Net realisable value is determined based on estimated selling price, less further costs expected to be incurred to completion and disposal. (xiii) Taxation Tax expense represents the sum of tax currently payable and deferred tax. Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided, using the balance sheet method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Exceptions to this principle are: • Tax payable on the future remittance of the past earnings of subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; • Deferred income tax is not recognised on the impairment of goodwill which is not deductible for tax purposes or on the initial recognition of an asset or liability in a transaction that is not a business combination, which at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • Deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Vedanta Resources plc Annual report and accounts FY2015 141 2(a) Accounting policies continued The carrying amount of deferred tax assets is reviewed at each balance sheet date and is adjusted to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Deferred tax is provided on temporary differences arising on acquisitions that are categorised as Business Combinations. Deferred tax is recognised at acquisition as part of the assessment of the fair value of assets and liabilities acquired. Any deferred tax is charged or credited in the income statement as the underlying temporary difference is reversed. (xiv) Retirement benefit schemes The Group operates or participates in a number of defined benefits and contribution schemes, the assets of which are (where funded) held in separately administered funds. For defined benefit schemes the cost of providing benefits under the plans is determined each year separately for each plan using the projected unit credit method by independent qualified actuaries. Actuarial gains and losses arising in the year are recognised in Other Comprehensive Income and are not recycled to the income statement. Net interest is calculated by applying a discount rate to the net defined benefit liability or asset. Defined benefit costs are split into current service cost, past service cost, net interest expense or income and remeasurement. Current service cost and past service cost is recognised within cost of sales and administrative expenses. Net interest expense or income is recognised within finance costs. For defined contribution schemes, the amount charged to the income statement in respect of pension costs and other post-retirement benefits is the contributions payable in the year. (xv) Share-based payments Certain employees (including Executive Directors) of the Group receive part of their remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of equity-settled transactions with employees is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting conditions are determined with the assistance of an external valuer and the fair value at the grant date is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at each balance sheet date up to the vesting date at which point the estimate is adjusted to reflect the current expectations. (xvi) Provisions for liabilities and charges Provisions are recognised when the Group has a present obligation (legal or constructive), as a result of past events, and it is probable that an outflow of resources, that can be reliably estimated, will be required to settle such an obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows to net present value using an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Unwinding of the discount is recognised in the income statement as a finance cost. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate. (xvii) Restoration, rehabilitation and environmental costs An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine or oil field. Costs arising from the decommissioning of plant and other site preparation work are provided for based on their discounted net present value, with a corresponding amount being capitalised at the start of each project. The amount provided for is recognised, as soon as the obligation to incur such costs arises. These costs are charged to the income statement over the life of the operation through the depreciation of the asset and the unwinding of the discount on the provision. The cost estimates are reviewed periodically and are adjusted to reflect known developments which may have an impact on the cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision due to factors such as updated cost estimates, new disturbance and revisions to discount rates. The adjusted cost of the asset is depreciated prospectively over the lives of the assets to which they relate. The unwinding of the discount is shown as a finance cost in the income statement. Costs for restoration of subsequent site damage which is caused on an ongoing basis during production are provided for at their net present values and charged to the income statement as extraction progresses. Where the costs of site restoration are not anticipated to be significant, they are expensed as incurred. (xviii) Operating leases Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 142 Financial statements Notes to the Financial Statements continued 2(a) Accounting policies continued (xix) Finance leases Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the Income Statement, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s policy on borrowing costs. The Group has reviewed the terms and conditions of the lease arrangements and determined that all risks and rewards of ownership lie with the Group and has therefore accounted for the contracts as finance leases. (xx) Foreign currency translation The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates. For all principal operating subsidiaries, the functional currency is the local currency of the country in which it operates with the exception of KCM and Cairn which has a US dollar functional currency as that is the currency of primary economic environment in which it operates. In the financial statements of individual Group companies, transactions in currencies other than the functional currency are translated into the functional currency at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in other currencies are translated into the functional currency at exchange rates prevailing on the balance sheet date. All exchange differences are included in the income statement, except, where the monetary item is designated as an effective hedging instrument of the currency risk of designated forecast sales, where exchange differences are recognised in equity and exchange differences on foreign currency borrowings relating to asset under construction, and for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings. For the purposes of consolidation, the income statement items of those entities for which the US dollar is not the functional currency are translated into US dollars at the average rates of exchange during the period. The related balance sheets are translated at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of such operations, and on foreign currency borrowings to the extent that they hedge the Group’s investment in such operations, are reported in other comprehensive income and accumulated in equity. On disposal of entities with a different functional currency to the Company’s functional currency, the deferred cumulative exchange differences recognised in equity relating to that particular operation is reclassified to the income statement. (xxi) Financial asset investments Financial asset investments are classified as available for sale under IAS 39 and are initially recorded at cost and then remeasured at subsequent reporting dates to fair value. Unrealised gains and losses on financial asset investments are recognised directly in equity. On disposal or impairment of the investments, the gains and losses in equity are recycled to the income statement. Investments in unquoted equity instruments that do not have a market price and whose fair value cannot be reliably measured are measured at cost. Investments in equity instruments are recorded in non-current assets unless they are expected to be sold within one year. (xxii) Liquid investments Liquid investments represent short-term investments that do not meet the definition of cash and cash equivalents for one or more of the following reasons: • They have a maturity profile greater than 90 days. • They may be subject to a greater risk of changes in value than cash. • They are held for investment purposes. The value of trading investments incorporates any dividend and interest earned on the held for trading investments. (xxiii) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand, short-term deposits with banks and short-term highly liquid investments that are readily convertible into cash which are subject to insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments. (xxiv) Trade receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. An allowance for impairment of trade receivables is made where there is an event, which based on previous experience, is an indication of a reduction in the recoverability of the carrying value of the trade receivables. Vedanta Resources plc Annual report and accounts FY2015 143 2(a) Accounting policies continued (xxv) Trade payables Trade payables are stated at their nominal value. (xxvi) Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. (xxvii) Borrowings Interest bearing loans and overdrafts are recorded at the proceeds received. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis and charged to the income statement using the effective interest method. They are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. (xxviii) Convertible bonds Convertible bonds denominated in the functional currency of the issuing entity are accounted for as compound instruments. The equity components and the liability components are separated out on the date of the issue. The equity component is recognised in a separate reserve and is not subsequently remeasured. The liability component is held at amortised cost. The interest expense on the liability component is calculated by applying the effective interest rate, being the prevailing market interest rate at the date of issuance for similar non-convertible debt. The difference between this amount and interest paid is added to the carrying amount of the liability component. Convertible bonds not denominated in the functional currency of the issuing entity or where a cash conversion option exists, are split into two components: a debt component and a component representing the embedded derivative in the convertible bond. The debt component represents a liability for future coupon payments and the redemption of the principal amount. The embedded derivative, a financial liability, represents the value of the option that bondholders have to convert into ordinary shares. At inception the embedded derivative is recorded at fair value and the remaining balance, after deducting a share of issue costs, is recorded as the debt component. Subsequently, the debt component is measured at amortised cost and the embedded derivative is measured at fair value at each balance sheet date with the change in the fair value recognised in the income statement. The embedded derivative and the debt component are disclosed together and the current/non-current classification follows the classification of the debt component which is the host contract. (xxix) Borrowing costs Borrowing costs directly relating to the acquisition, construction or production of a qualifying capital project under construction are capitalised and added to the project cost during construction until such time that the assets are substantially ready for their intended use in accordance with the Group policy which is when they are capable of commercial production. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where surplus funds are available out of money borrowed specifically to finance a project, the income generated from such short-term investments is also capitalised to reduce the total capitalised borrowing cost. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Capitalisation of interest on borrowings related to construction or development projects is ceased when substantially all the activities that are necessary to make the assets ready for their intended use are complete or when delays occur outside of the normal course of business. (xxx) Available for sale financial assets Listed equity shares and debt instruments held by the Group that are traded in an active market are classified as being available for sale (AFS) financial assets and are stated at fair value. Unrealised gains and losses on financial asset investments are recognised directly in equity. On disposal or impairment of the investments, the gains and losses in equity are recycled to the income statement. Dividends received from investees accounted for as equity instruments are recognised in the income statement when the right to receive the payment is established. (xxxi) Financial instruments fair valued through profit and loss Held for trading financial assets Financial assets are classified as held for trading if they have been acquired principally for the purpose of selling in the near term. The change in fair value of trading investments incorporates any dividend and interest earned on the held for trading investments and is accounted for in the income statement. Derivative financial instruments In order to hedge its exposure to foreign exchange, interest rate and commodity price risks, the Group enters into forward contracts, option contracts, swap contracts and other derivative financial instruments. The Group does not hold derivative financial instruments for speculative purposes. Derivative financial instruments are initially recorded at their fair value on the date of the derivative transaction and are remeasured at their fair value at subsequent balance sheet dates. The resultant gains or losses are recognised in the income statement unless these are designated as effective hedging instruments. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 144 Financial statements Notes to the Financial Statements continued 2(a) Accounting policies continued (xxxii) Hedge accounting The Group designates certain hedging instruments, which include derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement. The hedged item is recorded at fair value and any gain or loss is recorded in the income statement and is offset by the gain or loss from the change in the fair value of the derivative. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in equity. This includes certain non-derivative liabilities that are designated as a hedge of the foreign currency risk on future, highly probable, forecast sales. Amounts deferred in equity are recycled to the income statement in the periods when the hedged item is recognised in the income statement. The gain or loss on hedging instruments relating to the effective portion of a net investment hedge is recognised in equity. The ineffective portion is recognised immediately in the income statement. Gains or losses accumulated in equity are reclassified to the income statement on disposal of the foreign operations to which they relate. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value with unrealised gains or losses recognised in the income statement. (xxxiii) Held-to-maturity financial assets Financial instruments with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are measured at amortised cost using the effective interest method. 2(b) Critical accounting judgement and estimation uncertainty The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions, that affect the application of accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses for the years presented. Actual results may differ from these estimates under different assumptions and conditions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods affected. Vedanta considers the following areas as the key sources of estimation uncertainty: (i) Oil & Gas reserves Oil & Gas reserves are estimated on a proved and probable entitlement interest basis. Proven and probable reserves are estimated using standard recognised evaluation techniques. The estimate is reviewed regularly. Future development costs are estimated taking into account the level of development required to produce the reserves by reference to operators, where applicable, and internal engineers. Net entitlement reserves estimates are subsequently calculated using the Group’s current oil price and cost recovery assumptions, in line with the relevant agreements. Changes in reserves as a result of factors such as production cost, recovery rates, grade of reserves or commodity prices could impact the depreciation rates, carrying value of assets and environmental and restoration provisions. (ii) Carrying value of exploration and evaluation assets Where a project is sufficiently advanced the recoverability of IFRS 6 Exploration assets are assessed by comparing the carrying value to higher of fair value less cost of disposal or value in use. Exploration assets are inherently judgemental to value and further details on the accounting policy are included in accounting note above. The amounts for exploration and evaluation assets represent active exploration projects. These amounts will be written off to the income statement as exploration costs unless commercial reserves are established or the determination process is not completed and there are no indications of impairment. The outcome of ongoing exploration, and therefore whether the carrying value of exploration and evaluation assets will ultimately be recovered, is inherently uncertain. Details of impairment charge and the assumptions used are disclosed in Note 5. Vedanta Resources plc Annual report and accounts FY2015 145 2(b) Critical accounting judgement and estimation uncertainty continued (iii) Carrying value of developing/producing oil & gas assets Management perform impairment tests on the Group’s developing/producing oil & gas assets at least annually with reference to indicators in IAS 36. The impairment assessments are based on a range of estimates and assumptions, including: Estimates/assumptions Basis Future production proved and probable reserves, resource estimates and, in certain cases, expansion projects Commodity prices Exchange rates Discount rates management’s best estimate benchmarked with external sources of information, to ensure they are within the range of available analyst forecast management best estimate benchmarked with external sources of information cost of capital risk-adjusted for the risk specific to the asset/CGU Extension of PSC assumed that PSC for Rajasthan block would be extended until 2030 on the same commercial terms Other key assumptions in the impairment models based on management expectations are that government approval will be received to further increase production rates and that the Enhanced Oil Recovery programme will be successfully implemented. Any subsequent changes to cash flows due to changes in the above mentioned factors could impact the carrying value of the assets. Details of impairment charge and the assumptions used are disclosed in Note 5. (iv) Mining properties and leases The carrying value of mining property and leases is arrived at by depreciating the assets over the life of the mine using the unit of production method based on proved and probable reserves. The estimate of reserves is subject to assumptions relating to life of the mine and may change when new information becomes available. Changes in reserves as a result of factors such as production cost, recovery rates, grade of reserves or commodity prices could thus impact the carrying values of mining properties and leases and environmental and restoration provisions. Details of impairment charge are disclosed in Note 5. (v) Useful economic lives and impairment of other assets Property, plant and equipment other than mining properties, oil & gas properties, and leases are depreciated over their useful economic lives. Management reviews the useful economic lives at least once a year and any changes could affect the depreciation rates prospectively and hence the asset carrying values. The Group also reviews its property, plant and equipment, including mining properties and leases, for possible impairment if there are events or changes in circumstances that indicate that carrying values of the assets may not be recoverable. In assessing the property, plant and equipment for impairment, factors leading to significant reduction in profits such as changes in commodity prices, the Group’s business plans and changes in regulatory environment are taken into consideration. The carrying value of the assets of a cash generating unit (CGU) is compared with the recoverable amount of those assets, that is, the higher of fair value less costs of disposal and value in use. Recoverable value is based on the management estimates of commodity prices, market demand and supply, economic and regulatory climates, long-term plan, discount rates and other factors. Any subsequent changes to cash flow due to changes in the above-mentioned factors could impact the carrying value of the assets. (vi) Assessment of impairment at Lanjigarh Refinery The Group has considered that the delay in obtaining environment clearances for the expansion of the alumina refinery at Lanjigarh and regulatory approval for bauxite mining as an indication of impairment. Hence, the Group have reviewed the carrying value of its property, plant and equipments at Lanjigarh as at balance sheet date, estimated the recoverable amounts of these assets and concluded that there was no impairment because the recoverable amount (estimated based on value in use) exceeded the carrying amounts. The key assumptions and estimates used in determining the value in use of these assets were: • The State of Odisha has abundant bauxite resources and under the terms of the Memorandum of Understanding (MOU) with the Government of Odisha, management is confident that bauxite will be made available in the short to medium term. The Company has entered into agreements with various suppliers internationally and domestically to ensure the availability of bauxite to run its refinery. In the initial years, the Company has assumed that bauxite will be purchased from third party suppliers in India and other countries, until the bauxite is sourced from its own mines. • The State of Odisha has taken certain measures including reservation of areas for mining operations or undertaking prospecting and the constitution of the Ministerial Committee for formulation of a policy for supply of ores to Odisha-based industries on a long-term basis. On 12 January 2015, the Government of India came out with an ordinance to amend the existing MMDR act. The major change is in the process of grant of concessions i.e. from a first come first served basis to a more transparent process of auction and to expedite the grant process. • The management expects that the conditions for construction of the alumina refinery will be fulfilled and it is assumed that the approval for the expansion of the refinery would be received for commencement of production by fiscal 2018. Management expects that approvals for mining and the statutory approvals for the expansion project will be received as anticipated. Additionally the Group carries out impairment assessment for carrying value of these assets every half year and challenges these assumptions. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 146 Financial statements Notes to the Financial Statements continued 2(b) Critical accounting judgement and estimation uncertainty continued As at 31 March 2015, the carrying amount of property plant and equipment related to alumina refinery operations at Lanjigarh and related mining assets is US$1,165 million (31 March 2014: US$1,231 million). (vii) Assessment of Impairment of Karnataka and Goa iron ore mines: Karnataka mining The mining ban in Karnataka was lifted on 17 April 2013 and the mining operations resumed in December 2013. The mining operations were suspended since August 2014 for want of environment clearances. On execution of the Mining Lease Deed and final forest clearance, the operations were resumed towards the end of February 2015. The carrying value of assets as at 31 March 2015 is US$168.1 million (31 March 2014: US$180.3 million). Goa mining The Ministry of Environment and Forests revoked its earlier order which had kept the environment clearances for iron ore mines in Goa in abeyance. The State Government has issued a mining policy and has lifted the ban on iron ore mining in Goa. We have been allocated with an interim annual mining quantity of 5.5mt (out of the total cap of 20mt for FY2015) of saleable ore which is expected to progressively increase in coming years. The State Government of Goa, has renewed the mining leases and Vedanta expects to start mining activities at iron ore mines at Goa in the second half of fiscal 2016, after receipt of all other regulatory clearances. The carrying value of assets affected as at 31 March 2015 is US$736.3 million (31 March 2014: US$709.9 million). Management has reviewed the carrying value of the assets as at the balance sheet date, estimated the recoverable amounts of these assets and concluded that there was no impairment as the recoverable amount (estimated based on fair value less costs of disposal) exceeded the carrying amounts. (viii) Assessment of Impairment at Western Cluster Limited (WCL) The Project in Liberia is at the exploratory stage and the Group has considered the suspension of exploration in Liberia due to the Ebola epidemic and falling iron ore prices as an indication for impairment. The Group expects to start mining activities at iron ore mines in Liberia during fiscal 2020, after receipt of all regulatory clearances and approval of mining leases. Hence, the Group has reviewed the carrying value of its property, plant and equipment at WCL as at balance sheet date, estimated the recoverable amounts of these assets and concluded that there was no impairment because the recoverable amount (estimated based on fair value less costs of disposal) exceeded the carrying amounts. The carrying value of assets as at 31 March 2015 is US$224.8 million. (ix) Assessment of Impairment at Konkola Copper Mines (KCM) The KCM operations in Zambia have experienced operational challenges, a more challenging price environment, combined with rising electricity costs and increases in mining royalties. Due to these factors, the Group has reviewed the carrying value of its property, plant and equipment at KCM as at the balance sheet date, estimated the recoverable amounts of the assets and concluded that other than the specific assets identified and disclosed in Note 5, there was no impairment because the recoverable amount (estimated based on fair value less costs of disposal) exceeded the carrying amounts. The carrying value of assets as at 31 March 2015 is US$2,010.3 million. (x) Restoration, rehabilitation and environmental costs Provision is made for costs associated with restoration and rehabilitation of mining sites as soon as the obligation to incur such costs arises. Such restoration and closure costs are typical of extractive industries and they are normally incurred at the end of the life of the mine. The costs are estimated on the basis of closure plans and the estimated discounted costs of dismantling and removing these facilities and the costs of restoration are capitalised as soon as the obligation to incur such costs arises. A corresponding provision is created on the liability side. The capitalised asset is charged to the income statement over the life of the operation through the depreciation of the asset and the provision is increased each period via unwinding the discount on the provision. Management estimates are based on local legislation and/or other agreements. The actual costs and cash outflows may differ from estimates because of changes in laws and regulations, changes in prices, analysis of site conditions and changes in restoration technology. (xi) Provisions and liabilities Provisions and liabilities are recognised in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events that can be reasonably estimated. The timing of recognition requires the application of judgement to existing facts and circumstances which may be subject to change especially when taken in the context of the legal environment in India. The actual cash outflows may take place over many years in the future and hence the carrying amounts of provisions and liabilities are regularly reviewed and adjusted to take into account the changing circumstances and other factors that influence the provisions and liabilities. Vedanta Resources plc Annual report and accounts FY2015 147 2(b) Critical accounting judgement and estimation uncertainty continued (xii) Contingencies and commitments In the normal course of business, contingent liabilities may arise from litigation, taxation and other claims against the Group. Where it is management’s assessment that the outcome cannot be reliably quantified or is uncertain the claims are disclosed as contingent liabilities unless the likelihood of an adverse outcome is remote. Such liabilities are disclosed in the notes but are not provided for in the financial statements. While considering the possible, probable and remote analysis of taxation, legal and other claims, there is always a certain degree of judgement involved pertaining to the application of the legislation which in certain cases is supported by views of tax experts and/or earlier precedents in similar matters. Although there can be no assurance regarding the final outcome of the legal proceedings, the Group does not expect them to have a materially adverse impact on the Group’s financial position or profitability. These are set out in Note 38 and Note 42. (xiii) The HZL and BALCO call options The Group had exercised its call option to acquire the remaining 49% interest in BALCO and 29.5% interest in HZL. The Government of India has however, contested the validity of the options and disputed their valuation performed in terms of the relevant agreements the details of which are set out in Note 39. In view of the lack of resolution on the options, the non-response to the exercise and valuation request from the Government of India, the resultant uncertainty surrounding the potential transaction and the valuation of the consideration payable, the Group considers the strike price of the options to be at fair value, accordingly, the value of the option would be nil, and hence, the call options have not been recognised in the financial statements. 3. Segment information The Group is a diversified natural resources group engaged in exploring, extracting and processing minerals and oil & gas. We produce zinc, lead, silver, copper, aluminium, iron ore, oil & gas and commercial power and have presence across India, Zambia, South Africa, Namibia, Ireland, Australia, Liberia, UAE and Sri Lanka. The Group is also in the business of port operations in India. The Group’s reportable segments defined in accordance with IFRS 8 are as follows: • Zinc-India • Zinc-International • Oil & Gas • Iron Ore • Copper-India/Australia • Copper-Zambia • Aluminium • Power The components not meeting the quantitative threshold for reporting are being reported as ‘Others’. Management monitors the operating results of reportable segments for the purpose of making decisions about resources to be allocated and for assessing performance. Segment performance is evaluated based on the EBITDA of each segment. Business segment financial data includes certain corporate costs, which have been allocated on an appropriate basis. Inter-segment sales are charged based on prevailing market prices. The following tables present revenue and profit information and certain asset and liability information regarding the Group’s reportable segments for the year ended 31 March 2015 and 31 March 2014. Items after operating profit are not allocated by segment. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 148 Financial statements Notes to the Financial Statements continued 3. Segment information continued (a) Reportable segments Year ended 31 March 2015 (US$ million) REVENUE Sales to external customers Inter-segment sales3 Zinc-India Zinc- International Oil & Gas Iron Ore Copper- India/ Australia Copper- Zambia Aluminium Power Total reportable segment Elimination/ Others Total operations 2,357.0 – 586.9 – 2,397.5 – 311.4 3,682.7 18.0 15.1 883.5 193.6 2,078.1 3.8 552.8 12,849.9 349.6 119.1 28.8 (349.6) 12,878.7 – Segment revenue 2,357.0 586.9 2,397.5 326.5 3,700.7 1,077.1 2,081.9 671.9 13,199.5 (320.8) 12,878.7 Segment result EBITDA1 Depreciation and amortisation2 Special items (Note 5) Operating profit Investment revenue Finance costs Other gains and (losses) [net] LOSS BEFORE TAXATION Segments assets Unallocated assets TOTAL ASSETS Segment liabilities Unallocated liabilities TOTAL LIABILITIES Other segment information Additions to property, plant and equipment Depreciation and amortisation Impairment losses (Note 5) 1,192.5 180.8 1,476.8 31.4 281.0 (3.8) 415.5 153.8 3,728.0 13.2 3,741.2 7,356.8 694.1 12,948.8 1,924.3 1,357.8 2,387.1 6,653.8 3,235.5 36,558.2 58.4 (2,005.7) (6,744.2) (5,008.7) 832.6 (1,387.2) (76.9) (5,640.2) 36,616.6 372.3 36,988.9 (277.9) (253.0) (3,105.7) (1,329.8) (1,286.6) (1,474.2) (5,220.2) (2,339.9) (15,287.3) (113.9) (15,401.2) (9,330.3) (24,731.5) 217.7 34.4 1,079.6 42.1 29.7 58.2 148.9 140.3 1,750.9 1.1 1,752.0 (133.2) (111.1) (1,270.3) (42.3) (51.6) (187.2) (140.2) (65.8) (2,001.7) (4.0) (2,005.7) – – (6,642.1) – – (52.3) – – (6,694.4) – (6,694.4) 1 EBITDA is a non-IFRS measure and represents operating profit before special items, depreciation and amortisation. 2 Depreciation and amortisation is also provided to the chief operating decision maker on a regular basis. 3 Transfer prices between operating segment sales are on an arm’s length basis in a manner similar to transactions with third parties except sales from power segment amounting to US$83.8 million for the year ended 31 March 2015 (March 2014: US$36.6 million), which is at cost, within the same legal entity. Vedanta Resources plc Annual report and accounts FY2015 149 3. Segment information continued Year ended 31 March 2014 (US$ million) REVENUE Sales to external customers Inter-segment sales Zinc-India Zinc- International Oil & Gas Iron Ore Copper- India/ Australia Copper- Zambia Aluminium Power Total reportable segment Elimination/ Others Total operations 2,181.7 13.7 661.4 – 3,092.8 – 266.4 0.7 3,399.8 5.0 964.5 306.9 1,782.1 3.3 579.4 12,928.1 371.9 42.3 16.9 (371.9) 12,945.0 – Segment revenue 2,195.4 661.4 3,092.8 267.1 3,404.8 1,271.4 1,785.4 621.7 13,300.0 (355.0) 12,945.0 Segment Result EBITDA Depreciation and amortisation Special items (Note 5) Operating profit Investment revenue Finance costs Other gains and (losses) [net] PROFIT BEFORE TAXATION Segments assets Unallocated assets TOTAL ASSETS Segment liabilities Unallocated liabilities TOTAL LIABILITIES Other segment information Additions to property, plant and equipment Depreciation and amortisation Impairment losses (Note 5) 1,145.0 213.4 2,347.0 (24.2) 197.9 156.3 287.3 168.4 4,491.1 0.1 4,491.2 6,557.8 902.2 21,094.4 2,043.6 1,642.6 2,422.8 6,976.4 3,184.3 44,824.1 104.2 (2,203.1) (138.0) 2,150.1 687.7 (1,439.8) (279.9) 1,118.1 44,928.3 446.0 45,374.3 (258.7) (310.7) (5,142.9) (1,104.2) (2,123.0) (1,458.8) (5,121.5) (2,115.9) (17,635.7) (85.2) (17,720.9) (9,678.6) (27,399.5) 345.7 44.2 649.1 43.6 56.1 150.5 165.2 289.4 1,743.8 1.5 1,745.3 (114.8) (137.3) (1,413.4) (45.8) (42.1) (171.5) (174.7) (99.1) (2,198.7) (4.4) (2,203.1) – (47.5) – – – (23.1) (11.0) – (81.6) – (81.6) (b) Geographical segmental analysis The Group’s operations are located in India, Zambia, Namibia, South Africa, Liberia, Ireland, Australia, UAE and Sri Lanka. The following table provides an analysis of the Group’s sales by country in which the customer is located, irrespective of the origin of the goods. (US$ million) India China Far East Asia Middle East Europe Africa Asia Others UK Others Total Year ended 31 March 2015 Percentage Year ended 31 March 2014 Percentage 7,872.0 1,314.2 1,168.4 1,143.7 643.3 192.3 118.9 2.2 423.7 61.1% 10.2% 9.1% 8.9% 5.0% 1.5% 0.9% 0.0% 3.3% 8,234.1 1,742.0 1,003.2 724.2 537.0 213.0 83.8 19.1 388.6 63.6% 13.5% 7.7% 5.6% 4.1% 1.6% 0.6% 0.1% 3.0% 12,878.7 100.0% 12,945.0 100.0% Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 150 Financial statements Notes to the Financial Statements continued 3. Segment information continued The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment, analysed by the country in which the assets are located. No material non-current assets are located in the United Kingdom and no significant additions to property, plant and equipment have been made there. (US$ million) Australia India Zambia Namibia Ireland South Africa Sri Lanka Other Total Carrying amount of non-current assets1 Additions to property, plant and equipment As at 31 March 2015 As at 31 March 2014 Year ended 31 March 2015 Year ended 31 March 2014 13.4 20,996.2 1,905.4 128.5 37.7 335.9 – 213.6 24.3 27,548.7 2,091.7 204.6 69.7 375.2 787.6 200.7 3.8 1,635.7 58.2 21.5 12.7 5.9 2.7 11.5 8.1 1,497.7 150.9 13.4 19.6 27.5 – 28.1 23,630.7 31,302.5 1,752.0 1,745.3 1 Non-current assets do not include deferred tax assets, non-current tax assets and derivative receivables. Information about major customer Included in revenue from the Oil & Gas segment are revenues of US$1,393.2 million (US$1,742.6 million year ended 31 March 2014), which arose from sales to the Group’s largest customer. No other customer contributed 10% or more to the Group’s revenue during the year ended 31 March 2015. 4. Total revenue (US$ million) Revenue from sales of goods Other operating income Investment revenue Total 5. Special items Year ended 31 March 2015 Year ended 31 March 2014 12,878.7 104.0 832.6 12,945.0 84.0 687.7 13,815.3 13,716.7 Year ended 31 March 2015 Year ended 31 March 2014 (US$ million) Impairment of oil & gas assets1a Impairment of mining reserves and assets1b Total impairment charge Voluntary retirement schemes (redundancy costs)2 Provision for receivables3 Provision for investment in coal blocks4 Acquisition & restructuring related costs5 Land regularisation fee6 Provision for contractor dispute7 Special tax item8 Tax effect of special items/ special tax items 2,138.0 – 2,138.0 12.5 1.8 – – – 52.8 Special items (6,642.1) (52.3) (6,694.4) – (36.6) (5.4) 0.4 – (8.2) – Special items after tax Special items Tax effect of special items Special items after tax (4,504.1) (52.3) (4,556.4) – (24.1) (3.6) 0.4 – (8.2) 52.8 – (81.6) (81.6) (15.1) – – (2.6) (16.6) (22.1) – – 17.8 17.8 5.1 – – – – 6.5 – 29.4 – (63.8) (63.8) (10.0) – – (2.6) (16.6) (15.6) – (108.6) Special items (6,744.2) 2,205.1 (4,539.1) (138.0) Vedanta Resources plc Annual report and accounts FY2015 151 5. Special items continued 1 Impairment charge During the year ended 31 March 2015, the Group has recognised: a) Impairment charge on its oil & gas assets of US$6,642.1 million mainly relating to the Rajasthan block and Sri Lanka block, triggered by the significant fall in crude oil prices. Of this charge, US$2,162.1 million has been recorded against oil & gas properties and US$4,480.0 million against exploratory and evaluation assets. The valuation remains sensitive to price and further deterioration in long-term prices may result in additional impairment. For oil & gas properties, CGUs identified are on the basis of a PSC (Production Sharing Contract) level as it is the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. The recoverable amount of the CGU, US$5,825.5 million, was determined based on the fair value less costs of disposal approach, a level-3 valuation technique in the fair value hierarchy, as it more accurately reflect the recoverable amount based on our view of the assumptions that would be used by a market participant. This is based on the cash flows expected to be generated by the projected oil or natural gas production profiles up to the expected dates of cessation of production sharing contract (PSC)/cessation of production from each producing field based on current estimates of reserves and risked resources. Reserves assumptions for fair value less costs of disposal discounted cash flow tests consider all reserves that a market participant would consider when valuing the asset, which are usually broader in scope than the reserves used in a value-in-use test. Discounted cash flow analysis, used to calculate fair value less costs of disposal uses assumption for short-term (five years) oil price and the long-term nominal price of US$84 per barrel derived from a consensus of various analyst recommendations. Thereafter, these have been inflated at a rate of 2.5%. The cash flows are discounted using the post-tax nominal discount rate of 10.32% derived from the Group’s post-tax weighted average cost of capital. The impairment loss relates to the ‘Oil & Gas’ business reportable segments, however this has been shown as special items and does not form part of the segment result for the purpose of segment reporting. The impairment charge of US$4,480.0 million of exploratory and evaluation assets also includes a US$788.1 million impairment charge relating to exploratory wells in Sri Lanka, as the development of hydrocarbons in the said block is not commercially viable at the current prices. b) US$52.3 million impairment charge relating to underground assets in Nchanga in Konkola Copper Mines Plc on account suspension of operations and the fall in copper prices. Of this charge, US$47.2 million has been recorded against mining property and leases and US$5.1 million against plant and equipment. Impairment for the year ended 31 March 2014 includes: • US$47.5 million, impairment of mining reserve and Land assets at Lisheen. This is as a result of fall in the forecasted LME prices of Zinc and Lead. • US$11.0 million, impairment of mining assets of Jharsuguda Aluminium at Lanjigarh as the MOEF has rejected the Stage II forest clearance for the Niyamgiri mining project. • US$23.1 million, impairment of COP F&D mining assets of KCM at Nchanga, Zambia as the mine has been put under maintenance following a dispute with the mining contractor. 2 During the year ended 31 March 2014, voluntary retirement schemes were considered by management to be a one off in nature and therefore classified as special items. Following management’s review, non-material voluntary retirement scheme costs incurred during the year have been deemed as operational costs not classified as special items. 3 In respect of iron ore mining at Goa, the Supreme Court has ruled that, out of the sale proceeds of inventory of excavated ore lying unsold, the leaseholder would be paid only the average cost of excavation. However, the carrying value includes the amortisation based on the fair value of mining reserves determined at the time of acquisition. Consequently, the excess of the carrying value of receivables over the net realisable value has been written off. 4 Relates to the provision recognised in respect of expenditure incurred on cancelled coal blocks allotted to Company’s subsidiaries, pursuant to the order of the Supreme Court of India. 5 Acquisition related costs include costs of Group simplification and restructuring and other acquisition related costs. 6 Payments made pursuant to amendment during the year ended 31 March 2014 under the Land Revenue Code for regulating mining dumps at Goa. 7 Relates to a provision recognised following a dispute with a mining contractor at KCM Zambia. 8 As a result of amendments to the Zambian Mining Tax regime, effective from 1 January 2015, the tax rate on mining operations (excluding ‘mineral processing’ activities) was reduced from 30% to 0%. The deferred tax liability in relation to mining operations was therefore reversed in the period, resulting in a credit to the income statement of US$52.8 million. An announcement from the Zambian cabinet on 20 April 2015 stated that further amendments will be made to the Zambian Mining Tax regime, effective from 1 July 2015. The changes will include reinstating the tax rate on mining operations from 0% to 30%, and increasing the tax rate on mineral processing to 35%. These rates were not enacted as at 31 March 2015 and therefore have not been used to measure deferred tax balances at 31 March 2015. Further guidance is being sought from the Government to determine the impact of the proposed amendment. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 152 Financial statements Notes to the Financial Statements continued 6. Investment revenue (US$ million) Interest income on loans and receivables Interest income on cash and bank balances Change in fair value of financial assets held for trading Profit on disposal of financial assets held for trading Dividend income on financial assets held for trading Foreign exchange gain on cash and liquid investments Capitalisation of interest income 7. Finance costs (US$ million) Interest on loans, overdrafts and bonds (a) Coupon interest on convertible bonds (Note 28) Accretive interest on convertible bonds (Note 28) Total interest charge on convertible bonds (b) Other borrowing and finance costs (c) Total interest cost (a+b+c) Unwinding of discount on provisions (Note 30) Net interest on defined benefit arrangements (Note 33) Capitalisation of borrowing costs (Note 17)2 Year ended 31 March 2015 Year ended 31 March 2014 29.3 139.9 250.8 406.1 0.3 6.2 – 832.6 31.3 202.3 383.5 65.1 0.9 4.8 (0.2) 687.7 Year ended 31 March 2015 Year ended 31 March 20141 1,116.8 86.8 76.6 163.4 194.1 1,115.2 108.7 187.2 295.9 83.5 1,474.3 1,494.6 36.8 9.2 (133.1) 21.8 6.8 (83.4) 1,387.2 1,439.8 1 Restated refer Note 1. 2 All borrowing costs are capitalised using rates based on specific borrowings with the interests ranging between 1.9% to 12.2% per annum except in the Aluminium segment where general borrowing costs were capitalised at a rate of 9.0% per annum. 8. Other gains and (losses) [net] (US$ million) Gross foreign exchange gains and losses Qualifying exchange losses capitalised (Note 17) Net foreign exchange gains and losses Change in fair value of financial liabilities measured at fair value Change in fair value of embedded derivative on convertible bonds (Note 28) Net (loss)/gain arising on qualifying hedges and non-qualifying hedges 1 Restated refer Note 1. Year ended 31 March 2015 Year ended 31 March 20141 (80.8) 14.4 (66.4) (1.1) – (9.4) (76.9) (360.3) 73.0 (287.3) (1.1) 4.7 3.8 (279.9) Vedanta Resources plc Annual report and accounts FY2015 153 9. Profit for the year has been stated after charging/(crediting): (US$ million) Depreciation & amortisation Costs of inventories recognised as an expense Auditor’s remuneration for audit services Research and development Loss on disposal of property, plant and equipment Provision for receivables Impairment of mining reserves and assets Impairment of oil & gas assets Staff costs Foreign exchange gains and losses1 Year ended 31 March 2015 Year ended 31 March 2014 2,005.7 3,905.0 2.4 0.8 4.6 80.4 52.3 6,642.1 812.8 82.8 2,203.1 4,014.2 2.4 0.5 4.4 35.5 81.6 – 801.6 305.7 1 Includes foreign exchange losses on non-operational monetary items of US$66.4 million (31 March 2014: US$287.3 million), and on operational monetary items of US$22.6 million (31 March 2014: US$23.2 million). It also includes Foreign exchange gain on cash and liquid investments of US$6.2 million (31 March 2014: US$4.8 million). 10. Auditor’s remuneration The table below shows the fees payable globally to the Company’s auditor, Deloitte LLP, for statutory external audit and audit related services, as well as fees paid to other accountancy firms for statutory external audit and audit related services in each of the two years ended 31 March: (US$ million) Fees payable to the Company’s auditor for the audit of Vedanta Resources plc annual accounts The audit of the Company’s subsidiaries pursuant to legislation Total audit fees Fees payable to the Company’s auditor and their associates for other services to the Group Other services pursuant to legislation1 Tax services2 Corporate finance services3 Other services4 Total non-audit fees Total fees paid to the Company’s auditor Audit fees payable to other auditors of the Group’s subsidiaries Non-audit fees payable to other auditors of the Group’s subsidiaries Total fees paid to other auditors Year ended 31 March 2015 Year ended 31 March 2014 0.9 1.6 2.5 1.4 0.4 0.5 0.2 2.5 5.0 0.4 0.1 0.5 0.8 1.6 2.4 1.3 0.5 0.6 0.4 2.8 5.2 0.5 0.1 0.6 1 Other services pursuant to legislation principally comprise assurance services, being quarterly reviews of the Group’s subsidiaries results and the half year review of the Group’s results. 2 Tax services principally comprise certification and assurance services as required by Indian tax regulations. 3 Corporate finance services principally comprise Group simplification and other acquisition related certifications. These assurance-related services are ordinarily provided by the auditor. 4 Includes certification related services. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 154 Financial statements Notes to the Financial Statements continued 11. Employee numbers and costs Average number of persons employed by the Group in the year Class of business Zinc – India – International Iron ore Copper – India/Australia – Zambia Aluminium Power Oil & gas Other Costs incurred during the year in respect of employees and Executive Directors (US$ million) Salaries and wages Defined contribution pension scheme costs (Note 33) Defined benefit pension scheme costs (Note 33) Share-based payments charge 12. Tax (US$ million) Current tax: UK Corporation tax Foreign tax – India – Zambia – Australia – Africa and Europe – Other Deferred tax: (Note 31) Deferred tax impact on impairment on Oil & Gas assets (Note 5) Deferred tax reversal due to change in tax regime at Zambia (Note 5) Deferred tax others Net tax (credit)/charge1 Effective tax rate Year ended 31 March 2015 Year ended 31 March 2014 7,428 5,439 1,989 3,465 8,710 1,185 7,525 5,932 358 1,684 140 7,681 5,797 1,884 3,708 9,142 1,268 7,874 6,404 349 1,734 136 27,717 29,154 Year ended 31 March 2015 Year ended 31 March 2014 733.8 30.7 19.7 28.6 812.8 726.3 25.7 16.7 32.9 801.6 Year ended 31 March 2015 Year ended 31 March 2014 (19.3) 19.3 562.7 1.0 (0.1) 22.1 4.4 494.4 – (0.8) 37.7 3.7 570.8 554.3 (2,138.0) (52.8) (232.5) – – (425.6) (2,423.3) (425.6) (1,852.5) 32.8% 128.7 11.5% 1 Includes tax credit on special items and tax credit – special items of US$2,205.1 million during the year ended 31 March 2015 (31 March 2014: US$29.4 million). The deferred tax benefit recycled from equity to the income statement is US$6.0 million (2014: US$0.3 million). Vedanta Resources plc Annual report and accounts FY2015 155 12. Tax continued During year ended 31 March 2014, consequent to Group restructuring (Note 45), the income tax returns of the Indian subsidiaries subject to the merger were refiled on a combined basis as the newly amalgamated Indian subsidiary, Vedanta Limited (formerly known as Sesa Sterlite Limited). The effective date of the merger was 1 January 2011 and refiling the tax returns from this date resulted in a lower tax liability through offsetting previously unutilised losses which arose in some merged entities in these years against taxable profits which arose in other merged entities. This resulted in a reversal of the current tax provision of US$257 million partially offset by the related net reversal of deferred tax assets of US$81.1 million. Since this was not directly related to the equity restructuring, the net tax credit of US$175.9 million was recognised in the income statement. Tax expense Tax effect of Special items (Note 5) Special tax item – deferred tax reversal due to a change in the tax regime in Zambia (Note 5) Net tax credit – special items Tax expense – others Net tax (credit)/expense Deferred tax recognised in the income statement: (US$ million) Accelerated capital allowances (including fair value adjustments) Unutilised tax losses Other temporary differences Year ended 31 March 2015 Year ended 31 March 2014 (2,152.3) (52.8) (2,205.1) 352.6 (29.4) – (29.4) 158.1 (1,852.5) 128.7 Year ended 31 March 2015 Year ended 31 March 2014 (2,634.1) 203.4 7.4 (463.1) 517.1 371.6 (2,423.3) 425.6 No deferred tax has been recognised in respect of temporary differences associated with investments in subsidiaries where the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate amount of temporary differences associated with such investments in subsidiaries is represented by the contribution of those investments to the Group’s retained earnings and amounted to US$5,768.3 million (2014: US$6,662.7 million). A reconciliation of income tax expense applicable to accounting profit before tax at the Indian statutory income tax rate to income tax expense at the Group’s effective income tax rate for the year ended 31 March 2015 is as follows: (US$ million) Accounting (loss)/profit before tax At Indian statutory income tax rate of 33.99% (2014: 33.99%) Unrecognised tax losses Disallowable expenses/other permanent differences Dividend distribution tax Non-taxable income Impact of tax rate difference Impact of increase in income tax surcharge1 Impact of change in tax regime (Note 5) Tax holiday and similar exemptions Minimum alternative tax Adjustments in respect of previous years Vedanta Limited merger impact2 At effective income tax rate of 32.8% (2014: 11.5%) Year ended 31 March 2015 Year ended 31 March 2014 (5,640.2) 1,118.1 (1,917.1) 107.6 86.5 68.1 (73.0) 118.8 – (52.8) (238.8) – 48.2 – 380.0 110.6 69.0 64.4 (63.0) 256.4 151.0 – (642.0) (31.3) 9.5 (175.9) (1,852.5) 128.7 1 The deferred tax liability arising in respect of the fair values uplift of Cairn India increased due to an increase in the surcharge payable by Indian companies from 5% to 10%. 2 Relates to a reversal of the current tax provision of US$257 million consequent to Group restructuring (refer Note 45), partially offset by the related net reversal of deferred tax assets of US$81.1 million. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 156 Financial statements Notes to the Financial Statements continued 12. Tax continued Certain businesses of the Group within India are eligible for specified tax incentives in the form of tax exemptions. Most of such tax exemptions are relevant for the companies operating in India. These are briefly described as under: The location-based exemption In order to boost industrial and economic development in undeveloped regions, provided certain conditions are met, profits of newly established undertakings located in certain areas in India may benefit from a tax holiday. Such a tax holiday works to exempt 100% of the profits for the first five years from the commencement of the tax holiday, and 30% of profits for the subsequent five years. This deduction is available only for units established up to 31 March 2012. However, such undertaking would continue to be subject to the Minimum Alternative Tax (MAT). The Group has such types of undertakings at Haridwar and Pantnagar, which are part of Hindustan Zinc Limited (Zinc India). Sectoral benefit – power plants To encourage the establishment of certain power plants, provided certain conditions are met, tax incentives exist to exempt 100% of profits and gains for any 10 consecutive years within the 15-year period following commencement of the power plant’s operation. The Group currently has total operational capacity of 5,039MW of thermal based power generation facilities and wind power capacity of 273MW. However, such undertakings generating power would continue to be subject to the MAT provisions. The Group has power plants which benefit from such deductions, at the various locations of Hindustan Zinc Limited and Bharat Aluminium Company Limited (where such benefits have been drawn) and Vedanta Limited (where no benefits have been drawn). Sectoral benefit – oil & gas Provided certain conditions are met, profits of newly constructed industrial undertakings engaged in the oil & gas sector may benefit from a deduction of 100% of the profits of the undertaking for a period of seven consecutive years. This deduction is only available to blocks licensed prior to 31 March 2011. However, such businesses would continue to be subject to the MAT provisions. In the Group, Cairn India Limited benefits from such deductions. In addition, the subsidiaries incorporated in Mauritius are eligible for tax credit to the extent of 80% of the applicable tax rate on foreign source income. The total effect of such tax holidays and exemptions was US$238.8 million for the year ended 31 March 2015 (31 March 2014: US$642.0 million). 13. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. 24,206,816 treasury shares are excluded from the total outstanding shares for the calculation of EPS. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options and the Group’s convertible bonds). The following reflects the income and share data used in the basic and diluted earnings per share computations: (US$ million) Net loss attributable to equity holders of the parent (US$ million except as stated) Weighted average number of ordinary shares for basic earnings per share (million) Effect of dilution: Share options Adjusted weighted average number of ordinary shares for diluted earnings per share Year ended 31 March 2015 Year ended 31 March 2014 (1,798.6) (196.0) Year ended 31 March 2015 Year ended 31 March 2014 274.8 273.5 4.0 8.0 278.8 281.5 Vedanta Resources plc Annual report and accounts FY2015 157 13. Earnings per share Loss per share based on loss for the year Basic loss per share on loss for the year (US$ million except as stated) Loss for the year attributable to equity holders of the parent (US$ million) Weighted average number of shares of the Company in issue (million) Loss per share on loss for the year (US cents per share) Diluted loss per share on loss for the year (US$ million except as stated) Loss for the year attributable to equity holders of the parent (US$ million) Loss for the year after dilutive adjustment (US$ million) Adjusted weighted average number of shares of the Company in issue (million) Diluted loss per share on loss for the year (US cents per share) Year ended 31 March 2015 Year ended 31 March 2014 (1,798.6) 274.8 (654.5) (196.0) 273.5 (71.7) Year ended 31 March 2015 Year ended 31 March 2014 (1,798.6) (196.0) (1,798.6) (196.0) 274.8 (654.5) 273.5 (71.7) The effect of 4 million (2014: 8 million) potential ordinary shares, which relate to share option awards under the LTIP scheme, on the attributable loss for the year is anti-dilutive and thus these shares are not considered in determining diluted loss per share. However, the effect of these awards on underlying attributable earnings is dilutive for the year ended 31 March 2014, and hence the potential ordinary shares are considered in determining underlying EPS below. The loss for the year would be decreased if holders of the convertible bonds in Vedanta exercised their right to convert their bond holdings into Vedanta equity. The impact on loss for the year of this conversion would be the reduction in interest payable on the convertible bond. The adjustment in respect of convertible bonds has an anti-dilutive impact on earnings and is thus not considered in determining diluted EPS. Earnings/(loss) per share based on underlying profit/(loss) for the year (non-GAAP) Underlying earnings is an alternative earnings measure, which the management considers to be a useful additional measure of the Group’s performance. The Group’s underlying profit/(loss) is the profit/(loss) for the year after adding back special items, other losses/(gains) net (Note 8) and their resultant tax (including taxes classified as special items) and non-controlling interest effects. This is a non-GAAP measure. (US$ million) Loss for the year attributable to equity holders of the parent Special items Other losses/(gains) net Tax and non-controlling interest effect of special items (including taxes classified as special items) and other losses/(gains) Underlying attributable (loss)/profit for the year Basic (loss)/earnings per share on Underlying (loss)/profit for the year (non-GAAP) (US$ million except as stated) Underlying (loss)/profit for the year (US$ million) Weighted average number of shares of the Company in issue (million) (Loss)/earnings per share on underlying (loss)/profit for the year (US cents per share) Note 5 Year ended 31 March 2015 Year ended 31 March 2014 (1,798.6) 6,744.2 76.9 (196.0) 138.0 279.9 (5,061.4) (181.7) (38.9) 40.2 Year ended 31 March 2015 Year ended 31 March 2014 (38.9) 274.8 (14.2) 40.2 273.5 14.7 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 158 Financial statements Notes to the Financial Statements continued 13. Earnings per share continued Diluted (loss)/earnings per share on underlying (loss)/profit for the year (non-GAAP) (US$ million except as stated) Underlying (loss)/profit for the year (US$ million) Adjusted weighted average number of shares of the Company (million) Diluted (loss)/earnings per share on underlying (loss)/profit for the year (US cents per share) 14. Dividends (US$ million) Amounts recognised as distributions to equity holders: Equity dividends on ordinary shares: Final dividend for 2013–14: 39.0 US cents per share (2012–13: 37.0 US cents per share) Interim dividend paid during the year: 23.0 US cents per share (2013–14: 22.0 US cents per share) Proposed for approval at AGM Equity dividends on ordinary shares: Final dividend for 2014–15: 40 US cents per share (2013–14: 39 US cents per share) 15. Goodwill (US$ million) Cost (gross carrying amount) Accumulated impairment losses Net carrying amount at 31 March Year ended 31 March 2015 Year ended 31 March 2014 (38.9) 274.8 (14.2) 40.2 281.5 14.3 Year ended 31 March 2015 Year ended 31 March 2014 107.5 63.8 171.3 101.8 60.7 162.5 110.8 107.5 Year ended 31 March 2015 Year ended 31 March 2014 16.6 – 16.6 16.6 – 16.6 Goodwill is allocated for impairment testing purposes to the following Cash Generating Units (CGUs). The allocation of goodwill to CGUs is as follows: • US$12.2 million Copper India. • US$4.4 million arising on acquisition of Goa Energy Limited. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The Company has undertaken an impairment review of goodwill of US$16.6 million as at 31 March 2015. The carrying amount of goodwill allocated to the relevant cash generating unit is considered to be insignificant in comparison with the total carrying value of the cash generating unit. The carrying amount of goodwill was evaluated using the higher of fair value less cost of disposal (FVLCD) or value in use based on discounted future cash flows of the entities to which the goodwill pertains and comparing this to the total carrying value of the relevant cash generating units. It was determined that the carrying amount of goodwill is not impaired. Vedanta Resources plc Annual report and accounts FY2015 159 16. Intangible assets Intangible assets include Port concession rights to operate a general cargo berth for handling coal at the outer harbour of the Visakhapatnam port on the east coast of India, rights to use treated water from a sewage treatment plant at Zinc India operations and software licences. (US$ million) Cost As at 1 April 2013 Addition Transfer from tangible assets Foreign exchange differences As at 1 April 2014 Addition Foreign exchange differences As at 31 March 2015 Accumulated amortisation As at 1 April 2013 Charge for the year Foreign exchange differences As at 1 April 2014 Charge for the year Foreign exchange differences As at 31 March 2015 Net book value As at 1 April 2013 As at 1 April 2014 As at 31 March 2015 Port concession rights1 Others2 Total – 1.1 98.1 0.7 99.9 0.8 (4.0) 96.7 – 3.5 – 3.5 3.6 0.2 7.3 – 8.3 8.0 (1.5) 14.8 4.7 (0.9) 18.6 – 3.0 (0.4) 2.6 3.9 (0.4) 6.1 – 9.4 106.1 (0.8) 114.7 5.5 (4.9) 115.3 – 6.5 (0.4) 6.1 7.5 (0.2) 13.4 – 96.4 89.4 – 12.2 12.5 – 108.6 101.9 1 Vizag General Cargo Berth Private Limited (VGCB), a special purpose vehicle, was incorporated for the coal berth mechanisation and upgrades at Visakhapatnam port. VGCB is owned by Vedanta Limited and Leighton Welspun Contractors Private Limited in the ratio of 99.99 : 0.01 as on 31 March 2015 (74:26 as on 31 March 2014). The project is to be carried out on a design, build, finance, operate, transfer basis and the concession agreement between Visakhapatnam Port and VGCB was signed in June 2010. In October 2010, VGCB was awarded with the concession after fulfilling conditions stipulated as a precedent to the concession agreement. Visakhapatnam Port has provided, in lieu of a license fee, an exclusive license to VGCB for designing, engineering, financing, constructing, equipping, operating, maintaining, and replacing the project/project facilities and services. The concession period is 30 years from the date of the award of the concession. The capacity of the upgraded berth would be 10.18mmtpa and that the Visakhapatnam Port would be entitled to receive a 38.10% share of the gross revenue as royalty. VGCB is entitled to recover a tariff from the user(s) of the project facilities and services as per its tariff notification. The tariff rates are linked to the Wholesale Price Index (WPI) and would accordingly be adjusted as specified in the concession agreement every year. The ownership of all infrastructure assets, buildings, structures, berths, wharfs, equipment and other immovable and movable assets constructed, installed, located, created or provided by VGCB at the project site and/or in the port’s assets pursuant to a concession agreement would be with VGCB until expiry of this concession agreement. The cost of any repair, replacement or restoration of the project facilities and services shall be borne by VGCB during the concession period. VGCB has to transfer all its rights, titles and interest in the project facilities and services free of cost to Visakhapatnam Port at the end of the concession period 2 Others include right to use of sewage treatment plant at Zinc-India which is amortised over 25 years. The carrying value was US$7.7 million as on 31 March 2015. It also includes Software licences which are amortised over a period of three years. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 160 Financial statements Notes to the Financial Statements continued 17. Property, plant and equipment (US$ million) Cost At 1 April 2013 Additions Transfers Transfers to intangible Reclassification from accumulated depreciation Unsuccessful exploration costs Disposals Foreign exchange differences At 1 April 2014 Additions Transfers Unsuccessful exploration costs Disposals Foreign exchange differences Mining property and leases Leasehold land and buildings Freehold land and buildings Plant and equipment1 Assets under construction Oil & Gas properties Exploratory and evaluation assets 3,192.7 49.9 50.7 – 133.8 – (7.4) (245.3) 3,174.4 25.8 66.0 – (7.2) (133.3) 146.5 15.7 3.1 – – – (0.7) (4.1) 160.5 11.1 – – (0.7) (2.4) 1,158.9 133.0 2.1 – (2.4) – (12.6) (104.7) 1,174.3 44.2 134.7 – (0.3) (62.5) 10,663.9 272.6 205.3 (8.0) (202.6) – (251.4) (745.3) 9,934.5 212.3 996.5 – (37.4) (390.8) 6,661.2 581.0 (270.8) (98.0) – – (2.7) (613.2) 6,257.5 372.8 (1,291.4) – (0.6) (226.3) 7,849.9 387.1 – – 10,054.5 253.0 – – – – – – – (10.8) – (22.9) 8,237.0 865.0 533.7 – – – 10,273.8 204.2 (439.7) (128.7) – (1.9) Others Total 98.3 53.0 9.6 – (1.1) – (0.9) (4.3) 154.6 16.6 0.2 – (0.3) (24.0) 39,825.9 1745.3 – (106.0) (72.3) (10.8) (275.7) (1,739.8) 39,366.6 1,752.0 – (128.7) (46.5) (841.2) At 31 March 2015 3,125.7 168.5 1,290.4 10,715.1 5,112.0 9,635.7 9,907.9 147.1 40,102.2 Accumulated depreciation and impairment At 1 April 2013 Charge for the year Impairment of assets (Note 5) Disposals Reclassification Foreign exchange differences At 1 April 2014 Charge for the year Impairment of assets (Note 5) Disposal Foreign exchange differences At 31 March 2015 Net book value At 1 April 2013 At 1 April 2014 At 31 March 2015 1,474.8 162.3 66.6 (6.6) 39.3 (106.8) 1,629.6 103.6 47.2 (2.0) (82.9) 1,695.5 1,717.9 1,544.8 1,430.2 57.8 0.9 – – 0.2 (0.7) 58.2 1.8 – – (0.3) 59.7 184.2 43.4 4.0 (10.7) (6.3) (15.7) 198.9 45.9 – (0.2) (15.5) 3,164.2 580.5 – (233.7) (107.3) (199.8) 3,203.9 544.4 5.1 (23.2) (123.2) 229.1 3,607.0 17.8 – 11.0 – – – 28.8 – – – – 28.8 1,756.3 1,401.1 – – – – 3,157.4 1,258.1 2,162.1 – – 14.3 – – – – – 14.3 – 4,480.0 – (0.7) 23.9 8.4 – (0.2) 1.8 (1.9) 32.0 44.4 – (0.1) (17.4) 6,693.3 2,196.6 81.6 (251.2) (72.3) (324.9) 8,323.1 1,998.2 6,694.4 (25.5) (240.0) 6,577.6 4,493.6 58.9 16,750.2 88.7 102.3 108.8 974.7 975.4 1,061.3 7,499.7 6,730.6 7,108.1 6,643.4 6,228.7 5,083.2 6,093.6 5,079.6 3,058.1 10,040.2 10,259.5 5,414.1 74.4 122.6 88.2 33,132.6 31,043.5 23,352.0 1 Plant and equipment include refineries, smelters, power plants and related facilities. Other tangible fixed assets include office equipment and fixtures, and light vehicles. At 31 March 2015, land with a carrying value of US$125.9 million (31 March 2014: US$122.8 million) was not depreciated. 2 During the year ended 31 March 2015, interest and foreign exchange losses capitalised was US$147.5 million (31 March 2014: US$156.4 million). 3 Certain property, plant and equipment are pledged as collateral against borrowings, the details related to which have been described in Note 24 on Borrowings. Vedanta Resources plc Annual report and accounts FY2015 161 18. Financial asset investments Financial asset investments are required to be classified and accounted for as either available-for-sale or fair value through profit or loss. The Group only has financial asset investments classified as available-for-sale. Available-for-sale investments (US$ million) At 1 April Disposal Movements in fair value Exchange difference At 31 March Year ended 31 March 2015 Year ended 31 March 2014 1.7 – 2.1 0.4 4.2 20.6 (16.4) – (2.5) 1.7 Financial assets investment represents quoted investments in equity shares that present the Group with an opportunity for returns through dividend income and gains in value. These securities are held at fair value based on market prices. These are classified as non-current as on 31 March 2015. 19. Other non-current assets (US$ million) Deposits, advances and other receivables due after one year 20. Inventories (US$ million) Raw materials and consumables Work-in-progress Finished goods As at 31 March 2015 156.0 156.0 As at 31 March 2014 132.1 132.1 As at 31 March 2015 As at 31 March 2014 975.8 486.0 143.9 952.9 557.7 231.9 1,605.7 1,742.5 Inventories with a carrying amount of US$801.8 million (2014: US$879.5 million) have been pledged as security against certain bank borrowings of the Group. 21. Trade and other receivables (US$ million) Trade receivables Amounts due from related parties (Note 39) Prepayments Deposits with Governments Other receivables As at 31 March 2015 As at 31 March 2014 555.0 4.9 31.0 281.3 967.0 706.0 8.5 61.2 169.9 794.3 1,839.2 1,739.9 The credit period given to customers ranges from zero to 90 days. Other receivables primarily include excise balances, customs balances, advances to suppliers and claims receivables. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 162 Financial statements Notes to the Financial Statements continued 22. Liquid investments (US$ million) Bank deposits1 Other investments As at 31 March 2015 1,850.1 6,006.0 As at 31 March 2014 2,655.3 5,913.2 7,856.1 8,568.5 1 Includes US$29.8 million of bank deposits at Jharsuguda Aluminium that is restricted in use as it relates to security deposits as directed by the courts in relation to a relief claim filed by a vendor (Note 38). Bank deposits are made for periods of between three months and one year, depending on the cash requirements of the companies within the Group and earn interest at the respective deposit rates. Other investments include mutual fund investments which are recorded at fair value with changes in fair value reported through the income statement. Liquid investments do not qualify for recognition as cash and cash equivalents due to their maturity period and risk of change in value of the investments. 23. Cash and cash equivalents (US$ million) Cash at bank and in hand Short-term deposits1 As at 31 March 2015 211.6 142.1 353.7 As at 31 March 2014 202.8 166.6 369.4 1 Includes US$66.5 million (2014: US$88.8 million) of cash held in short-term deposit accounts that is restricted in use as it relates to unclaimed dividends, closure costs and future redundancy payments. Short-term deposits are made for periods of between one day and three months, depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. 24. Borrowings (US$ million) Bank loans Bonds Other loans Total Borrowings are repayable as: Within one year (shown as current liabilities) More than one year Total As at 31 March 2015 11,474.9 4,075.4 14.5 As at 31 March 2014 10,916.2 4,017.9 15.6 15,564.8 14,949.7 3,179.2 12,385.6 2,437.0 12,512.7 15,564.8 14,949.7 At 31 March 2015, the Group had available US$2,177.9 million (2014: US$2,370.6 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The Group facilities are subject to certain financial and non-financial covenants. During the year ended 31 March 2015, the Group has complied with all the covenants attached to the borrowing facilities, except for one facility at BALCO, where the Company expected a potential breach in Net Debt to EBITDA ratio. For this expected breach, BALCO obtained a letter from the lender in February 2015 for waiver of testing of covenants for 2014–15. The Group also obtained a permanent waiver from a lender for testing of ‘minimum consolidated net worth’ covenant for the loans availed by the Company and at THL, MCNV, VAJL and VFJL. The primary covenants which must be complied with include fixed charge cover ratio, net borrowing to EBITDA ratio, total net assets to borrowings ratio and net interest expense to EBITDA ratio. The principal loans held by Group companies at 31 March 2015 were as follows: Vedanta Resources plc Long-term bonds In July 2008, the Company issued US$500.0 million bonds bearing a coupon rate of 8.75% and US$750.0 million bonds bearing a coupon rate of 9.50%. US$500.0 million bonds due in January 2014 were duly paid. As at 31 March 2015, the amount outstanding is US$750.0 million (2014: US$750.0 million). Vedanta Resources plc Annual report and accounts FY2015 163 24. Borrowings continued In July 2011, the Company issued US$750.0 million bonds bearing a coupon rate of 6.75% and US$900.0 million bonds bearing a coupon rate of 8.25%. The same is due for repayment in June 2016 and June 2021 respectively. As at 31 March 2015, the amount outstanding is US$1,650.0 million (2014: US$1,650.0 million). In June 2013, the Company issued US$1,200 million bonds bearing a coupon rate of 6% and US$500.0 million at a coupon rate of 7.125%. The same is due for repayment in January 2019 and May 2023. As at 31 March 2015, the amount outstanding is US$1,700.0 million (2014: US$ 1,700.0 million). All the above bonds are issued in the United States of America (USA) pursuant to Rule 144A of the US Securities Act of 1933 (‘Securities Act’) and outside of the USA in compliance with Regulations pursuant to the Securities Act. The bonds are unsecured and are currently rated BB (-) by Standard & Poor’s and (-) Ba3 by Moody’s. Term loan In December 2010, the Company availed a facility from the ICICI Bank for US$180.0 million bearing an interest rate of three month GBP LIBOR plus 385 basis points. The first instalment of US$90.0 million due in December 2014 was duly repaid and the balance US$90.0 million is repayable in December 2015. As at 31 March 2015, the amount outstanding is US$90.0 million (2014: US$180.0 million). In January 2011, the Company availed a facility from the ICICI Bank for US$150.0 million bearing an interest rate of three month US$LIBOR plus 389 basis points. The same is repayable as US$75.0 million in January 2016 and the balance US$75.0 million in January 2017. As at 31 March 2015, the amount outstanding is US$150.0 million (2014: US$ 150.0 million). In July 2011, the Company availed a facility from the ICICI Bank for US$500.0 million bearing an interest rate of three month US$LIBOR plus 390 basis points. The same is repayable as US$250.0 million in January 2018 and the balance US$250.0 million in July 2018. As at 31 March 2015, the amount outstanding is US$500.0 million (2014: US$500.0 million). In March 2012, the Company availed a facility of US$300.0 million with the Standard Chartered Bank bearing an interest rate of LIBOR plus 415 basis points. The same was due for repayment in June 2015. This loan was fully prepaid in the month of May 2014. In December 2012, the Company availed a syndicated facility with the State Bank of India as an agent for US$595.0 million bearing an interest rate of three month US$LIBOR plus 440 basis points. The same is repayable in four equal instalments in February 2017, August 2017, July 2018 and January 2019. This loan was fully prepaid in September 2014. In March 2013, the Company entered into a three-year facility agreement with Deutsche Bank as an agent for an amount of US$185.0 million bearing an interest rate of US$LIBOR plus 315 basis points. The same is repayable in March 2016. As at 31 March 2015, the amount outstanding is US$185.0 million (2014: US$185.0 million). In March 2013, the Company entered into two facility agreements with the ICICI Bank for an amount of US$170.0 million and US$180.0 million. The loans bear interest rates of US$LIBOR plus 430 basis points and US$LIBOR plus 427 basis points respectively. Of the said loan, US$170.0 million is repayable in three annual instalments beginning April 2018 (the first instalment being 20% and the balance of two instalments being 40% each) and the US$180.0 million facility is repayable in three equal annual instalments beginning February 2017. As at 31 March 2015, the amount outstanding is US$350.0 million (2014: US$350.0 million). In April 2013, the Company entered into a Standby Letter of Credit agreement arranged by Axis Bank for an amount of US$150 million bearing an interest rate at three month US$LIBOR plus 290 basis points. The facility is repayable in two equal annual instalments in April 2017 and April 2018. As at 31 March 2015, the amount outstanding is US$148.5 million (2014: US$148.5 million). In October 2013, the Company entered into a syndicated facility agreement with the Standard Chartered Bank as facility agent for borrowing up to US$500 million bearing an interest rate US$LIBOR plus 357 basis points. The same is repayable as two equal instalments of US$250.0 million each in October 2017 and January 2018. As at 31 March 2015, the amount outstanding is US$500.0 million (2014: US$500.0 million). In November 2013, the Company entered into a two-year Revolving Credit Facility arranged by The Royal Bank of Scotland and Standard Chartered Bank for borrowing up to US$100 million at an interest rate US$LIBOR plus 250 basis points. The same is repayable in August 2015. As at 31 March 2015, the amount outstanding is US$100.0 million (2014: US$81.0 million). In December 2013, the Company entered into a facility agreement with the Bank of India for borrowing up to US$100 million at an interest rate US$LIBOR plus 357 basis points. The same is repayable in two equal instalments of US$50.0 million each in October 2017 and January 2018. As at 31 March 2015, the amount outstanding is US$100.0 million (2014: US$100.0 million). In March 2014, the Company entered into a US$500 million syndicated facility agreement with Axis Bank as the lead arranger. The facility bears an interest rate of US$LIBOR plus 352 basis points. The facility was fully drawn in September 2014. The same is repayable as US$100.0 million in December 2018, US$150.0 million in March 2019 and US$250.0 million in September 2019. As at 31 March 2015, the amount outstanding is US$500.0 million. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 164 Financial statements Notes to the Financial Statements continued 24. Borrowings continued In March 2015, the Company entered into a facility agreement with the State Bank of India for US$350 million. Out of said facility US$100 million (Undrawn US$75.0 million) bears an interest rate of US$LIBOR plus 370 basis points and is repayable in March 2020. Balance undrawn facility of US$250 million bears an interest rate of US$LIBOR plus 403 basis points with repayment in two instalments being US$100 million and US$150 million at the end of 72 and 84 months respectively after initial draw down. As at 31 March 2015, the amount outstanding is US$25.0 million. Twin Star Mauritius Holdings Limited (TMHL) Term loan In May 2013, the Group tied up a term loan facility of US$1,200 million borrowed by TMHL through a syndicate of banks with the Standard Chartered Bank (SCB) as facility agent to partly refinance US$2,664 million drawn to meet the funding requirements for the acquisition of a 28.5% stake in Cairn India Limited in December 2011. The facility bears an interest rate of LIBOR plus 275 basis points and is due for repayment in four equal annual instalments starting June 2015. The facility of US$2,664 million due for repayment as US$1,350.0 million in June 2013 and US$1,314.4 million in December 2014 was fully prepaid in June 2013. As at 31 March 2015, the amount outstanding is US$1,200.0 million (2014: US$1,200.0 million). In August 2014, the Group tied up a US$500 million facility with the Standard Chartered Bank and First Gulf Bank PJSC of which US$250 million is under a commodity murabaha structure (Islamic financing) and balance US$250 million is under a conventional loan structure. Out of the said facility US$287.5 million bears an interest rate of LIBOR plus 275 basis points with an average maturity of about five years from the date of first drawdown in August 2014 and balance amount of US$212.5 million bears an interest rate of LIBOR plus 340 basis points with an average maturity of about six years from the date of first drawdown in August 2014. As at 31 March 2015, the amount outstanding is US$500.0 million. Vedanta Limited Term loan Jharsuguda Aluminium has obtained a US$1,599.6 million loan from the State Bank of India (SBI) at a floating interest rate of SBI bank base rate plus 175 basis points, secured by a first priority charge by way of pledge of all present and future unencumbered and encumbered movable fixed assets for the project, a first charge by way of mortgage on all present and future immovable fixed assets for the project and second charge on the current assets of the Aluminium division of the project. During the current year, the total outstanding amount as at 31 March 2014 has been repaid. In March 2014, Jharsuguda Aluminium had availed a facility of US$287.5 million from Axis Bank at an average interest rate of bank base rate plus 25 basis points per annum. In May 2014, the said facility was further enhanced by US$32.0 million. During the year, the same has been down sell to the following banks: a) Axis Bank US$39.9 million at an average interest rate of bank base rate plus 25 basis points per annum. The facility is secured by first charge by way of mortgage/pledge of movable/immovable all present and future fixed assets of the Aluminium division for the project. The same is repayable as US$32.0 million in February 2017 and US$7.9 million in February 2018. As at 31 March 2015, the amount outstanding is US$39.9 million. b) Bank of India – US$79.9 million at an average interest rate of Bank base rate plus 25 basis points per annum. The facility is secured by first charge by way of mortgage/pledge of movable/immovable all present and future fixed assets of the Aluminium division for the project. The same is repayable as US$32.0 million in February 2017, US$32.0 million in February 2018 and US$15.9 million in February 2019. As at 31 March 2015, the amount outstanding is US$79.9 million. c) Corporation Bank – US$79.9 million at an average interest rate of bank base rate plus 25 basis points per annum. The facility is secured by first charge by way of mortgage/pledge of movable/immovable all present and future fixed assets of the Aluminium division for the project. The same is repayable as US$12.0 million in February 2017, US$27.9 million in February 2018 and US$40.0 million in February 2019. As at 31 March 2015, the amount outstanding is US$79.9 million. d) Syndicate Bank – US$79.9 million at an average interest rate of bank base rate plus 25 basis points per annum. The facility is secured by first charge by way of mortgage/pledge of movable/immovable all present and future fixed assets of the Aluminium division for the project. The same is repayable as US$12.0 million in February 2017, US$27.9 million in February 2018 and US$40.0 million in February 2019. As at 31 March 2015, the amount outstanding is US$79.9 million. e) Vijaya Bank – US$39.9 million at an average interest rate of bank base rate plus 25 basis points per annum. The facility is secured by first charge by way of mortgage/pledge of movable/immovable all present and future fixed assets of the Aluminium division for the project. The same is repayable as US$7.9 million in February 2017, US$16.0 million in February 2018 and US$16.0 million in February 2019. As at 31 March 2015, the amount outstanding is US$39.9 million. In July 2014, Jharsuguda Aluminium has availed a facility of US$798.8 million from the State Bank of India (SBI) at a floating interest rate of SBI Base rate plus 60 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2021. As at 31 March 2015, the amount outstanding is US$692.2 million. In April 2014, Jharsuguda Aluminium has availed a facility of US$319.5 million from the Bank of Baroda at a floating interest rate of bank base rate plus 25 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2020. As at 31 March 2015, the amount outstanding is US$316.3 million. Vedanta Resources plc Annual report and accounts FY2015 165 24. Borrowings continued In April 2014, Jharsuguda Aluminium has availed a facility of US$319.5 million from the Bank of India at a floating interest rate of bank base rate plus 25 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2020. As at 31 March 2015, the amount outstanding is US$304.4 million. In April 2014, Jharsuguda Aluminium availed a facility of US$79.9 million from the State Bank of Bikaner & Jaipur at a floating interest rate of bank base rate plus 25 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2020. As at 31 March 2015, the amount outstanding is US$79.1 million. In April 2014, Jharsuguda Aluminium has availed a facility of US$163.8 million from the Syndicate Bank at a floating interest rate of the bank base rate plus 25 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2020. As at 31 March 2015, the amount outstanding is US$162.1 million. In April 2014, Jharsuguda Aluminium has availed a facility of US$159.8 million from the Union Bank of India at a floating interest rate of bank base rate plus 25 basis points. The facility is secured by creating first pari passu charge by way of hypothecation of the movable fixed assets and mortgage on immovable fixed assets of the Aluminium division, both present and future. The same is repayable in quarterly instalments up to December 2020. As at 31 March 2015, the amount outstanding is US$157.4 million. In September 2013, Jharsuguda’s 2,400MW power plant has availed a facility of US$159.8 million from the Axis Bank at an interest rate of 10.50% per annum. The facility is secured by way of mortgage and charge on all the immovable properties, both present and future, of Jharsuguda’s 2,400MW power plant except IPP Agricultural Land and a second charge by way of pledge on all the movable fixed assets of the Power division. As at 31 March 2014, the amount outstanding was US$159.8 million. The same has been duly repaid in September 2014. In December 2013, Jharsuguda 2,400MW power plant has availed a facility of US$62.9 million from the Canara Bank at an interest rate of 10.2% per annum. In August 2014, this facility has further been enhanced by US$95.9 million. The facility is secured by way of mortgage and charge on all the immovable properties, both present and future, of Jharsuguda’s 2,400MW power plant except IPP Agricultural Land and a second charge by way of pledge on all the movable fixed assets of the Power division. The loan is repayable in 16 quarterly instalments from end of quarter starting after the moratorium period up to December 2018. As at 31 March 2015, the amount outstanding is US$149.8 million. Short-term loans In January 2015, Jharsuguda Aluminium availed a short-term borrowing facility in the form of export packing credit from Bank of America at an average rate of 9.50% per annum. These loans were obtained to meet the working capital requirements. The same is repayable in April 2015. As at 31 March 2015, the amount outstanding is US$32.0 million. In October 2014, Jharsuguda Aluminium availed a short-term borrowing facility in foreign currency in the form of pre shipment/export packing credit from the Bank of America at an average rate of LIBOR plus 65–70 basis points. These loans were obtained to meet the working capital requirements. The same is repayable as US$32.6 million in April 2015 and US$14.6 million in May 2015. As at 31 March 2015, the amount outstanding is US$47.2 million. Iron Ore Sesa obtained a short-term borrowing facility in foreign currency in the form of pre shipment/export packing credit from various banks at average rate of US$LIBOR plus 55 basis points. These loans were obtained to meet the working capital requirements of the Iron Ore Division. As at 31 March 2015, the amount outstanding is US$36.0 million (2014: US$48.5 million). NCDs In October 2008, Jharsuguda Aluminium has issued NCDs of US$66.6 million to the Life Insurance Corporation of India at a rate of 11.5% per annum. These NCDs are secured and have the first pari passu charge over the identified assets (including land and building) of the issuer to the extent of 1.33 times of the issued amount. These NCDs are repayable in three equal annual instalments starting October 2013. The First two instalments, due for repayment of US$22.2 million each, has been paid in October 2013 and October 2014 respectively. The balance of US$22.2 million is due for repayment in October 2015. As at 31 March 2015, the amount outstanding is US$22.2 million. In December 2012, April 2013 and July 2013, Vedanta Limited had issued NCDs in three tranches for US$79.8 million, US$191.7 million and US$399.4 million with an interest rate of 9.24%, 9.17% and 9.10% per annum respectively. Out of the total NCDs US$191.7 million are secured by way of a mortgage on the immovable property of Vedanta Limited situated at Sanaswadi in the state of Maharashtra and also by way of pledge on the movable fixed assets of Jharsuguda Aluminium division with a security cover of 1.25 times on the face value of outstanding NCDs at all times during the tenure of NCDs. The balance NCDs of US$479.3 million are secured by way of mortgage on the immovable property of Vedanta Limited situated at Sanaswadi in the state of Maharashtra and also by way of pledge on the movable fixed assets of Jharsuguda’s 2,400MW power plant with a security cover of 1.25 times on the face value of outstanding NCDs at all times during the tenure of NCDs. Of the total outstanding NCDs, US$79.8 million is repayable in December 2022, US$399.4 million in April 2023 and US$191.7 million in July 2023. The NCDs have put and call options respectively at the end of five years from the respective date of allotment. As at 31 March 2015, the amount outstanding is US$671.0 million. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 166 Financial statements Notes to the Financial Statements continued 24. Borrowings continued In October, November and December 2012, Vedanta Limited had also issued NCDs in three tranches for US$79.9 each per tranche with an interest rate of 9.24%, 9.40% and 9.40% per annum respectively. These NCDs are secured by way of a mortgage on the immovable property of Vedanta Limited situated at Sanaswadi in the state of Maharashtra and also by way of a pledge on the movable fixed assets of Jharsuguda’s 2,400MW power plant with a security cover of 1.25 times on the face value of outstanding NCDs at all times during the tenure of NCDs. Of the total outstanding NCDs, US$79.9 million is repayable in October 2022, US$79.9 million in November 2022 and US$79.9 million in December 2022. The NCDs have put and call options respectively at the end of five years from the respective date of allotment of the NCDs. As at 31 March 2015, the amount outstanding is US$239.6 million. In October 2014, Iron Ore Sesa has also issued NCDs of US$239.7 million with an interest rate of 9.36% per annum. These NCDs are secured by way of a mortgage on the immovable property of Vedanta Limited situated at Tuticorin in the State of Tamil Nadu and also by way of first ranking pari passu charge over ‘movable fixed assets’ in relation to Vedanta Limited’s Iron Ore Sesa business (pig iron & met coke assets) and Power Plant assets located in Goa and the Copper plant assets located at Tuticorin with a security cover of 1.25 times on the face value of outstanding NCDs at all times during the tenure of the NCDs. These NCDs are redeemable in two instalments as US$155.8 million in October 2017 and US$83.9 million in December 2017. As at 31 March 2015, the amount outstanding is US$239.7 million. External commercial borrowing In August 2008, Jharsuguda Aluminium obtained an External Commercial Borrowing from the ICICI Bank, Singapore of US$100.0 million at an interest rate of US$LIBOR plus 240 basis points secured by negative lien undertaking on the assets of the Jharsuguda project of Aluminium division, both present and future, excluding assets already charged in favour of ICICI Bank and other lenders. The same was repayable in August 2014. As at 31 March 2014, the amount outstanding was US$25.0 million which has been duly repaid. During the year Jharsuguda Aluminium obtained an External Commercial Borrowing from Axis Bank of US$500.0 million which has been refinanced by ICICI Bank and SCB at an interest rate of US$LIBOR plus 170 basis points (prior to refinancing at an interest rate of US$LIBOR plus 400 basis points) having a subservient charge on all present and future movable assets of Aluminium division. The repayment is to be made in three equal instalments starting from April 2015. As at 31 March 2015, the amount outstanding is US$500.0 million (2014: US$500.0 million). During the year ended 31 March 2013, a part of intercompany borrowing from Welter Trading Limited was refinanced through Axis Bank. This has been further refinanced from Standard Chartered Bank for US$44.5 million at an interest rate of US$LIBOR plus 129 basis point (prior to refinancing at an interest rate of US$LIBOR plus 360 basis points) having a subservient charge on all present and future movable assets of Jharsuguda Aluminium. The entire loan is repayable in July 2015. As at 31 March 2015, the amount outstanding is US$44.5 million (2014: US$44.5 million). Project buyers’ credit Jharsuguda Aluminium had extended credit terms relating to purchases of property, plant and equipment bearing an average interest rate of LIBOR plus 26–55 basis points. These are secured by all of the fixed assets of Jharsuguda Aluminium, immovable or movable, present and future, on a pari passu basis with other term lenders and with priority over other creditors. Project buyers’ credit have an average maturity of May 2015. As at 31 March 2015, the amount outstanding is US$2.0 million (2014: US$21.8 million). Commercial papers During the year, Jharsuguda’s 2,400MW power plant has issued commercial paper to various asset management companies bearing an average coupon rate of 8.72% for funding project payables. As at 31 March 2015, the amount outstanding is US$180.5 million (2014: US$257.1 million). During the year, Iron Ore Sesa has issued commercial papers for periods ranging up to one year bearing average interest rates ranging between 8.79% to 9.25%. These commercial papers are used to meet working capital requirements of the Iron Ore division and are repayable in the next financial year. As at 31 March 2015, the outstanding balance was US$380.2 million (2014: US$280.2 million). KCM A term loan facility of US$820 million (2014: US$700 million) has been obtained by KCM from Standard Bank. The term loan facility is made up of three tranches: US$300 million (‘Facility A’), US$120 million (‘Facility A1’) and US$400 million (‘Facility B’) drawn down on various dates with the last amount drawn in June 2014. The facility was restructured in 2014. The loan is secured against the fixed assets of KCM and a US$400.0 million corporate guarantee from Vedanta Resources plc. Interest is payable quarterly at LIBOR plus 350 basis points for Facility A & A1 and LIBOR plus 250 basis points for Facility B. The facility is repayable in 16 quarterly instalments commencing June 2015. As at 31 March 2015, the amount outstanding is US$710.9 million (2014: US$590.9 million). A general short-term banking facility incorporating multiple sub-facilities amounting to US$30 million (2014: US$50 million) was provided by Stanbic Bank. The facility was agreed upon on 1 June 2011. Interest is payable monthly at three month US$LIBOR plus 350 basis points. The facility is repayable strictly on demand. The tenure for the facility is 12 months. The amount drawn as at 31 March 2015 under this facility is US$27.8 million (2014: US$49.9 million). A general short-term banking facility incorporating multiple sub-facilities amounting to US$50 million (2014: US$85 million) was provided by Standard Chartered Bank. The facility was agreed upon on 26 May 2011. The facility bears an interest rate of LIBOR plus 300 basis points. The facilities are repayable strictly on demand. The tenure for the facility is 12 months. As at 31 March 2015, the amount outstanding is US$50.0 million (2014: US$49.6 million). Vedanta Resources plc Annual report and accounts FY2015 167 24. Borrowings continued BALCO Non-convertible debentures (NCDs) In November 2008, BALCO issued NCDs of US$79.9 million to the Life Insurance Corporation of India at a rate of 12.25% per annum. These NCDs are secured and have the first pari passu charge on the fixed assets of BALCO including land and buildings. These NCDs were repayable in three equal instalments in November 2013, November 2014 and November 2015. The first two instalments had been duly repaid. As at 31 March 2015, the amount outstanding is US$26.6 million repayable in November 2015. In May 2013, BALCO issued NCDs of US$79.9 million to Kotak Mahindra Bank, Axis Bank Limited and Wipro Limited at an interest rate of 8.58% per annum (Series-I) and 8.60% per annum (Series-II). These NCDs are secured and have the first pari passu charge on the fixed assets of BALCO. These NCDs are repayable in two equal instalments in November 2015 and May 2016. As at 31 March 2015, the amount outstanding is US$79.9 million. In August 2014, BALCO issued NCDs of US$79.9 million to Banks and Financial Institutions arranged by Deutche Bank at an interest rate of 10.25% per annum. These NCDs are secured and have the first pari passu charge on the fixed assets of BALCO. These NCDs are repayable in August 2017. As at 31 March 2015, the amount outstanding is US$79.9 million. Project buyers’ credit BALCO has extended credit terms relating to the purchase of property, plant and equipment at an average interest rate of US$LIBOR plus 112 basis points. Project buyers’ credits have an average maturity of August 2016. As at 31 March 2015, the amount outstanding is US$59.6 million (2014: US$114.5 million). External commercial borrowing In August 2011, BALCO obtained an External Commercial Borrowing loan from the State Bank of India, London of US$200 million at an interest rate of six month US$LIBOR plus 260 basis points secured by first pari passu charges on all the fixed assets (excluding land) of BALCO projects both present and future along with secured lenders. The above loan is repayable in three equal annual instalments starting August 2016. As at 31 March 2015, the amount outstanding is US$200.0 million (2014: US$200.0 million). In November 2008, BALCO has also obtained an External Commercial Borrowing loan from DBS Bank Singapore of US$24.8 million at an interest rate of six month US$LIBOR plus 345 basis points secured by first pari passu charges on all movable fixed assets including plant and machinery related to 1,200MW power project and 3.25 LTPA Smelter projects both present and future along with secured lenders. First instalment due for repayment of US$8.3 million has been paid in November 2013. The balance two equal instalments were due for repayment in November 2014 and November 2015. The above loan had been fully prepaid in November 2014. Commercial paper During the year, BALCO has issued commercial papers bearing an average coupon rate of 8.95% per annum to various asset management companies for the funding of project loan repayment and other payables. As at 31 March 2015, the amount outstanding is US$317.1 million (2014: US$186.4 million). Talwandi Sabo NCDs In December 2010 and January 2011, Talwandi Sabo has issued NCDs of US$239.7 million to the ICICI Bank at a rate of 9.8% per annum. These NCDs are secured by first pari passu charge on the assets of Talwandi Sabo both present and future, with an unconditional and irrevocable corporate guarantee by Vedanta Limited. These NCDs have tenure of 13 years and are repayable in 12 equal instalments after 10 years after allotment. These NCDs have a call option, five years after allotment. As at 31 March 2015, the amount outstanding is US$239.7 million. In September 2014 (two tranches), November 2014 and March 2015, Talwandi Sabo has also issued NCDs of US$131.8 million in four tranches of US$19.1 million, US$28.8 million, US$32.0 million and US$51.9 million respectively at an interest rate of 9.60% per annum, 9.70% per annum, 9.27% per annum and 8.91% per annum respectively, to various asset management companies for fresh project funding and repayment of loan. These NCDs are secured by first pari passu charge on the assets of Talwandi Sabo both present and future, with an unconditional and irrevocable corporate guarantee by Vedanta Limited. These NCDs are repayable in tranches as US$19.1 million in September 2016, US$28.8 million in September 2017, US$32.0 million in November 2017 and balance US$51.9 million in April 2018. As at 31 March 2015, the amount outstanding is US$131.8 million. Term loan In September 2014, Talwandi Sabo has availed a rupee term loan facility of US$79.9 million from the Kotak Mahindra Bank Limited at an interest rate of 10.10% per annum. The facility is secured by first pari passu charge on the assets of Talwandi Sabo both present and future, with an unconditional and irrevocable corporate guarantee by Vedanta Limited. The facility is repayable as first 50% of the loan amount in 24 equal quarterly instalments starting from December 2015 and balance of 50% of loan amount in March 2021. As at 31 March 2015, the amount outstanding is US$79.9 million. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 168 Financial statements Notes to the Financial Statements continued 24. Borrowings continued Project buyers’ credit Talwandi Sabo has accessed buyers credit in respect of purchase of capital goods at an average rate of a six month US$LIBOR plus 69 basis points. The average maturity of the project buyers’ credit is January 2016. As at 31 March 2015, the amount outstanding is US$177.1 million (2014: US$481.0 million). Commercial paper During the year, Talwandi Sabo has issued commercial paper to various asset management companies for the funding of project loan repayment bearing an average coupon rate of 9.06% per annum. As at 31 March 2015, Talwandi Sabo had an outstanding balance of US$417.0 million (2014: US$106.5 million). VGCB NCDs In May 2013, VGCB has issued NCDs of US$47.9 million to IDFC Limited at a rate of 9% per annum to refinance the existing term loan from Axis Bank. These NCDs are secured by 1.1 times on the face value of outstanding debentures, by way of charge on the fixed assets of VGCB at all time during the currency of the debentures. Debentures have a tenure of three years with put and call option at the end of the second year. As at 31 March 2015, the amount outstanding is US$47.9 million. 25. Non-equity non-controlling interests As at 31 March 2015, non-equity non-controlling interests amounts to US$11.9 million, being deferred shares in KCM held by ZCCM. The deferred shares have no voting rights or rights to KCM’s dividends, but are entitled on a winding up to a return of up to US$0.99 per share once all of KCM’s ordinary shares have received a distribution equal to their par value and any share premium created on their issue and which remains distributable to them. The deferred shares are held at historic cost, being the fair value attributed to them at the time of initial acquisition of KCM in the year ended 31 March 2005. They are classified as non-current liabilities as they are repayable only on the winding up of KCM, for an amount different than the pro rata share of net assets upon liquidation. The shares have been valued at US$0.99 per share, which is the maximum amount payable to the deferred shareholders. These deferred shares have not been discounted as the effect would not be material. 26. Movement in net debt1 (US$ million) At 1 April 2013 Cash flow Other non-cash changes3 Foreign exchange differences At 1 April 2014 Cash flow Other non-cash changes3 Foreign exchange differences At 31 March 2015 Cash and cash equivalents Liquid investments Total cash and liquid investments Debt due within one year Debt due after one year Debt carrying value Debt carrying value Debt-related derivatives2 Total net debt 2,200.2 (1,701.7) – (129.1) 5,781.5 2,857.0 344.4 (414.4) 7,981.7 1,155.3 344.4 (543.5) (4,400.1) 2,832.7 (2,942.3) 151.2 (12,192.7) (3,130.7) 2,385.7 425.0 (4.5) – 18.3 – (8,615.6) 857.3 (193.9) 32.7 369.4 8,568.5 8,937.9 (4,358.5) (12,512.7) 13.8 (7,919.5) (13.9) – (1.8) (671.7) 250.8 (291.5) (685.6) 250.8 (293.3) 818.8 294.8 65.7 (1,050.1) (46.7) 120.9 – (16.1) – (916.9) 482.8 (106.7) 353.7 7,856.1 8,209.8 (3,179.2) (13,488.6) (2.3) (8,460.3) 1 Net (debt)/cash being total debt reduced by cash and cash equivalents and liquid investments, as carried at fair value under IAS 32 and 39. 2 Debt related derivatives exclude derivative financial assets and liabilities relating to commodity contracts and forward foreign currency contracts. 3 Other non-cash changes comprises of mark to market of embedded derivatives, interest accretion on convertible bonds and amortisation of borrowing costs for which there is no cash movement. It also includes US$250.8 million (2014: US$344.4 million) of fair value movement in investments. Vedanta Resources plc Annual report and accounts FY2015 169 27. Trade and other payables (a) Current trade payables (US$ million) Trade payables Bills of exchange payable Accruals and deferred income Other trade payables As at 31 March 2015 2,159.9 1,512.4 354.4 703.3 As at 31 March 2014 2,170.2 1,509.5 362.4 647.9 4,730.0 4,690.0 Non-interest bearing trade payables are normally settled on 60 to 90-day terms. Interest bearing trade payables amount to US$1,567.5 million (2014: US$1,615.2 million). Bills of exchange are interest-bearing and are normally payable within 180 days. Bills of exchange payable comprise of credit availed from financial institutions for direct payment to suppliers for raw materials purchased. The fair values of the trade and other payables are not materially different from the carrying values presented. (b) Non-current trade payables (US$ million) Other trade payables As at 31 March 2015 194.3 194.3 As at 31 March 2014 203.3 203.3 Other trade payables primarily comprise amounts withheld as retentions, payable to suppliers of capital projects after satisfactory completion of contractual commissioning period, which are payable after the completion of commissioning. The fair value of the non-current trade payables are not materially different from the carrying values presented. 28. Convertible bonds (US$ million) A. VRJL B. VRJL-II C. FCCB – Vedanta Limited Year ended 31 March 2015 Year ended 31 March 2014 1,096.4 6.6 – 1,177.1 65.7 678.7 1,103.0 1,921.5 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 170 Financial statements Notes to the Financial Statements continued 28. Convertible bonds continued A. Vedanta Resource Jersey Limited (VRJL) issued 5.5% US$1,250 million guaranteed convertible bonds on 13 July 2009. The bonds are first convertible into exchangeable redeemable preference shares to be issued by VRJL, which will then be automatically exchanged for ordinary shares of Vedanta Resources plc. The bondholders have the option to convert at any time from 24 August 2009 to 6 July 2016. Conversion option exercised before 15 August 2012 were convertible at US$36.48 per share. Conversion options exercised on or after 15 August 2012 were convertible at US$35.58 per share. If the notes have not been converted, they will be redeemed at the option of the Company at any time on or after 28 July 2012 subject to certain conditions, or be redeemed at the option of the bondholders on or after 13 July 2014. If the notes have not been converted, they will be redeemed at the option of the issuer on or at any time after 28 July 2013, subject to the conditions as part of the issue. Bondholders had exercised put option on 14 July 2014, accordingly bonds with a face value of US$113.8 million (9.1% of total face value) were redeemed during the year ending 31 March 2015. The net proceeds of the convertible issue have been split between the liability element and equity component, representing the fair value of the embedded option to convert the liability into equity of the Company, as follows: (US$ million) Opening liability Effective interest cost Conversion of Convertible bonds Repayment of Convertible bonds Coupon interest paid/accrued Closing liability Year ended 31 March 2015 Year ended 31 March 2014 1,177.1 97.3 – (113.8) (64.2) 1,056.0 191.0 (1.2) – (68.7) 1,096.4 1,177.1 The interest charged for the year is calculated by applying an effective interest rate of 8.7% (2014: 17.3%). The fair value of the convertible bond as at 31 March 2015 is US$1,056.9 million (31 March 2014: US$1,241.7 million). B. Vedanta Resource Jersey II Limited (VRJL-II) issued 4.0% US$883 million guaranteed convertible bonds on 30 March 2010. The bonds are first convertible into exchangeable redeemable preference shares to be issued by VRJL-II, which will then be automatically exchanged for ordinary shares of Vedanta Resources plc. The bondholders have the option to convert at any time from 10 May 2010 to 23 March 2017. Conversion option exercised before 15 August 2012, were convertible at US$51.9251 per share. Conversion Options exercised on or after 15 August 2012, are convertible at US$50.6460, as per the terms of offering circular. If the notes have not been converted, they will be redeemed at the option of the Company at any time on or after 14 April 2013 subject to certain conditions, or be redeemed at the option of the bondholders on or after 29 April 2013 to 30 March 2015. Bondholders exercised the put option in March 2015, resulting in redemption of US$65.1 million bonds during the year ending 31 March 2015. The maturity of remaining bonds is March 2017 At the inception the net proceeds of the convertible issue was split between the liability element and a derivative component, representing the fair value of the embedded option to convert the liability into equity of the Company. The latter was not been recorded within equity due to the existence of partial cash settlement terms within the bond which prevent the adoption of compound financial instrument accounting. (US$ million) Opening liability Effective interest cost Repayment of Convertible Bonds Coupon interest paid/accrued Closing liability The interest charged for the year is calculated by applying an effective interest rate of 15.0% (2014: 15.0%). The fair value of the convertible bond as at 31 March 2015 was US$7.8 million (31 March 2014: US$72.5 million). Year ended 31 March 2015 Year ended 31 March 2014 65.7 8.9 (65.1) (2.9) 6.6 753.6 11.9 (694.3) (5.5) 65.7 Vedanta Resources plc Annual report and accounts FY2015 171 28. Convertible bonds continued C. Vedanta Limited issued 4% US$500 million convertible bonds (denominated in US dollars) on 29 October 2009 which were due on 30 October 2014. The bonds are convertible into American Depository Share (ADS) to be issued by Vedanta Limited. The bondholders have the option to convert at any time before 29 October 2014 at a conversion ratio of 42.8688 for every US$1,000 of principal which is equal to a conversion price of US$23.33 per ADS. Pursuant to the effectiveness of Group simplification scheme in August 2014 (refer Note 45) conversion rate has changed to 25.7213 ADSs every US$1,000 principal amount of notes which is equal to a conversion price of approximately US$38.88 per ADS. Vedanta has the option (subject to the terms of the bond) to redeem the convertible bond at any time after 4 November 2012. Vedanta Limited had also issued 5% US$500 million convertible bonds (denominated in US dollars) on 30 October 2009 and due 31 October 2014. The bonds are convertible into ordinary shares of Vedanta Limited. The bondholders have the option to convert at any time after 10 December 2009 and before 24 October 2014 at a conversion ratio of 13837.6384 for every US$100,000 principal. Vedanta Limited has the option (subject to certain conditions) to redeem the convertible bond at any time after 30 October 2012. As the functional currency of Vedanta Limited is INR, the conversion of the convertible bonds (which are denominated in US dollars) would not result in the settlement and exchange of a fixed amount of cash in INR terms, for a fixed number of its shares respectively. Accordingly, the convertible bond must be separated into two component elements: a derivative component consisting of the conversion option (carried at fair value) and a liability component consisting of the debt element of the bonds. Further details of the accounting for such instruments are provided in the Group accounting policies (Note 2a). The following table shows the movements in the Vedanta Limited bonds during the year on an aggregated basis: (US$ million) Opening liability Effective interest cost Coupon interest paid Decrease in fair value of derivative component Repayment of FCCB’s Closing liability Year ended 31 March 2015 Year ended 31 March 2014 678.7 57.2 (19.8) – (716.1) 624.9 92.9 (34.4) (4.7) – – 678.7 The interest charged for the year is calculated by applying an effective interest rate of 12.7% (2014: 12.7%) for 4% US$500 million convertible notes and 19.1% (31 March 2014: 19.4%) for 5% US$500 million convertible notes. As at 31 March 2014, the outstanding closing balance was US$716.8 million. These convertible bonds were repaid during the year ended 31 March 2015. Summary of convertible bond movements: Opening liability Effective interest cost Coupon interest paid Conversion of convertible bonds Decrease in fair value of derivative component Repayment of bonds Closing liability Year ended 31 March 2015 Year ended 31 March 2014 1,921.5 163.4 (86.8) – – (895.1) 2,434.5 295.8 (108.6) (1.2) (4.7) (694.3) 1,103.0 1,921.5 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 172 Financial statements Notes to the Financial Statements continued 29. Financial instruments The accounting classification of each category of financial instruments, and their carrying amounts, are set out below: (US$ million) Financial assets At fair value through profit or loss – Held for trading – Financial instruments (derivatives) Cash and cash equivalents Loan and receivables – Trade and other receivables – Other non-current assets Available-for-sale investments – Financial asset investments held at fair value Total Financial liabilities At fair value through profit or loss – Financial instruments (derivatives) Financial liabilities at amortised cost – Trade and other payables – Borrowings2 Total As at 31 March 20151 As at 31 March 20141 7,856.1 16.8 353.7 8,568.5 70.2 369.4 1,132.6 129.8 1,278.1 132.1 4.2 1.7 9,493.2 10,420.0 (45.8) (146.1) (4,808.2) (16,667.8) (4,772.6) (16,871.2) (21,521.8) (21,789.9) 1 Excluding non-financial assets and liabilities. 2 Includes amortised cost liability portion of convertible bonds US$1,103.0 million (2014: US$1,921.5 million). IFRS 13 requires additional information regarding the methodologies employed to measure the fair value of financial instruments which are recognised or disclosed in the accounts. These methodologies are categorised per the standard as: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The below table summarises the categories of financial assets and liabilities measured at fair value: (US$ million) Financial assets At fair value through profit or loss – Held for trading – Financial instruments (derivatives) Available-for-sale investments – Financial asset investments held at fair value Total Financial liabilities At fair value through profit or loss – Financial instruments (derivatives) Total As at 31 March 2015 Level 1 Level 2 7,856.1 – 4.2 7,860.3 – 16.8 – 16.8 – – (45.8) (45.8) Vedanta Resources plc Annual report and accounts FY2015 173 29. Financial instruments continued (US$ million) Financial assets At fair value through profit or loss – Held for trading – Financial instruments (derivatives) Available-for-sale investments – Financial asset investments held at fair value Total Financial liabilities At fair value through profit or loss – Financial instruments (derivatives) Total As at 31 March 2014 Level 1 Level 2 8,568.5 – 1.7 8,570.2 – 70.2 – 70.2 – – (146.1) (146.1) There were no transfers between Level 1 and Level 2 during the year. No financial assets or liabilities that are measured at fair value were Level 3 fair value measurements. The fair value of borrowings is US$16,790.9 million (2014: US$16,973.8 million), classified under Level 2 of fair value hierarchy. For all other financial instruments, the carrying amount is either the fair value, or approximates to the fair value. The fair value of financial asset investments represents the market value of the quoted investments and other traded instruments. For other financials assets the carrying value is considered to approximate to fair value. The fair value of financial liabilities is the market value of the traded instruments, where applicable. Otherwise fair value is calculated using a discounted cash flow model with market assumptions, unless the carrying value is considered to approximate to fair value. The fair value of the embedded derivative liability of the convertible bond has been calculated using the Black-Scholes model with market assumptions. Derivative instruments and risk management The Group’s businesses are subject to several risks and uncertainties including financial risks. The Group’s documented risk management policies act as an effective tool in mitigating the various financial risks to which the businesses are exposed in the course of their daily operations. The risk management policies cover areas such as liquidity risk, commodity price risk, foreign exchange risk, interest rate risk, credit risk and capital management (the latter covered in Note 34). Risks are identified through a formal risk management programme with active involvement of senior management personnel and business managers at both the corporate and individual subsidiary level. Each operating subsidiary in the Group has in place risk management processes which are in line with the Group’s policy. Each significant risk has a designated ‘owner’ within the Group at an appropriate senior level. The potential financial impact of the risk and its likelihood of a negative outcome are regularly updated. The risk management process is coordinated by the Management Assurance function and is regularly reviewed by the Group’s Audit Committee. The Audit Committee is aided by the GRMC, which meets every quarter to review risks as well as the progress against the planned actions. Key business decisions are discussed at the monthly meetings of the Executive Committee. The overall internal control environment and risk management programme including financial risk management is reviewed by the Audit Committee on behalf of the Board. Treasury management Treasury management focuses on capital protection, liquidity maintenance and yield maximisation. The treasury policies are approved by the Board and adherence to these policies is strictly monitored at the Executive Committee meetings. Day-to-day treasury operations of the subsidiary companies are managed by their respective finance teams within the framework of the overall Group treasury policies. Long-term fund raising including strategic treasury initiatives are handled by a central team while short-term funding for routine working capital requirements is delegated to subsidiary companies. A monthly reporting system exists to inform senior management of investments, debt, currency, commodity and interest rate derivatives. The Group has a strong system of internal control which enables effective monitoring of adherence to Group policies. The internal control measures are supplemented by regular internal audits. The investment portfolio is independently reviewed by CRISIL Limited and our portfolio has been rated as ‘Very Good’ meaning highest safety. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 174 Financial statements Notes to the Financial Statements continued 29. Financial instruments continued The Group uses derivative instruments as part of its management of exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Group does not acquire or issue derivative financial instruments for trading or speculative purposes. The Group does not enter into complex derivative transactions to manage the treasury and commodity risks. Both treasury and commodities derivative transactions are normally in the form of forward contracts and interest rate and currency swaps and these are subject to the Group guidelines and policies. Interest rate swaps are taken to achieve a balance between fixed and floating rates (as described below under ‘Interest risk’) and currency swaps are taken primarily to convert the Group’s exposure to non-US dollar currencies to US dollar currencies. Commodity risk The Group is exposed to the movement of base metal commodity prices on the London Metal Exchange. Any decline in the prices of the base metals that the Group produces and sells will have an immediate and direct impact on the profitability of the businesses. As a general policy, the Group aims to sell the products at prevailing market prices. As much as possible, the Group tries to mitigate price risk through favourable contractual terms. The Group undertakes hedging activity in commodities to a limited degree. Hedging is used primarily as a risk management tool and, in some cases, to secure future cash flows in cases of high volatility by entering into forward contracts or similar instruments. The hedging activities are subject to strict limits set out by the Board and to a strictly defined internal control and monitoring mechanism. Decisions relating to hedging of commodities are taken at the Executive Committee level and with clearly laid down guidelines for their implementation by the subsidiaries. Whilst the Group aims to achieve average LME prices for a month or a year, average realised prices may not necessarily reflect the LME price movements because of a variety of reasons such as uneven sales during the year and timing of shipments. The Group is also exposed to the movement of international crude oil price and the discount in the price of Rajasthan crude oil to Brent price. Copper The Group’s custom smelting copper operations at Tuticorin is benefited by a natural hedge except to the extent of a possible mismatch in quotational periods between the purchase of concentrate and the sale of finished copper. The Group’s policy on custom smelting is to generate margins from TC/RCs, improving operational efficiencies, minimising conversion cost, generating a premium over LME on sale of finished copper, sale of by-products and from achieving import parity on domestic sales. Hence, mismatches in quotational periods are managed to ensure that the gains or losses are minimised. The Group hedges this variability of LME prices through forward contracts and tries to make the LME price a pass-through cost between purchases of copper concentrate and sales of finished products, both of which are linked to the LME price. The Group also benefits from the difference between the amounts paid for quantities of copper content received and recovered in the manufacturing process, also known as ‘free copper’. The Group hedges on a selective basis the free copper by entering into future contracts. TC/RCs are a major source of income for the Indian copper smelting operations. Fluctuations in TC/RCs are influenced by factors including demand and supply conditions prevailing in the market for mine output. The Group’s copper business has a strategy of securing a majority of its concentrate feed requirement under long-term contracts with mines. KCM is largely an integrated copper producer and whenever hedging is done it is with an intention to protect the Group from price fluctuations in copper. KCM also does hedging for its custom smelting operations, where back to back hedging is used to mitigate pricing risks. For the mining assets in Australia and Zambia, part of the production may be hedged to secure cash flows on a selective basis. Aluminium The requirement of the primary raw material, alumina, is partly met from own sources and the rest is purchased primarily on negotiated price terms. Sales prices are linked to the LME prices. At present the Group on selective basis hedges the aluminium content in outsourced alumina to protect its margins. The Group also enters into hedging arrangements for its aluminium sales to realise month of sale LME prices. Zinc and lead The sales prices are linked to the LME prices. The Group has some long-term volume contracts with some customers where the prices are linked to prevailing LME prices at the time of shipment. The Group hedges custom production of Indian operations through forward contracts or other instruments. Iron ore The Group sells iron ore production through e-auction route as mandated by the State Government of Karnataka in India. Provisionally priced financial instruments On 31 March 2015, the value of net financial liabilities linked to commodities (excluding derivatives) accounted for on provisional prices was a liability of US$689.9 million (2014: liability of US$454.1 million). These instruments are subject to price movements at the time of final settlement and the final price of these instruments will be determined in the financial year beginning 1 April 2015. Vedanta Resources plc Annual report and accounts FY2015 175 29. Financial instruments continued Set out below is the impact of a 10% increase in LME prices on profit/(loss) for the year and total equity as a result of changes in value of the Group’s commodity financial instruments as at 31 March 2015: (US$ million except as stated) Commodity price sensitivity Copper Zinc Lead (US$ million except as stated) Commodity price sensitivity Copper Zinc Lead Closing LME as at 31 March 2015 (US$) Effect on profit/(loss) of a 10% increase in the LME 31 March 2015 (US$ million) Effect on total equity of a 10% increase in the LME 31 March 2015 (US$ million) 6,050 2,075 1,808 (62.2) 0.2 – (62.2) 0.2 – Closing LME as at 31 March 2014 (US$) Effect on profit/(loss) of a 10% increase in the LME 31 March 2014 (US$ million) Effect on total equity of a 10% increase in the LME 31 March 2014 (US$ million) 6,636 1,981 2,041 (49.6) 1.2 0.5 (49.6) 1.2 0.5 The above sensitivities are based on volumes, costs, exchange rates and other variables and provide the estimated impact of a change in LME prices on profit and equity assuming that all other variables remain constant. Further, the impact of a 10% increase in closing copper LME for provisionally priced copper concentrate purchased at Vedanta Limited Copper division custom smelting operations is US$69.2 million (2014: US$54.2 million), which is a pass through in nature and as such will not have any impact on the profitability. Financial risk and sensitivities The Group’s Board approved financial risk policies comprise liquidity, currency, interest rate and counterparty risk. The Group does not engage in speculative treasury activity but seeks to manage risk and optimise interest and commodity pricing through proven financial instruments. (a) Liquidity 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 the 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, together with undrawn fund based committed facilities of US$1,208.2 million, and cash and liquid investments of US$8,209.8 million as at 31 March 2015, are expected to be sufficient to meet the ongoing capital investment programme and liquidity requirement of the Group in the near future. The Group has a strong balance sheet that gives sufficient headroom to raise further debt should the need arise. The Group’s current ratings from Standard & Poor’s and Moody’s are BB- and Ba1 respectively (2014: BB and Ba1 respectively). These ratings support the necessary financial leverage and access to debt or equity markets at competitive terms. The Group generally maintains a healthy net gearing ratio and retains flexibility in the financing structure to alter the ratio when the need arises (see Note 34 for further details). The maturity profile of the Group’s financial liabilities based on the remaining period from the balance sheet date to the contractual maturity date is given in the table below. The figures reflect the contractual undiscounted cash obligation of the Group: At 31 March 2015 (US$ million) Payment due by period Trade and other payables Bank and other borrowings1 Convertible bonds1 Derivative liabilities Total < 1 year 1–2 years 2–5 years > 5 years Total 4,509.0 4,171.8 65.8 45.8 229.3 2,981.0 1,161.5 – 63.0 8,730.4 – – 6.9 3,476.1 – – 4,808.2 19,359.3 1,227.3 45.8 8,792.4 4,371.8 8,793.4 3,483.0 25,440.6 1 Includes contractual interest payment based on interest rate prevailing at the end of the reporting period. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 176 Financial statements Notes to the Financial Statements continued 29. Financial instruments continued At 31 March 2014 (US$ million) Payment due by period Trade and other payables Bank and other borrowings1 Convertible bonds1 Derivative liabilities Total < 1 year 1–2 years 2–5 years > 5 years Total 4,644.9 3,521.0 2,060.3 118.7 163.1 2,292.6 – – – 10,113.1 – 27.3 – 2,972.5 – – 4,808.0 18,899.2 2,060.3 146.1 10,344.9 2,455.7 10,140.5 2,972.5 25,913.6 1 Includes contractual interest payment based on interest rate prevailing at the end of the reporting period. At 31 March 2015, the Group had access to funding facilities (both fund based and non-fund based) of US$18,981.5 million of which US$2,177.9 million was not yet drawn, as set out below. (US$ million) Funding facilities Less than 1 year 1–2 years 2–5 years and above Total Total facility Drawn Undrawn 5,270.9 3,265.4 10,445.2 3,189.5 3,265.4 10,348.7 2,081.4 – 96.5 18,981.5 16,803.6 2,177.9 At 31 March 2014, the Group had access to funding facilities (both fund based and non-fund based) of US$19,241.8 million of which US$2,370.6 million was not yet drawn, as set out below. (US$ million) Funding facilities Less than 1 year 1–2 years 2–5 years and above Total Total facility Drawn Undrawn 6,640.7 1,487.7 11,113.4 4,358.5 1,487.7 11,025.0 2,282.2 – 88.4 19,241.8 16,871.2 2,370.6 ‘Fund based’ facilities represent contractual agreements for financial institutions to provide cash, such as cash credit limits and term loans, whereas ‘non-fund based’ facilities only give rise to an obligation to provide cash in certain circumstances, such as bank guarantees and letters of credit. (b) Foreign currency The Group’s presentation currency is the US dollar. The majority of the assets are located in India and the Indian rupee is the functional currency for the Indian operating subsidiaries. Exposures on foreign currency loans are managed through the Group-wide hedging policy, which is reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed. Natural hedges available in the business are identified at each entity level and hedges are placed only for the net exposure. Short-term net exposures are hedged progressively based on their maturity. Longer exposures beyond one year are normally unhedged. However all new long-term borrowing exposures are being hedged. Vedanta has hedged some of its non-US dollar borrowings into US dollar borrowings by entering into cross-currency swaps. Vedanta Resources plc Annual report and accounts FY2015 177 29. Financial instruments continued The carrying amount of the Group’s financial assets and liabilities in different currencies are as follows: (US$ million) US$ INR Kwacha JPY AUD CAD EURO ZAR NAD Others Total At 31 March 2015 At 31 March 2014 Financial assets Financial liabilities Financial assets Financial liabilities 1,362.1 8,019.4 1.3 – 0.7 – 75.6 14.8 9.8 9.5 14,216.3 7,151.8 38.9 – 9.7 0.3 59.0 21.8 23.2 0.8 2,517.9 7,697.2 – – 5.3 0.1 105.6 28.7 30.5 34.7 15,716.0 5,597.3 128.1 0.2 13.2 – 56.4 26.5 6.1 246.1 9,493.2 21,521.8 10,420.0 21,789.9 The Group’s exposure to foreign currency arises where a Group company holds monetary assets and liabilities denominated in a currency different to the functional currency of that entity with INR (Indian rupee) being the major foreign currency exposure of the Group’s main operating subsidiaries. Set out below is the impact of a 10% change in the US dollar on profit/(loss) and equity arising as a result of the revaluation of the Group’s foreign currency financial instruments: (US$ million) INR Euro (US$ million) INR Euro 31 March 2015 Effect of 10% strengthening of US dollar on net earning Effect of 10% strengthening of US dollar on total equity (192.3) 0.7 (236.1) 0.7 Closing exchange rate 62.5908 0.9271 31 March 2014 Effect of 10% strengthening of US dollar on net earnings Effect of 10% strengthening of US dollar on total equity (406.5) 8.3 (367.0) 19.6 Closing exchange rate 60.0998 0.7278 The sensitivities are based on financial assets and liabilities held at 31 March 2015 where balances are not denominated in the functional currency of the respective subsidiaries. The sensitivities do not take into account the Group’s sales and costs, and the results of the sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors. (c) Interest rate risk At 31 March 2015, the Group’s net debt of US$8,460.3 million (2014: US$7,919.5 million net debt) comprised cash, cash equivalents and liquid investments of US$8,209.8 million (2014: US$8,937.9 million) offset by debt of US$16,667.8 million (2014: US$16,871.2 million) and debt derivative liability of US$2.3 million (2014: asset of US$13.8 million). The Group is exposed to interest rate risk on short-term and long-term floating rate instruments and on the refinancing of fixed rate debt. The Group’s policy is to maintain a balance of fixed and floating interest rate borrowings and the proportion of fixed and floating rate debt is determined by current market interest rates. As at 31 March 2015, 50.2% (2014: 48.7%) of the total debt was at a fixed rate and the balance was at a floating rate. The floating rate debt is largely linked to US dollar LIBOR. The Group also aims to minimise its average interest rates on borrowings by opting for a higher proportion of long-term debt to fund growth projects. The Group invests cash and liquid investments in short-term deposits and debt mutual funds, some of which generate a tax-free return, to achieve the Group’s goal of maintaining liquidity, carrying manageable risk and achieving satisfactory returns. Floating rate financial assets are largely mutual fund investments which have debt securities as underlying assets. The returns from these financial assets are linked to market interest rate movements; however the counterparty invests in the agreed securities with known maturity tenure and return and hence has manageable risk. Additionally, the investments portfolio is independently reviewed by CRISIL Limited, and our investment portfolio has been rated as ‘Very Good’ meaning highest safety. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 178 Financial statements Notes to the Financial Statements continued 29. Financial instruments continued The exposure of the Group’s financial assets to interest rate risk is as follows: (US$ million) Financial assets Derivative assets Total financial assets At 31 March 2015 At 31 March 2014 Floating rate financial assets Fixed rate financial assets Equity investments Non-interest bearing financial assets Floating rate financial assets Fixed rate financial assets Equity investments Non-interest bearing financial assets 5,419.6 – 2,820.1 – 5,419.6 2,820.1 4.2 – 4.2 1,232.5 16.8 5,784.9 – 3,259.7 – 1,249.3 5,784.9 3,259.7 1.7 – 1.7 1,303.5 70.2 1,373.7 The exposure of the Group’s financial liabilities to interest rate risk is as follows: (US$ million) Financial liabilities Derivative liabilities Total financial liabilities At 31 March 2015 At 31 March 2014 Floating rate financial liabilities 8,711.9 2.3 Fixed rate financial liabilities 9,506.7 – Non-interest bearing financial liabilities Floating rate financial liabilities 3,257.4 43.5 8,996.0 – Fixed rate financial liabilities 9,478.4 – Non-interest bearing financial liabilities 3,169.4 146.1 8,714.2 9,506.7 3,300.9 8,996.0 9,478.4 3,315.5 The weighted average interest rate on the fixed rate financial liabilities is 8.3% (2014: 8.0%) and the weighted average period for which the rate is fixed is 3.0 years (2014: 4.5 years). Considering the net debt position as at 31 March 2015 and the investment in bank deposits, corporate bonds and debt mutual funds, any increase in interest rates would result in a net loss and any decrease in interest rates would result in a net gain. The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the balance sheet date. The below table illustrates the impact of a 0.5% to 2.0% change in interest rate of borrowings on profit/(loss) and equity and represents management’s assessment of the possible change in interest rates. At 31 March 2015 (US$ million) Change in interest rates 0.5% 1.0% 2.0% At 31 March 2014 (US$ million) Change in interest rates 0.5% 1.0% 2.0% Effect on profit for the year Effect on total equity 41.5 82.9 165.9 41.5 82.9 165.9 Effect on profit for the year Effect on total equity 41.5 83.1 166.1 41.5 83.1 166.1 Vedanta Resources plc Annual report and accounts FY2015 179 29. Financial instruments continued (d) Credit risk The Group is exposed to credit risk from trade receivables, cash and cash equivalents, liquid investments and other financial instruments. The Group has clearly defined policies to mitigate counterparty risks. Cash and liquid investments are held primarily in debt schemes of mutual funds, bonds and bank deposits with good credit ratings. Defined limits are in place for exposure to individual counterparties in case of mutual fund houses and banks. The large majority of receivables due from third parties are secured. Moreover, given the diverse nature of the Group’s businesses trade receivables are spread over a number of customers with no significant concentration of credit risk. During the year ended 31 March 2015 and 31 March 2014 other than the exception of a single customer in our oil & gas business, no single customer accounted for 10% or more of the Group’s net sales or for any of the Group’s primary businesses. The history of trade receivables shows a negligible provision for bad and doubtful debts. Therefore, the Group does not expect any material risk on account of non-performance by any of our counterparties. The Group’s maximum gross exposure to credit risk at 31 March 2015 is US$9,493.2 million (2014: US$10,420.0 million). Of the year end trade and other receivable balance the following, though overdue, are expected to be realised in the normal course of business and hence, are not considered impaired as at 31 March 2015: (US$ million) Less than 1 month Between 1–3 months Between 3–12 months Greater than 12 months Total 2015 39.1 49.1 40.3 62.5 2014 44.7 79.8 23.0 96.6 191.0 244.1 Receivables amounting to US$43.8 million (31 March 2014: US$35.5 million), of the Power division of the Group have been impaired primarily as a result of an ongoing dispute in relation to a tariff agreement with a power supply company. Derivative financial instruments The fair value of all derivatives is separately recorded on the balance sheet within other financial assets (derivatives) and other financial liabilities (derivatives), current and non-current. In addition, the derivative component of certain convertible bonds is shown as part of the overall convertible bond liability (Note 28). Derivatives that are designated as hedges are classified as current or non-current depending on the maturity of the derivative. Embedded derivatives Derivatives embedded in other financial instruments or other contracts are treated as separate derivative contracts, when their risks and characteristics are not closely related to those of their host contracts. Cash flow hedges The Group also enters into forward exchange and commodity price contracts for hedging highly probable forecast transactions and accounts for them as cash flow hedges and states them at fair value. Subsequent changes in fair value are recognised in equity until the hedged transactions occur, at which time the respective gains or losses are transferred to the income statement. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 180 Financial statements Notes to the Financial Statements continued 29. Financial instruments continued The fair value of the Group’s open derivative positions at 31 March 2015, recorded within financial instruments (derivative) is as follows: (US$ million) Current Cash flow hedges – Commodity contracts – Forward foreign currency contracts Hedge of net investment in foreign operations Fair value hedges – Commodity contracts – Forward foreign currency contracts – Other (foreign currency swap) Non-qualifying hedges – Commodity contracts – Forward foreign currency contracts – Interest rate swap – Other (foreign currency swap) Total Non-current Cash flow hedges – Commodity contracts Fair value hedges – Forward foreign currency contracts – Cross currency swap Non-qualifying hedges – Interest rate swap Total Grand total As at 31 March 2015 As at 31 March 2014 Liability Asset Liability Asset – (0.6) – (1.7) (20.1) (2.2) (1.5) (11.2) (8.2) (0.2) (45.7) – (0.1) – – (0.1) (45.8) 2.5 – 7.9 3.8 1.6 0.8 0.0 – – (0.3) (5.1) – (0.1) (84.1) – (1.1) (26.6) (1.4) – 0.7 0.1 32.0 0.6 14.5 – 5.5 0.6 – – 16.6 (118.7) 54.0 – 0.2 – – 0.2 – (0.1) – (27.3) (27.4) 16.8 (146.1) 2.0 – 14.2 – 16.2 70.2 The majority of cash flow hedges taken out by the Group during the year comprises commodity contracts and foreign currency forward contracts for firm future commitments. The cash flows related to the majority of cash flow hedges above are expected to occur during the year ended 31 March 2016 and consequently may impact the income statements for that year depending upon the change in the commodity prices and foreign exchange rate movements. Non-qualifying hedges The majority of these derivatives comprise interest rate swaps and foreign currency forward contracts which are economic hedges but which do not fulfil the requirements for hedge accounting of IAS 39 Financial Instruments: Recognition and Measurement. Fair value hedges The fair value hedges relate to foreign currency forward contracts taken to hedge currency exposure on purchase of raw materials and capital imports. Vedanta Resources plc Annual report and accounts FY2015 181 29. Financial instruments continued Hedging reserve reconciliation (US$ million) At 1 April 2013 Amount recognised directly in equity Amount transferred to income statement Exchange difference At 1 April 2014 Amount recognised directly in equity Amount transferred to income statement Changes in non-controlling interests Exchange difference At 31 March 2015 30. Provisions (US$ million) At 1 April 2013 (Released)/charged to income statement Unwinding of discount Cash paid Exchange differences At 1 April 2014 (Released)/charged to income statement Unwinding of discount (Note 7) Cash paid Change in estimates Exchange differences At 31 March 2015 Current 2015 Non-current 2015 Current 2014 Non-current 2014 Hedging reserves Non- controlling interests (22.2) (30.3) (0.4) 2.5 (50.4) (17.1) (7.4) (3.9) 4.1 (74.7) Restoration, rehabilitation and environmental KCM Copper Price Participation 303.6 (7.1) 17.1 (3.6) (3.5) 306.5 (26.9) 31.8 (7.5) (66.1) (12.9) 224.9 37.3 187.6 224.9 5.7 300.8 306.5 100.1 (8.5) 4.7 (6.9) (0.1) 89.3 (1.4) 5.0 (1.0) – – 91.9 91.6 0.3 91.9 70.0 19.3 89.3 (17.4) (20.9) (0.2) 1.3 (37.2) (9.5) (4.4) 3.9 2.5 (44.7) Other 27.3 6.2 – (3.3) (1.3) 28.9 0.9 – (1.4) – (1.0) 27.4 11.9 15.5 27.4 13.0 15.9 28.9 Total (39.6) (51.2) (0.6) 3.8 (87.6) (26.6) (11.8) – 6.6 (119.4) Total 431.0 (9.4) 21.8 (13.8) (4.9) 424.7 (27.4) 36.8 (9.9) (66.1) (13.9) 344.2 140.8 203.4 344.2 88.7 336.0 424.7 Restoration, rehabilitation and environmental The provisions for restoration, rehabilitation and environmental liabilities represent the Management’s best estimate of the costs which will be incurred in the future to meet the Group’s obligations under existing Indian, Australian, Zambian, Namibian, South African and Irish law and the terms of the Group’s mining and other licences and contractual arrangements. These amounts, calculated by considering discount rates within the range of 2%–9%, become payable on closure of mines and are expected to be incurred over a period of one to 15 years. Within India, the principal restoration and rehabilitation provisions are recorded within Cairn India where a legal obligation exists relating to the oil & gas fields, where costs are expected to be incurred in restoring the site of production facilities at the end of the producing life of an oil field. The Group recognises the full cost of site restoration as a liability when the obligation to rectify environmental damage arises. An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production from a producing field. During the year ended 31 March 2015, based on the decommissioning studies the provision for restoration, rehabilitation and environment has been revised downwards by US$66.1 million, mainly related to the Rajasthan block at Cairn India. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 182 Financial statements Notes to the Financial Statements continued 30. Provisions continued KCM Copper Price Participation KCM Copper Price Participation relates to a provision in respect of a price participation agreement in Zambia which requires KCM to pay ZCCM an agreed annual sum when copper price exceeds specified levels and specific triggers. In the previous years the timing of the outflow was dependent on future copper prices as well as dividends paid. KCM and ZCCM agreed for final settlement of Copper Price Participation liability. The total amount that to be paid was US$119.7 million to be settled in 16 instalments with the first instalment starting on 31 December 2012 and last instalment on 30 September 2016. The provision recognised has been discounted at 10.3% to take into account the expected timings of the various payments and recognised as a liability at US$91.9 million as at 31 March 2015. Other Other includes provision on post retirement medical benefits. The expected period of utilisation is 18 years. 31. Deferred tax The Group has accrued significant amounts of deferred tax. The majority of the deferred tax liability represents accelerated tax relief for the depreciation of capital expenditure and the depreciation on fair value uplifts created on acquisitions, net of losses carried forward by Vedanta Limited (post the reorganisation) and MAT credits carried forward in Cairn India and Hindustan Zinc. The amounts of deferred taxation on temporary differences, provided and not provided, in the accounts are as follows: Provided – deferred tax liabilities/(assets) (US$ million) Accelerated capital allowances Unutilised tax losses Other temporary differences Disclosed as: Deferred tax liability Deferred tax asset Unrecognised deferred tax assets (US$ million) Unutilised tax losses and unabsorbed depreciation As at 31 March 2015 3,478.3 (445.1) (1,697.0) As at 31 March 2014 6,185.0 (901.7) (1,546.9) 1,336.2 3,736.4 2,588.7 (1,252.6) 4,960.1 (1,223.7) 1,336.2 3,736.4 As at 31 March 2015 As at 31 March 2014 (471.6) (372.7) The above relates to the tax effect on US$1,088.3 million (2014: US$750.9 million) of unutilised tax losses of the Company, VRHL, VRJL and VRJ2 which have no expiry period; US$827.2 million (2014: US$642 million) unutilised tax losses of Twin Star Mauritius Holdings Limited which is subject to the Mauritius tax regime and can be carried forward for a period of five years; US$39.4 million of unutilised tax losses and non-refundable R&D tax credits of CMT, which can be carried forward indefinitely under the Australian tax regime; and US$344.3 million (2014: US$371.1 million) of unutilised tax losses and capital allowances for Malco Energy Limited (MEL) and Talwandi Sabo Power Limited which are subject to the Indian tax regime. Pursuant to the Indian tax regime, unutilised business tax losses expire eight years from the period in which the losses arise and, unabsorbed depreciation can be carried forward indefinitely. No deferred tax asset has been recognised on these unutilised tax losses and tax credits as there is no evidence that sufficient taxable profit will be available in the future against which they can be utilised by the respective entities. Vedanta Resources plc Annual report and accounts FY2015 183 31. Deferred tax continued Deferred tax asset (US$ million) At 1 April Credited to income statement Charged directly to equity Foreign exchange differences At 31 March As at 31 March 2015 1,223.7 45.8 (0.3) (16.6) As at 31 March 2014 847.1 459.3 (3.3) (79.4) 1,252.6 1,223.7 The Group has US$1,285.8 million of unutilised tax losses in Vedanta Limited and MAT credits of US$1,898.1 million carried forward in Hindustan Zinc, Vedanta Limited and Cairn India which are subject to the Indian tax regime. Under the Indian tax regime, unutilised tax losses expire eight years from the period in which the losses arise and unabsorbed depreciation can be carried forward indefinitely. MAT credits expire 10 years from the period in which the credits arise. Deferred tax assets in the Group have been recognised to the extent there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity which are expected to reverse. Deferred tax liability (US$ million) At 1 April Charged/(credited) to income statement1 Charged/(credited) directly to equity Foreign exchange differences At 31 March As at 31 March 2015 4,960.1 (2,377.5) (6.5) 12.6 As at 31 March 2014 4,996.6 33.7 2.4 (72.6) 2,588.7 4,960.1 1 Including deferred tax credit of US$2,138 million related to impairment of oil & gas assets at Cairn (Note 5). 32. Share-based payments Employee share schemes The Group aims to provide superior rewards for outstanding performance and a high proportion of ‘at risk’ remuneration for Executive Directors. Three employee share schemes were approved by shareholders on Listing. In 2014, the Board introduced a Performance Share Plan (PSP) which is the primary arrangement under which share-based incentives are provided to the Executive Directors and the wider management group. The Vedanta Resources Long-Term Incentive Plan (the LTIP) and Employee Share Ownership Plan (the ESOP) and Performance Share Plan (the PSP) The maximum value of shares that can be conditionally awarded to an Executive Director in a year is 150% of annual salary. In respect of Mr Navin Agarwal and Mr Tom Albanese, salary means the aggregate of their salary payable by the Company and their CTC payable by Vedanta Limited. The maximum value of shares that can be awarded to members of the wider management group is calculated by reference to the grade average CTC and individual grade of the employee. The performance conditions attaching to outstanding awards are as follows: • PSP – measured in terms of Total Shareholder Return (TSR) (being the movement in a company’s share price plus reinvested dividends), is compared over the performance period with the performance of the companies as defined in the scheme from the grant date. The extent to which an award vests will depend on the Company’s TSR rank against a group of peer companies at the end of the performance period and as moderated by the Remuneration Committee. Furthermore, a certain percentage of the vesting is based on continued employment with the Group until the end of the third year. • The vesting schedule is shown in the table below, with adjusted straight-line vesting in between the points shown and rounding down to the nearest whole share: Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 184 Financial statements Notes to the Financial Statements continued 32. Share-based payments continued Vedanta’s TSR performance against comparator group Below median At median At or above upper quartile (% of award vesting) – 30 100 The performance condition is measured by taking the Company’s TSR over the three months immediately preceding the date of grant and over the three months immediately preceding the end of the performance period, and comparing its performance with that of the comparator group. The information to enable this calculation to be carried out on behalf of the Remuneration Committee (the Committee) is provided by the Company’s advisers. The Committee considers that this performance condition, which requires that the Company’s total return has out-performed a group of companies chosen to represent the mining sector, provides a reasonable alignment of the interests of the Executive Directors and the wider management group with those of the shareholders. Initial awards under the PSP were granted on 17 November 2014. The exercise price of the awards is 10 US cents per share and the performance period is three years, with no retesting being allowed. • ESOP – measured in terms of business performance set against business plan for the financial year comprising operational deliverables, enabler parameters and sustainability performance specific to each company. The vesting schedule is graded over three years and varies from company to company with a minimum vesting of 30% triggering at either 80% or 85% business score. In another tranche, the vesting schedule is staggered over a period of three years from the date of grant, with 70% vesting based on the achievement of business performance and the remaining 30% based on continued employment with the Group until the end of the third year. Initial awards under ESOP were granted on 24 September 2012 with further awards being made on 16 May 2013. The exercise price of the awards is 10 US cents per share and the performance period is one year. The exercise period is six months from the date of vesting. • LTIP – measured in terms of Total Shareholder Return (TSR) (being the movement in a company’s share price plus reinvested dividends), is compared over the performance period with the performance of the companies as defined in the scheme from the grant date. The extent to which an award vests will depend on the Company’s TSR rank against a group of peer companies (Adapted Comparator Group) at the end of the performance period and as moderated by the Remuneration Committee. The vesting schedule is shown in the table below, with adjusted straight-line vesting in between the points shown and rounded down to the nearest whole share. Vedanta’s TSR performance against Adapted Comparator Group Below median At median At or above upper quartile (% of award vesting) – 40 100 The performance condition is measured by taking the Company’s TSR over the four weeks immediately preceding the date of grant and over the four weeks immediately preceding the end of the performance period, and comparing its performance with that of the comparator group described above. The information to enable this calculation to be carried out on behalf of the Remuneration Committee (the Committee) is provided by the Company’s advisers. The Committee considers that this performance condition, which requires that the Company’s total return has out-performed a group of companies chosen to represent the mining sector, provides a reasonable alignment of the interests of the Executive Directors and the wider management group with those of the shareholders. Initial awards under the LTIP were granted on 26 February 2004. As on 31 March 2015 the awards outstanding are the awards issued on 1 August 2011, 1 October 2011, 1 January 2012 and 1 April 2012. The exercise price of the awards is 10 US cents per share and the performance period is three years, with no retesting being allowed. Further details on the LTIP are available in the Remuneration Report of the annual report. Vedanta Resources plc Annual report and accounts FY2015 185 32. Share-based payments continued The details of share options for the year ended 31 March 2015 and 31 March 2014 are presented below: Year of grant Exercise date 2011 2011 2011 2011 2011 2012 2012 2012 2013 2014 1 January 2014–1 July 2014 1 April 2014–1 October 2014 1 July 2014–1 January 2015 1 August 2014–1 February 2015 1 October 2014–1 April 2015 1 January 2015–1 July 2015 1 April 2015–1 September 2015 24 September 2013–24 March 2016 16 May 2014–16 October 2016 17 November 2017–17 May 2018 Exercise price US cents per share Options outstanding 1 April 2014 Options granted during the year Options lapsed during the year Options lapsed during the year owing to performance conditions 2,700 10 67,500 10 10 16,500 10 2,185,550 5,000 10 7,000 10 10 97,800 10 2,380,748 10 3,754,550 – 10 – – – – – – – – – 5,485,000 – – (5,000) (1,620) (41,380) (6,900) (77,550) (1,365,934) – – – (41,238) (1,586,513) (188,047) (1,899,849) – (149,500) – – – Options exercised during the year Options outstanding at 31 March 2015 – (1,080) – (26,120) 600 (4,000) 118,527 (623,539) 5,000 – 7,000 – 97,800 – (384,045) 368,952 (363,869) 1,302,785 – 5,335,500 8,517,348 5,485,000 (461,335) (4,902,196) (1,402,653) 7,236,164 Year of grant Exercise date Exercise price US cents per share Options outstanding 1 April 2013 Options granted during the year Options lapsed during the year 2010 2010 2011 2011 2011 2011 2011 2012 2012 2012 2012 2013 1 January 2013–1 July 2013 1 October 2013–1 April 2014 1 January 2014–1 July 2014 1 April 2014–1 October 2014 1 July 2014–1 January 2015 1 August 2014–1 February 2015 1 October 2014–1 April 2015 1 January 2015–1 July 2015 1 April 2015–1 October 2015 24 September 2013–24 March 2016 1 October 2012–1 April 2016 16 May 2014–16 October 2016 2,000 10 6,700 10 2,700 10 72,950 10 10 19,000 10 2,394,350 5,000 10 7,000 10 10 101,750 10 4,538,650 10 3,500 10 – – – – – – – – – – – – 3,963,750 – – – (5,450) (2,500) (208,800) – – (3,400) (393,350) (3,500) (209,200) Options lapsed during the year owing to performance conditions – (4,020) – – – – – – (550) (1,398,186) – – Options exercised during the year Options outstanding at 31 March 2014 – (2,000) – (2,680) 2,700 – 67,500 – – 16,500 – 2,185,550 5,000 – 7,000 – 97,800 – (366,366) 2,380,748 – – – 3,754,550 7,153,600 3,963,750 (826,200) (1,402,756) (371,046) 8,517,348 In the year ended 31 March 2015, 5,363,531 options lapsed in total and 1,402,653 options exercised. As at 31 March 2015, 7,236,164 options remained outstanding and 269,282 options were exercisable at the year end. The weighted average share price for the share options exercised during the year ended 31 March 2015 was GBP8.9 (year ended 31 March 2014: GBP8.5). The weighted average maturity period for the options outstanding as on 31 March 2015 is 33 months (31 March 2014: 17 months). All share-based awards of the Group are equity-settled as defined by IFRS 2 ‘Share-based Payment’. The fair value of these awards has been determined at the date of grant of the award allowing for the effect of any market-based performance conditions. This fair value, adjusted by the Group’s estimate of the number of awards that will eventually vest as a result of non-market conditions, is expensed uniformly over the vesting period. The fair values were calculated using the Stochastic valuation model with suitable modifications to allow for the specific performance conditions of the respective schemes. The inputs to the model include the share price at date of grant, exercise price, expected volatility, expected dividends, expected term and the risk free rate of interest. A progressive dividend growth policy is assumed in all fair value calculations. Expected volatility has been calculated using historical return indices over the period to date of grant that is commensurate with the performance period of the award. The return indices of the mining companies in the Adapted Comparator Group have been modelled based on historical movements over the period to date of grant which is also commensurate with the performance period for the option. The history of return indices is used to determine the volatility and correlation of share prices for the companies in the Adapted Comparator Group and is needed for the Stochastic valuation model of their future TSR performance relative to the Company’s TSR performance. All options are assumed to be exercised immediately after vesting. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 186 Financial statements Notes to the Financial Statements continued 32. Share-based payments continued The assumptions used in the calculations of the charge in respect of the PSP/ESOP awards granted during the year ended 31 March 2015 and 31 March 2014 are set out below: Number of instruments Exercise price Share price at the date of grant Contractual life Expected volatility Expected option life Expected dividends Risk free interest rate Expected annual forfeitures Fair value per option granted Year ended 31 March 2015 PSP November 2014 Year ended 31 March 2014 ESOP May 2013 5,485,000 US$0.10 GBP8.09 3 years 35.5% 3 years 4.62% 0.90% 10% p.a GBP6.98/GBP3.00 3,824,050 US$0.10 GBP12.72 1 year/2 years/3 years 36.6%/51.0%/48.0% 1.5 years/2.5 years/3.5 years 2.98% 0.31% 10% p.a GBP8.2/GBP7.9/GBP7.6/GBP12.2/GBP11.9/GBP11.6 The Group recognised total expenses of US$28.6 million and US$32.8 million related to equity-settled share-based payment transactions in the year ended 31 March 2015 and 31 March 2014 respectively. 33. Retirement benefits The Group operates pension schemes for the majority of its employees in India, Australia, Africa and Ireland. (a) Defined contribution schemes Indian pension schemes Central Recognised Provident Fund The Central Recognised Provident Fund relates to all full-time Indian employees of the Group. The amount contributed by the Group is a designated percentage of 12% of basic salary less contributions made as part of the Pension Fund (see below), together with an additional contribution of 12% (limited to a maximum contribution of 30% in case of Iron Ore Segment) of the salary of the employee. The benefit is paid to the employee on their retirement or resignation from the Group. Superannuation Superannuation, another pension scheme applicable in India, is applicable only to executives in grade M4 and above. However, in case of the Cairn India Group and Iron Ore Segment, the benefit is applicable to all executives. In Cairn India, it is applicable from the second year of employment. Certain companies hold policies with the Life Insurance Corporation of India (LIC), to which they contribute a fixed amount relating to superannuation, and the pension annuity is met by the LIC as required, taking into consideration the contributions made. Accordingly, this scheme has been accounted for on a defined contribution basis and contributions are charged directly to the income statement. Pension Fund The Pension Fund was established in 1995 and is managed by the Government of India. The employee makes no contribution to this fund but the employer makes a contribution of 8.33% of salary each month subject to a specified ceiling per employee. This must be provided for every permanent employee on the payroll. At the age of superannuation, contributions cease and the individual receives a monthly payment based on the level of contributions through the years, and on their salary scale at the time they retire, subject to a maximum ceiling of salary level. The Government funds these payments, thus the Group has no additional liability beyond the contributions that it makes, regardless of whether the central fund is in surplus or deficit. Australian pension scheme The Group also operates defined contribution pension schemes in Australia. The contribution of a proportion of an employee’s salary into a superannuation fund is a compulsory legal requirement in Australia. The employer contributes 9.5% of the employee’s gross remuneration where the employee is covered by the industrial agreement and 12.5% of the basic remuneration for all other employees, into the employee’s fund of choice. All employees have the option to make additional voluntary contributions. Zambian pension scheme The KCM Pension Scheme is applicable to full-time permanent employees of KCM (subject to the fulfilment of certain eligibility criteria). The management of the scheme is vested in the trustees consisting of representatives of the employer and the members. The employer makes a monthly contribution to the KCM Pension Scheme and the member makes monthly contributions. Vedanta Resources plc Annual report and accounts FY2015 187 33. Retirement benefits continued All contributions to the KCM Pension Scheme in respect of a member cease to be payable when the member attains normal retirement age of 55 years, or upon leaving the service of the employer, or when the member is permanently medically incapable of performing duties in the service of the employer. Upon such cessation of contribution on the grounds of normal retirement, or being rendered medically incapable of performing duties, or early voluntary retirement, the member is entitled to receive his accrued pension. The member is allowed to commute his/her accrued pension subject to certain rules and regulations. The Group has no additional liability beyond the contributions that it makes. Accordingly, this scheme has been accounted for on a defined contribution basis and contributions are charged directly to the income statement. Skorpion Zinc Provident Fund, Namibia The Skorpion Zinc Provident Fund is a defined contribution fund and is compulsory to all full time employees under the age of 60. Company contribution to the fund is a fixed percentage of 9% per month of pensionable salary, whilst the employee contributes 7% with the option of making additional contributions, over and above the normal contribution, up to a maximum of 12%. Normal retirement age is 60 years and benefit payable is the member’s fund credit which is equal to all employer and employee contributions plus interest. The same applies when an employee resigns from Skorpion Zinc. The Fund provides disability cover which is equal to the member’s fund credit and a death cover of two times annual salary in the event of death before retirement. Current membership total is 810. The Group has no additional liability beyond the contributions that it makes. Accordingly, this scheme has been accounted for on a defined contribution basis and contributions are charged directly to the income statement. Black Mountain Mining (Pty) Limited, South Africa pension and provident funds Black Mountain Mining (Pty) Ltd has two retirement funds, both administered by Alexander Forbes, a registered financial service provider. Both funds form part of the Alexander Forbes umbrella fund and are defined contribution funds. Membership of both funds is compulsory for all permanent employees under the age of 60. Lisheen Mine, Ireland pension funds Lisheen Pension Plan is for all employees. Lisheen pays 5% and employees pay 5% with the option to make Additional Voluntary Contributions (AVCs) if desired. Executive contributions are 15% by Lisheen and a minimum of 5% by the employee with the option to make AVCs if desired. Death benefit is three times salary for employees and four times salary for executives. Pension and life cover ceases at 65. On wind up of the pension schemes, the benefits will be paid out to the remaining members in accordance with the scheme rules and Irish Revenue tax regulations. The Group has no additional liability beyond the contributions that it makes. Accordingly, this scheme has been accounted for on a defined contribution basis and contributions are charged directly to the income statement. (b) Defined benefit schemes India The Gratuity schemes are defined benefit schemes which are open to all Group employees in India who have a minimum of five years of service with their employing company. These schemes are funded in some subsidiaries. Based on actuarial valuation, a provision is recognised in full for the projected obligation over and above the funds held in scheme. In case where there is no funding held by the scheme, full provision is recognised in the balance sheet. Under these schemes, benefits are provided based on final pensionable pay. The assets of the schemes are held in separate funds and a full actuarial valuation of the schemes is carried out on an annual basis. Vedanta Limited The Iron Ore, Aluminium and Copper divisions of Vedanta Limited contributed to the LIC Fund based on an actuarial valuation every year. Vedanta Limited’s Gratuity scheme is accounted for on a defined benefit basis. The latest actuarial valuation was performed as at 31 March 2015 using the projected unit credit actuarial method. At that date the fund was in deficit. BALCO All employees who are scheduled to retire on or before 31 March 2015 are being paid by BALCO. The Gratuity scheme is accounted for as a defined benefit scheme for all employees scheduled to retire after 31 March 2015. A provision is recognised based on the latest actuarial valuation which was performed as at 31 March 2015 using the projected unit actuarial method. At that date the fund was in deficit. HZL HZL contributes to the LIC fund based on an actuarial valuation every year. HZL’s Gratuity scheme is accounted for on a defined benefit basis. The latest actuarial valuation was performed as at 31 March 2015 using the projected unit actuarial method. At that date the fund was in deficit. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 188 Financial statements Notes to the Financial Statements continued 33. Retirement benefits continued MEL MEL contributed to the LIC fund based on an actuarial valuation every year. The MEL Gratuity scheme is accounted for on a defined benefit basis. The latest actuarial valuation was performed as at 31 March 2015 using the projected unit credit actuarial method. At that date the fund was in surplus. TSPL TSPL contributes to the LIC based on an actuarial valuation. Liabilities with regard to the Gratuity scheme are fully provided in the balance sheet and are determined by actuarial valuation as at the balance sheet date and as per gratuity regulations for TSPL. The latest actuarial valuation was performed as at 31 March 2015 using the projected unit actuarial method. Cairn Cairn contributes to the LIC fund based on an actuarial valuation every year. Cairn India Group’s Gratuity scheme is accounted for on a defined benefit basis. The latest actuarial valuation was performed as at 31 March 2015 using the projected unit actuarial method. At that date the fund was in deficit. Zambia Specified permanent employees of KCM are entitled to receive medical and retirement severance benefits. This comprises two months’ basic pay for every completed year of service with an earliest service start date of 1 July 2004. Under this scheme, benefits are provided based on final pensionable pay and a full actuarial valuation of the scheme is carried out on an annual basis. The accruals are not contributed to any fund and are in the form of provisions in KCM’s accounts. On the death of an employee during service, a lump sum amount is paid to his or her dependants. This amount is equal to 60 months’ basic pay for employees who joined before 1 April 2000 and 30 months’ basic pay for employees who joined on or after 1 April 2000. For fixed term contract employees, the benefit payable on death is 30 months’ basic pay. As at 31 March 2015, membership of pension schemes across Vedanta Limited, BALCO, HZL, MEL, TSPL, KCM and Cairn stood at 24,456 employees (31 March 2014: 25,286). The deficits, principal actuarial assumptions and other aspects of these schemes are disclosed in further detail in notes (d) and (e) below. (c) Pension scheme costs Contributions of US$74.6 million and US$nil in respect of defined benefit schemes were outstanding and prepaid respectively as at 31 March 2015 (2014: US$62.9 million and US$nil respectively). Contributions to all pension schemes in the year ending 31 March 2016 are expected to be around US$5.6 million. (US$ million) Defined contribution pension schemes Defined benefit pension schemes Total expense Year ended 31 March 2015 Year ended 31 March 2014 30.7 19.7 50.4 25.7 16.7 42.4 (d) Principal actuarial assumptions. Principal actuarial assumptions used to calculate the defined benefit schemes’ liabilities are: MEL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn TSPL Particulars Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Mar 15 Mar 14 Discount rate 7.8% 9.0% 9.0% 9.0% 7.8% 9.0% 7.8% 9.0% 22.5% 17.9% 7.8% 9.0% 7.8% 9.0% 7.8% 9.0% 7.8% 9.0% Salary 3.0%– 5.0% 5.3% 6.0% 5.5% 5.5% 5.0% 5.0% 6.0% 6.0% 7.0% 7.0% 10.0% 12.0% 5.5% 5.5% 5.0% 5.0% 5.0% 76 76 3,059 3,578 1,078 1,131 5,286 5,532 7,281 7,230 2,738 2,765 2,372 3,119 1,569 1,614 211 131 1 Jharsuguda Aluminium earlier ‘VAL’, Iron ore Sesa earlier ‘Sesa Goa’ and Sterlite Copper earlier ‘Sterlite’ became divisions of Vedanta Limited post merger (refer Note 45). In India, the mortality tables used, assume that a person aged 60 at the end of the balance sheet date has a future life expectancy of 19 years. Assumptions regarding mortality for Indian entities are based on mortality table of ‘Indian Assured Lives Mortality (2006-2008)’ published by the Institute of Actuaries of India. Assumptions regarding mortality for KCM are based on World Health Organisation Life Tables for 1999 applicable to Zambia which has been taken as a reference point. Based on this a mortality table which is appropriate for the workers of Konkola Copper Mines plc has been derived. increases Number of employees Vedanta Resources plc Annual report and accounts FY2015 189 33. Retirement benefits continued (e) Balance sheet recognition MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total 31 March 2015 31 March 2014 0.3 – 2.5 26.8 – 1.5 9.0 4.9 45.0 0.2 – 3.2 27.9 – 1.4 8.2 4.9 45.8 (0.3) (20.8) (3.5) (35.8) (39.8) (2.4) (9.3) (7.7) (119.6) (0.2) (21.2) (3.4) (29.4) (35.5) (1.7) (9.8) (7.5) (108.7) (US$ million) Fair value of pension scheme assets Present value of pension scheme liabilities Deficit in pension scheme recognised in balance sheet Deferred tax Net pension liability – – – (20.8) 7.1 (1.0) 0.3 (9.0) 3.1 (39.8) 13.5 (0.9) 0.3 (0.3) 0.1 (2.8) 1.0 (74.6) 25.4 (13.7) (0.7) (5.9) (26.3) (0.6) (0.2) (1.8) (49.2) – – – (21.2) 7.2 (0.2) 0.1 (1.5) 0.5 (35.5) 10.6 (0.3) 0.1 (1.6) 0.6 (2.6) 0.9 (62.9) 20.0 (14.0) (0.1) (1.0) (24.9) (0.2) (1.0) (1.7) (42.9) (f) Amounts recognised in income statement in respect of defined benefit pension schemes MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 31 March 2015 31 March 2014 0.1 0.0 0.5 1.6 0.2 0.2 2.0 0.5 6.2 6.4 0.3 0.0 0.6 0.2 0.6 10.5 0.3 9.2 0.7 1.5 0.3 0.1 1.3 0.3 5.6 4.5 0.2 0.1 (US$ million) Current service cost Net Interest cost Iron Ore Sesa1 0.6 0.1 Cairn Total 1.2 0.2 9.9 6.8 Total charge to income statement 0.1 2.1 0.4 2.5 12.6 0.3 0.8 0.9 19.7 (g) Amounts recognised in the Statement of Comprehensive Income 2.2 0.4 1.6 10.1 0.3 0.7 1.4 16.7 – – – MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total 31 March 2015 31 March 2014 Actuarial (gains)/ losses on defined benefit obligation Actuarial (gains)/ losses on plan asset Remeasurement of the net defined benefit liability (asset) 0.1 3.7 0.5 6.2 2.8 0.6 0.4 (0.1) 14.2 (0.1) 1.0 (0.6) 0.5 2.4 0.4 1.3 0.1 5.0 (0.1) – – – – – (0.1) – (0.2) – – – (0.6) – – (0.1) (0.1) (0.8) – 3.7 0.5 6.2 2.8 0.6 0.3 (0.1) 14.0 (0.1) 1.0 (0.6) (0.1) 2.4 0.4 1.2 – 4.2 1 Jharsuguda Aluminium earlier ‘VAL’, Iron ore Sesa earlier ‘Sesa Goa’ and Sterlite Copper earlier ‘Sterlite’ became divisions of Vedanta Limited post merger (refer Note 45). Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 190 Financial statements Notes to the Financial Statements continued 33. Retirement benefits continued (h) Movements in the present value of defined benefit obligations The movement during the year ended 31 March 2015 of the present value of the defined benefit obligation was as follows: MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total MEL & TSPL BALCO Sterlite Copper1 HZL KCM Jharsuguda Aluminium1 Iron Ore Sesa1 Cairn Total 31 March 2015 31 March 2014 (0.1) (21.2) (3.5) (29.4) (35.5) (1.7) (9.8) (7.5) (108.7) (0.2) (23.2) (4.0) (35.3) (32.4) (1.4) (9.6) (6.8) (112.9) (0.1) (0.5) (0.2) (2.0) (6.2) (0.3) (0.6) (0.6) (10.5) – 5.7 0.9 4.4 4.3 0.2 1.0 0.6 17.1 (0.1) (1.6) (0.3) (2.6) (6.6) (0.1) (0.9) (0.3) (12.5) – – – (0.7) (0.3) (1.3) (5.6) (0.2) (0.6) (1.2) (9.9) 3.1 0.1 6.2 9.5 0.3 1.5 0.3 21.0 (1.5) (0.3) (2.5) (4.6) (0.1) (0.8) (0.5) (10.3) 0.1 (3.7) (0.5) (6.2) (2.8) (0.6) (0.5) (0.0) (14.2) 0.1 (1.0) 0.6 (0.5) (2.4) (0.4) (1.3) (0.1) (5.0) 0.5 0.2 – 7.0 0.1 1.3 0.1 9.2 – 2.1 0.4 4.0 – 0.1 1.0 0.8 8.4 (US$ million) At 1 April Current service cost Gratuity benefits paid Interest cost of scheme liabilities Remeasurement gains/(losses) Exchange difference At 31 March (0.2) (20.8) (3.4) (35.8) (39.8) (2.4) (9.5) (7.7) (119.6) (0.1) (21.2) (3.5) (29.4) (35.5) (1.7) (9.8) (7.5) (108.7) 1 Jharsuguda Aluminium earlier ‘VAL’, Iron Ore Sesa earlier ‘Sesa Goa’ and Sterlite Copper earlier ‘Sterlite’ became divisions of Vedanta Limited post merger (refer Note 45). (i) Movements in the fair value of plan assets (US$ million) At 1 April Contributions received Benefits paid Remeasurements Interest income Foreign exchange differences At 31 March (j) Five year history Defined benefit pension plan As at 31 March 2015 As at 31 March 2014 45.8 4.0 (6.6) 0.2 3.3 (1.7) 45.0 46.2 18.5 (18.0) 0.8 3.5 (5.2) 45.8 (US$ million) Experience losses arising on scheme liabilities Difference between expected and actual return on plan assets Fair value of pension scheme assets Present value of pension scheme liabilities Deficits in the schemes As at 31 March 2015 As at 31 March 2014 As at 31 March 2013 As at 31 March 2012 As at 31 March 2011 (14.2) 0.2 45.0 (119.6) (74.6) (5.0) 0.8 45.8 (108.7) (62.9) (6.9) 0.6 46.2 (112.9) (66.7) (7.0) – 47.8 (106.9) (59.1) (20.4) – 39.3 (96.1) (56.8) Vedanta Resources plc Annual report and accounts FY2015 191 33. Retirement benefits continued (k) Sensitivity analysis Below is the sensitivity analysis determined for significant actuarial assumptions for the determination of defined benefit obligations and based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period while holding all other assumptions constant. (US$ million) Discount rate Increase by 0.50% Decrease by 0.50% Salary increase Increase by 0.50% Decrease by 0.50% Increase/ (decrease) in defined benefit obligation (2.6) 2.7 2.3 (2.2) The above sensitivity analysis may not be representative of the actual benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. (l) Risk analysis Group is exposed to a number of risks in the defined benefit plans. Most significant risks pertaining to defined benefits plans and management estimation of the impact of these risks are as follows: Investment risk Most of the Indian defined benefit plans are funded with Life Insurance Corporation of India. The Group does not have any liberty to manage the funds provided to Life Insurance Corporation of India. The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to the Government of India bonds for Group’s Indian operations. If the return on plan asset is below this rate, it will create a plan deficit. Interest risk A decrease in the interest rate on plan assets will increase the plan liability. Longevity risk/life expectancy The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and at the end of the employment. An increase in the life expectancy of the plan participants will increase the plan liability. Salary growth risk The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. An increase in the salary of the plan participants will increase the plan liability. 34. Capital management The Group’s objectives when managing capital are to safeguard continuity, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth. The Group sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments. The funding requirement is met through a mixture of equity, internal accruals, convertible bonds and other long-term and short-term borrowings. The Group monitors capital using a gearing ratio, being the ratio of net debt as a percentage of total capital. (US$ million) Total equity Net debt Total capital Gearing As at 31 March 2015 As at 31 March 2014 12,257.4 8,458.0 17,974.8 7,919.5 20,715.4 25,894.3 40.8% 30.6% The increase in the gearing ratio compared to 2014 ratio is primarily due to decrease in total equity pursuant to one-time impairment charge on oil & gas assets of US$4,504.1 (net of deferred tax of US$2,138 million) (Note 5). Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 192 Financial statements Notes to the Financial Statements continued 35. Share capital Authorised Ordinary shares of 10 US cents each Deferred shares of £1 each Ordinary shares issued and fully paid Ordinary shares of 10 US cents each Deferred shares of £1 each At 31 March 2015 At 31 March 2014 Number US$ million Number US$ million 400,000,000 50,000 400,050,000 40.0 – 400,000,000 50,000 40.0 400,050,000 40.0 – 40.0 At 31 March 2015 At 31 March 2014 Number US$ million Number US$ million 299,868,180 50,000 299,918,180 30.0 – 298,182,135 50,000 30.0 298,232,135 29.8 – 29.8 During the year ended 31 March 2015, the Company issued 1,686,045 shares at face value of 10 US cents per share to the employees pursuant to the Vedanta LTIP and ESOP schemes (2014: 550,275 shares). The holders of deferred shares do not have the right to receive notice of any general meeting of the Company nor the right to attend, speak or vote at any such general meeting. The deferred shares have no rights to dividends and, on a winding-up or other return of capital, entitle the holder only to the payment of the amounts paid on such shares after repayment to the holders of ordinary shares of the nominal amount paid up on the ordinary shares plus the payment of £100,000 per ordinary share. Of the 50,000 deferred shares, one deferred share was issued at par and has been fully paid, and 49,999 deferred shares were each paid up as to one-quarter of their nominal value. As on 31 March 2015, 6,904,995 ordinary shares which were issued on the conversion of certain convertible bonds issued by one of the Group’s subsidiaries are held through a Global Depositary Receipts and carry no voting rights. At 31 March 2015, the total number of treasury shares held was 24,206,816 (2014: 24,206,816). 36. Non-controlling interests (NCI) The Group consists of a parent Company, Vedanta Resources plc, incorporated in the UK and a number of subsidiaries held directly and indirectly by the Group which operate and are incorporated around the world. Note 44 to the financial statements lists details of the interests in the subsidiaries. Non-controlling interests that are material to the Group relate to Hindustan Zinc Limited (HZL), Cairn India Limited (Cairn) and Vedanta Limited. As at 31 March 2015, NCIs hold an economic interest of 59.20%, 62.36% and 37.15% respectively in HZL, Cairn and Vedanta Limited. The respective NCI holdings in 2014 were 62.15%, 65.74% and 41.70% respectively. The changes in NCI during the current year were pursuant to the additional investment in shares of Vedanta Limited and buyback of ordinary shares by Cairn India details of which are set out in Note 41. Principal place of business of HZL, Cairn and Vedanta Limited is in India (refer to Note 44). The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests: (US$ million) Particulars Profit/(loss) attributable to NCI Equity attributable to NCI Dividends paid to NCI Year ended 31 March 2015 Year ended 31 March 2014 HZL Cairn Vedanta Limited Others1 Total HZL Cairn Vedanta Limited2 Others1 Total 813.8 (2,608.9) 74.7 (268.7) (1,989.1) 713.1 553.4 117.1 (198.2) 1,185.4 4,310.9 6,903.6 2,199.9 (2,760.1) 10,654.3 3,997.5 10,520.1 777.2 (1,330.4) 13,964.4 (107.8) (165.4) (67.2) – (340.4) (88.9) (190.4) (59.3)3 (7.3) (345.9) 1 Others consist of investment subsidiaries of Vedanta Limited and other individual non-material subsidiaries. 2 Including the impact of merger during the year ended 31 March 2014. Refer to Note 45. 3 Including dividends paid by SIIL during year ended 31 March 2014, before merger. 4 For principal activities, country of incorporation and immediate holding company of the above subsidiaries refer to Note 44. Vedanta Resources plc Annual report and accounts FY2015 193 36. Non-controlling interests (NCI) continued Summarised financial information in respect of Group’s subsidiaries that have material non-controlling interests is set out below. The summarised financial information below is on a 100% basis and before inter-company eliminations: (US$ million) Particulars Non-current assets Current assets Current liabilities Non-current liabilities Net assets Particulars Revenue Profit/(loss) for the year Other comprehensive income/(loss) As at 31 March 2015 As at 31 March 2014 HZL Cairn Vedanta Limited2 2,193.2 5,305.9 (267.9) (22.1) 10,407.1 3,794.8 (957.4) (2,148.3) 11,502.0 1,614.8 (3,576.3) (3,732.2) HZL Cairn 2,011.7 4,666.5 (235.7) (10.6) 16,208.4 4,908.3 (718.5) (4,395.6) Vedanta Limited2 9,844.0 2,236.8 (5,952.1) (4,264.8) 7,209.1 11,096.2 5,808.3 6,431.9 16,002.6 1,863.9 Year ended 31 March 2015 Year ended 31 March 2014 HZL Cairn 2,385.8 1,360.8 (5.7) 2,397.5 (4,193.4) – Vedanta Limited2 5,290.4 199.1 (37.2) HZL Cairn 2,224.8 1,146.3 (3.5) 3,092.8 905.8 – Vedanta Limited2 4,682.7 (402.8) 4.9 The effect of changes in ownership interests in subsidiaries that did not result in a loss of control is as follows: (US$ million) Year ended 31 March 2015 HZL Cairn Vedanta Limited Others Total Changes in NCI due to buyback and investment (197.2) (531.5) (83.3) 167.9 (644.1) Changes in NCI due to reorganisation scheme 5 Including changes in merged entities (refer to Note 45). Year ended 31 March 2014 HZL Cairn Vedanta Limited2 Others Total (9.7) 2,372.5 (342.7)5 (2,646.9) (626.8) 37. Joint arrangements Joint operations The Group’s principal licence interests in the Oil & Gas business are joint operations. The principal licence interests are as follows: India Block PKGM-1 (Ravva) Block KG-ONN-2003/1 Block CB-OS/2-Exploration Block CB/OS-2 Development and production areas Block RJ-ON-90/1 Development and production areas Block RJ-ON-90/1-Exploration Block PR-OSN-2004/1 Block KG-OSN-2009/3 Block MB-DWN-2009/1 South Africa South Africa Block 1 Sri Lanka SL-2007-01-001 Working interest % 22.50 49.00 60.00 40.00 70.00 100.00 35.00 100.00 100.00 60.00 100.00 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 194 Financial statements Notes to the Financial Statements continued 38. Commitments, guarantees and contingencies Commitments The Group has a number of continuing operational and financial commitments in the normal course of business including: • exploratory mining commitments; • oil & gas commitments; • mining commitments arising under production sharing agreements; and • completion of the construction of certain assets. (US$ million) Capital commitments contracted but not provided Commitments primarily related to the expansion projects: HZL KCM Jharsuguda Aluminium Jharsuguda 2,400MW power plant BALCO Talwandi Sabo Sterlite Copper Cairn Total As at 31 March 2015 As at 31 March 2014 1,973.7 2,702.7 As at 31 March 2015 274.4 – 508.6 33.7 69.5 96.1 220.8 700.2 As at 31 March 2014 446.7 6.6 621.0 31.5 73.2 141.9 236.6 1,052.3 1,903.3 2,609.8 Guarantees Companies within the Group provide guarantees within the normal course of business. Guarantees have also been provided in respect of certain short-term and long-term borrowings. A summary of the most significant guarantees is set out below: As at 31 March 2015, US$365.4 million of guarantees were advanced to banks, suppliers etc. in the normal course of business (2014: US$234.9 million). The Group has also entered into guarantees and bonds advanced to the customs authorities in India of US$228.9 million relating to the export and payment of import duties on purchases of raw material and capital goods including export obligations (2014: US$727.2 million). Cairn PSC guarantee to Government The Group has provided a parent Company guarantee for the Cairn India Group’s obligation under the Production Sharing Contract (PSC). Cairn India have provided various other guarantees under the Cairn India Group’s bank facilities for the Cairn India Group’s share of minimum work programme commitments of US$15.6 million outstanding as of 31 March 2015 (2014: US$18.9 million). Export obligations The Indian entities of the Group have export obligations of US$2,688.0 million (2014: US$3,789.9 million) on account of concessional rates of import duty paid on capital goods under the Export Promotion Capital Goods Scheme and under the Advance Licence Scheme for import of raw material laid down by the Government of India. In the event of the Group’s inability to meet its obligations, the Group’s liability would be US$429.1 million (2014: US$478.4 million), reduced in proportion to actual exports, plus applicable interest. Contingencies MEL claims with Tamil Nadu Electricity Board (TNEB) TNEB is claiming US$16.3 million from MEL for an electricity self-generation levy for the period from May 1999 to June 2003. This claim has arisen since the commissioning of MEL’s captive power plant in 1999. The Company has sought an exemption from the application of this levy from the Government of Tamil Nadu. The application is under consideration. Meanwhile, the Madras High Court has in its recent order, remitted back the case to the State of Tamil Nadu, to take a decision afresh on the representation for grant of tax exemption on consumption of electricity and directed to pass a detailed speaking order. MEL has accordingly represented before the Government of Tamil Nadu Energy Secretary, Government of Tamil Nadu avide of his letter dated 20 March 2013 denied the exemption citing various reasons and asked MEL to remit US$15.7 million. MEL moved to the High Court of Madras and a stay was granted on the same. Vedanta Resources plc Annual report and accounts FY2015 195 38. Commitments, guarantees and contingencies continued HZL: Department of Mines and Geology The Department of Mines and Geology of the State of Rajasthan issued several show cause notices in August, September and October 2006 to HZL, totalling US$53.3 million. These notices alleged unlawful occupation and unauthorised mining of associated minerals other than zinc and lead at HZL’s Rampura Agucha, Rajpura Dariba and Zawar mines in Rajasthan during the period from July 1968 to March 2006. HZL believes that the claim becoming an obligation of the Company is unlikely and thus no provision has been made in the financial statements. HZL has filed writ petitions in the High Court of Rajasthan in Jodhpur and has obtained a stay in respect of these demands. Richter and Westglobe: income tax The Group through its subsidiaries Richter Holdings Limited (Richter) and Westglobe Limited (Westglobe) in 2007 acquired the entire stake in Finsider International Company Limited based in the United Kingdom. Finsider at that point in time held 51% stake in Vedanta Limited (formerly Sesa Sterlite Limited). In October 2013, the Indian Tax Authorities (Tax Authorities) have served an order on Richter and Westglobe for alleged failure to deduct withholding tax on capital gain on the indirect acquisition of shares in April 2007. The Tax Authorities held that Richter and Westglobe were assessed in default for non-deduction of tax while making payment for acquiring the shares in 2007. The Tax Authorities determined the liability for such non-deduction of tax as US$140.0 million in the case of Richter and US$93.2 million in the case of Westglobe, comprising tax and interest. Being aggrieved, Richter and Westglobe filed appeals before the first appellate authority. Writ petitions were filed in the High Court of Karnataka challenging the constitutional validity of retrospective amendments made by the Finance Act 2012 and in particular the imposition of obligations to deduct tax on payments made against an already concluded transaction. These Writs are pending for disposal. In the interim, the Tax Authorities disposed of the petition filed for stay for demand arising out of impugned orders. Consequent to an order received from the Tax Authorities in March 2015, any amounts payable from Vedanta Limited to Westglobe, including dividends as and when declared, must instead be paid to the Tax Authorities (up to the amount of tax assessment). Richter and Westglobe sought intervention by the High Court by filing an application. The aforementioned Writ as well as connected application are due to be heard during June 2015. Richter and Westglobe believe that they are not liable for such withholding tax and intend to defend the proceedings. Cairn India: income tax In March 2014, Cairn India received a show cause notice from the Indian Tax Authorities (Tax Authorities) for not deducting withholding tax on the payments made to Cairn UK Holdings Limited (CUHL) UK, for acquiring shares of Cairn India Holdings Limited (CIHL), as part of their internal reorganisation. Tax Authorities have stated in the said notice that a short-term capital gain has accrued to CUHL on transfer of the shares of CIHL to Cairn India, in financial year 2006–2007, on which tax should have been withheld by the Company. Pursuant to this various replies were filed with the Tax Authorities. After hearings, the Income Tax Authority, during March 2015, have issued an order by holding Cairn India as ‘assessee in default’ and asked to pay such demand totalling US$3,274.4 million (US$1,637.1 million being the tax element and US$1,637.1 million on account of interest). The Company has filed a Notice of Claim by invoking the Bilateral Investment Promotion Treaty between the UK and India. Cairn India has filed its appeal before the CIT (A) and filed a fresh Writ petition before Delhi High Court wherein it raised several points for assailing the aforementioned order. The hearing of the said Writ is due on 18 May 2015. Vedanta Limited: contractor claim Shenzhen Shandong Nuclear Power Construction Co. Limited (SSNP) subsequent to terminating the EPC contract invoked arbitration as per the contract alleging non-payment of their dues towards construction of a 210MW co-generation power plant for 6MTPA expansion project, and filed a claim of US$248.1 million. SSNP also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court praying for interim relief. The Bombay High Court initially dismissed their petition, but on a further appeal by SSNP, the Division Bench of the Bombay High Court directed Jharsuguda Aluminium to deposit a bank guarantee for an amount of US$27.8 million as a security, being a prima facie representation of the claim, until arbitration proceedings are completed. Jharsuguda Aluminium has deposited a bank guarantee of an equivalent amount. Management is of the opinion that this claim is not valid under the terms of the contract with SSNP and it is unlikely that SSNP can legally sustain the claim and accordingly, no provision is considered necessary. Miscellaneous disputes – Vedanta Limited, HZL, MEL, BALCO, Cairn, Lisheen, VRJL and VRJL-II The Group is subject to various claims and exposures which arise in the ordinary course of conducting and financing its business from the income tax, excise, indirect tax authorities and others. These claims and exposures mostly relate to the assessable values of sales and purchases or to incomplete documentation supporting the companies’ returns or other claims. The approximate value of claims against the Group companies total US$1,370.7 million (2014: US$1,150.1 million), of which US$29.3 million (2014: US$30.2 million) is included as a provision in the balance sheet as at 31 March 2015 (including claims of US$583.1 million in respect of income tax assessments out of which US$2.3 million is included as a provision in the balance sheet as at 31 March 2015). The Group considers that it can take steps such that the risks can be mitigated and that there are no significant unprovided liabilities arising. Operating lease commitments: as lessee Operating leases are in relation to the office premises, office equipment and other assets, some of which are cancellable and some are non-cancellable. There is an escalation clause in the lease agreements during the primary lease period. There are no restrictions imposed by lease arrangements and there are no sub leases. There are no contingent rents. The total of the future minimum lease payments under non-cancellable leases are as follows: Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 196 Financial statements Notes to the Financial Statements continued 38. Commitments, guarantees and contingencies continued (US$ million) Particulars Within one year of the balance sheet date Within two to five years from the balance sheet date Total As at 31 March 2015 As at 31 March 2014 4.9 5.6 10.5 5.1 16.9 22.0 Lease payments recognised as expenses during the year ended 31 March 2015, on non-cancellable leases, is US$3.9 million (31 March 2014: US$0.6 million). 39. Related party transactions The information below sets out transactions and balances between the Group and various related parties in the normal course of business for the year ended 31 March 2015. Sterlite Technologies Limited (STL) (US$ million) Sales to STL Reimbursement of expenses Purchases Net interest received Net amounts receivable at year end Year ended 31 March 2015 Year ended 31 March 2014 126.0 0.0 2.9 0.6 3.7 102.3 0.3 0.0 0.2 5.4 Sterlite Technologies Limited is related by virtue of having the same controlling party as the Group, namely Volcan. Pursuant to the terms of the Shared Services Agreement dated 5 December 2003 entered into by the Company and STL, the Company provides various commercial services in relation to STL’s businesses on an arm’s length basis and at normal commercial terms. For the year ended 31 March 2015, the commercial services provided to STL were performed by certain senior employees of the Group on terms set out in the Shared Services Agreement. The services provided to STL in this year amounted to US$0.02 million (2014: US$0.03 million). Vedanta Foundation During the year US$0.7 million was paid to the Vedanta Foundation (2014: US$0.7 million). The Vedanta Foundation is a registered not-for-profit entity engaged in computer education and other related social and charitable activities. The major activity of the Vedanta Foundation is providing computer education for disadvantaged students. The Vedanta Foundation is a related party as it is controlled by members of the Agarwal family who control Volcan. Volcan is also the majority shareholder of Vedanta Resources plc. Sesa Goa Community Foundation Limited Following the acquisition of erstwhile Sesa Goa Limited, the Sesa Goa Community Foundation Limited, a charitable institution, became a related party of the Group on the basis that key management personnel of the Group have significant influence on the Sesa Goa Community Foundation Limited. During the year ended 31 March 2015, US$0.4 million (2014: US$0.8 million) was paid to the Sesa Goa Community Foundation Limited. Sterlite Iron and Steel Limited (US$ million) Loan balance receivable Receivable at year end Net interest received Year ended 31 March 2015 Year ended 31 March 2014 0.5 0.4 0.2 2.7 0.4 0.4 Sterlite Iron and Steel Limited is a related party by virtue of having the same controlling party as the Group, namely Volcan. Vedanta Medical Research Foundation (US$ million) Donation Year ended 31 March 2015 Year ended 31 March 2014 0.7 0.9 Vedanta Resources plc Annual report and accounts FY2015 197 39. Related party transactions continued Vedanta Medical Research Foundation is a related party of the Group on the basis that key management personnel of the Group exercise significant influence. Volcan Investments Limited (US$ million) Net amount receivable at the year end Recovery of expenses Dividend paid Year ended 31 March 2015 Year ended 31 March 2014 0.4 0.3 115.6 0.2 – 102.1 Volcan Investments Limited is a related party of the Group by virtue of being an ultimate controlling party of the Group. Public and Political Awareness Trust (US$ million) Donation Year ended 31 March 2015 Year ended 31 March 2014 – 0.02 The Public and Political Awareness Trust is a related party by virtue of being controlled by members of the Agarwal family. Ashurst LLP (US$ million) Services received during the year Year ended 31 March 2015 Year ended 31 March 2014 0.4 0.3 Ashurst LLP is a related party of the Group on the basis that an Independent Director of the Group was a partner in the legal firm Ashurst LLP during the year ended 31 March 2015. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director (whether executive or otherwise). Remuneration of key management personnel (US$ million) Short-term employee benefits Post-employment benefits Share-based payments Termination Benefits Other related party2 (US$ million) Salary paid Interest bearing salary advance1 1 Since repaid. 2 Close relative of the Executive Chairman. Year ended 31 March 2015 Year ended 31 March 2014 15.9 0.8 2.5 – 19.2 13.6 0.9 3.1 0.3 17.9 Year ended 31 March 2015 Year ended 31 March 2014 1.0 1.5 0.4 – Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 198 Financial statements Notes to the Financial Statements continued 40. Share transactions (a) Call option – HZL In pursuance to the Government of India’s policy of disinvestment and the Share Purchase Agreement and a Shareholder’s Agreement (SHA) both dated 4 April 2002 entered into with the Government of India, the Company acquired 26% equity interest in HZL. Under the terms of the SHA, the Group had two call options to purchase all of the Government of India’s shares in HZL at fair market value. The Group exercised the first call option on 29 August 2003 and acquired an additional 18.9% of HZL’s issued share capital. The Company also acquired an additional 20% of the equity capital in HZL through an open offer, increasing its shareholding to 64.9%. The second call option provides the Group the right to acquire the Government of India’s remaining 29.5% share in HZL. This call option is subject to the right of the Government of India to sell 3.5% of HZL shares to HZL employees. The Group exercised the second call option via its letter dated 21 July 2009. The Government of India disputed the validity of call option and has refused to act upon the second call option. Consequently the Company invoked arbitration and filed a statement of claim. The arbitration proceedings are under progress in early stages. The next date of hearing is fixed for 8 August 2015. (b) Call option – BALCO The Group purchased a 51.0% holding in BALCO from the Government of India on 2 March 2001. Under the terms of the shareholder’s agreement (SHA) for BALCO, the Group has a call option that allows it to purchase the Government of India’s remaining ownership interest in BALCO at any point from 2 March 2004. The Group exercised this option on 19 March 2004. However, the Government of India has contested the valuation and validity of the option and contended that the clauses of the SHA violate the provision of Section 111A of the (Indian) Companies Act, 1956 by restricting the rights of the Government of India to transfer its shares and that as a result such provisions of the SHA were null and void. Subsequently the Group referred the matter to arbitration as provided in the SHA and the majority award of the arbitral tribunal rejected the claims of the Group on the grounds that the clauses relating to the call option, the right of first refusal, the ‘tag-along’ rights and the restriction on the transfer of shares violate the (Indian) Companies Act, 1956 and are not enforceable. The Group challenged the validity of the majority award under section 34 of the Arbitration and Conciliation Act, 1996 in the High Court of Delhi and sought for setting aside the arbitration award to the extent that it holds these clauses ineffective and inoperative. The Government of India also filed an application before the High Court of Delhi to partially set aside the arbitral award in respect of certain matters involving valuation. The High Court of Delhi passed an order dated 10 August 2011 directing our application and the application by the Government of India to be heard together as they arise from a common arbitral award. The matter is currently pending before the High Court of Delhi and scheduled for final hearing on 3 August 2015. On 9 January 2012, the Group offered to acquire the Government of India’s interests in HZL and BALCO for US$2,577.7 million and US$296.5 million, respectively. The Group has, by way of letters dated 10 April 2012 and 6 July 2012, sought to engage with the Government of India on the same terms as the offer. This offer was separate from the contested exercise of the call options, and the Group proposed to withdraw the ongoing litigations in relation to the contested exercise of the options should the offer be accepted. To date, the offer has not been accepted by the Government of India and therefore there is no certainty that the acquisition will proceed. The Group continues to include the shareholding in the two companies HZL and BALCO, in respect of which the Group has a call option as non-controlling interest. 41. Share purchases During the year ended 31 March 2015, the Group increased its holding in one of its subsidiaries Vedanta Limited through open market purchases. The Group purchased 135,373,715 shares of Vedanta Limited for US$629.4 million accounting for 4.55% of its equity share capital. Also during the year ended 31 March 2015, Cairn India bought back and cancelled its 33,433,290 shares through open market purchases for US$189.7 million accounting for 1.75% of its equity share capital. The total outflow of US$819.1 on account of investment and share buy-back have been reflected as a reduction to total equity in the Statement of Changes in Equity for the year ended 31 March 2015. 42. Konkola Copper Mines: value added tax An assessment of output tax amounting to US$600 million has been raised by the Zambia Revenue Authority (ZRA) covering the years 2011, 2012 and the first quarter of 2013. The basis of assessment is that KCM has not provided all the documentary evidence that is required under Rule 18 of the Value Added Tax Rules to prove an export and as a consequence, all sales of product that were zero rated in the returns have been standard rated by assessment. KCM has filed for judicial review of the ZRA’s decision to standard rate the export products. After legally analysing the interpretation of Rule 18, management believes that KCM has got a reasonably strong arguable defense in the case. Additionally KCM has US$169 million receivable on account of value added tax on Inputs that are yet to be recovered from the Zambian Government. KCM has submitted the complete documentation and got it reviewed by ZRA as per the previous Rule 18 for the period between August 2013 and December 2013. There are precedents where other companies have received refunds of such amounts from the Government on submission of documents. KCM is in the process of submitting the required documentation for the remaining months. Further, effective February 2015, Rule 18 has been amended by allowing exporters to submit transit documents issued by the customs authority in the country of transit of the goods instead of import certificates from the country of destination, as proof of export for purposes of VAT zero rating. This will make it easier to collect the refunds. The Group believes that it will receive a refund of the entire amount and there is no objective evidence of uncertainty around collectability. 43. Subsequent events There are no subsequent events that were identified which may have a bearing on the understanding of the financial statements. Vedanta Resources plc Annual report and accounts FY2015 199 44. List of subsidiaries The financial statements comprise the financial statements of the following subsidiaries: Subsidiaries Principal activities 31 March 2015 31 March 2014 Direct subsidiaries of the parent Company The Company’s economic percentage holding Country of incorporation Immediate holding company Immediate percentage holding 31 March 2015 31 March 2014 Vedanta Resources Holding Limited (VRHL) Holding company 100.00% 100.00% United Kingdom Vedanta Resources Jersey Limited (VRJL) Financing company 100.00% 100.00% Jersey (CI) Vedanta Resources Jersey II Limited Financing company 100.00% 100.00% Jersey (CI) (VRJL-II) Vedanta Finance (Jersey) Limited (VFJL) Financing company 100.00% 100.00% Jersey (CI) Vedanta Jersey Investments Limited (VJIL) Financing company 100.00% 100.00% Jersey (CI) VR plc 100.00% 100.00% VR plc VR plc VR plc VR plc 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Indirect subsidiaries of the parent Company Vedanta Limited (formerly Sesa Sterlite Limited) Copper smelting, iron ore mining, aluminium mining, refining and smelting, power generation 62.85% 58.29% India Twin Star 46.53% 46.20% Bharat Aluminium Company Limited Aluminium mining 32.05% 29.73% India Vedanta Limited 51.00% 51.00% (BALCO) and smelting Copper Mines of Tasmania Pty Limited (CMT) Copper mining Fujairah Gold FZE Gold and silver processing 62.85% 62.85% 58.29% Australia MCBV 100.00% 100.00% 58.29% UAE CMT 98.00% 98.00% Hindustan Zinc Limited (HZL) Zinc and mining and 40.80% 37.85% India Vedanta Limited 64.92% 64.92% smelting Monte Cello BV (MCBV) Holding company 62.85% 58.29% Netherlands Vedanta Limited 100.00% 100.00% Monte Cello Corporation NV (MCNV) Holding company 100.00% 100.00% Netherlands Twin Star 100.00% 100.00% Konkola Copper Mines PLC (KCM) Copper mining and 79.42% 79.42% Zambia VRHL 79.42% 79.42% Sesa Resources Limited (SRL) Sesa Mining Corporation Limited Sterlite Infra Limited (SIL)2 smelting Iron ore Iron ore Non-trading 62.85% 62.85% – 58.29% 58.29% 58.29% India Vedanta Limited 100.00% 100.00% India SRL 100.00% 100.00% India Vedanta Limited – 100.00% Thalanga Copper Mines Pty Limited (TCM) Copper mining 62.85% 58.29% Australia Twin Star Holdings Limited (Twin Star) Holding company 100.00% 100.00% Mauritius MCBV VRHL 100.00% 100.00% 100.00% 100.00% MALCO Energy Limited (MEL) Power generation 62.85% 58.29% India Vedanta Limited 100.00% 100.00% Richter Holding Limited (Richter) Financing company 100.00% 100.00% Cyprus VRCL 100.00% 100.00% Westglobe Limited Financing company 100.00% 100.00% Mauritius Richter 100.00% 100.00% Finsider International Company Limited Financing company 100.00% 100.00% Vedanta Resources Finance Limited (VRFL) Financing company 100.00% 100.00% Vedanta Resources Cyprus Limited (VRCL) Financing company 100.00% 100.00% Welter Trading Limited (Welter) Financing company 100.00% 100.00% United Kingdom United Kingdom Cyprus Cyprus Lakomasko B.V. Financing company 62.85% 58.29% Netherlands Richter 60.00% 60.00% VRHL 100.00% 100.00% VRFL VRCL THL Zinc Holding B.V. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% THL Zinc Ventures Limited Financing company 62.85% 58.29% Mauritius Vedanta Limited4 100.00% 100.00% Twin Star Energy Holdings Limited (TEHL) Holding company 100.00% 100.00% Mauritius BFM 100.00% 100.00% THL Zinc Limited Financing company 62.85% 58.29% Mauritius THL Zinc Ventures Ltd 100.00% 100.00% Sterlite (USA) Inc. Financing company 62.85% 58.29% USA Vedanta Limited 100.00% 100.00% Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 200 Financial statements Notes to the Financial Statements continued Subsidiaries Principal activities 31 March 2015 31 March 2014 The Company’s economic percentage holding Country of incorporation Immediate holding company Immediate percentage holding 31 March 2015 31 March 2014 Talwandi Sabo Power Limited Energy generation 62.85% 58.29% India Vedanta Limited 100.00% 100.00% Konkola Resources plc Holding company 100.00% 100.00% United Kingdom VRHL 100.00% 100.00% Twin Star Mauritius Holdings Limited (TMHL) Holding company THL Zinc Namibia Holdings (Pty) Limited Mining and (VNHL) exploration 62.85% 62.85% 58.29% Mauritius TEHL 100.00% 100.00% 58.29% Namibia THL Zinc Ltd 100.00% 100.00% Skorpion Zinc (Pty) Limited (SZPL) Acquisition of 62.85% 58.29% Namibia VNHL 100.00% 100.00% immovable and movable properties Namzinc (Pty) Limited (SZ) Mining Skorpion Mining Company (Pty) Limited (NZ) Mining Amica Guesthouse (Pty) Ltd Accommodation and catering services 62.85% 62.85% 62.85% 58.29% Namibia SZPL 100.00% 100.00% 58.29% Namibia 58.29% Namibia SZPL SZPL 100.00% 100.00% 100.00% 100.00% Rosh Pinah Healthcare (Pty) Ltd Leasing out of 43.37% 40.22% Namibia SZPL 69.00% 69.00% medical equipment and building and conducting services related thereto Black Mountain Mining (Pty) Ltd Mining THL Zinc Holding BV Lisheen Mine Partnership Pecvest 17 Proprietary Ltd. Vedanta Lisheen Holdings Limited (VLHL) Financing company Mining partnership firm Investment company Investment company 43.13% 62.85% 62.85% 43.13% South Africa THL Zinc Ltd 74.00% 74.00% 58.29% Netherlands Vedanta Limited4 100.00% 100.00% 58.29% Ireland VLML 50.00% 50.00% 62.85% 58.29% South Africa THL Zinc Ltd 100.00% 100.00% 62.85% 58.29% Ireland THL Zinc Holding BV 100.00% 100.00% Vedanta Exploration Ireland Limited Exploration company 62.85% Vedanta Lisheen Mining Limited (VLML) Mining KilloranLisheen Mining Limited Mining Killoran Lisheen Finance Limited Lisheen Milling Limited Investment company Manufacturing Vizag General Cargo Berth Private Limited Infrastructure Paradip Multi Cargo Berth Private Limited Infrastructure Sterlite Ports Limited (SPL) Investment company Maritime Ventures Private Limited Infrastructure Sterlite Infraventures Limited Bloom Fountain Limited (BFM) Investment Company Investment company 62.85% 62.85% 62.85% 62.85% 62.85% 46.51% 62.85% 62.85% 62.85% 58.29% 58.29% 58.29% 58.29% 58.29% 43.63% 43.13% 58.29% 58.29% 58.29% Ireland Ireland Ireland Ireland Ireland VLHL VLHL VLHL VLHL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% VLHL 100.00% 100.00% India Vedanta Limited 99.99% 74.00% India Vedanta Limited 74.00% 74.00% India Vedanta Limited 100.00% 100.00% India SPL 100.00% 100.00% India Vedanta Limited 100.00% 100.00% 62.85% 58.29% Mauritius Vedanta Limited 100.00% 100.00% Western Cluster Limited Mining company 62.85% Goa Energy Limited3 Energy generation – 58.29% 58.29% Liberia BFM 100.00% 100.00% India Vedanta Limited – 100.00% Sesa Sterlite Mauritius Holdings Limited Financing company 100.00% 100.00% Mauritius VRHL 100.00% 100.00% Vedanta Finance UK Limited Financing company 100.00% 100.00% United Kingdom Welter 100.00% 100.00% Valliant (Jersey) Limited Financing company 100.00% 100.00% Jersey (CI) VRJL–II 100.00% 100.00% Cairn India Limited Oil & gas Exploration, 37.64% 34.30% India TMHL 39.41% 38.73% and production Vedanta Resources plc Annual report and accounts FY2015 201 Subsidiaries Principal activities 31 March 2015 31 March 2014 Country of incorporation Immediate holding company The Company’s economic percentage holding Cairn India Holdings Limited Cairn Energy Holdings Limited Cairn Energy Hydrocarbons Ltd Cairn Exploration (No. 7) Limited Cairn Exploration (No.6) Limited Cairn Exploration (No. 2) Limited Cairn Energy Gujarat Block 1 Limited Cairn Energy Discovery Limited Cairn Energy Cambay B.V.1 Cairn Energy India West B.V.1 Cairn Energy Gujarat B.V.1 Investment company Investment company Exploration and production Exploration and production Exploration and production Exploration and production Exploration and production Exploration and production Exploration and production Exploration and production Exploration and production Cairn Energy Netherlands Holdings B.V.1 Holding company Cairn Energy Australia Pty Limited Cairn Energy India Pty Limited CEH Australia Limited1 CIG Mauritius Holdings Private Limited CIG Mauritius Private Limited Cairn Lanka Private Limited Cairn South Africa Pty Limited Investment company Exploration and production Investment company Investment company Investment company Exploration and production Exploration and production 37.64% 34.30% Jersey 37.64% 34.30% Scotland 37.64% 34.30% Scotland 37.64% 34.30% Scotland 37.64% 34.30% Scotland 37.64% 34.30% Scotland 37.64% 34.30% Scotland 37.64% 34.30% Scotland – – – – 34.30% Netherlands 34.30% Netherlands 34.30% Netherlands 34.30% Netherlands 37.64% 34.30% Australia 37.64% 34.30% Australia 37.64% 34.30% Australia 37.64% 34.30% Mauritius 37.64% 34.30% Mauritius 37.64% 34.30% Sri Lanka 37.64% 34.30% South Africa Cairn India Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn India Holdings Limited Cairn Energy Netherlands Holding B.V. Cairn Energy Netherlands Holding B.V. Cairn Energy Netherlands Holding B.V Cairn Energy Holdings Limited Cairn India Holdings Limited Cairn Energy Australia Pty Limited Cairn Energy Australia Pty Limited Cairn India Limited CIG Mauritius Holding Private Limited CIG Mauritius Pvt Ltd Cairn Energy Hydrocarbons Limited Immediate percentage holding 31 March 2015 31 March 2014 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% – – – – 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 1 Dissolved during the year ended 31 March 2015. 2 Sterlite Infra Limited merged with Vedanta Limited during the year ended 31 March 2015. 3 GEL merged with Vedanta Limited during the year ended 31 March 2015. 4 Post merger of Sterlite Infra Limited with Vedanta Limited, Vedanta Limited became immediate parent as of 31 March 2015 (31 March 2014: Sterlite Infra Limited). The Group owns directly or indirectly through subsidiaries, more than half of the voting power of all of its subsidiaries as mentioned in the list above, and has power over the subsidiaries, is exposed or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 202 Financial statements Notes to the Financial Statements continued 45. Group restructuring During the year ended 31 March 2014, pursuant to the Scheme of Amalgamation (the Scheme) sanctioned by the Indian and Mauritius Courts, the Group’s subsidiary companies viz. Sterlite Energy Limited, Sterlite Industries (India) Limited (SIIL), Aluminium Business of Vedanta Aluminium Limited, Ekaterina Limited and the Residual business of Madras Aluminium Company Limited merged with Sesa Goa Limited (SGL) (A subsidiary of the Group). Bloom Fountain Limited, a subsidiary of Sesa Goa Limited acquired a 38.7% stake in Cairn India Limited (Cairn). Consequent to this, Cairn became a subsidiary of SGL. By way of a slump sale agreement dated 19 August 2013 between Vedanta Aluminium Limited (VAL) and Vedanta Limited, the power business consisting of 1,215MW thermal power facility situated at Jharsuguda and 300MW co-generation facility (90MW operational and 210MW under development) at Lanjigarh, was transferred on a going concern basis at its carrying value to Vedanta Limited. Subsequently, the name of SGL was changed to Sesa Sterlite Limited during the year ended 31 March 2014. The name of Sesa Sterlite Limited was further changed to Vedanta Limited during the year ended 31 March 2015. These transactions are within subsidiaries of the Company and will not have any acquisition accounting impact other than a change in the economic shareholding percentage. The simplification exercise has resulted in simplifying the structure, cross holding and aligning the debt with cash flow and change in economic holding percentage mainly in VAL and Cairn. VAL’s effective holding has changed from 87.6% to 58.3% whereas Cairn’s reduced from 49.8% to 34.3%. 46. Ultimate controlling party At 31 March 2015, the ultimate controlling party of the Group was Volcan, which is controlled by persons related to the Executive Chairman, Mr Anil Agarwal. Volcan is incorporated in the Bahamas, and does not produce Group accounts. Vedanta Resources plc Annual report and accounts FY2015 203 47. Company balance sheet (US$ million) Non-current assets Tangible fixed assets Investments in subsidiaries Investment in preference shares of subsidiaries Financial asset investment Derivative asset Current assets Debtors due within one year Debtors due after one year Current asset investments Cash at bank and in hand Creditors: amounts falling due within one year Trade and other creditors External borrowings Loan from subsidiary Derivative liability Net current assets Total assets less current liabilities Creditors: amounts falling due after one year Loan from subsidiary External borrowings Net assets Capital and reserves Called up share capital Share premium Share-based payment reserve Convertible bond reserve Other reserves Treasury shares Retained earnings Equity shareholders’ funds Note 31 March 2015 31 March 2014 49 50 51 52 53 53 54 55 55 55 55 0.3 1,226.3 1.7 0.1 – 0.7 1,061.8 1.7 0.1 14.1 1,228.4 1,078.4 422.7 5,066.8 33.2 0.1 1,225.7 5,405.2 14.8 0.5 5,522.8 6,646.2 (97.2) (270.4) – (2.0) (98.5) (89.7) (1,249.5) – (369.6) (1,437.7) 5,153.2 5,208.5 6,381.6 6,286.9 56 56 (1,430.2) (4,345.7) (339.8) (5,483.6) (5,775.9) (5,823.4) 605.7 463.5 57 57 57 57 57 57 57 57 30.0 198.5 27.4 38.4 (2.2) (490.6) 804.2 605.7 29.8 198.5 46.9 80.1 (2.2) (490.6) 601.0 463.5 The financial statements of Vedanta Resources plc, registration number 4740415 were approved by the Board of Directors on 13 May 2015 and signed on their behalf by: Tom Albanese Chief Executive Officer Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 204 Financial statements Notes to the Financial Statements continued 48. Company accounting policies The Vedanta Resources plc (the Company) balance sheet and related notes have been prepared in accordance with United Kingdom Generally Accepted Accounting Principles and UK company law (UK GAAP). The financial information has been prepared on an historical cost basis except preference shares, financial asset investments and derivative financial instruments which are stated at fair value. As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The profit after tax for the year of the Company amounted to US$284.7 million (2014: loss of US$128.3 million). These financial statements are presented in US dollars being the functional currency of the Company. Significant accounting policies Investments in subsidiaries Investments in subsidiaries represent equity holdings in subsidiaries except preference shares, valued at cost less any provision for impairment. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Investment in preference shares of subsidiaries Investments in preference shares of subsidiaries are stated at fair value. The fair value is represented by the face value of the preference shares as the investments are redeemable at any time for their face value at the option of the Company. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand, short-term deposits with banks and short-term highly liquid investments that are readily convertible into cash which are subject to insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments. Financial asset investments Financial asset investments are classified as available for sale under FRS 26 and are initially recorded at cost and then remeasured at subsequent reporting dates to fair value. Unrealised gains and losses on financial asset investments are recognised directly in equity. On disposal or impairment of the investments, the gains and losses in equity are recycled to the income statement. Currency translation Transactions in currencies other than the functional currency of the Company, being US dollars, are translated into US dollars at the spot exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in other currencies at the balance sheet date are translated into US dollars at year end exchange rates, or at a contractual rate if applicable. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and provision for impairment. Deferred taxation Deferred taxation is provided in full on all timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, subject to the recoverability of deferred tax assets. Deferred tax assets and liabilities are not discounted. Share-based payments The cost of equity-settled transactions with employees is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting conditions are determined by an external valuer and the fair value at the grant date is expensed on a straight-line basis over the vesting period based on the Company’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at each balance sheet date up to the vesting date at which point the estimate is adjusted to reflect the current expectations. No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised. Amounts recharged to subsidiaries in respect of awards granted to employees of subsidiaries are recognised as intercompany debtors until repaid. Borrowings Interest bearing loans are recorded at the net proceeds received i.e. net of direct transaction costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on accruals basis and charged to the profit and loss account using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Vedanta Resources plc Annual report and accounts FY2015 205 48. Company accounting policies continued Convertible bonds The convertible bond issued by VRJL and VRJL-II (Note 55) are accounted for as a compound instrument. The gross proceeds (net of issue costs) were lent to the Company by VRJL and VRJL-II. The equity component has been recognised in a separate reserve of the Company and is not subsequently remeasured. The recognition of the equity component by the Company acts to reduce the payable to VRJL and VRJL-II which arises once the gross proceeds are borrowed. The liability component is held at amortised cost. The interest expensed on the liability component is calculated by applying an effective interest rate. The difference between interest expensed and interest paid is added to the carrying amount of the liability component. The bonds are first convertible into preference shares of the issuer having a principal value of US$100,000 per Preference share, which are exchanged immediately for ordinary shares of the Company. Financial instruments The Company has elected to take the exemption provided in paragraph 2D of FRS 29 in respect of these parent Company financial statements. Full disclosures are provided in Note 29 to the financial statements of the Group for the period ended 31 March 2015. Derivative financial instruments Derivative financial instruments are initially recorded at their fair value on the date of the derivative transaction and are remeasured at their fair value at subsequent balance sheet dates. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit and loss account. The hedged item is recorded at fair value and any gain or loss is recorded in the profit and loss account and is offset by the gain or loss from the change in the fair value of the derivative. Derivative financial instruments that do not qualify for hedge accounting are marked to market at the balance sheet date and gains or losses are recognised in the profit and loss account immediately. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. Cash flow statement The Company’s individual financial statements are outside the scope of FRS 1 Cash Flow Statements because the Company prepares publicly available Group financial statements, which include a Consolidated Cash Flow Statement. Accordingly, the Company does not present an individual Company Cash Flow Statement. Related party disclosures The Company’s individual financial statements are exempt from the requirements of FRS 8 Related Party Disclosures because its individual financial statements are presented together with its Group financial statements. Accordingly, the individual financial statements do not include related party disclosures. Financial guarantees Guarantees issued by the Company on behalf of other Group companies are designated as ‘Insurance Contracts’. Accordingly these are shown as contingent liabilities (Note 58). Debtors Debtors are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable amounts. An allowance for impairment for debtors is made where there is an indication of a reduction in the recoverability of the carrying value of the debtor. Creditors Creditors are stated at their nominal value. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 206 Financial statements Notes to the Financial Statements continued 49. Company tangible fixed assets (US$ million) Cost At 1 April 2013 Additions At 31 March 2014 Additions At 31 March 2015 Accumulated depreciation At 1 April 2013 Charge for the period At 31 March 2014 Charge for the period At 31 March 2015 Net book value At 1 April 2013 At 31 March 2014 At 31 March 2015 50. Investments in subsidiaries (US$ million) Cost At 1 April 2013 At 1 April 2014 At 31 March 2015 1.9 0.4 2.3 0.0 2.3 1.3 0.3 1.6 0.4 2.0 0.6 0.7 0.3 1,061.8 1,061.8 1,226.3 At 31 March 2015, the Company held 157,538,524 shares in Vedanta Resources Holdings Limited (VRHL) (March 2014: 144,538,524 shares), being 100% of VRHL’s issued equity share capital. During the year the Company had subscribed to 13,000,000 shares of VRHL under ‘rights issue’ at face value of US$1 with a premium of US$11.65 per share. The Company also held one deferred share in VRHL (March 2014: one). At 31 March 2015, the Company held two shares in Vedanta Finance Jersey Limited (VFJL) (March 2014: two), two shares in Vedanta Resources Jersey Limited (VRJL) (March 2014: two), two shares in Vedanta Resources Jersey II Limited (VRJL-II) (March 2014: two), two shares in Vedanta Jersey Investment Limited (VJIL) (March 2014: two), being 100% of its issued equity share capital. VRHL is an intermediary holding company incorporated in the United Kingdom (Note 44) and registered in England and Wales. VFJL, VRJL, VJIL and VRJL-II are companies, registered and incorporated in Jersey, established to raise funds for the Vedanta Group. Vedanta Resources plc Annual report and accounts FY2015 207 51. Investment in preference shares of subsidiaries (US$ million) Fair value At 1 April 2014 Additions Disposal At 31 March 2015 At 1 April 2013 Additions Disposal At 31 March 2014 As at 31 March 2015, the Company held 1,700,000 preference shares in VRJL (31 March 2014: 1,700,000 preference shares in VRJL). 52. Financial asset investment (US$ million) Fair value At 1 April 2014 Fair value movement At 31 March 2015 At 1 April 2013 Fair value movement At 31 March 2014 1.7 – – 1.7 178.9 1.7 (178.9) 1.7 0.1 – 0.1 0.1 – 0.1 The investment relates to an equity investment in the shares of Victoria Gold Corporation. At 31 March 2015, the investment in Victoria Gold Corporation was revalued and no gain or loss (2014: no gain or loss) was recognised in equity. 53. Company debtors (US$ million) Amounts due from subsidiary undertakings Prepayments and accrued income Other taxes Total Debtors due within one year Debtors due after one year Total 31 March 2015 5,485.6 3.5 0.4 31 March 2014 6,626.3 4.4 0.2 5,489.5 6,630.9 422.7 5,066.8 1,225.7 5,405.2 5,489.5 6,630.9 Amounts due from subsidiary undertakings At 31 March 2015, the Company had loans due from VRHL of US$1,507.5 million (2014: US$1,214.6 million) which represented the funds being loaned to other Group companies for funding the subsidiaries. Out of the total loan, US$579.3 million bears interest at six month US$LIBOR plus 350 basis points, US$500 million at 5.8%, US$31.2 million at 5.9%, US$47 million at 9.7%, and US$350 million at US$LIBOR plus 367 basis points. At 31 March 2015, the Company had loans of US$3,590.5 million (2014: US$4,732.7 million) from Vedanta Resources Jersey II Limited. Out of the total loan US$119.2 million bears interest at US$LIBOR plus 357 basis points, US$1,413.0 million at 7.45%, US$1,200 million at 6.50%, US$48.3 million at LIBOR plus 300 basis points US$60 million at 3.15% and US$750 million at 7.25%. In addition to the loans, the Company was owed US$323.3 million of accrued interest from VRHL and Vedanta Resources Jersey II Limited (March 2014: US$634.7 million) and US$64.3 million (2014: US$44.2 million) other receivables from Group companies. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 208 Financial statements Notes to the Financial Statements continued 54. Company current asset investments (US$ million) Bank term deposits Total 55. Company creditors: amounts falling due within one year (US$ million) Accruals External borrowings Loan from subsidiary Derivative liability Total 31 March 2015 31 March 2014 33.2 33.2 14.8 14.8 31 March 2015 31 March 2014 (97.2) (270.4) – (2.0) (98.5) (89.7) (1,249.5) – (369.6) (1,437.7) The external borrowings as at 31 March 2015 represent a loan from ICICI of US$90 million (2014: US$90 million), repayable in December 2015 and a loan from Deutsche Bank of US$185 million repayable in March 2016. As at 31 March 2014, loans from subsidiaries included a loan of US$1,192.8 million from VRJL relating to its issue of US$1,250 million convertible bonds (bond issued in July 2009). In March 2014, VRJL believed that bondholders would exercise the put option in July 2014 and accordingly the above loan was classified as amounts falling due within one year. However, bonds worth US$113.8 million were exercised by bondholders in July 2014 and since now the final maturity is in July 2016 the above loan has been classified from amounts falling due within one year to amounts falling due after one year (US$1,110.5 million). During the year ended 31 March 2015, interest was charged at the effective interest rate of 8.27% (March 2014: 17.3%). 56. Company creditors: amounts falling due after one year (US$ million) Loan from subsidiary External borrowings Total 31 March 2015 31 March 2014 (1,430.2) (4,345.7) (339.8) (5,483.6) (5,775.9) (5,823.4) Loans from subsidiaries include a loan of US$39.7 million due to Richter Holdings Limited, US$280.0 million to Vedanta Finance UK Limited and US$1,110.5 million to VRJL (as discussed in Note 55). Of the US$1,250 million non-convertible bond issued during 2008, US$500 million was repaid in January 2014 and the remaining US$750 million, 9.5% bonds are due for repayment in July 2018. In July 2011, the Company issued US$750 million, 6.75% bonds due June 2016, and US$900 million, 8.25% bonds due June 2021. As at 31 March 2015, the outstanding amount under this facility is US$1,650.0 million. In March 2012, the Company availed a facility of US$300.0 million with Standard Chartered Bank bearing an interest rate of LIBOR plus 415 basis points. The same was due for repayment in June 2015. This loan was fully prepaid in the month of May 2014. In December 2012, the Company obtained a syndicated loan with State Bank of India as an agent for US$595.0 million repayable in four equal instalments in February 2017, August 2017, July 2018 and January 2019. The loan bears an interest rate of three month US$LIBOR plus 440 basis points. The Company has prepaid this loan of US$595.0 million in September 2014. In April 2013, the Company entered into a Standby Letter of Credit agreement arranged by Axis Bank for an amount of US$150 million at a commission of 1% per annum payable quarterly. The facility is funded by Bank of India to the extent of US$148.5 million and bears an interest rate three month US$LIBOR plus 290 basis points. The facility is repayable in two equal annual instalments starting April 2017. As at 31 March 2015, the outstanding amount under this facility is US$148.5 million. In June 2013, the Company issued US$1,200 million, 6.00% bonds due January 2019, and US$500 million, 7.125% bonds due May 2023. In December 2013, the Company entered into a facility agreement with Bank of India for borrowing up to US$100 million at an interest rate of US$LIBOR plus 357 basis points repayable to the extent of 50% in October 2017 and the balance in January 2018. As at 31 March 2015, the outstanding amount under this facility is US$100 million. Vedanta Resources plc Annual report and accounts FY2015 209 56. Company creditors: amounts falling due after one year continued In March 2015, the Company entered into a facility agreement with State Bank of India for borrowing up to US$350 million. US$100 million is repayable in March 2020 and bears an interest rate of US$LIBOR plus 370 basis points. US$250 million bears an interest rate of US$LIBOR plus 403 basis points repayable in two instalments being US$100 million and US$150 million at the end of 72 and 84 months respectively after initial utilisation. US$325 million still remains undrawn in this facility. 57. Company reconciliation of movement in equity shareholders’ funds (US$ million) Share capital (Note 35) Share premium Share-based payment reserve Convertible bond reserve Treasury shares Retained earnings Other reserves Equity shareholders’ funds at 1 April 2014 Profit for the year Dividends paid (Note 14) Exercise of LTIP awards (Note 32) Recognition of share-based payments (Note 32) Convertible bond transfer (Note 28) Equity shareholders’ funds at 31 March 2015 29.8 – – 0.2 – – 30.0 198.5 – – – – – 198.5 46.9 – – (48.1) 28.6 – 27.4 80.1 – – – – (41.7) 38.4 (490.6) – – – – – (490.6) 601.0 284.7 (171.3) 48.1 – 41.7 804.2 (2.2) – – – – – (2.2) Total 463.5 284.7 (171.3) 0.2 28.6 – 605.7 58. Company contingent liabilities a) The Company has guaranteed US$1,250 million convertible bonds issued by VRJL (2014: US$1,250 million), of the above US$1.7 million has been converted during the year ended 31 March 2014 and US$113.8 million was repaid pursuant to exercise of put option during the year ended 31 March 2015. See Note 28 to the financial statements for further details on the convertible bonds. b) The Company has given a corporate guarantee to Jharsuguda Aluminium, for an amount of US$12 million up to 31 March 2015. c) The Company has given a corporate guarantee to Konkola Copper Mines for an amount of US$619.0 million up to 31 March 2015. d) The Company has guaranteed US$883 million convertible bonds issued by VRJL-II (2014: US$883 million). During the year ended 31 March 2014 and 31 March 2015, US$809.8 million and US$65.1 million respectively was repaid to the bondholders on exercise of put option. See Note 28 to the financial statements for further details on the convertible bonds. e) The Company has guaranteed US$170 million for a loan facility entered by Valliant Jersey Limited with ICICI bank and US$180 million for a loan facility entered by Vedanta Finance Jersey Limited with ICICI bank. f) The Company has guaranteed US$500 million for a syndicated facility agreement entered by Welter Trading Limited with Standard Chartered Bank as facility agent. g) The Company has guaranteed US$500 million for loan facility entered by Monte Cello NV with ICICI bank. h) The Company has guaranteed US$150 million for loan facility entered by Twin Star Holdings Limited with ICICI bank. i) The Company has guaranteed US$100 million for revolving credit facility entered by Twin Star Holdings Limited with Royal Bank of Scotland and Standard Chartered Bank. j) The Company has guaranteed US$500 million for a syndicated facility entered by Twin Star Holdings Limited with Axis Bank as lead arranger and facility agent. k) The Company has guaranteed US$1,200 million for a syndicated facility entered by Twin Star Mauritius Holdings Limited with Standard Chartered Bank as facility agent. l) The Company has guaranteed US$500 million for a loan facility entered by Twin Star Mauritius Holdings Limited with Standard Chartered Bank and First Gulf Bank PJSC of which US$250 million is under a commodity murabaha structure (Islamic financing) and balance US$250 million is under a conventional loan structure. m) The Company has guaranteed US$1,250 million for a loan facility entered by its subsidiaries THL Zinc Limited with Cairn India Holdings Limited (Intercompany loan). n) The Company has provided a guarantee for the Cairn India Group’s obligation under the Production Sharing Contract (PSC). 59. Company share-based payment The Company had certain LTIP awards outstanding as at 31 March 2015. See Note 32 to the financial statements for further details on these share-based payments. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 210 Additional information Five year summary Summary consolidated income statement (US$ million except as stated) Revenue EBITDA Depreciation and amortisation Special items Operating profit Share in consolidated profit of associate Profit before interest and taxation Net finance (costs)/investment revenues Profit before taxation Net tax credit/(expense) Profit after taxation Non-controlling interests Profit attributable to equity shareholders in parent Dividends Retained (loss)/profit Basic earnings per share (US cents per share) On profit for the financial year On underlying profit for the financial year Dividend per share (US cents per share) (US$ million except as stated) Goodwill Intangible assets Property, plant and equipment Financial asset investments Total Stocks Debtors Cash and liquid investments Total Short-term borrowings Other current liabilities Total current liabilities Net current assets Total assets less current liabilities Long-term borrowings Other long-term liabilities Provisions and deferred tax assets Total long-term liabilities Equity non-controlling interests Non-equity non-controlling interest Year ended 31 March 2015 Year ended 31 March 2014 Year ended 31 March 2013 Year ended 31 March 2012 Year ended 31 March 2011 12,878.7 12,945.0 14,640.2 14,005.3 11,427.2 3,741.2 (2,005.7) (6,744.2) 4,491.2 (2,203.1) (138.0) (5,008.7) – 2,150.1 – (5,008.7) (631.5) 2,150.1 (1,032.0) (5,640.2) 1,852.5 1,118.1 (128.7) 4,908.9 (2,337.2) (41.9) 2,529.8 – 2,529.8 (806.1) 1,723.7 (46.1) 4,026.3 (1,408.4) (230.2) 2,387.7 92.2 2,479.9 (734.5) 1,745.4 (516.7) 3,566.8 (869.0) (163.5) 2,534.3 – 2,534.3 149.0 2,683.3 (649.5) (3,787.7) 1,989.1 989.4 (1,185.4) 1,677.6 (1,515.6) 1,228.7 (1,168.9) 2,033.8 (1,263.0) (1,798.6) (171.3) (196.0) (162.5) 162.0 (153.5) 59.8 (144.0) 770.8 (129.9) (1,969.9) (358.5) 8.5 (84.2) 640.9 (654.5) (14.2) 63.0 (71.7) 14.7 61.0 59.4 134.8 58.0 21.9 142.2 55.0 283.2 262.8 52.5 31 March 2015 31 March 2014 31 March 2013 31 March 2012 31 March 2011 16.6 101.9 23,352.0 4.2 16.6 108.6 31,043.5 1.7 16.6 – 33,132.6 2.4 16.6 – 34,141.8 209.6 12.2 162.1 17,189.5 304.2 23,474.7 31,170.4 33,151.6 34,368.0 17,668.0 1,605.7 1,839.2 8,209.8 1,742.5 1,739.9 8,937.9 1,965.6 1,706.0 7,981.7 1,704.1 1,795.9 6,885.3 1,924.6 1,328.6 7,777.0 11,654.7 12,420.3 11,653.3 10,385.3 11,030.2 (3,179.2) (5,003.4) (4,358.5) (4,931.5) (4,400.1) (4,810.2) (4,151.6) (3,995.6) (3,045.1) (3,485.0) (8,182.6) (9,290.0) (9,210.3) (8,147.2) (6,530.1) 3,528.8 3,541.9 2,639.8 2,415.0 4,515.4 28,806.3 36,084.3 36,751.4 37,330.9 22,168.1 (13,488.6) (194.4) (2,854.0) (12,512.7) (230.7) (5,354.2) (12,192.7) (260.2) (5,417.6) (12,803.8) (196.1) (6,356.0) (16,537.0) (18,097.6) (13,964.4) (10,654.3) (11.9) (11.9) (17,870.5) (14,467.7) (11.9) (18,899.5) (13,768.9) (11.9) (6,707.4) (247.3) (1,706.4) (8,656.1) (8,030.1) (11.9) Net assets attributable to the equity holders of the parent 1,603.1 4,010.4 4,401.3 4,650.6 5,648.9 Vedanta Resources plc Annual report and accounts FY2015 211 Turnover (US$ million) Zinc India International Oil & gas Iron ore Copper India/Australia Zambia Aluminium Power Other Group EBITDA (US$ million) Zinc India International Oil & gas Iron ore Copper India/Australia Zambia Aluminium Power Other Group EBITDA margin (%) Zinc India International Oil & gas Iron ore Copper India/Australia Zambia Aluminium Power Group 2015 2014 2013 2012 2011 2,943.9 2,856.8 3,060.5 3,206.8 2,378.4 2,357.0 586.9 2,397.5 326.5 4,777.8 3,700.7 1,077.1 2,081.9 671.9 (320.8) 2,195.4 661.4 3,092.8 267.1 4,676.2 3,404.8 1,271.4 1,785.4 621.7 (355.0) 2,263.3 797.2 3,223.4 442.5 5,733.9 3,991.1 1,742.8 1,837.8 669.0 (326.9) 2,316.1 890.7 882.5 1,690.9 5,915.0 4,205.2 1,709.8 1,873.5 458.3 (21.7) 2,159.5 218.9 – 1,979.5 5,253.2 3,428.2 1,825.0 1,779.6 124.0 (87.5) 12,878.7 12,945.0 14,640.2 14,005.3 11,427.2 2015 2014 2013 2012 2011 1,373.3 1,358.4 1,477.0 1,610.8 1,320.9 1,192.5 180.8 1,476.8 31.4 277.2 281.0 (3.8) 415.5 153.8 13.2 1,145.0 213.4 2,347.0 (24.2) 354.2 197.9 156.3 287.3 168.4 0.1 1,182.5 294.5 2,440.3 84.9 476.4 219.1 257.3 202.6 228.5 (0.8) 1,244.8 366.0 713.0 721.4 685.9 298.0 387.9 182.5 122.0 (9.3) 1,219.6 101.3 – 1,174.1 681.4 241.5 439.9 352.7 43.9 (6.2) 3,741.2 4,491.2 4,908.9 4,026.3 3,566.8 2015 46.6 50.6 30.8 61.6 9.6 5.8 7.6 (0.4) 20.0 22.9 29.0 2014 47.5 52.2 32.3 75.9 (9.1) 7.6 5.8 12.3 16.1 27.2 34.7 2013 48.3 52.2 36.9 75.7 19.2 8.3 5.5 14.8 11.0 34.2 33.5 2012 50.2 53.7 41.1 80.8 42.7 11.6 7.1 22.7 9.7 26.6 28.7 2011 55.5 56.5 46.3 – 59.3 13.0 7.0 24.1 19.8 35.4 31.2 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 212 Additional information Five year summary continued Production (000’s MT) Aluminium BALCO1 Jharsuguda Aluminium2 Copper Sterlite Copper KCM Iron ore (WMT) Zinc total HZL Skorpion Zinc and lead MIC BMM Lisheen million boe Oil & gas – gross production Oil & gas – working interest 1 Including trial run production of 24,000 tonnes in 2015. 2 Including trial run production of 19,000 tonnes in 2015. Cash costs of production (US cents/lb) Aluminium – BALCO Plant-I BALCO Plant-I (other than Alumina) Aluminium – BALCO Plant-II BALCO Plant-II (other than Alumina) Aluminium – Jharsuguda Aluminium Copper – Sterlite Copper Copper – KCM Zinc including royalty – HZL Zinc without royalty – HZL Zinc COP – Skorpion Zinc COP – BMM Zinc COP – Lisheen Oil & gas (Opex) (US$/boe) Cash costs of production in INR (INR/mt) Aluminium – BALCO Plant-II BALCO (other than Alumina) Aluminium – Jharsuguda Aluminium Copper – Sterlite Copper Zinc including royalty Zinc without royalty 2015 877 324 553 531 362 169 667 836 734 102 209 59 150 77.3 48.4 2015 86.4 55.1 98.4 66.9 73.9 6.4 257.7 49.6 39.4 70.1 74.3 52.8 6.2 2014 794 252 542 471 294 177 2013 774 247 527 569 353 216 2012 676 246 430 526 326 200 2011 641 255 386 521 304 217 1,577 874 4,212 822 15,598 904 21,075 762 749 125 239 67 172 79.8 50.1 2014 80.8 49.1 72.6 9.7 238.4 44.7 37.4 56.7 52.2 50.1 4.1 677 145 280 87 193 74.9 46.7 2013 86.2 52.8 84.8 8.7 255.1 44.5 37.1 54.5 54.3 42.8 3.5 759 145 299 85 214 20.5 12.1 2012 87.2 53.3 99.2 0.0 236.8 45.8 37.8 57.8 63.8 41.9 4.4 712 50 44 17 27 – – 2011 80.9 45.7 82.6 4.0 197.5 44.9 36.7 52.7 59.4 41.6 – 2015 2014 2013 2012 2011 116,448 74,258 99,676 8,639 66,805 53,071 107,728 65,430 96,893 12,994 59,561 49,834 103,526 63,433 101,779 10,704 53,446 44,550 92,143 56,344 104,892 (3) 48,423 40,003 81,299 45,898 88,396 4,062 45,119 36,831 Vedanta Resources plc Annual report and accounts FY2015 213 Capital expenditure (US$ million) Sustaining Expansion Total capital expenditure Net cash/(debt) (US$ million) Zinc India International Oil & gas Iron ore Copper India/Australia Zambia Aluminium Power Other Group Gearing (%) Gearing Group free cash flow (US$ million) Group free cash flow after capital creditors Group free cash flow after project capex Capital employed (US$ million) Capital employed ROCE (%) ROCE 1 Before impairment. 2015 221.4 1,530.8 2014 2013 2012 2011 321.6 1,424.7 390.2 2,019.1 386.2 2,398.2 239.5 2,471.3 1,752.2 1,746.3 2,409.3 2,784.4 2,710.8 2015 2014 2013 2012 2011 5,073.3 4,513.6 4,243.7 3,779.9 3,779.5 4,936.6 136.7 2,856.9 (634.3) (705.0) 32.5 (737.5) 4,344.6 169.0 3,911.9 (512.1) (882.3) (159.0) (723.3) (4,068.2) (1,576.6) (9,406.4) (3,204.0) (737.0) (11,009.5) 4,044.8 198.9 3,102.4 (744.2) (1,244.0) (492.8) (751.2) (4,311.9) (696.2) (8,965.4) 3,573.8 206.1 1,552.7 (563.6) (588.0) 120.6 (708.6) (4,082.4) (1,156.3) (9,006.7) 3,403.4 376.1 – 1,983.2 146.3 396.0 (249.7) (3,145.3) (433.5) (4,300.4) (8,460.3) (7,919.5) (8,615.6) (10,064.4) (1,970.3) 2015 40.8 2014 30.6 2013 31.4 2012 35.3 2011 12.6 2015 2,578.0 1,047.3 2014 2013 2012 2011 2,695.0 1,269.9 3,534.7 1,515.6 2,533.8 135.6 2,347.3 (169.0) 20151 2014 2013 2012 2011 25,274.1 25,894.3 27,476.7 28,483.9 15,649.3 20151 8.8 2014 14.9 2013 17.5 2012 11.3 2011 21.0 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 214 Additional information Production and Reserves Summary Copper Copper production summary Facility Tuticorin Silvassa KCM Product Copper anode Sulphuric acid Phosphoric acid Copper cathode Copper rods Copper cathode Copper rods Copper cathode Copper mining summary Mt Lyell (CMT) Konkola (KCM) Type of mine Underground Underground Copper mine resource and reserve summary Mine Mt Lyell (CMT) Konkola (KCM) Type of mine Underground Underground Resources are additional to Reserves. Aluminium, alumina and bauxite Aluminium production summary Company BALCO1 Jharsuguda Aluminium2 1 Including trial run production of 24,000 tonnes in 2015. 2 Including trial run production of 19,000 tonnes in 2015. Alumina production summary Company Jharsuguda Aluminium Bauxite production summary Company BALCO – Bodai Daldali Year ended 31 March 2015 mt Year ended 31 March 2014 mt 361,839 1,006,692 189,353 194,019 53,400 168,353 116,939 168,923 301,120 835,798 116,340 151,592 22,105 142,842 100,948 177,018 Ore mined Copper concentrate Copper in concentrate mine 31 March 2015 mt 31 March 2014 mt – 5,615,327 1,739,223 6,203,219 31 March 2015 mt – 214,095 31 March 2014 mt 73,341 258,762 31 March 2015 mt – 64,592 31 March 2014 mt 17,839 72,428 Resources Reserves Measured and indicated million mt 29.9 164.3 Copper grade % 1.08 1.92 Inferred million mt 21.7 317.2 Proved and probable reserves million mt – 264.1 Copper grade % 1.06 3.12 Copper grade % – 1.29 Year ended 31 March 2015 mt 323,921 553,338 Year ended 31 March 2014 mt 252,035 542,252 Year ended 31 March 2015 mt Year ended 31 March 2014 mt 976,915 524,060 Year ended 31 March 2015 mt Year ended 31 March 2014 mt 860,710 472,155 Vedanta Resources plc Annual report and accounts FY2015 215 Bauxite mine resource and reserve summary Mine BALCO Mainpat Bodai-Daldali Total BALCO Jharsuguda Aluminium Kolli Hills and Yercaud Resources are additional to Reserves. Zinc and lead Zinc and lead production summary Company HZL Zinc Lead Zinc and lead mining summary (a) Metal mined and metal concentrate Mine Rampura Agucha1 Rajpura Dariba Sindesar Khurd Zawar Type of mine Open cut Underground Underground Underground Resources Measured and indicated million mt Aluminium grade % Inferred million mt Aluminium grade % Reserves Proved and probable reserves million mt Aluminium grade % 5.6 3.9 9.5 0.8 48.2 48.6 48.4 44.0 0.6 0.3 0.9 – 48.0 49.2 48.4 – 3.1 2.3 5.4 – 46.3 48.6 47.4 – Year ended 31 March 2015 mt Year ended 31 March 2014 mt 733,803 127,143 749,167 122,596 Ore mined Zinc concentrate Lead concentrate Bulk concentrate 31 March 2015 mt 31 March 2014 mt 31 March 2015 mt 31 March 2014 mt 573,284 5,823,320 5,953,138 1,279,420 1,290,377 52,212 105,562 – 610,242 1,910,055 1,723,253 1,056,000 1,003,600 43,359 126,952 – 31 March 2015 mt 98,693 10,647 61,630 – 31 March 2014 mt 96,136 12,241 60,128 – 31 March 2015 mt – 9,832 – 74,186 31 March 2014 mt – – – 68,432 Total 9,362,659 9,290,233 1,449,731 1,448,151 170,970 168,505 84,018 68,432 1 Includes development ore MT from Kayar. (b) Metal in concentrate (MIC) Mine Rampura Agucha Rajpura Dariba Sindesar Khurd Zawar Total Type of mine Open cut Underground Underground Underground Zinc concentrate Lead concentrate 31 March 2015 mt 656,472 25,363 65,071 27,424 31 March 2014 mt 664,072 26,457 53,633 25,734 31 March 2015 mt 58,680 5,387 32,409 16,277 31 March 2014 mt 58,001 5,291 31,254 15,274 774,330 769,896 112,753 109,820 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 216 Additional information Production and Reserves Summary continued Zinc and lead mine resource and reserve summary Zinc India Mine Rampura Agucha Rajpura Dariba Zawar Kayad Sindesar Khurd Bamnia Kalan Total Resources are additional to Reserves. Zinc international Mine Skorpion BMM – Deeps – Swartberg – Gamsberg1 Lisheen Measured and indicated million mt 18.3 22.7 25.0 0.2 28.5 5.4 100.1 Measured and indicated million mt 3.1 12.9 19.0 154.6 1.3 Zinc grade % 15.0 6.8 4.8 13.6 4.8 4.5 7.1 Zinc grade % 9.67 2.60 0.54 6.23 14.12 Resources Reserves Lead grade % Inferred million mt Zinc grade % 2.0 2.3 1.8 2.0 2.7 1.6 2.2 35.2 24.3 49.2 0.6 45.3 12.2 166.8 9.9 6.6 4.9 7.1 3.8 3.8 5.8 Proved and probable reserves million mt 49.5 9.6 9.6 7.3 32.2 – 108.2 Lead grade % 2.1 1.9 2.6 1.0 2.5 1.8 2.3 Zinc grade % 14.0 6.4 3.4 9.6 4.5 – 9.3 Resources Reserves Lead grade % – 2.50 3.04 0.53 2.52 Inferred million mt – – 15.5 27.4 0.1 Zinc grade % – – 0.59 5.41 12.92 Proved and probable reserves million mt 5.1 9.9 2.0 48.6 0.7 Lead grade % – – 3.06 0.47 2.39 Zinc grade % 8.77 2.82 0.54 6.6 9.46 Lead grade % 1.9 1.6 1.8 1.4 3.1 – 2.2 Lead grade % – 2.61 2.42 0.51 1.29 1 Resources are additional to Reserves except for Gamsberg where in certified resources of 154.6 million mt includes reserves of 48.6 million mt. Zinc production summary Company Skorpion Zinc and lead mining summary (a) Metal mined and metal concentrate Mine Skorpion BMM Lisheen Total Type of mine Underground Underground Underground Year ended 31 March 2015 mt Year ended 31 March 2014 mt 102,188 124,924 Ore mined Zinc concentrate Lead concentrate 31 March 2015 mt 31 March 2014 mt 1,344,272 1,252,092 1,437,562 1,395,534 1,362,776 1,287,932 31 March 2015 mt – – 244,354 31 March 2014 mt – 59,942 282,159 31 March 2015 mt – – 30,956 31 March 2014 mt – 53,221 34,409 4,144,610 3,935,558 244,354 342,101 30,956 87,630 Vedanta Resources plc Annual report and accounts FY2015 217 (b) Metal in concentrate (MIC) Mine BMM Lisheen Total Type of mine Underground Underground Iron ore Iron ore production summary Company Vedanta Limited Saleable iron ore Karnataka Iron ore resource and reserve summary Mine Iron Ore Sesa Western Cluster Comprises mines that Vedanta Limited owns or has rights to. Resources are additional to Reserves. Zinc in concentrate Lead in concentrate 31 March 2015 mt 27,022 130,897 31 March 2014 mt 28,999 151,021 31 March 2015 mt 32,142 19,265 31 March 2014 mt 37,574 21,048 157,919 180,020 51,407 58,622 Year ended 31 March 2015 Million wmt Year ended 31 March 2014 Million wmt 0.667 0.667 1.577 1.577 Reserves Proved and probable reserves million mt 151.6 172.0 Iron ore grade % 56.0 35.1 Resources Measured and indicated million mt 145.4 1,961.0 Iron ore grade % 54.1 32.00 Inferred million mt 40.1 1,689.0 Iron ore grade % 47.6 30.19 Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 218 Additional information Production and Reserves Summary continued Oil & gas The oil & gas reserves data set out below are estimated on the basis set out in the section headed ‘Presentation of Information’. Cairn India Estimates of the gross proved, probable, and possible oil, condensate, and sales-gas reserves, as of 31 March 2015, attributable to certain properties owned by Cairn India, are summarised by field below, expressed in 103bbl of oil and condensate and 106ft3 of sales gas: Fields CB-OS/2 PSC CB-X Gauri Lakshmi CB-OS/2 PSC total RJ-ON-90/1 PSC Aishwariya Aishwariya-Barmer Hill Bhagyam Bhagyam EOR Guda and Guda South Kameshwari West Mangala Mangala-Barmer Hill NE NI Raageshwari Shallow Raageshwari South Raageshwari Deep Saraswati Tukaram RJ-ON-90/1 PSC total PKGM-1 License Ravva Grand total Gross interest reserve summary Proved Probable Possible Oil and condensate (103bbl) Sales gas (106ft3) Oil and condensate (103bbl) Sales gas (106ft3) Oil and condensate (103bbl) Sales gas (106ft3) – 409 4,172 4,581 25,795 1,611 17,509 – – 70 152,373 1,822 1,218 1,176 989 2,464 763 – – 436 5,473 5,909 – – 2,652 – – – 35,535 – – – – 46,777 – – – 201 3,114 3,315 7,904 519 6,011 29,547 3,241 51 46,317 758 204 246 1,273 4,811 361 1,692 – 351 6,913 7,264 – – – – – – – – – – – 81,976 – – – 161 5,048 5,209 1,939 249 3,566 2,153 1,078 21 38,798 266 199 240 487 – 175 514 205,790 84,964 102,935 81,976 49,685 – 300 9,588 9,888 – – – – – – – – – – – – – – – 13,546 23,757 6,770 10,148 6,597 19,883 223,917 114,630 113,020 99,388 61,491 29,771 Note: Probable and possible reserves have not been risk adjusted to make them comparable to proved reserves. Vedanta Resources plc Annual report and accounts FY2015 219 Estimates of the proved, probable, and possible oil, condensate, and sales-gas reserves, as of 31 March 2015, attributable to the working interests of certain properties owned by Cairn India, are summarised by field below, expressed in 103bbl of oil and condensate and 106ft3 of sales gas: Fields CB-OS/2 PSC CB-X Gauri Lakshmi CB-OS/2 PSC total RJ-ON-90/1 PSC Aishwariya Aishwariya-Barmer Hill Bhagyam Bhagyam EOR Guda and Guda South Kameshwari West Mangala Mangala-Barmer Hill NE NI Raageshwari Shallow Raageshwari South Raageshwari Deep Saraswati Tukaram RJ-ON-90/1 PSC total PKGM-1 License Ravva Grand total Working interest reserves summary Proved Probable Possible Oil and condensate (103bbl) Sales gas (106ft3) Oil and condensate (103bbl) Sales gas (106ft3) Oil and condensate (103bbl) Sales gas (106ft3) – 164 1,669 1,833 18,057 1,128 12,256 – – 49 106,661 1,275 853 823 692 1,725 534 – – 174 2,189 2,363 – – 1,856 – – – 24,875 – – – – 32,744 – – – 80 1,246 1,326 5,533 363 4,208 20,683 2,269 36 32,422 531 143 172 891 3,368 253 1,184 – 140 2,765 2,905 – – – – – – – – – – – 57,383 – – – 64 2,019 2,083 1,357 174 2,496 1,507 755 15 27,159 186 139 168 341 – 123 360 144,053 59,475 72,056 57,383 34,780 – 120 3,835 3,955 – – – – – – – – – – – – – – – 3,048 5,345 1,523 2,283 1,484 148,934 67,183 74,905 62,571 38,347 4,474 8,429 Note: Probable and possible reserves have not been risk adjusted to make them comparable to proved reserves. Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 220 Additional information Production and Reserves Summary continued Source of information In respect of all businesses, the information has been certified by an in-house geologist on behalf of the Group management. Basis of preparation Ore reserves and mineral resources reported herein comply with the ‘Australasian Code for Reporting of Identified Mineral Resources and Ore Reserves’, other than those relating to Konkola Copper Mines plc (KCM) which complies with the South African Code for Reporting of Mineral Reserves and Mineral Resources (the SAMREC Code). The former code is prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists, and Minerals Council of Australia, and is commonly referred to as the ‘JORC Code’. As at the date of this document, the editions of the JORC and SAMREC Codes in force are dated December 2004 and March 2000, respectively. The JORC and SAMREC Codes recognise a fundamental distinction between resources and reserves. The terms and definitions in the SAMREC Code are consistent with those used in the JORC Code with minor differences in terminology – the JORC Code uses the term Ore Reserve whilst the SAMREC Code uses the term Mineral Reserve. For the purposes of ore and mineral resources reported herein, the term ore resources have been used throughout. Oil & gas reserves and resources have been prepared according to the Petroleum Resources Management Systems (PRMS) approved in March 2007 by the Society of Petroleum Engineers, the world Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers. Mineral resources are based on mineral occurrences quantified on the basis of geological data and an assumed cut-off grade, and are divided into Measured, Indicated and Inferred categories reflecting decreasing confidence in geological and/or grade continuity. The reporting of resource estimates carries the implication that there are reasonable prospects for eventual economic exploitation. An Ore or Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource. It includes the effect of dilution and losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, need to have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could be reasonably justified. Ore Reserves are sub-divided in order of decreasing confidence into Proved Ore Reserves and Probable Ore Reserves. The Measured and Indicated mineral resources have been reported as being inclusive of those mineral resources modified to produce the ore reserves, in addition to the ore reserves. The resource and reserve estimates provided herein comply with the resource and reserve definitions of the JORC Code, other than those relating to KCM which comply with the SAMREC Code. Vedanta Resources plc Annual report and accounts FY2015 221 Glossary and Definitions 5S A Japanese concept laying emphasis on housekeeping and occupational safety in a sequential series of steps as Sort (Seiri); Set in Order (Seiton); Shine (Selso); Standardise (Seiketsu); and Sustain (Shitsuke) Adapted Comparator Group The new comparator group of companies used for the purpose of comparing TSR performance in relation to the LTIP, adopted by the Remuneration Committee on 1 February 2006 and replacing the previous comparator group comprising companies constituting the FTSE Worldwide Mining Index (excluding precious metals) AGM or Annual General Meeting The Annual General Meeting of the Company which is scheduled to be held on 3 August 2015 AE Anode effects AIDS Acquired Immune Deficiency Syndrome Aluminium Business The aluminium business of the Group, comprising of its fully- integrated bauxite mining, alumina refining and aluminium smelting operations in India, and trading through the Bharat Aluminium Company Limited and Jharsuguda Aluminium (a division of Vedanta Limited), in India Articles of Association The articles of association of Vedanta Resources plc Attributable Profit Profit for the financial year before dividends attributable to the equity shareholders of Vedanta Resources plc ASARCO American smelting and refining company, incorporated in the United States BALCO Bharat Aluminium Company Limited, a company incorporated in India BMM Black Mountain Mining Pty Board or Vedanta Board The Board of Directors of the Company Board Committees The committees reporting to the Board: Audit, Remuneration, Nominations, and Health, Safety and Environment, each with its own terms of reference Businesses The Aluminium Business, the Copper business, the Zinc, Lead, Silver, Iron Ore, Power and Oil & Gas business together Cairn India Group Cairn India Limited and its subsidiaries Capital employed Net assets before net (debt)/cash Capex Capital expenditure Cash tax rate Current taxation as a percentage of profit before taxation CEO Chief Executive Officer CII Confederation of Indian Industries CLZS Chanderiya lead and zinc smelter CO2 Carbon dioxide CMT Copper Mines of Tasmania Pty Limited, a company incorporated in Australia Company or Vedanta Vedanta Resources plc Company financial statements The audited financial statements for the Company for the year ended 31 March 2013 as defined in the Independent Auditors’ Report on the individual Company Financial Statements to the members of Vedanta Resources plc Convertible bonds US$1,250 million 5.5% guaranteed convertible bonds due 2016, issued by a wholly owned subsidiary of the Company, Vedanta Resource Jersey Limited (VRJL) and guaranteed by the Company, the proceeds of which are to be applied for to support its organic growth pipeline, to increase its ownership interest in its subsidiaries and for general corporate purposes US$883 million 4.0% guaranteed convertible bonds due 2017, issued by a wholly owned subsidiary of the Company, Vedanta Resource Jersey II Limited (VRJL-II) and guaranteed by the Company, the proceeds of which are to be applied for to refinance debt redemptions and for general corporate purposes US$500 million 4.0% guaranteed convertible bonds due 2014, issued by a subsidiary of the Company, Vedanta Limited, Sterlite Copper, the proceeds of which are to be applied for to for expansion of copper business, acquisition of complementary businesses outside of India and any other permissible purpose under, and in compliance with, applicable laws and regulations in India, including the external commercial borrowing regulations specified by the RBI US$500 million 5.0% guaranteed convertible bonds due 2014, issued by a subsidiary of the Company, Vedanta Limited, Iron Ore Sesa, the proceeds of which are to be applied for to expand the Issuer’s mining operations, for exploration for new resources, and to further develop its pig iron and metallurgical coke operation StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 222 Additional information Glossary and Definitions continued Copper Business The copper business of the Group, comprising: • a copper smelter, two refineries and two copper rod plants in India, trading through Vedanta Limited, a company incorporated in India; • one copper mine in Australia, trading through Copper Mines of Tasmania Pty Limited, a company incorporated in Australia; and • an integrated operation in Zambia consisting of three mines, a leaching plant and a smelter, trading through Konkola Copper Mines PLC, a company incorporated in Zambia CREP Corporate responsibility for environmental protection Economic holdings or economic interest The economic holdings/interest are derived by combining the Group’s direct and indirect shareholdings in the operating companies. The Group’s economic holdings/interest is the basis on which the attributable profit and net assets are determined in the consolidated accounts E&OHSAS Environment and occupational health and safety assessment standards E&OHS Environment and occupational health and safety management system Cents/lb US cents per pound CRRI Central Road Research Institute CRISIL CRISIL Limited is a rating agency incorporated in India CSR Corporate social responsibility CTC Cost to company, the basic remuneration of executives in India, which represents an aggregate figure encompassing basic pay, pension contributions and allowances CY Calendar year EPS Earnings per ordinary share ESOP Employee share option plan ESP Electrostatic precipitator Executive Committee The Executive Committee to whom the Board has delegated operational management. It comprises of the Executive Directors and the senior management of the Group Executive Directors The Executive Directors of the Company Expansion capital expenditure Capital expenditure that increases the Group’s operating capacity Deferred shares Deferred shares of £1.00 each in the Company DGMS Director General of Mine Safety in the Government of India Financial statements or Group financial statements The consolidated financial statements for the Company and the Group for the year ended 31 March 2015 as defined in the Independent Auditor’s Report to the members of Vedanta Resources plc Directors The Directors of the Company Dollar or US$ United States dollars, the currency of the United States of America Free Cash Flow post capex Cash flows arising from EBITDA after net interest (including gains on liquid investments and adjusted for net interest and adjusted for net interest capitalised), taxation, sustaining and expansion capital expenditure, movements in capital creditors and working capital movements. DRs Depositary receipts of 10 US cents, issuable in relation to the US$725 million 4.6% guaranteed convertible bonds due 2026 FY Financial year i.e. April to March EBITDA Earnings before interest, taxation, depreciation, goodwill amortisation/impairment and special items EBITDA margin EBITDA as a percentage of turnover GAAP, including UK GAAP and Indian GAAP Generally Accepted Accounting Principles, the common set of accounting principles, standards and procedures that companies use to compile their financial statements in their respective local territories EBITDA interest cover EBITDA divided by gross finance costs excluding accretive interest on convertible bonds, unwinding of discount on provisions, interest on defined benefit arrangements less investment revenue GDP Gross domestic product Gearing Net debt as a percentage of capital employed EBITDA margin excluding custom smelting EBITDA Margin excluding EBITDA and turnover from custom smelting of Copper India, Copper Zambia and Zinc India businesses GJ Giga joule Vedanta Resources plc Annual report and accounts FY2015 223 GRMC Group Risk Management Committee Government or Indian Government The Government of the Republic of India Gratuity A defined contribution pension arrangement providing pension benefits consistent with Indian market practices Group The Company and its subsidiary undertakings and, where appropriate, its associate undertaking Gross finance costs Finance costs before capitalisation of borrowing costs HSE Health, safety and environment HZL Hindustan Zinc Limited, a company incorporated in India IAS International Accounting Standards ICMM International Council on Mining and Metals IFRIC IFRS Interpretations Committee IFRS International Financial Reporting Standards INR Indian rupees Interest cover EBITDA divided by finance costs ISO 9001 An international quality management system standard published by the International Organisation for Standardisation KDMP Konkola deep mining project Key Result Areas or KRAs For the purpose of the remuneration report, specific personal targets set as an incentive to achieve short-term goals for the purpose of awarding bonuses, thereby linking individual performance to corporate performance KLD Kilo litres per day KPIs Key performance indicators KWh Kilowatt hour KWh/d Kilowatt hour per day LIBOR London inter bank offered rate LIC Life Insurance Corporation Listing or IPO (Initial Public Offering) The listing of the Company’s ordinary shares on the London Stock Exchange on 10 December 2003 Listing particulars The listing particulars dated 5 December 2003 issued by the Company in connection with its Listing or revised listing filled in 2011 Listing rules The listing rules of the Financial Services Authority, with which companies with securities that are listed in the UK must comply LME London Metals Exchange London Stock Exchange London Stock Exchange plc ISO 14001 An international environmental management system standard published by the International Organisation for Standardisation Lost time injury An accident/injury forcing the employee/contractor to remain away from his/her work beyond the day of the accident Iron Ore Sesa Iron ore Division of Vedanta Limited, comprising of iron ore mines in Goa and Karnataka in India LTIFR Lost time injury frequency rate: the number of lost time injuries per million man hours worked Jharsuguda 2,400MW Power Plant Power Division of Vedanta Limited, comprising of a 2,400MW power plant in Jharsuguda in Odisha in India LTIP The Vedanta Resources Long-Term Incentive Plan or Long-Term Incentive Plan Jharsuguda Aluminium Aluminium Division of Vedanta Limited, comprising of an aluminium refining and smelting facilities at Jharsuguda and Lanjigarh in Odisha in India KCM or Konkola Copper Mines Konkola Copper Mines PLC, a company incorporated in Zambia MALCO The Madras Aluminium Company Limited, a company incorporated in India Management Assurance Services (MAS) The function through which the Group’s internal audit activities are managed StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com 224 Additional information Glossary and Definitions continued MAT Minimum alternative tax MIS Management information system MOEF The Ministry of Environment & Forests of the Government of the Republic of India mt or tonnes Metric tonnes MU Million units MW Megawatts of electrical power NCCBM National Council of Cement and Building Materials Net (debt)/cash Total debt after fair value adjustments under IAS 32 and 39, cash and cash equivalents and liquid investments NGO Non-governmental organisation NIHL Noise induced hearing loss Non-Executive Directors The Non-Executive Directors of the Company OHSAS 18001 Occupational Health and Safety Assessment Series (standards for occupational health and safety management systems) Oil & Gas business The Group’s subsidiary, Cairn India Limited is involved in the business of exploration, development and production of oil & gas Ordinary shares Ordinary shares of 10 US cents each in the Company ONGC Oil and Natural Gas Corporation Limited, a company incorporated in India PBT Profit before tax PFC Per fluorocarbons PHC Primary health centre PPE Personal protective equipment PSC A ‘production sharing contract’ by which the Government of India grants a licence to a company or consortium of companies (the Contractor) to explore for and produce any hydrocarbons found within a specified area and for a specified period, incorporating specified obligations in respect of such activities and a mechanism to ensure an appropriate sharing of the profits arising there from (if any) between the Government and the Contractor Recycled water Water released during mining or processing and then used in operational activities PSP The Vedanta Resources Performance Share Plan Relationship Agreement The agreement between the Company, Volcan Investments Limited and members of the Agarwal family which had originally been entered into at the time of the Company’s Listing in 2003 and was subsequently amended in 2011 and 2014 to regulate the ongoing relationship between them, the principal purpose of which is to ensure that the Group is capable of carrying on business independently of Volcan, the Agarwal family and their associates Return on Capital Employed or ROCE Profit before interest, taxation, special items, tax effected at the Group’s effective tax rate as a percentage of Capital Employed RO Reverse osmosis SA 8000 Standard for Social Accountability based on international workplace norms in the International Labour Organisation (ILO) conventions and the UN’s Universal Declaration of Human Rights and the Convention on Rights of the Child Senior management group For the purpose of the remuneration report, the key operational and functional heads within the Group Vedanta Limited (formerly known as Sesa Sterlite Limited/Sesa Goa Limited) Vedanta Limited, a company incorporated in India engaged in the business of copper smelting, iron ore mining, aluminium mining, refining and smelting and Energy generation SEWT Sterlite Employee Welfare Trust, a long-term investment plan for Sterlite senior management Sterlite Copper Copper Division of Vedanta Limited comprising of a copper smelter, two refineries and two copper rod plants in India The Share Option Plan The Vedanta Resources Share Option Plan, a closed plan approved by shareholders on Listing in December 2003 and adopted to provide maximum flexibility in the design of incentive arrangements over the long-term Provident Fund A defined contribution pension arrangement providing pension benefits consistent with Indian market practices SHGs Self help groups Vedanta Resources plc Annual report and accounts FY2015 225 SID Senior Independent Director SO2 Sulphur dioxide SBU Strategic Business Unit STL Sterlite Technologies Limited, a company incorporated in India Special items Items which derive from events and transactions that need to be disclosed separately by virtue of their size or nature SPM Suspended particulate matter. Fine dust particles suspended in air Sterling, GBP or £ The currency of the United Kingdom Superannuation Fund A defined contribution pension arrangement providing pension benefits consistent with Indian market practices Sustaining capital expenditure Capital expenditure to maintain the Group’s operating capacity TCM Thalanga Copper Mines Pty Limited, a company incorporated in Australia TC/RC Treatment charge/refining charge being the terms used to set the smelting and refining costs TGS Tail gas scrubber TGT Tail gas treatment TLP Tail Leaching Plan tpa Metric tonnes per annum TPM Tonnes per month Twin Star Holdings Group Twin Star and its subsidiaries and associated undertaking UK Corporate Governance Code or the Code The September 2012 edition of the UK Corporate Governance Code published by the Financial Reporting Council Underlying EPS Underlying earnings per ordinary share Underlying profit/(loss) Profit/(loss) for the year after adding back special items and other gains and losses and their resultant tax (including taxes classified as special items) and non-controlling interest effects US cents United States cents VFD Variable frequency drive VFJL Vedanta Finance (Jersey) Limited, a company incorporated in Jersey VGCB Vizag General Cargo Berth Private Limited, a company incorporated in India Volcan Volcan Investments Limited, a company incorporated in the Bahamas VRCL Vedanta Resources Cyprus Limited, a company incorporated in Cyprus VRFL Vedanta Resources Finance Limited, a company incorporated in the United Kingdom VRHL Vedanta Resources Holdings Limited, a company incorporated in the United Kingdom VSS Vertical Stud Söderberg Water used for primary activities Total new or make-up water entering the operation and used for the operation’s primary activities; primary activities are those in which the operation engages to produce its product TSPL Talwandi Sabo Power Limited, a company incorporated in India WBCSD World Business Council for Sustainable Development TSR Total shareholder return, being the movement in the Company’s share price plus reinvested dividends ZCI Zambia Copper Investment Limited, a company incorporated in Bermuda Turnbull Guidance The revised guidance on internal control for directors on the Combined Code issued by the Turnbull Review Group in October 2005 ZCCM ZCCM Investments Holdings plc, a company incorporated in Zambia Twin Star Twin Star Holdings Limited, a company incorporated in Mauritius ZRA Zambia Revenue Authority StrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformationVedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.com Shareholder interests as at 31 March 2015 Number of shareholders: Number of shares in issue: By size of holding 2015 2014 4,137 298,182,135 Currency option and dividend mandate Shareholders wishing to receive their dividend in UK pounds sterling should complete and return to the Registrar a Currency Election Form. In order for the Currency Option and Dividend Mandate to be effective for the 2015 final dividend, the completed forms must be received by the Registrar by 13 July 2015. The Registrar can also arrange for the dividend to be paid directly into a shareholder’s UK bank account. To take advantage of this facility, please contact Computershare who will provide a Dividend Mandate Form. Please complete and return the form to the Registrar by 13 July 2015. This arrangement is only available in respect of dividends paid in UK pounds sterling. Consequently, you may only take advantage of this arrangement if you have also completed a Currency Election Form and returned it to the Registrar by 13 July 2015. If you have already completed and returned a Currency Election Form and/or a Dividend Mandate Form, you need take no further action. Currency election and dividend mandate forms are also available online through the Investor Centre service www. investorcentre.co.uk. Financial calendar Dividend payments Ex-dividend date Record date 2013 final ordinary dividend payable 12 August 2015 9 July 2015 10 July 2015 Other dates Annual General Meeting 2015 half year results announced 3 August 2015 5 November 2015 226 Additional information Shareholder information 500 and under 501 to 1,000 1,001 to 10,000 10,001 to 100,000 100,001 to 1,000,000 Over 1,000,000 Shareholders % Shares % 2015 52.58 13.78 21.53 7.71 3.31 1.09 2014 59.85 15.01 17.45 5.32 1.72 0.65 2015 0.09 0.08 0.56 2.08 7.41 89.77 2014 0.18 0.15 0.72 2.54 7.01 89.40 100.00 100.00 100.00 100.00 Annual General Meeting The AGM will be held on 3 August 2015 at 3pm at Ironmongers’ Hall, Shaftesbury Place, London EC2Y 8AA. The Notice of Meeting and the Form of Proxy are enclosed with this Report. Company website The Company’s Half Year and annual reports and results announcements are available on the website at www. vedantaresources.com. Shareholders can also access the latest information about the Company and press announcements as they are released, together with details of future events and who to contact for further information. Registrar For information about the AGM, shareholdings and dividends and to report changes in personal details, shareholders should contact: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ United Kingdom Telephone: +44 (0) 870 707 1388 Email: web.queries@computershare.co.uk Computershare provide a free self-service website, Investor Centre, through which you can view your share balance, change your address, view your dividend payment and tax information and update your payment instructions. For further information, visit www.investorcentre.co.uk. Cautionary statement about forward-looking statements Certain statements made in this document constitute “forward-looking statements”. In this context, forward-looking statements can be identified by the use of words such as “expects”, “anticipates”, “intends”, “plans”, “predicts”, “assurance”, “assumes”, “aim”, “hope”, “risk”, “estimates”, “believes”, “seeks”, “may”, “should” or “will” or the negative thereof or other similar expressions that are predictive or indicative of future events. All statements other than statements of historical facts included in this document, including, without limitation, those regarding the Group’s expectations, intentions and beliefs concerning, amongst other things, the Group’s results of operations, financial position, growth strategy, prospects, dividend policy and the industries in which the Group operates, are forward-looking statements. Forward–looking statements, by their nature, involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Group and its Directors, which may cause the actual results, performance, achievements, dividends of the Group or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements contained in this document speak only as of the date of this document. As such, forward-looking statements are no guarantee of future performance. Except as required by applicable regulations or by law, the Group does not undertake to publicly update any forward-looking statement whether as a result of new information or future events and expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any changes in its expectations or any change in events, conditions or circumstances on which any such statement is based. Vedanta Resources plc Annual report and accounts FY2015 227 Notes Vedanta Resources plc Annual report and accounts FY2015www.vedantaresources.comhttp://sustainabledevelopment.vedantaresources.comStrategicreportCorporate governance andDirectors’ reportsFinancialstatementsAdditionalinformation 228 Additional information Notes Vedanta Resources plc Annual report and accounts FY2015 Contacts Investor Relations For investor enquiries, please contact: Mr Ashwin Bajaj Director, Investor Relations Vedanta Resources plc 16 Berkeley Street London W1J 8DZ Telephone: +44 (0) 20 7659 4732 (London) Email: +91 22 6646 1531 (Mumbai) ir@vedanta.co.in Registered office Vedanta Resources plc 5th Floor 6 St Andrew Street London EC4A 3AE Company Secretary Deepak Kumar Head office 16 Berkeley Street London W1J 8DZ Telephone: +44 (0) 20 7499 5900 +44 (0) 20 7491 8440 Fax: Registered number 4740415 Auditors Deloitte LLP 2 New Street Square London EC4A 3BZ Solicitors Ashurst LLP Broadwalk House 5 Appold Street London EC2A 2HA Latham & Watkins LLP 99 Bishopsgate London EC2M 3XF Vedanta Resources plc 5th Floor, 16 Berkeley Street London W1J 3DZ Tel: +44 (0) 20 7499 5900 Fax: +44 (0) 20 7491 8440 vedantaresources.com V e d a n t a R e s o u r c e s p l c A n n u a l r e p o r t a n d a c c o u n t s F Y 2 0 1 5
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