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Channelling
opportunities
VEDANTA RESOURCES PLC
A N N U A L R E P O R T
F Y 2 0 1 8
Vedanta
Resources plc
is a UK listed
global diversified
natural resources
company.
Our core purpose
Vedanta is a globally diversified natural resources
company with low-cost operations. The resources
we process are used to improve and enhance
people’s lives and deliver long-term value. We
empower our people to drive excellence and
innovation to create value for our stakeholders.
We demonstrate world-class standards of
governance, safety, environment, sustainability
and social responsibility.
Gamsberg mine.
Vedanta Resources plc | Annual Report FY2018
01
What’s inside
Strategic Report
Highlights
Vedanta at a Glance
Investment Case
Chairman’s Statement
Chief Executive’s Statement
Channelling Growth Options
Market Review
Our Business Model
Strategic Framework
Key Performance Indicators
Principal Risks and Uncertainties
Sustainability Report
Non-Financial Information Statement
Finance Review
Operational Review: Oil & Gas
Zinc India
Zinc International
Iron Ore
Copper India
Copper Zambia
Aluminium
Power
Directors’ Report
Board of Directors
Executive Committee
Corporate Governance Report
Nominations Committee Report
Audit Committee Report
Relations with Shareholders
Sustainability Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy Report
Annual Report on Remuneration
Directors’ Report
Directors’ Responsibilities Statement
02
04
06
08
10
14
20
26
30
32
34
42
59
60
68
72
76
80
84
88
92
96
100
102
104
114
117
125
127
129
130
135
144
151
Financial Statements
152
161
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of
162
Comprehensive Income
Consolidated Statement of Financial Position 163
Consolidated Cash Flow Statement
164
Consolidated Statement of Changes in Equity 165
167
Notes to the Financial Statements
Additional Information
Five Year Summary
Production and Reserves Summary
Other Information
Glossary and Definitions
Shareholder Information
Contacts
256
260
265
267
271
272
It has been another successful
year for Vedanta as we
continued to deliver across our
strategic priorities. We reached
record production levels at
several of our businesses. We
transformed our approach to
developing our assets, which
gives me confidence of efficient
and productive ramp‑ups across
our world class assets. We
continue to stay focused on
optimising capital allocation and
strengthening our balance sheet
and deliver superior shareholder
returns. Vedanta remains well
positioned to capitalise on
India’s growing resources
demand. I look forward to
another strong year for
the company.
Anil Agarwal
Chairman
For more information
see pages 08–09
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 02
Vedanta Resources plc | Annual Report FY2018
Highlights
Financial highlights
• Revenue increased by 33% to US$15.4 billion
(FY2017: US$11.5 billion) driven by firmer commodity
prices and volume ramp-ups
• EBITDA at US$4.1 billion, up 27% (FY2017: US$3.2 billion)
• Robust adjusted EBITDA margin◊ of 35% (FY2017: 36%)
• Underlying profit◊ per share of 58.3 US cents
(FY2017: 16.1 US cents per share)
• Basic earnings per share of 84.8 US cents (FY2017: a
loss of 8.2 US cents), mainly due to higher EBITDA and
reversal of a previously recorded non-cash impairment
charge at Oil & Gas. This was offset by a non-cash
impairment charge at Iron Ore Goa
• ROCE◊ improved by 2.1% to 14.9% (FY2017: 12.8%)
• Free cash flow (FCF)◊ post-capex of US$0.9 billion
(FY2017: US$1.5 billion)
• Gross debt at US$15.2 billion (FY2017: US$18.2 billion),
a reduction of US$3 billion in 12 months (including
repayment of $1.2 billion of temporary borrowing at
Zinc India)
• Net debt◊ at US$9.6 billion (FY2017: US$8.5 billion)
• A proactive refinancing of US$2.4 billion through a bond
issuance and bank loans improved average maturity at
Vedanta Resources plc to about four years at March
2018 (March 2017: approx. three years)
• Moody’s upgraded the Corporate Family Rating (CFR)
by one notch from ‘B1/Stable’ to ‘Ba3/Stable’
• Final dividend announced of 41 US cents per share (total
dividend of 65 US cents per share), with a yield of 6%
• Vedanta Limited announced a record interim dividend of
c. US$1.2 billion in March 2018, of which c. $600 million
was received by Vedanta Resources plc and used for
deleveraging
Business highlights
Oil & Gas
• March 2018 exit run-rate of over 200kboepd
• Growth projects on track with contracts of US$1.3 billion
(gross) awarded
Zinc India
• Record annual production of refined zinc-lead at 960kt
• Record annual production of refined silver at 17.9 million
ounces
• On track for ramp-up of mined metal to 1.2mt by
FY2020
Zinc International
• Annual production in line with guidance
• Gamsberg project on track with production expected by
mid-CY2018
Iron Ore
• Mining cap allocation for Karnataka increased from
2.3mt to 4.5mt
• Goa mining operations shut due to state-wide ban
Copper India1
• Record annual production
Copper Zambia
• Annual mined metal production at 91kt, 3% lower y-o-y
• New contractor-partnering model getting into place
Aluminium
• Record annual production at 1.7mt, with an exit run-rate
of c. 2.0mtpa
Power
• 1,980MW Talwandi Sabo power plant achieved 93%
availability in Q4 FY2018 (FY2018: 74%)
• Contribution to the exchequer of US$5.4 billion
1 Operations at Tuticorin Smelter halted due to pending renewal of its consent to operate.
in FY2018
• Vedanta Limited’s resolution plan to acquire Electrosteel
Steels Limited approved by NCLT, the acquisition,
subject to completion of due processes, will
complement the Group’s existing Iron Ore business
through vertical integration
Vedanta Resources plc | Annual Report FY2018
03
Consolidated Group results
(US$ million, unless stated)
Revenue
EBITDA◊
EBITDA margin◊
Adjusted EBITDA margin◊
Operating profit before special items
Profit/(loss) attributable to equity holders of the parent
Underlying attributable profit/(loss)◊
Basic earnings/(loss) per share (US cents)
Profit/(loss) per share on underlying profit (US cents)
ROCE % ◊*
Dividend (US cents per share)
Indicates alternative performance measures that are defined in detail in ‘Other information’.
◊
* Recomputed on the basis of operating profit before special items and net of tax outflow, as a ratio of average capital employed.
FY2018
FY2017
15,359
4,051
26%
35%
2,781
236
162
84.8
58.3
14.9%
65
11,520
3,191
28%
36%
2,161
(23)
45
(8.2)
16.1
12.8%
55
Revenue
(US$bn)
4
.
5
1
9
.
2
1
9
.
2
1
5
.
1
1
7
.
0
1
EBITDA
(US$bn)
5
.
4
7
.
3
1
.
4
2
.
3
3
.
2
Net debt/EBITDA
(Consolidated)
Net debt/EBITDA
(Consolidated)
1
.
3
7
.
2
4
.
2
3
.
2
8
.
1
Dividend
(US cents per share)
3
1 6
6
5
6
5
5
0
3
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 04
Vedanta Resources plc | Annual Report FY2018
Vedanta at a Glance
A large and diversified asset base
Oil & Gas
Zinc‑Lead‑Silver
Aluminium
Power
Copper
Iron Ore
Operator of
25%of India’s crude oil production
Business
Cairn Oil & Gas
Production volume in FY2018
186kboepd
(average daily gross production)
EBITDA FY2018 (margin %)
US$849m (57%)
Asset highlights
78%share of the Indian zinc market.
Only primary silver producer in India
40%share in India’s primary market
9GWdiversified power portfolio
33%market share of refined copper in India
Largest
private sector exporter in India
Zinc India (HZL)
Zinc International
Aluminium smelters at Jharsuguda
and Korba (BALCO), Lanjigarh
alumina refinery
Power plants at Talwandi Sabo,
Jharsuguda and Korba
Copper India
Copper Zambia
Iron Ore India
90 kt Zinc-Lead, Zinc India
17.9 moz Silver, Zinc India
157 kt Zinc-Lead, Zinc International
1,675 kt Aluminium
1,209 kt Alumina
11bn Kwh
(Power sales)
403 kt Copper India
84 kt Integrated, Copper Zambia
11 kt Custom, Copper Zambia
7.1mt
Zinc India
US$1,903m (56%)
US$219m (41%)
Zinc International
US$452m (13%)
US$259m (25%)*
US$57m (12%)
US$201m (5%)
Copper India
US$73m (6%)
Copper Zambia
• Largest private sector oil & gas producer
• World’s second-largest integrated
• Largest aluminium capacity in India:
• One of India’s largest power generators
• One of the largest copper producers
• Karnataka iron ore mine R&R of
in India
zinc-lead producer
2.3mtpa
• Executing one of the largest polymer
• Operates the world’s largest zinc mine,
Enhanced Oil Recovery projects in the
world
Rampura Agucha in India
• Top 10 silver producer globally
• Strategically located large-scale assets
with an alumina refinery and integrated
power plants
• 3.6GW of commercial power generation
in India
100 million tonnes, with life of 20 years
capacity, with the balance for captive
• Konkola Copper Mines is among the
usage
world’s highest-grade miners with
• Leading producer of wind power in India
c. 2.2% grade
Application areas
• Crude oil: hydrocarbon refineries
• Natural gas: mainly used by the
• Galvanising steel
• Die-casting alloys, brass, oxides
fertiliser and power generation sector
and chemicals
* Excluding one offs
Note: Market share and positions correspond to FY2018
• Used in construction, transportation
and electrical industries
• Used to produce ingots, wire rods,
billets, primary foundry alloys and
rolled products
• 60% is for captive use. Remainder used
• Used for making cables, transformers,
• Essential for steel manufacturing
castings, motors and castings, and
• Used in the construction, infrastructure
alloy-based products
and automotive sectors
for commercial purposes (with 92%
backed by long-term power purchase
agreements with local Indian distribution
companies)
Oil & Gas
Zinc‑Lead‑Silver
Aluminium
Power
Copper
Iron Ore
of long-life, low-cost assets
Vedanta Resources plc | Annual Report FY2018
05
78%share of the Indian zinc market.
Only primary silver producer in India
40%share in India’s primary market
9GWdiversified power portfolio
33%market share of refined copper in India
Largest
private sector exporter in India
Zinc India (HZL)
Zinc International
Aluminium smelters at Jharsuguda
and Korba (BALCO), Lanjigarh
alumina refinery
Power plants at Talwandi Sabo,
Jharsuguda and Korba
Copper India
Copper Zambia
Iron Ore India
90 kt Zinc-Lead, Zinc India
17.9 moz Silver, Zinc India
157 kt Zinc-Lead, Zinc International
1,675 kt Aluminium
1,209 kt Alumina
11bn Kwh
(Power sales)
403 kt Copper India
84 kt Integrated, Copper Zambia
11 kt Custom, Copper Zambia
7.1mt
US$1,903m (56%)
Zinc India
US$219m (41%)
Zinc International
US$452m (13%)
US$259m (25%)*
Copper India
US$201m (5%)
US$73m (6%)
Copper Zambia
US$57m (12%)
• Largest private sector oil & gas producer
• World’s second-largest integrated
• Largest aluminium capacity in India:
zinc-lead producer
2.3mtpa
• Executing one of the largest polymer
• Operates the world’s largest zinc mine,
• Strategically located large-scale assets
Enhanced Oil Recovery projects in the
Rampura Agucha in India
with an alumina refinery and integrated
• Top 10 silver producer globally
power plants
• One of India’s largest power generators
• 3.6GW of commercial power generation
capacity, with the balance for captive
usage
• Leading producer of wind power in India
• One of the largest copper producers
• Karnataka iron ore mine R&R of
in India
• Konkola Copper Mines is among the
world’s highest-grade miners with
c. 2.2% grade
100 million tonnes, with life of 20 years
• Crude oil: hydrocarbon refineries
• Natural gas: mainly used by the
• Galvanising steel
• Used in construction, transportation
• Die-casting alloys, brass, oxides
and electrical industries
fertiliser and power generation sector
and chemicals
• Used to produce ingots, wire rods,
billets, primary foundry alloys and
rolled products
• 60% is for captive use. Remainder used
for commercial purposes (with 92%
backed by long-term power purchase
agreements with local Indian distribution
companies)
• Used for making cables, transformers,
castings, motors and castings, and
alloy-based products
• Essential for steel manufacturing
• Used in the construction, infrastructure
and automotive sectors
Operator of
25%of India’s crude oil production
Business
Cairn Oil & Gas
Production volume in FY2018
186kboepd
(average daily gross production)
EBITDA FY2018 (margin %)
US$849m (57%)
Asset highlights
in India
world
Application areas
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
06
Vedanta Resources plc | Annual Report FY2018
Investment Case
Our investment case is focused on delivering sustainable
long‑term returns to our shareholders and creating value
for our broader stakeholder base.
A large, low-cost and diversified asset base
with an attractive commodity mix
Vedanta’s large-scale, diversified asset portfolio,
with attractive cost positions in some of the core
businesses, positions the Company well to deliver
strong margins and free cash flows through the
commodity cycle. Vedanta’s focus on base metals
and oil, commodities with strong fundamentals and
leading demand growth, makes the Company’s
commodity mix particularly attractive.
In FY2018, markets have seen an upturn driven
by improved demand and supply-side constraints.
This has benefited the commodities sector, and in
particular Vedanta’s core commodities including
zinc, aluminium and oil & gas.
Demand 2018–2030 CAGR
%
2
8
.
%
7
6
.
%
4
6
.
%
0
5
.
%
8
4
.
%
6
.
2
%
4
.
1
%
7
.
1
%
6
.
1
■ India demand ■ Global demand
Vedanta Limited commodity presence
Source: Wood Mackenzie, EIA
%
4
3
.
%
4
3
.
%
3
3
.
%
9
.
1
%
3
.
0
%
5
.
0
%
0
.
1
%
0
2
.
%
4
.
0
Copper
Aluminium
Zinc
Lead
Iron ore
Nickel
Thermal coal Met coal
Oil & gas
Ideally positioned to
capitalise on India’s
growth potential
India is Vedanta’s main market, and one which has
huge growth potential. Current per capita metal
consumption in India is significantly lower than the
global average. Urbanisation and industrialisation,
supported by government initiatives on infrastructure
and housing, continue to drive strong economic
growth and generate demand for natural resources.
We are strongly and uniquely positioned to benefit
from this growth due to our:
• established operations in India;
• strong market position across our businesses:
we are India’s largest base metals producer,
and the largest private sector oil producer; and
• our operating team with a strong track record
of executing growth in India.
India key metrics
GDP (real, US$)
6.0trillion
(2030)
2.8trillion
(2018)
Per capita income
(real, US$)
3,979
(2030)
2,083
(2018)
Urbanisation
40%
(2030)
34%
(2018)
India demand potential
Improving
regulatory
environment:
Transparent
auctioning and
private ownership
Aluminium
consumption
(kg/capita)
I
1.7
G
C
8.7
I = India
G = Global
C = China
Copper
consumption
(kg/capita)
Zinc
consumption
(kg/capita)
Oil
consumption
(bbl/capita)
I
0.5
G
C
1.9
5.0
I
0.4
G
C
3.1
8.0
I
1.3
G
C
4.8
3.4
25.9
Source: Wood Mackenzie, EIA, BMI, Global Insight
Note: All commodities-demand correspond to primary-demand
Well-invested assets driving cash flow growth
We are ramping-up production across a number of
our businesses as a result of investments in the past
years. We have already started seeing the results of
our investments, with Zinc India and Aluminium
delivering record output in the past year. Now, with
the new growth plans for Oil & Gas that we initiated
in FY2018, we expect further delivery on ramp-ups
and strong growth in free cash flow generation.
Growth capex
($bn)
5
.
4 1
.
1
8
.
7 0
.
.
6 0
0
Free cash flow pre-capex
($bn)
7
.
2
6
.
2
3
.
2
2
.
2
7
.
1
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
A large, low-cost and diversified asset base
with an attractive commodity mix
Vedanta’s large-scale, diversified asset portfolio,
with attractive cost positions in some of the core
businesses, positions the Company well to deliver
strong margins and free cash flows through the
commodity cycle. Vedanta’s focus on base metals
and oil, commodities with strong fundamentals and
leading demand growth, makes the Company’s
commodity mix particularly attractive.
In FY2018, markets have seen an upturn driven
by improved demand and supply-side constraints.
This has benefited the commodities sector, and in
particular Vedanta’s core commodities including
zinc, aluminium and oil & gas.
Ideally positioned to
capitalise on India’s
growth potential
India is Vedanta’s main market, and one which has
huge growth potential. Current per capita metal
consumption in India is significantly lower than the
global average. Urbanisation and industrialisation,
supported by government initiatives on infrastructure
and housing, continue to drive strong economic
growth and generate demand for natural resources.
We are strongly and uniquely positioned to benefit
from this growth due to our:
• established operations in India;
• strong market position across our businesses:
we are India’s largest base metals producer,
and the largest private sector oil producer; and
• our operating team with a strong track record
of executing growth in India.
Well-invested assets driving cash flow growth
We are ramping-up production across a number of
our businesses as a result of investments in the past
years. We have already started seeing the results of
our investments, with Zinc India and Aluminium
delivering record output in the past year. Now, with
the new growth plans for Oil & Gas that we initiated
in FY2018, we expect further delivery on ramp-ups
and strong growth in free cash flow generation.
Growth capex
($bn)
5
.
4 1
.
1
8
.
7 0
6 0
.
.
0
Free cash flow pre-capex
($bn)
7
.
2
6
.
2
3
.
2
2
.
2
7
.
1
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Vedanta Resources plc | Annual Report FY2018
07
Operational excellence and technology,
driving efficiency and sustainability
We constantly strive to improve our operations,
integrate our businesses through the value chain
and optimise our performance through operational
efficiencies and innovative technological solutions.
We employ these tools to further ensure that our
operations have a positive impact on our
stakeholders and, more broadly, society.
LTIFR
4
5
.
0
0
5
.
6 0
4
0
.
9
3
.
0
4
3
.
0
EBITDA margin
(%)*
5
4
8
3
6
3
5
3
8
2
Strong financial profile
Our operational performance, coupled with a strong
focus on optimising capital allocation, has helped
strengthen Vedanta’s financial profile. In FY2018,
supported by the robust price environment, we
have delivered:
• revenues of US$15.4 billion (+33% y-o-y) and
EBITDA of US$4.1 billion (+27% y-o-y)
• strong free cash flow◊, post-growth capex, of
US$0.9 billion
• robust ROCE◊ of 14.9%
• the highest-ever interim dividend of US$1.2 billion
from Vedanta Limited, subsidiary of Vedanta plc
in FY2018
• deleveraging and extension of our debt maturities
through proactive liability management
• Cash and liquid investments of US$5.6 billion
Proven track record
We have a proven management team with a diverse
and extensive range of sector and global experience
who ensure that operations are run efficiently and
responsibly. We have taken a disciplined approach to
development, growing our production steadily across
our operations with an ongoing focus on operational
efficiency and cost savings. Since our listing in 2003,
our assets have delivered an average of 16% CAGR
production growth.
2014 2015 2016 2017 2018
Note: ICMM 2014 methodology
adopted from FY2016 onwards.
2014 2015 2016 2017 2018
* Excludes custom smelting
at Zinc India and Copper
operations.
ROCE
(%)
Net debt/EBITDA
(Consolidated)
9
.
4
1
8
.
2
1
6
.
5
2
.
5
4
.
3
2014 2015 2016 2017 2018
Note: Recomputed on the basis of
operating profit before special items
and net of tax outflow, as a ratio of
average capital employed.
1
.
3
7
.
2
4
.
2
3
.
2
8
.
1
2014 2015 2016 2017 2018
16% CAGR production growth since listing
Total Production
(copper equivalent kt)
3,000
2,500
2,000
1,500
1,000
500
0
)
t
k
(
n
o
i
t
c
u
d
o
r
P
t
n
e
l
a
v
i
u
q
E
r
e
p
p
o
C
8 . 0 x o r 1 6 % C A G R
+c. 60%
◊
Indicates alternate performance measures that are defined in detail
in ‘Other information’.
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Design
capacity
Zinc-Lead
Silver
Copper
Aluminium
Power
Iron Ore
Oil & Gas
All commodity and power capacities rebased to copper equivalent capacity (defined as production x commodity
price/copper price) using average commodity prices for FY2018. Power rebased using FY2018 realisations,
copper custom smelting production rebased at TC/RC for FY2018, iron ore volumes refer to sales with prices
rebased at realised prices for FY2018.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
08
Vedanta Resources plc | Annual Report FY2018
Chairman’s Statement
We look forward to FY2019 with confidence
as we set out on our next phase of growth.
Our portfolio has demonstrated its resilience
through the commodity cycle, with the
current market pointing to strong demand
for our commodities.
Anil Agarwal
Chairman
I am delighted to report another excellent
year delivered by Vedanta to our
stakeholders in FY2018. In our operations,
productivity and financial results, we can
look back on a year of real progress.
Equally, we are proud of the positive
contribution that Vedanta continues to
make in supporting people and local
communities, operating as a responsible
corporate citizen, creating jobs, generating
value throughout our supply chain, and
contributing to the exchequer.
While the Group made considerable
progress in strengthening its health, safety
and environment (HSE) practices, I deeply
regret that the year saw nine fatalities. The
safety of our colleagues is a top priority for
me personally as well as that of the Board,
and our CEO Kuldip Kaura addresses this
further in his statement.
Performance
Our focus on all-round improvement was
complemented by improving markets; the
strengthening of commodity prices evident
in 2017 gained further momentum in 2018.
Our teams across the Group’s businesses
worked hard to capitalise on this favourable
market environment, maximising
productivity and gearing up activities to
achieve record breaking levels of output
at several business segments.
These increased volumes and prices
underpinned a 33% increase in revenues
to reach US$15.4 billion, as well as a 27%
growth in EBITDA to US$4.1 billion. We
also delivered strong free cash flow of
c. US$0.9 billion. These robust results are
testament to the capability, commitment
and expertise of all our employees.
Our contribution to society
I believe that a company’s performance
should be measured by its contribution
to society as well as by financial metrics.
It is encouraging to see that social and
responsible ways of working are
appreciated and increasingly valued by
investors. Vedanta’s ethos of business with
a purpose is fundamental to the Company,
and investors increasingly understand that
this is a core part of our long-term
growth story.
Over the course of the last year, Vedanta
invested over US$39 million in social
programmes. Our efforts have touched the
lives of 3.4 million people, in over 1,400
villages. This includes our participation in
India’s ‘Nand Ghar’ programme in rural
India, which involves setting up and
transforming 4,000 state-of-the-art child
welfare centres across the country, to
support women and children by providing
the nutrition, education, skills development
and healthcare they need. Vedanta, through
the Vedanta Medical Research Foundation,
also inaugurated Central India’s first
world-class cancer facility in Raipur,
Chhattisgarh in the past year. This initiative
aligns with the larger vision of Vedanta
Group’s commitment to give back to
society and I look forward to many more
research & development initiatives from
the foundation going forward.
Other diverse schemes we supported
during the year included: training and
placing over 3,300 youths; working with
about 85,000 farmers to enhance
productivity; helping over 0.26 million
people with access to clean drinking water
and sanitation; improving the lives of about
28,000 women through self-help groups
and skills development initiatives; providing
healthcare services to about 2.5 million
people through various healthcare initiatives
and health camps and touching the lives of
over 0.2 million children through our Nand
Ghars and other education projects. We are
committed to these programmes and will
continue to invest in their development.
Our people
Last summer saw the departure of our CEO
Tom Albanese, who stepped down after
over three years with Vedanta. In April this
year, I was very pleased that after
conducting a rigorous search for several
months, we were able to announce the
Vedanta Resources plc | Annual Report FY2018
09
appointment of Srinivasan Venkatakrishnan
(Venkat) as our new CEO. His tenure begins
in August, and he joins us with an
impressive track record in the key markets
of Africa, India and the United Kingdom.
Until then, Kuldip Kaura, who has previously
held the role of CEO and has over 15 years’
experience of working with Vedanta, will
continue as CEO, a role he assumed in
September 2017.
As we announced earlier in the year, Aman
Mehta retired from the Board after nearly
13 years of service. I would like to thank him
for his dedication to the Group during his
tenure. We appointed a new Non-Executive
Director, Ed Story, who also became a
member of the Audit Committee. Mr Story
will significantly enhance our ability to grow
and develop our Oil & Gas business,
drawing on extensive experience in that
sector worldwide.
I would like to thank all of our employees
whose energy and talents came to such
fine fruition in FY2018. None of our
achievements would have been possible
without their dedication, commitment and
hard work.
The Indian opportunity
India has an abundance of opportunities.
It is one of the fastest-growing G20
economies, and by 2030 forecasts
suggest it will be worth US$6 trillion
with a population of over 1.5 billion.
Over 80% of India’s demand for oil and
minerals is currently met by imports, and
the consumption of metals per capita
remains around 70% below the global
average. As the country’s sole diversified
natural resource group, Vedanta is uniquely
placed to help power India’s growth, and
we are committed to investing in its future.
The potential for our commodities is
evident, and I am also pleased that the
Indian Government has introduced
important pro-business reforms that will
attract global investments and be a catalyst
for growth. The amended MMDRA (Mines
and Mineral Development and Regulation
Act) in 2015 has brought increased clarity
on the licensing around mining.
Chairman at a Nand Ghar in Rajasthan.
Key regulatory reforms around opening
commercial coal mining to the private
sector and the launch of Open Acreage
Licensing (OALP) in the oil & gas sector to
improve exploration, are some of the steps
in the past year towards creating a more
favourable business environment. I would
particularly like to mention the new
insolvency code for the efficient resolution
of distressed companies. We have
participated in this process and are very
pleased at the smooth and transparent way
in which it was run. I am happy with the
outcome and look forward to the
integration of Electrosteel, post completion
of due processes, with our Iron Ore
business in Jharkhand as we focus on
avenues to create value.
Outlook
We look forward to FY2019 with
confidence as we set out on our next phase
of growth. Our portfolio has demonstrated
its resilience through the commodity cycle,
with the current market pointing to strong
demand for our commodities.
Alongside future growth, I am committed
to Vedanta operating under the highest
standards of corporate governance. Indeed,
I believe it is our governance structures that
underpin our ability to deliver our strategy.
As we embark on a fresh year, we will
continue our goal of increasing output from
our existing asset base to profit from the
favourable market conditions, whilst also
embarking on new projects and expansions.
These initiatives will be positive for all of us
– employees, investors, communities and
India – and give us a stronger platform from
which to benefit from the exceptional
opportunities ahead.
Anil Agarwal
Chairman
23 May 2018
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10
Vedanta Resources plc | Annual Report FY2018
Chief Executive’s Statement
The year gone by has paved the way for an exciting 2019.
We remain committed to developing all the growth opportunities
available to us, especially in the Oil & Gas and Zinc businesses
which will add significantly to volumes. With a strong balance
sheet and the continued focus on disciplined capital allocation,
we are confident of delivering yet another strong year.
Our strategy
Focusing on generating
growth, long‑term value
and sustainability.
Our priorities
– Operational excellence
– Preserve our licence
to operate
– Optimise capital allocation
and maintain a strong
balance sheet
– Delivering on growth
opportunities
– Augment our reserves &
resources (R&R) base
2018 saw Vedanta deliver a robust
performance creating a clear pathway for
sustainable growth. I am pleased to report
significant revenue and EBITDA growth,
driven by a supportive market coupled with
strong production through the year. The
record volumes at our Zinc and Aluminium
businesses resulted in an excellent financial
performance and ensured strong
shareholder returns.
This upward trajectory in production is
expected to continue into FY2019 with
ramp-ups at our Zinc India operations, the
commissioning of Gamsberg and growth
in our Oil & Gas business.
Commodity prices saw solid appreciation
over the year, fuelled by supply-related
reforms and disruptions, stable demand, a
weakening dollar and bullish global growth
indicators. Our commodity basket
benefited from the favourable price
movement and we further capitalised on
this opportunity by increasing our value-
added production in segments such as
Aluminium. However, alongside improving
prices we have experienced inflationary
headwinds for input commodities. These
impacted our costs, especially at Aluminium
and in response we are focusing on
operational improvements and have
implemented a structured approach to
optimise controllable costs which will yield
results in the coming year, barring further
cost-inflationary pressures.
The year gone by has paved the way for an
exciting 2019. We remain committed to
developing all the growth opportunities
available to us, especially in the Oil & Gas
and Zinc businesses which will add
significantly to volumes. With a strong
balance sheet and the continued focus
on disciplined capital allocation, we are
confident of delivering yet another
strong year.
Health, safety and the environment
We have a workforce of over 70,000
people, and our overriding goal is that every
one of them goes home safe every single
day. Our ‘zero harm’ policy puts health and
safety firmly at the forefront of our
operations.
It is therefore with great sadness that we
reported a total of nine fatalities during the
year which is discouraging to our safety
programme. No injury, much less a loss of
life, is ever acceptable and we continue to
invest in training and skill enhancement to
prevent accidents before they can happen.
The need for improvement, and our
determination to achieve zero harm, means
that this priority is receiving the direct
attention of the Executive Committee.
Specifically, we have:
• strengthened visible leadership, with
rigorous implementation of safety
standards and management of high-risk
areas;
• reinforced our HSE organisation by
recruiting HSE experts with global
experience. We have hired 10 such
experts during the year; and provided
training to both employees and
contractors. Last year, both groups
underwent around 921,550 hours in
safety training. Our training programmes
have focused on getting our employees
make better risk decisions so that they
can start to identify those behaviours
that result in injuries and fatalities.
Vedanta Resources plc | Annual Report FY2018
11
Zinc
• Our current expansion will take us to
over 1.5mt p.a. of zinc production with
Zinc India ramping-up to 1.2mt and
Gamsberg to 250kt in the near term.
Our expanding reserve and resource
base at both Zinc India and Gamsberg
provides us with an opportunity to
increase production beyond this level
to about 2mt in the medium term. With
this in mind, the Zinc India Board has
approved the expansion from 1.2mt
to 1.35mt and corresponding silver
production potential of over 32 million
ounces.
For more on Zinc
see pages 72–79
Aluminium
• We achieved a record run-rate of c. 2mt
as we exited the year and are now
focused on delivering a steady
production of 2mt. We also hope to
proceed with expansion of the Lanjigarh
refinery, subject to further clarity on
bauxite supply.
For more on Aluminium
see pages 92–95
Copper
• We are continuing our Tuticorin II
expansion by 400KTpa. When complete
(target: FY2020) we will be one of the
world’s largest single-location copper
smelters.
For more on Copper
see pages 84–87
Iron Ore & Steel
• We moved to acquire Electrosteel
towards the end of the year, the
completion of which is subject to due
processes. We see favourable market
dynamics for steel in India and, together
with integration efficiencies with our Iron
Ore business, we regard this acquisition
to be value-accretive for Vedanta.
For more on Iron Ore
see pages 80–83
In FY2017, we rolled out performance
standards and targets for water, energy
and carbon management, and in FY2018
we achieved or exceeded them:
• We achieved 186% of our water savings
target, saving 4.1 million m3 of water.
• We surpassed our energy savings target,
achieving a savings of 2.63 million GJ,
189% of the expected target.
• Last year we had stated that we
At KCM, we had hoped to report more
progress by the year-end. However, this
asset is now at an inflection point as the
business model has been comprehensively
reappraised. Our business-partnering
approach is getting into place and is framed
on clear end-to-end responsibility and
performance incentives for service
providers. Therefore, I am confident of
a stronger FY2019 for KCM.
expected to reduce our greenhouse gas
(GHG) intensity by 16% by 2020, from
a 2012 baseline. I am pleased to inform
you that nearly two years before the
target date, we are already at 14% and
have built real momentum towards
achieving our goal.
On the Dow Jones Sustainability Index for
the Metal and Mining sector, Hindustan
Zinc improved its overall ranking to 11th
and was inducted into the prestigious
Dow Jones Yearbook. In the Environmental
Category, Hindustan Zinc moved from 11th
to 3rd place and Vedanta Limited improved
its ranking from 17th to 15th.
For more on sustainability
see pages 42–58
FY2018: a productive year
At Vedanta, our portfolio ranks alongside
some of the best Tier-1 assets in the world.
In FY2018, we displayed our ability to
deliver record production across those
assets while maintaining our place in the
lower half of the cost curve across most
of our businesses.
At Zinc India, record production exceeded
our guidance for the year, with Rampura
Agucha successfully transitioning to
underground production. Record silver
production also surpassed our original
guidance with excellent output at
Sindesar Khurd.
Record production also continued at
Copper India and in Aluminium, where
we exited with a run rate of around 2.0mt.
However, our strong progress in increasing
volumes was to some extent offset by rising
raw material input costs; in particular, for
coal and alumina. We are actively engaging
in enhancing operating efficiencies, through
producing more captive alumina, achieving
better materialisation of coal linkages, and
thereby working towards reducing the
controllable costs.
Other challenges included the slower than
expected turnaround initiatives at KCM,
and the shutdown of operations in Goa
and Tuticorin.
At Goa, our iron ore operations are
currently shutdown. The Honourable
Supreme Court of India directed to halt
all mining operations in the state, effective
16 March 2018, pending the granting of
fresh mining leases and environmental
clearances. Given our commitment in the
region, and the considerable impact on the
local economy, we continue to engage with
Government to provide clarity around
restarting of mining operations at Goa. Due
to the uncertainty around this process, the
Company has taken an impairment of
US$534 million (net of taxes) in FY2018.
At Tuticorin, our copper smelting
operations were halted at the end of March,
initially for scheduled maintenance
activities. The shutdown has since been
extended as the Company’s annual renewal
of its consent to operate was rejected by
the Tamil Nadu State Pollution Control
Board, pending additional clarifications.
The Company is working with the relevant
regulatory authorities to expedite the
restart of the operations.
Our growth agenda
This year, we also invested in the next phase
of our growth, and have made delivering on
our various growth opportunities a strategic
priority as detailed below:
Oil & Gas
• Our vision is to contribute 50% of the
country’s domestic crude oil production
by increasing our gross production to
500kboepd. Working towards this goal,
we announced growth projects including
enhanced oil recovery (EOR), tight oil
and gas projects, upgrade of liquid
handling facilities, and exploration, for
which key contracts have been awarded
to world-class partners. These projects,
along with an exit run rate of 200kboepd
in March 2018, will pave the way to
achieve 300kboepd in the near term and
will progress our journey to 500kboepd
in the medium term.
For more on Oil & Gas
see pages 68–71
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Vedanta Resources plc | Annual Report FY2018
Chief Executive’s Statement continued
Mangala processing terminal.
Achieving the lowest cost,
with no compromise on
safety or quality, is our
operating philosophy and
there is an ongoing focus
on asset optimisation and
process innovation.
As we deliver on growth across our various
businesses, we continue to maintain our
disciplined approach to investment:
potential projects will be evaluated against
a range of metrics, including operational
and technical factors, pricing and market
considerations and robust return on capital.
Deleveraging and strengthening our
balance sheet
In FY2018 we also delivered on our
strategic priority to deleverage our balance
sheet, with the reduction of standalone
debt at Vedanta plc falling from
US$6.2 billion to US$5.9 billion. On a
consolidated basis, the gross debt for
the Group reduced by US$3 billion to
US$15.2 billion as a result of strong cash
flows and productive utilisation of cash
and investment balances.
However, the increased shareholder returns
both at Hindustan Zinc and Vedanta
Limited, and the acquisition of ASI, resulted
in higher net debt. This year, a strategic
priority will be to optimise capital allocation
and strengthen our balance sheet through
strong business cash flows.
During the year, we also worked proactively
on liability management through refinancing
our near-term maturities through a bond
issuance and bank loans; this successfully
extended the average maturity profile of the
debt at Vedanta plc to about four years. We
were pleased to see our ratings improve as
a result, with Moody’s upgrading our
Corporate Family Rating by one notch, from
‘B1 stable outlook’ to ‘Ba3 stable outlook’.
Vedanta Limited’s rating outlook was also
raised from ‘stable’ to ‘positive’ (by CRISIL,
an S&P company), with a current rating of
‘AA/positive’.
Operational excellence
In FY2018, we also delivered on our
strategic priority of asset optimisation.
We focused on debottlenecking our assets,
adopting technology and digitalisation,
strengthening people-practices,
enhancing the vendor and customer
base, and spend-base optimisation.
We are making concerted efforts to
drive all-round operational excellence,
benchmarking our operations with global
leaders to ensure we attain the true
potential of our assets and have made
this one of our strategic priorities.
Achieving the lowest cost, with no
compromise on safety or quality, is our
operating philosophy and there is an
ongoing focus on asset optimisation and
process innovation. For example, in the
Oil & Gas business, we have partnered with
global oil field service providers and have
provided our partners with end-to-end
responsibility for project management,
providing incentives on measurable
outcomes of production, delivery and
safety.
Digitalisation is opening up exciting
opportunities at several of our leading
mines. At Gamsberg, for example, the
project will have leading-edge systems that
report the state of the mine, the quality of
ore, the conditions of the concentrator and
the quality of the concentrate, all in
real-time to enable minute-by-minute
decisions. We also completed piloting
digital technology at Sindesar Khurd,
transforming it into a fully automated mine
that will reduce costs while elevating safety.
Vedanta Resources plc | Annual Report FY2018
13
Reaching out to communities
My personal experience of Vedanta
stretches over 15 years, and I have always
been proud to work with a company so
focused on contributing to the communities
around it. In FY2018 we invested, and
helped to achieve, more than ever before in
the areas of childcare, health, education and
development, empowerment for women
and other social programmes.
These activities, in India and Africa both,
are covered in more detail in the Chairman’s
Statement on pages 08–09.
In India, the Nand Ghar project, one of our
most focused initiatives is working towards
building and transforming state-of-the-art,
grassroots day care centres with multi-
media facilities to support education for
children. To date, we have built 154 centres
in Rajasthan, Uttar Pradesh and Madhya
Pradesh, and we are perfecting the pilot.
Vedanta has committed to constructing
4,000 modernised Anganwadis (childcare
centres) across the country and we are
working with resolve towards achieving
this goal.
Outlook FY2019
With various growth opportunities in the
pipeline, our performance in FY2019 will be
even stronger, with a further improvement
in volumes and reduced costs. Our focus on
efficiency, cost control and operational
excellence will yield results during the year
as we build a strong foundation for our next
phase of growth. We will also continue to
set the bar higher for ourselves in critical
areas such as safety, and in corporate
governance.
We believe that the market environment we
enjoyed in FY2018 will also characterise
FY2019, giving us a supportive climate as
we continue to ramp-up production and
advance our growth agenda. We expect to
increase investments y-o-y, in a measured
and reasoned way and focus on organic
growth in areas where we have deep
expertise: principally, oil & gas, and zinc.
Equally, we continue to monitor markets
and make our decisions with a strong sense
of realism. Our investments are largely
self-funded and are not market-dependent;
we are always ready for cyclical volatility,
and meanwhile we focus on factors within
our control such as costs and safe
expansion.
Our ability to meet these commitments
comes entirely from the effort, skills and
vision of our people, and I compliment all
our employees for their dedication and hard
work. Together, we will continue to benefit
from, and contribute to, one of the
fastest-growing economies in the world,
and add value for our shareholders.
We entered FY2019 with the welcome
news of the appointment of Srinivasan
Venkatakrishnan (Venkat) as CEO. He brings
with him a wealth of experience in global
resources and I look forward to handing
over the reins to him on 31 August 2018.
Kuldip Kaura
Chief Executive Officer
23 May 2018
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Vedanta Resources plc | Annual Report FY2018
Channelling growth options
Cairn Oil & Gas
Oil for India
A key priority for any developing nation is
to maximise its self-sufficiency in energy.
As one of the world’s fastest-growing
economies, and with oil demand growing
exponentially, India is seeking to reduce its
oil imports – which currently account for
around 80% of the nation’s consumption.
At Vedanta, we are not only ready to reduce
this deficit but are positioning ourselves to
contribute half of the total oil produced in
India. Over the next few years, we aim to
increase production from 200kboepd
today to 300kboepd. This ambitious aim
will be aided by a new business-partnership
model and lays the foundation for achieving
a production of 500kboepd with reserves
of three billion barrels of oil equivalent.
In the near-term, we are investing gross
capex of US$2.3 billion to increase our
resource and reserve base by around 375
million barrels. Our rich project portfolio
is comprised of enhanced oil recovery
projects, tight oil & gas projects, and
exploration prospects. As well as boosting
production, this investment will generate
sustainable employment opportunities,
directly and indirectly, and bring cutting-
edge solutions to community needs.
For example, as part of our Jeevan Amrit
Yojana programme, we are also focusing on
recycling water in Rajasthan, a dry area of
India. By installing 331 community reverse-
osmosis plants, we will help to deliver safe
drinking water to one million people.
Our Oil & Gas business
see pages 68–71
Offshore operations at Ravva.
Vedanta Resources plc | Annual Report FY2018
15
from India
Global Integrated partnerships:
success incentivised
Historically, Cairn awarded contracts
in the conventional way, to separate
vendors for specific activities such as
drilling, services and construction.
Today, we have fundamentally altered
our strategy, enabling us to execute
multiple projects simultaneously, with
greater efficiency, and to deploy
innovative technological solutions
across the value chain.
Our new end‑to‑end integrated
partnership model, developed in
collaboration with our business partners,
is the first of its kind in India. Partners
receive a fixed base fee, but with the
added incentive based on speed,
efficiency and safety parameters. In
turn, this encourages those partners
to innovate in terms of technology
and operations.
We have started awarding the integrated
development contracts, for these
projects worth c.US$1.8 billion, of which
US$1.3 billion has already been awarded,
to global oil field service providers such
as Halliburton, Schlumberger, Petrofac
and GE‑Baker Hughes, to be executed
over the next 1–3 years. These contracts
incorporate clearly defined timelines
and a risk‑reward matrix linked to
performance.
This new model has already generated
significant value for us: by consolidating
existing contracts we have reduced costs
by more than 20%. We expect further
upside from operational efficiencies,
driven by best‑in‑class technology
solutions.
Steam turbine generators at Mangala Processing Terminal.
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Vedanta Resources plc | Annual Report FY2018
Channelling growth options
Zinc India
Success
beneath
One barometer of a country’s move
towards modernisation and rising consumer
demand is its requirement for zinc.
In India, zinc demand is being driven by a
range of needs including car manufacturing,
consumer electronics and new urban
infrastructure, while other by-products
such as silver for solar panels and lead for
car batteries are also in strong demand.
This augurs well for Zinc India: the company
is one of the lowest-cost producers in the
world and is poised to become a Top 5
global producer of silver.
Central to its growth strategy is the
transition from open-cast to underground
mining which has been completed this year.
Our vision is to grow our zinc-lead output to
1.5 million tonnes per annum and our silver
portfolio to 48 million ounces. Phase I of
this expansion has been approved by the
Board. This will increase the mined metal
and smelting capacity from 1.2mtpa to
1.35mtpa over a period of three years.
Phase I will be executed concurrently with
the ongoing mining expansion, which is
now in its final stages, to take capacity to
1.2 million tonnes per annum by FY2020.
Zinc India ranked just outside the Top 10 in
the Dow Jones Sustainability Index for the
Metal and Mining sector, and the HZL
Mining Academy trained 200 young people
in underground mining skills during the year.
Our Zinc India business
see pages 72–75
Simulator for mining equipment at Dariba.
Vedanta Resources plc | Annual Report FY2018
17
the surface
Transforming Sindesar Khurd
to a fully digital mine
The Sindesar Khurd Mine is a zinc mine
located in the north‑west of India. Being
an underground mine in expansion mode,
there is limited visibility of the mining
processes, making it difficult to monitor
and improve performance. The mine is
therefore being transformed from a
mechanised mine to a fully digital one,
providing much greater transparency
across the value chain and enabling us
to maximise efficiency, improve safety
and reduce the cost of operations.
A pilot scheme over 1.5km of
decline and portals has already been
successfully implemented and full
roll‑out across the mine is now in
progress. Once fully operational,
the project will allow monitoring
and optimisation of assets, traffic
management, improved scheduling and
task management, autonomous fleet
operations, and real‑time visibility of
machine health and productivity data.
As a result, we expect to see a wide
range of benefits including:
• increased utilisation rates across
our fleet and equipment of 15%;
• timely maintenance checks improving
safety and equipment availability;
• ability to activate ventilation on
demand, leading to energy savings
of 15%;
• ability to increase the fill factor of
loaders to 100%; and increased mine
throughput and volumes over the
coming years.
Operations at Sindesar Khurd.
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Vedanta Resources plc | Annual Report FY2018
Channelling Growth Options
Zinc International – Gamsberg
The market’s
When Zinc International’s Gamsberg
project begins production in mid-2018, it
will supply a market that is both rising and
under-served.
It will also show the efficiencies and
capabilities of a mine that, from the
outset, has been conceived as a smart
digital facility.
As we go to print, the project, located in
South Africa’s Northern Cape, is a hive of
activity. Around 2,700 people are currently
employed on site, completing preparations
for the launch of Phase I with a production
capacity of 250kt. Over time, this will more
than double to 600kt, once Phases II and III
enter production.
Gamsberg’s arrival will be timely: while the
global demand for zinc has seen steady
growth, the supply side hasn’t kept pace;
indeed, the sector has experienced stock
constraints and mine closures.
The new facility will not only set new
standards of production and safety; from
the blueprint stage onwards, a biodiversity
management plan has been in place to
ensure Gamsberg’s natural surroundings
grow and thrive.
This governs both its construction through
the three phases and also production over
its projected life of 13 years.
Our Zinc International business
see pages 76–79
Erection of ball mill shells, bearing housing and motor.
Vedanta Resources plc | Annual Report FY2018
19
The Gamsberg project will combine our
wealth of experience in zinc production
with leading edge technology that has
never been seen in a greenfield mining
project.
Zinc International has worked in close
collaboration with specialist partners
GE & MineRP to create a fully integrated
technological solution. This includes
equipping the development phase of the
mine, rather than retrofitting the systems
once it is operational.
The digital concept is known as
‘SMART Ore’. It is an end‑to‑end solution,
producing continuous, live data on the
mine’s production status, quality of ore,
quality of concentrate and mine
conditions, enabling instant decision‑
making. It will assist the team to monitor
and manage the mining contractor and
adjust the blending strategy based on
real‑time grade reconciliation. This
ensures a constant feed grade to the
plant, making the process more efficient
and reducing waste. In our pursuit of
zero‑harm, it will also boast a state‑of‑
the‑art Collision Awareness System.
We expect this project to deliver
substantial savings. We are targeting an
initial 0.5% increase in recovery from the
concentrator plant, but we also expect
improved productivity across geology,
mine planning, survey and other key
mining disciplines. We project savings
of at least four man‑hours per function
per week, once the project is fully
operational.
major new source
of zinc
‘SMART Ore’: a world-first
Gamsberg site.
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Vedanta Resources plc | Annual Report FY2018
Market Review
Realising Opportunities for Growth
India is now projected to grow
by 7.4% in 2018 and 7.8% in
2019, maintaining its statistics
as one of the fastest‑growing
major economies.
Global economy and commodity
markets
The global economy strengthened in 2017,
registering a 3.8% growth according to the
IMF’s World Economic Outlook (WEO). This
was a 0.5% increase over the previous year
and the fastest growth rate since 2011. This
global uptick was driven by resilient growth
in advanced economies combined with a
continued pick-up in growth in emerging
markets. Key drivers included an increase
in investment spend, supported by an
improved outlook and a rise in private
consumption.
China’s economy grew at 6.9% in 2017,
defying expectations of a slowdown, due
to strong global demand and sustained
state infrastructure spending. While the
IMF expects a softening in growth in 2018,
China will continue to play a key role in
global metals markets given that it
accounts for more than 50% of world
metal consumption.
Commodity prices strengthened in 2017
and this continued into the first quarter of
2018. Both demand and supply factors
supported the broad-based price increases.
The acceleration in global growth led to
an increase in demand for commodities,
while supply rationalisation due to
Chinese production cuts supported
stronger commodity prices. Key risks to
commodities in the short term include
enactment of additional tariffs,
production cuts and sanctions.
Opportunities for Vedanta
Global growth
Global growth is expected to strengthen
to 3.9% in both 2018 and 2019, a 0.2%
upgrade for both years compared to the
IMF’s October 2017 forecast. While growth
prospects for advanced economies are
likely to remain somewhat subdued going
forward, growth in emerging markets and
developing economies is expected to
continue to increase, from 4.8% in 2017,
to 4.9% in 2018, and 5.1% in 2019.
This global growth will lead to higher
demand for metals and oil. Vedanta’s
diversified portfolio and attractive basket
of commodities positions us well to take
advantage of this projected uplift.
Tight mine supply
Market balance for certain commodities, in
particular zinc and copper, is expected to
remain tight due to limited investments in
new projects, mine closures and higher
than expected levels of demand.
Vedanta is well-positioned to take
advantage of these supply and demand
factors, given the ramp-ups across
businesses and the various growth
projects underway.
Indian economy
India is a key market for Vedanta and
one which we believe has huge growth
potential. According to the IMF’s WEO of
April 2018, the Indian economy grew at
6.7% in 2017, accelerating from a relatively
Vedanta Resources plc | Annual Report FY2018
21
slower growth in the first half of the year
due to the transitory effects of the currency
exchange initiative.
A number of major reforms were
undertaken in 2017. On 1 July 2017,
India launched its biggest tax reform,
the Goods and Services Tax (GST). The
implementation of GST will help reduce
internal barriers to trade and increase
efficiency and tax compliance. GST
eliminates cascading of taxes and
encourages ‘Make in India’, thus driving
growth momentum. In a separate reform,
major stressed assets were marked for
resolution under the Insolvency and
Bankruptcy Code 2016, to ensure a
time-bound insolvency resolution, helping
corporates clean balance sheets and
reduce debt.
These policy measures have improved
external confidence in the Indian economy
and are set to provide a boost to economic
growth. More importantly, they have
enabled India to jump 30 places in the
World Bank’s Ease of Doing Business
rankings and resulted in the first upgrade
in its sovereign debt ratings for 14 years to
‘Baa2’ from ‘Baa3’.
Opportunities for Vedanta
An India‑focused growth agenda
India is now projected to grow by 7.4%
in 2018 and 7.8% in 2019, maintaining its
status as one of the fastest-growing major
economies in the world, according to the
IMF’s WEO. In the medium term, growth
is expected to rise gradually as structural
reforms continue to be implemented,
raising productivity and incentivising private
investment. An amended MMDRA (Mines
and Mineral Development and Regulation
Act) in 2015 has brought increased clarity
on the licensing around mining. Key
regulatory reforms around opening
commercial coal mining to the private
sector and the launch of Open Acreage
Licensing (OAL) in the oil & gas sector to
improve exploration, are some of the steps
in the past year towards creating a more
favourable mining environment.
Positive demographic factors such as an
increasing workforce and urbanisation are
driving a greater need for infrastructure
development. The Indian government
continues to invest in the infrastructure
sector, having increased its spending in the
Union Budget 2018–19. In September 2017,
the government launched ‘Saubhagya’,
a new scheme to ensure electrification
of all remaining willing households
in the country. In October 2017, the
Government launched ‘Bharatmala’, a new
programme to optimise efficiency of road
traffic by bridging critical infrastructure
gaps. Initiatives like these would be a
major driver for economic growth.
Looking ahead, we expect to see a
continued focus and further investments in
the infrastructure, transportation and power
sectors. We also anticipate changes in
government policy to incentivise domestic
metal and energy production, and to reduce
dependence on imports. These initiatives
will lead to an increasing demand for
domestically produced metals.
Vedanta, as the only diversified natural
resources company in India, is uniquely
positioned to leverage India’s growth
potential by catering to that demand. With
such a vast domestic market, everything
we produce in India, we aim to sell in India.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 22
Vedanta Resources plc | Annual Report FY2018
Market Review continued
Oil & Gas
Boosting Indian oil & gas production will drive
future growth
Robust global demand, and curtailed production
by members of the Organisation of the Petroleum
Exporting Countries (OPEC), supported crude oil
price increases in 2017, outweighing relatively
high US crude oil production. As a result, crude
oil prices ended 2017 at US$65/bbl, the highest
level since 2015.
Both OPEC and non-OPEC countries have
agreed to continue limiting output until the end of
2018. With the US pulling out of the Iran nuclear
pact and triggering renewed sanctions on a key
oil producing country, oil prices reached levels
above $75/bbl in May 2018.
Products and customers
Vedanta’s operations produce crude oil, which is
sold to hydrocarbon refineries, and natural gas
which is used primarily by the fertiliser industry
and power generation sector in India.
Market drivers and opportunities
US crude oil production continues to rise: the US
Energy Information Administration (EIA) projects
average US crude oil production of 10.7 million
b/d in 2018 and 11.4 million b/d in 2019,
surpassing the previous record of 9.6 million b/d
set in 1970. Resilient US production will have an
impact on oil prices going forward.
In India, 83% of oil consumption and 45% of gas
consumption is met by imports. However, the
Indian Government recognises the need to boost
domestic production to achieve greater energy
security. To this end they are targeting a 10%
reduction in India’s imports of oil and gas by
2022 and have introduced a number of new
policies aimed at attracting investment and
boosting production.
In 2017 we saw the launch of the Open Acreage
Licensing Policy (OALP) in the Indian oil & gas
sector, giving companies the option to carve out
their own exploration blocks without a formal bid
round from the Government, and providing the
opportunity for acreage acquisition for the first
time in eight years. This process will help
fast-track exploration and production in India.
India is under-explored, with only seven of the 26
sedimentary basins currently producing oil and
gas. Further, reassessment of India’s resource
base has highlighted an increase in India’s total
hydrocarbon resources (in place) by close to
50%, providing significant growth opportunities.
Vedanta, a strong believer in India’s resource
potential has recently bid for all 55 blocks on
offer in the first round of oil & gas auctions under
the OALP.
As the largest private sector producer of crude
oil in India, and with a strong track record and
growth pipeline in exploration and development,
Vedanta is well positioned to benefit from the
Government’s desire to boost domestic
production and to leverage India’s oil & gas
resource potential.
Our Oil & Gas business
see pages 68–71
Zinc
Supply-side will hold the key
Zinc was one of the leading performers on LME
in CY2017, with prices up 38%. The year was
marked by a sharp decline in finished goods
stocks, which fell to record lows that were the
equivalent of around six days of global
consumption in 2017 and reduced zinc supply
from China for most of the year. The combination
of scheduled mine closures, strategic production
cuts and the impact of environmental inspections
in China depleted global stocks of zinc
concentrate. The consequent constraints on
refined production ensured that the rally in zinc
prices that started in 2016 was sustained in 2017.
Mine supply is expected to increase in 2018 as
projects including the Century Tailings project,
Glencore’s Lady Loretta, MMG’s Dugald river
and Vedanta’s Gamsberg mines, are expected to
add approximately 400–500kt of refined zinc
this year, totalling about 13.7 million tonnes.
However, Zinc market fundamentals remain
robust with global zinc consumption expected to
grow by 2.5% to 14.8 million tonnes in 2018. This
implies that the concentrate market will remain
tight and refined metal stocks could further
reduce significantly.
Products and customers
Vedanta is the largest zinc producer in India, with
a 78% market share. Approximately 68–75% of
the refined zinc produced is sold in the Indian
market, primarily to steel companies, with the
rest being exported to countries in Asia and the
Middle East. Over 70% of Indian zinc
consumption is used for galvanising steel,
predominantly in the construction and
infrastructure sectors. We also produce zinc for
use in die-casting alloys, brass and oxides and
chemicals. Vedanta’s Zinc International
operations comprise Namzinc Pty Ltd in Namibia,
which is the largest integrated zinc producer in
Africa, as well as Black Mountain Mining (BMM)
in South Africa. Namzinc produces refined zinc
which is sold within Africa and exported to
Europe and China, while concentrate from BMM
is exported to traders and refiners internationally.
Vedanta Resources plc | Annual Report FY2018
23
Market drivers and opportunities
Silver investment demand, along with gold, is
likely to face headwinds from higher interest
rates, but rising inflationary expectations as well
as any geopolitical tensions may see investors’
interest in silver recover as the metal is
considered to be a safe haven asset. Industrial
demand for silver will be driven by a strong solar
PV sector and increased vehicle electronics
applications, while jewellery demand is expected
to grow with rising income levels in Asia.
Zinc India produced a record level of silver in the
past year. Vedanta is well-positioned to capture
the growth in demand as production rises
significantly in the coming years with the
ramp-up of the silver-rich Sindesar Khurd mine.
Our Zinc‑Lead‑Silver business
see pages 72–79
Market drivers and opportunities
Last year saw a healthy increase in zinc
consumption in the three major consuming
regions – Asia, Europe and North America.
Demand growth in China from the real estate and
automotive sectors, and the ‘One Belt One Road’
initiative, was partly offset by the impact of
pollution control measures.
Europe recorded a surprising revival in growth
with industrial activity in Germany and France,
driven by an uptick in domestic consumption
along with a major push for technology and
engineering product exports. With falling
unemployment, rising Fed rates and changing
trade policies in the US, we are already
witnessing higher consumption, along with fresh
investments targeted at promoting exports.
In India, zinc consumption in the near-term will
benefit from the ongoing restructuring of the
steel industry and adherence to newly
established IS277 coating standards. The alloys
and die casting sector also witnessed robust
growth, led by zinc-magnesium alloys. Demand
from the automotive sector remains robust due
to the rising penetration of galvanised steel
in domestic cars.
Over the next five years, zinc demand in India will
be a beneficiary of higher construction spending,
which is expected to increase at around 10%
CAGR with projects under the metro rail, Smart
Cities Mission and Swachh Bharat (Clean India)
driving investments in urban infrastructure.
African zinc consumption is also significantly
driven by the galvanising industry, with end-use in
the mining and construction sectors, and this
represents a key market for us.
Production ramp-up at Zinc India and the
Gamsberg project this year will enable us
to benefit from the rising demand globally,
particularly in India and Africa.
Our Zinc‑Lead‑Silver business
see pages 72–79
Silver
Industrial uses driving demand
In 2017, global economic growth and positive
industrial sentiments underpinned the strong
demand for industrial silver in solar panels,
electrical components, brazing and alloys and
other applications. Supply of silver remained
constrained in 2017 as silver production is
primarily a by-product of copper, zinc and lead
extraction processes which were impacted by
subdued mine supply in the year. The silver
market, therefore, continued to be in deficit for
the fifth year in a row.
Positive economic development is an argument
in favour of silver because it means that industrial
demand is likely to become even more dynamic
– it accounts for more than half of total silver
demand. India’s silver imports doubled y-o-y,
while China’s rebounded strongly, primarily
driven by rising industrial demand for the metal
which is expected to pick up at an even better
pace this year in Asia.
Products and customers
Hindustan Zinc holds the position of being India’s
only primary silver producer – 17.9 million ounces
in the last financial year – and ranks 10th globally
in terms of the top silver-producing companies.
A major proportion of the Indian market’s
appetite is satisfied through imports, with the
balance coming from secondary manufacturers
and recyclers. With the latest accreditation of
‘London Good Delivered Bars’ in April 2018,
HZL’s silver is on par with international standards.
In India, the highest usage of silver is in jewellery
(38%), followed by coins and bars (22%)
silverware (20%) and industrial fabrication (20%),
according to the World Silver Institute. We cater
to markets including the industrial sector
(electrical contacts, solder and alloys,
pharmaceuticals), and the jewellery and
silverware manufacturing segment.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 24
Vedanta Resources plc | Annual Report FY2018
Market Review continued
aluminium consumption by 7% next year. The
next wave of light-weighting in the Indian railways
combined with the ‘Make in India’ campaign will
herald new growth opportunities for new
investments in the aluminium downstream.
Uncertainty from trade wars and geopolitical
events, including sanctions on Russia, have the
potential to impact the aluminium and alumina
markets globally.
Vedanta continues to ramp-up its Jharsuguda
smelter and grow its production in order to take
advantage of these opportunities. Vedanta’s wire
rod facility, which is one of the largest globally is
positioned to leverage the aluminium demand
from electrification trends.
Our Aluminium business
see pages 92–95
Aluminium
Construction and transportation segments
continue to drive demand
Aluminium demand, excluding China, grew by 4%
y-o-y in 2017, while Chinese demand grew by
6%, supported by the strong economic growth
across most of the world economies.
The year CY2017 turned out to be good for
aluminium prices as a late-year rally lifted prices
by 33%, up $558/t from January levels and the
second-largest annual price increase this century.
Aluminium LME prices rose by 21% compared to
FY2017 owing to increases in raw material prices,
expectations around supply reform in China and
the implementation of trade tariffs in the US.
Products and customers
Vedanta has the largest integrated smelter in
India, with 2.3mtpa proposed capacity, and is the
market leader in primary aluminium with 40%
market share. Our product range includes ingots,
primary foundry alloys, wire rods, billets and
rolled products.
In FY2018, 40% of our sales were to the Indian
market, specifically for use in the construction,
electrical and transportation industries where
government policies aimed at providing
affordable housing were a significant driver of
demand growth. International sales to our
established customer base in other key Asian,
European and American markets grew by 64%
to c. 1 million tonnes, compared to FY2017.
Market drivers and opportunities
Globally, aluminium demand is forecast to
increase by 4% next year, driven mainly by
ongoing demand in the construction and
transportation segments. The advent of electric
vehicles will further start to provide a new
demand stream. In India, initiatives to increase
investment and develop infrastructure continue
to drive demand. India is also one of the world’s
largest electrical applications market for
aluminium and the electrification programmes
driven by the Government will drive the growth in
Power
Growth in Indian demand is driving capacity
increases
Vedanta operates a 9GW diversified power
portfolio in India consisting of 96% thermal
power and 4% from renewable energy sources.
India has the fifth-largest power generation
capacity in the world. Between FY2010–FY2017,
electricity production grew at a CAGR of 7.03%,
driven by government initiatives and schemes to
increase electrification across rural India. A target
to connect 18,452 villages to the power grid was
achieved in April 2018.
Products and customers
Of Vedanta’s power portfolio, 40% is used for
commercial power while 60% is for captive use.
92% of the power generated for commercial
purposes is backed by long-term power purchase
agreements with local Indian distribution
companies.
Market drivers and opportunities
Demand for power in India is expected to grow
rapidly from 1160.1TWh in 2016 to 1894.7TWh
by FY2022, mainly driven by the expansion in
industrial activity, a growing population and
increasing electricity penetration. The
Government has also been supportive of growth
in the power sector, de-licensing the electrical
machinery industry and allowing 100% foreign
direct investment. In addition, in February 2018
the Government permitted commercial mining
for thermal coal, which will improve India’s
self-sufficiency and reduce coal and logistics
costs.
As of February 2018, India had a total installed
capacity of 334GW, of which thermal
constituted 220GW, nuclear 7GW, hydro 45GW
and renewables 63GW. Total captive power
installed capacity stood at 41GW.
India currently has a power deficit and is
targeting an additional total of 100GW under
the Indian Government’s 13th Five Year Plan
(FY2017–FY2022). The target for renewable
energy has also been increased to 175GW
by 2022. Vedanta’s power portfolio is well-
positioned to capitalise on India’s growing
demand for power.
Our Power business
see pages 96–98
Vedanta Resources plc | Annual Report FY2018
25
Copper
Iron Ore
In the short term, globally, steel demand is
projected to grow by 1.6% by 2019, while Indian
steel demand is projected to grow by 6.6% to
reach 115 million tonnes in 2019, driven by
investment in infrastructure and construction.
India is one of the lowest per capita steel
consumers globally and produces only c. 10%
of China’s steel production. However, India is
on track to become the second-largest steel
producing country over the next two years,
surpassing Japan. The ongoing restructuring
and consolidation of the steel industry in India
is expected to further support the demand-
growth going forward. However, mining at
Vedanta’s Goa operations have ceased, effective
from 16 March 2018 pursuant to the Supreme
Court order dated 7 February 2018. Further, we
continue to engage with the Government to
provide clarity around restarting of mining
operations at Goa. Until such time, our ability to
capitalise on the global demand remains muted.
This growth in Indian steel production represents
an opportunity for us to grow our domestic iron
ore sales. Vedanta’s permitted mining allocation
at Karnataka has been recently enhanced to
4.5 million tonnes (from 2.29 million tonnes
previously).
Our Iron Ore business
see pages 80–83
Growing steel consumption driving iron ore
demand
Iron ore prices averaged US$72/dmt (62% Fe
fines China CFR) in CY2017, a rise of over 21%
y-o-y, due to high steel margins and robust
demand in China. Given high margins and low
inventories, there is likely to be growth in steel
production and iron ore demand in the near term,
as the winter production restrictions are lifted.
The iron ore price is, however, expected
to experience volatility in 2018, due to
uncertainty regarding the lifting of winter
production restrictions in China (which have been
slow until now), the increase in low-cost supply
from Australia and Brazil, and lower y-o-y
demand growth from China. China’s steel
production is sensitive to a range of economic,
monetary and environmental policies, which
could impact market dynamics and future iron
ore prices.
Products and customers
Vedanta was India’s largest private sector
exporter of iron ore in FY2018. Iron ore is a key
ingredient in steel production, which ultimately
serves the construction, infrastructure and
automotive sectors. In FY2018, approximately
53% of Vedanta’s production, from Karnataka
and Goa, was sold domestically to Indian steel
producers and 47%, comprising low grade ore
from Goa, was exported, primarily to Chinese
steel mills.
Market drivers and opportunities
The pace of global steel production is forecast
to slow in 2018 and 2019, as the supply cuts
resulting from stringent environmental
regulations in China outweigh a pick-up in
growth elsewhere in the world.
Consumption in India and China
is fuelling demand
Refined copper consumption grew by 2.0% in
2017, while demand in China, the largest
consumer of copper, grew by 3.2%. Copper
prices firmed up on the prospects of the US’s
infrastructure plans and increased demand in
China for appliances and consumer goods. In
India, the refined copper market experienced
some volatility during the year but is expected
to continue growing on par with growth in the
Indian economy.
On the supply side, after five consecutive years
of growth, 2017 did not see any significant
changes in supply. However, disruptions to
production at Escondida, Cerro Verde and
Grasberg, and further environmental cutbacks at
smaller Chinese mines, led to 995kt of identified
supply disruptions in 2017.
Products and customers
Refined copper is predominantly used in
manufacturing cables, transformers and motors
as well as castings and alloy-based products.
Vedanta, with its 400ktpa custom smelter in
Southern India, is the market leader in India with a
market share for refined copper of approximately
33%. Copper India’s exports accounted for 49%
of overall sales in FY2018 and were mainly to
China and South East Asia.
Konkola Copper Mines (KCM) is a leading
integrated copper producer in Zambia and
operates one of the two mines producing
electro-refined copper cathode in the region.
Much of the product is exported mainly to South
East Asia, China and the Middle East. The refined
cathode is also sold to local cable manufacturers.
Market drivers and opportunities
We expect to see continued demand growth in
India and China in the coming years, driven by
population growth, urbanisation, the rise of the
middle class and supported by government
measures and initiatives. Additionally, demand
for copper products feeding the electronics and
automotive industries will support solid growth in
the short to medium term in Japan, South Korea,
and Taiwan.
Further, the increase in economic activity
across the African continent, supported by
governments’ desire to attract investments to the
region, provides an opportunity to tap regional
metal consumption growth. On the supply side,
there is the potential for further industrial action
at Latin American mines during 2018 as labour
contracts are negotiated at Chilean and Peruvian
copper mines, possibly leading to a fall in
production.
Our smelter capacity expansion projects in
Tuticorin, as well as the integrated production
ramp-up at KCM, will enable us to take
advantage of these opportunities and respond
to the increased demand.
Our Copper business
see pages 84–91
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 26
Vedanta Resources plc | Annual Report FY2018
Our Business Model
Our business model is presented on the basis of the integrated reporting framework provided by the
International Integrated Reporting Council and provides an overview of the values Vedanta creates
over time, through its six capitals.
Capital inputs
These are the capitals we draw on in order to operate and create
sustainable value.
Financial capital
US$6.5 billion
Net worth
US$15.2 billion
Gross debt
US$0.8 billion
Capex
US$5.6 billion
Cash and liquid Investments
Natural Capital
411.3mt
R&R at Zinc India of 411.3 million
tonnes, containing 35.7 million
tonnes of zinc-lead metal and
1.0 billion ounces of silver
303.6mt
R&R at Zinc International
of 303.6 million tonnes,
containing 20.5 million
tonnes of zinc-lead metal
7,066 mmboe
Gross proved and
probable hydrocarbons
initially in place in
O&G Business
Human Capital and Intellectual Capital
+70,000
Employees
(including contractors)
921,550
Safety training hours
+1,000
HSE employees
(including contractors)
Technology used:
Energy-efficient ISA SMELT
technology used for copper
smelting at Tuticorin
Collaborated with
GAMI, a renowned
technical consultant
of China for set-up
of aluminium smelter
Polymer-enhanced oil
recovery and alkaline
surfactant polymers
used to boost recovery
in the oil & gas segment
Social and Relationship Capital
US$39 million
Community investment
c. 5,800
Number of suppliers
Rated by two global
and two domestic
credit rating agencies
Strong network
of over 36 global
and domestic
relationship banks
Manufactured Capital
$17.7 billion
Property, plant and equipment
Note: all numbers provided above pertain to FY2018
What we do
We operate across the mining value
chain, focusing on long-life assets and
low cost of production in India and Africa.
Explore
We invest selectively in exploration and
appraisal to extend mine and reservoir life.
Develop
We develop world-class assets, using
the latest technology to optimise productivity.
Extract
We operate low-cost mines and oil fields,
with a clear focus on safety and efficiency.
Process
We focus on operational excellence and high
asset utilisation to deliver top quartile cost
performance and strong cash flow.
Market
We supply our commodities to customers
in a wide range of industry sectors, from
automotive to construction, from energy
to consumer goods.
Restore
We manage our long-life assets as
effectively as possible and return
them to a natural state at the end
of their useful life.
For more information see pages 28–29Operational review see pages 68–99
Vedanta Resources plc | Annual Report FY2018
27
Focusing on generating
growth, long‑term value
and sustainability
– Operational excellence
– Preserve our licence
to operate
– Optimise capital
allocation and maintain
a strong balance sheet
– Delivering on growth
opportunities
– Augment our reserves
& resources (R&R) base
Underpinned by
our values
– Trust
– Integrity
– Excellence
– Care
– Respect
– Innovation
– Entrepreneurship
and a robust risk
management framework
Creating value for all our stakeholders
We are focused on delivering long-term value to all our key stakeholders
through our outputs:
Shareholders
• Strong FY2018 results, with 27% EBITDA growth to US$4,051 million and
free cash flow post-capex of $925 million
• Dividends through the cycle, with c. US$182 million declared to shareholders
in FY2018
• Over US$2 billion returned to shareholders since 2003
Workforce
• Investment in training and development: 921,550 hours of safety training
• Focus on zero harm 0.34 LTIFR, an improvement of 13%
• Mentoring and support programmes – 12,000 employees covered under the
programme
• Gender diversity recruitment drives: women now represent 10.6% of our total
workforce compared to 9.4% a year earlier
Communities
• Investment in health, education and training. We participate in India’s
‘Nand Ghar’ programme, helping construct and transform 4,000 state-run
child welfare centres across the country to support women and children
• Community programmes – benefiting over 3.4 million people in India
and Africa
Governments
• Economic value
• Supporting the host country’s focus on economic growth
• Contributed US$5.4 billion to the exchequers of the countries
where we operate
For suppliers and service providers
• Integrated model with service providers – they are paid a fixed fee,
with incentives linked to safety, speed and efficiency
• Investing in and supporting local businesses
Directors’ ReportFinancial StatementsAdditional InformationStrategic ReportFor more information see pages 30–31 28
Vedanta Resources plc | Annual Report FY2018
Our Business Model continued
Our Six Capitals and Underlying Values
These are the capitals we draw upon in order to operate and create sustainable value.
Financial capital
We are focused on optimising capital
allocation and maintaining a strong balance
sheet while generating strong free cash flows.
We also review all investments, taking into
account the Group’s financial resources with
a view to maximise returns to shareholders.
Natural capital
India and Africa have favourable geology and
mineral potential and these regions provide
us with world-class mining assets which are
structurally low-cost and have extensive
reserves and resources. Additionally,
operating our mines requires a range of
resources including water and energy which
we aim to use prudently and sustainably.
Human capital
We have employees from across the world
and we are committed to providing them
with a safe and healthy work environment.
In addition, by creating a culture which
nurtures innovation, creativity and diversity,
we enable them to grow personally and
professionally while also helping us to meet
our business goals.
Our values
Trust
We actively foster a culture of
mutual trust in our interactions
with our stakeholders and
encourage an open dialogue
which ensures mutual respect.
Integrity
We place utmost importance
on engaging ethically
and transparently with all
our stakeholders, taking
accountability of our actions to
maintain the highest standards
of professionalism and
complying with international
policies and procedures.
Excellence
Our primary focus is delivering
value of the highest standard
to our stakeholders. We are
constantly motivated by
improving our costs and our
quality of production in each of
our business through a culture
of best practice benchmarking.
Vedanta Resources plc | Annual Report FY2018
29
Intellectual capital
As a relatively young company, we are keen
to embrace technological developments.
We are setting up a centre of technological
excellence in South Africa, enabling us to
nurture and implement innovative ideas
across the business which will lead to
operational improvements.
Social and relationship capital
We aim to forge strong partnerships by
engaging with our key stakeholders, including
shareholders and lenders, suppliers and
contractors, employees, governments,
communities and society in general. These
relationships help maintain and strengthen
our licence to operate.
Manufactured capital
We invest in assets including best-in-class
equipment and machinery to ensure we
operate as efficiently and safely as possible
both at our current operations and in our
expansion projects. This also supports our
strong and sustainable cash flow generation.
Care
As we continue to grow, we are
committed to the triple bottom
line of People, Planet and
Prosperity, to create a sustainable
future in a zero harm environment
for our communities.
Respect
We lay consistent emphasis
on human rights, respect the
principle of free, prior, informed
consent, while our engagements
with stakeholders give local
communities the opportunity to
voice their opinions and concerns.
Innovation
We embrace a conducive
environment for encouraging
innovation that leads to a
zero harm environment and
exemplifying optimal utilisation
of natural resources, improved
efficiencies and recoveries of
by-products.
Entrepreneurship
At Vedanta, our people are
our most important assets.
We actively encourage their
development and support
them in pursuing their goals.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 30
Vedanta Resources plc | Annual Report FY2018
Strategic Framework
Operational excellence
We are focused on all-round operational excellence
to achieve benchmark performance across our
business by debottlenecking our assets, adopting
technology and digitalisation, strengthening
people-practices, enhancing the vendor and
customer bases, optimising the spend base and
improving realisations.
Preserve our licence
to operate
We operate as a responsible business, focusing on
achieving zero harm, minimising our environmental
impact and promoting social inclusion across our
operations. We put management systems and
processes in place to ensure our operations create
sustainable value for our stakeholders.
Optimise capital
allocation and maintain
a strong balance sheet
Our focus is on generating strong business
cash flows, capital discipline, proactive liability
management and maintaining a strong balance
sheet. We will also review all investments
(organic and inorganic) based on our strict capital
allocation framework, with a view to maximising
returns to shareholders.
Delivering on growth
opportunities
We are focused on growing our operations
organically by developing brownfield opportunities
in our existing portfolio, and by acquiring attractive,
complementary assets in the natural resources
segment that add value to our portfolio.
• Oil & Gas
• Zinc International
– Debottlenecked facility at Mangala
Processing Terminal (MPT) to handle and
increase liquid handling capacity by ~10%
– Additional 21 wells brought online through
a drilling campaign at Mangala and other
satellite fields
Infill drilling campaign commenced in
the Cambay block, leading to substantial
increase in production
–
– Raageshwari Deep Gas (RDG) Phase IIA
commissioned and gas production
ramped-up to 45 mmscfd (increased
capacity by ~33%)
• Zinc India
– Commenced construction of the fumer
project to improve zinc and by-products
recovery
– Zawar mill debottlenecking completed to
2.7mt
– Reduced cost of coal basket by using
lignite and off-spec coal as well as sourcing
domestic coal
– Skorpion Pit 112 redesigned to reduce
waste extracted and increase contained
metal by 15%
• Aluminium
– Lanjigarh refinery debottlenecked to 2mt
nameplate capacity
– Value-added sales improved y-o-y (from
44% to 46%)
• Copper Zambia
–
Initiated a long-term contractor partnering
model with responsibility structure aligned
towards definable outputs
•
Iron Ore
– Goa mining operations shut due to state-
wide ban
• Copper India
– Operations were halted at the end of
March as the Company’s annual renewal of
its consent to operate was rejected by the
State Pollution Control Board
• Nine fatalities occurred in the fiscal year.
• 54 Nand Ghars constructed and 250 are
Increased focus from Group ExCo to prevent
future occurrences
•
• LTIFR improved from 0.39 to 0.34
• Achieved water savings of 4.1 million cubic
underway
Increased diversity across our businesses:
women now represent 10.6% of our total
workforce compared to 9.4% a year earlier
metres
• Achieved c.14% reduction in GHG intensity
over baseline of 2012
• ~90% of generated fly ash is being utilised
• Vedanta Medical Research Foundation
launched central India’s first world-class
cancer facility in Raipur, Chhattisgarh
• Total gross debt reduction of US$3 billion
during FY2018
• Dividend policy announced at Vedanta Ltd
• Net debt increased to US$9.6 billion from
US$8.5 billion, mainly due to dividends from
subsidiaries and acquisition of ASI
• Dividends of US$182 million at Vedanta plc
resulted in increased shareholder returns
• US$925 million of free cash flow post-capex
generated during the year
• Proactive liability management of near-term
maturities and comprehensive refinancing
of US$2.4 billion at Vedanta Plc resulting in
average maturity of about four years
• Proactive refinancing of subsidiary debt of
•
US$1.8 billion
Improved credit rating at Vedanta Ltd to
‘AA Positive’ from ‘Stable’ by CRISIL
(a S&P subsidiary); and at Vedanta plc to
‘Ba3 stable’ from ‘B1 stable’ by Moody’s
• Achieved record annual production at Zinc
India of 960kt and Aluminium of 1.7mt
• Significant progress at Gamsberg, on track to
•
start production by mid-CY2018
• Oil & Gas: ended March 2018 with run rate of
200kboepd and announced growth plans
• Commenced Copper India expansion plan to
double smelter capacity to 800kt
Initiated process to acquire Electrosteel Steel
Ltd to value-add to our Iron Ore business
Augment our reserves
& resources (R&R) base
We are looking at ways to expand our R&R base
through targeted and disciplined exploration
programmes. Our exploration teams aim to
discover mineral and oil deposits in a safe and
responsible way, to replenish the resources that
support our future growth.
• Completed more than 240km of brownfield
drilling across businesses to add R&R
• Secured greenfield licences for base metals
• 19.5 million tonnes gross additions to Zinc India
reserves and resources prior to depletion
of 12.6 million tonnes, aggregating to 411mt
with 25+ years of mine life
• Engaged global specialists including
Schlumberger, Xodus and Petrotel to
supplement the efforts of in-house teams
to augment exploration portfolio in Rajasthan,
Ravva and Krishna-Godavari (KG) offshore
blocks. This led to mapping a portfolio of
prospects with 1.7 billion boe of prospective
resources: 1.2 billion boe in Rajasthan, 400
million boe in KG Offshore and 100 million boe
in Ravva
• Based on this, the exploratory drilling in
Rajasthan, KG Offshore and Ravva shall
commence in FY2019
Strategic prioritiesFY2018 update
Vedanta Resources plc | Annual Report FY2018
31
• Oil & Gas
– Execute on growth projects to
deliver 220–250kpoepd
• Zinc India
– Commission fumer
– Progressive ramp-up of underground
mines to achieve target run-rate
of 1.2mtpa
– Ramp-up silver production to
21–23 million ounces
• Aluminium
– Reduce controllable costs in the
aluminium business
– Establish long-term bauxite sourcing
in the State of Odisha
• Copper and Iron Ore
– Further progress on KCM turnaround
with the already in-place vendor
partnering strategy
– Engage with government and relevant
authorities to enable the restart of operations
at Copper India and Iron Ore Goa
• EBITDA◊
• EBITDA Margin◊
• ROCE◊
• FCF post-capex◊
R2
R4
R6
R8
R11
• Zero fatal accidents and an LTIFR of 0.30
• Achieve fly ash utilisation of 75%
• Achieve water saving of four million cubic
metres through conservation and efficiency
improvement projects
• Achieve energy saving of two million GJ
• 250 Nand Ghars to be constructed in FY2019,
and planning for additional 1,000 to be completed
• LTIFR
• CSR footprint
• Gender diversity
• Generate healthy free cash flow from
our operations
• Disciplined capex across projects
to generate strong ROCE
Improve credit ratings
•
• Proactive liability management
• Reduce working capital
R4
R5
R6
R13
• FCF post-capex◊
• Net debt/EBITDA (consolidated)
• Underlying EPS◊
•
Interest cover
• Dividend per share
• Achieved record annual production at Zinc
• Commenced Copper India expansion plan to
• Oil & Gas
– Progress on execution on growth projects
to deliver 275–320 kboepd in FY2020
– Commence exploration in any blocks that
get awarded through first round auctions
under OALP
• Zinc India: Commence work towards
expansion to 1.35 mtpa
• Zinc International: successful
commencement of Gamsberg in FY2019,
progress towards ramp-up to Phase I
production of 250kt in FY2020
• Aluminium: achieve steady state production
of 2mt in FY2019
• Copper India: progress towards expansion
to 800kt production capacity by FY2020
• Copper Zambia: deliver volume growth
through successful implementation of
vendor partnering model
• Complete the Electrosteel Steel acquisition,
post-completion of due processes and integrate
with the Iron Ore business
R1
R2
R13
R14
• Revenue
• ROCE◊
• FCF post-capex◊
• Capex
R3
R7
R12
R13
• Metals: continue to build R&R base and
generate new greenfield targets for our
commodities/metals
• Oil & Gas: high-ranked prospects are being
taken up for well-drilling across our assets
• Total 2P +2C reserves and resources in O&G
• Total R&R in Zinc India, Zinc International
and Copper Zambia
◊
Indicates alternate performance measures that are defined in detail in ‘Other Information’.
R9
R13
Operational excellence
• Oil & Gas
We are focused on all-round operational excellence
to achieve benchmark performance across our
business by debottlenecking our assets, adopting
technology and digitalisation, strengthening
people-practices, enhancing the vendor and
customer bases, optimising the spend base and
improving realisations.
• Zinc International
– Debottlenecked facility at Mangala
Processing Terminal (MPT) to handle and
increase liquid handling capacity by ~10%
– Skorpion Pit 112 redesigned to reduce
waste extracted and increase contained
metal by 15%
– Additional 21 wells brought online through
• Aluminium
a drilling campaign at Mangala and other
– Lanjigarh refinery debottlenecked to 2mt
satellite fields
nameplate capacity
–
Infill drilling campaign commenced in
– Value-added sales improved y-o-y (from
the Cambay block, leading to substantial
increase in production
44% to 46%)
• Copper Zambia
– Raageshwari Deep Gas (RDG) Phase IIA
–
Initiated a long-term contractor partnering
commissioned and gas production
ramped-up to 45 mmscfd (increased
model with responsibility structure aligned
towards definable outputs
capacity by ~33%)
• Zinc India
•
Iron Ore
– Goa mining operations shut due to state-
– Commenced construction of the fumer
wide ban
project to improve zinc and by-products
• Copper India
– Zawar mill debottlenecking completed to
recovery
2.7mt
– Operations were halted at the end of
March as the Company’s annual renewal of
its consent to operate was rejected by the
– Reduced cost of coal basket by using
State Pollution Control Board
lignite and off-spec coal as well as sourcing
domestic coal
Preserve our licence
to operate
• Nine fatalities occurred in the fiscal year.
• 54 Nand Ghars constructed and 250 are
Increased focus from Group ExCo to prevent
underway
future occurrences
• LTIFR improved from 0.39 to 0.34
We operate as a responsible business, focusing on
• Achieved water savings of 4.1 million cubic
achieving zero harm, minimising our environmental
metres
impact and promoting social inclusion across our
• Achieved c.14% reduction in GHG intensity
operations. We put management systems and
over baseline of 2012
processes in place to ensure our operations create
• ~90% of generated fly ash is being utilised
sustainable value for our stakeholders.
•
Increased diversity across our businesses:
women now represent 10.6% of our total
workforce compared to 9.4% a year earlier
• Vedanta Medical Research Foundation
launched central India’s first world-class
cancer facility in Raipur, Chhattisgarh
Optimise capital
allocation and maintain
a strong balance sheet
Our focus is on generating strong business
cash flows, capital discipline, proactive liability
management and maintaining a strong balance
sheet. We will also review all investments
(organic and inorganic) based on our strict capital
allocation framework, with a view to maximising
returns to shareholders.
Delivering on growth
opportunities
We are focused on growing our operations
organically by developing brownfield opportunities
in our existing portfolio, and by acquiring attractive,
complementary assets in the natural resources
segment that add value to our portfolio.
• Total gross debt reduction of US$3 billion
• Proactive liability management of near-term
during FY2018
• Dividend policy announced at Vedanta Ltd
• Net debt increased to US$9.6 billion from
maturities and comprehensive refinancing
of US$2.4 billion at Vedanta Plc resulting in
average maturity of about four years
US$8.5 billion, mainly due to dividends from
• Proactive refinancing of subsidiary debt of
subsidiaries and acquisition of ASI
US$1.8 billion
• Dividends of US$182 million at Vedanta plc
•
Improved credit rating at Vedanta Ltd to
resulted in increased shareholder returns
• US$925 million of free cash flow post-capex
generated during the year
‘AA Positive’ from ‘Stable’ by CRISIL
(a S&P subsidiary); and at Vedanta plc to
‘Ba3 stable’ from ‘B1 stable’ by Moody’s
India of 960kt and Aluminium of 1.7mt
double smelter capacity to 800kt
• Significant progress at Gamsberg, on track to
•
Initiated process to acquire Electrosteel Steel
start production by mid-CY2018
Ltd to value-add to our Iron Ore business
• Oil & Gas: ended March 2018 with run rate of
200kboepd and announced growth plans
Augment our reserves
& resources (R&R) base
We are looking at ways to expand our R&R base
through targeted and disciplined exploration
programmes. Our exploration teams aim to
discover mineral and oil deposits in a safe and
responsible way, to replenish the resources that
support our future growth.
• Completed more than 240km of brownfield
to augment exploration portfolio in Rajasthan,
drilling across businesses to add R&R
• Secured greenfield licences for base metals
Ravva and Krishna-Godavari (KG) offshore
blocks. This led to mapping a portfolio of
• 19.5 million tonnes gross additions to Zinc India
prospects with 1.7 billion boe of prospective
reserves and resources prior to depletion
of 12.6 million tonnes, aggregating to 411mt
resources: 1.2 billion boe in Rajasthan, 400
million boe in KG Offshore and 100 million boe
with 25+ years of mine life
• Engaged global specialists including
Schlumberger, Xodus and Petrotel to
in Ravva
• Based on this, the exploratory drilling in
Rajasthan, KG Offshore and Ravva shall
supplement the efforts of in-house teams
commence in FY2019
Directors’ ReportFinancial StatementsAdditional InformationStrategic ReportKey Performance IndicatorsObjectives for FY2019RisksRisksRisksRisksRisks
32
Vedanta Resources plc | Annual Report FY2018
Key Performance Indicators
EBITDA◊
(US$bn)
5
.
4
7
.
3
1
.
4
2
.
3
3
.
2
Free cash flow post-capex◊
(US$bn)
Return on capital employed◊
(%)
Growth capex
(US$bn)
8
.
1
5
.
1
3
.
1
0
.
1
9
.
0
6
.
5
2
.
5
4
.
3
9
.
4
1
8
.
2
1
5
.
4 1
.
1
8
.
7 0
.
6 0
0
.
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Description
Earnings before interest, tax,
depreciation and amortisation
(EBITDA) is a factor of volume, prices
and cost of production. This measure
is calculated by adjusting operating
profit for special items and adding
depreciation and amortisation.
Description
This represents net cash flow from
operations after investing in growth
projects. This measure ensures that
profit generated by our assets is
reflected by cash flow, in order to
de-lever or maintain future growth
or shareholder returns.
Description
This is calculated on the basis
of operating profit, before special
items and net of tax outflow, as a ratio
of average capital employed. The
objective is to earn a post-tax return
consistently above the
weighted average cost of capital.
Commentary
EBITDA for FY2018 was up by 27% at
US$4.1 billion. This was primarily due
to volume growth, coupled with firmer
commodity prices.
Commentary
We generated FCF of US$0.9 billion,
driven by a strong operating
performance and disciplined capital
expenditure outflow, partially offset by
higher interest expenses and proactive
adjustment to managing the working
capital funding, given the ramp-up
of capacities.
Commentary
ROCE improved by 2.1% to 14.9%,
driven by ramp-up of capacities
and firmer commodity prices.
Description
This represents the amount invested in
our organic growth programme during
the year.
Commentary
Our stated strategy is of disciplined
capital allocation on high-return,
low-risk projects. Expansion capital
expenditure during the year stood at
US$0.8 billion, with the majority
invested in projects at Zinc India, the
Gamsberg project at our Zinc
International business, growth
projects at Oil & Gas and ramping-up
our Aluminium capacities.
LTIFR
(million man hours)
Gender diversity
(%)
CSR footprint
(million beneficiaries)
4
5
.
0
0
5
.
0
6
4
0
.
9
3
.
0
4
3
.
0
.
4
8
4
6 9
8
.
.
6
.
0
1
.
4
9
1
.
4
0
4
.
4
.
3
3
.
2
2
.
2
Revenue
(US$bn)
9
.
2
1
9
.
2
1
4
.
5
1
5
.
1
1
7
.
0
1
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Description
The Lost Time Injuries 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 reduced the LTIFR to 0.34 this
year. This continuous fall can be
attributed to our efforts in training and
coaching our employees on workplace
safety practices.
Description
The percentage of women in the total
permanent employee workforce.
Description
The total number of beneficiaries
through our community development
programmes across all our operations.
Description
Revenue represents the value
of goods sold and services provided
to third parties during the year.
Commentary
We provide equal opportunities and
a safe workplace of work to men and
women. During the year, the ratio of
female employees was at 10.6% of
total employees.
Commentary
We benefited around 3.4 million
people this year through our
community development projects
comprising community health,
nutrition, education, water and
sanitation, sustainable livelihood,
women empowerment
and bio-investment.
Commentary
In FY2018, consolidated revenue
was up by 33% to US$15.4 billion
compared with US$11.5 billion in
FY2017. The increase was primarily
driven by firmer commodity prices
and volume ramp-up.
Operational excellence
Preserve our licence to operate
Optimise capital allocation and
maintain a strong balance sheet
Delivering on growth opportunities
Augment our reserves &
resources (R&R) base
Vedanta Resources plc | Annual Report FY2018
33
Underlying EPS◊
(US cents per share)
3
.
8
5
7
.
4
1
)
2
.
4
1
(
)
9
.
1
3
1
(
1
.
6
1
Dividend
(US cents per share)
3
1 6
6
5
6
5
5
0
3
Net debt/EBITDA
(Consolidated)
Interest cover
1
.
3
7
.
2
4
.
2
3
.
2
8
.
1
.
4
8
.
8
6
9
.
3
9
.
3
0
.
4
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Description
This represents the net profit
attributable to equity shareholders,
and is stated before special items,
other gains and losses (net of tax)
and minority interest impacts.
Description
Dividend per share is the total of
the final dividend recommended by
the Board in relation to the year, and
the interim dividend paid out during
the year.
Commentary
In FY2018, underlying EPS was
at 58.3 US cents per share, higher
than the previous year earnings
of 16.1 US cents per share. This
mainly reflects the impact of
increased EBITDA.
Commentary
The Board has recommended a final
dividend of 41 US cents per share this
year compared with 35 US cents per
share in the previous year.
Description
This ratio represents the level
of leverage of the Company. It
represents the strength of the balance
sheet of Vedanta Resources plc.
Commentary
Net debt/EBITDA ratio as at 31 March
2018 was at 2.4x, compared to 2.7x as
at 31 March 2017.
Description
The ratio is a representation of the
ability of the Company to service
its debt. It is computed as a ratio of
EBITDA divided by gross finance
costs (including capitalised interest)
excluding accretive interest on
convertible bonds, unwinding of
discount on provisions, interest on
defined benefit arrangements less
investment revenue.
Commentary
The interest cover for the Company
continues to be stable at c. 4 times.
Adjusted EBITDA margin◊
(%)
Zinc India R&R
(mt)
5
4
8
3
6
3
5
3
8
2
0
9
3
4
0
4
1
1
4
5
6
3
5
7
3
Zinc International R&R
(mt)
3
9
2
8
9
2
4
7
2
4
0
8 3
8
2
Oil & Gas R&R
(mmboe)
8
0
4
,
1
1
2
4
,
1
8
2
3
,
1
3
7
2
,
1
3
6
2
,
1
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Description
Calculated as EBITDA margin
excluding EBITDA and turnover from
custom smelting of Copper India,
Copper Zambia and Zinc India
businesses.
Commentary
Adjusted EBITDA margin for FY2018
was 35% (FY2017: 36%).
Description
Reserves and resources are based on specified guidelines for each commodity and region.
Commentary
During the year, gross additions of 19.5
million tonnes were made to reserves
and resources, prior to depletion of
12.6 million tonnes. Overall mine life
continues to be more than 25 years.
Commentary
During the year, gross additions of
1.3 million tonnes were made to
reserves and resources, prior to
depletion. Overall mine life continues
to be more than 25 years.
Commentary
During FY2018, the gross proved
and probable reserves and resources
were increased by 58 mmboe with a
depletion of 68 mmboe on account of
production during the year.
Copper Zambia R&R
(mt)
3
5
7
6
4
7
0
3
7
3
1
7
1
9
6
Commentary
During the year, reserves and
resources reduced by 12.5 million
tonnes due to production and by
9.5 million tonnes due to update of
the Konkola resource model. Overall
mine life continues to be more than
50 years.
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 34
Vedanta Resources plc | Annual Report FY2018
Principal Risks and Uncertainties
Managing our Risks
As a global natural resources company, our businesses are
exposed to a variety of risks. It is therefore essential to have
in place the necessary systems and a robust governance
framework to manage risk, while balancing the risk‑reward
equation expected by stakeholders.
Our risk management framework is
designed to be simple and consistent and
provide clarity on managing and reporting
risks to the Board. Together, our
management systems, organisational
structures, processes, standards and Code
of Conduct and Ethics form the system of
internal control that governs how the Group
conducts its business and manages the
associated risks. The Board has ultimate
responsibility for the management of risks
and for ensuring the effectiveness of
internal control systems. The Board’s review
includes the Audit Committee’s report on
the risk matrix, significant risks and the
mitigating actions we put in place. Any
weaknesses identified by the review are
addressed by enhanced procedures to
strengthen the relevant controls, and
these are reviewed at regular intervals.
The Audit Committee is in turn assisted
by the Group-level Risk Management
Committee in evaluating the design and
effectiveness of the risk mitigation
programme and control systems.
Risk Governance Framework
Board of
Directors
Audit Committee
GRMC
EXCO
Business Unit Management Teams
Group Risk Management Framework
External
Strategic
E v a l uate
M
i
t
i
g
a
t
e
y
f
i
t
n
e
d
I
Monit o r
Financial
Operational
The Group Risk Management Committee
(GRMC) meets every quarter and
comprises the Group Chief Executive
Officer, Group Chief Financial Officer,
Director Finance and Director Management
Assurance. The Group Head-Health, Safety,
Environment & Sustainability is invited to
attend these meetings. GRMC discusses
key events impacting the risk profile,
principal risks and uncertainties, emerging
risks and progress against planned actions.
Since it is critical to the delivery of the
Group’s strategic objectives, risk
management is embedded in business-
critical activities, functions and processes.
The risk management framework helps the
Company by aligning operating controls
with the objectives of the Group. It is
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and provides reasonable and not
absolute assurance against material
misstatement or loss. Materiality and risk
tolerance are key considerations in our
decision-making. The responsibility for
identifying and managing risk lies with
every manager and business leader.
In addition to this structure, other key risk
governance and oversight committees
include:
• Vedanta Sustainability Committee which
looks at sustainability related risks. The
Sustainability Committee is chaired by a
Non-Executive Director and the Group
Chief Executive Officer is a member;
• Finance Standing Committee, with
oversight of treasury-related risks.
This is a committee of the Board and is
attended by the Group CFO, business
CFOs, Group Treasury Head and the
Treasury Heads at the respective
businesses; and
• The Group Capex Sub-Committee
which evaluates the risks associated with
any capital investment decisions and
institutes a risk management framework
in expansion projects.
Vedanta’s risk management and internal
control system is aligned to the
recommendations in the FRC’s revised
guidance ‘Risk management, internal
control and related financial and business
reporting’ (the Risk Guidance). The Group
has a consistently applied methodology for
identifying risks at the individual business
level for existing operations and for ongoing
projects.
The Group’s risk appetite is set by the
Board. It has been defined taking into
consideration the Group’s risk tolerance
level and is clearly linked to its strategic
priorities. The risk appetite forms the basis
of the Board’s assessment and prioritisation
of each risk based on its likely impact on the
business operations. A risk scale aligned
to the Board’s overall risk appetite and
consisting of qualitative and quantitative
factors has been defined to facilitate a
Vedanta Resources plc | Annual Report FY2018
35
consistent assessment of the risk exposure
across the Group.
management framework and they provide
regular updates to the GRMC.
At a business level, formal discussions on
risk management occur at review meetings
at least once a quarter. The respective
businesses review their major risks, and
changes in their nature and extent since
the last assessment and discuss the control
measures which are in place and further
action plans. The control measures stated
in the risk matrix are also periodically
reviewed by the business management
teams to verify their continued
effectiveness. These meetings are chaired
by the respective business CEOs and
attended by CXOs, senior management and
appropriate functional heads. Risk officers
have been formally nominated at each of
the operating businesses as well as at
Group level, whose role is to create
awareness of risks at senior management
level and to develop and nurture a risk
management culture. Risk mitigation plans
form an integral part of the performance
management process. Structured
discussions on risk management also
happen at business level with regard to their
respective risk matrix and mitigation plans.
The leadership teams in the businesses are
accountable for governance of the risk
Each of the businesses has developed its
own risk matrix and risk register, which is
reviewed by their respective management
committee/executive committee, chaired
by their CEOs. In addition, each business
has developed its own risk register
depending on the size of its operations and
number of SBUs/locations. Risks across
these risk registers are aggregated and
evaluated and the Group’s principal risks are
identified based on the frequency, and
potential magnitude and impact of the risks
identified.
This element is an important component of
the overall internal control process, from
which the Board obtains assurance. The
scope of work, authority and resources of
Management Assurance Services (MAS)
are regularly reviewed by the Audit
Committee. The responsibilities of MAS
include recommending improvements in
the control environment and reviewing
compliance with our philosophy, policies
and procedures. The planning of internal
audits is approached from a risk
perspective. In preparing the internal audit
plan, reference is made to the risk matrix,
and inputs are sought from senior
management, business teams and members
of the Audit Committee. In addition, we
make reference to past audit experience,
financial analysis and the current economic
and business environment.
Each of the principal subsidiaries has
procedures in place 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 look at certain areas identified by risk
management and the internal control
framework. The findings by MAS are
presented monthly to the Executive
Committee and to the Audit Committee
periodically. 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 to eliminate risk altogether.
Therefore, it can only provide reasonable
and not absolute assurance against material
misstatement or loss.
Principal Risks and Uncertainties
Vedanta’s principal risks and uncertainties as set out below may impact the following areas of the Group’s business:
Area
Business model (BM)
Impact
Ability to conduct our operations across the value chain in order to generate revenue and make
profit from operations.
Future performance (FP)
Ability to deliver on our financial plans in short/medium term.
Solvency (S)
Liquidity (L)
Ability to meet all our financial obligations.
Ability to meet our short-term obligations/liabilities as they fall due.
Health, safety, environment and communities
(HSEC)
Ability to send our employees and contractors home safe and healthy every day and work with
our communities and partners to achieve the Group's sustainable development goals.
Reputation (R)
Ability to maintain investor confidence and our social licence to operate.
The order in which these risks appear in the section below does not necessarily reflect the likelihood of their occurrence or the relative
magnitude of their impact on our business. The risk direction of each risk has been reviewed based on events, economic conditions,
changes in business environment and regulatory changes during the year. While Vedanta’s risk management framework is designed to help
the organisation meet its objectives, there can be no guarantee that the Group’s risk management activities will mitigate or prevent these
or other risks from occurring.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 36
Vedanta Resources plc | Annual Report FY2018
Principal Risks and Uncertainties continued
Managing our Risks
The Board, with the assistance of management, carries out periodic and robust assessments of the principal risks and uncertainties of the
Group and tests the financial plans for each of risks and uncertainties mentioned below.
Financial risks
R1 Access to capital
Impact FP, S, L, R
Mitigation
Direction
The Group may not be able to meet
its payment obligations when due or
may 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, affecting revenue and free
cash flow generation, may cause
stress on the Company’s financing
and covenant compliance and its
ability to raise financing at
competitive terms.
Risk has reduced compared to last
year, due to good liquidity and an
improved credit profile.
• A focused team continues to work on refinancing initiatives, reducing cost
of borrowing, extending maturity profile and deleveraging the balance sheet.
• Track record of good relations with banks, and of raising borrowings in last few
years.
• Regular discussions with rating agencies. Ratings have been upgraded.
• With an improved credit profile and a stronger balance sheet, Vedanta continues
to enjoy good access to capital and loan markets and proactively refinances its
near-term debt. No concerns envisaged for upcoming maturities.
• Group treasury policies such as borrowing, investment, commodity hedging,
banking, forex, etc. have been prepared after elaborate benchmarking and risk
analysis. Business teams ensure continued compliance with the Group’s treasury
policies that govern our financial risk management practices.
R2 Fluctuation in commodity prices (including oil) and currency exchange rates
Impact BM, FP, S, L
Mitigation
Direction
Prices and demand for the Group’s
products may remain volatile/
uncertain and could be influenced
by global economic conditions.
Volatility in commodity prices and
demand may adversely affect our
earnings, cash flow and reserves.
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.
• The Group has a well-diversified portfolio which acts as a hedge against
fluctuations in commodities and delivers cash flows through the cycle.
• Pursue low-cost production, allowing profitable supply throughout the
commodity price 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. Strategic hedge, if any, is taken after
appropriate deliberations & due approval from ExCo.
• Our forex policy prohibits forex speculation.
• Robust controls in forex management to hedge currency risk liabilities on
a back-to-back basis.
• Finance Committee reviews all forex and commodity-related risks and suggests
necessary courses of action as needed by business divisions.
• 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.
• Notes to the Financial Statements in the Annual Report give details of the
accounting policy followed in calculating the impact of currency translation.
Vedanta Resources plc | Annual Report FY2018
37
R3 Major project delivery
Impact FP, L
Mitigation
Shortfall in achievement of
expansion projects stated objectives
leading to challenges in achieving
stated business milestones – existing
& new growth projects.
• Enlisting internationally renowned engineering and technology partners on
all projects.
• Strong focus on safety aspects in the project.
• Geo-technical audits are being carried out by independent agencies.
• Reputable contractors are engaged to ensure completion of the project on
indicated timelines.
• Strong & separate empowered organisation working towards ensuring a smooth
transition from open pit to underground mining.
• Mines being developed using best in class technology and equipment and
ensuring the highest level of productivity and safety.
• Stage gate process to review risks and remedy at multiple stages on the way.
• Robust quality control procedures have also been implemented to check safety
and quality of services/design/actual physical work.
(Details of projects are appearing in AR.)
Sustainability risks
R4 Health, safety and environment (HSE)
Impact BM, FP, HSEC, R
Mitigation
Direction
Direction
The resources sector is subject
to extensive health, safety and
environmental laws, regulations and
standards. Evolving requirements
and stakeholder expectations could
result in increased cost or litigation,
or threaten the viability of operations
in extreme cases.
Emissions and climate change:
our global presence exposes us to
a number of jurisdictions in which
regulations or laws have been, or are
being, considered to limit or reduce
emissions. The likely effect of these
changes could be to increase the
cost for fossil fuels, impose levies for
emissions in excess of certain
permitted levels, and increase
administrative costs for monitoring
and reporting. Increasing regulation
of greenhouse gas (GHG) emissions,
including the progressive
introduction of carbon emissions
trading mechanisms and tighter
emission reduction targets, is likely
to raise costs and reduce demand
growth.
• HSE is a high priority area for Vedanta. Compliance with international and
local regulations and standards, protecting our people, communities and the
environment from harm and our operations from business interruptions are
key focus areas.
• Vedanta has a Board-level Sustainability Committee, chaired by a Non-Executive
Director and attended by the Group CEO, which meets periodically to discuss
HSE performance.
• Policies and standards are in place to mitigate and minimise any HSE-related
occurrences. Safety standards issued/continue to be issued to reduce risk level
in high risk areas. Structured monitoring and a review mechanism and system of
positive compliance reporting are in place.
• The Company has implemented a set of standards to align its sustainability
framework with international practice. A structured sustainability assurance
programme continues to operate in the business divisions covering environment,
health, safety, community relations and human rights aspects, and is designed to
embed our commitment at operational level.
• HSE experts have been inducted from reputed Indian and global organisations to
bring in best-in-class practices.
• All businesses have appropriate policies in place for occupational health-related
matters, supported by structured processes, controls and technology.
• Strong focus on safety during project planning/execution, and contract workmen
safety.
• Building safety targets into performance management to incentivise safe
behaviour and effective risk management.
• Leadership coaching rolled out across businesses to make better risk decisions.
Wave 2 of ‘leadership in action’ has been launched to identify critical risks and
put in place critical controls and processes to measure, monitor and report
effectiveness.
• Leadership remains focused on a zero-harm culture across the organisation and
consistent application of ‘Life-Saving’ performance standards.
• Carbon forum with business representation monitors developments and sets out
defensive policies, strategy and actions.
• Defining targets and implementing action plans to reduce the carbon intensity of
our operations. This includes reducing emission intensity, increasing renewable
mix and green cover at locations.
• Engaging with government on carbon policies and innovation technologies.
•
Institutionalise systems to manage carbon risks and opportunities across the
business over the lifecycle of its products.
• Engage with stakeholders in creating awareness and developing climate change
solutions.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 38
Vedanta Resources plc | Annual Report FY2018
Principal Risks and Uncertainties continued
Managing our Risks
R5 Managing relationship with stakeholders
Impact BM, FP, HSEC, R
Mitigation
Direction
The continued success of our
existing operations and future
projects are in part dependent
on broad support and a healthy
relationship with our respective local
communities. Failure to identify and
manage local concerns and
expectations can have a negative
impact on relations and therefore
affect the organisation’s reputation
and social licence to operate and
grow.
• CSR approach to community programmes is governed by the following key
considerations: the needs of the local people and the development plan in
line with the new Companies Act in India; CSR guidelines; CSR National Voluntary
Guidelines of the Ministry of Corporate Affairs, Government of India; and the UN’s
Sustainable Development Goals (SDGs).
• CSR Committees at business-level decide focus areas of CSR, budget and their
respective programmes.
• Sustainable development programmes are driven by stakeholder engagement
and consultation along with baseline studies and need-based assessments.
• Periodic meetings with existing and potential SRI Investors, lenders and analysts,
as well as hosting a Sustainable Development Day in London, helps in two-way
engagement and understanding the material issues for stakeholders.
• Every business has a dedicated CSR team. Key focus areas for CSR are health,
nutrition, sanitation, education, sustainable livelihoods and female empowerment.
We have a dedicated team of over 180 corporate social responsibility personnel.
• Help communities to identify their priorities through participatory need
assessment programmes and work closely with them to design programmes
that seek to make progress towards improvements in the quality of life of
local communities.
• Our business leadership teams have periodic engagements with the local
communities to build relations based on trust and mutual benefit. Our businesses
seek to identify and minimise any potentially negative operational impacts and
risks through responsible behaviour – acting transparently and ethically,
promoting dialogue and complying with commitments to stakeholders.
Integration of sustainability objectives into long-term plans.
•
R6 Tailings dam stability
Impact BM, FP, HSEC, R
Mitigation
Direction
A release of waste material leading
to loss of life, injuries, environmental
damage, reputational damage,
financial costs and production
impacts. A tailings dam failure is
considered to be a catastrophic risk
– i.e. a very high severity but very
low frequency event that must be
given the highest priority.
The appreciation of risk has
improved further in the Group.
• The Risk Management Committee included tailings dams on the Group Risk
Register with a requirement for annual internal review and three-yearly external
review.
• Operation of tailings dams is executed by suitably experienced personnel within
the businesses.
• Full review of tailings dams and water storage facilities being carried out in the
Group. Follow-up reviews will be conducted based on the results until the control
is verified.
• Management standard developed with business involvement.
• Third-party expert assessment of the dams to identify tailings dams’ related risks
by reputed international firm. Improvement opportunities/remedial works in line
with best practice are progressing.
Individuals responsible for dam management have received training from a
reputed agency.
•
• System of monitoring of tailings dams instituted.
Vedanta Resources plc | Annual Report FY2018
39
Operational risks
R7 Challenges to operationalise investments in Aluminium and Power business
Impact BM, FP, S, L, R
Mitigation
Direction
Some of our projects have been
completed (pending commissioning)
and may be subject to a number of
challenges during operationalisation
phase. These may also include
challenges around sourcing raw
materials and infrastructure-related
aspects.
Risk reduced compared to last year,
due to ramp-up at Jharsuguda
progressing satisfactorily.
• Global technical experts have been inducted to strengthen operational
excellence.
• Operationalisation of Jharsuguda facilities progressing satisfactorily.
• Building of new intermediate facilities/infrastructure progressing well.
• Continuous focus on plant operating efficiency improvement programme to
achieve design parameters, manpower rationalisation, logistics infrastructure
and cost reduction initiatives.
• Continue to pursue developing sources of bauxite.
• Continuous augmentation of power security and infrastructure.
• Coal security is being strengthened by pursuing additional coal linkages.
• Key raw material linkages for alumina/aluminium business: infrastructure-related
challenges are being addressed.
• Strong management team continues to work towards sustainable low-cost
of production, operational excellence and securing key raw material linkages.
• Talwandi Sabo (TSPL) power plant matters are being addressed in a structured
manner by a competent team.
R8 Operational turnaround at KCM
Impact BM, FP, S, L, R
Mitigation
Direction
Lower production and higher cost at
KCM may impact our profitability.
• Management team reviewing operations and engaging with all stakeholders in
light of operating challenges.
• Focus at Konkola is to improve efficiency, equipment availability, dewatering and
enhance volumes. Committed to improving KCM operating performance.
• Several cost-saving initiatives and restructuring reviews under way at KCM to
preserve cash.
• Process improvement actions put in place through focused operating teams to
improve production performance.
• Working on the engineering design for accelerated dewatering and development
to increase production from the Konkola Mine.
• Elevated temperature leach project to improve recoveries at the Tailings Leach
Plant, has been commissioned and is currently under stabilisation. Planning and
engineering for Phase II of the elevated temperature leach under way.
• KCM has entered into strategic partnerships with expert mining contractors for
accelerating development of ore production.
• Concentrate sourcing tie-ups with high grade mines being pursued.
• VAT refunds are being pursued.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 40
Vedanta Resources plc | Annual Report FY2018
Principal Risks and Uncertainties continued
Managing our Risks
R9 Discovery risk
Impact BM, FP
Mitigation
Direction
• Dedicated exploration cell with continuous focus on enhancing exploration
capabilities.
• Appropriate organisation and adequate financial allocation in place for
exploration.
• 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 programme.
• Continue to work towards long-term supply contracts with mines to secure
sufficient supply where required.
• Exploration-related systems being strengthened, and new technologies being
•
utilised wherever appropriate.
International technical experts and agencies are working closely with our
exploration team to build on this target.
Increased production rates from our
growth-oriented operations place
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 and
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.
R10 Breaches in IT/cybersecurity
Impact FP, R
Mitigation
Direction
Like many 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 cybersecurity
breach could have an impact
on business operations.
• Group-level standards and policies to ensure uniformity in security stance
and assessments.
• Chief Information Security Officer (CISO) at Group-level focuses on formulating
necessary frameworks, policies and procedures, and for leading any agreed
Group-wide initiatives to mitigate risks.
• Various initiatives taken up to strengthen IT/cybersecurity controls in last
few years.
• Cybersecurity risk being addressed through increased standards, ongoing
monitoring of threats and awareness initiatives throughout the organisation.
IT system is in place to monitor logical access controls.
•
• Continue to carry out periodic IT security reviews by experts and improve
IT security standards.
R11 Loss of assets or profit due to natural calamities
Impact FP, R
Mitigation
Direction
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.
• Vedanta has taken appropriate Group insurance cover to mitigate this risk.
• An external agency reviews the risk portfolio and adequacy of this cover and
assists us in our insurance portfolio.
• Our underwriters are reputed institutions and have capacity to underwrite our risk.
• 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.
• Continue to focus on capability building within the Group.
Vedanta Resources plc | Annual Report FY2018
41
R12 Extension of production sharing contract of Cairn beyond 2020 at less favourable terms
Impact BM, FP, L, S
Mitigation
Direction
• Ongoing dialogue with the Government and relevant stakeholders.
• Cairn Steering Committee is regularly reviewing the updates/progress, including
plans to meet the timelines, and is continuously engaging with the stakeholders
concerned.
• Carrying value factors additional 10% profit petroleum share, hence mitigating
financial/balance sheet risk.
Cairn India has 70% participating
interest in Rajasthan Block. The
production sharing contract (PSC) of
Rajasthan Block runs till 2020.
Extension of production sharing
contract of Cairn beyond 2020
at less favourable terms may have
implications.
Government of India notified PSC
extension policy which applies to
Rajasthan Barmer block.
Compliance risks
R13 Regulatory and legal risk
Impact BM, FP, R
Mitigation
Direction
We have operations in many
countries around the globe. These
may be impacted because of legal
and regulatory changes in the
countries in which we operate
resulting in higher operating costs,
and restrictions such as the
imposition or increase in royalties or
taxation rates, export duty, impacts
on mining rights/bans, and change in
legislation.
• The Group and its business divisions monitor regulatory developments on an
ongoing basis.
• Business-level teams identify and meet regulatory obligations and respond to
emerging requirements.
• Focus has been to communicate our responsible mining credentials through
representations to government and industry associations.
• Continue to demonstrate the Group’s commitment to sustainability by proactive
environmental, safety and CSR practices. Ongoing engagement with local
community/media/NGOs.
• SOX compliant subsidiaries.
• Common compliance monitoring system being implemented in Group companies.
Legal requirements and a responsible person for compliance have been mapped
in the system.
• Legal counsel continues to work on strengthening the framework in the Group
and resolution of matters.
• Group wide online portal is being rolled out for compliance reporting. Appropriate
escalation and review mechanisms are in place.
• Competent in-house legal organisation is in place at all the businesses and the
legal teams have been strengthened with induction of senior legal professionals
across all Group companies.
• Standard operating procedures (SOPs) have been implemented across our
businesses for compliance monitoring.
• Contract management framework has been strengthened with the issue of boiler
plate clauses across the Group which will form part of all contracts. All key
contract types standardised.
• Framework for monitoring performance against anti-bribery and corruption
guidelines is also in place.
R14 Tax related matters
Impact S, L, R
Mitigation
Direction
Our businesses are in a tax regime
and changes in any tax structure or
any tax-related litigation may impact
our profitability.
• The Tax Council reviews all key tax litigations and provides advice to the Group.
• Robust organisation in place at business- and Group-level to handle tax-related
matters.
• Engage, consult and take opinion from reputable tax consulting firms.
• Reliance is placed on appropriate legal opinion and precedence.
• Continue to take appropriate legal opinions and actions on tax matters to
mitigate the impact of any actions on the Group and its subsidiaries.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 42
Vedanta Resources plc | Annual Report FY2018
Sustainability Report
Creating
We operate as a responsible
business, minimising our
impacts and promoting
social inclusion across
our operations through
our focus on safety,
environmental protection
and community
engagement.
Project Barmer Unnati by Cairn Oil & Gas aimed at improving farmer productivity.
Vedanta Resources plc | Annual Report FY2018
43
a sustainable
future
Employee at Cairn Oil & Gas site.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 44
Vedanta Resources plc | Annual Report FY2018
Sustainability Report
Our approach to sustainability
We continue to push
forward on our sustainability
agenda, knowing that it is a
key driver for our business
performance.
Phillip Turner
Group Head – HSE & Sustainability
Safety is an important value for our workforce.
Focused on pushing our
sustainability agenda
Finally, preserving our licence to operate
is one of our strategic priorities, ensuring
sustainability issues are incorporated at
Group level into management
considerations and decision making.
During the year, we have continued to make
progress against our priorities, achieving
excellent results in some areas, while
reviewing how we operate in others and
taking steps to improve outcomes for our
stakeholders.
This report is an update of our progress.
Key statistics
• 3.4 million community beneficiaries
(2017: 2.2 million)
• Carbon footprint: 52 million mt
(2017: 53 million mt)
• LTIFR: 0.34 (2017: 0.39)
• Water recycling rate: 27% (2017: 24%)
• 4.1 million m3 of water saved
(target: 2.2 million m3)
• 2.6 million GJ of energy conserved
(target: 1.39 million GJ)
• Community investment: US$39 million
(2017: US$18 million)
Over the years, Vedanta has grown to
become the sixth largest diversified
natural resources company globally through
a combination of organic growth – as can
be seen at our copper business – and
acquisition of complementary businesses
including Hindustan Zinc, Cairn India,
Konkola Copper Mines, BALCO, Sesa Goa,
Skorpion Zinc and Black Mountain Mines.
These companies are mature, high-
performing businesses in their own right
with well-developed governance, HSE and
community relations management systems.
As a Group we have sought to embed
a standardised, high-performance
sustainability culture across all our
businesses while allowing each to make its
day-to-day decisions without interference
from any central body. It is in this context
that we introduced the Vedanta
Sustainability Framework (VSF) in 2011.
The goal of the framework is to ensure
that all our businesses integrate
sustainability principles into their business
practices in a consistent and systemic
manner. The VSF has enabled them all to
understand and integrate sustainability
into their operational and decision-making
structures.
We use our central oversight bodies
including the Board and Group executive
committees to set performance
expectations (especially on sustainability),
and to ensure that our governance
standards remain compliant with
environmental social governance (ESG)
considerations. The individual businesses
set their own strategy, technology
deliverables, production outcomes,
sustainability measures, and other goals.
Vedanta Resources plc | Annual Report FY2018
45
Child health is an important component of our CSR
programmes.
Encouraging female leaders at our operational sites.
Empowering women by providing them skill based training.
Responding to material concerns
Last year, Vedanta embarked on an exercise to identify and prioritise those issues that are most material to our business. We sought the
views of a diverse group of stakeholders and their responses were presented to our management group, who then prioritised the most
important issues for our business.
The resulting materiality matrix is presented below:
Materiality matrix
Critical importance
High importance
Average importance
Low importance
Policies and actions to restrict
unethical business practices
Leadership development and talent
management
Public policy and advocacy
Local hiring and content
Rights of indigenous peoples and
human rights
Disclosure on slavery and human
trafficking – UK’s Modern Slavery Act
Diversity and equal opportunity
Employee health, safety and well-
being
Transparency in reporting on revenue
and production figures
Broader economic benefit to host
country
Community engagement and
development initiatives
Ethics and integrity – compliance to
Code of Conduct
Environmental management
(water management, waste
management, air emissions and quality
control, biodiversity management,
environmental incidents management)
Labour rights and industrial relations
Responsible Supply Chain Management
Community health and safety
Energy management and climate
change
Mine and site closure plans
Employee retention
Tax transparency and reporting
During the year, we continued our efforts to improve our systems and their performance in all the key issues identified in the matrix
through our Sustainability Framework. As the year progressed the following material areas emerged as the most significant drivers of our
business – commanding either management or stakeholder attention:
• The safety of our workforce (page 47)
• Environmental management (page 49)
• Retaining our social licence to operate (including community engagement & development initiatives and human rights) (page 52)
• Diversity of our workforce and equal opportunities (page 57)
Our sustainability roadmap sets out our targets and performance during the year on the key material issues, and we set out an overview of
our progress during the year against our Sustainability Framework on pages 46–47.
For a more detailed assessment of our sustainability performance, please see our separate Sustainable Development report at
www.vedantaresources.com.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
46
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Our sustainability journey and roadmap
Objectives and targets FY2018
The safety of our workforce
Achieve score >75% in six safety
performance standards.
Status
Performance FY2018
Objectives and targets FY2019
4 of 11 businesses achieved score of 75% or above.
9 of 11 businesses achieved 70% or above.
Achieve score >75% in six
safety performance standards.
Extend baseline health assessment
across businesses.
Hindustan Zinc, Sterlite Copper, Cairn Oil & Gas, KCM and
BALCO have completed their initial exposure survey.
Zero fatal incidents and 26% reduction in
lost time injury frequency rate (LTIFR).
Nine fatalities occurred in the fiscal year. LTIFR improved
from 0.39 to 0.34 – a reduction of ~13%.
Zero fatal accidents and an
LTIFR of 0.30.
Environment management
• Standardise water risk assessment
approach for business
• Undertake water risk assessment for
significant businesses with water as a
material issue
• Water savings target: 2.2 million m3
Compliance with environmental and
social management plan for new
projects across the business.
Water risk assessment tool developed in collaboration with
Antea group, USA.
Water risk assessment studies conducted for 30 significant
business units across the group.
Water savings of 4.1 million m3 achieved.
Achieve water saving of
4.0 million m3.
Work in progress.
Complete Biodiversity Management Plan
at our Oil & Gas business.
BMP study complete.
Achieve 50% of fly ash utilisation rate.
90% of the generated fly ash utilised.
We are considering formal GHG
reduction targets and we expect to
achieve a 16% reduction in carbon
intensity by 2020 from a 2012 baseline,
which was the first year of audited data.
c. 14% reduction achieved in GHG intensity over baseline
of 2012.
Energy Saving: 1.39 million GJ.
Energy saving of 2.6 million GJ achieved.
Complete the dam-break analysis of the
identified facilities across businesses.
In FY2017, two dams across our businesses had
been identified for the analysis. Analysis completed at both.
We have taken a serious note of the dam-failure incidents at
VAL-Jharsuguda and BALCO and have taken appropriate
actions to ensure this is not a recurring issue for our business
(ref: page 51).
Initiate the capacity-building of selected
professionals on biodiversity.
Not initiated.
Achieve fly ash utilisation
of 75%.
Continue our reduction
trajectory and formalise our
GHG intensity reduction target
Achieve 2 million GJ energy
saving.
Develop capability and facilitate
strengthening of tailing
management practices across
the Group.
Retaining our social license to operate
Social impact studies to be continued for
remaining sites.
Increase the implementation and
utilisation rate of the SAP system.
Expand the company's flagship Nand
Ghar CSR programme to all our
businesses.
Embed and encourage employee
volunteering for social initiatives.
Partnered with TARU Leading Edge to conduct baseline,
need, impact and SWOT assessments in all businesses.
Work is under way.
Complete the baseline and
social impact assessments in all
businesses.
The development of a unified reporting system to record
aggregated impact of CSR initiatives, and to manage entire
CSR cycle, is in process. IFMR has been commissioned to
develop unified indicators, and Goodera (under process) has
been identified for providing the software platform.
Nand Ghars constructed: 54 in FY2017–18; 154 till date. 250
under construction.
Employee engagement initiatives have been undertaken in
businesses including HZL, Sterlite Copper and BALCO. These
initiatives included Khusiyaa Baatiye, audio description movie
for visually impaired children, and mentoring programme by
employee families, among other activities.
250 Nand Ghars to be
constructed in FY2018–19 and
planning for additional 1,000 to
be completed.
Develop employee engagement
standard policy for the Group.
Vedanta Resources plc | Annual Report FY2018
47
Objectives and targets FY2018
Status
Performance FY2018
Objectives and targets FY2019
People and diversity
Employee scorecard coverage to be
extended to 100% of professional
employees.
Ensure 100% coverage of code of
conduct training for all new professional
employees.
Increase gender diversity by hiring 20%
women this financial year.
Target completed.
–
95.7% of our new hires have received the Code of Conduct
training. The balance at KCM will be covered within the initial
12 months of their joining date as per the Code of Conduct
training calendar.
Continue to focus on Code
of Conduct training for all
professional employees
including new hires.
~21% of all new full-time hires in FY2018 have been women.
–
Achieve 33% female representation at
Vedanta Board-level by 2020.
Currently, female representation on the Board of Vedanta
Resources is 14.3%. We continue to focus on our target of
achieving 33% representation.
Achieve 33% female
representation at Vedanta
Board-level by 2020.
–
–
–
–
Focus on anchoring and
engagement of high potential
employees through our flagship
programme V-Connect.
Focus on Right Management in
place in each SBU.
Livelihood initiative for women self-help group members
under Project Sahki in Lanjigarh
Skill development Initiative at Cairn Enterprise Centre by
Cairn Oil & Gas.
Employees discussing the on-site safety measures at the
Lanjigarh Plant.
A unified approach to sustainability
Our Sustainability Framework is central to
our sustainability agenda, focusing on our
four strategic pillars:
• Responsible stewardship – we are
committed to safeguarding our
resources by monitoring, managing and
improving the Group’s health, safety and
environmental performance. Our vision
for ‘Zero Harm, Zero Waste, Zero
Discharge’ is an outcome of this
approach.
– Focus areas: code of conduct; ethics;
health, safety & environment
• Building strong relationships – we are
committed to maintaining an open,
ongoing and systematic dialogue with
our stakeholders. Our goal is to ensure
that we align our business planning,
community relations and CSR
programmes with stakeholders’ needs in
order to maintain and strengthen our
social licence to operate.
– Focus areas: stakeholder engagement
and management, human rights,
neighbourhood dialogue
• Adding and sharing value – we are
committed to driving economic
empowerment and generating shared
value through significant and relevant
investment in local communities and
national economies.
– Focus areas: employees,
communities, business investments
• Strategic communications – we are
committed to transparent and timely
disclosure that builds trust. We believe
that clear and regular communication
and dialogue with all our stakeholders
helps create an environment which
facilitates our operations.
Responsible stewardship
It is of critical importance to us that we take
care of the health & safety of our workforce
and minimise our environmental impacts to
protect our natural resources and those
who live around our operations.
The safety of our workforce
As a result of a rise in fatalities this year, our
senior leadership increased attention on
health & safety and the message from our
Board and senior leadership is very clear:
we cannot continue to operate in a manner
that puts the lives of individuals at risk.
In order to drive the safety agenda further
in our organisation we have implemented a
phased programme of new safety systems,
which includes fresh approaches to
identifying risk areas for accidents and
fatalities, developing standards to establish
minimum performance requirements,
monitoring progress on their adoption,
and reviewing performance with senior
leadership. This systemic approach has
begun to yield results. Safety incidents have
reduced over a three-year period, as seen in
LTIFR, which has reduced from a high of
0.54 in FY2013–14 to 0.34 in FY2018.
LTIFR
(million man hours)
4
5
.
0
0
5
.
0
6
4
0
.
9
3
.
0
4
3
.
0
2014 2015 2016 2017 2018
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Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Safety Training Hours
921,550
Employees at Cairn Oil & Gas’s Raageshwari Gas Terminal (RGT).
However, of deep concern is that the
number of fatalities increased in FY2018 to
nine, despite a previous downward trend.
Two-thirds of these fatalities occurred in
areas that were outside of the focus of our
‘fatal risk campaign’. We have introduced
additional safety standards in the light of
these tragic events, and we are also
conducting training and programmes for
our workforce so that they can identify,
prevent, and manage safety risks. ‘Making
Better Risk Decisions’ (MBRD) training and
the Critical Risk Identification training
programmes have been developed to
impart this kind of awareness and
preparedness. Collectively, we have
imparted over 921,550 hours of safety
training to our employees, contractors and
third-party vendors. We also regularly send
out updates on learnings from the
investigations into ‘high potential’ and ’fatal’
safety incidents.
Good housekeeping leads to safe
workplaces
In FY2018, we launched the international
‘5S Housekeeping Programme’, which
provides a process to measure and monitor
housekeeping effectiveness. Our goal was
to achieve a score of 90% across all of our
assets. The thinking was very clear: bad
housekeeping is one of the primary reasons
why accidents take place. If we can
systematically improve it, we are likely to
see a drop in safety incidents. So far, we
have been able to drive up the score from
an average of 65% to 74%. We hope to
close FY2019 at 90%.
Measure, monitor, report
This year, we supplemented our existing
standards with additional rules covering
machine guarding; cranes and lifting;
molten metals; and pit, dump and stockpile
safety. All sites are required to adhere
strictly to the provisions in these standards,
and their compliance will be audited in our
annual Vedanta Sustainability Assurance
Protocol (VSAP).
To ensure that every site adheres to all
safety principles, we have appointed
‘zone-wise’ managers who are accountable
for the overall safety of their areas. We have
mandated that the managers should be
chosen from inside the business; people
who staff the shop-floor on a daily basis.
Combined with an active and engaged
leadership, a vigilant ExCo, and the strict
application of standard safety procedures,
we are confident that we will be able to
turn around our safety performance.
To further drive up safety performance,
we began redesigning the HSE function to
ensure that each business has adequate
leadership to influence and drive a safety
culture. The newly appointed Chief Health
& Safety Officers and Chief Environment
Managers have been mandated to increase
their engagement with business and
site-based line leaders to implement
effective safety controls. We have also
appointed experienced employees at
regional levels to drive safety performance
and ensure that knowledge sharing and
lessons-learnt are adequately implemented
at our sites.
We also recruited 10 globally-experienced
HSE experts (with three more planned) to
fill roles at a unit and regional level. These
experts will be tasked with bringing
international best practices in safety to our
business units and to build organisational
capabilities through coaching our business
leaders and specialists.
Finally, FY2018 saw the introduction of
‘HSE competency’ as a performance
metric for each employee to help us track
safe behaviour and awareness of safe work
practices. We envisage that this indicator
will sit alongside other indicators of
individual performance and promote
those employees who value safety in
all their actions.
Vedanta Resources plc | Annual Report FY2018
49
Total Energy Saved
Total Water Saved
2.6 million GJ
4.1 million m3
To ensure that every site
adheres to all safety
principles, we have appointed
‘zone‑wise’ managers who
are accountable for the
overall safety of their areas.
Statistics for health & safety
• 921,550 man-hours of safety training
• 100% periodical medical examination
• Lost time injuries reduced from 75 in
FY2017 to 72 in FY2018
• Fatalities increased from seven in
FY2017 to nine in FY2018
• Sterlite Copper received the British
Safety Council’s ‘Sword of Honour’ and
Cairn Oil & Gas received the British
Safety Council 5-star rating
Managing our environmental performance
Vedanta is committed to minimising its
environmental footprint. To do this we have
instituted measures across the organisation
that help us minimise our air emissions,
reduce our waste and effluent volumes, and
improve the energy and water utilisation
efficiency of our operations. We have also
taken measures to protect the biodiversity
of the regions where we operate.
Our Vedanta Sustainability Framework
comprises comprehensive policies and
standards on water, energy and carbon,
waste, and biodiversity. The framework,
combined with objectives and targets on
energy, GHG, waste and water
management, ensures that each of our
businesses follows the same high standards
of environmental management.
Water management
Effective management of water is critical
– both for our operations and for the
communities who live in close proximity to
us – and the availability of water is a key
business risk for our operations. By
understanding how we source and use this
resource, businesses can de-risk their
operations from unplanned stoppages due
to the non-availability of water.
This year, we undertook a water risk
assessment exercise at 30 of our most
significant business locations. This
determined water risk based on water-
stress information available in global, public
databases and in site-specific
measurements. The approach evaluated
physical, social/regulatory, economic and
business risks related to water. In addition
to understanding the water risk at each of
these locations, our goal is to standardise
our water risk assessment approach for
Group companies.
Findings from the study informed us that
some of our operations in the high water-
stress regions of India (Rajasthan, Punjab,
Tamil Nadu) had a greater risk of shortages
over a period of time than our businesses
in other locations. This is because of
competitive pressures for water usage in
those regions. Based on the findings of the
study, each of our businesses has been
mandated to put in place appropriate
mitigation measures to counter these risks.
To further support our water management,
we have rolled out a water management
performance standard, along with a
guidance note for the uniform
implementation of the performance
standard.
Our overall water consumption has shown
a marginal increase of ~0.7% indicating
the improved water efficiency across
our businesses.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 50
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Employees at Cairn Oil & Gas site.
Cairn Oil & Gas's Jeevan Amrit Project providing safe drinking water.
Water recycled
Total water consumption (million m3)
Water recycled/reused (million m3)
Water recycled (%)
2017–18
2016–17
2015–16
280
74
27%
278
67
24%
237
54
23%
We have initiated several water conservation projects related to operational efficiency and water recovery that have helped achieved a
saving of 4.1 million m3 of water compared to our target of 2.2 million m3.
Energy & carbon management
Our energy & carbon management adopts a two-pronged approach: improving energy and process efficiency and diversifying our energy
portfolio to include renewable energy. We are committed to invest in newer technologies and processes to enhance our energy efficiency.
Last year we defined our energy & carbon management performance standard and we are in process of releasing accompanying guidance
to adopt a uniform management approach across the business.
Energy consumption (million GJ)
Direct energy consumption
Indirect energy consumption
Total energy consumption
Our total energy consumption increased by
4.3% over the previous year, driven by
increased production volumes across our
businesses.
This year we achieved our annual energy
saving target, and more: through
operational efficiency and energy-saving
projects we saved about 2.6 million GJ of
energy, against the target of 1.39 million GJ.
GHG emissions (million TCO2e)
Scope 1 (direct)
Scope 2 (indirect)
Total
Climate-related business risk
Climate change continues to pose an
ever-present risk to the planet. India, which
has set ambitious targets of reducing its
carbon intensity by 33–35% by 2030 and
sourcing 40% of its electric power from
non-fossil sources, continues to push ahead
to meet those targets.
Vedanta also continues to remain
committed to decrease its climate change
impact. Last year we stated our expectation
to reduce our GHG intensity by about 16%
from a 2012 baseline by 2020.
2017–18
2016–17
2015–16
426
21
447
413
15
428
394
11
405
Our businesses have made significant
progress on our GHG reduction
commitment to date. Companies such as
Hindustan Zinc and Cairn Oil & Gas have
committed to increase their investment in
solar power, while other businesses have
made significant improvements in their
process efficiencies, thereby reducing their
GHG emissions. As on 31 March 2018, we
have been able to achieve a 14% reduction
in our GHG intensity (TCO2e/Ton of
Product) from our baseline number. This is
good news and we are confident of
achieving our target by 2020. A 2% decline
in our absolute GHG emissions from last
year is also testament to this commitment.
2017–18
51.10
1.20
52.30
2016–17
51.89
1.43
53.32
2015–16
39.58
1.56
41.14
We are also committed to developing an internal carbon price mechanism to manage our climate-related financial risk.
Vedanta Resources plc | Annual Report FY2018
51
Case study: water management at KCM
The Konkola Copper Mines in Zambia are
considered to be some of the wettest
mining operations in the world. The mining
processes requires ~ 350,000m3 of water
to be removed per day in order to dewater
the mine shafts. Only 10% of this water is
used in the processing plant and other
mining operations, while the remaining
90% is discharged into a local water body
– the Kakosa stream. Historically, prior to
Vedanta’s ownership, this discharged
water had concentrations of total
suspended solids (TSS) of 260mg/l; this
was significantly higher than the statutory
threshold of 100mg/l prescribed by the
Zambia Environmental Management
Agency. KCM embarked on a 10-year,
$22 million project to improve the quality
of the discharge water.
Ore in KCM is mined from ‘wet’ pits that
need to be dewatered. In the past,
sediments were removed from the water
that flows through the mine before being
discharged to the surface.
However, the concentration of suspended
solids remained high, which meant that
additional measures were needed to
improve discharge water quality. The
primary means of separating the TSS from
the water is via 20 settling tanks, some of
which are as deep as 1,850 feet below the
ground. In order to improve the efficiency
of the settling tanks, four major projects
were undertaken:
• Refurbishment of existing underground
settlers to make them more efficient;
• Desilting of choked drain drives, which
included the removal of mud that had
accumulated over the years;
• Procurement and installation of slurry
pumps, which allowed the desludging
period to be reduced from eight
months to three weeks; and finally
• Procurement and use of flocculants to
enhance settling.
Tailings dam management
Tailings dams are considered a significant
HSE risk and have been part of the Group
Risk Register since FY2016. A breach in
the dam would result in the spillage of
accumulated wastes that can pollute the
soil and damage property due to a ‘flood’
event. It is therefore imperative that their
integrity is maintained.
Last year we conducted tailing dam risk
assessment studies at nine dams across
our businesses, which had been internally
classified as high-risk. In two out of these
nine dams, an additional dam-break analysis
was conducted to quantify the impact of
dam failure. However, as the findings from
the analysis were being studied, one of the
dams – located at our Aluminium & Power
business in Jharsuguda – experienced a
breach in the wall of the ash dyke. This
resulted in a spillage of the contained
fly-ash onto an adjacent plot of land,
which is majority-owned by Vedanta. In
anticipation of a lack of storage space for
newly produced fly-ash, the regulator
(Odisha State Pollution Control Board)
imposed partial restrictions on the
operation of our power plants. This
restriction was progressively lifted as
storage space became available. Remedial
measures have been taken at these dams.
We also experienced a minor overflow
of the ash dyke at BALCO. However, the
incident did not result in significant
environmental, health and safety or
social impacts.
These incidents have raised the issue
of potential failures in the future and a
comprehensive plan to eliminate this risk
has been undertaken. A crucial first step is
the review of our dams and we have
extended the earlier review of nine dams
to cover every dam globally to ensure that
they are all designed, constructed and
managed consistently, in line with global
practices. We have engaged an
experienced third-party to conduct this
evaluation. For those already reviewed, the
consultant has taken the review to the next
level of detail in terms of management
approaches and implementation. The
results and progress of interventions are
overseen by both our Executive and Risk
Employee at Konkola Copper Mines.
The immediate outcomes of this project
have been two-fold: (a) TSS levels are
now below the statutory threshold of
100mg/l, and (b) wear and tear on
pumping infrastructure is notably reduced
due to improved water quality, which has
lessened abrasive impacts.
Management Committees. We have also
rolled out the ‘Vedanta Tailing Management
Standard’, to ensure that we have consistent
dam management practices across all
group companies.
The assessment was completed in March
2018, and the findings have been shared
with our Group Executive Committee and
Risk Committee. The businesses are in the
process of addressing issues reported from
the assessment. We are also appointing a
global expert for regular inspections of all
our tailings dams and ash dykes. This expert
will also provide advice on improving the
tailing management system, which will
cover the design, construction and
operation of these storage dams.
We fully anticipate better management of
these structures in the future.
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52
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Air quality
We are committed to identifying and managing our emissions to the air. As part of our ambient air quality monitoring process, we monitor
particulate matter (PM) and SOx. We also monitor lead and fluoride emissions from our operations, as applicable.
Stack emissions (in MT)
Particulate matter
SOx
2017–18
8,739
192,010
2016–17
11,056
178,324
2015–16
7,239
157,484
2014–15
6,008
144,164
Waste
According to our Resource Use and Waste
Management technical standard, we follow
the principle of first reducing the waste, in
quantity as well as quality (reducing the
toxicity), and then recovering and recycling
where possible (either in-house or through
authorised recyclers). The last stage is
disposal in landfill or by incineration, using
authorised, licenced and secured landfills.
We aim to remain environmentally friendly
across all the stages.
Major wastes generated from our
operations are Non-Hazardous, High
Volume and Low Effect waste. Hazardous
waste includes used/spent oil, waste
refractories, aluminium dross, spent pot
lining and residual sludge from smelters,
while the High Volume and Low Effect
waste includes fly ash, red mud and
phospho gypsum.
We have recycled 83% of our overall High
Volume and Low Effect waste in sustainable
applications and are continuing to develop
innovative ways to increase the proportion
of waste we recycle.
Environmental statistics
• We recycled 83% of High Volume
and Low Effect waste in sustainable
applications
• GHG intensity reduction from a 2012
baseline is on-track (14% achieved
against expectation of 16% reduction
by 2020)
• We saved 4.1 million m3 of water against
the targeted savings of 2.2 million m3
• We conserved 2.6 million GJ of energy
against the targeted savings of 1.39
million GJ
• Two incidents related to the partial
collapse of our tailings dam and
ash-dyke walls at VAL-Jharsuguda and
BALCO
Building strong relationships
We aim to forge strong relationships with
our key stakeholders and uphold human
rights wherever we operate to maintain our
social licence to operate.
Case study: Fugitive emissions reduction at Cairn Oil & Gas
In the oil & gas industry, fugitive emissions
can often constitute a significant
proportion of the company’s GHG
emissions. These invisible and accounted-
for emissions are not only a waste of
resources, but also have a high global
warming potential (GWP), because they
are primarily comprised of methane
emissions (methane is 23 times more
potent than carbon dioxide in terms of
GWP). Excessive, unchecked fugitive
emissions can also be a drain on resources
and a fire-safety threat to the assets.
To check the quantum of its fugitive
emissions, Cairn Oil & Gas, along with an
independent external expert, conducted a
fugitive emissions study for its Rajasthan
operations based on the US EPA Method
21 approach. A leak detection and repair
(LDAR) programme was carried out to
check for gas emissions leaks from
process equipment.
Process components covering all joints
such as valves, connectors, pumps,
sampling connections, compressors,
pressure relief devices and open-ended
lines were monitored under the ‘fugitive
emission monitoring’ programme in the
process plant and well pads.
The findings from the study were
surprisingly positive. Fugitive emissions
accounted for only 0.011% of the total
GHG emissions of the process and well
pad areas; significantly lower than the 13%
correction factor that was being applied
to account for the unmeasured emissions.
These numbers also compared favourably
with fugitive emissions ranges found in
North American oil & gas installations.
This study highlights the excellent asset
management and upkeep of the facilities
of our oil & gas business.
Employees at Cairn Oil & Gas’s Mangala Processing
Terminal, Barmer.
Mangala Processing Terminal, Barmer.
Vedanta Resources plc | Annual Report FY2018
53
Our key stakeholders
Employees
Governments
Shareholders
Trainees at Sesa Technical School, Goa.
Vedanta
Communities
Investors
and Lenders
Industry
(suppliers, customers,
peers)
Civil Society
(non-governmental and
other organisations)
Our approach
At Vedanta we are committed to
constructive dialogue with our key
stakeholders. We believe that open,
ongoing and systemic dialogue is key to
building successful relationships with our
stakeholders. This also helps us to foresee
emerging risks, opportunities and
challenges.
Our social responsibility performance
standards help ensure effective
engagement with relevant stakeholders
across multiple industries and geographies;
provide adequate grievance mechanisms to
help resolve situations of potential conflict;
and develop specialised standards for
vulnerable communities such as indigenous
peoples. The standards follow five
principles of engagement:
Project Khushi initiative at Sterlite Copper.
We believe that open,
ongoing and systemic
dialogue is key to building
successful relationships
with our stakeholders.
Ask
Answer
Analyse
Align
Act
Our dialogue begins
with questions that
solicit feedback. Our
stakeholders have
access to a number of
platforms to reach out
to Vedanta personnel
and voice concerns.
We disclose not just
because we want to
be heard, but because
we are responsible.
We aim to provide a
constructive response
to feedback received.
We have established a
robust investigation
process for complaints
reported via the
whistleblowing
mechanism,
sustainability ID and
group communications
ID, involving senior
management and
relevant personnel.
We work hand-in-hand
with stakeholders and
align our goals and
actions with their
high-priority areas. The
feedback from all our
engagement becomes
part of our materiality
identification process.
We back up our words
with demonstrable
actions that move the
needle towards
promised outcomes.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
54
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Committed to giving
back to stakeholders
Green belt in front of Sterlite Copper.
At Tuticorin, as in all our
businesses, we are committed
to running our operations
responsibly and our door
remains open for dialogue.
A note on our operations in Tuticorin
This year, our social licence to operate was
challenged by communities living around
our Sterlite Copper plant in Tuticorin. The
protests, while widespread, are based on
misinformation around the perceived
pollution caused by the plant. The fears
stem from historic incidents, for which the
company received legal sanctions in 2013.
However, it has since taken corrective
measures to ensure that incidents of
pollution are not repeated, and the plant
now operates well within regulatory limits
for air emissions. It is also a zero liquid
discharge operation, which means that
there is no possibility of effluents polluting
local water sources.
We are working with the communities as
well as the regulatory bodies to arrive at a
solution to the questions raised. We are
mindful that pollution will remain a key issue
in the region, which is an industry cluster
with more than 60 manufacturing units
(including thermal power plants, dyeing
units, and other larger, medium, and
small-scale industries), and we would like
to play a key role in reaching long-term
solutions that incorporate the views of all
stakeholders. We are committed to running
our operations responsibly and our door
remains open for dialogue.
Human Rights
For Vedanta, upholding human rights is a
fundamental responsibility, and of particular
importance since the majority of our
operations are in developing countries.
It is a material consideration across all our
business decisions.
Our Human Rights Policy is aligned to the
UN Guiding Principles on business and
human rights and includes strict prohibition
of child or forced labour – either directly or
through contract labour.
Child forced or compulsory, labour is a
non-negotiable offence at Vedanta – be
it direct or through a contractor. We have
systems in place to strictly enforce this
policy at all our operations. Further, we
carry out periodic inspections of our remote
mine locations and require proof of age for
all contract workers.
Additionally, our Code of Business Conduct
and Ethics underpins our approach to
protect the fundamental rights of all our
direct and indirect employees, communities
and immediate supply chain.
Vedanta Resources plc | Annual Report FY2018
55
We uphold our workers’ right to freedom
of association at all our operations. The
collective bargaining agreements are based
on transparent and fair discussions between
the management and union representatives.
Our Suppliers’ Code of Conduct is
implemented as part of the terms and
conditions of supplier contracts across the
Group and all new suppliers are required to
sign, endorse and practice this Code. We
also have a Supplier & Contractor
Sustainability Management Policy. Both the
Code and the Policy clearly communicate
our expectations of our suppliers: to
operate in compliance with all relevant
legislation and follow our policies while
executing work for us, or on our behalf.
Modern Slavery Act 2015
In accordance with the UK’s Modern
Slavery Act 2015, we have updated our
Supplier Code of Conduct and Contract
Conditions, and our Code of Business
Conduct and Ethics, to ensure the
prevention of modern slavery and human
trafficking in our operations and
supply chain.
We have also introduced the MSA
framework at all our business units. Under
this framework, we have a system in place
for training of vendors/suppliers, due-
diligence, and self-declaration. We perform
audits periodically to make sure that all
business units follow this framework
rigorously.
Implementation of the compliance
framework for MSA rests with our Group
Commercial team. They have been tasked
with ensuring that all our vendors meet the
stringent requirements of the Act.
In FY2018, our businesses continued the
work to implement the provisions of the
Act.
• BALCO has received MSA declaration
from ~90% of its vendors.
• At VAL Jharsuguda, we stopped dealing
with six suppliers on the basis of
non-compliance with the MSA
requirements.
• Vedanta Limited (Cairn Oil & Gas) has
introduced external due diligence for
the Modern Slavery Act at the time of
registration of new vendors and has
raised awareness of the Act in Vendor
conferences. Annual declarations have
been obtained from 70% of the vendors,
and external audits are in progress at
vendor sites.
• IOB has stopped dealing with two
vendors after the report of the audit.
Of the remaining 15 vendors, most have
formulated internal policies in line with
the requirements of the MSA. The
Company has also received annual MSA
declarations from ~60% of our medium
risk vendors.
Women Empowerment through self-help groups.
• Konkola Copper Mines completed an
audit of high-risk vendors. They have
stopped dealing with one vendor as a
result of the audit. They also introduced
supplier declaration electronically during
the registration process and have
conducted MSA training programmes
for both our internal teams and for
contract employees.
Adding and sharing value
Our operations are predominantly located
in the developing economies of India and
Africa. We believe that we have an
important role to play in developing the
societies and communities where we
operate, enabling them to share in the value
we create.
Our Approach
We are committed to giving back to the
stakeholders who play a vital role in
powering our growth. Reducing the social
and economic divide through generating
economic value, distributing wealth,
investing in employees and enhancing
standards of living are all key elements of
our sustainability framework. We not only
drive economic growth through taxes,
royalties, wages and supplier contracts, but
our operations also help to provide the
products these communities need to
further their development, for example
through infrastructure and housing.
Communities
Proactive engagement with communities
helps to resolve concerns they may have
about our operations. It also allows us to
understand their expectations from the
Company, thereby helping us develop a
comprehensive engagement strategy. This
strategy includes creating opportunities for
employment, using the services of local
vendors, and implementing focused CSR
and community development activities.
Collectively, these actions allow us to
create a positive social impact.
The majority of our initiatives are
identified, developed and carried out
in collaboration with local government
bodies and community organisations.
This ‘4Ps’ (public-private-people-
partnership) model has inspired us
to participate in ambitious long-term
projects such as the Nand Ghar initiative.
In FY2018, Vedanta spent US$39
million on social investments and
CSR activities. This is 116% more than
the previous year, when we spent
US$18 million on social investment. This
money is spent across multiple villages,
benefitting nearly 3.4 million people.
Project updates
Project Nand Ghar
The Nand Ghar Project is our commitment
to transform the lives of 85 million children
and 20 million women across 1.37 million
Anganwadis in India, by building a world-
class model of pre-school education,
healthcare, nutrition and women’s
empowerment. The Nand Ghars provide
a best-in-class curriculum through
e-learning, healthcare with a doctor on
the doorstep, hygienic pre-packed meals
for nutrition and customised skills training
for empowering women economically
across India. Today there are 154 Nand
Ghars across Rajasthan, Uttar Pradesh, and
Madhya Pradesh, Goa and Uttarakhand;
and our commitment is to construct
4,000 centres across 11 states in India.
Their impact is paving the way for the
Anganwadis model across the country.
Children’s wellbeing & education
Our focus is on building the capacity
of the next generation to create a long-
term sustainable impact. Educational
programmes include a wide range of
activities covering pre-school through to
higher education. The total reach of all
our education projects extends to some
21 million children. ‘Khushi’ is one of the
largest collaborative projects with the
Government, which aims to strengthen
the functioning of 3,089 Anganwadis
across five districts of Rajasthan. This
programme alone impacts nearly
64,000 children. Other programmes in
the education space focus on Science,
Maths and English in secondary schools.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 56
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
Medical health unit providing door-to door medical care at Jharsugda.
Project Sakhi initiative by Sterlite Copper.
The Nand Ghar Project is our commitment to transform
the lives of 85 million children and 20 million women
across 1.37 million Anganwadis in India, by building a
worldclass model of pre‑school education, healthcare,
nutrition and women’s empowerment.
Healthcare
Good health is the cornerstone of
community well-being. While we have
always invested in healthcare (through
mobile health vans, camps and so forth), we
are now focusing on creating world-class
healthcare facilities, especially in areas
where these do not exist. This year saw the
opening of the BALCO Medical Centre, a
350-bed cancer hospital in Naya Raipur.
The hospital brings modern, comprehensive
and high-quality medical care within the
reach of the population of Chhattisgarh in
particular, and Central India in general.
Another step in the same direction is
the signing of an MoU between the
Government of Odisha and Vedanta
Limited (on 27 March 2018), to establish
a 500-bed hospital and medical college
at Bhawanipatna, in Kalahandi District.
Vedanta will spend about US$15.3 million
on the construction of the hospital, which
will be run by the State Government.
In FY2018, nearly 2.46 million people
benefitted through various health
initiatives of the Company.
Women’s empowerment
At Vedanta, we believe that women’s
empowerment is a fundamental building
block of a strong and fair society. The
Subhalaxmi Cooperative Society was
started in 2008 with this objective. What
began with 10 women is today among the
largest women’s cooperative in western
Odisha with 3,324 members and 280
Self-Help Groups (SHGs), across 64 villages
of three blocks of Jharsuguda. It started
with US$15 as working capital and today it
has an earmarked corpus fund of more than
US$34,200, with an average net profit of
US$9,000–10,700 per annum. Around
US$756,000 has been distributed to
female entrepreneurs to set up micro
enterprises in FY2018. It has now
established a special ‘Udyami Fund’ to
support emerging and aspiring micro-
enterprises in Jharsuguda. At Vedanta, we
work with almost 28,000 women who are
members of such SHGs, and during the
year nearly 1,900 women set up or
expanded their own enterprises.
Drinking water and sanitation
We focus on drinking water and sanitation,
since both are basic requirements for
healthy lives and societies. The Jeevan
Amrit Project is one of the largest drinking
water programmes undertaken by any
company in Rajasthan. Cairn’s MoU with the
Government of Rajasthan is about setting up
330 reverse osmosis (RO) water plants for
communities in the water-stressed district
of Barmer in Rajasthan. Already, 115 plants
have been installed; during the year, they
dispensed over four million litres of clean
water, benefitting nearly 100,000 people.
Vedanta Resources plc | Annual Report FY2018
57
Agriculture and animal husbandry
Because we operate in remote rural
locations, agriculture is the backbone of the
economy in our surrounding villages.
Project Unnati was set up by Cairn to
support the farmers of Barmer in enhancing
incomes through sustainable farming. As
part of an MoU with the Central Arid Zone
Research Institute (CAZRI), Jodhpur, 700
farmers were trained in improved farming
techniques. This was supported by the
installation of irrigation drips for 60,000
horticulture plants across 120 acres. As a
result, this year, the farmers in Barmer have
harvested over 60 tonnes of Ber, Gunda
and Anar.
Skilling young people
Our skills programmes are focused on
helping young people to learn a trade and
gain hands-on experience that equips them
to secure a job. In FY2018, we helped
3500+ youths to acquire diverse skills and
find employment.
Sports
Sport is one of the most powerful means of
connecting with young people. Our Sesa
Football Academy (an IOB CSR initiative)
was established in 1999 on a reclaimed
mine at Sanquelim, with a vision to become
a premier academy in India. Over the years,
it has directly trained around 175 aspiring
footballers at residential academies and
reached over 500 youth players. Many of
them are today realising their dream of
pursuing a footballing career with major
clubs. Seven alumni of SFA have played for
the Indian national team and eight are
playing in the elite Indian Super League
2017–18 season. We have now expanded
the football programme to Rajasthan, with
Hindustan Zinc setting up a world-class
technology-based football academy. This
will use science and technology as a
differentiator in its approach and is also
setting up a network of community feeder
academies. 56 such community academies
are currently active, training-up nearly
2,000 talented under-14s.
Statistics for Community
• US$39 million invested in social
investment programmes.
• There are 3.4 million beneficiaries of our
community development programmes.
People and culture
Vedanta has always aspired to build a
culture that demonstrates world-class
standards in safety, environment and
sustainability. People are our most valuable
asset and we are committed to providing all
our employees with a safe and healthy work
environment.
Our culture exemplifies our core values and
nurtures innovation, creativity and diversity.
We align our business goals with individual
goals and enable our employees to grow
both personally and professionally.
Vedanta Leadership Development
Programme (VLDP)
In FY2017 we also launched the Vedanta
Leadership Development Programme for
full-time hires. The programme aims to build
organisational capability for the future by
onboarding best-in-class young talent from
top management and technology institutes
as full-time employees. We nurture
them to be our leaders of tomorrow by
providing them with a tailored programme
including induction and a range of roles,
opportunities, job rotations and anchoring.
Diversity
Diversity remains a strong focus. We are
committed to providing equal opportunities
to our employees regardless of their race,
nationality, religion, gender or age. We are
pleased with our progress to date on
gender diversity, and women now represent
10.6% of our total workforce and 12.5% of
our Board. We have set ourselves a target to
reach over 33% women at senior levels by
2020 and aim to achieve 20% diversity
amongst our employees.
Since most of our operations are in remote
areas, we place a strong emphasis on
recruiting employees from among the local
population. A significant percentage of the
senior management and our employees are
recruited from the country in which our
operations are located.
Recruitment
We have put a range of initiatives in place to
support us in hiring skilled professionals.
Global Internship Programme (GIP)
We initiated the programme in FY2017 with
the objective of attracting the best talent
from the world’s leading universities. We
select candidates from first year MBA
students from premier B-schools including
Harvard, INSEAD, London Business School,
IIM-Ahmedabad and IIM-Bangalore with
the goal of creating lasting business
value by onboarding world-class talent.
Internships provide these candidates
with an opportunity to work with top
management, especially the C-suite, on live
projects that directly impact the business.
They work in a dynamic, fast-paced team
environment, and conclude their internship
having gained broad experience in several
facets of the natural resources industry.
During the first year, 19 students joined
the programme and in the second year
28 students have been recruited.
Right Management in Place (RMIP) –
strategic hiring
We introduced a recruitment drive to fill
several leadership positions including
expat/specialist positions to realign the
organisational structure and strengthen our
management teams across the business.
Hiring for these positions focused on
recruitment from best-practice companies.
Talent management and development
We focus on retaining and developing talent
from within the Company to take on future
leadership roles.
Internal growth workshops
We have always aimed to be an
organisation headed by ‘leaders from
within’. Recognising internal talent and
promoting them to leadership roles has
been a driving factor in our rapid growth.
Aligned with this philosophy, the Group
conducts ‘Chairman’s Internal Growth
Workshops’ to identify potential candidates
across the Group. These workshops
have resulted in the identification of
500+ cross-functional, high-potential
new leaders in the Group’s businesses
to date, who have taken up significantly
enhanced roles and responsibilities. Our
Internal Growth Workshops have also
enabled us to reduce our lateral hiring
significantly for critical roles across
the Group in the past two years.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
58
Vedanta Resources plc | Annual Report FY2018
Sustainability Report continued
The Vedanta Leadership Development Programme
(VLDP) aims to build organisational capability for
the future by onboarding best‑in‑class young talent
from top institutes. We nurture them to be our
leaders of tomorrow.
Employee at Oil & Gas operational site.
‘V Connect’ initiative
This initiative was launched across the
Group in association with AON as an
anchoring/mentoring and training
programme covering all 12,000
professionals. The key output has been to
derive enhanced engagement levels from
employees. To facilitate the programme, a
dedicated app – ‘Aon Lead’ – was
introduced. The app allows participants to:
schedule their ‘connects’ with their mentor;
get the latest business updates from around
the globe; access articles and videos that
focus on effective leadership and skill-
building; and participate in quizzes and
learning challenges. To date, more than
5,000 conversations have been completed
using the app.
Performance management and
total rewards
We ensure that we monitor and reward
performance.
V‑Perform: One performance system for
One Vedanta
V-Perform is a pan-Vedanta initiative to
standardise our performance management
system (PMS) and processes by leveraging
technology. This assists the functions,
teams and individuals in tracking
performance, generating analytics and
taking steps to ensure they are achieving
Vedanta’s overall business plan and targets.
To enhance our safety performance in the
workplace and achieve our ultimate vision
of zero harm, a safety competency
assessment process has also been initiated
as part of V-Perform to strengthen our
existing safety management system.
Employee Stock Option Scheme (‘ESOS’)
2017
At Vedanta Limited, to reward our
employees and enable them to share in the
financial success of the Company, we have
launched an employee stock option
scheme, following statutory and
shareholder approval.
ESOS 2017 covers the Company’s 2,832
employees and aims at rewarding them with
wealth creation opportunities, encouraging
high-growth performance and reinforcing
employee pride. The scheme was launched
after obtaining statutory approvals,
including shareholders’ approval in 2016.
One Vedanta network
As an international company employing
thousands of people working across a
range of remote and diverse geographic
locations, we recognise the importance of
fostering a culture of transparency,
collaboration and knowledge-sharing
across the organisation to keep employees
informed and engaged. As social
networking platforms continue to grow in
popularity, we have developed One
Vedanta – a platform on Workplace by
Facebook which enables all Vedanta
employees to share content with their peers
using a range of interactive tools such as
live videos, news feeds, posts and media
upload options.
The platform was launched in early 2017
and currently more than 13,000 employees
are signed up to this employee engagement
tool with 4,000 active conversations per
week. On 29 November 2017 a new
‘Chairman Connect’ bot application was
launched on One Vedanta by our Chairman,
Anil Agarwal. This application aims to give
every employee direct access to the
Chairman and leadership team to share
ideas, feedback and to post questions.
Mr Agarwal’s vision is to tap into the rich
pool of ideas and experiences shared by
employees and to make Vedanta an open
and connected organisation.
Non-Financial Information Statement
Vedanta Resources plc | Annual Report FY2018
59
We aim to comply with the new Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act
2006. The below table, and information it refers to, is intended to help stakeholders understand our position on key non-financial matters.
Policies and standards which
govern our approach
Risk management and
additional information
Reporting requirement
Environmental matters
Employees
Human Rights
Social matters
• HSE Policy
• Biodiversity Policy
• Energy & Carbon Policy
• Water Management Policy
• HSE Policy
• HIV/AIDS Policy
• Code of Business Conduct and
Ethics
• Policy on Prevention and
Prohibition of Sexual Harassment
Insider Trading Prohibition Policy
•
• Human Rights Policy
• Supplier and Contractor
Sustainability Management Policy
• Social Policy
• Supplier and Contractor
Sustainability Management Policy
• Supplier Code of Conduct
• Corporate Social Responsibility
Policy
Anti-corruption and anti-bribery
• Code of Business Conduct and
Ethics
• Supplier Code of Conduct
•
Insider Trading Prohibition Policy
Policy embedding, due diligence
and outcomes
Description of principal risks and
impact of business activity
Description of the business model
Non-financial key performance
indicators
Sustainability report,
pages 42–58
Talent management and
development, pages 57–58
Board diversity and inclusion
policy, pages 111–112
Health, safety and environment,
page 10
Emissions and climate change,
page 37
Workforce diversity, pages 27, 57
Gender diversity, page 32
Our sustainability journey,
pages 46–47
Responsible stewardship,
pages 47–49
People and culture diversity,
pages 57–58
Recruitment, pages 57–58
Human rights, pages 54–55
Modern Slavery Act 2015, page 55
Code of conduct and ethics and
whistle-blower arrangements,
page 123
Our contribution to society, page 8
Reaching out to communities, page 13
Our sustainability journey,
pages 46–47
Community projects,
pages 55–57
Fraud and UK Bribery Act, page 123
Code of Conduct and Ethics and
whistle-blower arrangements,
page 123
Risk overview, pages 34–35
Investment cases for creating value,
pages 6–7
Market review, pages 20–23
Principal risks and uncertainties,
pages 34–41
Sustainability report,
pages 54–55
Risk management and
internal control framework,
page 122
Risk management and
internal control framework,
page 122
Creating value for all our
stakeholders, pages 26–29
Opportunities for Vedanta,
pages 20–23
Our business model,
pages 26–29
Key performance indicators,
pages 32–33
Operational review, various
throughout pages 68–99
Alternative performance
measures, page 265
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 60
Vedanta Resources plc | Annual Report FY2018
Finance Review
A strong operational
performance complemented
by firm commodity prices
Arun Kumar
Chief Financial Officer
Executive summary
We recorded a strong operational and financial performance in FY2018.
A favourable price environment coupled with volume growth resulted in EBITDA of $4.1 billion, up 27% y-o-y with a robust margin◊ of
35%. (FY2017: US$ 3.2 billion, margin◊ 36%).
Market factors resulted in net incremental EBITDA of US$ 591 million compared to FY2017. The increase was driven by improved
commodity prices, but partially offset by an increase in raw material cost (primarily alumina, coal and carbon) and unfavourable foreign
exchange impacts.
A strong volume performance contributed to an incremental EBITDA of US$297 million, driven by record volumes at our Zinc India and
Aluminium businesses, following a ramp-up of capacities. This was partially offset by some lower volumes, mainly at our Iron Ore business.
During FY2018, gross debt was reduced by c. US$3 billion, from US$18.2 billion at 31 March 2017 to US$15.2 billion at 31 March 2018. This
includes repayment of US$1.2 billion of temporary borrowing at Zinc India.
Net debt increased to US$9.6 billion at 31 March 2018 from US$8.5 billion at 31 March 2017, driven by significant dividend payments from
our listed subsidiaries, Zinc India and Vedanta Limited, in April 2017 and March 2018, and the acquisition of AvanStrate Inc.
Debt maturities at Vedanta Resources plc were managed through proactive refinancing of US$2.4 billion. This extended Vedanta
Resources plc’s debt maturity to c. four years at 31 March 2018, compared to c. three years at 31 March 2017.
The balance sheet of Vedanta Limited, an Indian listed subsidiary of Vedanta Resources, continues to remain strong with cash and liquid
investments of c. US$5.6 billion and net debt to EBITDA ratio at 0.9x.
Consolidated operating profit before special items
Operating profit before special items increased by US$620 million to US$2,781 million in FY2018. This was driven by a strong operating
performance and firm commodity prices, but partially offset by input commodity inflation, unfavourable foreign exchange impacts and
higher depreciation and amortisation expenses.
Consolidated operating profit summary before special items
(US$ million, unless stated)
Consolidated operating profit before special items
FY2018
FY2017
% change
Zinc
India
International
Oil & Gas
Iron Ore
Copper
India/Australia
Zambia
Aluminium
Power
Others
Total Group operating profit before special items
1,861
1,670
191
388
(11)
137
176
(39)
195
184
27
2,781
1,385
1,274
111
186
124
116
223
(107)
203
157
(10)
2,161
34%
31%
73%
–
–
18%
(21%)
–
(4%)
17%
–
29%
Vedanta Resources plc | Annual Report FY2018
61
Consolidated operating profit bridge before special items
(US$ million)
Operating profit before special items for FY2017
Market and regulatory: US$591 million
a) Prices, Premium/Discount
b) Direct raw material inflation
c) Foreign exchange movement
d) Profit petroleum to GOI at Oil & Gas
e) Regulatory changes
Operational: US$269 million
f) Volume
g) Product and market mix
h) Cost
Depreciation and amortisation
Operating profit before special items for FY2018
2,161
1,320
(646)
(99)
37
(21)
297
(14)
(14)
(240)
2,781
a) Prices
Commodity price fluctuations have a significant impact on the Group’s business. During FY2018, we saw a positive impact on operating
profit of US$1,320 million.
Zinc, lead and silver: Average zinc LME prices during FY2018 increased to US$3,057 per tonne, up 29% y-o-y; lead LME prices increased
to US$2,379 per tonne, up 19% y-o-y; and silver prices decreased to US$16.9 per ounce, down 5% y-o-y. The collective impact of these
price fluctuations and premium increased operating profits by US$575 million.
Aluminium: Average aluminium LME prices increased to US$2,046 per tonne in FY2018, up 21% y-o-y and higher premium, positively
impacting operating profit by US$588 million.
Copper: Average copper LME prices increased to US$6,451 per tonne in FY2018, up 25% y-o-y, positively impacting Copper Zambia’s
operating profit by US$103 million. (Copper India’s profits, as a custom smelting business, are driven by prevailing TC/RC rather than
LME prices.)
Oil & Gas: The average Brent price for the year was US$58 per barrel, higher by 18% compared with US$49 per barrel during FY2017, but
partially offset by a higher discount to Brent during the year (FY2018: 12.3%; FY2017: 10.8%). This positively impacted operating profit by
US$128 million.
Iron Ore: Iron Ore Goa’s price realisation for FY2018 was lower 33% y-o-y, mainly due to the widening discount for our 56% Fe grade
material, compared to the benchmark price of 62% Fe iron grade. This was partially offset by higher realisation at our Iron Ore business
in Karnataka, which primarily caters for the domestic steel industry in the state. The collective impact resulted in a decrease in operating
profit of US$69 million.
Our usual policy is to sell products at prevailing market prices and not to enter into price hedging arrangements. However, during
the period, Zinc India entered into a forward contract to sell 220,000 tonnes of zinc and 30,000 tonnes of lead at average prices of
US$3,084 per tonne and US$2,418 per tonne respectively, for the period from January 2018 to June 2018. As at 31 March 2018, open
quantities stood at 70,000 tonnes of zinc and 15,000 of lead, at average prices of US$3,075 per tonne and US$ 2,374 per tonne
respectively for the period from April 2018 to June 2018.
b) Direct raw material inflation
Prices of key raw materials such as alumina, thermal coal, carbon and metallurgical coke increased significantly in FY2018, with an adverse
impact on operating profit of US$646 million.
c) Foreign exchange fluctuation
Most of our operating currencies appreciated against the US dollar during FY2018. Stronger currencies are unfavourable to the Group,
given the local cost base and predominantly US dollar-linked pricing.
Adverse currency movements decreased operating profits by US$99 million compared to FY2017.
Information regarding key exchange rates against the US dollar.
Indian rupee
South African rand
Zambian kwacha
Average
year ended
31 March 2018
Average
year ended
31 March 2017
64.45
13.00
9.54
67.09
14.07
9.95
% change
As at
31 March 2018
As at
31 March 2017
(4%)
(8%)
(4%)
65.04
11.83
9.50
64.84
13.41
9.66
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 62
Vedanta Resources plc | Annual Report FY2018
Finance Review continued
d) Profit petroleum to GOI at Oil & Gas
The profit petroleum outflow to the Government of India (GOI), as per the production sharing contract (PSC), decreased by US$37 million.
The reduction was primarily due to the higher capital expenditure over the previous year.
e) Regulatory
During FY2018, the Group encountered increased regulatory headwinds, with an additional entry tax provision created at BALCO for
US$10 million, pursuant to a Supreme Court order, and higher electricity duty (ED) in our Aluminium business. This had an adverse impact
on operating profit of US$21 million.
f) Volumes
Higher volumes contributed to the increased operating profit of US$297 million, generated by these key Group businesses:
• Zinc India (positive US$231 million)
– FY2018 was a year of records, with an all-time high in integrated metal production of 960kt in FY2018, an increase of 18% over
FY2017, and record silver volumes of 17.9 million ounces, up 23% on the previous year.
• Aluminium (positive US$188 million)
– Our Aluminium business achieved record production of 1.7mt and exited the year with a run-rate of c. 2mtpa, driven by the steady
ramp-up of capacities at Jharsuguda and Balco.
• Copper Zambia (negative US$54 million)
– The integrated production at Copper Zambia was at 84kt, a decrease of 12% over FY2017.
• Iron Ore (negative US$42 million)
– Sales were down due to a low pricing environment and a state-wide ban on Goa mining operations with effect from 16 March 2018.
g) Product and market mix
During FY2018, incremental aluminium production was sold in export markets, which realise lower premiums than the domestic Indian
market. This mainly resulted in an adverse impact from the marketing mix of US$14 million.
h) Cost
Costs in the year increased by US$14 million over FY2017, primarily due to lower ore grade at Zinc India, higher development costs,
rehabilitation and the refurbishment cost of equipment at KCM. This was partially offset by volume-led absorption, mainly at HZL.
Depreciation and amortisation
Depreciation and amortisation increased by US$240 million against the previous year. This was driven by higher capitalisation at our
Aluminium business, higher depreciation at Oil & Gas with the start of growth projects, and higher production at Zinc India.
Income Statement
(US$ million, unless stated)
Revenue
EBITDA◊
EBITDA margin (%)◊
EBITDA margin without custom smelting (%)◊
Special items
Depreciation
Amortisation
Operating profit
Operating profit without special items
Net interest expense
Interest cost-related special items
Other gains/(losses) special items
Other gains/(losses)
Profit before taxation
Profit before taxation without special items
Income tax expense
Income tax (expense)/credit (special items)
Effective tax rate without special items (%)
Profit for the period/year
Profit for the period/year without special items
Non-controlling interest
Non-controlling interest without special items
Attributable profit/(loss)
Attributable profit/loss without special items
Underlying attributable profit/(loss)◊
Basic earnings/(loss) per share (US cents per share)
Basic earnings/(loss) per share without special items (US cents per share)
Underlying earnings/(loss) per share◊ (US cents per share)
FY2018
FY2017
% change
15,359
4,051
26%
35%
683
(1,263)
(7)
11,520
3,191
28%
36%
(17)
(928)
(102)
3,464
2,143
2,781
(878)
(108)
5
(1)
2,482
1,902
(675)
(338)
35%
1,469
1,227
1,233
1,065
236
163
162
84.8
58.5
58.3
2,161
(698)
(42)
–
(24)
1,380
1,439
(495)
(5)
34%
880
943
902
909
(23)
35
45
(8.2)
12.6
16.1
33%
27%
–
–
–
36%
(93%)
62%
29%
26%
–
–
(96%)
80%
32%
36%
–
–
67%
30%
37%
17%
–
–
–
–
–
–
Vedanta Resources plc | Annual Report FY2018
63
Consolidated revenue
Revenue for FY2018 increased by 33% to US$15,359 million (FY2017: US$11,520 million). This was mainly driven by firmer commodity
prices and record volumes at Zinc India, Copper India and Aluminium, but was partially offset by a lower volume at Iron Ore Goa.
Consolidated revenue
(US$ million, unless stated)
Zinc
India
International
Oil & Gas
Iron Ore
Copper
India/Australia
Zambia
Aluminium
Power
Others1
Revenue
FY2018
FY2017
Net Revenue
% change
3,903
3,369
535
1,480
487
5,116
3,833
1,283
3,588
877
(92)
2,857
2,525
332
1,223
615
4,008
3,134
874
2,040
836
(59)
15,359
11,520
37%
33%
61%
21%
(21%)
28%
22%
47%
76%
5%
–
33%
1
Includes port business and eliminations of inter-segment sales, which were lower in the current period.
Consolidated EBITDA
The consolidated EBITDA◊ by segment is set out below:
(US$ million, unless stated)
Zinc
India
International
Oil & Gas
Iron Ore
Copper
India/Australia
Zambia
Aluminium
Power
Others1
Total
FY2018
FY2017
2,122
1,903
219
849
57
274
201
73
452
259
37
1,562
1,423
138
597
194
258
252
6
344
245
(9)
4,051
3,191
%
change
36%
34%
59%
42%
(71%)
6%
(20%)
31%
6%
–
27%
Key drivers
EBITDA
margin %
FY2018
EBITDA
margin %
FY2017
Record volumes and LME
Higher sales and LME
Brent price
Lower volume and higher discount
Lower TC/RC and premia
LME offset by lower volume
Record volume offset by higher COP
EBITDA margin
Adjusted EBITDA margin◊
54%
56%
41%
57%
12%
5%
5%
6%
13%
25%2
–
26%
35%
55%
56%
42%
49%
32%
6%
8%
1%
17%
29%
–
28%
36%
Includes port business and elimination of inter-segment transactions.
1
2 Excluding one-offs.
EBITDA◊ and EBITDA margin◊
EBITDA◊ for FY2018 increased to US$4,051 million, up 27% y-o-y. This was primarily driven by firmer commodity prices supported by
record volumes at Zinc India and Aluminium, partially offset by input commodity inflation, adverse foreign exchange movement impact
and lower volumes at Iron Ore and integrated volumes at KCM. (See ‘Operating profit variance’ for more details.)
In FY2018, EBITDA margin stood at 26%, and adjusted EBITDA◊ margin was robust at 35%.
Special items (including interest cost related, and others)
In FY2018 special items included:
• At the Oil & Gas business, a reversal of previously recorded non-cash impairment charge of US$1,464 million (US$888 million net of
taxes). This followed the progress of key growth projects which are expected to result in enhanced recovery of resources in a
commercially viable manner, leading to a higher than forecast oil production, and cost savings.
• A non-cash impairment charge of US$758 million (US$534 million net of tax) at Iron Ore Goa, pursuant to a Supreme Court order to
cancel all mining leases in Goa, effective 16 March 2018.
• Special items related to interest cost stood at US$108 million in FY2018, due to a loss incurred on bond buy-back activity in May and
August 2017, and a one-time arbitration of an historical vendor claim in the Aluminium business.
Further analysis of special items is set out in Notes 5, 7 and 8 of the financial statements.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
64
Vedanta Resources plc | Annual Report FY2018
Finance Review continued
Net interest
Finance costs (excluding special items) was flat y-o-y at US$1,343 FY2018 (FY2017: US$ 1,341 million). This was primarily due to:
• Commissioning and capitalisation of new capacities at our Aluminium and Power businesses (c. US$46 million); and
• The issuance of 7.5% preference shares of US$464 million to non-controlling shareholders of Oil & Gas, pursuant to the merger
with Vedanta Limited in April 2017 (c. US$39 million).
These increased finance costs were partially offset by lower gross debt and a lower cost of borrowing at 7.2% (FY2017: 7.5%).
Investment revenue in FY2018 decreased to US$465 million (FY2017: US$643 million). This was mainly due to lower cash and liquid
investments following special dividend pay-outs and our gross debt reduction, as well as a lower return on investments due to a sharp rise
in G-Sec yields that resulted in mark-to-market losses on investments.
The average post-tax return on the Group’s investments was 5.85% (FY2017: 7.55%), and the average pre-tax return was 7.4%
(FY2017: 9.4%).
The combination of marginally higher finance costs and lower investment revenues led to an increase of US$180 million in net interest
expense (excluding interest cost-related special items) during the period.
Other gains/(losses) excluding special items
Other gains/(losses) excluding special items for FY2018 amounted to US$(1) million, compared to US$(24) million in FY2017.
Taxation
The effective tax rate (ETR) in FY2018 (excluding special items) was 35% compared to 34% in FY2017. This was mainly due to the phasing
out of investment allowance claims, a change in the cess rate from 3% to 4% as per the Finance Act 2018, and a change in the profit mix.
Attributable profit/(loss)
The attributable profit before special items for the year was US$163 million (FY2017: US$35 million). This was mainly driven by higher
EBITDA◊, but partially offset by higher expenses from net interest and depreciation.
Earnings/(loss) per share
Basic earnings per share for the period were 84.8 US cents (FY2017: a loss of 8.2 US cents). The underlying profit was 58.3 US cents per
share (FY2017: profit of 16.1 US cents per share).
Fund flow post‑capex
The Group generated free cash flow (FCF)◊ post-capex of US$925 million (FY2017: US$1,544 million). This was driven by a strong
operating performance and disciplined capital expenditure outflow, partially offset by higher interest expenses and proactive adjustments
to managing the working capital funding.
Fund flow and movement in net debt◊
Fund flow and movement in net debt in FY2018 are set out below.
(US$ million, unless stated)
Details
EBITDA◊
Operating exceptional items
Working capital movements
Changes in non-cash items
Sustaining capital expenditure
Movements in capital creditors
Sale of property, plant and equipment
Net interest (including interest cost-related special items)
Tax paid
Expansion capital expenditure
Free cash flow (FCF)◊ post-capex
Dividend paid to equity shareholders
Dividend paid to non-controlling interests
Tax on dividend from Group companies
Acquisition of subsidiary1
Other movements2
Movement in net debt
1
2
3
Includes net debt on acquisition of US$72 million and acquisition expenses of US$7 million.
Includes foreign exchange movements.
Includes preference shares of US$464 million issued in relation to the Cairn merger.
FY2018
FY2017
4,051
3,191
33
(611)
28
(385)
42
10
(925)
(498)
(820)
–
295
29
(145)
(158)
25
(701)
(324)
(668)
925
1,544
(164)
(1,414)
(69)
(240)
(122)
(138)
(1,393)
(455)
–
(732)3
(1,084)
(1,175)
Vedanta Resources plc | Annual Report FY2018
65
Debt, maturity profile and refinancing
In line with our stated financial priorities to deleverage and strengthen the balance sheet, the Group reduced gross debt y-o-y by
c. US$3 billion, from US$18.2 billion to US$15.2 billion. This includes repayment of US$1.2 billion of temporary borrowing at Zinc India.
During FY2018, net debt increased from US$8.5 billion to US$9.6 billion y-o-y. This was due to significant dividend payments from our
listed subsidiaries, Zinc India and Vedanta Limited, and the acquisition of AvanStrate Inc.
Our total gross debt of US$15.2 billion comprises:
• US$11.3 billion as term debt (March 2017: US$13.8 billion);
• US$2.7 billion of short-term borrowings (March 2017: US$2.3 billion);
• US$0.5 billion preference shares issued pursuant to the Cairn merger (March 2017: US$0.5 billion); and
• US$0.7 billion of working capital loans (March 2017: US$0.4 billion).
Gross debt as at 31 March 2017 included a US$1.2 billion temporary borrowing at Zinc India, which was repaid during FY2018.
The Group has been proactively managing its debt maturities at Vedanta Resources plc and various operating entities. This included
proactive refinancing of US$2.4 billion at Vedanta Resources plc, which was comprised of a bond and term loans. These transactions have
collectively extended average debt maturity to c. four years at 31 March 2018, compared to c. three years at 31 March 2017.
The maturity profile of term debt of the Group (totalling US$11.3 billion) is summarised below:
Particulars
Debt at Vedanta Resources plc
Debt at subsidiaries
Total term debt¹
1 Term debt excluding preference shares.
As at
31 March
2017
6.2
7.6
13.8
As at
31 March
2018
5.9
5.4
11.3
FY2019
FY2020
FY2021
FY2022
FY2023
0.4
1.2
1.6
0.4
1.0
1.4
0.2
1.4
1.6
1.4
0.7
2.1
1.8
0.2
2.0
Beyond
FY2023
1.7
0.9
2.6
Term debt at our subsidiaries was US$5.4 billion, with the balance at Vedanta Resources plc. The total undrawn fund-based credit limit
was c. US$0.6 billion as at 31 March 2018.
The Group has been successful in extending its maturing debts through rollovers, new debts and repayment from internal accruals during
the period, both at Vedanta Resources plc and subsidiaries.
Cash and liquid investments stood at US$5.6 billion at 31 March 2018 (31 March 2017: US$9.7 billion). The portfolio continues to be
conservatively invested in debt mutual funds, and in cash and fixed deposits with banks.
Going concern
The Directors have considered the Group’s cash flow forecasts for the next 12-month period, from the date of signing the financial
statements for the year ending 31 March 2018. The Board is satisfied that the forecasts and projections show that the Group will be able to
operate within the level of its current facilities for the foreseeable future. This takes into account: the effect of reasonably possible changes
in trading performance on cash flows and forecast covenant compliance; the transferability of cash within the Group; the flexibility that the
Group has over the timings of its capital expenditure; and other uncertainties. For these reasons, the Group continues to adopt the ‘going
concern’ basis in preparing its financial statements.
Longer-term Viability Statement
In accordance with provision C.2.1 of the UK Corporate Governance Code the Directors have assessed the long-term viability of the
Group taking into account the Group’s principal risks and its approach to manage them, together with the latest financial forecasts and
three-year plan.
Period of Viability Statement
As per provision C2.2 of the UK Corporate Governance Code, the Directors have reviewed the length of time to be covered by the
Viability Statement, particularly given its primary purpose of providing investors with a view of financial viability that goes beyond the
period of the Going Concern statement.
The Board of Directors have considered a three-year period to be appropriate for the longer-term viability testing on account of the
following key reasons:
• Commodity prices, which are key to the Group’s viability, are difficult to forecast beyond three years;
• Capital allocation and refinancing plans are prepared for a period of three years;
• Completion of Growth projects from feasibility study generally requires three years;
• Conversion of exploration projects to mining typically requires three to five years; and
• Internal financial modelling is performed over three-year period.
In assessing the Group’s longer-term viability, the going concern assumptions and financial model were used as the starting position.
Severe but plausible risks were subsequently quantified both individually and in combination, to apply additional stress-testing into the
viability model.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 66
Vedanta Resources plc | Annual Report FY2018
Finance Review continued
Details of the Group’s principal risks and uncertainties are documented in Principal Risks and Uncertainties part of this report.
The Directors have considered the following risks as particularly relevant for assessing the longer-term viability:
• Decline in commodity prices;
• Delay in execution of key growth projects;
• Operational turnaround at KCM operations;
• Raw material security at Aluminium business;
• Access to capital/refinancing risk; and
• Adverse outcomes of material legal and tax cases.
The Group remains viable under these severe but plausible scenarios taking into consideration the specific mitigations which include
capital allocation, dividend policy flexibility, readily available access to lines of credit and assumption around the continued availability of
funding or refinancing, by way of capital markets and bank debt.
Conclusion
While it is impossible to foresee all risks, and the combinations in which they could manifest, based on the results of this assessment and
taking into account the Group’s current position and principal risks, the Directors have assessed the prospects of the Group, over the next
three years, and have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over a period of three years from 1 April 2018.
Covenants
The Group is in compliance with its covenants relating to all facilities for the testing period ending 31 March 2018.
Credit rating
The Group’s credit rating by Moody’s is at ‘Ba3/outlook stable’ for CFR Rating and ‘B2’ for Senior Unsecured notes. Both the CFR and
Senior Unsecured rating by S&P is at ‘B+/outlook stable’.
We are targeting a further strengthening of our credit profile to attain investment-grade ratings, through our continuous focus on
operations to generate increased cash flows, and on financial policies.
Balance sheet
(US$ million, unless stated)
Goodwill
Intangible assets
Property, plant and equipment
Other non-current assets
Cash and liquid investments
Other current assets
Total assets
Gross debt
Other current and non-current liabilities
Net assets
Shareholders’ equity
Non-controlling interests
Total equity
31 March 2018 31 March 2017
12
123
17,727
2,179
5,606
3,591
29,238
(15,194)
(7,523)
6,521
(339)
6,860
17
96
16,751
2,157
9,725
2,759
31,503
(18,229)
(7,260)
6,015
(409)
6,423
6,521
6,015
Shareholders’ (deficit)/equity was US$(339) million at 31 March 2018 compared with US$(409) million at 31 March 2017. This mainly
reflects the attributable profit for FY2018 and dividend pay-out of US$164 million (US cents 59 per share).
Non-controlling interests increased to US$6,860 million at 31 March 2018 (from US$6,423 million at 31 March 2017) mainly driven by the
profit for the year offset by dividend payments during the year.
Property, plant and equipment (PPE)
During FY2018, PPE increased to US$17,727 million (FY2017: US$16,751 million), mainly due to investment of $820 million on expansion
projects and US$385 million sustaining capital expenditure, the acquisition of AvanStrate Inc., and a non-cash reversal of previously
recorded impairment charge at our Oil & Gas business. However, this was partially offset by an impairment charge at Iron Ore Goa and
depreciation charge during the year.
Contribution to the exchequer
The Group contributed c. US$5.4 billion to the exchequer in FY2018 compared to US$6.0 billion in FY2017 through direct and indirect
taxes, levies, royalties and dividend.
Vedanta Resources plc | Annual Report FY2018
67
Total capex
approved5
Cumulative
spend up to
March 20176
Spent in
FY2018
Unspent
as at
31 March 20187
1,863
56
127
1,680
Project Capex
(US$ million)
Capex in progress
Status
Oil & Gas (a)
Mangala infill and ASP, Aishwariya & Bhagyam EOR,
tight oil & gas etc.
Aluminium
BALCO – Korba-II 325ktpa smelter
and 1200MW power plant (4x300MW)1
Jharsuguda 1.25mtpa smelter
Zinc India
1.2mtpa mine expansion2
Others
Zinc International
Gamsberg mining Project4
Copper India
Tuticorin smelter 400ktpa
Capex flexibility
Smelter: fully operational
1,872
1,965
(1)3
2,920
2,746
100
Line 3 and 4:
fully capitalised
Line 5: two sections capitalised
Phase-wise by FY2020
First production by mid-CY2018
To complete by Q3 FY2020
1,600
150
400
717
967
12
68
139
(92)
74
335
77
159
528
734
142
698
299
60
173
50
14
–
–
Lanjigarh Refinery (Phase II) – 5mtpa
Skorpion refinery conversion
Zinc India (1.2mtpa to 1.35mtpa mine expansion)
Under evaluation, subject to bauxite
availability
Currently deferred till pit 112
extension
Board approved in principle
1,570
822
156
698
14
–
1 Cost overrun due to changes in exchange rate. The total overrun is expected to be US$120 million up to FY2019.
2 Zinc India total spent to March 2017, adjusted for re-grouping of projects.
3 Positive on account of sale of trial run production.
4 Capital approved US$400 million excludes interest during construction (IDC).
5 Based on exchange rate prevailing at time of approval.
6 Based on exchange rate prevailing at the time of incurrence.
7 Unspent capex represents the difference between total projected capex and cumulative spend as at 31 March 2018.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 68
Vedanta Resources plc | Annual Report FY2018
Operational Review/Oil & Gas
1
3
2
4
5
Rajasthan block
Ravva (PKGM-1) block
1
2
3 Cambay (CB/052) block
4 KG-ONN-2003/1 block
KG-OSN-2009/3 block
5
South Africa Block 1
6
6
Note: PR-OSN-2004/1 block in Palar-Pennar basin was relinquished during the year
We exited FY2018 with
a gross production
run‑rate of over
200,000boepd in March
which, along with the
upside from these
growth projects,
will trigger significant
volume growth
for FY2019.
Sudhir Mathur
CEO, Oil & Gas Business
Vedanta Resources plc | Annual Report FY2018
69
Average daily
Gross Operated Production
(boepd)
1
5
6
,
8
1
2
1
7
6
,
1
1
2
6
0
7
,
3
0
2
6
2
9
,
9
8
1
7
8
5
,
5
8
1
2014 2015 2016 2017 2018
EBITDA
(US$ million)
7
4
3
,
2
7
7
4
,
1
9
4
8
7
0
5
7
9
5
2014 2015 2016 2017 2018
The year in summary
During FY2018, we delivered a strong
operational and financial performance
alongside the award of key contracts to
reactivate the capital expenditure cycle.
In pursuit of our vision to contribute 50%
of India’s domestic crude oil production,
we have targeted investments in a high-
potential set of projects comprising
enhanced oil recovery, tight oil and tight
gas and exploration prospects.
We exited FY2018 with a gross production
run-rate of over 200,000boepd in March
which, along with the upside from these
growth projects, will trigger significant
volume growth for FY2019.
Safety
We made significant progress towards the
goal of zero harm by reducing our lost time
injuries (LTIs) to five, from the previous
year’s seven. The LTI frequency rate stood
at 0.19 (against 0.30 in FY2017).
Mangala Processing Terminal in Rajasthan.
• Mangala, Bhagyam, Aishwariya and
pipeline operations each achieved a
5 Star Rating in the OHSMS Audit by
the British Safety Council (BSC).
• The Ravva offshore asset received first
prize in the CII-SR-EHS Excellence
Award 2017, as well as a 5 Star award
and the Golden Peacock Occupational
Health & Safety Award for the year 2017.
• The Mangala field in the Rajasthan asset
received the Oil Industry Safety Award
2015–16 from OISD, MOPNG in the Oil
& Gas Onshore Asset category.
Environment
We have initiated co-processing for all
types of non-recyclable hazardous waste,
which can be used in cement industries
as an alternative fuel and raw material.
This completely eliminates the need for
incineration and ensures that zero-waste is
sent to landfill. To date, around 4,592mt of
non-recyclable hazardous waste has been
safely and sustainably handled using the
co-processing route.
Building on several safety improvement
initiatives, the Oil & Gas business received
recognitions for excellence in our safety
management systems:
• Vedanta Limited: Cairn Oil & Gas
received the Golden Peacock Award
for Sustainability for the year 2017.
The Oil & Gas business has also carried out
a fugitive emission monitoring study for all
its operating assets. This revealed that there
has been no significant leakage of fugitive
emissions to the atmosphere, and that we
are succeeding in minimising our
greenhouse gas emissions.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
70
Vedanta Resources plc | Annual Report FY2018
Operational Review/Oil & Gas continued
Production performance
Gross production
Rajasthan
Ravva
Cambay
Oil
Gas
Net production – working interest
Oil
Gas
Gross production
Working interest production
Prices
Average Brent prices – US$/barrel
Financial performance
(US$ million, unless stated)
Revenue
EBITDA◊
EBITDA margin
Depreciation and amortisation
Operating profit before special items
Share in Group EBITDA %
Capital expenditure
Sustaining
Projects
Unit
FY2018
FY2017
% change
boepd
boepd
boepd
boepd
bopd
mmscfd
boepd
bopd
mmscfd
mmboe
mmboe
185,587
157,983
17,195
10,408
177,678
47.4
118,620
114,774
23.1
67.7
43.3
189,926
161,571
18,602
9,753
184,734
31.2
121,186
118,976
13.3
69.3
44.2
(2%)
(2%)
(8%)
7%
(4%)
52%
(2%)
(4%)
74%
(2%)
(2%)
FY2018
FY2017
% change
57.5
48.6
18%
FY2018
FY2017
% change
1,480
849
57%
461
388
21%
137
10
127
1,223
597
49%
411
186
19%
62
6
56
21%
42%
–
12%
–
–
–
–
–
Operations
Average gross production for FY2018 was
185,587 barrels of oil equivalent per day
(boepd), 2% lower y-o-y primarily due to
natural field decline, partially offset by
volume ramp-up from infill wells in Mangala
and Cambay and continued effective
reservoir management practices across
assets. All three blocks – Rajasthan, Ravva
and Cambay – continued to record a plant
uptime of over 99% (FY2017: 99%).
Production details by block are summarised
below.
Rajasthan block
Rajasthan block production was 2% lower
at an average rate of 157,983boepd. This
reduction was due to natural decline
in the field. However, the decline was
partially offset by encouraging results
from the new wells added as part of
the Mangala infill activity, the ramp-
up of Raageshwari Deep Gas (RDG)
Phase I and the continuing efficacy of
our reservoir management practices.
At Rajasthan, the drilling programme of
15 infill wells at the Mangala field started
during Q2 FY2018. Of these, 13 wells have
been brought online with the remaining two
wells to be completed in Q1 FY2019.
In order to boost volumes from satellite
fields, we began an eight-well drilling
campaign. Four wells in NI and NE have
been brought online and the remainder are
expected to be completed in Q1 FY2019.
RDG Phase I ramped-up fully to 45 million
standard cubic feet per day (mmscfd)
during FY2018. Gas production from
Raageshwari Deep Gas (RDG) in Rajasthan
increased to an average of 37mmscfd in
The Oil & Gas business has reactivated its capital
expenditure programme with the objectives of enhancing
the exploration portfolio, executing development projects
to add incremental volumes and maintaining robust
operations to generate free cash flow post‑capex.
Sudhir Mathur
CEO, Oil & Gas Business
FY2018 (44mmscfd in Q4), with gas sales
post-captive consumption of 22mmscfd
from an average production of 26mmscfd
in FY2017, with gas sales post-captive
consumption at 10mmscfd.
Ravva block
Production from the Ravva block was down
by 8% at an average rate of 17,195boepd,
owing to natural decline. Closing of the
water-producing zones in two wells, and
gas lift optimisation, has helped to enhance
production rates from the field, partially
offsetting the natural decline.
Cambay block
Production from the Cambay block was up
by 7% at an average rate of 10,408boepd.
This was primarily due to the start of the
infill drilling campaign, together with
effective reservoir management practices.
At Cambay, we began the four-well infill
campaign in January 2018 to enhance
production volumes. Drilling of the first well
was completed successfully and production
began in February 2018. Drilling and
completion of the remaining three wells
also completed to date.
Prices
The latter half of FY2018 saw a substantial
recovery in crude oil prices, with Brent
peaking at US$71 per barrel in January
for the first time since December 2014.
The increase was supported by healthy
crude demand during the winter season
and consistency in OPEC-led output
cuts. Brent crude oil averaged US$58
per barrel, with a closing rate of US$67
per barrel as at 29 March 2018. The
year ended on a positive note as OPEC
looked set to continue withholding
output for the rest of the year.
Financial performance
Revenue for FY2018 was 21% higher y-o-y
at US$1,480 million (after profit and royalty
sharing with the Government of India),
supported by a recovery in oil price
realisation. EBITDA for FY2018 was higher
at US$849 million, up 42% y-o-y, due to
higher revenue. The Rajasthan water flood
operating cost was US$4.6 per barrel in
FY2018 compared to US$4.3 per barrel in
the previous year, primarily driven by
increased interventions and production
enhancement initiatives. Overall, the
blended Rajasthan operating costs
Vedanta Resources plc | Annual Report FY2018
71
increased to US$6.6 per barrel during
FY2018 compared with US$6.2 per barrel
in the previous year, due to the ramp-up in
polymer injection volumes.
In Q4 FY2018, reversal of a previously
recorded non-cash impairment charge of
US$1,464 million (US$888 million net of
taxes) taken, following the progress on the
key growth projects which are expected to
result in enhanced recovery of resources in
a commercially viable manner leading to
a higher forecast to oil production and
savings in the cost.
In FY2018 capital expenditure was
US$127 million, which was primarily
focused on growth projects including the
Mangala infill, the liquid handling upgrade,
and the RDG and CB infill campaigns.
Exploration and development
Exploration
Rajasthan – (BLOCK RJ-ON-90/1)
The Group is reactivating its Oil & Gas
exploration efforts in the prolific Barmer
Basin. The basin provides access to multiple
play types, with oil in high permeability
reservoirs, tight oil and tight gas. We have
engaged global partners to reveal the full
potential of the basin and establish >1 billion
boe of prospective resources.
We have awarded an integrated contract
for a drilling campaign of 7–18 exploration
and appraisal wells to build on the resource
portfolio, and the well spud is expected by
Q2 FY2019.
Krishna-Godavari Basin Offshore –
(BLOCK KG-OSN-2009/3)
A two-well exploratory drilling campaign
commenced in April 2018 to establish the
potential of the block.
Open Acreage Licensing Policy (OALP)
Open Acreage Licensing Programme
(OALP) provides an opportunity to acquire
acreages from all open sedimentary basins
of India. The GOI had invited bids for 55
blocks based on receipt of expression of
interest. Cairn Oil & Gas submitted bids for
all the 55 blocks on offer. These blocks
were assessed based on the resource
potential, chance of success and proximity
to infrastructure in prioritized sedimentary
basins of India viz. Barmer, Cambay, Assam
and Krishna-Godavari offshore. The
Government is expected to award the
blocks by June 2018. We intend to increase
our exploration portfolio significantly to
continue building the resources base.
Development
The Oil & Gas business has a robust
portfolio of development opportunities
with the potential to deliver incremental
volumes. In order to execute these projects
on time and within budget, we have
decided on a fundamental change to our
project execution strategy. We have
devised an ‘integrated project development’
strategy, with an in-built risk and reward
mechanism to drive incremental value from
the schedule and recoveries. This new
model is being delivered in partnership with
leading global oil field service companies.
Mangala infill – 45 wells
We are embarking on a significant drilling
programme of an additional 45 infill wells in
the prolific Mangala field, with an estimated
ultimate recovery of 18 million barrels. The
contract for the project has been awarded,
with first oil expected in Q1 FY2019.
Enhanced oil recovery (EOR) projects
The valuable learning we gained from the
successful implementation of the Mangala
polymer EOR project, is being leveraged to
enhance production from the Bhagyam and
Aishwariya fields. The contracts for these
EOR projects have been awarded and
preparations are on track with first oil
expected in Q1 FY2019. We are targeting
incremental recovery of 40 million barrels.
MBA alkaline surfactant polymer (ASP)
Following a successful pilot test at the
Mangala field, the way is now clear to
implement the world’s largest alkaline
surfactant polymer (ASP) project. The work,
which will enable incremental recovery
from this prolific field, entails drilling wells
and developing infrastructure facilities at
the Mangala Processing Terminal.
The drilling contract for the ASP
implementation has been awarded,
and the contract for facilities will
be awarded in due course.
With full-field implementation of ASP in
the MBA fields, we estimate potential
incremental recovery of around 200 million
barrels of oil, with first oil expected in
Q3 FY2019.
Tight Oil & Gas projects
Tight oil: Aishwariya Barmer Hill (ABH)
The Aishwariya Barmer Hill (ABH) stage I
production from seven existing wells began
during Q2 FY2018. ABH stage II consists of
drilling and fracking 39 new wells, creating
new surface facilities including well
hook-ups, pipeline augmentation and
installing a de-gassing facility. The contract
for tight oil wells and facilities has been
awarded, and work is ongoing on the
surface facility for ABH. We expect to start
drilling in Q1 FY2019 with first oil expected
in Q3 FY2019.
Raageshwari deep gas (RDG) development
Gas development in the RDG field in
Rajasthan continues to be a strategic
priority. Phase I of the project, to ramp up
production to 45mmscfd, was completed in
December 2017. Phase II is being executed
through an integrated development
approach to ramp up overall Rajasthan
gas production to ~150mmscfd, and
condensate production of 5kboepd. We
have awarded contracts, both for the
Employees at the Oil & Gas operation in Rajasthan.
drilling of wells and the gas terminal.
Drilling will begin in Q1 FY2019.
Tight oil appraisal fields
We had made 38 discoveries in the
Rajasthan Block, with some comprising
complex tight oil reservoirs. In order to
monetise them, we will carry out appraisal
activities through global technology
partnerships over next 12–15 months,
prior to conceptualising and developing a
full-field development plan. Contract for
appraisal of 4 fields targeting 190 mmboe
of resources has been awarded.
Other projects
Surface facility upgrade
In order to maximise production at the
Mangala Processing Terminal (MPT), we
are focusing on increasing liquid handling
capacity to handle additional volumes.
We are planning a series of measures to
increase the liquid handling and water
injection capacities in a phased manner.
Outlook
The Oil & Gas business has reactivated its
capital expenditure programme with the
objectives of enhancing the exploration
portfolio, executing development projects
to add incremental volumes and maintaining
robust operations to generate free cash
flow post-capex.
For FY2019, we expect to achieve a
significant growth in production volume,
with total volumes in the range of
220–250kboepd through executing our
growth projects, with opex of sub-$7/boe.
We estimate the net capex commitment at
US$600–800 million.
Strategic priorities
Our focus and priorities will be to:
• evaluate further opportunities to expand
the exploration portfolio through OALP
and other opportunities;
• execute growth projects within schedule
and cost;
• further progress on execution on growth
projects to deliver 275–320kboepd in
FY2020;
• continue to progress towards zero harm,
zero waste and zero discharge; and
• continue to operate at a low cost-base
and generate free cash flow post-capex.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
72
Vedanta Resources plc | Annual Report FY2018
Operational Review/Zinc India
6
1
4
5
3
2
1
2
3
4
5
6
Debari smelter
Chanderiya smelters
Rampura Agucha mine
Rajpura Dariba mine and smelters
and Sindesar Khurd mine
Zawar mine
Pantnagar silver refinery
The year in summary
During FY2018, we
continued our robust
performance with record
production from our mines
and smelters, while also
maintaining our first quartile
position in the global cost
curve. The journey that
started in 2013, towards a
goal of 1.2 million tonnes of
production in FY2020,
continues apace with a
quarterly sustainable
production run-rate of 0.3
million tonnes in sight. In
parallel, we are focusing on
silver and targeting a
production of +26 million
ounces, in addition to the
1.2 million tonne target.
During FY2018, we
continued our robust
performance with
record production
from our mines and
smelters, while also
maintaining our first
quartile position in the
global cost curve.
Sunil Duggal
CEO, Hindustan Zinc Ltd
and Lead Base Metals
Group
Vedanta Resources plc | Annual Report FY2018
73
Refined Zinc/Lead
(kt)
2
7
8
1
6
8
4
0
9
1
1
8
0
6
9
2014 2015 2016 2017 2018
Saleable Silver
(million oz)
2
9
.
7
1
5
5
.
4
1
5
6
.
3
1
4
2
.
1
1
3
5
.
0
1
We have now successfully transitioned to
fully underground mining operations and
are looking for another record year of
production in FY2019, on our way to the
FY2020 goal.
Safety
We were deeply saddened to report
two fatalities at the Rampura Agucha
underground project site and Fumer project
site during the year. Both incidents were
thoroughly investigated, and the resulting
learnings were shared and implemented
across the businesses to prevent such
tragedies in the future.
EBITDA
(US$ million)
5
4
1
,
1
3
9
1
,
1
5
9
9
3
0
9
,
1
3
2
4
,
1
Sindesar Khurd Mine, HZL.
These incidents ran counter to an otherwise
continuing improvement in injury reduction,
which has fallen by approximately 69% over
the last five years. During FY2018, lost time
injuries (LTIs) fell to 0.27 (FY2017: 0.30). In
particular, senior leadership undertook a
special drive to increase ‘line of fire’
awareness.
Hindustan Zinc was awarded the Safety
Innovation Award 2017 by the Institution of
Engineers (India) for its safety performance
and efforts to strengthen safety culture.
Environment
The business improved its performance
in conservation and maintained recycling
performance. During the reporting year,
waste recycling rose to 95% compared to
93% in FY2017, and our water recycling rate
was 32% (FY2017: 33%).
With the success of the 20 million litres
per day (MLD) Sewage Treatment Plant
(STP), Phase II of 25 MLD STP is under
construction and Phase III is in the pipeline.
On completion, it will reduce our fresh
water intake at the Rajpura Dariba complex
to negligible levels.
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 74
Vedanta Resources plc | Annual Report FY2018
Operational Review/Zinc India continued
Production performance
Production (kt)
FY2018
FY2017
% change
Total mined metal
Refinery metal production
Refined zinc – integrated
Refined lead – integrated1
Production – silver (million ounces)2
947
960
791
168
17.9
907
811*
672*
139
14.5
4%
18%
18%
21%
23%
1 Excluding captive consumption of 6,946 tonnes in FY2018 vs. 5,285 tonnes in FY2017.
2 Excluding captive consumption of 1,171 thousand ounces in FY2018 vs. 881 thousand ounces in FY2017.
*
Including custom production of 2 kt.
Prices
Average zinc LME cash settlement prices US$/t
Average lead LME cash settlement prices US$/t
Average silver prices US$/ounce
FY2018
3,057
2,379
16.9
FY2017
% change
2,368
2,005
17.8
29%
19%
(5)%
Unit costs
(US$ per tonne)
Zinc (including royalty)
Zinc (excluding royalty)
Financial performance
(US$ million, unless stated)
Revenue
EBITDA◊
EBITDA margin (%)
Depreciation and amortisation
Operating profit before special items
Share in Group EBITDA (%)
Capital expenditure
Sustaining
Growth
Based on a long‑term
evaluation of assets and in
consultation with global
experts, the Company is
evaluating plans to increase
its mined metal capacity from
1.2mtpa to 1.5mtpa.
Sunil Duggal
CEO, Hindustan Zinc Ltd and
Lead Base Metals Group
FY2018
1,365
976
FY2018
3,369
1,903
56%
233
1,670
47%
465
106
359
FY2017
% change
1,154
830
18%
18%
FY2017
% change
2,525
1,423
56%
149
1,274
45%
288
50
238
33%
34%
–
56%
31%
–
61%
–
51%
The Company is also committed to the
Science Based Target initiative, with the
goal of reducing GHG emissions by
~23% by 2030, against a 2016 baseline.
Our sustainability activities received several
endorsements during the year, including the
Sustainable Plus Platinum Label award by
the Confederation of Indian Industries (CII),
as well as awards for Best Sustainability
Practices, Best Carbon Footprint and Best
Sustainability Report from the World CSR
Day. Zinc India’s sustainability performance
was ranked No. 11 in the Dow Jones
Sustainability Index (Metal and Mining)
globally, and No. 3 globally in the
Environment category.
Operations
In FY2018, mined metal production stood
at a record 947,000 tonnes, in line with the
mine plan.
Ore production was 12.6 million tonnes for
FY2018, an increase of 6% compared to
FY2017. Although this was impacted by
lower production at the Rampura Agucha
open cast mine (1.76mt, down by 47%
against 3.30mt in FY2017), this was more
than offset by a 27% y-o-y increase from
underground mines in FY2018.
Cumulative MIC production was up by 4%
due to higher ore production and treatment,
partly offset by lower grades. Performance
from underground mines remained robust
with Q4 FY2018 underground production
setting a record and attaining best-ever ore
and MIC production. MIC production
from underground mines was up by 52%
in FY2018.
Integrated metal production increased by
18% to 960kt from 811kt a year ago, due
to consistent availability of MIC throughout
the year and higher smelter efficiency.
Integrated saleable silver production grew
by 23% to a record 17.9 million ounces,
compared to 14.5 million ounces a year ago,
in line with higher production from the
Sindesar Khurd Mine.
We closed the fourth quarter of the year
with the highest-ever quarterly production
of lead and silver. Integrated lead metal
production attained a record 50,000
tonnes, 11% higher y-o-y. Integrated silver
production also attained a record 5.5 million
ounces, 22% higher y-o-y. These increases
were in line with the availability of mined
metal and enhanced smelter efficiencies.
In Q2 FY2018, the Group sold 220,000
tonnes of zinc and 30,000 tonnes of lead,
forward at a price of US$3,084 per tonne
and US$2,418 per tonne respectively. Of
this, 165,000 tonnes were for the period
January to March 2018 with the remainder
for April to June 2018.
Prices
Zinc and lead were the leading LME
performers in FY2018 with zinc prices up
29% and lead up 19%. The year was marked
by a sharp decline in finished goods stocks
and a reduced zinc supply from China for
part of the year. The combination of
scheduled mine closures, strategic
production cuts and the impact of
environmental inspections in China
depleted global stocks of zinc concentrate/
mined metal. The consequent constraints
on refined production, together with global
demand growth of ~2.5%, depleted stocks
of refined zinc and ensured that the price
rally that started in 2016 was sustained
during the year. Similarly, the refined lead
market was in deficit during the year,
driven by a shortage in mine supply.
Silver experienced a 60% uptrend in
CY2017 in industrial demand while
supply remained constrained; 70%
of annual silver production is as a
by-product of copper, zinc and lead
extraction processes, for which the
mine supply remained subdued in 2017.
Vedanta Resources plc | Annual Report FY2018
75
Unit costs
The unit cost of zinc production (excluding
royalties) increased to US$976 per tonne,
up 18% y-o-y. The increase was due to
higher input raw material prices (primarily
imported coal, diesel and metallurgical
coke), lower overall grades due to mine
mix and Indian rupee appreciation. This
was partially offset by higher production.
Including royalties, the cost of zinc
production increased to US$ 1,365 per
tonne, 18% higher y-o-y.
Of the total cost of production of US$1,365
per tonne, government levies amounted to
US$423 per tonne (FY2017: US$339 per
tonne), comprising mainly of royalty
payments, the Clean Energy Cess,
electricity duty and other taxes.
Financial performance
Revenue for the year was US$3,369
million, up 33% y-o-y, primarily due to
higher metal volumes and increased
commodity prices. EBITDA◊ in FY2018
increased to US$1,903 million, up 34%
y-o-y. The increase was primarily driven
by higher volumes, improved zinc and
lead prices, but was partially offset
by the higher cost of production.
Projects
The mining projects we have announced
are progressing in line with the expectation
of reaching 1.2 million tonnes per annum of
mined metal capacity in FY2020. Capital
mine development was 38,501 metres
during the year, an increase of 65% y-o-y.
Rampura Agucha
Rampura Agucha underground reached an
ore production run-rate of 3.0mtpa towards
the end of the year. The main shaft hoisting
and south ventilation shaft systems were
commissioned during the year, while
off-shaft development is on track.
Production from the main shaft is expected
to start as planned from Q3 FY2019.
Sindesar Khurd
Our Sindesar Khurd mine achieved its target
capacity of five million tonnes towards the
end of the year and is gearing up for higher
production. The main shaft was equipped
during the year and winder installation work
has begun. Production from the shaft is
expected to start as scheduled in Q3
FY2019. Civil and structure erection for
the new mill is ongoing and expected to
be commissioned in Q2 FY2019.
Towards the end of the year, orders were
placed for paste fill plants for both the
Rampura Agucha and Sindesar Khurd mines.
Zawar mine
Our Zawar mine achieved record ore
production of 2.2 million tonnes during
the year and production capacity has been
ramped-up to 3.0mtpa. The existing mill
Safety briefing at HZL.
capacity was debottlenecked to 2.7mtpa.
Civil construction work for the new mill is
progressing well, with commissioning
expected by Q4 FY2019.
The Ministry of Environment, Forest
and Climate Change (MoEF) has given
environmental clearance for the expansion
of ore production at the Kayad mine from
1.0 to 1.2mtpa. The Kayad project is now
operating at its rated capacity of 1.2mtpa.
The Fumer project at Chanderiya is
progressing as scheduled and expected
to commission in mid-FY2019.
Exploration
During the year, gross additions of 19.5
million tonnes were made to reserves and
resources (R&R), prior to depletion of 12.6
million tonnes. As at 31 March 2018, Zinc
India’s combined mineral resources and ore
reserves were estimated to be 411 million
tonnes, containing 35.7 million tonnes of
zinc-lead metal and 1.0 billion ounces of
silver. Overall mine-life continues to be
more than 25 years.
Outlook
Mined metal and refined zinc-lead
production in FY2019 is expected to
be higher than in FY2018, filling the
gap caused by completion of open-
cast production. Silver production
will be around 21–23 million ounces
(650–700 metric tonnes).
Cost of production (CoP), before royalty
for FY2019, is likely to be in the range of
US$950–975 per tonne.
The project capex for the year will be
around US$400 million.
Next phase of expansion announced
The Board has in principle approved Phase I
of this expansion, which will increase mined
metal and smelting capacity from 1.2mtpa
to 1.35mtpa, through brownfield expansion
of existing mines at an estimated capital
expenditure of around US$700 million.
Phase I includes incremental ore production
capacity of 0.5mtpa each at the Rampura
Agucha, Sindesar Khurd and Rajpura Dariba
mines, bringing the total capacity to
5.0mtpa, 6.5mtpa and 2.0mtpa
respectively. The capacity of Zawar mines
will be increased by 1.2mtpa to 5.7mtpa.
These projects will take total ore production
capacity to 20.4mtpa and mined metal
capacity from 1.2mtpa to 1.35mtpa. Phase I
will be completed in three years and will be
executed concurrently with the ongoing
expansion, which is now in its final stages.
Strategic priorities
Our focus and priorities will be to:
• progressively ramp-up underground
mines to achieve target run-rate of
1.2mtpa;
• commence work towards expansion
to 1.35mtpa;
• successfully commission fumer;
• continue our focus on adding more
reserves and resources than we deplete,
through exploration;
• bring down the cost to top decile with
the focus on operational and commercial
efficiencies; and
• improve silver recovery and production
through Fumer plants and tailings
retreatment.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
76
Vedanta Resources plc | Annual Report FY2018
Operational Review/Zinc International
With full ramp‑up of
Gamsberg Phase I
to 250ktpa and the
Skorpion Pit 112
expansion, Zinc
International will
restore volumes to over
400,000 tonnes per
annum (tpa) over the
next two years.
Deshnee Naidoo
CEO, Zinc International
and Copper Mines
of Tasmania
2
1
3
1
2
3
Gamsberg, South Africa
(under development)
Skorpion mine, Namibia
Black Mountain mine,
South Africa
Note: Lisheen mine in Ireland had a safe, detailed and fully costed closure after 17 years of
operations in November 2015.
Vedanta Resources plc | Annual Report FY2018
77
Refined Zinc
(kt)
5
2
1
2
0
1
5
2 8
8
4
8
2014 2015 2016 2017 2018
Zinc/Lead mined metal
(kt)
9
3
2
9
0
2
4
4
1
0
7
2
7
The year in summary
FY2018 was a strong year, in terms of stable
production and good progress made at our
Gamsberg project and Pit 112 extension at
Skorpion. The performance was further
supported by an improvement in zinc and
lead prices due to supply constraints,
making these major investments
particularly well-timed.
The Gamsberg project represents one
of the largest zinc deposits in the world with
reserves and resources of 215mt (16mt zinc)
and the potential to ramp-up to 600ktpa of
zinc production. Indeed, Phase I of the
EBITDA
(US$ million)
3
1
2
1
8
1
9
1
2
8
3
1
8
6
Gamsberg site.
project only exploits a quarter of the full
resource potential. The first production
from Gamsberg is expected to commence
by mid-CY2018.
With full ramp-up of Gamsberg Phase I to
250ktpa and the Skorpion Pit 112 expansion,
Zinc International will restore volumes to
over 400,000 tonnes per annum (tpa) over
the next two years.
Safety
With deep regret we reported a fatality
at Skorpion Zinc during the year,
which occurred during a dewatering
drilling operation. The lessons learned,
following a thorough investigation, have
been shared across the business. This
incident ran counter to an otherwise
improving trend at Zinc International:
lost time injuries decreased to 16 from
the previous year’s 18, and the frequency
rate showed a significant decline to 1.36
(FY2017: 2.24), despite the increased
activities of the Gamsberg project.
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 78
Vedanta Resources plc | Annual Report FY2018
Operational Review/Zinc International continued
Production performance
Total production (kt)
Production–mined metal (kt)
BMM
Refined metal Skorpion
Unit costs
Zinc
Financial performance
(US$ million, unless stated)
Revenue
EBITDA
EBITDA margin
Depreciation
Operating profit before special items
Share in Group EBITDA %
Capital expenditure
Sustaining
Growth
FY2018
FY2017
% change
157
72
84
156
70
85
–
3%
(1)%
FY2018
1,603
FY2017
% change
1,417
13%
FY2018
FY2017
% change
535
219
41%
28
191
5%
238
65
173
332
138
42%
28
111
4%
57
12
45
61%
59%
–
3%
73%
–
–
–
–
Skimming of final metal ingot production.
Phase I of the project only exploits a quarter of the
full resource potential. We see Gamsberg reaching
a potential of 600ktpa through modular expansion
in future through Phase II and Phase III projects.
Deshnee Naidoo
CEO, Zinc International and Copper Mines of Tasmania
Zinc International has further strengthened
its efforts in managing risk across its
operations with emphasis on business
partner selection, on-boarding and
management, robust risk management
systems and safety culture programmes
aimed at achieving our goal of ‘zero harm,
zero waste and zero discharge’. We
achieved a significant improvement in
dust control and monitoring, as well as a
reduction in lead in blood levels – indeed,
zero cases above legal limits were reported
for the year.
Environment
There were no Level 3 and Level 4
incidents reported. The water recycling
rate improved to 38% compared to 22% in
FY2017. A total of four properties (21,900
ha against a compliance target of 12,900
ha) were purchased in accordance with the
Gamsberg biodiversity offset agreement.
Operations
Production for FY2018 stood at 157,000
tonnes, in line with the previous year. Higher
production at BMM, due to higher grades
and improved recoveries from process
improvements were partially offset by
the planned maintenance shutdown at
Skorpion’s acid plant in Q1 FY2018, and
lower levels of ex-pit ore.
Skorpion’s production was slightly down on
FY2017, impacted by a combination of the
planned maintenance shutdown of the acid
plant in Q1 FY2018; early closure of Pit 103
for geotechnical reasons; and blending
challenges to make up the required plant
feed grade (from lower zinc grade
stockpiles and high calcium ore).
At BMM, production was 3% higher than
the previous year. The increase was due to
higher grades from mine plan resequencing,
improved drilling accuracy, and higher than
planned recoveries from plant flotation
optimisation.
Unit costs
The unit cost of production increased
by 13% to US$1,603 per tonne, up from
US$1,417 in the previous year. This was
mainly driven by a combination of
reallocation of capitalised stripping costs
of Pit 112 at Skorpion due to early ore
production, unfavourable local currency
appreciation, higher usage of purchased
Vedanta Resources plc | Annual Report FY2018
79
oxides and sulphur at Skorpion, higher
maintenance costs at BMM and lower than
planned Copper credits at BMM. This was
partly offset by the improvements in energy
cost and TCRC savings.
Financial performance
During the year, revenue increased by
61% to US$535 million, driven by higher
sales volumes and improved price
realisations. The same factors lifted
EBITDA to US$219 million, up 59% from
US$138 million in FY2017. This was partially
offset by a higher cost of production.
Projects
At Gamsberg, we are on track for the cold
commissioning of the concentrator plant
in Q1 FY2019. The ore extraction from the
South Pit is also on schedule, and as at
March 2018 we had completed 80% of
pre-stripping and excavated 56 million
tonnes of waste. Completion works of
mechanical equipment erection, and
infrastructure for power and water pipelines
for the concentrator, are in progress. We
are targeting 500kt of ore stockpile ahead
of the first feed to the concentrator plant.
The first phase of the project is expected
to have a mine life of 13 years, replacing
the production lost by the closure of the
Lisheen mine and restoring volumes to over
400,000tpa at Zinc International. First
production is on track for commencement
in mid-CY2018, with 9–12 months for
ramp-up to full production of 250,000tpa.
Cost of production is estimated at
US$1000–1,150 per tonne of MIC. Indeed,
Phase I of the project only exploits a quarter
of the full resource potential. We see
Gamsberg reaching a potential of 600ktpa
through modular expansion in future
through Phase II and Phase III projects.
Gamsberg Phase II can start immediately
after completion of Phase I and will have
some synergies with Phase I. The mine
plans have been developed and an
expanded mega pit design has been
completed to enable a faster and efficient
Phase II execution. In terms of output, we
can expect to add another 200 to 250ktpa
metal in concentrate in 2–3 years.
At Skorpion, the Pit 112 extension project is
progressing well, and waste stripping has
ramped-up to its peak run-rate. ~45% of
waste stripping was completed by the end
Ball mill, Gamsberg project site.
of Q4 FY2018 and is expected to be fully
complete by Q4 FY2019, on schedule. To
execute Pit 112 and ensure no interruption in
ore treatment, Skorpion Zinc restructured
the business by outsourcing mining to a
Tier I mining contractor. This also resulted
in the successful secondment of some
owner-employees into the contract. Further
optimisation of Pit 112 is in progress to
reduce waste stripping by ~8 million tonnes
and optimise the project cost. This project
has increased Skorpion’s mine life by
another 2.5 years and will contribute
250,000 tonnes of metal over this period.
Exploration
During the year, we made gross additions
of 1.3 million metal tonnes to reserves and
resources (R&R), prior to depletion. As at
31 March 2018, Zinc International’s
combined mineral resources and ore
reserves were estimated at 304 million
tonnes, containing 20.5 million tonnes of
zinc-lead metal.
Outlook
In FY2019, we expect production volumes
to be around 250kt. The cost of production
excluding Gamsberg is expected to be
around US$1,850–1,950 per tonne, with
Skorpion’s CoP expected to be higher due
to reallocation of pre-stripping costs at
Pit 112, lower grades coupled with higher
royalties at BMM, and input price inflation.
Strategic priorities
Our focus and priorities will be to:
• successful commencement of
Gamsberg in FY2019, with targeted first
production by mid-CY2018 and progress
towards ramp up to Phase I production
of 250kt in FY2020;
• carry out a project study for Swartberg
Phase II and Gamsberg Phase II to
extend the life of the Black Mountain
complex; and
• complete the feasibility study for an
integrated smelter-refinery with 250ktpa
metal production.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
80
Vedanta Resources plc | Annual Report FY2018
Operational Review/Iron Ore
1
2
1
2
Iron Ore operations,
Goa
Iron Ore operations,
Karnataka
We continue to engage
with Government for
the potential restart
of mining operations
at Goa.
Naveen Singhal
CEO, Sesa Goa –
Iron Ore Business
The year in summary
FY2018 was a challenging year for our
Goa operations, due to a low pricing
environment and the cancellation of
mining leases by the Supreme Court of
India. During the year we successfully
revisited our product strategy for high-
grade production from Goa to improve
realisations, but the full benefit will only
accrue if mining resumes. Significant
uncertainty over the resumption of mining
at Goa under the current leases led to non-
cash impairment charge in March 2018.
Vedanta Resources plc | Annual Report FY2018
81
Employees at Iron Ore operations.
At Karnataka we achieved our full permitted
allocations of 2.3mt in FY2018, and with the
increase in the mining cap for the state of
Karnataka, allocation has increased from
2.3 to 4.5mt in May 2018.
Safety
With deep regret we reported two fatalities
during the year at our Goa operations.
These were thoroughly investigated, and
learnings are being implemented towards
our journey of zero harm. We continue to
invest time, effort and resources to make
our business and behaviours safer.
Separately, we are pleased to report a
further decline in lost time injuries to 0.13
in FY2018 (FY2017: 0.41).
Environment
We recycle all of the wastewater generated
at our operations in Goa. They are classified
as ‘zero discharge operations’, with the
exception of the blow-down of the power
plant’s cooling tower, which is treated and
discharged according to the consent’s
conditions. During the period, waste
recycling stood at 117% (FY2017: 90%)
due to the additional recycling of waste
previously stored at the site.
Production
(Mt)
.
9
0
1
1
.
7
2
.
5
5
.
1
.
6
0
2014 2015 2016 2017 2018
EBITDA
(US$ million)
4
9
1
3
7
7
5
1
3
)
4
2
(
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 82
Vedanta Resources plc | Annual Report FY2018
Operational Review/Iron Ore continued
Production performance
Production (dmt)
Saleable ore
Goa
Karnataka
Pig iron (kt)
Sales (dmt)
Iron ore
Goa
Karnataka
Pig iron (kt)
Financial performance
(US$ million, unless stated)
Revenue
EBITDA
EBITDA margin
Depreciation
Operating (loss) before special items
Share in Group EBITDA %
Capital expenditure
Sustaining
FY2018
FY2017
% change
7.1
4.9
2.2
646
7.6
5.4
2.2
645
10.9
8.8
2.1
708
10.2
7.4
2.7
714
(35%)
(44%)
2%
(9%)
(26)%
(26%)
(21%)
(10%)
FY2018
FY2017
% change
487
57
12%
69
(11)
1%
11
11
615
194
32%
70
124
6%
4
4
(21%)
(71%)
–
(2%)
–
–
–
–
Pig iron plant at Amona, Goa.
Operations
Production at Goa stood at 4.9 million
tonnes and sales were 5.4 million tonnes
during FY2018. However, production and
sales were impacted by a low pricing
environment. During the year, we revisited
our product strategy and produced a
higher quality ore through beneficiation
and blending to improve our realisations
per tonne.
However, on 7 February, the Honourable
Supreme Court of India issued a judgement
directing that all mining operations in the
state of Goa were to cease with effect from
16 March 2018. Pursuant to this order, we
halted our mining activities. We have an
inventory of 0.9 million tonnes, which will
be sold in Q1 FY2019.
At Karnataka, we produced and sold
2.2 million tonnes during FY2018, in line
with the allocated environmental clearance
(EC) limits. The Honourable Supreme Court
has increased the cap on production of iron
ore for the state from 30 to 35 million
tonnes, and accordingly increase in our
allocation for Karnataka from 2.3 to 4.5
million tonnes in May 2018.
During the year, pig iron production was
9% lower y-o-y at 646,000 tonnes. This
was due to lower metallurgical coke
availability, caused by weather-related
supply disruptions in Australia in Q1
FY2018 and a local contractors’ strike
in Q2 FY2018.
Prices
Prices for 62% Fe grade averaged
US$68.43 per tonne on a CFR basis, which
was flat compared to the previous year.
The net realisation for our grades at Goa
was 33% lower y-o-y, primarily driven by
the widening of the discount.
Our Iron Ore business in Karnataka,
which primarily caters to the domestic
steel industry in the state, saw a 49%
increase in net realisations where the
prices are discovered through e-auctions.
Vedanta Resources plc | Annual Report FY2018
83
Sanquelim reclaimed iron ore mine, Goa.
Financial performance
In FY2018, EBITDA decreased to
US$57 million compared with US$194
million in FY2017. This was mainly due to
lower volume and realisations at Goa, partly
offset by higher realisations at Karnataka.
In light of the Supreme Court of India
judgement above, the Company has taken
an impairment (non-cash item) of US$534
million net of taxes (US$758 million gross
of taxes). This is mainly related to mining
reserves.
Outlook
The Company continues to explore all legal
avenues to secure the reinstatement of
mining operations in Goa.
At Karnataka, the production is expected
to be 4.5mt.
Strategic priorities
Our focus and priorities will be to:
• enhance environmental clearance
limits in Karnataka, and ramp-up to
full capacity;
• bring about a resumption of mining
operations in Goa through continuous
engagement with government and the
judiciary; and
• increase our footprint in iron ore by
continuing to participate in auctions
across the country, including Jharkhand.
The Honourable Supreme
Court has increased the cap
on production of iron ore for
the state from 30 to 35 million
tonnes, and accordingly
increase in our allocation
for Karnataka from
2.3 to 4.5 million tonnes
in May 2018.
Naveen Singhal
CEO, Sesa Goa
Iron Ore Business
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
84
Vedanta Resources plc | Annual Report FY2018
Operational Review/Copper India
1
1
2
Silvassa refinery
Tuticorin smelter
2
Note: Mt Lyell mine in Australia is under care and maintenance.
The reporting year was
another strong one for
Copper India, achieving
an all‑time‑high
production of copper
cathodes.
P Ramnath
CEO, Copper India
The year in summary
The reporting year was another strong
one for Copper India, achieving an
all-time-high production of copper
cathodes. Indeed, this was the third
successive year of record-breaking output.
The year also marked the next phase of
growth at Copper India with the expansion
of the copper smelter capacity from
400ktpa to 800ktpa. On completion, this
project will rank Tuticorin as one of the
world’s largest single-location copper
smelting complexes.
Vedanta Resources plc | Annual Report FY2018
85
Copper smelter at Tuticorin.
Our progress was recognised when
Sterlite Copper-Tuticorin received the
British Safety Council’s Five Star Rating
and also secured its Sword of Honour
recognition. Additionally, implementing
‘bow tie’ software analysis to risk-assess
critical activities, and training employees
on making better risk decisions, have
also contributed to putting our safety
performance on a firmer footing.
Environment
During the period, our water recycling rate
decreased from 16% to 12% y-o-y. The
overall disposal of copper slag and gypsum
for sustainable applications stood at 104%,
due to the additional use of waste stored
previously on the site. Sterlite Copper-
Tuticorin received the highest CII-EHS
Five Star Rating award for excellence in
EHS practices.
Smelting operations at Tuticorin are halted,
pending renewal of consent to operate
(CTO) and we continue to evaluate our next
course of action.
Safety
With deep regret, we recorded a fatality
in the course of our operations during
the year. As a result, and following an
investigation, we instituted changes in
operating procedures.
This incident ran counter to a significant
underlying improvement in our safety
performance. Our lost time injuries fell to 1
(FY2017: 4) and our frequency rate dropped
to 0.08 (FY2017: 0.37).
A number of safety initiatives, following
a practice of single point accountability,
have made a significant contribution to
enhancing our safety performance. By
using a robotic crawler for measuring the
thickness of the storage tanks (thereby
eliminating the need for scaffolding), and by
using drones to measure the thickness of
the stacks, we have achieved the lowest
injury frequency rate for five years.
Production
(kt)
2
0
4
3
0
4
4
8
3
2
6
3
4
9
2
2014 2015 2016 2017 2018
EBITDA
(US$ million)
7
3
3
1
8
2
8
9
1
2
5
2
1
0
2
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 86
Vedanta Resources plc | Annual Report FY2018
Operational Review/Copper India continued
Production performance
Production (kt)
India – cathode
Prices
FY2018
FY2017
% change
403
402
0%
Average LME cash settlement prices (US$ per tonne)
Realised TC/RCs (US cents per lb)
FY2018
6,451
21.3
FY2017
% change
5,152
22.4
25%
(5%)
Unit costs
(US cents per lb)
Unit conversion costs (CoP)
Financial performance
(US$ million, unless stated)
Revenue
EBITDA◊
EBITDA margin
Depreciation and amortisation
Operating profit before special items
Share in Group EBITDA %
Capital expenditure
Sustaining
Growth
FY2018
FY2017
% change
5.7
5.0
15%
FY2018
FY2017
% change
3,833
201
5%
25
176
5%
84
34
50
3,134
252
8%
29
223
8%
23
16
7
22%
(20%)
(14%)
(21%)
–
–
–
–
Operations
In FY2018, we achieved a record 403,000
tonnes of copper cathode production
through in-house technological upgrades
and debottlenecking, albeit with a few
unplanned outages spread over the year.
This represents consistent improvement in
operational efficiencies and record
production year after year. Our plant
achieved average utilisation of 95%
throughout the year with overall equipment
effectiveness (OEE) of 85%.
The installation of bag houses before the
scrubbers led to a significant reduction in
hazardous cake generation, which also
extends the life of the secured land fill (SLF).
Further, we continued to remain focused on
improving our safety and environmental
performance, with encouraging results.
During the year, there were zero liquid
discharges, and we recorded our lowest-
ever lost time injury frequency rate (LTIFR).
The 160MW power plant at Tuticorin
operated at a plant load factor (PLF) of 43%
in FY2018, compared with 56% in FY2017.
This was mainly the result of a lower offtake
due to weaker demand in Southern India.
The Group continues to explore viable
supply options to enter into a power
purchase agreement.
Smelting operations at Tuticorin were
halted as part of a planned maintenance
shutdown for approximately 15 days, with
effect from 25 March 2018. At the same
time, we made an application to renew the
consent to operate (CTO) for the smelter.
However, this was rejected pending further
clarifications and the shutdown was
therefore extended as we evaluate our next
course of action.
Our copper mine in Australia has remained
under extended care and maintenance
since 2013. However, we continue to
evaluate various options for its profitable
restart, given the current favourable
government support and prices.
Vedanta Resources plc | Annual Report FY2018
87
Prices
In CY2018, copper LME touched a
four-year high of US$7,216 amid global
growth in demand. Data from the
International Copper Study Group showed
that there was deficit of 150,000 tonnes in
CY2017, driven mainly by the Chinese
property market.
Wood Mackenzie also reported that the
world mined production of copper is
estimated to have risen by 0.6% to 20.22
million tonnes, while refinery production is
estimated to have increased by 1.9% to
23.49 million tonnes, compared to
projected demand of 23.47 million tonnes
in CY2018.
Average LME copper prices increased by
25% and treatment and refining charges
(TC/RCs) were down by 5.3%, compared
with FY2017.
TC/RC for CY2018 will be lower at 82/8.2.
This would be approximately 11% down
y-o-y, mainly due to mine disruptions
resulting in a decline in concentrate
availability. Global mine supply is expected
to grow slowly, but by enough to keep the
market in balance. The potential for labour
disruption in 2018 was again thrown into
focus with the recent (brief) strike action at
Escondida and Southern Copper's mines,
as well as violence at Grasberg.
Unit costs
At the Tuticorin smelter, the cost of
production increased from 5.0 US cents
per lb to 5.7 US cents per lb, mainly due to
higher coal and fuel prices, and currency
appreciation, but this was partially offset by
higher by-product credit. Sulphuric acid
realisation was influenced significantly with
Abu Dhabi National Oil Company (ADNOC)
increasing prices from US$84 per tonne to
US$124 per tonne y-o-y.
Copper cathodes.
Financial performance
During the year, EBITDA was US$201
million, a decrease of 20% on the previous
year’s US$252 million. The reduction was
mainly due to lower TCs/RCs, lower
premia, higher cost of production and local
currency appreciation, but partially offset
by favourable macro factors.
Projects
In Q3 FY2018, the Board approved the
expansion of the copper smelter at Tuticorin
from 400ktpa to 800ktpa. All the required
statutory approvals have been obtained and
we envisage the project being executed on
an EPC basis; this includes engineering,
procurement, supply, construction,
commissioning and demonstration of
complete performance guarantees.
In November 2017, we awarded the EPC
contract for three packages – the smelter,
refinery and sulphuric acid plant. The site
mobilisation and civil works began in
January 2018. In the case of the oxygen
plant, 60% of the major civil foundations
had been completed by March 2018, as
scheduled. An EPC contract for the
phosphoric acid plant has also been
awarded and mobilisation will start shortly.
Contracts for other packages such as the
effluent treatment plant and sewage
treatment plant/the de-salination plant are
expected to be awarded by May 2018.
Total capex commitment at 31 March 2018
was US$424 million, against the approved
capex of US$ 717 million. The expansion
project is expected to be completed by
Q3 FY2020.
Outlook
Production is expected to remain at around
100,000 tonnes per quarter.
Strategic priorities
Our focus and priorities will be to:
• progress towards expansion to 800kt
production capacity by FY2020;
• engage with government and relevant
authorities to enable the restart of
operations at Copper India;
• sustain operating efficiencies, reducing
our cost profile; and
• continuously upgrade technology to
ensure high-quality products and
services that sustain market leadership
and surpass customer expectations.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 88
Vedanta Resources plc | Annual Report FY2018
Operational Review/Copper Zambia
1
1
Konkola and Nchanga
copper mines and
Nchanga smelter,
Zambia
We are implementing
a new contractor‑
partnering model that
allocates clear end‑to‑
end responsibility,
and on a pay‑for‑
results basis.
Steven Din
CEO, Konkola Copper Mines
The year in summary
Copper Zambia had another challenging
year in terms of production, but we are
now turning the corner with a refinement
of the operating strategy. We are
implementing a new contractor-partnering
model that allocates clear end-to-end
responsibility, and on a pay-for-results
basis. This change in approach is starting
to yield results.
Vedanta Resources plc | Annual Report FY2018
89
At the Konkola underground mine, we
are focusing on accelerated dewatering
and development rates. Technology
interventions are also delivering results at
the smelter and Tailings Leach Plant (TLP).
We are confident that the new approach
and re-engineering of design parameters
secures our 50-year vision for mining at
KCM. Our focus is being communicated
under the slogan ‘Volume growth, product
quality, and environmental sustainability’.
Safety
We deeply regret that there were two fatal
accidents during the reporting year. One
contractor employee was fatally injured in
an ore tramming operation at the Nchanga
underground mine, and another contractor
employee lost his life during a sloughing
incident at the open pit. Both incidents
were thoroughly investigated and the
lessons learned have been shared for
implementation with the rest of the
organisation.
Konkola Deep mine shaft and conveyor belt
These incidents have only sharpened our
focus on the journey towards ‘zero harm’
and we were pleased to see the LTIFR
decreasing, from 0.32 to 0.30 y-o-y. We
continue to run active safety interventions
and initiatives, and this year we conducted
safety training for some 12,500 people,
both employees and contractors. We
intend to reinforce this work with the
implementation of over 100 key-control
data sheets in the coming months. During
the year, the British Safety Council audited
our OHS management system, which again
showed an improvement in reporting
near-misses.
Environment
Improving our water management practices
remains a top priority for the business.
During the year, we successfully reduced
our specific water consumption from 183
to 171 m3/T for the business. Further
improvement projects are under way
which will not only improve the current
performance but will start to set standards
for the industry in water and air quality.
Finished Copper
(Kt)
7
7
1
2
8
9 1
6
1
5
9
0 1
8
1
2014 2015 2016 2017 2018
EBITDA
(US$ million)
6
5
1
3
7
)
4
(
)
8
1
(
6
2014 2015 2016 2017 2018
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
90
Vedanta Resources plc | Annual Report FY2018
Operational Review/Copper Zambia continued
Production performance
Production (kt)
Particulars
Total mined metal
Konkola
Nchanga
Tailings Leach Plant
Finished copper
Integrated
Custom
Unit costs (integrated production)
(US cents per lb)
Unit costs excluding royalty
Unit costs including royalty1
1
Including sustaining capex and interest cost.
Financial performance
(US$ million, unless stated)
Revenue
EBITDA
EBITDA margin
Depreciation and amortisation
Operating loss before special items
Share in group EBITDA (%)
Capital expenditure
Sustaining
Growth
FY2018
FY2017
% change
91
37
13
41
195
84
111
94
36
12
46
180
96
84
(3%)
3%
6%
(11%)
9%
(12%)
32%
FY2018
239.1
314.8
FY2017
% change
208.6
278.9
15%
13%
FY2018
FY2017
% change
1,283
73
6%
112
(39)
2%
24
24
–
874
6
1%
113
(107)
0%
28
28
–
47%
–
–
(1%)
–
–
(15%)
(15%)
Mill concentrator at Nchanga.
The Konkola underground mine remains a key priority.
The operational philosophy, re‑designed to include
contractor‑partnering, is central to the ramp‑up plan.
Steven Din
CEO, Konkola Copper Mines
Operations
Mined metal production of 91,000 tonnes
was 3% lower y-o-y, primarily impacted by
a low availability of trackless equipment in
H1 and the preventive maintenance
programmes at TLP in H2.
We have put in place a contractor-
partnering model, and are mobilising
resources for sustained secondary
development and production from a
new production area at the Konkola
underground mine. The waste mining
programme to access high-grade ore
at the open pit is progressing well, and
our focused preventive maintenance
programmes at TLP are expected to start
delivering volume improvements from
Q1 FY2019.
Konkola
At Konkola, production increased to 37,000
tonnes, up 3% y-o-y, driven by improved
fleet availability, development rates and
dewatering efficiency. Indeed, Konkola’s
highest production of the year was
achieved in March 2018, a positive sign of
a start to stabilisation. The team is clearly
focused on accelerated development and
moving towards benchmark operational
parameters that will pave the way for future
production ramp-up.
Nchanga
At Nchanga, production increased to
13,000 tonnes, up 6% y-o-y, primarily due
to restarting production at the underground
mine in June 2017, following its care and
maintenance programme. The open cast
mines are clearly focused on waste
excavation programmes for enhanced
access to high-grade ore body.
Tailings Leach Plant
TLP’s production stood at 41,000 tonnes,
down 11% y-o-y, due mainly to lower feed
grades. Focused preventive maintenance
programmes were implemented as part of
the contractor-partnering model which will
start delivering volume improvements going
forward.
Smelter and refinery
Production of finished copper (excluding
TLP) increased to 154,000 tonnes in
FY2018, compared to 134,000 tonnes in
FY2017. Custom volumes reached levels of
111,000 tonnes in FY2018, up 32% y-o-y.
Vedanta Resources plc | Annual Report FY2018
91
Others
The water level at the Kariba Dam has
significantly improved due to a healthy
rainy season, resulting in an improved
power situation in Zambia. As a result,
ZESCO has lifted the force majeure
that had been in place since 2015.
Unit costs (integrated production)
In FY2018, the unit cost of production
(excluding royalties) increased by 15% to
239.1 US cents per lb. This increase y-o-y
was a result of: higher secondary
development at the Konkola underground
mine, to prepare for the production
ramp-up; one-off costs associated with the
Konkola pump chamber maintenance cost,
to improve dewatering efficiencies; silt
removal from TLP downstream, in preparing
for water management during the monsoon
season; and increased maintenance costs to
improve plant reliability and mobile
fleet availability.
However, the cost increase was partially
offset by improved cobalt credits, new
power tariffs effective from January 2017,
and one-off credits related to the power
provision reversal for FY2016.
Financial Performance
Revenue in FY2018 was higher at US$1,283
million, compared with US$874 million in
the previous year. This was mainly due to
improved metal prices and increased
custom sales volumes. EBITDA for the year
stood at US$73 million compared with
US$6 million in FY2017. This includes a
one-off credit related to the power
provision reversal of US$28 million.
Outlook
Full-year production for FY2019 is expected
to reach 115–125kt of integrated production
and 110–120kt of custom production. An
integrated C1 cost for FY2019 is expected
at 220–240 US cents per pound.
Konkola underground mine
The Konkola underground mine remains a
key priority. The operational philosophy,
re-designed to include contractor-
partnering, is central to the ramp-up plan.
A feasibility study to develop a deeper flat
level is underway as part of the ‘dry mine’
project.
Control system operator at Nchanga.
Nchanga operations
At Nchanga, the focus continues to be
plant reliability at the TLP, and on driving
productivity in the open cast mines.
Smelter and refinery
We are targeting higher feed rates above
80 tonnes per hour (tph), refinery ramp-up
and greater cost efficiencies by installing
oil-fired boilers for electrolyte heating,
which has now been commissioned.
Exploration
During the year, reserves and resources
(R&R) depleted by 12.5 million tonnes due to
production and by 9.5 million tonnes due to
updating of the Konkola resource model. As
at 31 March 2018, KCM’s combined mineral
resources and ore reserves were estimated
to be 691.2 million tonnes, containing 15.2
million tonnes of copper. Overall mine-life
continues to be more than 50 years.
Our strategic priorities
Our focus and priorities will be to:
• deliver volume growth through
successful implementation of the vendor
partnering model;
• increase production of the underground
mine at Konkola with an additional,
deeper horizontal development;
• improve equipment availability and
reliability;
• ensure a reliable Tailings Leach facility
with the potential to increase recoveries;
• reduce the cost base through the
contractor business-partnering model
and value-focused initiatives; and
• strengthen the team expertise with
strong mining, maintenance and health
& safety specialists.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 92
Vedanta Resources plc | Annual Report FY2018
Operational Review/Aluminium
3
1
2
Abhijit Pati
CEO, Aluminium,
Jharsuguda
1
2
3
Lanjigarh alumina refinery
Jharsuguda smelter
Korba smelter
FY2018 was a milestone
year for our Aluminium
business, as we
achieved record
aluminium production
of 1.7 million tonnes.
Abhijit Pati
CEO, Aluminium, Jharsuguda
Samir Cairae
CEO, Diversified Metals
(India)
Vedanta Resources plc | Annual Report FY2018
93
Jharsuguda smelter and power operations.
The year in summary
FY2018 was a milestone year for our
Aluminium business, as we achieved record
aluminium production of 1.7 million tonnes,
with ramp-up at BALCO complete and
ramp-up at Jharsuguda nearly complete,
despite a pot outage at Jharsuguda I at the
beginning of the year. We now have a
strong base to target production of two
million tonnes in FY2019; indeed, our
annualised exit run-rate in March 2018 was
already broadly equivalent to that figure.
There were headwinds in terms of the cost
of production (CoP), primarily due to input
commodity inflation and temporary coal
shortages in the domestic market. Input
commodity prices continue to be volatile.
Therefore, as a strategy, we have looked at
ways to optimise our controllable costs,
while also increasing the price realisation
in order to improve profitability in a
sustainable way going forward.
We continue to explore the feasibility of
expanding our alumina refinery capacity.
Our vision is to expand from two to four
million and then up to six million tonnes
per annum, subject to bauxite availability
and regulatory approvals.
Total Aluminium
(Kt)
5
7
6
,
1
3
1
2
,
1
7
7
8
3
2
9
4
9
7
2014 2015 2016 2017 2018
EBITDA
(US$ million)
6
1
4
7
8
2
7
0
1
2
5
4
4
4
3
2014 2015 2016 2017 2018
Vikas Sharma
CEO, BALCO
We are working towards
a step change in local
bauxite sourcing to feed
the alumina refinery.
Ajay Dixit
CEO, Alumina and Power
Ajay Dixit
CEO, Alumina and Power
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 94
Vedanta Resources plc | Annual Report FY2018
Operational Review/Aluminium continued
Production performance
Production (kt)
Alumina – Lanjigarh
Total aluminium production
Jharsuguda I
Jharsuguda II1
BALCO I
BALCO II2
Jharsuguda 1800MW
(surplus power sales in million units)3
FY2018
FY2017
% change
1,209
1,675
440
666
259
310
1,208
1,213
525
261
256
171
–
511
–
38%
(16)%
–
1%
81%
–
Including trial run production of 61.8kt in FY2018 vs. 95kt in FY2017.
Including trial run production of 16.1kt in FY2018 vs. 47kt in FY2017.
1
2
3 Jharsuguda 1,800MW and BALCO 270MW have been moved from the Power to the Aluminium segment since
1 April 2016.
Prices
(US$ per tonne)
Average LME cash settlement prices
Unit costs
(US$ per tonne)
Alumina cost (ex-Lanjigarh)
Aluminium hot metal production cost
Jharsuguda CoP
BALCO CoP
Financial performance
(US$ million, unless stated)
Revenue
EBITDA
EBITDA margin
Depreciation and amortisation
Operating profit before special items
Share in Group EBITDA (%)
Capital expenditure
Sustaining
Growth
FY2018
2,046
FY2017
1,688
% change
21%
FY2018
FY2017
% change
326
1,887
1,867
1,923
282
1,463
1,440
1,506
16%
29%
30%
28%
FY2018
3,588
452
13%
257
195
11%
218
105
113
FY2017
% change
2,040
344
17%
141
203
11%
291
28
263
76%
31%
–
82%
(4%)
–
(25%)
–
(57%)
Safety
The business faced safety challenges during
the year and, with deep regret, we recorded
a fatality due to a vehicle accident. After a
thorough investigation, the lessons learned
were shared for implementation across
all our businesses. Lost time injuries rose
to 22 (FY2017: 15), and the frequency rate
increased to 0.39 compared to 0.32 in the
previous year. We do not regard the year’s
safety performance as acceptable and
are targeting measurable improvements
as the result of enhanced safety
programmes that we have put in place.
These include equipping site safety leaders
with tools for more robust risk analysis, such
as ’bow tie’ software and experience based
quantification (EBQ), to help them identify
the need for critical controls. We have also
delivered specialist skill and competency
training in areas such as crane and forklift
operation, rigging and rescue.
On a positive note, the Lanjigarh refinery
achieved zero LTIs for the second
consecutive year, and we seek to
replicate its success across the business.
Environment
We recycled 11% of the water we used
in FY2018. In Lanjigarh, as part of waste
management, a total of 2226.306mt of
vanadium sludge, and 100% of fly ash and
lime grit, has been recycled. Red mud
utilisation for FY2018 stood at 246.3kt.
In August 2017, a partial collapse of a
section of the ash dyke wall at Jharsuguda
resulted in the State Pollution Control Board
(SPCB) directing temporary closure of five
power units in Jharsuguda (3x135MW,
2x600MW). Orders to restart three of the
power plants were issued on 20 September
2017, followed by an order to restart the
remaining two units on 13 November 2017.
Alumina refinery: Lanjigarh
At Lanjigarh, production was flat y-o-y at
1,209,000 tonnes. We had expected to
achieve a higher production, but lower
bauxite availability from our mines at
Chhattisgarh, as well as temporary issues
with rail logistics, meant constraints on
bauxite supply from other sources. We
continue to evaluate the possible Lanjigarh
refinery expansion, subject to bauxite
availability.
Aluminium smelters
We ended the year with record production
of 1.7 million tonnes (including trial run) and
exited it with a run-rate of around two
million tonnes per annum. Production
excluding the trial run totalled 1.6 million
tonnes.
Jharsuguda I smelter
Production from this smelter was 16% lower
y-o-y; this followed a pot outage incident in
April 2017 that affected 228 pots of the
Jharsuguda I smelter. However, these pots
were fully restored by Q3 FY2018.
Jharsuguda II smelter
Jharsuguda II smelter continued its
ramp-up during the year. Line 1 was
completed during Q3 FY2018. Line 2 was
completed in Q4 FY2017, which delivered
steady operations throughout the year. At
Line 3, 220 pots were powered on as of
31 March 2018, and the full ramp-up was
delayed due to infrastructure development
works undertaken by the railway authorities
for capacity enhancement. It is expected to
be fully ramped up by H1 FY2019. We
continue to evaluate Line 4.
BALCO I & II smelters
The BALCO I smelter continued to show
consistent production, delivering 259,000
tonnes during the year; this comfortably
exceeded its rated capacity of 245,000
tonnes.
The ramp-up of BALCO II smelter was
completed in Q1 FY2018 and the plant
continues to operate consistently with
production of 310,000 tonnes – an
increase of 81% y-o-y.
Vedanta Resources plc | Annual Report FY2018
95
Coal linkages
We continue to focus on ensuring the
long-term security of our coal supply, and
at competitive prices. We added 4mtpa of
coal linkages during FY2018, ending the
period with a total coal linkage of 10mtpa.
During the year we experienced temporary
disruptions in the domestic coal supply
from Coal India. The disruption, both in
terms of quality and quantity, resulted in
an increase in the cost of captive power.
Prices
Average LME prices for aluminium in
FY2018 stood at US$2,046 per tonne,
an increase of 21% y-o-y. It also reached a
six-year high of $2,266 per tonne before
moderating back towards the end of the
year. Prices were driven by the anti-
pollution supply reforms in China, increases
in raw material prices and trade tariff
announcements by the US.
Unit costs
During FY2018, the cost of alumina
production was 16% up y-o-y at US$326
per tonne, mainly due to input commodity
inflation (principally caustic soda), and
currency appreciation.
In FY2018, the total bauxite requirement
of about 3.8 million tonnes was met from
three sources: captive mines (29%),
domestic sources (41%) and imports (30%).
In the previous year, the bauxite mix was
captive mines (31%), domestic sources
(23%) and imports (46%).
The CoP of hot metal at Jharsuguda was
US$1,867 per tonne, up from US$1,440 in
FY2017. The increase was primarily due
to input commodity inflation (imported
alumina and carbon), higher power cost
and currency appreciation. The power cost
was higher due to disruptions in domestic
coal supply from Coal India resulting in
procurement of coal and power from
alternative sources at higher prices. We
also incurred one-off costs related to pot
outages in April 2017, and temporary power
imports as a result of the ash dyke incident.
The cost of production at BALCO increased
to US$1,923 per tonne from US$1,506 in
FY2017, up 28% y-o-y. This was primarily
due to input commodity inflation (imported
alumina and carbon), higher power cost due
to coal shortages and rupee appreciation.
Financial performance
EBITDA was higher at US$452 million
(FY2017: US$344 million), driven mainly by
volume ramp-up and increased LME prices.
This was partially offset by the increase in
the cost of production.
Employee transporting aluminium wire rods.
Outlook
Volume and cost
In FY2019, aided by the full ramp-up of the
third line of Jharsuguda II, we anticipate
aluminium volume of two million tonnes.
Marketing
We are targeting an increase in value-added
production in FY2019 to 1.0 million tonnes.
We will also be focusing on increasing the
domestic and OEM sales further.
As input commodity prices continue to be
volatile, we have looked at ways to optimise
our controllable costs, while also increasing
the price realisation in order to improve
profitability in a sustainable way.
Alumina and bauxite
During FY2019, we expect production of
around 1.5-1.6 million tonnes per annum.
We are working towards a step change in
local bauxite sourcing to feed the alumina
refinery. We have entered into a long-term
contract with Odisha Mining Corporation
(OMC) for supply of bauxite.
Power
In FY2019, we aim to improve the
realisations from the 10mtpa of coal
linkages already in place, and increase
linkages further. We are also hopeful that
the disruption in coal supply experienced
in FY2018 will not continue into the next
reporting year.
We are also working towards reduction in
GCV losses as well as improvement in plant
operating parameters which should deliver
higher PLFs and reduction in non-coal
costs.
Cost of production
We expect a reduction in COP by
c. US$120–170/t in FY2019 by optimising
controllable costs and through elimination
of one-offs. This will imply a COP of
US$1,725–1,775/t, assuming costs of
imported alumina, coal e-auctions and
carbon at average FY2018 levels. We are
targeting a medium-term COP target of
US$1,500/t with continued focus on
sourcing of low cost bauxite, alternate
sourcing of alumina, improve plant
operating parameters, increase in linkage
coal mix and strategic partnership with
carbon suppliers.
Strategic priorities
Our focus and priorities will be to:
• achieve steady state production of
2mt in FY2019;
• reduce controllable costs in the
aluminium business;
• firm up bauxite sourcing and the
supply chain, diversify imported
alumina sourcing;
• improve coal linkage realisation (10mtpa)
and further increase coal linkage;
• improve power plant operating
parameters and reduction in non-coal
cost; and
• improve realisations through gaining a
higher domestic market share, and by
increasing our value-added product
(VAP).
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 96
Vedanta Resources plc | Annual Report FY2018
Operational Review/Power
3
2
1
1
2
3
Jharsuguda power plant
Korba power plant
Talwandi Sabo Power plant
Captive thermal power plant
FY2018 was an
important year for the
Talwandi Sabo Power
plant (TSPL), where
we achieved a
consistent availability
of over 85% from
Q2 onwards.
Ajay Dixit
CEO, Alumina and Power
The year in summary
FY2018 was an important year for the
Talwandi Sabo Power plant (TSPL), where
we achieved a consistent availability of
over 85% from Q2 onwards. The entire
operational and maintenance activities
were transferred to a single contractor in
order to enhance operational efficiencies.
Note: MALCO is under
care and maintenance
since 26 May 2017.
Vedanta Resources plc | Annual Report FY2018
97
Sales
(Million kwh)
6
1
9
,
2
1
2
4
0
,
1
1
1
2
1
,
2
9 1
5
8
,
9
4
7
3
,
9
2014 2015 2016 2017 2018
EBITDA
(US$ million)
9
5
2
5
4
2
6
9
1
8
6
1
4
5
1
2014 2015 2016 2017 2018
However, the plant load factors for the
Jharsuguda and Balco IPP were impacted,
primarily by domestic coal shortages.
Safety
We recorded one lost time injury during the
year (FY2017: 1). The frequency rate of 0.20
compared to 0.25 previously.
Separately, in April 2017 TSPL experienced
a fire incident in the conveyor belt of the
coal handling plant (CHP). This was due to
the spontaneous ignition of coal dust,
impacting our operations in Q1 FY2018.
Full operation was restored, and is now
protected by comprehensive fire detection,
protection and suppression systems,
complete with dust extraction and dust
suppression capabilities.
Environment
One of the main environmental challenges
for power plants is the management and
recycling of fly ash. We recorded an
improvement in our overall waste recycling
rate, from 55% in FY2017 to 67% in this
reporting year.
Water reuse and recycling rates remained
broadly consistent at 10% in FY2018,
compared to 11% in the previous year.
BALCO power plant.
Operations
TSPL achieved significantly higher power
sales in FY2018, due to full operation of
the 1980MW power plants. However, this
was partially offset by the fire incident
mentioned above, which resulted in 65 days
of shutdown in Q1 FY2018. The power
purchase agreement with the Punjab state
compensates us based on the availability
of the plant. Average availability for the
full year was 74%, in line with previous
guidance.
The Jharsuguda 600MW power plant
operated at a lower plant load factor (PLF)
of 25% in FY2018 (FY2017: 68%), due to
disruptions in coal supply in the domestic
market.
The 600MW BALCO IPP operated at a PLF
of 44% in FY2018 (FY2017: 58%), due to
the temporary coal shortages and weak
external power demand.
The MALCO plant has been placed under
care and maintenance, effective from
26 May 2017, due to low demand in
Southern India.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 98
Vedanta Resources plc | Annual Report FY2018
Operational Review/Power continued
Production performance
Total power sales (MU)
Jharsuguda 600 MW*
BALCO 600 MW
MALCO
HZL wind power
TSPL
TSPL – availability
Unit sales and costs
Sales realisation (US cents/kWh)1
Cost of production (US cents/kWh)1
TSPL sales realisation (US cents/kWh)2
TSPL cost of production (US cents/kWh)2
FY2018
11,041
1,172
1,536
4
414
7,915
74%
FY2017
% change
12,916
3,328
2,609
190
448
6,339
79%
(15%)
(65%)
(41%)
(98%)
(8%)
25%
–
FY2018
FY2017
% change
4.5
3.6
5.4
3.9
4.2
3.1
4.9
3.4
6%
16%
10%
16%
1 Power generation excluding TSPL.
2 TSPL sales realisation and cost of production is considered above based on availability declared during
the respective period.
Financial performance
(US$ million, unless stated)
Revenue
EBITDA
EBITDA margin
Depreciation and amortisation
Operating profit before special items
Share in Group EBITDA%
Capital expenditure
Sustaining
Project
* Excluding one-offs.
FY2018
FY2017
% change
877
259
25%*
75
184
6%
2
2
–
836
245
29%
88
157
8%
60
–
60
5%
6%
–
(15%)
17%
–
(96%)
–
–
TSPL power plant.
Unit sales and costs
Average power sales prices, excluding
TSPL, remained flat in FY2018 due to
continued weaker prices in the open
access market.
During the year, the average generation
cost was higher at 3.6 US cents per kWh
(FY2017: 3.1 per kWh) due to temporary
disruptions in the coal supply.
TSPL’s average sales price was higher at
5.4 US cents per kWh compared with
4.9 US cents per kWh in FY2017, and power
generation cost was higher at 3.9 US cents
per kWh compared with 3.4 US cents per
kWh in the previous year, driven mainly by
increased coal prices.
Financial performance
EBITDA for the year was 6% higher y-o-y
at US$259 million. This includes a one-off
revenue recognition of US$35 million and
$22 million at BALCO and at Jharsuguda
IPP respectively.
Outlook
During FY2019, we will remain focused
on increasing the plant availability of TSPL
(80%) and achieving higher plant load
factors at the Balco and Jharsuguda IPP.
Strategic priorities
Our focus and priorities will be to:
• resolve pending legal issues and recover
aged power debtors;
• tie-up for the balance capacity under
open access for BALCO;
• achieve high plant load factors for the
Jharsuguda and Balco IPP; and
• improve power plant operating
parameters to deliver higher PLFs/
availability and reduce the non-coal cost.
During FY2019, we will remain
focused on increasing the plant
availability of TSPL (80%) and
achieving higher plant load
factors at the Balco and
Jharsuguda IPP.
Ajay Dixit
CEO, Power
Vedanta Resources plc | Annual Report FY2018
99
Transshipment at port.
Port Business
Vizag General Cargo Berth (VGCB)
During FY2018, VGCB operations showed
an increase of 31% in discharge and 22% in
dispatch compared to FY2017. This was
mainly driven by an increase in zonal
imports volume in the second half of
FY2018. This was partially offset by
restrictions in handling road-bound cargo,
imposed by a High Court order in April
2017. However, these restrictions were
removed in September 2017.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 100
Vedanta Resources plc | Annual Report FY2018
Board of Directors
Anil Agarwal, 65
●*
Executive Chairman
Navin Agarwal, 57
Deepak Parekh, 74
Executive Vice Chairman
Independent Non-Executive
Director and Senior
Independent Director
Geoffrey Green, 68
●* ● ●
Independent
Non-Executive Director
Date of appointment
Mr Agarwal was appointed to
the Board in May 2003 and
became the Executive Chairman
in March 2005.
Date of appointment
Mr Agarwal was appointed to the
Board in November 2004 and
became the Executive Vice
Chairman in June 2005.
Background
Mr Agarwal has been associated
with the Group since its inception
and has over 35 years of strategic
executive experience. He is
Chairman of Vedanta Limited and
has been instrumental in leading
the growth of the Group through
organic projects and acquisitions.
He plays a pivotal role in providing
direction for development of the
top leadership talent at the group.
He is credited with creating a
culture of business excellence and
delivering superior benchmark
performance through application
of advanced technology and
global best practices. He has led
Vedanta’s evolution to the highest
standards of corporate
governance and enhanced
transparent engagement with
key stakeholders.
Current position
Executive Chairman of Vedanta
Limited.
Previous experience
• Chairman of Vedanta’s
Executive Committee;
• Chairman of Cairn India
Limited
Background
Mr Agarwal founded the Group in
1976. In over three decades, the
Group, under his leadership and
with his strategic guidance, 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. His
entrepreneurial style of identifying
and turning around companies
has led the Group’s expansive and
profitable growth. He is also
known for his commitment to
ensuring that the growth and
profitability of the Group aids the
eradication of poverty through
development initiatives within the
communities in which Vedanta
operates.
Current position
Director of Sterlite Technologies
Limited and chairman emeritus of
Vedanta Limited.
Previous experience
Chairman of Vedanta Limited.
Key to committees
* Committee Chairman/Chair
● Audit Committee
● Remuneration Committee
● Nominations Committee
● Sustainability Committee
Date of appointment
Mr Parekh joined the Board in
June 2013.
Date of appointment
Mr Green was appointed to the
Board in August 2012.
Background
Mr Parekh has a diversity of both
executive and non-executive
global experience across a
number of sectors including
financial services, infrastructure,
pharmaceuticals, electronics
and leisure.
Current positions
• Chairman of Housing
Development Finance
Corporation, India’s
leading financial
services conglomerate;
• Non-executive chairman
of GlaxoSmithKline
Pharmaceuticals Limited
and Siemens, in India; and
• Director of Indian Hotels
Company Limited, Network 18
Media and Investments Ltd,
Fairfax Holdings Corporation
and DP World.
Previous experience
Various directorships including
Mahindra & Mahindra and Exide.
Qualifications and awards
Mr Parekh was a recipient of the
Padma Bhushan in 2006, Knight in
the Order of the Legion of Honour
by the French Republic in 2010,
Bundesverdienstkreuz – Cross of
the Order of Merit by the Federal
Republic of Germany in 2014.
He was also the first international
recipient of the ICAEW
outstanding achievement award
in 2010.
Background
Mr Green has a wealth of
knowledge in respect of UK
corporate governance, regulatory
and strategic matters, with many
years of legal and commercial
experience advising major UK
listed companies on corporate
and governance issues,
mergers and acquisitions
and corporate finance.
Current position
Non-executive chairman of
the Financial Reporting Review
Panel, one of the main subsidiary
bodies of the Financial Reporting
Council.
Previous experience
• Partner at Ashurst LLP;
• Senior partner and chairman
of Ashurst’s management
board for 10 years; and
• Head of Ashurst’s Asian
practice based in Hong Kong,
and was responsible for
leading the firm’s strategy
and business development
for the region.
Qualifications
Mr Green has a degree in law
from Cambridge University
and qualified as a solicitor at
Ashurst LLP.
Board Skills and Experience
The Directors have a broad range of professional experience and expertise as shown below. The skills required for the Board to fulfil its
responsibilities are kept under regular review as detailed in the Effectiveness section on pages 110–113.
Vedanta Resources plc | Annual Report FY2018
101
Ekaterina (Katya) Zotova, 40
●* ● ●
Independent
Non-Executive Director
Ravi Rajagopal, 63
●*●
Independent
Non-Executive Director
Edward T Story, 74
Board balance
Independent
Non-Executive Director
Date of appointment
Ms Zotova was appointed to the
Board in August 2014.
Date of appointment
Mr Rajagopal was appointed
to the Board in July 2016.
Date of appointment
Mr Story was appointed to the
Board in June 2017.
Background
Ms Zotova has a wide range of
commercial experience in the oil &
gas industry including strategy,
portfolio management, corporate
finance and mergers and
acquisitions.
Background
Mr Rajagopal has substantial
international executive experience
having worked in a variety of
senior finance and operational
roles at a number of global
companies.
Current position
• Senior external advisor to
McKinsey & Company.
Previous experience
• Principal at L1 Energy LLP/
Pamplona Capital where she
was responsible for major
merger & acquisition
transactions;
• Head of International
Acquisitions and Divestments
for Citigroup’s oil & gas
investment banking division
where she worked directly
with oil majors and national
oil companies; and
• A variety of finance, business
development and mergers &
acquisitions roles during her
14-year career at Royal Dutch
Shell including Head of
Portfolio Management for
Upstream International.
Qualifications
Ms Zotova 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.
Current positions
• Non-executive director of
Fortis Healthcare Limited.
• Chairman, JM Financial
Services, Singapore and senior
advisor to JM Financial
Services, India’s largest
investment bank.
Previous experience
• CFO for Europe and group
financial controller at
Diageo plc;
• Global head of Business
Development at Diageo plc;
• A variety of senior positions
both in finance and general
management at ITC India
(a BAT plc associate in India);
and
• A non-executive director
of United Spirits, India until
October 2016.
Qualifications
Mr Rajagopal has a degree
in Commerce from Madras
University and is a fellow of
the Institute of Chartered
Accountants of India and the
Cost and Works Accountants
of India. He has also completed
the Advanced Management
Programme at Harvard
Business School.
Background
Mr Story brings to the Board
over 50 years of global executive
experience in the oil & gas
industry.
Current position
President and chief executive
officer of SOCO International
PLC, an international oil & gas
exploration and production
company listed on the London
Stock Exchange with operations in
Vietnam, Thailand, Republic of
Congo (Brazzaville) and Angola.
Previous experience
• Senior executive positions at
various international oil and
gas companies such as Snyder
Oil Corporation, Conquest
Exploration Company,
Superior Oil Company, Exxon
Corporation and Esso
Standard Oil;
• A non-executive director of
Cairn Energy plc and;
• A non-executive director of
● Executive Directors
● Non-Executive Directors
3
5
Non-Executive
Director tenure
● 0–3 years
● 3–6 years
● Over 9 years
2
2
1
INTERNATIONAL EXPERIENCE
International experience
INTERNATIONAL EXPERIENCE
Cairn India Limited.
INTERNATIONAL EXPERIENCE
INTERNATIONAL EXPERIENCE
Qualifications
Mr Story holds a Bachelor of
Science degree from Trinity
University, San Antonio, Texas,
a Master’s degree in Business
Administration from the University
of Texas and an honorary
Doctorate degree by the Institute
of Finance and Economics of
Mongolia.
Jurisdictions of the Directors’ executive
and non-executive experience
Gender diversity
● Male
● Female
7
1
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report
102
Vedanta Resources plc | Annual Report FY2018
Executive Committee
Kuldip Kaura
Chief Executive Officer
Background and experience
Mr Kaura was appointed as Chief Executive
Officer (Interim) on 1 September 2017. Prior
to that, he was President, Chairman’s Office
since May 2016. He has over four decades
of experience across engineering and
mining roles, having previously served at
senior levels in various reputable companies
including as Chief Executive Officer of
Vedanta Resources plc, managing director
at ABB, India and managing director and
chief executive officer of a cement major in
India, ACC Limited. Mr Kaura holds a degree
in mechanical engineering, BE (Hons.) from
the Birla Institute of Technology and Science
(BITS), Pilani and an executive education at
London Business School and the Swedish
Institute of Management Stockholm, Sweden.
Tarun Jain
Director, Vedanta Limited
Background and experience
Mr Jain is a Director of Vedanta Limited. He
joined the Group in 1984 and has over 34 years
of executive experience in finance, audit,
accounting, taxation and mergers and
acquisitions. He is responsible for the Group’s
strategic financial matters including corporate
finance, corporate strategy, business
development and mergers and acquisitions.
Mr Jain also serves on the board of Bharat
Aluminium Company Limited, Sterlite (USA)
Inc and was a director of Cairn India Limited
until its merger with 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.
G.R. Arun Kumar
Chief Financial Officer
Background and experience
Mr Kumar was appointed as Vedanta’s Chief
Financial Officer and Whole-Time Director of
Vedanta Limited on 30 September 2016.
Prior to this, he was Executive Vice President,
Finance and Deputy Chief Financial Officer.
Mr Kumar joined the Group in 2013 as Chief
Financial Officer of Vedanta’s Aluminium &
Power business. He has over 22 years of senior
executive experience in finance having worked
at companies including General Electric and
Hindustan Unilever Limited. Prior to joining the
Group, Mr Kumar was the chief financial officer
– Asia Pacific (Appliances and Lighting) for
General Electric, based out of Shanghai.
He has a Bachelor of Commerce from Loyola
University, Chennai and is a fellow member of
the Institute of Chartered Accountants of India.
Sunil Duggal
Chief Executive Officer,
Base Metals and Zinc India
Background and experience
Mr Duggal joined the Group in August 2010
and was appointed as Chief Executive Officer
and whole time director of HZL in October
2015. He currently also leads the Base Metals
Group. Mr Duggal has over 32 years of
experience of leading high performance teams
and more than 18 years in leadership positions
nurturing business, evaluating opportunities
and risks and successfully improving efficiency
and productivity whilst reducing costs and
inefficiencies. He has been a significant driver
of growth and the enhancement of the culture
of safety at HZL. Mr Duggal has led the
value-adding adoption of best-in-class mining
and smelting techniques, machineries,
state-of-the-art environment-friendly
technologies, mechanisation and automation
of operational activities. He is an electrical
engineering graduate from Thapar Institute of
Engineering & Technology, Patiala and is an
alumni of IMD, Lausanne, Switzerland and IIM,
Kolkata.
Deshnee Naidoo
Chief Executive Officer,
Africa Base Metals
Background and experience
Ms Naidoo was appointed as Chief Executive
Officer, Africa Base Metals in May 2018 and
will lead KCM in addition to Zinc International
and Copper Mines of Tasmania (CMT). She
joined the Group in 2014 and was appointed
Chief Executive Officer of Zinc International
and CMT in February 2015. Ms Naidoo has
over 20 years of experience in the natural
resources industry, including platinum, thermal
coal, manganese and zinc. Prior to joining the
Group, Ms Naidoo held various senior and
executive roles at AngloAmerican, such as the
strategic long-term planning manager,
corporate finance manager and deputy head
of the CEO’s office. She was appointed as the
CFO of AngloAmerican Thermal Coal in 2011,
where she managed thermal coal and
manganese across South Africa, South
America and Australia. Ms Naidoo holds a
Bachelor’s degree in Chemical Engineering
from the University of Natal and Certification
in Finance and Accounting from the University
of Witwatersrand, Johannesburg.
Sudhir Mathur
Chief Executive Officer, Oil & Gas business
Background and experience
Mr Mathur joined the Group in September
2012 and was appointed as Chief Executive
Officer of the Group’s Oil & Gas business in
November 2017. He was formerly chief
financial officer of Cairn India Limited and was
also its acting chief executive officer from June
2016 until the merger of Cairn India Limited
with Vedanta Limited. He has over 32 years of
experience working across industries and has
substantial expertise in finance and strategic
planning. Mr Mathur also has a proven track
record in deploying capital to enable value
creation and accelerate business growth. Prior
to joining the Group, Mr Mathur was chief
financial officer of Aircel Cellular Ltd and was
responsible for strategy, finance, supply chain
management and regulatory affairs. He has
previously also held senior executive positions
in Delhi International Airport Ltd., Idea Cellular,
Ballarpur Industries Limited and
PricewaterhouseCoopers India. Mr Mathur
has a Bachelors degree in Economics from
Delhi University and a Masters of Business
Administration from Cornell University.
Samir Cairae
Chief Executive Officer, Aluminium and
Power
Background and experience
Mr Cairae was appointed as CEO Diversified
Metals in January 2016 and currently leads the
Group’s Aluminium and Power businesses.
He has extensive and varied experience in a
number of corporate roles in India, China,
Philippines and France including strategy,
M&A, industrial operations and managing
industrial operations in both growth and
turnaround situations. Prior to joining Vedanta,
Mr Cairae headed the global industrial function
for Lafarge’s 150 cement operations in over 45
countries. He has previously also held various
senior leadership positions at Lafarge and
Schlumberger. He holds a graduate degree in
Electrical Engineering from the Indian Institute
of Technology (IIT), Kanpur, and a Masters in
Management from the Hautes Etudes
Commerciales (HEC) School of Management,
Paris.
P Ramnath
Chief Executive Officer, Copper India
Background and experience
Mr Ramnath joined the Company in September
2011 and is the Chief Executive Officer of
Copper India and Fujairah Gold, UAE. He is
also a board member for MALCO Energy
Limited, a subsidiary company of Vedanta
Limited. Prior to joining the Company, he was
the chief operating officer of JK Paper Ltd. He
has over 32 years of experience across many
varied sectors which include chemicals,
specialty chemicals and paper industries at
Jubilant Life Sciences Ltd, Praxair India, SNF
Ion Exchange Ltd, Bakelite Hylam Limited and
Reliance Industries Limited. Mr Ramnath holds
a Bachelor’s degree in Chemical Engineering
from Osmania University, Hyderabad and has a
post graduate diploma from the Indian Institute
of Management, Bengaluru.
Naveen Singhal
Chief Executive Officer, Iron Ore
Background and experience
Naveen Singhal is the Chief Executive Officer
of Vedanta Sesa Goa Iron Ore, the Iron Ore
business vertical of Vedanta Limited.
Mr Singhal comes with over three decades of
experience, of which 22 years has been in the
natural resources arena having handled various
portfolios in metals and mining and the cement
industry. Naveen joined Vedanta in 2003
and was instrumental in driving the growth
projects in Hindustan Zinc from
conceptualisation to commissioning
through best-in-class mining and smelting
technologies, mechanisation and automation
alongside effective stakeholder management.
He has been a key pillar to bringing about
strategic alignment in business with his strong
techno-commercial mindset. Prior to joining
Vedanta, he had served in leadership roles at
Swaraj Mazda, Shri Ram & Dunkan Goenka
Group and played a pivotal role in the areas of
supply chain management, assets acquisition,
business turnaround strategy, general
management and project management.
Mr Singhal has a bachelor degree in
mechanical and industrial engineering from IIT,
Roorkee and has a post graduate diploma in
industrial engineering and management from
NITIE, Mumbai.
Vedanta Resources plc | Annual Report FY2018
103
Steven Din
Chief Executive Officer, KCM
Dilip Golani
Director, Management Assurance
Scott Caithness
Director – Exploration
Background and experience
Mr Din was appointed Chief Executive Officer
of KCM in May 2014. He has 22 years of
experience in the natural resources industry,
with over 15 years’ experience in African
mining and oil & gas. Prior to joining the Group,
Mr Din was chief executive officer of Essar
Minerals in Zimbabwe. Mr Din spent a large
part of his mining career with Rio Tinto where
he was managing director and president for
Simandou in Guinea, managing director of
Strategic Projects for Rio Tinto in Senegal,
chief financial officer and executive director of
Palabora Copper Mines in South Africa and
senior vice president and chief financial officer
for Rio Tinto Iron & Titanium based in London.
Mr Din will be leaving the Group in June 2018
to pursue opportunities outside the Group.
Rajagopal Kishore Kumar
Director – Strategy & Business
Development
Background and experience
Mr Kumar, a chartered accountant, joined the
Group in April 2003 and was appointed as
Director – Strategy and Business Development
in February 2018. He has over 33 years of
experience covering accountancy, commerce,
marketing, supply chain management, mergers
and acquisitions, human capital development,
business turnaround, and policy advocacy.
He was previously Chief Executive Officer,
Iron Ore and led the Group’s Port business.
Mr Kumar has previously also held various
executive roles in the Group 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 to
2013 and Chief Executive Officer, Africa
(Base Metals) from 2013 to 2015. Prior to
joining the Group, Mr Kumar worked at
Hindustan Unilever Limited for 14 years.
M Siddiqi
Group Director, Projects
Background and experience
Mr Siddiqi joined the Group in 1991 and, having
risen through various operational roles, has 42
years of industry experience. He was formerly
Chief Executive Officer, Aluminium and led the
setting 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 Group’s copper smelter at
Tuticorin and copper refinery at Silvassa. Prior
to joining the Group, Mr Siddiqi held senior
positions in Hindustan Copper Limited.
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.
Background and experience
Mr Golani joined the Group in April 2000 and
currently heads the Group’s Management
Assurance function. He has over 25 years of
operational experience and previously headed
the Sales and Marketing function at Hindustan
Zinc Limited and the Group Performance
Management function. Prior to joining the
Group, Mr Golani was a member of Unilever’s
corporate audit team responsible for auditing
the Unilever group companies in Central Asia,
Middle East and Africa region. He was also
formerly responsible for managing the
operations and marketing functions for one of
the export businesses at Unilever India and has
worked at Union Carbide India Limited and
Ranbaxy Laboratories. Mr Golani has a degree
in mechanical engineering and a post graduate
degree in industrial engineering and
management from NITIE.
Phillip Turner
Head – Group HSE and Sustainability
Background and experience
Mr Turner joined the Group in September 2014
as Head of Group Health and Safety. He
currently heads the Group HSE and
Sustainability function. Mr Turner has over
35 years of experience within mining, heavy
engineering and manufacturing organisations.
He was previously General Manager Risk &
Sustainability of JK Tech, a wholly-owned
subsidiary of the University of Queensland.
He has also previously held a number of senior
corporate and operational roles at Rio Tinto
in Australia, Canada and the UK including
responsibility for HSE and sustainability
assurance. Mr Turner has held senior roles at
mining company, North Limited and at BHP
Petroleum’s offshore operations. Mr Turner
has a Master of Applied Science degree in
Risk Management from Ballarat University;
Bachelor of Science degree in Chemistry/
Physics from Deakin University; Graduate
Diploma in Occupational Hygiene from
Deakin University; and Graduate Diploma
in Occupational Hazard Management from
Ballarat C.A.E.
Suresh Bose
Head – Group Human Resources
Background and experience
Mr Bose joined Vedanta in February 2002
and, following a long career within various
HR specialist roles at several of the Group’s
businesses including Aluminium, Copper and
corporate, was appointed as Head – Group
Human Resources in September 2015.
Mr Bose has over 26 years of experience in
the HR function and has formerly held key
HR roles at HMT, Larsen & Toubro, Ford,
Mahindra & Mahindra and AGRC Armenia. He
has a dual Masters in Personnel Management
& Industrial Relations from Tata Institute of
Social Sciences, Mumbai and the Institute of
Social Studies from The Hague, Netherlands.
Background and experience
Mr Caithness was appointed Head of
Exploration for Hindustan Zinc Limited, in
November 2015 before moving into the role
of Director – Exploration, Group-wide in
October 2017. Mr Caithness has over 30 years
of experience within the Exploration industry.
Prior to joining the Group, Mr Caithness
co-founded and was managing director of
unlisted Australian exploration company,
Indian Pacific Resources Limited. He spent 18
years with Rio Tinto Exploration where he held
a number of senior corporate and operational
roles in Australia, Papua New Guinea and India
including establishing Rio Tinto Exploration’s
first exploration office in India. In addition,
Mr Caithness held senior roles at Indophil
Resources and the Australian Trade
Commission. He was also associated with
Vedanta, as Head of Exploration in the year
2005–06. Mr Caithness has a Bachelor of
Applied Science degree in Geology from
RMIT University in Melbourne, Australia.
Arun Arora
Head – Corporate Communications
Background and experience
Mr Arora joined Vedanta Group in 2014, as
Chief Communication Officer, Cairn Oil & Gas.
He was subsequently appointed as Head
Corporate Communications in September
2017. Mr Arora has over 30 years’ experience
in various facets of communications including
branding, advertising, media, social and digital
media, publications, crisis communication and
internal communications with employees and
various stakeholders. He has a degree in
Mechanical Engineering, MBA (Marketing) and
additional qualifications in Journalism and
Mass Communications. Prior to joining
Vedanta Group, Mr Arora had worked with,
and headed the communications functions of
organisations including Escorts, Maruti Suzuki,
GMR DIAL, Jindal Steel & and GVK,
encompassing sectors such as automobiles,
airports, infrastructure, power, roads, steel,
mining and oil & gas.
In addition to the members of the Executive
Committee, the Chief Executive Officers of the
Group’s Aluminium Jharsuguda, BALCO and
Alumina businesses attend all Executive
Committee meetings as standing invitees.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 104
Vedanta Resources plc | Annual Report FY2018
Corporate Governance Report
Chairman’s Introduction
The Board is responsible for the long term
success of the Group and good governance
underpins our activities to ensure that we
balance the needs of a broad range of
stakeholders.
On behalf of the Board, I am pleased to present the Corporate
Governance Report for the year ended 31 March 2018. We are
committed to maintaining the highest standards of corporate
governance and ethical business practices. The spirit of good
governance guides how we do business and underpins how
we serve our stakeholders.
Board composition
We have spent a significant amount of time over the last year
reviewing the Board’s composition and our succession planning
arrangements to ensure that we have the right balance of skills and
experience, as well as independence, to enable the Board to fulfil
its stewardship responsibilities. We had a number of changes to the
Board during the year. Mr Mehta retired from the Board at the last
AGM and Mr Albanese stepped down from the Board on 31 August
2017. We would like to thank them for their dedication and
expertise during their tenure. We appointed a new Non-Executive
Director, Edward Story, who has a wealth of oil & gas industry
experience. The search for the Company’s new Chief Executive
Officer culminated in the appointment of Mr Venkatakrishnan,
who will join the Board on 31 August 2018. He will be standing for
election by shareholders at the Company’s 2018 Annual General
Meeting. These appointments demonstrate the Board’s
commitment to enhancing sector experience. I am pleased to
confirm that, following these changes, we continue to have a
highly diverse, experienced and balanced Board.
Board Evaluation
Following an externally facilitated evaluation of the Board’s
effectiveness in 2017, an internal review was undertaken this year.
Details of the 2018 Board evaluation and actions agreed for the
year ahead are disclosed on pages 115–116.
Diversity
Increasing diversity, particularly of gender, remains a topical issue.
We have an inclusive culture in which diversity in all its forms is
valued and recognised. We are committed to achieving at least
33% female representation on the Board by 2020 and request
the inclusion of women on candidate longlists for consideration as
standard. The Board is driving efforts to address gender imbalances
across the Group in a holistic way. In a highly male dominated
industry, we are working to reduce the barriers to progression of
female talent. Further details can be found on pages 111–112.
HSE
Regrettably, we had nine fatalities across the Group during
the year. Lessons have been learned from each incident and
corrective actions taken. While we have standards in place
to prevent such occurrences, we also recognise the need to
transform our HSE culture across the Group, particularly in
relation to safety. To achieve this we embarked on a major drive
to recruit globally experienced HSE specialists to ensure that
every business has the necessary expertise in this area. Further,
we have recently appointed Chief Health & Safety Officers and
Chief Environment Managers at each of our operating assets to
lead the HSE effort. We are determined to embed the importance
of safety both across our workforce and contractors as well
as the communities in which we operate. We have held over
20 interactive safety workshops for school children to further
initiate safety consciousness and reduce safety risk tolerances
at the grassroots level. Based on the experience of other major
companies, we know that these efforts will deliver the long-
term HSE performance that we need in order to reach our goal
of ‘Zero Harm, Zero Waste, Zero Discharge’. Details of our HSE
activities are given in the sustainability section on page 47.
Stakeholder engagement
As a Board we are conscious that stakeholder engagement is
currently in the spotlight. The Board considers its responsibilities to
a broad range of stakeholders and incorporates this into its decision
making process. The Group is working to continually improve its
own engagement with its various stakeholders and details of how
we engage are given in the sustainability section on pages 42–58.
Yours sincerely,
Anil Agarwal
Executive Chairman
23 May 2018
Vedanta Resources plc | Annual Report FY2018
105
Leadership
For more information on leadership
see pages 106–110
Effectiveness
For more information on effectiveness
see pages 111–116
Accountability
For more information on accountability
see pages 117–124
Relations with shareholders
and other stakeholders
For more information on relations with shareholders and other stakeholders
see pages 125–126
Remuneration
For more information on Directors’ remuneration
see pages 129–143
Statement of compliance with the UK
Corporate Governance Code
The Corporate Governance Report set out over the
following pages describes Vedanta’s governance
structure, the principal activities of the Board and its
Committees and the policies and practices that enable
the Board to fulfil its stewardship responsibilities.
It demonstrates how the Company has applied the main
principles of the April 2016 edition of the UK Corporate
Governance Code (the Code) for the year ended 31 March
2018. 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 Guidance and Transparency Rules
(DTR 7.2.6) may be found in the Directors’ Report on pages
146–150. A copy of the Code is available at www.frc.org.uk.
Statement of compliance with the code
It is the Board’s view that the Company has, throughout the
financial year ended 31 March 2018, 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. Since founding the Group in 1976, he has steered its
growth, including the Company’s flotation on the London
Stock Exchange. As Mr Agarwal was previously the
Company’s Chief Executive Officer and, through Volcan
Investments Limited (Volcan), members of his family have
a controlling interest in the Company, he did not meet
the independence criteria as defined in the Code on his
appointment in 2005. Mr Agarwal is pivotal in helping to
achieve the strategic objectives of Vedanta through his skills
in seeking out value-creating acquisitions and projects. As he
dedicates himself full-time to the Group, he is able to balance
his executive duties with providing leadership to the Board.
As Executive Chairman, Mr Agarwal encourages debate
and challenge and ensures that decisions are reached by
consensus. For these reasons, the Board unanimously agrees
that his continued involvement in an executive capacity is
important for the success of the Group.
Code provision B.2.1
Volcan Investments Limited (Volcan) is a controlling
shareholder as per the definition under the UK Listing Rules
and has an agreement with the Company to safeguard the
independence provisions as set out in the UK Listing Rules
(Relationship Agreement). Under the terms of 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.
The Board is satisfied that the above deviations from the
provisions of the Code are not detrimental to the Company’s
governance for the reasons highlighted and that good
governance remains an intrinsic part of the Group’s culture
and operations.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 106
Vedanta Resources plc | Annual Report FY2018
Corporate Governance Report continued
Leadership
The Company’s Board of Directors provides entrepreneurial
leadership for the Group and strategic direction to management.
It is collectively responsible for promoting the long-term success
of the Group through the creation and delivery of sustainable
shareholder value. The reporting structure, as shown below,
between the Board, Board Committees and Management
Committees forms the backbone of the Group’s Corporate
Governance framework. 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 conduct its business ethically. This is achieved through a prudent
and robust risk management framework, internal controls and
strong governance processes.
Board
Comprises of seven directors including the Executive Chairman, Executive Vice Chairman and five Non-Executive Directors.
Board Committees
The Board delegates certain responsibilities to committees which operate within their defined terms of reference. The Board has four established
Committees, shown below (together, the Board Committees).
For more information see pages 114–128
Executive Chairman
Audit Committee
Board
Sustainability Committee
Oversees the Group’s financial reporting,
the efficacy of the internal control and risk
management framework and scrutinises
the work of the internal and external
auditors.
Nominations Committee
Reviews the size, structure and
composition of the Board and its
Committees to ensure the appropriate
balance of skills, experience, diversity and
independence are present; and leads the
Board appointment process.
• Set the values and vision of the Group;
• Determine strategic priorities and risk
appetite;
• Review the delivery of strategy by
management and provide challenge
or support as necessary;
• Oversee the Group’s internal controls
and risk management framework;
• Monitor the Group’s risk environment
and tolerances;
• Stakeholder engagement;
• Financial and performance reporting.
Chief Executive Officer
Oversees the Group’s management of
sustainability matters including HSE,
employment practices, sustainable
development, engagement with the
communities in which the Group
operates, human rights and land access.
Remuneration Committee
Reviews and recommends to the Board
the executive remuneration policy and
determines the remuneration packages
of each of the Executive Directors.
Ethics Committee
Executive Committee
Disclosure Committee
For a full list, see pages 102–103
Operating Businesses
Executive Committees of the Group’s
operating businesses
Finance Standing Committee
Vedanta Resources plc | Annual Report FY2018
107
Each Board Committee has formally delegated duties and
responsibilities included in its terms of reference, which are
available on the Company’s website at www.vedantaresources.
com/boardcommittees. The Board Committees’ terms of reference
are reviewed regularly to ensure that they comply with current legal
and regulatory requirements, reflect corporate best practice and
facilitate the effective operation of the relevant Board Committee.
The chair of each of the Board Committees reports formally to the
Board on their respective Committee’s activities following each
meeting. Additionally, from time to time, the Board Committees
submit reports and recommendations to the Board on any matter
which they consider significant to the Group.
Only the members of each Board Committee have the right to
attend its meetings. The Directors who serve on each of the Board
Committees are shown in their respective reports. In addition, the
Group Chief Executive Officer, Kuldip Kaura, the Chief Executive
Officer, Base Metals and Zinc India, Mr Sunil Duggal, who is also
Chairman of the Group Ethics Committee; and Chief Executive
Officer, Africa Base Metals, Ms Deshnee Naidoo, are also members
of the Sustainability Committee.
Other Directors, management and advisers may attend meetings
at the invitation of the relevant Board Committee chair. The Group
Company Secretary acts as Secretary to the Board, Audit,
Nominations and Remuneration Committees and attends all their
meetings while the Head of HSE and Sustainability attends the
Sustainability Committee meetings to formally record each
meeting. Reports of each of the Board Committees are provided
on pages 114–128.
At the invitation of the Audit Committee, the Executive Directors,
Chief Executive Officer, Chief Financial Officer, Director, MAS and
other members of the senior management team regularly attend
Audit Committee meetings to report on issues and facilitate
discussions with the external auditor. The external auditor attends
Audit Committee meetings to ensure effective communication of
matters relating to the external audit of the Group’s full year and
interim financial statements. The Audit Committee also meets
bi-annually with representatives from the external auditor without
management being present.
All 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.
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, which are summarised below.
The role of the Executive Chairman
The role of the Executive Vice Chairman
The role of the Chief Executive Officer
The Executive Chairman is responsible for:
• Leading the Board and ensuring that it
discharges its responsibilities effectively;
• Developing succession plans for Board
appointments for approval by the Board;
• Identifying strategic priorities and new
business opportunities to enhance
shareholder value;
• Promoting the highest standards of
integrity, probity and governance;
• Chairing the Board meetings and
facilitating the active engagement of
all Directors;
• Overseeing the Directors’ induction,
performance and ongoing development;
and
• Engaging with the Company’s
shareholders and other stakeholders
to ensure that an appropriate balance
is maintained between the various
interests.
The Executive Vice Chairman is responsible
for:
• Supporting the Executive Chairman in
executing the overall vision and strategy
of the Group;
The Chief Executive Officer is responsible for:
• Ensuring effective implementation of
Board decisions;
• Developing operational business plans for
the Board’s approval;
• Leading the Group’s principal subsidiary,
• Providing leadership to the senior
Vedanta Limited, as its chairman;
• Enhancing and sustaining the Group’s
overall HSE, people, digital & technology,
ethics and compliance practices at global
standards;
• Overseeing stakeholder engagement in
India and globally around investors and
partners;
• Ensuring effective execution of growth
projects to deliver value; and
• Providing mentoring to some of the key
corporate functions like the people
function, management assurance and
investor relations including key leadership
development.
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 and
performance including environmental,
social, governance, health and safety and
sustainability;
• 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;
• Supporting the Executive Chairman in
maintaining effective communications
with various stakeholders; and
• Leading the Executive Committee.
The responsibilities outlined above also
applied to Mr Kuldip Kaura from the date of
his appointment as Group Chief Executive
Officer to the date of this report.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 108
Vedanta Resources plc | Annual Report FY2018
Corporate Governance Report continued
Leadership
The role of the Senior Independent Director
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.
Collectively, the current Non-Executive
Directors have the appropriate balance of
expertise and independent judgement,
together with a good understanding of the
Group’s risk environment to enable them to
provide effective oversight in the context of
uncertainty and volatile markets.
The Senior Independent Director plays a
key role on the Board. He is responsible for:
• 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;
• 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;
and
• Meeting with a range of shareholders,
when requested, to develop a better
understanding of their issues and
concerns and reporting the outcomes
of such meetings at subsequent Board
meetings.
Management committees
The Executive Committee
The Executive Committee supports the Chief Executive Officer
in the day-to-day running of the Group and meets monthly. It is
responsible for implementing the strategy adopted by the Board,
allocating resources in line with delegated authorities, managing
risk and monitoring the operational and financial performance of
the Group. Authority is delegated by the Executive Committee to
the respective Chief Executive Officer of each of the Group’s
businesses. The Group Chief Executive Officer 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 has delegated authority from
the Board for approval of certain matters including approval of
financing arrangements and corporate guarantees below the
financial threshold required for Board approval; and allotment of
shares pursuant to the Company’s share plans. It comprises of the
Executive Chairman, Executive Vice Chairman, Chief Executive
Officer, Chief Financial Officer and Director of Vedanta Limited.
The Company Secretary updates the Board on the activities of the
Finance Standing Committee at the subsequent Board meeting and
the minutes of all Finance Standing Committee meetings are
reviewed by the Board.
Ethics Committee
The Ethics Committee is a management committee whose
core purpose is to reinforce Vedanta’s zero tolerance of unethical
behaviour. The Ethics Committee ensures uniformity and
consistency in the decision making process following investigation
of integrity incidents. Members of the Ethics Committee include
the CEO, Base Metals and Zinc India , who chairs the Committee
and Director – MAS amongst others.
Disclosure Committee
The Company has established a Disclosure Committee which meets
as required to deal with the control of price sensitive information
within the Group and to ensure that timely announcements are
made in accordance with the Company’s obligations under the
Market Abuse Regulation and the Financial Conduct Authority’s
Listing Rules and Disclosure Guidance and Transparency Rules. It
comprises of Director of Vedanta Limited, Chief Financial Officer,
Director – Investor Relations, Group Head of Corporate Finance and
Strategy and the Group Company Secretary.
Key matters reserved for Board consideration
The duties of the Board are set out in its terms of reference,
including those matters specifically reserved for its consideration.
These include:
• Regulated activity – 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;
• Group structure – approval of any material restructuring or
reorganisation of the Group;
• Capital expenditure – approval of major capital expenditure
projects, acquisitions and disposals of assets in excess of
defined thresholds;
• Approval of a variety of matters which are determined by their
nature to have a significant likely impact for the Group;
• Board changes – approval of any appointments to or removals
from the Board of Directors.
Vedanta Resources plc | Annual Report FY2018
109
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.
The formal schedule of reserved matters is replicated in internal
delegation of authorities within the Group to provide the businesses
with flexibility to operate whilst ensuring that strategic matters are
always considered and decided by the Board. The Board reviews its
schedule of reserved matters regularly.
Board meetings
The Board had eight meetings during the year, of which one was
held at the Group’s office in Mumbai, India. Four Board meetings
during the year were called at short notice to consider and approve
specific ad hoc transactional matters and/or senior management
changes. In addition to 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. 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.
Details of the Directors’ attendance at Board and Board Committee meetings are shown below:
Name
Executive Directors
Anil Agarwal1
Navin Agarwal2
Non-Executive Directors
Deepak Parekh3
Geoffrey Green
Katya Zotova4
Ravi Rajagopal5
Edward T Story6
Former Directors
Tom Albanese7
Aman Mehta8
Date of
appointment
Board
%
Nominations
Committee
%
Audit
Committee
%
Sustainability
Committee
%
Remuneration
Committee
%
16 May 2003
24 Nov 2004
1 Jun 2013
1 Aug 2012
1 Aug 2014
1 Jul 2016
1 Jun 2017
1 Apr 2014
24 Nov 2004
7/8
7/8
7/8
8/8
6/8
7/8
7/7
5/5
4/4
88
88
88
100
75
88
100
100
100
5/5
n/a
4/5
n/a
5/5
n/a
n/a
n/a
2/2
100
n/a
80
n/a
100
n/a
n/a
n/a
100
n/a
n/a
6/7
7/7
n/a
7/7
5/5
n/a
2/2
n/a
n/a
86
100
n/a
100
100
100
n/a
n/a
n/a
n/a
5/5
5/5
n/a
2/2
n/a
n/a
n/a
n/a
n/a
100
100
n/a
100
n/a
n/a
n/a
2/2
2/2
2/2
n/a
n/a
n/a
1/1
n/a
n/a
100
100
100
n/a
n/a
n/a
100
1 Mr Anil Agarwal did not attend one meeting of the Board due to a conflict of interest on the subject under consideration at the meeting.
2 Mr Navin Agarwal did not attend one meeting of the Board due to a conflict of interest on the subject under consideration at the meeting.
3 Mr Deepak Parekh did not attend one meeting each of the Board and Board Committees on which he serves, which were held on the same day, due to a prior commitment.
4 Ms Zotova was unable to attend two meetings of the Board due to commitments which had been booked prior to the meetings being scheduled for these dates.
5 Mr Rajagopal was unable to attend one meeting of the Board due to a commitment which had been booked prior to the meeting being scheduled for this date.
6 Mr Story joined the Board on 1 June 2017 and attended all meetings of the Board and Board Committees which he was entitled to attend.
7 Mr Albanese resigned from the Board on 31 August 2017 and attended all the meetings of the Board and Board Committees which he was entitled to attend.
8 Mr Mehta retired from the Board on 14 August 2017 and attended all meetings of the Board and Board Committees which he was entitled to attend.
A Director who is unable to attend a Board or Board Committee meeting nonetheless receives all the papers and materials for discussion
at the meeting. Following his/her review of the meeting materials, the Director provides his/her feedback to the Company Secretary so
that it can be conveyed to the rest of the Board/Board Committee at the meeting.
Vedanta Board culture
The Board operates in an open and collaborative manner to support and constructively challenge management to deliver operational
success. The Directors harness their collectively wide-ranging expertise and experience to shape decision-making.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 110
Vedanta Resources plc | Annual Report FY2018
Corporate Governance Report continued
Leadership
The main items of business considered by the Board during the year are shown below:
Governance and risk
• Approved the grant of a waiver in
respect of the non-compete clause
under the Relationship Agreement for
Volcan Investments Limited, which
was a related party transaction, prior
to Volcan acquiring a substantial
shareholding in AngloAmerican Plc;
• Reviewed the Group’s progress on
compliance with the Modern Slavery
Act;
• Reviewed the findings of the Board
and Board Committee evaluation and
agreed appropriate actions;
• Convened the Company’s 2017 Annual
General Meeting and approved the
business to be considered at the
meeting;
• Received updates from each of the
Board Committees;
• Approved amendments to the Group’s
Code of Conduct and Ethics;
• Received governance updates on
regulatory matters such as EU Market
Abuse Regulation, Corporate
Governance Reform proposals,
General Data Protection Regulation;
• Approved changes to the Finance
Standing Committee’s terms of
reference and membership.
Stakeholder feedback
• Received regular investor relations
updates with feedback from
shareholders and other stakeholders;
• Received an update from the
Sustainability Committee Chair on
feedback from the Company’s third
Sustainable Development Day;
• Received an update from management
in respect of the progress of a
commitment made to a stakeholder
at the Company’s AGM;
• Held direct interactions with a number
of employees from different
businesses across the Group on HSE
initiatives and the efforts to embed
safety consciousness and the ultimate
goal of ‘Zero Harm, Zero Waste and
Zero Discharge’.
Board focus
during the
year ended
31 March 2018
Board and senior management changes
• Approved the appointment of a
Non-Executive Director;
• Approved the appointment of the
Company’s interim Chief Executive
Officer.
• Received updates on senior
management changes within the
Group; and
• Approved the appointment in principle
of Mr Venkatakrishnan as the
Company’s new Chief Executive
Officer, subject to the agreement of
terms by the Remuneration
Committee.
Strategy
• Undertook a strategic review with
detailed presentations from the leaders
of the Group’s Oil & Gas, Aluminium
and Copper India businesses;
• Approved the strategic expansion
projects for the Group’s Oil & Gas
and Sterlite Copper businesses;
• Considered new business
opportunities including the submission
of bids by the Group for steel assets
such as Electrosteel Steels Limited and
Essar Steel Limited under the Indian
Insolvency and Bankruptcy Code;
• Approved the acquisition of a
controlling stake in Japanese substrate
glass manufacturer, Avanstrate Inc;
• Discussed the Supreme Court of India
judgement in respect of the mining ban
in Goa and the potential impact for the
Group;
• Reviewed HSE goals and performance
across the Group as part of the Board’s
annual strategic review, with focus on
progress made towards the Zero
Harm, Zero Waste and Zero Discharge
goal;
• Held a dedicated session to review
Technology and Digitisation, a key
strategic pillar for the Group’s growth.
Monitoring operational and
financial performance
• Approved the Group’s Business Plan
FY2018-FY2019
• Reviewed the Group’s operational
performance, including safety and
environment across its businesses,
through updates from the Chief
Executive Officer at each scheduled
Board meeting;
• Reviewed the fatal incidents across
the Group and received updates on
corrective actions taken to prevent
recurrences;
• Reviewed the Group’s financial
performance and debt management
initiatives through updates from the
Chief Financial Officer at each
scheduled Board meeting;
• Approved the going concern
statement and Viability Statement for
inclusion in the Company’s Annual
Report and Accounts.
• Approved the Group’s Annual Report
and full- and half-year financial results;
• Declared the Company’s 2017 final and
2018 interim dividends;
• Approved the Company’s US$1billion
liability management proposals
including a bond issuance, tender offer
for the Company’s existing 2019 and
2021 Bonds and entry into a syndicated
loan facility for US$575 million.
Subsequent to the year end, there were two additional meetings of the Board held to consider transactional matters. A meeting
was held to approve the publication of a shareholder circular for the acquisition of a controlling stake in Electrosteel Steels Limited
by Vedanta Limited as the transaction constituted a Class 1 transaction under the UK Listing Rules. A second meeting was held to
consider and approve the submission of the Group’s bid for Essar Steel Limited in India, which was subject to insolvency proceedings.
Corporate Governance Report
Effectiveness
Relationship agreement with controlling shareholder
The Company has a written legally binding Relationship Agreement
with its controlling shareholder, Mr Anil Agarwal, and his associate,
Volcan Investments Limited (Volcan). The original Relationship
Agreement 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 (FCA) and to trading on the London
Stock Exchange plc’s main market for listed securities (Listing) in
2003 and amended in December 2011 was further amended in
November 2014 to comply with the revised Listing Rules for the
protection for minority shareholders which came into force in
May 2014.
The Relationship Agreement ensures that the Group is able to carry
on business independently of Volcan, the Agarwal family and their
associates and that the controlling shareholder complies with the
independence provisions set out in Listing Rule 6.1.4D. Under the
terms of the Relationship Agreement, the Board and Nominations
Committee will at all times consist of a majority of Directors who
are independent of Volcan and the Agarwal family, while the
Remuneration and Audit Committees shall at all times comprise
solely of Non-Executive Directors. However, 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. During the year, the
independent Directors considered and approved a waiver in
respect of the provision in the Relationship Agreement restricting
Volcan from acquiring more than five per cent in aggregate of
any class of shares, debentures or other securities in issue of any
company which is listed on any stock exchange which engages
in the smelting, refining or mining of base metals or minerals.
Subsequent to the grant of this waiver by the Company, Volcan,
through its wholly owned subsidiary, entered into an arrangement
to acquire 271,802,858 shares of AngloAmerican Plc, amounting to
19.35% of its issued share capital as at 12 October 2017, the date
the share purchases were completed (19.34% as at 31 March 2018).
The Company has complied with the independence provisions in
the Relationship Agreement and so far as the Company is aware,
the controlling shareholder and its associates have complied with
the independence provisions and the procurement obligation
included in the Relationship Agreement.
Board balance
In accordance with the Code, it is the Company’s policy that at
least half the Board, excluding the Executive Chairman, comprises
of independent Non-Executive Directors to ensure that an
appropriate balance is maintained between Executive and
Non-Executive Directors for effective governance and so that no
individual or small group of Directors can dominate the decision-
making process.
The Nominations Committee 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.
Vedanta Resources plc | Annual Report FY2018
111
The Nominations Committee has carefully considered the
independence of each of the Non-Executive Directors and
recommended to the Board that they be proposed for re-election
by shareholders.
Prior to the appointment of Mr Story as a Non-Executive Director,
the Nominations Committee considered his independence
and potential for conflict of interest as he was formerly a non-
executive director of Cairn India Limited. Mr Story was adjudged
to be independent of Cairn India for the purposes of Cairn
India’s own corporate governance requirements. Accordingly,
Mr Story’s relationship with Cairn India was unlikely to be
sufficiently close for this, of itself, to result in him being adjudged
to have a material business relationship with the Company. As
Cairn India Limited was part of PLC’s consolidated group, it
was determined that he was independent of the Company on
his appointment. Any potential conflict of interest arising from
his former directorship of Cairn India Limited was eliminated
on completion of its merger with Vedanta Limited.
The Nominations Committee also considered the independence
of Mr Geoffrey Green in respect of his former role at Ashurst LLP
and his current role as Chairman of the Financial Reporting Review
Panel (FRRP). As Mr Green relinquished his role at Ashurst LLP
in April 2015 and the fees of £166,312 (USD 217,460) which was
paid to Ashurst LLP during the year amounted to less than 1% of
the Group’s revenue expenditure, the Nominations Committee
determined that his independence was not compromised.
It was further determined that there had been no conflicts
which arose during the year out of his role at the FRRP.
The Board regards each of the five Non-Executive Directors as
being fully independent in character and judgement and free from
any relationship or circumstance that could affect or appear to
affect their independent judgement.
As the majority of Directors are independent Non-Executive
Directors, the Board has an appropriate balance between Executive
and Non-Executive Directors and the right mix of skills and
experience for effective decision-making.
Diversity and the process for Board appointments
The Board recognises the benefit that diversity in all its forms,
including but not limited to, age, gender, race, ethnic origin, cultural
and educational background, can bring to Board debate and
perspective. It is the Board’s view that, while efforts should be
made to address the gender imbalance on the Board and across
the Group, all appointments should be made on merit, measured
against objective criteria, rather than to fulfil targets.
The Board has a rich diversity, with Directors having a variety of
backgrounds and a wide range of international, professional and
sector experience including mining, oil & gas, corporate finance,
banking, diplomacy and governance.
The Nominations Committee regularly reviews the balance of
independence, skills, experience and diversity on the Board to
identify any gaps and those criteria which are required to enhance
the effectiveness of the Board and Board Committees. These
criteria form the basis of the search for new Directors. When a
particular skill gap on the Board is identified, a role specification is
prepared with these criteria which is used to shortlist candidates for
interviews with the Chairman. A further shortlist is then presented
to the Board with the Nomination Committee’s recommendation.
The Committee may engage external Board recruitment agencies
to ensure that it considers a wide and diverse range of candidates.
Details of the criteria and how they applied in relation to the new
Board appointments during the year and to the date of this Report
are given in the Nominations Committee Report on page 115.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 112
Vedanta Resources plc | Annual Report FY2018
Corporate Governance Report continued
Effectiveness
Diversity and Inclusion Policy
The Board has formalised its approach to diversity and inclusion
with its approval of the Group’s Diversity and Inclusion Policy.
The policy reinforces the Group’s commitment to promoting an
inclusive environment, in which every member of its workforce
feels valued and respected, with a zero tolerance of discrimination
and harassment. While our commitment extends to embracing
diversity in all its forms, including but not limited to, age, gender,
ethnicity, abilities, sexual orientation and religious beliefs, the Group
is specifically focusing on improving the gender balance.
The objective of the Diversity and Inclusion Policy is to have a
workforce which is representative of countries and communities in
which we operate and where every individual is valued, respected
and empowered to utilise their different abilities and experiences to
realise their full potential.
Gender diversity
The Company currently has one woman on its Board (13%) while
its two principal listed subsidiaries in India, Vedanta Limited and
Hindustan Zinc Limited, have two female directors each on their
boards, 22% and 25% respectively. At a senior management level,
we have 5.8% women on the Group Executive Committee. We
have 14% female representation in aggregate on the executive
committees of our businesses and 16.6% female representation on
the subsidiary business unit executive committees. A number of the
Company’s business and functional heads are women including in
roles such as CEO, Africa Base Metals, Director-Investor Relations
and Head of Tax, to name a few.
The Board is driving the efforts to address gender imbalances
across the Group in a holistic way by addressing the barriers to
female progression in a heavily male dominated industry. Our
Group companies have adopted path-breaking initiatives for
redressing gender imbalance. We have well-defined diversity hiring
targets, as we hire from the market and premiere colleges across
the globe. Our empanelled search firms are necessarily mandated
to present diverse slates for staffing and recruitment. Internally,
we ensure that the interview panels have the right diversity mix,
ensuring fairness in our selection practices.
Every year, we recruit a large number of graduate engineering
trainees, management trainees and associates for the Vedanta
Leadership Development Programme, from across the globe,
at the entry level and we endeavour to appoint at least 50% female
candidates through campus recruitment. This provides us with a
strong and solid base for developing future homegrown diverse
leaders at Vedanta. During the year, 20.87% of the recruitment
across the Group comprised of women.
We also encourage the concept of ‘second career opportunity’
for women returning from sabbaticals and career breaks due to
maternity or other family commitments. From time to time, hiring
initiatives are launched, targeting this particular talent pool.
At our Oil & Gas business, 2017 was a hallmark year as we
increased our gender diversity ratio from 9% to over 16%. We hired
over 160 entry level management trainees and graduate engineer
trainees with 74% of them being women. We also made significant
headway in enlarging gender representation in middle and top
management through focused career growth opportunities.
The Group’s Gender Intelligence and Leadership (GIL) programme
was launched in the Oil & Gas business as a pilot initiative which
aims to cover 300 people managers by the end of Q2 2018. The
programme aims to sensitise the Group’s business leaders and
people managers to gender issues, encourages them to question
the status quo and deep rooted assumptions to eradicate bias,
identify alternatives and opportunities that are more inclusive and
reinforce a culture of diversity and inclusion in the workplace. The
programme has been a huge success and will shortly be launched
across the Group. Family friendly policies including enhanced
maternity leave, paternity and adoption leave, benchmarked against
global best practice, have been rolled out across our businesses in
India, in excess of legal requirements and encourage the return of
women to work.
Board induction
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, challenges and risks. Newly-appointed
Directors also receive an overview of their duties, corporate
governance policies and Board processes. During the year,
Mr Edward Story completed his induction following his
appointment to the Board. This included:
• Guidance for directors of UK public listed companies;
• Information in respect of the Group’s governance documents
such as the Company’s Articles of Association, Board Charter,
Schedule of Matters Reserved for the Board, terms of reference
for the Board and Board Committees he serves on;
• Minutes of all Board meetings held in the previous year;
• Minutes of all Audit Committee meetings held in the
previous year;
• Information on Vedanta values and key business policies
such as the Code of Business Conduct and Ethics;
• Directors’ and Officers’ Liability Insurance cover; and
• Board effectiveness review and action plan.
Progress on measurable objectives
Women in senior management
(FY 2017–18)
Women recruited during the year
(FY 2017–18)
Total full time female
employees across the Group
(FY 2017–18)
● Men
● Women
● Men
● Women
● Men
● Women
6.2%
20.87%
10.6%
(FY 2016–17)
(FY 2016–17)
(FY 2016–17)
● Men
● Women
● Men
● Women
● Men
● Women
5.7%
19.37%
9.4%
Vedanta Resources plc | Annual Report FY2018
113
Following Mr Rajagopal’s succession as the Chairman of the
Company’s Audit Committee, a specific tailored induction
programme was also arranged in respect of the enhanced
responsibilities of the Audit Committee to enable him to effectively
discharge his duties. This included:
• Site visits to the Group’s aluminium operations at Jharsuguda
and Lanjigarh including meetings with their respective
management committees
• Site visit to the VGCB plant;
• HSE and Sustainability overviews
• Meetings with the CSR teams at Jharsuguda and Lanjigarh and
attendance at some of their community engagement initiatives
such as Vedanta hospital and DAV school in Lanjigarh.
Mr Rajagopal also visited the Subbulaxmi Cooperative Society,
Vedanta Ltd, Jharsuguda’s flagship initiative established in
2008, an all-female cooperative covering 64 villages and over
3,200 members, with the aim of bettering the financial
prospects of women in the region through provision of micro
finance loans for business enterprises.
• Meetings with the Finance team, including the Chief Financial
Officer, at the Group’s offices in Mumbai and New Delhi;
• Briefings from the external auditor and Director, MAS.
Ongoing Board training and development
The Board is committed to the continuing development
of its Directors and they are offered training as required to
assist them in the performance of their duties. There are also
procedures in place to provide the Directors with appropriate
and timely information, including receiving information between
meetings regarding Group business development and financial
performance. The Directors have access to the Company’s
professional advisers, where necessary, as well as to the Group
Company Secretary, who is responsible for ensuring that Board
procedures are followed. The Group Company Secretary is also
responsible for advising the Board on governance matters.
During the year, the Audit Committee held a dedicated meeting to
receive training which covered the following:
• Reforms and changes to the guidance for audit committees;
• Expectations and requirements of audit committees;
• Reporting developments and practice;
• Best practice for audit committees including the impact of
culture;
• The ‘Fair, Balanced and Understandable’ challenge; and
• Considerations for the assessment of key risks facing the Group.
The Board and senior management received legal and
regulatory updates on corporate governance developments
including the General Data Protection Regulations. The Board
also received a briefing from the Company’s Sponsor, Lazard
LLP on the Directors’ responsibilities in connection with
the publication of a Shareholder Circular for the acquisition
of a controlling interest in Electrosteel Steels Limited by
the Company’s principal subsidiary, Vedanta Limited.
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 237–240.
The Nominations Committee reviewed all situations entered
in the Conflicts Register annually and remains satisfied that
the independence of those Directors who have external
board appointments has not been compromised.
Time commitment
The Directors are all required to commit sufficient time to
fulfil their responsibilities. Non-Executive Directors may
serve on a number of other boards provided they continue to
demonstrate their commitment to their role as Directors of the
Company. The Nominations Committee monitors the extent
of Directors’ other interests to ensure that the effectiveness of
the Directors and the Board as a whole is not compromised.
Prior to their appointment, the Company’s Non-Executive
Directors are notified that they 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. Non-Executive 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 fulfil their role as a Director.
Executive Directors may be permitted to accept one external
non-executive board position at a listed company and to retain any
fees paid to them in respect of such appointment, subject to the
agreement of the Board.
Board evaluation
The effectiveness of the Board is crucial to the overall success
of the Group and the Company undertakes a formal assessment
of the operation the Board, Board Committees and individual
Directors annually. The evaluation is an important part of the
Board’s corporate governance framework. Pursuant to the Code,
the Company carries out a comprehensive externally facilitated
Board effectiveness review at least once every three years.
This year, the Company undertook an internal review of the
effectiveness of the Board, Board Committees and Directors.
This review process is shown below and further details of the
outcome of the review are given in the Nominations Committee
Report on pages 115–116.
Step 1
Step 2
Step 3
Step 4
Step 5
Tailored
questionnaires
requesting
feedback sent to
the Directors by the
Group Company
Secretary
Results collected
and summarised
by the Group
Company
Secretary
Feedback
evaluated and
shared with the
Board and Board
Committee Chairs
Action Plan
agreed
Review the
implementation
of the Action Plan
Feedback discussed
at the Board/Board
Committee meeting
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 114
Vedanta Resources plc | Annual Report FY2018
Nominations Committee Report
Effectiveness
Anil Agarwal
Chairman
22 May 2018
Current members
Anil Agarwal (Chairman)
Deepak Parekh
Katya Zotova
I am pleased to present the Nominations Committee’s report for the financial year ended 31 March 2018. This report explains how
the Committee has fulfilled its responsibilities throughout the year. Please refer to page 109 for details of attendance at meetings of
the Committee.
Summary of the Nominations Committee’s activities during the year
The main items of business considered by the Nominations Committee during the year are shown below:
Board composition
and succession planning
• Reviewed the balance of skills,
experience, independence and
diversity on the Board and
Board Committees;
• Approved key search criteria
for recruitment of a new
Non-Executive Director;
• Engaged search consultancy,
RGF to assist in the Board
recruitment process;
• Reviewed shortlisted candidates
and recommended the appointment
of Mr Edward T Story as a Non-
Executive Director;
• Reviewed the composition of the
Board Committees and succession
planning arrangements in respect of
Mr Mehta’s retirement from the Board
on 14 August 2017. Accordingly, the
composition of the Audit Committee
was refreshed with the appointment of
Edward T Story as a member to ensure
that the Audit Committee as a whole
has competence relevant to the sector;
• Recommended the appointment of
Mr Kaura as the Company’s interim
Chief Executive Officer to fill the
vacancy following Mr Albanese’s
resignation from the Board;
• Commenced the recruitment process
for the role of the Company’s Chief
Executive Officer.
Nominations
Committee focus
during the
year ended
31 March 2018
Governance
• Reviewed the feedback from the
annual review of the Nominations
Committee’s effectiveness and
approved improvement actions;
• Reviewed the feedback from the Board
annual effectiveness review in respect
of the composition of the Board and
Board Committees;
• Approved the disclosures in the
Nominations Committee Report in the
Company’s Annual Report FY2017.
Non‑Executive Director review
• Reviewed the performance, external
commitments and independence of
each of the Non-Executive Directors
prior to recommending their re-
appointment by shareholders
at the Annual General Meeting.
Vedanta Resources plc | Annual Report FY2018
115
Mr Rajagopal was appointed as Chairman of the Audit Committee
on 14 August 2017. As shown in his biography on page 101,
Mr Rajagopal is a qualified accountant and has extensive executive
experience with a strong financial background in large listed
companies. The Board is therefore satisfied that Mr Rajagopal has
recent and relevant financial experience and competence in
accounting as required by the Code.
Review of external commitments
The Nominations Committee was mindful of shareholder concerns
over Mr Parekh’s external appointments in light of the significant
shareholder vote against his re-election as a Director of the
Company and shareholder feedback in respect of this. Following
careful consideration of Mr Parekh’s external appointments, none
of which has any exceptional circumstances which would require
additional time commitment, the Nominations Committee
determined that the wealth of his expertise and experience across
a diverse range of sectors was a huge benefit to the Board and the
Group. Furthermore, Mr Parekh’s other appointments did not
compromise his commitment to the Board as he was able to attend
the majority of Board meetings held during the year, including those
held at short notice, and participate fully in discussions. During
the year, Mr Parekh also reduced his external commitments by
stepping down from the board of Mahindra & Mahindra.
The Nominations Committee is satisfied that each of the
Non-Executive Directors commits sufficient time to their duties
in relation to the Company.
Effectiveness review
The Code provides that the Board should undertake a formal and
rigorous annual evaluation of its own performance and that of its
committees and individual directors, and that the Board evaluation
should be externally facilitated at least every three years.
As the Company carried out an external evaluation which was
conducted by Prism Board Room in 2017, this year the effectiveness
review was undertaken internally, facilitated by the Group
Company Secretary, through tailored questionnaires. The
questionnaires were pragmatically structured to draw out
significant issues that were relevant to the Board and each of the
Board Committees, to assist in identifying any areas for
improvement. 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. An internal review of the
progress made on the prior year’s planned actions was also
undertaken.
A report in respect of the feedback from the Directors in the Board
evaluation questionnaires and suggested recommendations for
areas to focus on in the coming year was prepared by the Group
Company Secretary and presented to the Board for consideration,
following which an action plan was agreed.
Overall, the review determined that the Board and Board
Committees operate effectively. There is a good balance of
skills and experience on the Board to support and challenge
management for the delivery of stakeholder goals.
The Nominations Committee is chaired by the Company’s
Executive Chairman and is comprised of a majority of Non-
Executive Directors in accordance with the Code. In the event of a
conflict of interest, the Executive Chairman will abstain from the
discussions and another member of the Nominations Committee
will chair the meeting. The Group Company Secretary acts as
Secretary to the Nominations Committee and attends all meetings.
Other Directors, members of the senior management team and
external advisers may attend meetings at the invitation of the
Nominations Committee, as appropriate. The Chairman of the
Nominations Committee provides an update to the Board in
respect of the Nominations Committee’s activities during the year.
The Nominations Committee met on five occasions during the year.
Key responsibilities
The Nominations Committee is responsible for making
recommendations to the Board on the structure, size and
composition of the Board and Board Committees, ensuring that the
appropriate mix of skills, experience, diversity and independence is
present on the Board for it to function effectively. The Nominations
Committee also leads the process for new Board appointments,
advises the Board on succession planning arrangements and
oversees the development of management talent within the Group.
The Nominations Committee works collaboratively with Volcan
Investments Limited on new Board appointments in accordance
with the terms of the Relationship Agreement between the
Company, Mr Anil Agarwal and Volcan Investments Limited.
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/board committees.
Board succession
A key priority for the Nominations Committee during the year
was the succession of the Chief Executive Officer. Following
Mr Albanese’s resignation from the Board, Mr Kuldip Kaura was
appointed as the interim Chief Executive Officer until a permanent
successor was appointed. Mr Kaura has a wealth of leadership
experience including his prior role as the Company’s Chief
Executive Officer which boosted the mining expertise on the Board
and provided continuity until a suitable permanent successor was
found. The Chairman of the Nominations Committee led the
external search for suitable candidates with extractive industry
experience and a proven track record of delivering improved
business performance. Following an extensive process including
meetings with the Chairman and the interim Chief Executive
Officer, Mr Venkatakrishnan was appointed as the Company’s Chief
Executive Officer with effect from 31 August 2018. He will be
standing for election by the Company’s shareholders at the
2018 AGM.
Mr Aman Mehta retired from the Board following the conclusion
of the 2017 AGM. The Nominations Committee reviewed the
succession arrangements in respect of this and refreshed the
composition of the Board and Board Committees. The key criteria
sought for new Non-Executive Director appointments included
prior extractive industry experience and a good understanding of
both the UK market and Indian business environment. Following
an exhaustive search facilitated by RGF, Mr Edward Story was
appointed as a Non-Executive Director on 1 June 2017. RGF has no
connection with the Group, other than to assist the Nominations
Committee in its Board recruitment efforts.
Mr Story, who has extractive industry experience, was also
appointed as a member of the Audit Committee to meet the
requirement for the Audit Committee as a whole to have
competence relevant to the sector in which the Group operates.
Mr Deepak Parekh succeeded Mr Mehta as the Company’s Senior
Independent Director.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 116
Vedanta Resources plc | Annual Report FY2018
Nominations Committee Report continued
Effectiveness
Specific progress made during the year against the previously agreed areas of focus is summarised as follows:
Area
Specific focus
Progress during the year
Board composition
Succession for role of Chief
Executive Officer
Health & Safety
Health & Safety strategy and
implementation
The Nominations Committee reviewed the composition of the
Board in light of Mr Albanese’s departure. Due to the length of
the recruitment process, and in order to provide continuity of
leadership, the Nominations Committee recommended to the
Board the appointment of Mr Kuldip Kaura as interim Chief
Executive Officer until a permanent successor was found as he
had previous experience of leading the Executive Committee.
Subsequently, Mr Venkatakrishnan, who has a wealth of
extractive industry experience, was appointed as the
Company’s Chief Executive Officer.
During the year, Management reviewed the Group’s HSE
strategy and details of actions taken are given in the
Sustainability section on page 47.
HSE will remain a key focus area for the new Chief Executive
Officer.
Board development
Ongoing training to ensure Directors
have the skills to fulfil their duties
Additional training sessions were arranged for members of the
Audit Committee in respect of the responsibilities of the
Committee.
Board administration
Information papers for the Board
Information papers to the Board and Board Committees were
revised to focus on objectives and key risks/issues to the
Group’s businesses. These include those matters which are
financially material in addition to those which can impact the
Group’s reputation and control environment.
Board evaluation Action Plan for 2018
• A dedicated conceptual strategy session will be arranged with enhanced engagement between Non-Executive Directors and
senior management;
• Business level management will be invited to Board discussions to enable the Board get a better first-hand understanding of
key challenges and the strategic impact for the Group.
• Safety remains a risk and of paramount importance and while a number of initiatives have already been implemented to drive the
Group’s goal of ‘Zero Harm, Zero Waste and Zero Discharge’, the Board’s and Management’s focus should remain on driving a cultural
change to this key risk.
• More time allocation to safety, environment issues, ‘license to operate’ and frequent interaction with local HSE specialists to iron out
issues relating to ESG.
Nominations Committee performance evaluation
As part of the Board’s annual evaluation of its effectiveness and that of its Committees, described on page 115, the Nominations
Committee assessed its own effectiveness. The members of the Nominations Committee agreed that its overall performance had been
effective during the year.
Vedanta Resources plc | Annual Report FY2018
117
Audit Committee Report
Accountability
Ravi Rajagopal
Chairman
22 May 2018
Current members
Ravi Rajagopal
(Chairman)
Geoffrey Green
Deepak Parekh
Edward T Story
I am pleased to present the Audit Committee’s report for the
financial year ended 31 March 2018. This report explains how the
Committee has fulfilled its responsibilities throughout the year.
The Audit Committee is comprised solely of independent
Non-Executive Directors in accordance with the Code. The
Audit Committee met on seven occasions during the year.
Please refer to page 109 for details of attendance at meetings
of the Committee.
The Directors who serve on the Audit Committee have the
necessary qualifications and bring a wide range and depth of
financial and commercial experience across various industries.
Their collective knowledge, skills, experience and objectivity
enables the Audit Committee to work effectively and to
challenge management.
Responsibilities
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, internal
audit processes and the independence and objectivity of the
external auditor. The work of the Audit Committee aims to reassure
shareholders that their interests are properly protected in respect
of the Group’s financial and risk management and reporting and
the Audit Committee regularly updates the Board in respect of this.
The Audit Committee has been delegated responsibility by
the Board to oversee the Company’s procedures and systems in
relation to risk management and internal control which are adopted
by the Company. 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 which is
reviewed regularly, discussed and challenged by the Audit
Committee, as required.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 118
Vedanta Resources plc | Annual Report FY2018
Audit Committee Report continued
Accountability
Summary of the Audit Committee’s activities during the year
The main areas covered by the Audit Committee during the year are summarised below:
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 119
of the Corporate Governance Report.
• Review and approval of preliminary
announcements, Annual Report and
financial statements;
• Review of key significant issues for
year-end audit (further details on
page 120;
• Six-monthly reviews of significant
accounting issues and receipt of reports
on key accounting issues;
• Review and approval of the half-year
report;
• Review of the Group’s financial
statements for the nine-month period
ended 31 December 2017;
• Discussions on impairment reviews;
• Review of pending tax issues;
• Review of Audit Committee Report for
the Annual Report and Accounts FY2017;
• 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;
• Review of the Group’s Viability Statement.
The audit and external auditor
• Review of the significant audit risks
with the external auditor 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 of
non-audit services including non-audit
fees paid to the external auditor;
• Approval of the revised Non-Audit
Services Policy for the Group;
• Review of the external auditor’s
performance and making
recommendations in respect of the
reappointment of the external auditor;
• Review of the management
representation letter;
• Review of the audit plan, scope of the
2018 external audit of the financial
statements and key risk areas for the
2018 audit.
Audit Committee
focus during
the year ended
31 March 2018
Internal 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 2017–2018 internal audit
plan;
• Review of the Group’s Anti-Bribery
Policy and its implementation.
Internal controls,
risk management and governance
Details of the Company’s internal control
and risk management processes are
discussed on pages 122–123. The Audit
Committee reviews these processes and
output from the regular review of risks
carried out during the year by the internal
audit function.
• Internal audit review including the
internal control framework, changes to
the control gradings within the Group
and whistleblower cases;
• Reviewing the Group’s risk
management infrastructure, risk
profile, significant risks, risk matrix and
resulting action plans;
• Reviewing reports from subsidiary
company audit committees;
• Reviewing feedback from the Audit
Committee’s performance evaluation;
• Reviewing the Group’s cybersecurity
controls;
• Approving the updated terms of
reference of the Audit Committee in
respect of the requirements of the UK
Corporate Governance Code 2016
and guidance for Audit Committees
issued by the FRC.
Fraud and whistleblowing
• Receiving reports on fraud and
monitoring the effectiveness of the
whistleblower policy to ensure that it
remains robust and fit for purpose;
• Receiving updates on the whistleblower
arrangements and status of reported
incidents across the Group.
Vedanta Resources plc | Annual Report FY2018
119
Annual Report and Accounts FY2018 review
The audit process
A detailed audit plan (the Audit Plan) was prepared by the external
auditor, E&Y, 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 considered by the Audit Committee
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 Audit Committee reviews whether the Group’s accounting
policies are appropriate, and management’s estimate and
judgements applied in the financial statements are reasonable.
The Audit Committee also reviewed the disclosures made in the
financial statements. The views of the statutory auditor on these
significant issues were also considered by the Audit Committee.
Financial Reporting
The Audit Committee oversees the integrity of the Company’s
financial reporting process in order to ensure that the
information provided to the Company’s shareholders is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position
and performance, business model and strategy. The Audit
Committee reviewed and challenged the key accounting and
other judgements presented by management throughout
the year and for the preparation of the Annual Report and
Accounts FY2018. As a result, and as supported by the high
standard of reporting by management, the Audit Committee
concluded that it has discharged its responsibilities effectively.
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 include 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 by the Company’s external
auditor, Ernst & Young LLP.
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 and viability statements with supporting
cash flow, liquidity and funding forecasts.
4) The internal audit function (MAS) provides an independent
assurance in respect of processes, physical verification
and management information system accuracy for
operating companies.
– Plans and carries out internal audits through arrangements
with leading international accounting and audit firms;
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.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 120
Vedanta Resources plc | Annual Report FY2018
Audit Committee Report continued
Accountability
The significant issues that were considered by the Audit Committee in relation to the financial statements are outlined below:
Significant issues
How these issues were addressed
Impairment/reversal of impairment
assessment of:
• Rajasthan Oil & Gas block including
exploration and evaluation assets
• Copper operations in Zambia
• Alumina refinery assets at Lanjigarh
• Iron Ore business at Goa
• Assets under construction
More information is provided in Note 2(c)
and Note 5 to the financial statements
Revenue recognition across the business:
• Provisional pricing for sale of goods
• Oil & Gas revenue
• Power tariff with Grid Corporation
of Odisha Limited (‘GRIDCO’)
• Power Purchase agreement with
Punjab State Power Corporation
Limited (‘PSPCL’)
More information is provided in Note 2(b)
and Note 5 to the financial statements
Given the progress on key Growth Projects which is expected to result in the enhanced
recovery of resources in a commercially viable manner, leading to a higher forecast of oil
production; and adoption of integrated development strategy for various projects leading to
savings in cost, Rajasthan oil & gas block including exploration and evaluation assets were
considered for reversal of previously recognised impairment.
The Committee reviewed the significant assumptions including the oil price, future production
estimates and the discount rate. A reversal of the previously recorded impairment charge of
US$499.9 million has been recorded against oil & gas properties and US$964.6 million has
been recorded against exploration and evaluation assets.
Impairment assessment of copper operations in Zambia is considered a significant issue due
to the delay is production ramp up and other operational challenges. The significant
assumptions of commodity prices, increase in production and discount rate were reviewed
by the Committee.
The partly complete Lanjigarh refinery expansion programme within the Aluminium business
unit received regulatory approvals during FY2015–16 to expand unconditionally up to 4 MTPA.
Impairment assessment of Alumina refinery assets at Lanjigarh is considered a significant issue
due to delays in obtaining local bauxite mining approvals/gaining access to local bauxite. The
Committee reviewed the progress made on the bauxite sourcing and the various initiatives
taken by the Group
The mining operations in Goa were stopped with effect from 16 March 2018 pursuant to an
order passed by the Honourable Supreme Court of India on 7 February 2018. The Committee
reviewed the recoverability assessment of various assets considering fresh mining leases (not
fresh renewals or other renewals) and fresh environmental clearances would only be granted
in accordance with the provisions of Mines and Minerals (Development and Regulation)
(MMDR) Act. An impairment charge of US$758.5 million has been recognised against these
assets.
The Committee also reviewed the carrying value of various other projects classified under
‘Assets under construction’. A provision for loss of US$39.0 million has been recognised
against certain old items of ‘Assets under construction’ which are no longer expected to be
used.
The Committee was also informed that the impairment assessment approach and assumptions
are consistent across all business segments. With the existence of sufficient headroom over
carrying value of assets it was concluded that no impairment is required for Zambia copper
operations and Lanjigarh assets.
The Committee reviewed the process and compliance around the Group’s 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.
The Committee reviewed the developments in the various disputes with GRIDCO and PSPCL.
The receivables were reviewed for recoverability together with revenue recognition in terms
of the requirements of IAS 18. The assessment was supported by legal opinions from external
legal counsel, wherever required.
The Committee considered the revenue recognition and recoverability of receivables to be
fairly stated in the financial statements.
Vedanta Resources plc | Annual Report FY2018
121
Litigation, environmental and regulatory
risks
Additional information on these matters
is disclosed in Note 38 to the financial
statements
A comprehensive legal paper was placed before the Committee for its consideration.
The mitigating factors were discussed by the Committee with senior management.
The Committee also reviewed the probable, possible and remote analysis carried out by
management and disclosure of contingent liabilities in the financial statements. In all significant
cases, management’s assessment was supported by legal opinions from external legal counsel.
Taxation
Additional information on these matters
is disclosed in Note 38 to the financial
statements
A comprehensive tax paper outlining taxation disputes in respect of withholding taxes
following 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.
Recoverability of various income tax
balances
Refer to Notes 31 and 41 to the financial
statements
Copper operations India
The contingent liability disclosure was also reviewed by the Committee. The Committee
considered whether the developments in the Cairn India Limited (now merged with Vedanta
Limited) withholding tax matter, justified reduction in the contingent liability and concurred
with the management’s assessment on the reduction. In certain cases, views of tax experts
supporting management’s assessment were also provided to the Committee.
The Committee reviewed the recoverability of deferred tax assets and other income tax
receivables and the Zambian Revenue Authority receivables (KCM VAT) and accepted
management’s assessment of the recoverability of these balances.
The Committee was briefed that the annual consent to operate (CTO) under the Air and Water
Acts for the Group’s copper smelter in India has been rejected for want of further clarifications
and consequently, the operations are currently suspended. The Committee was further
briefed about the state of compliances and the actions taken by the Company. Upon review,
the Committee accepted management’s assessment regarding carrying the capitalised costs
on its balance sheet.
Disclosure of Special items
Refer to Note 5 to the financial statements
The Committee reviewed each of the items classified as special items and the related
disclosures to ensure that the separate disclosure of these items in the financial statements
was appropriate.
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Vedanta Resources plc | Annual Report FY2018
Audit Committee Report continued
Accountability
Fair, balanced and understandable
At the request of the Board, the Audit Committee considered
whether the Annual Report and Accounts FY2018 is fair, balanced
and understandable and whether it provides 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 statements and the Strategic Report of this Annual Report
and Accounts FY2018.
The Audit Committee and the Board are satisfied that the Annual
Report and Accounts FY2018 meets 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 FY2018, 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 in order
to enable shareholders to assess the Company’s performance;
• Management Assurance Services (MAS) conduct internal audit
reviews with conclusions and recommendations presented to
the Audit Committee;
• Revisions to regulatory requirements are considered and
incorporated;
• 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 FY2018 as a whole is fair,
balanced and understandable;
• Members of the Audit Committee received an advance draft
of the Annual Report and Accounts FY2018 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;
• A meeting of the Audit Committee is held to formally review and
sign-off the draft Annual Report and Accounts FY2018; and
• A meeting of the Board is held to review and provide final
sign-off.
Risk management and internal control framework
Vedanta’s risk management framework serves to identify, assess
and report on the principal and emerging risks facing the Group’s
businesses in a consistent manner. The Group’s organisational
structures, policies and procedures, standards and Code of
Business Conduct and Ethics together form the system of internal
control that governs how the Group conducts its business and
manages the associated risks.
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, MAS;
• Reviews internal audit plans;
• Assesses the effectiveness of the internal audit function;
• Reviews whistleblower reports presented by MAS.
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 updating of the risk matrix;
• Discusses findings in respect of the risk management and
internal control framework with senior management and
reports to the Audit Committee;
• Presents the findings of these audits to the Executive
Committee, with each Business Executive Committee
made responsible for closing any findings from the audits;
• Investigates whistleblower cases.
The Director – MAS attends all the Company’s 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. KCM is excluded from the scope 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.
Vedanta’s risk management framework serves to identify, assess
and respond to the principal and emerging risks facing the Group’s
business and is designed to be simple and consistent and provide
clarity on managing and reporting risks to the Board. The Group’s
management systems, organisational structures, processes,
standards and Code of Conduct and Ethics together form the
system of internal control that governs how the Group conducts its
business and manages the associated risks.
The Audit Committee reviewed the internal control system in place
during the year and up to the date of this Report to ensure that it
remains effective. The review included a report on the risk matrix,
significant risks and actions put in place to mitigate these risks. Any
Vedanta Resources plc | Annual Report FY2018
123
weaknesses identified by the review were addressed by enhanced
procedures to strengthen the relevant controls and these are in turn
reviewed at regular intervals.
During the year, the Committee continued to monitor the
market conditions, risks and uncertainties relevant to the Group,
reviewed the risk management framework and reported to the
Board on relevant risks affecting the Group. The Committee
received regular updates from management confirming that
risks relevant to the Group were appropriately categorised to
ensure that the Committee understood the potential impact to
the Group and adequate resources were allocated to manage
the risks. The Committee has reviewed the Principal Risks and
Uncertainties for the Group disclosed in the Annual Report
and Accounts FY2018 and consider them to be appropriate.
Fraud and UK Bribery Act
The Board has a zero tolerance policy for corruption and the
Company is committed to the elimination of fraud, with each
suspected case thoroughly investigated and concluded.
Vedanta has in place strong policies underlining its beliefs in honest
and ethical conduct. These policies act as an effective tool in
minimising various risks to which businesses are exposed during
the course of day-to-day operations as well as strategic actions.
Vedanta’s Code of Business Conduct and Ethics contains general
guidelines for conducting the business of the Company, consistent
with the highest standards of business ethics. This code stipulates a
higher standard than required by commercial practice or applicable
laws, rules or regulations. Vedanta also maintains a Supplier Code
of Conduct which ensures that all its suppliers and service
providers are also operating with the highest standards on
business ethics.
In addition to the above Company policies, Vedanta has developed
a stringent Compliance and an Ethics framework under which the
Company has issued various ‘Standard Operating Procedures’
laying down processes and procedures to manage compliances
across the Group.
The Company also has a comprehensive mechanism for addressing
the various complaints filed under the polices of the Company
including a whistleblower policy under which anyone can raise a
concern with regards to the Company or any of its employees,
Directors or officers. The Head-Management Assurance ensures
investigation of all complaints and submits regular reports on any
complaints received to the Company’s Audit Committee for review.
Code of Business Conduct and Ethics and whistleblower
arrangements
All Vedanta employees are expected to observe high ethical
standards which are enshrined in 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 the Group’s commitment
to ethical practices and promoting an ethical culture across
the Group.
The Group’s Whistleblower Policy forms part of the Vedanta Code
of Business Conduct and Ethics and enables employees of the
Company, its subsidiaries and all external stakeholders to raise
concerns about suspected wrongdoing within the Group in
confidence. The Whistleblower Policy also covers the requirements
of the UK legislation in respect of slavery and human trafficking
reporting.
The Audit Committee is responsible for reviewing the adequacy of
the Group’s whistleblower arrangements. It regularly reviews the
Group’s whistleblower arrangements and monitors the outcome of
investigations, ensuring that all reported whistleblower incidents
are appropriately investigated and actioned.
Under the Whistleblower Policy adopted by each of the businesses
in the Group, all complaints are reported to the Director –
Management Assurance who is independent of operating
management and the businesses. Dedicated email addresses and a
centralised database have been created to facilitate the receipt of
complaints and for ease of reporting. The Company operates a
web-based portal and a 24x7 freephone ethics helpline with
multiple local language options, where integrity related concerns or
violations of the Group’s Code of Business Conduct and Ethics can
be reported anonymously.
Following an investigation, established cases are brought to the
Group Ethics Committee for decision-making. The Ethics
Committee ensures uniformity and consistency in the decision-
making process following investigation of reported whistleblower
incidents and other ethics violations. All cases are taken to their
logical closure. A summary of cases along with the outcome of the
investigations and action taken, is presented periodically to the
audit committees of the respective businesses as well as at
Group level.
Review of MAS
The Audit Committee is responsible for reviewing the
performance and effectiveness of MAS during the year. MAS
undertakes an annual self-assessment of its performance
which is based on set parameters. This includes the robustness
of the control environment; progress against the Audit Plan;
implementation status; feedback from process owners; key
governance matters driven or facilitated by MAS including the
whistleblower arrangements, asset optimisation, sustainability
assurance and risk management; and benchmarking of
MAS practices and external quality review of internal audit
systems by one of the Big 4 firms in line with their global
standards. The results of the assessment were reviewed by
the Audit Committee and were considered satisfactory.
External auditor
The Company’s external auditor is E&Y. A resolution to re-appoint
E&Y as the Group’s external auditor will be proposed at the
Company’s 2018 Annual General Meeting.
External auditor independence and provision of non‑audit
services by the external auditor
The Audit Committee is responsible for reviewing the external
auditor’s independence and assessing their ongoing effectiveness.
The objectivity of the external auditor is a crucial aspect in
providing external assurance and such objectivity and
independence is maintained through the following:
In accordance with the Auditing Practices Board Ethical Standards,
E&Y has rules in place to ensure that none of its employees working
on Vedanta’s audit hold any shares in the Company. E&Y is also
required to inform the Company of any significant facts and matters
that may reasonably be thought to bear on its independence or on
the objectivity of the Audit Engagement Partner and the audit team.
The lead partner must change every five years. The Company’s
Audit Engagement Partner is currently Mirco Bardella, who was
appointed with effect from 5 August 2016. The Company also has
a policy which restricts employment of former employees of the
external auditor to maintain the auditor’s independence.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 124
Vedanta Resources plc | Annual Report FY2018
Audit Committee Report continued
Accountability
FRC’s Corporate Reporting Review
The Company’s Annual Report and Accounts FY2017 had not been
reviewed by the FRC’s Corporate Reporting Review team.
Competition and Markets Authority 2014 Order
During the year ended 31 March 2018, the Company was compliant
with the Competition and Markets Authority 2014 Order on
mandatory tendering and audit committee responsibilities.
Audit Committee performance evaluation
As part of the Board’s annual evaluation of its effectiveness and that
of its Committees, described on page 115, the Audit Committee
assessed its own effectiveness. The members of the Audit
Committee agreed that its overall performance had been effective
during the year.
The year ahead
The Audit Committee’s priorities for the forthcoming year include:
• Review of the integration of AvanStrate Inc and Electrosteel
Steels Limited into the Group and the management of risks
associated with such integration;
• Oversight of management’s progress on the various business
Growth Projects approved by the Board.
External auditor remuneration
The Audit Committee is responsible for determining the external
auditor’s remuneration on behalf of the Board, subject to the
approval by shareholders at the Company’s forthcoming Annual
General Meeting. The Audit Committee considers and approves
all the fees that the Company pays for audit, audit-related and
non-audit services performed by E&Y.
Non‑audit services
The Group’s policy on the provision of non-audit services by the
external auditor specifies the services which the external auditor is
permitted to undertake. It also specifies non-audit services which
E&Y is prohibited from undertaking in order to safeguard their
objectivity as such services present a high risk of conflict and could
undermine the external auditor’s independence. The Company’s
Non-Audit Services Policy was reviewed and updated in November
2016 to reflect the requirements of the FRC’s revised UK Corporate
Governance Code 2016, guidance for Audit Committees and the
EU Audit Directive.
Prohibited non-audit services include work relating to the financial
statements that will ultimately be subject to audit, certain tax,
consultancy and advisory services and the provision of internal
audit services amongst others. The policy also identifies those
services which the external auditor is permitted to deliver to the
Group. These include work on mergers and acquisitions, regulatory
reviews, any certification required under loan agreements or bond
covenants, assurance opinion on bond issuance work and
assurance work in respect of compliance and corporate
governance amongst others.
The external auditor’s independence is also safeguarded by
limiting the aggregate value of non-audit services performed by
E&Y. In accordance with the FRC’s Ethical Standards 2016, a cap
for non-audit services will be set at 70% of the average audit fees
based on a three-year average and will first be applied from the
fourth year commencing on 1 April 2020. The Audit Committee
monitors all non-audit services each year to ensure that they are
in compliance with the requirements. Of the permitted services,
any assignment in excess of US$30,000 is only awarded to the
external auditor with the prior approval of the Audit Committee.
All permitted non-audit services and the fees paid to the external
auditor for non-audit work are reported to the Audit Committee.
A breakdown of the non-audit fees paid to E&Y is disclosed in
Note 28 to the financial statements.
Non-audit work, which is not prohibited, is only undertaken by
the external auditor, where, because of their knowledge and
experience with the Group and/or for reasons of confidentiality,
it is more efficient or prudent to engage the external auditor.
Performance of the external auditor
The Audit Committee is pivotal in monitoring the performance of
the external auditor and the Group’s relationship with the external
auditor. During the year, the Audit Committee reviewed E&Y’s
effectiveness using a survey comprising of a range of questions
covering objectivity, quality and efficiency. The results of the survey
were positive and the Audit Committee concluded that E&Y had
provided a high quality audit.
Vedanta Resources plc | Annual Report FY2018
125
Relations with Shareholders
The Board recognises the value of maintaining an ongoing dialogue with the Company’s shareholders to ensure a
mutual understanding of the Group’s strategy, performance and governance. Investors are kept informed of the
Group’s performance and significant developments through regular corporate updates and regulatory announcements.
These communications are available on the Company’s website at www.vedantaresources.com.
Institutional shareholders
The Group arranges regular meetings with institutional investors,
analysts, brokers and fund managers which are attended by the
Chief Executive Officer and managed by the Investor Relations
team to keep investors informed and develop an understanding of
the views of major shareholders. The Senior Independent Director
and other Non-Executive Directors are available, on request, to
meet with major investors to discuss any specific issues.
The Company arranges site visits to the Group’s major operations
for institutional investors, analysts and brokers from time to time
to provide them with a better understanding of the strengths,
capabilities and challenges of the Group’s business operations.
There were no site visits undertaken during the year under review.
Retail shareholders
The Company is committed to ongoing engagement with its
retail shareholders and we promptly respond to any queries.
Shareholders are encouraged to access communications from the
Company through the website at www.vedantaresources.com.
Annual General Meeting
The Board welcomes the opportunity to meet with the Company’s
shareholders at its Annual General Meeting (AGM). All of the
Company’s Directors attend the AGM in order to answer questions
from shareholders.
Details of the 2018 AGM will be communicated to shareholders
separately.
The Board is kept informed of share price performance,
shareholder sentiment and issues raised by the Company’s
investors, brokers and analysts through regular updates from
the Director, Investor Relations and the Group Company Secretary.
The Company also holds an annual Sustainable Development Day
to engage with the Company’s stakeholders on the activities
undertaken by the Group in the pursuit of its goal of ‘Zero Harm,
Zero Waste and Zero Discharge’ and to get a better understanding
of and address stakeholders’ concerns on sustainability matters.
Shareholder engagement activity 2018
Topic
Activity during the year
Purpose
Operational and financial
updates
• Q4 FY2017, Q1-Q3 FY2018 Production Results
• FY2017 Preliminary results & FY2018 Interim Results
Update on the operational and financial
performance as well as other key
developments in the Group
Credit and Equity
Investor meetings and
conferences
• FY2017 preliminary results roadshow (London)
• H1 FY2018 interim results roadshow (London)
• Roadshows in respect of the US$1bn bond offering
Discuss Group strategy and performance,
understand shareholder/ bondholder
perspective and gather feedback
due 2024
• Standard Chartered South Asia Credit Markets
Conference
• Barclays Access India Day
• Capital Markets Day
• Oil & Gas Day (India)
• Zinc Day (India)
• 3rd Vedanta Sustainable Development Day (London)
Led by Group and Business CEOs, and the
Investor Relations team
Discuss strategy, performance and growth
plans across the Group and key businesses,
led by Group and Business CEOs
Engage with analysts, investors and other
stakeholders on the Group’s HSE activities
Analyst or (and) investor
events
Sustainable development
events
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 126
Vedanta Resources plc | Annual Report FY2018
Stakeholder Engagement
The Board recognises that open, ongoing and systematic dialogue is the key to successful relationships with its various stakeholders. The
Group has a five-point roadmap which guides the stakeholder engagement process and further details can be found on page 53.
The Board is responsible to shareholders for delivering returns on their investment
Stakeholder
Types of Engagement
Types of Interventions
Initiatives in FY2017–18
Local Community
Community group meetings, village
council meetings, community needs/
social impact assessments, public
hearings, grievance mechanisms,
cultural events, engaging
philanthropically with communities via
Vedanta Foundation
• Community engagement
initiatives
• Infrastructure projects
• Land & resettlement
• Local employment
Employees
Shareholders, Investors
& Lenders
Chairman’s workshops, Chairman’s/
CEO’s town hall meetings, feedback
sessions, performance management
systems, various meetings at plant level,
V-Connect mentor programme, event
management committee and welfare
committee, women’s club, etc
• Employee health & safety
• Training & leadership
development
• Gender diversity
• Succession planning
Regular updates, investor meetings,
Sustainability Day for investor
interaction, site visits, annual general
meeting and conference, quarterly
results calls, dedicated contact
channel – ir@vedanta.co.in and
sustainability@vedanta.co.in
• Economic performance
• ESG (Environmental, Social
and Governance) performance
• Adherence to international
standards for new projects
• Sustainability risk
management
Civil Society including
non‑governmental and
other organisations
Partnerships with and membership of
international organisations, working
relationships with organisations on
specific projects, engagement with
international, national, and local
NGOs, conferences and workshops,
dedicated contact channel –
sustainability@vedanta.co.in
• Project partnerships
• Community development
• Human rights compliance –
Modern Slavery Act
• Began work to conducting
baseline, need, impact and
SWOT assessments in all BUs.
• US$39 million invested in
Social Investment
• 3.4 million beneficiaries of
community development
programmes
• Community grievance process
followed at all operations
• 921,550 man-hours of training
on safety
• 21% of all new hires are women
• Identification of top talents and
future leaders through
workshops
• US$15.4 billion in revenue with
a final dividend of 65 US cents
per share
• 3rd Sustainability Day hosted
in London
• Sustainability assurance audits
conducted through Vedanta
Sustainability Assurance
Programme (VSAP)
• Our subsidiary, Vedanta
Limited, ranked 15th in the
Dow Jones Sustainability Index
in the Metals and Mining
Category
• Membership of international
organisations including the
United Nations Global
Compact, TERI, CII, The World
Business Council for
Sustainable Development
(WBCSD), and Indian
Biodiversity Business Initiative
(IBBI)
• Focus towards implementing
Sustainable Development
Goals.
Industry (Suppliers,
Customers, Peers,
Media)
Customer satisfaction surveys,
scorecards, in-person visits to
customers, supplier, and vendor
meetings
• Contractual integrity –
• Hotline service and email ID to
payments
• Partnerships
receive whistle-blower
complaints
• Compliance to the Modern
Slavery Act
Governments
Participation in government consultation
programmes, engagement with national,
state, and regional government bodies
at business and operational level
• Economic performance
• Community development
• Environmental initiatives
• US$39 million invested in
community development
• US$5.3 billion in payments to
the exchequer
Vedanta Resources plc | Annual Report FY2018
127
Sustainability Committee Report
Accountability
Katya Zotova
Chair
22 May 2018
Current members
Katya Zotova (Chair)
Ravi Rajagopal
Kuldip Kaura
Deshnee Naidoo
Sunil Duggal
I am pleased to present the Sustainability Committee Report for the financial year ended 31 March 2018. This report explains how the
Committee has fulfilled its responsibilities throughout the year.
Summary of the Sustainability Committee’s activities during the year
The main areas covered by the Sustainability Committee are summarised below:
Sustainability framework
• Review of the Sustainability
Committee performance and terms
or reference;
• Oversee development and roll out
of four new safety performance
standards;
• Review and approve annual HSE &
sustainability targets;
• Periodic review of HSE programmes
and performance;
• Review VSAP score and VSF
implementation for the Group;
• Review sustainability issues significant
to the Group and stakeholders.
Sustainability
Committee focus
during the year
Health and safety
• Review of the Group’s safety incidents
and performance;
• Oversee the implementation of
corrective actions in respect of fatal
accidents;
• Review progress on implementation of
the safety performance standards;
• Review of progress on the safety
standard implementation at BALCO
mines.
Environment
• Review outcome of third party tailing
dam assessment and implementation
of corrective actions;
• Review of the Group’s resource
conservation targets and
achievements;
• Review of progress on KCM’s
environment projects.
Community relations
and engagement
• Stakeholder engagement at
the Company’s Sustainable
Development Day;
• Review of the outcome of the BALCO
chimney social remedial measure;
• Review of the Group’s stakeholder
engagement strategy.
System development and
performance reporting
• Review of the results of the performance
evaluation of the Sustainability Committee;
• Review of the Sustainability Committee
terms of reference.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 128
Vedanta Resources plc | Annual Report FY2018
Sustainability Committee Report continued
Accountability
Our focus remains on our philosophy of ‘Zero Harm, Zero Waste
and Zero Discharge’ and we can report some good achievements
last year. However, we also had disappointments. From our
expectation and stated goal of eliminating fatalities, we have to
report that nine deaths occurred across our businesses in the last
financial year. This led to much soul-searching by our senior
leadership, by the Sustainability Committee (including an
extraordinary meeting) and the Board.
The Executive Committee has taken the role of monitoring
implementation of key issues directly addressing safety leadership,
implementation of standards and risk management. At each
monthly Executive Committee meeting, these are discussed
with all businesses present and performance is compared with
interventions as required.
As a result of the fatal accidents, we also introduced four new
safety performance standards covering Crane & Lifting, Machine
Guarding; Molten Materials; and Pits, Stockpiles and Waste Dump
Stability. While these actions saw an improvement, we did have
one fatality in Q4 near the end of our financial year. We will
continue to increase our efforts this year with a particular emphasis
on leadership’s role and capability in managing safety in work teams
and on task hazard assessment.
A key area of focus will be on the engagement and management of
business partners (or contractors) who are over represented on our
safety statistics.
To boost our HSE performance and capability, we have inducted
10 global experts into operating businesses with three further
appointments planned in Q1 of the FY2019 year. These experts
have been brought on board to design and implement programmes
needed at the business level to address high potential incidents
and eliminate fatalities, in addition to improving our overall HSE
performance.
We have continued to improve in the area of social performance
and this has been seen positively in several areas. Despite this, we
did have an unfortunate incident at our Tuticorin smelter that
started due to dissatisfaction with the contracting arrangements
with local providers and then escalated to a more significant social
and environmental concern. We continue to engage with the
community and regulatory authorities to resolve this.
During the year, we undertook third party assessments of all our
tailing dams and ash dykes following an ash dyke breach at our
aluminium business in India. Further, we are in the process of
engaging a reputed consultant to provide engineering advice in
developing and implementing effective tailing management
systems to our Indian businesses.
Our operations focussed on air, water, waste and energy
management to minimize their environmental impact and we
achieved our annual target on resource conservation. This year,
the Company also conducted a Group-wide water risk assessment
exercise to identify potential water-related business risks.
The Committee regularly reviewed and will continue to review
progress on significant sustainability issues for the Group such as
safety performance at BALCO mines, KCM water and emission
management projects, and the outcomes of social measures
following the BALCO chimney incident.
During the year, we welcomed Mr Kaura as a member of the
Committee following his appointment as Interim Group Chief
Executive Officer and I take pleasure in also inviting Sunil Duggal,
CEO, Base Metals and Zinc India; and Deshnee Naidu, CEO –
Africa Base Metals to join the Committee. We look forward to
their contributions in strengthening our performance.
Further details on each of the above initiatives can be found in the
Company’s Sustainable Development Report 2017-18 and on the
Company’s website at www.sustainability.vedantaresources.com/
home.
Sustainability Committee performance evaluation
As part of the Board’s annual evaluation of its effectiveness and
that of its Committees, described on page 115, the Sustainability
Committee assessed its own effectiveness. The members of the
Sustainability Committee agreed that its overall performance had
been effective during the year.
Remuneration Committee Report
Vedanta Resources plc | Annual Report FY2018
129
which was comprised of a bond and term loans. These transactions
have collectively extended average debt maturity to c. 4 years
at 31 March 2018, compared to c. 3 years at 31 March 2017.
We have been well positioned during the recent upturn in the
market, with the strong performance of zinc and aluminium in
the commodities market playing to our particular strengths. The
Company continued to remain focused on free cash from across its
businesses by reinforcing discipline in working capital management,
and operational cost controls.
Strategic Parameters:
In addition to the financial performance, we also achieved
significant strategic milestones during the financial year 2018 that
will fuel the next level of stability and agility to catapult growth. To
further enhance our effectiveness on Regulatory framework and
create value to the organisation, Board and the key executives led
various key initiatives and achieved significant success and
progress in the following areas: Improvement in Group Balance
Sheet primarily driven by proactive refinancing of $2.4 billion
through bond issuance and bank loans, extension of maturity profile
at Vedanta Resources plc, reduction in gross debt, improvement in
credit ratings etc.
Sustainability and Safety Scorecard:
The philosophy of a sustainable development agenda is at the
core of Vedanta’s strategic priorities and governs every business
decision. Employee safety and achieving zero harm remained our
number one priority and we have made progress reducing our lost
time injury rate by 13% from 0.39 to 0.34, but deeply regret the
nine fatalities at our operations. Fatality prevention remains the
centre point of our focus and we have recruited 12 global HSE
experts to help lift the performance of each of our businesses. We
have also seen improvements in our environmental performance.
Our GHG intensity reduced by 14% from the 2012 baseline. This is
in line with our expectations of reducing GHG intensity by 16% by
2020. We exceeded the water and energy conservation targets
by 188% and 189% respectively. Additionally, fly ash utilization
increased to 90% during the fiscal year against a target of 50%.
We continue to remain focused on reducing our environmental
footprint and improving our resource efficiency.
The Company had set stringent targets for itself and the business
performance for the year, as evaluated against the measures and
targets set, resulted in a bonus of 42.11% of the maximum for the
Executive Chairman, Executive Vice Chairman and erstwhile
Group CEO (on pro-rata basis), details of which are provided in
the relevant part of the Annual Report on Remuneration. (Refer to
Annexure B Annual Bonus computation – Executive Directors on
page 137 for the factors that determine the computation of 42.11%)
During the year, the Remuneration Committee took up various
matters pertaining to the remuneration of the Executive Directors
of the Company, which included determining the remuneration for
the year 2017–18, approving the annual bonus to be paid to the
executives and the long-term incentive design and grant of options.
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 2017.
We hope that we will receive your support on the new
Remuneration Policy and approval of the Annual Report on
Remuneration at the forthcoming AGM.
Yours sincerely,
Geoffrey Green
Chairman
Dear shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 March 2018. The
report sets out details of the Remuneration Policy, which previously
received shareholder approval in 2017 and which is substantially
unchanged from the past policy approved in 2014.
The Company reviewed the Remuneration Policy during the year
and believes that it remains appropriate.
Tom Albanese served as Chief Executive Officer under a fixed term
contract which ended on 31 August 2017, at which point he
stepped down from the Board and left the Company. Kuldip Kaura
served as Chief Executive Officer from that date and on 16 April
2018 the Board announced that Srinivasan Venkatakrishnan would
join the company as Chief Executive Officer and a member of the
Board on 31 August 2018.
Business Performance at a Glance
We have continued to build on our status as a large and diversified
asset base of long-life, low-cost assets. During FY2018 we
delivered a robust performance creating a clear pathway for
sustainable growth. This was driven by favourable commodity
prices and record volumes at our Zinc and Aluminium businesses
which ensured delivery of strong shareholder returns.
A synopsis of the Business Performance is outlined below:
Financial & Operational Performance:
During FY2018, a combination of a strong operating performance
driven by favourable commodity prices and record production at
Zinc India and Aluminium resulted in an EBITDA of US$4.1 billion
with robust margins of 35% (FY2017: US$3.2 billion and 36%).
Market factors resulted in net incremental EBITDA of
US$591 million compared to FY2017. The increase was driven
by improved commodity prices, but partially offset by input
commodity inflation and unfavourable foreign exchange impacts.
A strong volume performance contributed to an incremental
EBITDA of US$297 million.
We further strengthened our financial position, through our
continued focus on deleveraging our balance sheet and extending
maturity commitments. During FY2018, gross debt reduced by
c. US$3 billion, from US$18.2 billion as at 31 March 2017 to
US$15.2 billion as at 31 March 2018. This includes repayment of
US$1.2 billion of temporary borrowing at Zinc India.
The Group has proactively managed its debt maturities at Vedanta
Resources plc and various operating entities. This included
proactive refinancing of US$2.4 billion at Vedanta Resources plc,
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report
130
Vedanta Resources plc | Annual Report FY2018
Directors’ Remuneration Policy Report
The Company’s Remuneration Policy was put to a binding
shareholder vote and was approved at the 2017 AGM and
continues to be in effect.
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 the
UK and India in the setting of remuneration.
The Committee recognises that the 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 held 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 FY2018
131
Summary of the Remuneration Policy for Directors
The following table sets out the key aspects of the Remuneration Policy for Directors:
Elements 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.
Pension
To provide for sustained
contribution and
contribute towards
retirement planning.
Annual bonus
Incentivises executives
to achieve specific,
predetermined goals
during the financial year.
Benefits are set in line
with local market
practices.
Directors receive pension
contributions into their
personal pension plan or
local provident scheme
or cash in lieu of pension
contribution.
Contribution rates are set
in line with local market
practices.
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.
The value of benefits
is based on the cost to
the Company and is
not pre-determined.
Annual contribution of
up to 20% of base
compensation.
n/a
n/a
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.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 132
Vedanta Resources plc | Annual Report FY2018
Directors’ Remuneration Policy Report continued
Elements of pay
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Performance Share Plan
(PSP)
Encourage and reward
strong performance
aligned to the interests
of shareholders.
Up to 150% of base
compensation per annum.
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.
Performance conditions
are focused on the delivery
of increased shareholder
value over the medium to
long term.
No less than 50% of an
award will be linked to
relative total shareholder
return (TSR).
30% of the award will vest
for achieving threshold
performance (for the TSR
element this is 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.
Share ownership
guidelines
To increase alignment
between executives
and shareholders.
Non-Executive
Directors’ fees
To attract and retain
high-calibre Non-
Executive Directors
through the provision of
market-competitive fees.
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.
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.
200% of base
compensation for
Executive Directors.
n/a
Business and individual
performance are
considered when setting
fees.
As for the Non-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.
Additional fees may
be paid if there is a
material increase in
time commitment and
the Board wishes to
recognise this
additional workload.
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.
Vedanta Resources plc | Annual Report FY2018
133
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.
Remuneration scenarios for Executive Directors
The charts below illustrate how the Executive Directors’
remuneration packages vary at different levels of performance
under the policy. The Company recently appointed a new CEO,
Mr Srinivasan Venkatakrishnan, and the remuneration charts below
also include the figures for Mr Venkatakrishnan, who is set to join
the Group by 31 August 2018. Although he is joining in the middle
of the year, the chart illustrates annual remuneration for the CEO.
The PSP is measured against financial and strategic metrics. The
sole metric for the 2017 PSP is 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,
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.
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.
In addition, the Committee may offer additional 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 attached to that remuneration.
Executive Chairman
Total Remuneration (£000)
Maximum
26%
37%
37%
£6,748,366
On-target
38%
35%
27%
£4,678,066
Minimum
100%
£1,779,646
Total fixed pay
Annual bonus
Performance share plan
Executive Vice Chairman
Total Remuneration (£000)
Maximum
30%
35%
35%
£4,666,549
On-target
42%
34%
24%
£3,364,966
Minimum
100%
£1,425,403
Total fixed pay
Annual bonus
Performance share plan
Chief Executive Officer 2018–19
Total Remuneration (£000)
Maximum
37%
25%
38%
£3,962,000
On-target
51%
23%
26%
£2,878,667
Minimum
100%
£1,462,000
Total fixed pay
Annual bonus
Performance share plan
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.
1 Base compensation levels are based on those applying on 1 April 2018 (converted at a rate
of INR 85.4732: £1).
2 The value of taxable benefits is based on the cost of supplying those benefits (as disclosed)
for the year ending 31 March 2018.
3 The value of pension receivable by the Executive Vice Chairman and Chief Executive
Officer in 2018–19 is taken to be 15% and 20% of base compensation respectively.
4 The on-target level of bonus is assumed to be two-thirds of the maximum annual bonus
opportunity.
5 The on-target level of the PSP is 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.
For external and internal appointments, the Committee may
agree that the Company will meet certain relocation expenses
and continuing allowances as appropriate.
Service contracts for Executive Directors
The Committee reviews the contractual terms for new Executive
Directors to ensure these reflect best practice.
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.
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 which expires on 31 July 2018, with a notice
period of three months or base compensation in lieu thereof.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 134
Vedanta Resources plc | Annual Report FY2018
Directors’ Remuneration Policy Report continued
Letters of appointment for Non-Executive Directors
The Non-Executive Directors have letters of appointment which
may be terminated by either party 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.
Mr Tom Albanese had a separate letter of appointment with the
Company and Vedanta Limited on a fixed three-year term which
was extended for a five-month term and expired on 31 August 2017.
He has received all the payments to be made in lieu of expiry of
contract as were applicable as per the agreement.
On 15 April 2018 the Company entered into a new agreement
with Mr Srinivasan Venkatakrishnan regarding his appointment as
Executive Director and CEO effective 31 August 2018. He will be
on a fixed three-year term which expires on 31 August 2021 with a
notice period of three months or base compensation in lieu thereof.
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 are 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 pay-out 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 reduce
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 be
pro-rated for the period of the financial year served.
Annual Report on Remuneration
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 2018 AGM. This
report contains both auditable and non-auditable information.
The information subject to audit by the Group’s auditor, Ernst &
Young LLP, has been identified accordingly.
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 in the Corporate Governance section along with their
attendance at Remuneration Committee meetings, please refer
to page 109.
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 2018.
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.
Vedanta Resources plc | Annual Report FY2018
135
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 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 2017–18 were £108,060. In addition, advisers to
the Committee during the year, and their roles, are set out below.
• Mr Suresh Bose (Head of Group HR) and Manoj Kumar Sharma
(Group Head of Total Rewards) advise 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 in
similar roles. Executive Directors may attend meetings at the
invitation of the Committee, but no Director is present during
discussions about their own remuneration.
• New Bridge Street reviewed and confirmed the Company’s
TSR Performance in respect of the Long-Term Incentive Plan.
Statement of shareholder voting
At the 2017 Annual General Meeting, a resolution was proposed to
shareholders to approve the Directors’ Remuneration Report for the
year ended 31 March 2017. This resolution was passed with the
following votes from shareholders:
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Director’s
Remuneration Policy
Annual Report on
Remuneration
230,551,064
(99.26%)
1,720,063
(0.74%)
232,271,127
2,032
221,944,178
(95.55%)
10,328,880
(4.45%)
232,273,058
1,100
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report
136
Vedanta Resources plc | Annual Report FY2018
Annual Report on Remuneration
Single total figure for remuneration (audited)
The table below summarises Directors’ remuneration received during the year ended 31 March 2018 and the prior year for comparison.
Base compensation
including salary
or fees
£000
Taxable
benefits
£000
Pension
£000
Annual
bonus
£000
Long-term
incentives
£0009
Total
£00010,11
Executive Directors
Anil Agarwal1
Navin Agarwal2,3,7
Tom Albanese4,7
Non-Executive Directors5
Geoffrey Green
Ed Story
Aman Mehta6
Deepak Parekh
Katya Zotova
Ravi Rajagopal
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
1,608
1,608
1,101
1,081
412
1,000
115
108
79
–
112
239
125
109
122
119
111
77
123
124
119
83
38
138
1,016
1,029
700
692
263
640
177
173
107
261
1,044
35
646
25
3,791
2,796
2,744
2,054
819
2,039
115
108
79
–
112
239
125
109
122
119
111
77
1 Mr Anil Agarwal’s taxable benefits in kind include provision of medical benefits; car and fuel in the UK for business purposes.
2 There has been no increase in the base compensation of Mr Navin Agarwal and the change in compensation reflected in the table is purely on account of movement in currency exchange
(GBP vs INR) during the year FY 2017–18. Furthermore, he is based out of India and is drawing the majority of his remuneration in INR. For the financial year ended 31 March 2018, Mr Navin
Agarwal received a Vedanta Limited salary of INR 85,618,845 excluding medical and leave travel allowances, Vedanta Resources plc fees of £85,000, Hindustan Zinc Limited fees of INR
250,000 and Commission of INR 1,000,000.
3 Mr Navin Agarwal’s taxable benefits in kind include housing and related benefits and use of a car and driver.
4 Mr Tom Albanese’s taxable benefits in kind include housing and related benefits, and use of a car and driver (grossed up to tax) in India and medical benefits in UK.
5 Non-Executive Directors are reimbursed for expenses incurred while on Company business. No other benefits are provided to Non-Executive Directors.
6 Mr Aman Mehta retired from the Board post conclusion of the AGM in 2017. The above amount for Mr Aman Mehta includes a commission of INR 6,554,795 and Sitting Fees of INR
800,000 received from Vedanta Limited in FY 2017–18.
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’s, and Chief Executive Officer’s personal pension schemes (or local provident fund) and will become payable on retirement, normally at age 58. The Executive Chairman does not
receive pension benefits.
8 Amounts shown for 2017/18 relate to the payment of the annual bonus for the year ended 31 March 2018. 50% of the annual bonus figures shown in the table are paid in cash and the balance
50% is paid in the form of deferred shares to vest in the staggered manner in three years in the ratio 40:30:30 subject to continued employment except for Mr Tom Albanese who will be paid
the annual bonus in cash owing to his contract closure effective 31 August 2017. Further details of this payment are set out below.
9 The amount shown here pertains to the Performance Share Plan (PSP) 2014. The performance period for PSP 2014 came to a close on 31 March 2017. Upon testing as per the scheme rules,
Vedanta stood at 6th position against its peers in the TSR Basket with a 28.6% TSR Achievement which made the potential EDs eligible for vesting of 60% against the grant made to them.
However, this was not made part of the Remuneration Table in FY 2016–17 as the vesting period completed on 16 November 2017.
10 NIC Contribution as per the statutory requirement is made for all Executive and Non-Executive Directors.
11 The exchange rate applicable as at 31 March 2017 was INR87.7138 to £1; and at 31 March 2018 was INR85.4732 to £1.
Voluntary disclosures – Chief Executive (non-Board position)
Upon the departure of former Chief Executive Officer, Mr Tom Albanese, on 31 August 2017, Kuldip Kaura was appointed as the Interim
Chief Executive Officer (CEO) of the Company effective 1 September 2017. He is responsible for leading the senior management team and
for the executive management of the Group. Mr Kaura, along with other leaders of the Group, is responsible for leading the day-to-day
operation of the Group’s core operations and growth in various businesses. Kuldip Kaura is not a member of the Board of the Company,
consequently, the following disclosures have been made voluntarily to demonstrate the remuneration arrangements that the Committee
believe are appropriate for the CEO, including the variable pay mechanisms (Annual Bonus Plan and LTIP) designed to motivate the CEO
to implement the Group’s strategy effectively.
Vedanta Resources plc | Annual Report FY2018
137
Single total figure for remuneration for CEO (audited)
The table below summarises Directors’ remuneration received during the year ended 31 March 2018 and the prior year for comparison.
CEO (not on the Board)
Kuldip Kaura1
Total
Base compensation
including salary
or fees
£000
2017/18
524
524
Taxable
Benefits
£000
57
57
Pension
£000
Annual
bonus
£0002
Long-term
incentives
£000
293
293
Total
£0003,4
874
874
1 The remuneration for Mr Kuldip Kaura as appended above is for the period for which he was appointed as the Interim CEO for the Company i.e. from 1 September, 2017 onwards. His base
compensation includes an amount of USD 400,000 which is paid by Vedanta Limited. The taxable benefits in kind for Mr Kaura include accommodation and provision of medical benefits in
the UK.
2 Since Mr Kaura is a Group Executive Committee member, the annual bonus for Mr Kuldip Kaura has been computed based on the maximum of 125% of his Base Pay as applicable to other
members of the Group Executive Committee. The annual bonus pay-out has been computed for the period 1 September 2017 to 31 March, 2018 payable at 55.03% of his base pay. 80% of
the annual bonus will be paid in cash and the balance 20% in the form of deferred shares of the Company to vest in the staggered manner in two years in the ratio 50:50 subject to continued
employment.
3 NIC contribution as per the statutory requirement is made.
4 The exchange rate applicable as at 31 March 2018 was INR85.4732 to £1.
Mr Kuldip Kaura, during his association as the Chief Executive Offices of the Company, was also awarded 34,580 cash option units
linked to the shares of Vedanta Resources plc equivalent to GBP 280,790 at grant price of GBP 8.12 per unit vesting determined over
a three-year period after meeting the performance condition.
Prior to his appointment as CEO, he was awarded 25,900 cash option units linked to the shares of Vedanta Resources plc equivalent to
GBP 178,451 at grant price of GBP 6.89 per unit vesting determined over a three-year period after meeting the performance condition.
Annual bonus (audited)
The annual bonus for the 2017–18 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:
Annual Bonus Computation – Executive Directors
Annexure B
Factors
Financial
performance1
Parameters
EBITDA
Weighting as
a percentage
of total bonus
30.00%
Free cash flow2
30.00%
Subtotal
financial
(as per Scheme)
60.00%
Actual
achieved
($m)
4,051
1,738
Threshold
performance hurdle
(33% of maximum
payable)
On-target
performance hurdle
(70% of maximum
payable) (£m)
5,273
2,692
Achievement
76.82%
64.57
Payout
(% of
parameter)
Payout %
as per
weightings
70.00%
100.00%
70.70%
34.18%
20.51%
Sustainability
7.50% Score as per Scorecard of the Group under this
74.00%
74.00%
parameter
2.50%
62.00%
62.00%
5.55%
1.55%
Sustainability
and Safety
Scorecard3
Safety
Fatality
Personal/
strategic
objectives
Stakeholder
management
and regulatory
10.00% The safety target was not met so no bonus was
0.00%
0.00%
0.00%
payable under this element
20.00% Parameters:
72.50%
72.50%
14.50%
1) Formulate an executable strategy for next phase
of growth
2) Turnaround of KCM (cash flow & NPV of KCM)
3) Regulatory advances: Iron Ore volume; key tax
matters, PSC extension
4) Strengthen balance sheet further by deleveraging
and extending term maturities
5) Raw material securitisation – supply chain solution
for bauxite
6) Perception improvement in our social license to
operate efforts
Total
Payout
100.00% Payout as a percentage of maximum payout opportunity
150.00% Paid as a percentage of base pay (calculated as per total score)
42.11%
63.16%
1 For financial performance, a weighted achievement of both the elements is considered for assessing the threshold and for arriving at the pay-out: 70% achievement of business plan targets is
considered as threshold, which entails 33.33% of the pay-out opportunity, with 70% pay-out for 100% achievement and stretching to 100% of pay-out opportunity at 120% achievement of
the targets. For other elements, pay-out is pro-rated with respect to performance levels, increasing to full payment at stretch performance.
2 The Free Cash Flow (FCF)◊ represented is adjusted for impact of disruption in banking around Letter of Undertakings in March 2018 and Cairn India dividend paid.
3 The sustainability, as well as safety performance, score is the Group average score calculated based on the scorecard which includes resource use and management, stakeholder
engagement and management, compliance and training, incident investigation and change management. The impact of fatalities has also been incorporated, which has impacted the annual
bonus pay-out for the Executive Directors. The fatality parameter has a 10% weightage which has resulted in Nil pay-out on this parameter.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 138
Vedanta Resources plc | Annual Report FY2018
Annual Report on Remuneration continued
For determining the bonus, the business performance for the year has been evaluated in terms of the metrics approved for the year
2017–18. Following evaluation against the set metrics, the achievement of targets is 42.11% of the maximum, and subsequently a bonus of
63.16% of salary is proposed for the Executive Chairman, Executive Vice Chairman and the erstwhile Group CEO. The bonus payment in
relation to performance in the 2017–18 financial year will be payable 50% in cash and 50% in shares under the Deferred Share Bonus Plan,
except for Mr Tom Albanese whose annual bonus award has been pro-rated owing to his contract closure effective 31 August 2017
and will be paid in cash.
Performance Share Plan awards granted and vested during the year (audited)
The following award was granted to the Executive Directors on 14 November 2017 under the PSP scheme:
Type of award
Anil Agarwal
Navin Agarwal
Nominal-cost option
Nominal-cost option
Basis of award
granted
(% of base
compensation)
90%
85%
Share price
at date of grant
Number of shares
over which award
was granted
Share price
at date of grant
£8.12
£8.12
178,230
122,440
Face value
of award
(£000)
1,447
994
% of face value
that would vest
at threshold
performance
Vesting
determined by
performance over
30% 3-year period
30%
The performance condition attached to the above award is based on Vedanta Resources’ relative TSR against the comparator group of
industry peers. 30% of the awards will vest at median performance, with full vesting for upper quintile performance.
There are two comparator groups – the Global Comparator Group and the Indian Comparator Group (since the majority of our operations
are in India). The percentage of the shares comprised in the awards that vest depends on the Company’s TSR relative to the companies in
the comparator groups on the basis of a ratio of 75:25 weighting as indicated below:
Global Comparator Group (75% weighting) – the companies comprising the TSR comparator group are AngloAmerican, BHP Billiton,
Rio Tinto, Glencore Xstrata, Vale, Antofagasta, Rusal, South 32, Santos, Korean Zinc, Fortescue, Alcoa, Boliden, First Quantum, and
CNOOC Limited.
Indian Comparator Group (25% weighting) – the companies comprising the TSR comparator group are Reliance Industries Ltd., ONGC,
Tata Steel, JSW Steel, Hindalco Industries and Adani Power.
Vedanta Resources plc | Annual Report FY2018
139
Share plan awards1 (audited)
The table below shows the Directors’ interests in the Company’s share plans:
31 March
2017
Number
of shares
Granted in
2017–18
Number
of shares
Vested in
2017–18
Number
of shares
Lapsed in
2017–18
Number
of shares
31 March 2018
Number
of shares
Exercise price
US cents
Award price
£
Earliest/latest
exercise date
Anil Agarwal
17 November 2014
PSP3
135,000
30 December 2015
PSP
275,000
4 January 2016
DSBP
41,197
8 September 2016
DSBP2
119,084
11 November 2016
PSP
210,000
–
–
–
–
–
25 August 2017
DSBP
14 November 2017
PSP
–
–
85,861
178,230
Navin Agarwal
17 November 2014
PSP3
84,000
30 December 2015
PSP
130,000
4 January 2016
DSBP
8 September 2016
DSBP2
36,217
57,697
11 November 2016
PSP
125,000
–
–
–
–
–
25 August 2017
DSBP
14 November 2017
PSP
–
–
47,563
122,440
135,000
–
20,599
47,634
–
–
–
84,000
–
18,109
23,079
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
275,000
20,598
71,450
210,000
85,861
178,230
–
130,000
18,108
34,618
125,000
47,563
122,440
0.1
0.1
0
0
0.1
0
0.1
0.1
0.1
0
0
0.1
0
0.1
8.09
2.717
6.534
3.753
8.215
5.995
8.12
8.09
2.717
4.435
5.177
8.215
7.585
8.12
17 Nov 17 –
17 May 18
30 Dec 18 –
30 Jun 19
22 May 16 –
22 May 18
19 May 17–
19 May 19
10 Nov 19 –
19 May 20
19 Jun 18 –
19 Jun 20
14 Nov 20 –
14 May 21
17 Nov 17 –
17 May 18
30 Dec 18 –
30 Jun 19
12 Aug 16 –
12 Aug 18
1 Sep 17 –
1 Sep 19
10 Nov 19 –
10 May 20
25 Aug 18 –
25 Aug 20
14 Nov 20 –
14 May 21
Total
1,213,195
434,094
328,421
1,318,868
31 March
2017
Number
of shares
Granted in
2017–18
Number
of shares
Vested in
2017–18
Number
of shares
Lapsed in
2017–18
Number
of shares
31 August
2017
Number
of shares
Exercise price
US cents
Award price
£
Earliest/latest
exercise date
Tom Albanese
17 November 2014
PSP3,4
102,000
30 December 2015
PSP
200,000
4 January 2016
DSBP
25,163
8 September 2016
DSBP2
53,690
11 November 2016
PSP
140,000
5 August 2017
DSBP
–
42,203
Total
520,853
42,203
–
–
–
102,000
200,000
–
25,163
53,690
140,000
42,203
563,056
0.1
0.1
0
0
0.1
0.1
8.09
2.717
4.435
5.177
8.215
7.585
17 Nov17 –
17 May 18
30 Dec18 –
30 Jun 19
12 Aug 16 –
12 Aug 18
1 Sep 17 –
1 Sep 19
10 Nov 19 –
10 May 20
5 Aug 18 –
5 Aug 20
1 The grant for PSP 2018 will be included in the above table as and when granted.
2 50% of the annual bonus for the previous year was paid as deferred shares during the year that will vest in a span of three years.
3 The performance period for PSP 2014 came to a close on 31 March 2017. Upon testing as per the scheme rules, Vedanta stood in sixth position against its peers in the TSR basket with a
28.6% TSR achievement, which made the Executive Directors eligible for vesting of 60% against the grant made to them. The options vested at the close of the vesting period on
17 November 2017.
4 Tom Albanese exercised these options in April 2018.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 140
Vedanta Resources plc | Annual Report FY2018
Annual Report on Remuneration continued
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 no longer an Executive Director at Vedanta Resources but during the tenure of his contract, he was a non-executive
director at Franco-Nevada Corporation and was entitled to retain any remuneration paid to him. His remuneration for this position was
C$65,445 (this figure is inclusive of fees earned as well as the share-based payments). None of the other Executive Directors currently
receive fees for non-executive appointments with other companies.
Directors’ interests in ordinary shares (audited)
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 Agarwal2,4
Tom Albanese
Geoffrey Green
Ed Story
Aman Mehta
Deepak Parekh
Katya Zotova
Ravi Rajagopal
Beneficially owned
at 31 March 2017
or on
appointment
Beneficially owned
at 31 March 2018
or on
departure
Outstanding
LTIP, ESOP and
DSBP awards
(not subject to
performance)
187,488,102
146,762
272,437
91,569
–
–
–
–
–
–
187,488,102
441,050
467,616
91,569
–
–
–
–
–
–
–
177,909
100,289
223,056
–
–
–
–
–
–
Shareholding
as a % of base
compensation3
82,434%
300%
65%
n/a
n/a
n/a
n/a
n/a
n/a
Shareholding
requirement met?
Yes
Yes
No
n/a
n/a
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 share price of £7.07 as at 31 March 2018.
4 51,660 shares are held by Navin Agarwal’s son and wife as well, which were purchased from the market in March 2015.
No changes in the above Directors’ interests have taken place between 31 March 2018 and the date of this report.
Leaving terms for Tom Albanese (former CEO)
Tom Albanese served as Chief Executive under a fixed term contract which ended on 31 August 2017, at which point he stepped down
from the Board and left the Company. Mr Albanese received no additional salary or benefit payments in termination, since there was no
unexpired notice period under his contract. He was awarded a pro-rated bonus for the 2017/18 year, paid at the end of the year and tested
on the same basis as the other Executive Directors, and paid wholly in cash. He was also given good leaver status on his long-term
incentive awards; this means that the awards will be preserved and vest on the date originally intended, subject to the fulfilment of the
performance criteria and with the number of shares vesting adjusted pro rata for the period of time served since grant.
Recruitment terms for Srinivasan Venkatakrishnan (incoming CEO)
On 16 April 2018 the Board announced that Srinivasan Venkatakrishnan would join the Company as Chief Executive on 31 August 2018.
Mr Venkatakrishnan’s base pay was set to be in line with that of the former permanent Chief Executive, Tom Albanese – namely, a base
pay of £1 million, benefits in line with our normal practice, pension of 20% of base pay, additional allowance of 5% on base pay, annual
bonus opportunity of 100% of base pay (which is lower than that applicable for Tom Albanese) and long-term incentive opportunity of
150% of base pay. In light of the need for Mr Venkatakrishnan to relocate himself and his family from South Africa, the Company will
provide additional benefits intended to ease this transition including the provision of temporary accommodation and relocation assistance.
In addition, to facilitate Mr Venkatakrishnan’s recruitment, it was necessary to compensate him for bonus and share awards which he
would lose as a result of leaving his previous company to join Vedanta. These payments comprise:
• An award of shares worth £255,394 vesting in January 2019, in compensation for his forgone annual bonus
• Two awards of shares worth £752,705 and £387,520, vesting in March 2019 and March 2020 respectively, in compensation for
awards under previous deferred bonus and bonus co-investment plans
• Two awards of shares worth £459,429 and £669,510, vesting in March 2019 and March 2020 respectively in compensation for
awards under a long-term incentive plan
Payments to past Directors (audited)
No payments were made to past Executive Directors during the year ended 31 March 2018.
Vedanta Resources plc | Annual Report FY2018
141
Payments for loss of office (audited)
No payments were made in respect of loss of office during the year ended 31 March 2018.
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
2016–17 and 2017–18 financial years, compared to that for the average employee.
Executive Chairman (£000)
Base compensation
Taxable benefits
Bonus
Average employee (£000)
Base compensation
Taxable benefits
Bonus
Change
3%
Nil%
-1%
10%
Nil
-3%
Relative importance of spend on pay
The table below shows the movement in spend on staff costs between the 2016–17 and 2017–18 financial years, compared to dividends.
US$ million
Staff costs
Number of staff1
Dividends
2016–17
2017–18
% change
US$591.1 US$630.7
25,083
165.4
25,035
138.4
6.7%
0.2%
20%
1
The number of staff is the average number of employees during the year.
Performance graph and Executive Chairman pay
The graph below shows the TSR in respect of the Company over the last ten financial years, compared with the TSR for the FTSE All Share
Mining Index. The FTSE All Share Mining Index was chosen as it is most relevant to compare the Company’s performance against its peers.
Total Shareholder Return
Value (£) (rebased)
450
400
350
300
250
200
150
100
50
0
31/03/2009
31/03/2010
31/03/2011
31/03/2012
31/03/2013
31/03/2014
31/03/2015
31/03/2016
31/03/2017
31/03/2018
Vedanta Resoure plc
FTSE All Share Mining
Source: FactSet
This graph shows the value, at 31 March 2018, 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 on the same date.
All other points plotted are the values at intervening financial year-end.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 142
Vedanta Resources plc | Annual Report FY2018
Annual Report on Remuneration continued
The total remuneration figures for the Executive Chairman during each of the last eight 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 pay-out and long-term incentive award vesting level as a percentage of the maximum
opportunity are also shown for each of these years.
LTIP/ESOP vesting (%)
Annual bonus (%)
Total remuneration (£000)
40%
43%
£2,066
n/a1
39%
£2,010
36%
40%
£2,556
nil%
44%
£2,376
nil%
37.2%
£2,634
nil%
37.06%
£2,625
60%3
42.68%
£2,796
n/a1
42.11%
£3,785
2011
2012
2013
2014
2015
20162
20172
20182
Year ending 31 March
1 Due to the timings of long-term incentive grants, there were no awards with performance periods ending during these financial years.
2 The performance achievement regarding the awards granted during FY2016, FY2017 and FY2018 is yet to be evaluated as the performance period has not yet completed for these grants.
3 The performance period for PSP 2014 came to a close on 31 March 2017. Upon testing as per the scheme rules, Vedanta stood in sixth position against its peers in the TSR basket with a
28.6% TSR achievement, which made the Executive Directors eligible for vesting of 60% against the grant made to them.
Remuneration decisions taken in respect of the financial year ending 31 March 2019
Base compensation
In setting base compensation for 2017/18, 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%. However, this increase
is very much confined to middle and junior management employees. The pay increase for other senior executives will be in the lower
quartile. Similarly, this increase will not apply to the Executive Directors. The Committee reviewed the remuneration of the Executive
Directors and the increase is in line with the general level of increase in the UK market at comparable positions and the base compensation
will be as follows:
Anil Agarwal
Navin Agarwal1,3
Kuldip Kaura2,3
Base compensation
from 1 April 2017
£000
Base compensation
from 1 April 2018
£000
1,608
1,101
905
1,656
1,129
932
% increase
3%
3%
3%
1 The increment awarded to Mr Navin Agarwal is only on the Indian component and any other change reflected in the table is purely on account of movement in currency exchange (GBP vs
INR) during the year FY 2017–18. Furthermore, he is based out of India and is drawing the majority of his remuneration in INR.
2 The increment awarded to Mr Kuldip Kaura is on both the UK as well as Indian component.
3 The annual increment for both Mr Navin Agarwal and Mr Kuldip Kaura will also be tabled to the Vedanta Limited Board for approval.
Annual bonus awards to be granted in 2018–19
The annual bonus opportunity for the year 2018–19 will be 150% of base compensation for Messrs Anil Agarwal and Navin Agarwal;
100% of base compensation for the newly appointed CEO, Mr Srinivasan Venkatakrishnan, and 125% of base pay for Mr Kuldip Kaura.
The annual bonus will be based on the following metrics.
Factor
Financial performance (against target)1
Personal objectives
Parameter
EBITDA
Free cash flow
Sustainability scorecard
Safety scorecard
Fatality2
Strategic objectives
Weighting
35%
25%
7.5%
2.5%
10%
20%
1 For financial performance, a weighted achievement of both the elements is considered for assessing the threshold and for arriving at the pay-out: 70% achievement of business plan targets is
considered as threshold, which entails 33.33% of the pay-out opportunity, with 70% pay-out for 100% achievement and stretching to 100% of pay-out opportunity at 120% achievement of
the targets. For other elements, pay-out is pro-rated with respect to performance levels, increasing to full payment at stretch performance.
2 At Vedanta, safety is led from the top. While the Group has shown a significant improvement in overall safety metrics over the last few years, the Board of Directors had decided last year to
lead by example and link 10% of incentive pay to the elimination of fatalities. We have chosen to do this by progressive reduction in fatalities to zero by FY2019. A further 2.5% of incentive
pay is linked to the implementation of the safety performance standard designed to prevent fatalities, as audited annually by our Management Assurance team. Through this process we will
encourage all the leaders in Vedanta and its subsidiaries to follow and establish a positive safety culture across the Group.
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 shown in
next year’s Annual Report on Remuneration.
Vedanta Resources plc | Annual Report FY2018
143
PSP awards to be granted in 2018–19
The Executive Directors’ 2019 PSP opportunity will be 150% of base compensation. The 2018–19 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 bespoke group
of companies
Median
Upper quintile
Final three months of the
performance period i.e.
three months to 31 March 2021
The performance condition attached to the above award is based on Vedanta Resources’ relative TSR against the comparator group of
industry peers. 30% of the award will vest at median performance, with full vesting for upper quintile performance.
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. A summary of
the current fees is 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
2017–18
£000
2018–19
£000
85
18
20
20
–
20
10
10
7.5
10
85
18
20
20
–
20
10
10
7.5
10
Approval of the Directors’ Remuneration Report
The Directors’ Remuneration Report, including both the Directors’ Remuneration Policy Report and the Annual Report on Remuneration,
was approved by the Board on 22 May 2018.
Geoffrey Green
Chairman of the Remuneration Committee
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 144
Vedanta Resources plc | Annual Report FY2018
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 2018.
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 any change of control.
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 of, and helps them assess, how the Directors have
performed in their duty to promote the success of the Company.
In addition, as a company listed on the London Stock Exchange, it
Information required by Schedule 7 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008
as amended to be included in the Directors’ Report but, which is
instead included in the Strategic Report or elsewhere in the Annual
Report, is set out in the table below.
Review of the business and future developments of the
business of the Company
Strategic Report on pages 1–99
Employment policies and employee involvement
Strategic Report on page 57
Research and development
Details can be found on pages 147 and 190
Information required by Listing Rule 9.8.4R as amended to be included in the Directors’ Report, but which is instead included elsewhere in
the Annual Report, is set out in the table below.
Subject
Section in the Annual Report
Directors’ emoluments
Directors’ Remuneration Report on page 129
Long-term incentive schemes
Details of the Group’s employee share schemes are set out in Note 32 of the consolidated
financial statements and also on pages 138–139 of the Directors’ annual report on remuneration.
Details of the shares held by the Vedanta Resources plc Employee Benefit Trust can be found In
the Directors’ Report on page 147 and in Note 32 of the Consolidated Financial Statements on
page 220.
Parent participation in a placing by a listed subsidiary
None
Interest capitalised by the Group
Note 7 of the Consolidated Financial Statements on page 189
Publication of unaudited financial information
Contract of significance in which a Director is
interested
None
None
Contract of significance with a controlling shareholder
None
Provision of services by a controlling shareholder
None
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash in relation to
major subsidiary undertakings
None
None
Agreements with the controlling shareholder
Corporate Governance Report on page 111
Vedanta Resources plc | Annual Report FY2018
145
Greenhouse gas (GHG) emissions reporting
Climate change is a growing concern globally, and recent
record temperature trends will likely accelerate this concern.
We acknowledge the global concern on climate change and
recognise that concentrated and sustained global actions are
required to reduce the scale of the problem and to adapt to its
impacts. We feel this will require multiple solutions, including
using innovative technology to improve energy efficiency and find
more carbon neutral solutions. It is vitally important that every
country is provided with the right incentives for the development
and communication of climate-friendly processes and practices.
At Vedanta we are working towards implementing our energy
and carbon management plans to reduce our GHG emissions.
Our energy and carbon management approach hinges on a
two-pronged strategy; improving energy and process efficiency,
while diversifying our energy portfolio to include renewable energy
to the extent possible. We are committed to the cause of tackling
climate change and have constituted the Chief Operating Officers
(COOs’) forum to advise and facilitate the implementation of the
Group’s climate change programme.
In addition to optimising our consumption, we are also looking at
diversifying our energy portfolio. Mindful of the long-term impact
of traditional grid-energy, we are evaluating renewable energies like
solar and wind. This year, the HZL business installed 16 MW of solar
power plant.
We calculate and report greenhouse 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. The increase in GHG
emissions during the year was due to the ramp-up in our Aluminium
and Power businesses. The relative increase in GHG emissions in
the power sector was higher compared to revenue generated,
resulting in overall higher GHG intensity.
FY2018
FY2017
Scope 1
Scope 2
Scope 1
Scope 2
4,830,185
87,919
624,738
150,306
30,889,044
11,168,053
1,550,610
1,837,129
–
154,564
594,167
87,591
4,780
237,024
7,451
84,980
18,428
11,641
4,288,645
54,168
147,078
153,127
24,808,807
18,996,251
1,465,348
1,982,484
–
114,211
644,554
515,274
4,613
52,542
6,736
70,827
18,986
4,922
51,137,984
1,200,626
51,896,907
1,432,665
Strategic Report
The Strategic Report has been prepared in accordance with the
Companies Act 2006 (‘the Act’) 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 1–99.
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.
Corporate governance
In accordance with the Financial Conduct Authority’s Disclosure
and Transparency Rules DTR 7.2.1, the disclosures required by DTR
7.2.2R to DTR 7.2.5 and DTR 7.2.7 may be found in the Corporate
Governance Report on pages 100–143. The Corporate Governance
Report is incorporated into this Directors’ Report by reference.
Information referred to in DTR 7.2.6 is located in this Directors’
Report.
Review of business and future developments
A review of the business and future developments of the Group is
presented in the Strategic Report on pages 1–99.
GHG emissions (tonnes of CO2)
Business
Zinc India
Zinc International
Copper India & Australia
Copper Africa
Aluminium
Power
Oil & Gas
Iron Ore
Others
Total
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 146
Vedanta Resources plc | Annual Report FY2018
Directors’ Report continued
The GHG intensity ratio below expresses Vedanta’s annual GHG emissions in relation to the Group’s consolidated revenue.
GHG intensity ratio (tonnes of CO2/Millions US$)
Business
Zinc India
Zinc International
Copper India & Australia
Copper Africa
Aluminium
Power
Oil & Gas
Iron Ore
Others
Consolidated Group
Dividends
The Directors recommend a final dividend for the year ended
31 March 2018 of 41.0 US cents per ordinary share (2017: 35.0 US
cents per ordinary share). Subject to shareholders approving this
recommendation at the Company’s Annual General Meeting on
13 August 2018, the final dividend will be paid on 22 August 2018
to shareholders on the register of members as at 20 July 2018.
An interim dividend of 24 US cents per ordinary share (2017: 20 US
cents) was paid on 14 December 2017 to shareholders on the
register of members on 24 November 2017.
Executive Committee
The members of the Executive Committee as at the date of this
Report are shown together with their biographical details on pages
102–103. During the year and up to the date of this Report, the
composition of the Executive Committee was refreshed. The
following ceased to be members of the Executive Committee:
Tom Albanese
New additions to the Executive Committee during the year and up
to the date of this Report include:
Naveen Singhal Chief Executive Officer, Iron Ore
P Ramnath
Steven Din
Scott Caithness Director, Exploration
Arun Arora
Head, Corporate Communications
Chief Executive Officer, Vedanta Limited Copper
Chief Executive Officer, KCM
Directors
The Directors as at the date of this Report are shown together with
their biographical details on pages 100–101. During the year and up
to the date of this Report, the following Board appointments and
retirements occurred:
Edward T Story was appointed on 1 June 2017
Aman Mehta retired on 14 August 2017
Tom Albanese resigned on 31 August 2017
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 129–143.
FY2018
1,480
1,276
186
121
8,676
12,760
1,105
3,806
406
3,382
FY2017
1,744
2,102
212
180
12,187
22,734
1,256
3,252
-83
4,629
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 shareholders.
In accordance with the UK Corporate Governance Code, all
Directors will retire and submit themselves for re-election at
the Company’s forthcoming Annual General Meeting. Details
of Directors’ contracts or letters of appointment are included
in the Directors’ Remuneration Report. The performance of
each Director was reviewed and it was found that each of them
continues to make an effective and valuable contribution to the
deliberations of the Board and demonstrate commitment to
the role. The performance of the Chairman was reviewed by
the Senior Independent Director and discussed with the other
Non-Executive Directors.
As the Company is Premium listed and has a controlling
shareholder, under the UK Listing Rules, the appointment of
the Company’s independent Non-Executive Directors must
be approved by a majority vote of not only all shareholders of
the Company but also of the independent shareholders of the
Company (that is, the shareholders of the Company entitled to vote
on the election of Directors who are not controlling shareholders of
the Company). If a resolution to elect or re-elect an independent
Non-Executive Director is not approved by a majority vote of both
the shareholders as a whole and the independent shareholders of
the Company at the Annual General Meeting, a further resolution
may be put forward to be approved by the shareholders as a whole
at a meeting which must be held more than 90 days after, but
within 120 days, of the Annual General Meeting when the first vote
was held.
Powers of the Directors
Subject to the provisions of the Companies Act 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.
Directors’ emoluments
Details of the Directors’ emoluments and any waiver are included in
the Directors’ Remuneration Report on pages 136–139.
Long‑term incentive schemes
Details of the long-term incentive schemes operated by the
Company, namely the Performance Share Plan (PSP) and the
Deferred Share Bonus Plan (DSBP), are included in the Directors’
Remuneration Report on pages 138–139.
Dividend waiver
As noted in the Remuneration Committee Report of this document,
the Company operates a DSBP under which bonus payments to the
Executive Chairman, Executive Vice Chairman and Group Chief
Executive Officer are payable partly in cash and partly in deferred
share awards which vest over a staggered period of two or three
years, subject to service conditions being met. Pending vesting,
Sanne Fiduciary Services Limited (SFSL) holds any shares that are
the subject of awards under the DSBP as nominee on behalf of the
relevant executives. SFSL, on behalf of the relevant executives, has
waived the right to receive dividends on these shares as well as any
voting rights attaching to these shares pending vesting of these
awards in accordance with the rules of the DSBP. As at 31 March
2018, there were 162,581 shares in respect of the DSBP and
278,199 shares in respect of Forfeitable Share Awards granted
under the DSBP to Anil Agarwal and Navin Agarwal. Other than the
waiver of dividends by SFSL as described above, there have been
no arrangements under which a shareholder has waived or agreed
to waive dividends or future dividends during the year ended
31 March 2018.
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 Act. 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 Act, to allow the Company to pay legal
defence costs for the Director where the Director is exonerated.
Vedanta Resources plc | Annual Report FY2018
147
Employees
Information on the Group’s employees and its policies with respect
to employees can be found in the Sustainability Report section
of the Strategic Report. In summary, the Group’s commitment
to communication and dialogue with employees continues. The
existence of a Group-wide intranet enables engagement and
communication with employees throughout the Group. It also helps
management to share information, ideas and opportunities quickly
and to achieve a common awareness on the part of all employees
of the financial and economic factors affecting the performance
of the Company. Employees have opportunities to voice their
opinions and ask questions through the Group intranet and engage
in question and answer sessions with the Executive Chairman.
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 and Accounts. The Company and its subsidiaries did
not make any political donations during the financial year ended
31 March 2018 (2017: nil).
Research and development
The Group’s business units carry out research and development
activities necessary to further their operations.
Post‑balance sheet events
Post-balance sheet events have been disclosed in Note 43 to the
financial statements.
Material shareholdings
As at 10 August 2018, the Company had received notifications of
control of 3% or more over the Company’s total voting rights and
capital in issue1 as set out below:
Name of shareholder
Nature of
holding
Number of
ordinary shares of
US$0.10 each
Percentage
of total voting
rights
Volcan Investments Limited2 Indirect
Standard Life Investment3
(Holdings Limited)
Viktor Falk3
Indirect
Direct
187,488,102
68.61%
–
8,340,408
Below 5%
3.10%
1 The voting rights at 31 March 2018 were 272,875,228 ordinary shares (net of treasury
shares and shares held in Global Depositary Receipt).
2 The number of shares held by Volcan Investments Limited as at 31 March 2018 was
187,488,102 (68.71% of the total voting rights).
3 There had been no changes notified to the Company for the shareholdings in Vedanta held
by Standard Life Investment and Viktor Falk between 31 March 2018 and 10 August 2018.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 148
Vedanta Resources plc | Annual Report FY2018
Directors’ Report continued
Articles of Association, share capital and voting rights
The following description summarises certain provisions in
the Company’s Articles and applicable English law concerning
companies. This is a summary only and the relevant provisions of
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. 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 2018 the issued share capital of the Company was
comprised of 303,987,039 ordinary shares of 10 US cents 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 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.
Vedanta currently holds 22,502,483 ordinary shares in treasury.
A further 1,704,333 shares, which had previously been purchased
under Vedanta’s Buyback Programme, were held by an
independent company, Gorey Investments Limited (Gorey), and this
company will not vote on these shares. These shares purchased by
Gorey will be treated in the consolidated accounts of Vedanta as
treasury shares.
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
of shares 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 representatives. 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.
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 2018 Annual General Meeting,
shareholders will be asked to renew the Directors’ authority to allot
new securities. Details are contained in the 2018 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.
Vedanta Resources plc | Annual Report FY2018
149
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.
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.
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 he/she is aware, there is no relevant audit information
of which the Company’s auditor is unaware; and
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.
• 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.
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.
Share allotments
During the year, there has not been any allotment, for cash, of
equity securities otherwise than to holders of the Company’s equity
shares authorised by the Company’s shareholders.
Share allotments by significant subsidiaries
During the year, Vedanta Limited, a significant subsidiary of the
Company, allotted equity securities for cash otherwise than to the
holders of Vedanta Limited’s equity shares in proportion to their
holdings of such equity shares and which has not been specifically
authorised by Vedanta Limited’s shareholders. Details of the
allotments are given overleaf:
Purchase of the Company’s own shares
The Directors had authority, under a shareholders’ resolution dated
5 August 2016, 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 2018 Annual General Meeting or on
1 October 2018, whichever is the earlier. A resolution to obtain a
further authority will be proposed at the 2018 Annual General
Meeting. During the year the Company did not purchase any shares
under its previously announced share buyback programme.
As at 31 March 2018, the Company held a total of 24,206,816
ordinary shares in treasury equivalent to 8.03% (2017: 8.03%) 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 6% bonds due in 2019 of which US$252 million is
outstanding, US$670 million 8.25% bonds due US$1,000 million
6.375% bonds due in 2022, US$500 million 7.125% bonds due
in 2023 and US$1,000 million 6.125% bonds due in 2024 where
a change of control together with a rating decline 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.
2 Under 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.
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 150
Vedanta Resources plc | Annual Report FY2018
Directors’ Report continued
Classes of shares
allotted
Number of shares
allotted
Aggregate nominal
value
Consideration received for the
allotments
Names of the allottees
Market price of the
allotted securities
Date on which the terms
of the issue were fixed
Equity shares Rs. 752,500,000 Rs. 752,500,000 Nil. Shares issued
Equity shares
2400
Rs. 2400
pursuant to the
merger of Cairn India
with Vedanta Limited.
Nil. Shares issued
from abeyance
category since they
were sub-judice in
nature. Allotment
made in pursuance of
a Court Order.
Shares allotted to
222,992 shareholders
of erstwhile Cairn
India. Shares allotted
rank pari passu with
the existing shares of
Vedanta Limited
Harshaben
Jayantkumar Shah
28 April 2017
Rs. 243.55
(Closing price as
per NSE on the
date of allotment)
26 March 2018
Rs. 282.3
(Closing price as
per NSE on the
date of allotment)
Share placing
The Company has not participated in any share placing during the
year ended 31 March 2018.
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 in the Corporate Governance Report on page 111.
Going concern
The Directors have considered the Group’s cash flow forecasts
for the next 12-month period, from the date of signing the
financial statements ending 31 March 2018. The Board is
satisfied that the Group’s forecasts and projections show that
the Group will be able to operate within the level of its current
facilities for the foreseeable future. This takes into account
reasonably possible changes in trading performance on cash
flows and forecast covenant compliance; the transferability of
cash within the Group; the flexibility that the Group has over
the timings of its capital expenditure; and other uncertainties.
For these reasons, the Group continues to adopt the going
concern basis in preparing its financial statements.
Longer Term Viability statement
In accordance with paragraph C2.2 of the UK Corporate
Governance Code, the Directors have assessed the prospects
of the Group’s viability over a longer period than the 12 months
required by the going concern assessment. Details of this
assessment are included in the Strategic Report on page 65.
Strategic Report
The Strategic Report as set out on pages 1–99 and the Directors’
Report as set out on pages 144–150 were prepared in accordance
with the applicable UK company law and were approved by the
Board on 22 May 2018.
Signed on behalf of the Board
Deepak Kumar
Company Secretary
22 May 2018
Vedanta Resources plc
5th Floor, 6 St Andrew Street,
London, EC4A 3AE
Registered in England Number 4740415
Directors’ Responsibilities Statement
Vedanta Resources plc | Annual Report FY2018
151
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), including FRS 101 ‘Reduced Disclosure Framework’. 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 Group and
parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and parent
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 also responsible for preparing a Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that comply with that law and those regulations. 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
Each of the Directors confirms that to the best of his/her knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, 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
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 22 May 2018 and is signed on its behalf by:
Navin Agarwal
Executive Vice Chairman
22 May 2018
G.R. Arun Kumar
Chief Financial Officer
22 May 2018
Financial StatementsAdditional InformationDirectors’ ReportStrategic Report 152
Vedanta Resources plc | Annual Report FY2018
Independent Auditors’ Report
To the members of Vedanta Resources plc
Opinion
In our opinion:
• Vedanta Resources plc’s Group financial statements and parent Company financial statements (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 2018 and of the Group’s profit for the year then
ended;
• the Group financial statements have been properly prepared in accordance with 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 including FRS 101 Reduced Disclosure Framework; 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.
What we have audited
The Group and parent Company financial statements of Vedanta Resources plc for the year ended 31 March 2018 comprise:
Group
Parent Company
the Consolidated Income Statement;
the Consolidated Statement of Comprehensive Income;
the Consolidated Statement of Financial Position;
the Consolidated Cash Flow Statement;
the Consolidated Statement of Changes in Equity; and
the related Notes 1 to 45 to the Group financial statements.
the Company Balance Sheet;
the Company Statement of Changes in Equity; and
the related Notes 1 to 11 to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (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,
including FRS 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and parent Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of our report
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.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to
report to you whether we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 34–41 that describe the principal risks and explain how they are being managed
or mitigated;
• the Directors’ confirmation set out on page 34 in the Annual Report that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
• the Directors’ statement set out on page 152 in the financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to
continue to do so over a period of at least 12 months from the date of approval of the financial statements
• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3)
is materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 152 in the Annual Report as to how they have assessed the prospects of the entity, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Vedanta Resources plc | Annual Report FY2018
153
Overview of our audit approach
Revenue
recognition
Accounting for
assets under
construction
Recoverability
of disputed
receivables
2018
Key Audit
Matters
Recoverability
of PP&E and
E&E assets
Claims and
exposures relating
to litigation and
taxation
Materiality
• Overall Group materiality of $81 million which represents approximately 2% of EBITDA.
• EBITDA represents an earnings-based measure for determining materiality and we consider this
to be the most relevant performance measure to the users of the financial statements.
Audit scope
• We performed an audit of the complete financial information of 11 components and audit procedures on
What has changed
specific balances for a further four components.
• The components where we performed full or specific audit procedures accounted for 94% of EBITDA,
91% of revenue and 92% of total assets.
• For the remaining 42 components in the Group we have performed limited procedures appropriate to
respond to the risk of material misstatement.
• We have obtained an understanding of the entity-level controls of the Group which assists us in
identifying and assessing risks of material misstatement due to fraud or error, as well as assisting us in
determining the most appropriate audit strategy.
• In the current year the tax and legal claim matters, which were previously classified as two separate
key audit matters, have been combined under the heading claims and exposures relating to taxation
and litigation. This is due to their similarity in nature as both tax and legal claims tend to be settled
through a similar legal process.
• We considered the recoverability of disputed receivables as a new key audit matter in the current year.
We have split revenue recognition from the recoverability of receivables as the audit risks and related
audit response for each were different. In addition, we have placed an increased focus on receivables
where the balance is under dispute rather than general trade receivables. However, this does not
indicate an increased risk in either of these matters.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 154
Vedanta Resources plc | Annual Report FY2018
Independent Auditors’ Report continued
To the members of Vedanta Resources plc
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Recoverability of property, plant and equipment and Exploration & Evaluation assets
Refer to the Audit Committee Report page 120; Accounting policies pages 171–172; and Note 17 of the Consolidated Financial Statements page 197
We are satisfied that the
impairment reversal in relation to
the Oil and Gas CGU’s and the
impairment of the CGU’s
impacted by the Goa ruling
are fairly stated and that there are
no further impairments or
impairment reversals at other
CGUs in the Group.
We conclude that the related
disclosures as per IAS 36 are
appropriately presented in the
financial statements.
At 31 March 2018 the carrying value of property, plant
and equipment (PP&E) was $17,727 million (2017: $16,751
million), including $2,327 million of Evaluation and
Exploration (E&E) assets (2017: $1,400 million).
Recoverability of PP&E and E&E assets has been identified
as a key audit matter due to:
• The significance of the carrying value of the assets
being assessed.
• The size of recent impairment charges and reversals.
• The recent challenges in respect of the Group’s
licences to operate in certain jurisdictions.
• The assessment of the recoverable amount of the
Group’s Cash Generating Units (CGUs) involves
significant judgements about the future cash flow
forecasts and the discount rate that is applied.
We focused our effort on those CGU’s with impairment
and impairment reversal indicators. The key judgements
centred on forecast production profiles, forecast volumes,
prices and discount rate assumptions.
The following impairment was identified in the current
year:
• Vedanta Limited Iron Ore: The Supreme Court
judgment stipulating the cessation of operations in Goa
from 16 March 2018 resulting in an impairment of
$758.5 million (see Note 5).
In addition, the following impairment reversal was
identified:
• Vedanta Limited Oil and Gas: At the Rajasthan block
there was a significant increase in viable reserves due
to the implementation of an enhanced extraction
process. A total $1,447.4 million impairment reversal
was recorded (see Note 5).
The overall Group impairment (including reversal
of impairment) risk has increased in the current year due
to the significant charges and reversal recognised during
the year.
In addressing this key audit matter procedures were
performed by both our group and component teams.
Macroeconomic assumptions and consistency of
approach were ensured by the group team with location
specific inputs addressed by component teams.
To address this key audit matter we have:
• Critically assessed through an analysis of internal and
external factors impacting the entity, whether there
were any indicators of impairment (or reversal of
impairment) in line with IAS 36 for PP&E and IFRS 6 for
E&E assets across the Group.
• Specifically in relation to the CGUs where impairment
and impairment reversal indicators were identified, we
have obtained and evaluated the valuation models used
to determine the recoverable amount by challenging
the key assumptions used by management including:
– Considering forecasted volumes in relation to asset
development plans.
– Critically assessing management’s forecasting
accuracy by comparing prior year forecasts to
actual results and assessing the potential impact of
any variances.
– Corroborating the price assumptions used in the
models against analyst consensus.
– Testing the appropriateness of the weighted
average cost of capital used to discount the
impairment models through engaging our internal
valuations experts.
– Testing the integrity of the models together with
their clerical accuracy.
• We assessed the competence and objectivity of the
Group’s external experts, to satisfy ourselves that these
parties are appropriate in their roles within the
estimation process.
We performed full and specific scope audit procedures
over this risk area in 11 components (full and specific
scope), which covered 97% of the risk amount. Triggers
were identified in four locations (including Iron Ore and
Vedanta Oil and Gas) where full impairment tests were
prepared and audit procedures were performed over
these valuation models.
Vedanta Resources plc | Annual Report FY2018
155
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Accounting for assets under construction
Refer to the Audit Committee Report page 120; Accounting policies page 170; and Note 17 of the Consolidated Financial Statements page 197
Based on our evaluation of the
asset under construction projects
and other procedures performed,
we are satisfied that projects
completed in the current year
have been treated in accordance
with IAS 16 and that the overall
assets under construction
balances are recoverable.
At 31 March 2018 the carrying value of assets under
construction was $2,255 million (2017: $2,366 million).
Accounting for assets under construction has been
identified as a key audit matter due to:
•
the significant judgement involved in assessing
when an asset is available for use as intended by
management. At this point, revenue and operating
costs associated to the asset cease to be capitalised to
the statement of financial position and depreciation
should commence.
• Multiple construction projects across the Group that
have been previously placed on hold or for which
completion is taking longer than expected. There is
therefore a risk relating to the viability of these projects
and thus the recoverability of the balance.
Additionally, we considered recent impairment charges
recognised in respect of assets under construction which
resulted from changes in project plans.
The risk has decreased in the current year due to some
significant projects being commissioned in the current
year and some projects, previously put on hold, restarting
construction.
We performed our audit procedures on the asset under
construction balances across the Group. Due to the local
considerations impacting our assessments our procedures
were performed predominantly by the component teams
under the direction and supervision of the group
engagement team.
To address this key audit matter we have:
• Considered the stage of completion of ongoing
projects specifically in relation to ascertaining when
the assets will be available for use as intended by
management.
• Assessed project timelines by tracking project
progress against forecast spend and management
budgets.
• Assessed the accounting treatment of testing costs
during the testing phase where applicable.
• Ensured costs associated with assets which came
into production in the year cease to be capitalised
and depreciation charges commenced.
• Assessed the viability and recoverability of long
outstanding projects and performed inspections
to confirm that the machinery and material related
to these projects is not obsolete.
We performed audit procedures over this risk area in nine
components (full and specific scope), which covered 98%
of the balance impacted by this risk.
Revenue recognition
Refer to the Audit Committee Report page 120; Accounting policies pages 168–169; and Note 4 of the Consolidated Financial Statements page 187
For the year ended 31 March 2018 the Group
recognised revenue from operations of $15,359 million
(2017: $11,520 million).
Revenue recognition has been identified as a key audit
matter due to the diverse and complex revenue streams
across the Group.
We have identified the following key areas for
consideration:
• Complex calculation of power tariff agreements with
Grid Corporation of Odisha Limited (GRIDCO) and
Punjab State Power Corporation Limited (PSPCL).
• Complexity associated with the calculation of profit
petroleum within the Vedanta Limited Oil & Gas
division.
• Cut-off: The variety of terms that define when title, risk
and rewards are transferred to the customer, as well as
the high value of the transactions, give rise to the risk
that revenue is not recognised in the correct period.
• Measurement: At the end of each reporting period
there are a number of contracts that are either
provisionally priced or subject to hedging
arrangements through forward contracts. These
calculations are based on estimations and susceptible
to potential manipulation.
The level of risk has remained the same compared to the
prior year but has been split from the receivables matter as
the related audit risks and audit response for each were
different.
We performed our audit procedures across the Group’s
revenue streams considering the revenue recognition
policies. Our procedures were performed mainly by the
component teams under the direction and supervision of
the Group engagement team.
Based on the procedures
performed we consider revenue
to be fairly stated in the financial
statements.
To address this key audit matter we have:
• Performed walkthroughs of the revenue recognition
processes at each full scope component and assessed
the design effectiveness of key controls.
•
• Tested the controls, including IT controls, over the
revenue recognition process to confirm operating
effectiveness.
Inspected the term of the agreements to assess the
reasonability of the inputs used in the calculation of
the power tariff in respect of the revenue recognised
for GRIDCO and PSPCL. Other procedures relating to
the revenue of the Power division are mentioned in
the recoverability of disputed receivables section.
Inspected the terms of Vedanta Oil & Gas’ profit
sharing agreements and tested the underlying cost
recovery and profit petroleum calculation used by
management.
•
• Selected a sample of sales across the Group made
pre and post year end, agreeing the date of revenue
recognition to third party support, such as bills of
lading, to confirm sales are recognised according to
contract conditions.
• Examined invoice samples with complex shipping
terms to ensure that revenue has been recognised
appropriately.
• Re-calculated the provisional pricing adjustments
and validated the prices used to third party data.
• For the zinc and lead price forwards taken out during
the year, we involved our specialists to inspect the
hedging documentation, and tested any resulting
realised and unrealised loss, including the agreement
of market forward rates used in determining the
unrealised fair value loss at year end.
We performed audit procedures over this risk area in nine
full scope components, where revenue was present, which
covered 92% of the revenue balance impacted by this risk.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 156
Vedanta Resources plc | Annual Report FY2018
Independent Auditors’ Report continued
To the members of Vedanta Resources plc
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Recoverability of disputed receivables
Refer to the Audit Committee Report page 121; Accounting policies page 176; and Note 38 and Note 41 of the Consolidated Financial Statements on
pages 232–237 and page 240 respectively
At 31 March 2018 the value of disputed receivables to
which we identified additional risk was $590 million
(2017: $367 million).
In addressing this key audit matter procedures were
performed by the component teams under the direction
and supervision of the group engagement team.
Based on the procedures
performed we consider the
disputed receivables to be fairly
stated in the financial statements.
There are entities within the Group that have significant
receivables for which the recovery is subject to increased
risk due to disagreements over the quantification or timing
of the balance. Some of these balances are subject to
litigation. The risk is specifically related to the PSPCL
(TPSL), GRIDCO (Vedanta Limited Power) and the
Zambian Revenue Authority (KCM VAT) receivables.
These receivables also all have long outstanding elements
of their balance.
The level of risk has remained the same compared to the
prior year but has been split from the revenue recognition
matter as the related audit risks and audit response for
each were different.
To address this key audit matter we have:
• Assessed the recoverability of the GRIDCO and
PSPCL receivables by:
–
Inspecting the relevant state regulatory
commission, appellate tribunal and Supreme
Court rulings.
– Examining the underlying power purchase
–
agreements.
Inspecting external legal opinions in respect of
the merits of the cases.
– Holding meetings with the external lawyers
where applicable to determine the basis of their
conclusions in respect of cases.
• Assessed the recoverability of the KCM VAT
receivables by:
–
–
Involving our tax specialists to assess the basis of
the refunds claimed.
Inspecting correspondence with the Tax Authority
and assessing the availability of any potential future
tax offset arrangements.
– Substantiating any subsequent refunds that have
been received post-year end to appropriate
supporting documentation.
– Reviewing press releases made by the Tax
Authority which highlight the intentions of the
Tax Authority related to refunds of VAT in Zambia.
We performed audit procedures over this risk area in
three full scope components, which covered 100% of the
risk amount.
Claims and exposures relating to taxation and litigation
Refer to the Audit Committee Report page 121; Accounting policies pages 173 and 174; and Note 38 of the Consolidated Financial Statements pages
232–237
The Group has disclosed in Note 38 contingent liabilities
of $3,618 million for tax and legal claims (2017: $5,713
million) of which $2,704 million (2017: $4,352 million)
relates to income tax matters.
Taxation and litigation exposures have been identified as
a key audit matter due to the large number of complex tax
and legal claims across the Group, particularly in relation
to the operations located in India.
There is significant judgement required by management
in assessing the exposure of each case and thus a risk
that such cases may not be adequately provided for
or disclosed.
•
Recent material tax cases have included:
•
In 2015 a demand was received by the former
Cairn India Limited (CIL) ordering payment to the
Tax Authority of withholding taxes not paid on the
acquisition of Cairn India. Based on information
received during the year the Group have reassessed
this exposure and have removed the interest portion.
In the current year, the Supreme Court in India upheld
the constitutional validity of entry tax on imported
goods. The Group’s potential exposure in respect of
entry tax as a whole is $201 million.
•
We focused on this matter because of the potential
financial impact on the financial statements. Additionally,
the treatment of taxation and litigation cases require
significant judgement due to the complexity of the cases,
timescales for resolution and the need to negotiate with
various authorities.
We consider the level of risk to have remained unchanged
compared to the prior year.
Our procedures were performed centrally where cases
impacted a number of components. For location-specific
issues, component teams undertook the majority of the
procedures under the direction and supervision of the
Group audit team.
We are satisfied the accounting
treatment in respect of potential
tax exposures and legal cases is
appropriate based on our
procedures performed.
We conclude that the related
disclosures are appropriately
presented in the financial
statements.
To address this key audit matter we have:
• Obtained the Group legal and tax summary
and critically assessed management’s position through
discussions with the Head of Legal, Head of Tax and
operational management, on both the probability of
success in significant cases, and the magnitude of any
potential loss.
Inspected external legal opinions (where considered
necessary) and other evidence to corroborate
management’s assessment of the risk profile in respect
of legal claims.
• Engaged internal tax specialists to technically appraise
the tax positions taken by management with respect to
local tax issues.
• Ensured that the management assessment of similar
cases is consistent across the Group or that differences
in positions are adequately justified.
• Assessed the relevant disclosures made within the
financial statements to ensure they appropriately
reflect the facts and circumstances of the respective
tax and legal exposures and are in accordance with
the requirements of IAS 37.
We performed audit procedures over this risk area in 11
full scope components, which covered 98% of the risk
amount.
Vedanta Resources plc | Annual Report FY2018
157
Our application of materiality
The scope of our work is influenced by materiality. We apply the concept of materiality in planning and performing the audit, in evaluating
the effect of identified misstatements on the audit and in forming our audit opinion.
As we develop our audit strategy, we determine materiality at the overall level and at the individual account level (referred to as our
‘performance materiality’).
Materiality
$81 million
Performance materiality
$41 million
Reporting threshold
$4.1 million
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be $81 million (2017: $64 million), which is approximately 2% (2017: 2%) of EBITDA. The higher
materiality threshold was due to an increase in Group EBITDA to $4,051 million (2017: $3,191 million) driven by higher commodity prices
and increased volumes in certain components compared to the prior year. Our materiality amount provides a basis for determining the
nature and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature
and extent of further audit procedures. Materiality is assessed on both quantitative and qualitative grounds. With respect to disclosure and
presentational matters, amounts in excess of the quantitative thresholds above may not be adjusted if their effect is not considered to be
material on a qualitative basis.
Rationale for basis
We believe that EBITDA provides us with an earnings-based measure that is significant to users of the financial statements on which
we could set our materiality. EBITDA is a key performance indicator for the Group and is also a key metric used by the Group in the
assessment of the performance of management. We also noted that market and analyst commentary on the performance of the Group
uses EBITDA as a key metric. We therefore considered EBITDA to be the most appropriate performance metric on which to base our
materiality calculation as we considered that to be the most relevant performance measure to the stakeholders of the entity.
We determined materiality for the parent Company to be $13.1 million (2017: $10.7 million), which is 1% (2017: 1%) of equity.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
We set our performance materiality at 50% of planning materiality calculated as $41 million (2017: $32 million). This was based upon our
overall risk analysis, our assessment of the Group’s control environment, the short reporting cycle and the number and amounts of
individual misstatements (corrected and uncorrected) identified in the prior periods as well as the nature of misstatements.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative
scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current
year, the range of performance materiality allocated to components was $6.8 million to $22.0 million (2017: $5.0 million to $14.9 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $4.1 million
(2017: 0.8 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. In the prior year we were requested by the Audit Committee to report to the previous auditors’ threshold.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
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 Vedanta Resources plc
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.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 158
Vedanta Resources plc | Annual Report FY2018
Independent Auditors’ Report continued
To the members of Vedanta Resources plc
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into
account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment
and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.
The Group has decentralised processes and controls over the key areas of our audit focus with responsibility lying with component
management for the majority of estimation processes and significant risk areas. We have tailored our audit response accordingly and thus
for the majority of our focus areas, audit procedures were undertaken directly by the component audit teams, including testing on the
verification of operational data and other routine processes, under the direction and supervision of the Group engagement team.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 57 reporting components of the Group, we selected 15 components covering
entities within India, Zambia and South Africa which represent the principal business units within the Group.
Of the 15 components selected, we performed an audit of the complete financial information of 11 components (full scope components)
which were selected based on their size or risk characteristics. For the remaining four components (‘specific components’), we performed
audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the
significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 94% (2017: 100%) of the Group’s EBITDA, 91% (2017:
99%) of the Group’s revenue and 92% (2017: 90%) of the Group’s total assets. For the current year, the full scope components contributed
94% (2017: 99%) of the Group’s EBITDA, 91% (2017: 99%) of the Group’s revenue and 90% (2017: 85%) of the Group’s total assets. The
specific scope components contributed 0% (2017: 1%) of the Group’s EBITDA, 0% (2017: 0%) of the Group’s revenue and 2% (2017: 5%) of
the Group’s total assets. The audit scope of these components may not have included testing of all significant accounts of the component
but will have contributed to the coverage of the specified significant accounts tested for the Group. The charts below illustrate the
coverage obtained from the work performed by our audit teams.
Of the remaining 42 components that together represent 6% of the Group’s EBITDA, none are individually greater than 2% of the Group’s
EBITDA. For these components, we performed other procedures, including analytical reviews, consolidation adjustment audit procedures
and in some instances completed statutory financial statement audits. This ensured we responded appropriately to any potential risks of
material misstatement to the Group financial statements.
We have obtained an understanding of the entity level controls of the Group as a whole which assisted us in identifying and assessing risks
of material misstatement due to fraud or error, as well as assisting us in determining the most appropriate audit strategy.
EBITDA
Revenue
Total assets
Full
Specific
Other
94%
0%
6%
Full
Specific
Other
91%
0%
9%
Full
Specific
Other
90%
2%
8%
*
Investments in companies within the Group have been eliminated in the calculation of the coverage of total assets.
Changes from the prior year
In the current year the scoping for Black Mountain Mining has changed from full scope to a specific scope component for PP&E. This is
due to the relatively small contribution to Group EBITDA, with the focus remaining on the Gamsberg project asset under construction
balance. Namibia Holdings Limited scoping has changed from full scope component to a review scope component as a result of its smaller
contribution to the Group EBITDA. Due to the downgrade to risk in respect of the entity and its minimal contribution to the Group’s
metrics, Fujairah Gold has been classified as an other scope component rather than a full scope component.
Integrated team structure
The overall audit strategy is determined by the senior statutory auditor, Mirco Bardella. The senior statutory auditor is based in the UK
however, since Group management and many operations reside in India, the Group audit team includes members from both the UK and
India. The senior statutory auditor visited India three times during the current year’s audit and members of the Group audit team in both
jurisdictions work together as an integrated team throughout the audit process. Whilst in India, he focused his time on the significant risk
and judgement areas of the audit, interactions with management and Group and component teams. During the current year’s audit he
reviewed key working papers and met with key representatives of the integrated and Indian component audit teams for certain full scope
components to discuss the audit approach and issues arising from their work.
Vedanta Resources plc | Annual Report FY2018
159
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the split of work that needed to be undertaken at each of the
components by the Group audit engagement team, or by component auditors from other EY global network firms operating under the
Group team instruction.
It was concluded that audit procedures on 10 full scope components would be performed directly by the component audit team and the
procedures on one full scope component, the parent Company, would be performed by the Group audit team. The Group team reviewed
the work performed by components and ensured sufficient audit evidence had been obtained as a basis to form part of our opinion on the
Group as a whole. In addition the integrated Group team also included key members of certain full scope components ensuring
knowledge was transferred effectively through the team. The work on specific scope components was either performed by the Group
audit team directly or by a component team and reviewed by the Group audit team.
The Group audit team established a programme of planned visits. During the current year’s audit cycle, visits were undertaken by senior
members of the Group audit team to certain component teams in India together with the team in Zambia. These visits involved key
members of the Group audit team meeting with local management and discussing the audit approach with the component teams together
with any issues arising from their work. In addition, the Group audit team participated in key discussions, via conference calls with all full
and specific scope entities.
Other information
The other information comprises the information included in the Annual Report other than the financial statements and our auditor’s report
thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:
• Fair, balanced and understandable set out on page 151 – the statement given by the Directors that they consider the Annual Report
and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on pages 117–124 – the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 105 – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
• 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; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• 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 and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 160
Vedanta Resources plc | Annual Report FY2018
Independent Auditors’ Report continued
To the members of Vedanta Resources plc
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 151, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity
and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant which are directly relevant to specific assertions in the financial statements are those related to the report framework (IFRS,
the Companies Act 2006 and UK Corporate Governance Code) and the mining licence and relevant tax compliance regulations in
India, South Africa, Zambia and other jurisdictions in which the Group operates.
• We understood how Vedanta Resources plc is complying with those frameworks by making enquiries of management, internal audit,
those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review
of Board minutes and papers provided to the Audit Committee.
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
meeting with management from various parts of the business to understand where it is considered there was a susceptibility to fraud.
We also considered performance targets and their propensity to influence efforts made by management to manage earnings. We
considered the programmes and controls that the Group has established to address risks identified, or that otherwise prevent, deter
and detect fraud; and how senior management monitors those programmes and controls. Where instances of risk behaviour patterns
were identified, we performed additional audit procedures to address each identified risk. These procedures included testing manual
journals and review of key contracts and were designed to provide reasonable assurance that the financial statements were free of
material fraud or error.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in
the paragraphs above. Our procedures involved: journal entry testing, with a focus on manual consolidation journals and journals
indicating large or unusual transactions based on our understanding of the business; enquiries of legal counsel, Group management,
internal audit and relevant members of management at full and specific scope components; and focused testing, as referred to in the
key audit matters section above.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were officially appointed by the Company on 5 August 2016 at the AGM to audit the financial statements for the year ending
31 March 2017 and subsequent financial periods.
• The period of total uninterrupted engagement including previous renewals and reappointments is two years, covering the years ending
31 March 2017 to 31 March 2018.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company and we remain
independent of the Group and the parent Company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit Committee.
Mirco Bardella (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
22 May 2018
Notes
• The maintenance and integrity of the Vedanta Resources plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since
they were initially presented on the web site
• Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Vedanta Resources plc | Annual Report FY2018
161
Consolidated Income Statement
For the year ended 31 March 2018
Year ended 31 March 2018
Year ended 31 March 2017
(US$ million except as stated)
Note
Before
special
items
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Impairment (charge)/reversal, loss on PP&E
Operating profit/(loss)
Investment revenue
Finance costs
Other gains and (losses) [net]
4
5
15,358.7
(11,973.6)
3,385.1
89.2
(276.5)
(417.3)
–
2,780.5
465.1
(1,342.6)
(1.0)
5
6
7
8
special
items
–
33.1
33.1
–
–
–
649.9
683.0
–
(108.2)
5.3
Total
Before
special
items
15,358.7
(11,940.5)
11,520.1
(8,789.2)
3,418.2
89.2
(276.5)
(417.3)
649.9
3,463.5
465.1
(1,450.8)
4.3
2,730.9
73.4
(274.9)
(368.8)
–
2,160.6
642.6
(1,340.6)
(23.8)
Special
items
Total
–
–
11,520.1
(8,789.2)
–
–
–
–
(17.3)
(17.3)
–
(41.6)
–
2,730.9
73.4
(274.9)
(368.8)
(17.3)
2,143.3
642.6
(1,382.2)
(23.8)
Profit/(loss) before taxation (a)
1,902.0
580.1
2,482.1
1,438.8
(58.9)
1,379.9
Net tax expense (b)
12
(674.7)
(338.5)
(1,013.2)
(495.4)
(4.9)
(500.3)
Profit/(loss) for the year from continuing
operations (a+b)
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit/(loss) for the year from continuing
operations
Earnings/(loss) per share (US cents)
Basic earnings/(loss) per ordinary share
Diluted earnings/(loss) per ordinary share
1,227.3
241.6
1,468.9
943.4
(63.8)
879.6
162.6
1,064.7
73.0
168.6
235.6
1,233.3
34.8
908.6
(57.5)
(6.3)
(22.7)
902.3
1,227.3
241.6
1,468.9
943.4
(63.8)
879.6
13
13
58.5
56.9
26.3
25.9
84.8
82.8
12.6
12.3
(20.8)
(20.8)
(8.2)
(8.2)
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 162
Vedanta Resources plc | Annual Report FY2018
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2018
(US$ million)
Profit for the year from continuing operations
Items that will not be reclassified subsequently to income statement:
Remeasurement of net defined benefit plans (Note 33)
Tax effects on net defined benefit plans
Total (a)
Items that may be reclassified subsequently to income statement:
Exchange differences arising on translation of foreign operations
Gain in fair value of available-for-sale financial assets (Note 18)
Cumulative (losses)/gains of cash flow hedges
Tax effects arising on cash flow hedges
Losses/(gains) on cash flow hedges recycled to income statement
Tax effects arising on cash flow hedges recycled to income statement
Total (b)
Other comprehensive income for the year (a+b)
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income for the year
Year ended
31 March
2018
Year ended
31 March
2017
1,468.9
879.6
1.1
0.5
1.6
56.9
13.9
(62.4)
24.4
54.8
(19.0)
68.6
70.2
(0.8)
0.6
(0.2)
216.3
4.1
9.5
(5.7)
(12.2)
4.2
216.2
216.0
1,539.1
1,095.6
267.1
1,272.0
64.5
1,031.1
1,539.1
1,095.6
Consolidated Statement of Financial Position
As at 31 March 2018
Vedanta Resources plc | Annual Report FY2018
163
(US$ million)
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Leasehold land
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
Trade and other payables
Financial instruments (derivatives)
Retirement benefits
Provisions
Current tax liabilities
Net current liabilities
Non-current liabilities
Medium and long-term borrowings
Trade and other payables
Financial instruments (derivatives)
Deferred tax liabilities
Retirement benefits
Provisions
Non-equity non-controlling interests
Total liabilities
Net assets
Equity
Share capital
Share premium
Treasury shares
Share-based payment reserve
Hedging reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
As at
31 March
2018
As at
31 March
2017
15
16
17
18
31
19
29
31
20
21
29
22
23
24
27a
29
33
30
24
27b
29
31
33
30
25
35
35
32
36
12.2
123.1
17,727.3
57.0
24.5
521.1
659.2
–
916.7
16.6
95.6
16,750.8
55.3
10.7
434.6
544.4
0.6
1,111.0
20,041.1
19,019.6
2,037.7
1,526.9
24.0
2.2
4,807.8
798.7
1,670.1
1,084.8
1.6
2.1
8,043.0
1,682.2
9,197.3
12,483.8
29,238.4
31,503.4
(5,460.3)
(6,077.5)
(22.1)
(18.0)
(22.1)
(53.9)
(7,658.5)
(6,223.4)
(126.9)
(7.5)
(17.5)
(37.8)
(11,653.9)
(14,071.6)
(2,456.6)
(1,587.8)
(9,733.5)
(142.8)
(18.1)
(743.0)
(62.4)
(351.8)
(11.9)
(10,570.2)
(68.5)
(8.6)
(371.1)
(59.6)
(327.3)
(11.9)
(11,063.5)
(11,417.2)
(22,717.4)
(25,488.8)
6,521.0
6,014.6
30.4
201.5
(558.3)
13.3
(92.5)
154.3
(87.5)
30.1
201.5
(557.9)
28.2
(90.9)
140.5
(160.0)
(338.8)
6,859.8
(408.5)
6,423.1
6,521.0
6,014.6
Financial Statements of Vedanta Resources plc with registration number 4740415 were approved by the Board of Directors on 22 May
2018 and signed on their behalf by
Navin Agarwal
Executive Vice Chairman
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report
164
Vedanta Resources plc | Annual Report FY2018
Consolidated Cash Flow Statement
For the year ended 31 March 2018
(US$ million)
Operating activities
Profit before taxation
Adjustments for:
Depreciation and amortisation
Investment revenues
Finance costs
Other gains and (losses) [net]
(Profit)/loss on disposal of PP&E
Write-off of unsuccessful exploration costs
Share-based payment charge
Impairment charge/reversal (net), loss on PP&E
Other non-cash items
Operating cash flows before movements in working capital
Increase in inventories
(Increase)/decrease in receivables
Increase in payables
Cash generated from operations
Dividend 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
Proceeds from redemption of liquid investments
Purchases of liquid investments
Acquisition through business combination
Net cash from investing activities
Cash flows from financing activities
Issue of ordinary shares
Purchase of shares under DSBP scheme
Dividends paid to non-controlling interests of subsidiaries
Acquisition of additional interests in subsidiary/share purchase by subsidiary
Exercise of stock options in subsidiary
(Repayment of)/proceeds from working capital loan (net)
Proceeds from other short-term borrowings
Repayment of other short-term borrowings
Buyback of non-convertible bond
Proceeds from medium and long-term borrowings
Repayment of medium and long-term borrowings
Buyback of convertible bond
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Year ended
31 March
2018
Year ended
31 March
2017
Note
2,482.1
1,379.9
1,270.7
(465.1)
1,450.8
(4.3)
(0.5)
–
19.5
(649.9)
10.0
4,113.3
(354.5)
(606.5)
261.7
3,414.0
4.0
223.5
(1,415.6)
(567.2)
(164.4)
1,030.5
(642.6)
1,382.2
23.8
5.2
6.5
13.4
17.3
3.5
3,219.7
(266.7)
18.8
522.3
3,494.1
0.1
298.0
(1,417.5)
(778.7)
(138.4)
1,494.3
1,457.6
(1,104.3)
10.4
16,863.0
(13,421.5)
(134.4)
(873.9)
25.2
15,284.8
(14,363.3)
–
2,213.2
72.8
0.3
(2.4)
(1,414.4)
(31.4)
5.2
(612.2)
1,115.4
(4,362.4)
(1,128.5)
3,640.2
(1,816.9)
–
0.0
(2.0)
(1,393.3)
(21.4)
2.9
1,709.1
3,193.8
(4,324.0)
(858.5)
2,146.4
(205.9)
(590.3)
(4,607.1)
(343.2)
(899.6)
16.1
1,682.2
1,187.2
66.7
428.3
26
26
11
26
26
26
26
26
26
26
23 & 26
798.7
1,682.2
Consolidated Statement of Changes in Equity
For the year ended 31 March 2018
Vedanta Resources plc | Annual Report FY2018
165
(US$ million)
At 1 April 2017
Profit/(loss) for the year
Other comprehensive
income/(loss) for the year
Total comprehensive
income/(loss) for the year
Acquisition of shares under
DSBP scheme
Transfers(1)
Dividends paid/
payable (Note 14)
Exercise of stock options
Recognition of share-based
payment (Note 32)
Non-controlling interest on
business combination (Note 11)
Recognition of put option
liability/derecognition of non
controlling interest (Note 27 b)
Other changes in non-
controlling interests*
Attributable to equity holders of the Company
Share
capital
(Note 35)
Share
premium
Treasury
shares
Share–
based
payment
reserves
Hedging
reserve
Other
reserves
Retained
earnings
Total
Non–
controlling
Interests
Total equity
30.1 201.5 (557.9)
–
–
–
28.2 (90.9) 140.5 (160.0) (408.5) 6,423.1 6,014.6
– 235.6 235.6 1,233.3 1,468.9
–
–
–
–
–
–
(1.6)
33.1
–
31.5
38.7
70.2
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.6)
33.1 235.6 267.1 1,272.0 1,539.1
(0.9)
–
–
–
–
0.5
–
(27.0)
–
12.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19.3)
(1.5)
19.3
(2.4)
–
–
–
(2.4)
–
– (164.4) (164.4)
0.3
–
26.5
(828.3)
–
(992.7)
0.3
–
–
–
12.1
–
12.1
–
–
11.5
11.5
–
(20.7)
(20.7)
(22.0)
(42.7)
–
(22.3)
(22.3)
3.5
(18.8)
At 31 March 2018
30.4 201.5 (558.3)
13.3 (92.5) 154.3
(87.5) (338.8) 6,859.8 6,521.0
*
Includes purchase of shares by Vedanta Limited through ESOP trust for its stock options and share-based payment charge by subsidiaries.
(US$ million)
At 1 April 2016
Profit for the year
Other comprehensive
income for the year
Total comprehensive
income/(loss) for
the year
Acquisition of shares
under DSBP scheme
Convertible bond
transfer
Transfers(1)
Dividends paid/
payable (Note 14)
Exercise of stock
options
Recognition of
share-based
payment (Note 32)
Change in non-
controlling interest-
merger (Note 42)
Other changes in
non-controlling
interests*
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
reserves
Retained
earnings
Total
Non-
controlling
Interests
Total equity
30.1 201.5
–
–
(557.2)
–
29.9
–
6.0
–
(87.7)
–
(1.4)
–
(334.0)
(22.7)
(712.8) 7,565.2
(22.7)
902.3
6,852.4
879.6
–
–
–
–
–
(3.2)
90.4
–
87.2
128.8
216.0
–
–
–
–
–
(0.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.0
–
0.1
(15.1)
–
(3.2)
90.4 (22.7)
64.5 1,031.1 1,095.6
–
(6.0)
–
–
–
–
–
–
–
–
–
(1.2)
(2.0)
–
(2.0)
–
51.5
6.0
(51.5)
–
–
–
–
–
–
– (137.5) (137.5)
(1,340.1) (1,477.6)
–
15.0
–
–
0.0
–
–
–
13.4
–
–
–
–
13.4
–
13.4
–
–
–
–
–
–
–
368.4
368.4
(817.1)
(448.7)
–
–
–
–
–
–
–
(2.5)
(2.5)
(16.0)
(18.5)
At 31 March 2017
30.1 201.5 (557.9)
28.2
–
(90.9) 140.5 (160.0) (408.5) 6,423.1 6,014.6
*
Includes purchase of shares by Vedanta Limited through ESOP trust for its stock options and additional stake purchased during the year in erstwhile Cairn India
Limited and share-based payment charge by subsidiaries.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 166
Vedanta Resources plc | Annual Report FY2018
Consolidated Statement of Changes in Equity continued
For the year ended 31 March 2018
OTHER RESERVES COMPRISE
(US$ million)
At 1 April 2016
Exchange differences on translation of foreign operations
Gain in fair value of available-for-sale financial assets
Remeasurements
Transfer from/(to) retained earnings1
At 1 April 2017
Exchange differences on translation of foreign operations
Gain in fair value of available-for-sale financial assets
Remeasurements
Transfer from/(to) retained earnings1
Currency
translation
reserve
(2,255.2)
87.9
–
–
–
(2,167.3)
25.5
–
–
–
Merger
reserve2
Investment
revaluation
reserve
Other
reserves3
2,245.3
–
–
–
51.5
Total
(1.4)
87.9
2.5
0.0
51.5
2,296.8
140.5
4.1
–
2.5
–
–
6.6
–
6.9
–
–
–
–
0.7
(19.3)
25.5
6.9
0.7
(19.3)
4.4
–
–
–
–
4.4
–
–
–
–
At 31 March 2018
(2,141.8)
4.4
13.5 2,278.2
154.3
1 Transfer to other reserve during the year ended 31 March 2018 includes US$3.5 million of legal reserve and withdrawal of US$22.8 million from debenture
redemption reserve (31 March 2017: US$51.5 million of debenture redemption reserve).
2 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.
3 Other reserves includes legal reserves of US$3.8 million (31 March 2017: US$0.3 million), debenture redemption reserve of US$156.2 million (31 March 2017:
US$178.9 million) and balance mainly includes general reserve. Debenture redemption reserve is required to be created under the Indian Companies Act from
annual profits until such debentures are redeemed. Legal reserve is required to be created by Fujairah Gold by appropriation of 10% of profits each year until the
balance reaches 50% of the paid-up share capital. This reserve is not available for distribution except in circumstances stipulated by the Articles of Incorporation.
Under the erstwhile Indian Companies Act, 1956, general reserve was created in relation to Group’s Indian subsidiaries through an annual transfer of net income to
general reserve 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 total distributable reserves for that year. The said requirement was dispensed with w.e.f. 1 April 2013 and there are no restrictions of use of these
reserves.
Vedanta Resources plc | Annual Report FY2018
167
Notes to the Financial Statements
As at and for the year ended 31 March 2018
1. Presentation of financial statements
General information
Vedanta Resources plc (‘Company’ or ‘VRplc’) 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, commercial energy
and glass substrate. Vedanta has operations in India, Zambia, Namibia, South Africa, Ireland, Liberia, UAE, Japan, South Korea, Taiwan and
Australia. 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 and basis of measurement
The financial statements have been prepared on a going concern basis using historical cost convention, except for derivative financial
instruments, available-for-sale financial assets, liquid investments which are remeasured at fair value at the end of each reporting period
and defined benefit obligations measured in accordance with IAS 19, as explained in the accounting policies below.
Certain comparative figures appearing in these consolidated financial statements have been regrouped and/or reclassified to better
reflect the nature of those items.
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 FRS 101 and UK company law. The Company financial statements and associated notes have been presented separately.
2(a) Accounting policies
(i) Basis of consolidation
Subsidiaries:
The consolidated financial statements incorporate the results of the Company and all its subsidiaries (the ‘Group’), being the companies
that it controls. Control is evidenced where the Group 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 align the accounting policies in line with accounting policies of the Group.
For non-wholly owned subsidiaries, a share of the profit/(loss) 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
Statement of Financial Position.
Liability for put option issued to non-controlling interests which do not grant present access to ownership interest to the Group is
recognised at present value of the redemption amount, and is reclassified from equity. At the end of each reporting period, the non-
controlling interests subject to put option is derecognised and the difference between the amount derecognised and present value of
the redemption amount, which is recorded as a financial liability, is accounted for as an equity transaction.
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.
Intra-Group balances and transactions and any unrealised profits arising from intra-Group transactions are eliminated. 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. Investments in joint arrangements are classified as either joint operations or joint
venture. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint
arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement, have rights to the
assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the arrangement.
The Group has joint operations within its Oil & Gas segment and participates in several unincorporated joint operations which involve the
joint control of assets used in oil and 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. Liabilities in unincorporated joint ventures, where the Group is the
operator, is accounted for at gross values (including share of other partners) with a corresponding receivable from the venture partners.
These have been included in the financial statements under the appropriate headings.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 168
Vedanta Resources plc | Annual Report FY2018
2(a) Accounting policies continued
Investments in associates:
Investments in associates are accounted for using the equity method. An associate is an entity over which the Group is in a position
to exercise significant influence over operating and financial policies. Goodwill arising on the acquisition of associates is included in
the carrying value of investments in the associate. Investment in associates is initially recorded at the cost to the Group and then, in
subsequent periods, the carrying value is adjusted to reflect the Group’s share of the associate’s consolidated post-acquisition profits
or losses, other changes to the associate’s net assets and is further adjusted for impairment losses, if any. The Consolidated Income
Statement and Consolidated Statements of Comprehensive Income include the Group’s share of associate’s results, except where
the associate is generating losses, share of such losses in excess of the Group’s interest in that associate are not recognised. Losses
recognised under the equity method in excess of the Group’s investment in ordinary shares are applied to the other components of the
Group’s interest that forms part of Group’s net investment in the associate in the reverse order of their seniority (i.e. priority in liquidation).
If the Group’s share of losses in an associate equals or exceeds its interests in the associate, the Group discontinues the recognition of
further losses. Additional losses are provided for, only to the extent that the Group has incurred legal or constructive obligations or made
payments on behalf of the associate.
Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in
the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with
the policies adopted by the Group.
(ii) Business combinations
Acquisitions are accounted for under the acquisition method. The acquiree’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.
Excess of fair value of purchase consideration and the acquisition date non-controlling interest over the acquisition date fair value of
identifiable assets acquired and liabilities assumed is recognised as goodwill. Goodwill arising on acquisitions is reviewed for impairment
annually. Where the fair values of the identifiable assets and liabilities exceed the cost of acquisition, the Group re-assesses whether
it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over
the aggregate consideration transferred, then 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 value is made and any adjustments required to those provisional fair values are finalised within 12 months of
the acquisition date.
The Group makes adjustments to the provisional fair value amounts recognised at the date of acquisition to reflect new information
obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the
amounts recognised as of that date. The Group applies the measurement period adjustments retrospectively to the consolidated financial
statements to reflect the measurement period adjustments as retrospectively recorded on the date of the acquisition as if measurement
period adjustments had been recorded initially at the date of acquisition.
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 net identifiable assets. 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 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 is allocated to the individual identifiable assets acquired based on their relative
fair value.
(iii) Revenue recognition
Revenues are measured at the fair value of the consideration received or receivable, net of discounts, volume rebates, outgoing sales
taxes, goods and service tax, excise duty and other indirect taxes. Revenues from sales are recognised when all significant risks and
rewards of ownership of the commodity sold are transferred to the customer and the commodity has been delivered to the shipping
agent. Revenues from sale of by-products are included in revenue.
Certain of the Group’s sales contracts provide for provisional pricing based on the price on the London Metal Exchange (LME), as
specified in the contract, when shipped. Final settlement of the price is based on the applicable price for a specified future period. The
Group’s provisionally priced sales are marked to market using the relevant forward prices for the future period specified in the contract
and is adjusted in 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, when significant risks and rewards of ownership are transferred to the buyers. Direct entitlement basis represents
entitlement to variable physical volumes of hydrocarbons, representing recovery of the costs incurred and a stipulated share of the
production remaining after such cost recovery. The stipulated share of production is arrived at after reducing government’s share of profit
petroleum which is accounted for when the obligation (legal or constructive) in respect of the same arises.
Revenue from sale of power is recognised when delivered and measured based on rates as per bilateral contractual agreements with
buyers and at a rate arrived at based on the principles laid down under the relevant Tariff Regulations as notified by the regulatory bodies,
as applicable.
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2(a) Accounting policies continued
Where the Group acts as a port operator, revenues and costs relating to each construction contract of service concession arrangements
are recognised over the period of each arrangement only to the extent of costs incurred that are probable of recovery. Revenues and
costs relating to operating phase of the port contract are measured at the fair value of the consideration received or receivable for the
services provided.
Revenue from rendering of services is recognised on the basis of work performed.
Interest income
Interest income from debt instruments is recognised using the effective interest rate method. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial
asset. When calculating the effective interest rate, the Group estimates the expected cash flows by considering all the contractual terms of
the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Dividends
Dividend income is recognised in the income statement only when the right to receive payment is established, provided it is probable that
the economic benefits associated with the dividend will flow to the Group, and the amount of the dividend can be measured reliably.
(iv) 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 IFRS. The determination as to which items should be disclosed separately
requires a degree of judgement.
(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.
Intangible assets arising out of service concession arrangements are accounted for as intangible assets where the Group has a contractual
right to charge users of services when the projects are completed and is measured at the cost determined as the fair value of the
consideration received or receivable of such construction services. Such assets are amortised on straight-line basis over the balance of
licence period. The concession period is 30 years from the date of the award.
Software is amortised over the estimated useful life of five years. Technological know-how and the acquired brand are amortised over the
estimated useful life of ten years.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and
the carrying amount of the asset are recognised in the Consolidated Income Statement when the asset is derecognised.
(vi) Property, plant and equipment (PP&E)
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 mine 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.
The stripping cost incurred during the production phase of a surface mine are deferred to the extent the current period stripping cost
exceeds the average period stripping cost over the life of mine and is 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.
When the benefit from the stripping costs are realised in the current period, the stripping costs are accounted for as the cost of inventory.
If the costs of inventory produced and the stripping activity asset are not separately identifiable, a relevant production measure is used to
allocate the production stripping costs between the inventory produced and the stripping activity asset. The Company uses the expected
volume of waste compared with the actual volume of waste extracted for a given value of ore/mineral production for the purpose of
determining the cost of the stripping activity asset. 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, ‘MORC’ Code or ‘SAMREC’ Code. Changes in
the commercial reserves affecting unit of production calculations are dealt with prospectively over the revised remaining reserves.
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2(a) Accounting policies continued
Relating to oil and gas assets – Developing/producing assets
For oil and gas assets, a successful efforts-based accounting policy is followed.
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 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.
Exploration and evaluation assets
Exploration and evaluation expenditure incurred prior to obtaining the mining right or the legal right to explore are expensed as incurred.
Exploration and evaluation expenditure incurred after obtaining the mining right or the legal right to explore, are capitalised as property,
plant and equipment and stated at cost less impairment, if any. 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 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:
• Acquisition costs – costs associated with acquisition of licences and rights to explore, including related professional fees.
• 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.
• Costs of exploratory drilling and equipping exploratory and appraisal wells.
Exploration expenditure incurred in the process of determining oil and gas exploration targets is capitalised initially within property, plant
and equipment-exploration and evaluation assets and subsequently allocated to drilling activities (under oil and 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 and 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.
Expenditure incurred on the acquisition of a licence interest is initially capitalised on a licence-by-licence basis. Costs are held and 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.
Net proceeds from any disposal of an exploration asset are initially credited against the previously capitalised costs. Any surplus/deficit is
recognised in the income statement.
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. It also includes the initial
estimate of the costs of dismantling and removing the item and restoring the site on which it is located. If significant parts of an item of
property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property,
plant and equipment. All other expenses on existing property, plant and equipment, including day-to-day repair and maintenance
expenditure and cost of replacing parts, are charged to the income statement for the period during which such expenses are incurred.
Gains and losses on disposal of an item of property, plant and equipment computed as the difference between the net disposal proceeds
and the carrying amount of the asset is included in the income statement when the asset is derecognised. Major inspection and overhaul
expenditure is capitalised, if the recognition criteria are met.
(vii) Assets under construction
Assets in the course of construction are capitalised in the assets under construction account. At the point when an asset is capable of
operating in the manner intended by management, the cost of construction is transferred to the appropriate category of property, plant
and equipment. Costs (net of income) associated with the commissioning of an asset and any obligatory decommissioning costs are
capitalised until the period of commissioning has been completed and the asset is ready for its intended use.
(viii) Depreciation and amortisation
Mining properties and other assets in the course of development or construction, freehold land and goodwill are not depreciated or
amortised.
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2(a) Accounting policies continued
Relating to mining properties
The capitalised mining properties are amortised on a unit-of-production basis over the total estimated remaining commercial reserves of
each property or group of properties and are subject to impairment review. Costs used in the unit of production calculation comprise the
net book value of capitalised costs plus the estimated future capital expenditure required to access the commercial reserves. Changes in
the estimates of commercial reserves or future capital expenditure are dealt with prospectively.
Leasehold land and buildings are depreciated on a straight-line basis 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 depreciated 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 and 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.
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 the 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
Office equipment and fixtures
Motor vehicles
30–60 years
15–40 years
5–10 years
8–10 years
Major inspection and overhaul costs are depreciated over the estimated life of the economic benefit to be derived from such costs. 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.
The Group reviews the residual value and useful life of an asset at least at each financial year end and, if expectations differ from previous
estimates, the change is accounted for as a change in accounting estimate.
(ix) Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction
rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal
group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to
qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets and disposal groups classified as held for sale are not depreciated and are measured at the lower of carrying amount
and fair value less costs to sell. Such assets and disposal groups are presented separately on the face of the Consolidated Statements of
Financial Position.
(x) 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
Statement of Comprehensive Income.
In respect of trade and other receivables, the Group would not provide for 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.
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2(a) Accounting policies continued
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 at the year end 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. Internal and external
factors, such as worse economic performance than expected, 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
less costs of disposal 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 and 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 is net of 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 Consolidated 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 except if initially attributed
to goodwill.
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 indicators:
• 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 exists 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 underway or planned. To the extent that capitalised
expenditure is no longer expected to be recovered, it is charged to the income statement.
(xi) Government grants
Government grants are not recognised until there is a reasonable assurance that the Group will comply with the conditions attaching to
them and that the grants will be received. Government grants relating to tangible fixed assets are deducted in calculating the carrying
amount of the assets and recognised in the Consolidated Income Statement over the expected useful lives of the assets concerned as a
reduced depreciation expense. Other grants (including grants related to revenue) are credited to the Consolidated Income Statement on a
systematic basis as and when the related expenditure is incurred.
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2(a) Accounting policies continued
(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 in the Oil and Gas business 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 are moved out of inventory on a FIFO basis, however, cost of finished
goods of oil and condensate is determined on a quarterly weighted average basis.
• 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 current tax 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 reporting date and includes any adjustment to tax payable in respect of previous years.
Subject to the exceptions below, 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 and on carry forward
of unused tax credits and unused tax losses:
• 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 initial recognition as well as 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 including MAT 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 reporting date. Tax relating to
items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or equity).
The carrying amount of deferred tax assets is reviewed at each reporting 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. Subsequently deferred tax is charged
or credited in the income statement/other comprehensive income 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 by actuarial valuation each year separately for
each plan using the projected unit credit method by third party qualified actuaries.
Remeasurement including effects of asset ceiling and return on plan assets (excluding amounts included in interest on the net defined
benefit liability) and actuarial gains and losses arising in the year are recognised in full in other comprehensive income and are not recycled
to the income statement.
Past service costs are recognised in the income statement on the earlier of:
• the date of the plan amendment or curtailment, and
• the date that the Group recognises related restructuring costs.
Net interest is calculated by applying a discount rate to the net defined benefit liability or asset at the beginning of the period. Defined
benefit costs are split into current service cost, past service cost, net interest expense or income, and gains and losses on curtailments or
settlements.
Current service cost and past service costs are recognised within cost of sales and administrative expenses and distribution 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 are the contributions payable in the year, recognised as and when the employee renders related service.
The Group reassessed its accounting for death-in-service obligations with respect to the recognition of these liabilities. The Group had
previously accounted for these liabilities as defined benefit schemes and the cost of providing benefits under the plans was determined by
an actuarial valuation each year, which was performed separately for each plan using the projected unit credit method by third party
qualified actuaries.
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2(a) Accounting policies continued
On 1 April 2017, the Group elected to derecognise these liabilities, as the Group believes that a present obligation does not exist with
regards to these liabilities. The Group applied the change in policy retrospectively, but have not adjusted the prior year figures in these
financial statements as they are not material.
(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 is determined with the assistance of an external valuer and the fair value at the grant date is expensed on a proportionate
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.
The resultant increase in equity is recorded in share-based payment reserve.
In case of cash-settled transactions, a liability is recognised for the fair value of cash-settled transactions. The fair value is measured
initially and at each reporting date up to and including the settlement date, with changes in fair value recognised in employee benefits
expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is
determined with the assistance of an external valuer.
(xvi) Provisions, contingent liabilities and contingent assets
Provisions represent liabilities for which the amount or timing is uncertain. 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 reporting date and are adjusted to reflect the current best estimate.
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-
occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognised because
it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognised because it cannot be measured reliably. The Group does not recognise a
contingent liability but discloses its existence in the consolidated financial statements.
Contingent assets are not recognised but disclosed in the financial statements when an inflow of economic benefit is probable.
(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 fields. Such costs, discounted to net present value, are provided for and a
corresponding amount is capitalised at the start of each project, 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, changes to lives of operations, 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 value and charged to the income statement as extraction progresses. Where the costs of site restoration are not anticipated to be
material, they are expensed as incurred.
(xviii) Leases
Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. The arrangement is, or contains, a
lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset or assets, even if that right is not explicitly specified in an arrangement.
At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required
by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes
for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal
to the fair value of the underlying asset; subsequently the liability is reduced as payments are made and an imputed finance cost on the
liability is recognised using the Group’s incremental borrowing rate.
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2(a) Accounting policies continued
Group as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and
rewards incidental to ownership to the Group is classified as a finance lease.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the
present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs
in the income statement, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the
Group’s general policy on the borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the
lease term.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating
leases. Rental income from an operating lease is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs
incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the
lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the Group to the lessee.
Amounts due from lessees under finance leases are recorded as receivables at the Company’s net investment in the leases. Finance lease
income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of
the lease.
(xix) 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 normally the local currency of the country in which they operate
with the exception of KCM and the Oil and Gas business which has a US dollar functional currency as that is the currency of primary
economic environment in which they operate. 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
reporting date. Non-monetary assets and liabilities denominated in other currencies and measured at historical cost or fair value are
translated at the exchange rates prevailing on the dates on which such values were determined.
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 which are recognised in the other comprehensive income. These include the
exchange differences on foreign currency borrowings relating to the asset under construction, and for future productive use, and 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 businesses for which the US dollar is not the functional currency
are translated into US dollars at the average rates of exchange during the year/exchange rates as on the date of transaction. The related
Consolidated Statements of Financial Position are translated into US dollars at the rates as at the reporting date. Exchange differences
arising on translation are recognised in the Consolidated Statements of Comprehensive Income. On disposal of such entities, the deferred
cumulative exchange differences recognised in equity relating to that particular foreign operation are recognised in the Consolidated
Income Statement.
(xx) Financial asset investments
Financial asset investments are classified as available-for-sale under IAS 39 and are initially recorded at fair value plus transaction costs
that are directly attributable to the acquisition of financial asset investments and then remeasured at subsequent reporting dates to fair
value. Unrealised gains and losses on financial asset investments are recognised through other comprehensive income. On disposal or
impairment of the investments, the gains and losses in equity are recycled to the income statement.
Investments in equity instruments are recorded in non-current assets unless they are expected to be sold within one year.
The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is
impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’)
has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
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2(a) Accounting policies continued
(xxi) 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.
These include Short-term marketable securities and other Bank Deposits.
Short-term marketable securities are categorised as held for trading and are initially recognised at fair value with any gains or losses arising
on remeasurement recognised in the Consolidated Income Statement.
Other bank deposits are subsequently measured at amortised cost using the effective interest method.
(xxii) Cash and cash equivalents
Cash and cash equivalents in the Statement of Financial Position 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.
(xxiii) Trade receivables
Trade receivables are stated at their transaction 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.
Trade receivables are subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income
is recognised on non-current receivables on specific items by applying the effective interest rate method.
(xxiv) Trade payables
Trade and other payables are recognised at their transaction cost, which is its fair value, and subsequently measured at amortised cost
except for the put option liability that is measured at fair value.
(xxv) Bills of exchange payable
The Group enters into arrangements whereby financial institutions make direct payments to suppliers for raw materials and project
materials. The financial institutions are subsequently repaid by the company at a later date providing working capital timing benefits. These
are normally settled up to 12 months (for raw materials) and up to 36 months (for project materials). Where these arrangements are for raw
materials with a maturity of up to 12 months, the economic substance of the transaction is determined to be operating in nature and these
are recognised as bills of exchange (under Trade and other payables). Where these arrangements are for project materials with a maturity
up to 36 months, the economic substance of the transaction is determined to be financing in nature, and these are classified as projects
buyers’ credit within borrowings in the Statement of Financial Position. Interest expense on these are recognised in the finance cost.
(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 initially at the fair value. 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 netted against the carrying amount of the instrument to the extent that they are not settled in the period in which they
arise.
(xxiii) 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 (net of transaction cost) 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.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
177
2(a) Accounting policies continued
(xxix) Borrowing costs
Borrowing cost includes interest expense as per effective interest rate (EIR) and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the interest cost.
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
i.e. when they are capable of commercial production. Borrowing costs relating to the construction phase of a service concession
arrangement are capitalised as part of the cost of the intangible asset. Where funds are borrowed specifically to finance a qualifying
capital 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 deducted from the total capitalised
borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a
weighted average of rates applicable to relevant general borrowings of the Group during the year.
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.
EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial liability or a
shorter period, where appropriate, to the amortised cost of a financial liability. When calculating the effective interest rate, the Group
estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment,
extension, call and similar options).
(xxx) Current and non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is
classified as current when it satisfies any of the following criteria:
• it is expected to be realised in, or is intended for sale or consumption in, the Group’s normal operating cycle;
• it is held primarily for the purpose of being traded;
• it is expected to be realised within 12 months after the reporting date; or
• it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the
reporting date.
All other assets are classified as non-current.
A liability is classified as current when it satisfies any of the following criteria:
• it is expected to be settled in the Group’s normal operating cycle;
• it is held primarily for the purpose of being traded;
• it is due to be settled within 12 months after the reporting date; or
• the Group does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms
of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its
classification.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current only.
(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.
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2(a) Accounting policies continued
(xxxii) Hedge accounting
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of
the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair
values or cash flows of the hedged item attributable to the hedged risk.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the income statement
immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge
accounting is discontinued when the Group revokes the hedge relationship, the hedging instrument or hedged item expires or is sold,
terminated, or exercised or no longer meets the criteria for hedge accounting.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in the
Consolidated Statements of Comprehensive Income. The gain or loss relating to the ineffective portion is recognised immediately in
the income statement. Amounts recognised in the Consolidated Statement of Comprehensive Income are transferred to the income
statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised
or when a forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in the Consolidated
Statement of Comprehensive Income is transferred to the carrying amount of the asset when it is recognised. Hedge accounting is
discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.
If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in the Consolidated Statement of
Comprehensive Income is transferred to the income statement.
Hedge of net investment in foreign operation
For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign operation, the gain or loss is reported
in the Consolidated Statement of Comprehensive Income as part of the exchange difference on translation of foreign operations to the
extent it is effective. Any ineffective portions of net investment hedges are recognised in the income statement immediately. Under a
hedge of a net investment, the cumulative gain or loss remains in the Consolidated Statement of Comprehensive Income when the
hedging instrument expires or is sold, terminated or exercised, or when the hedge no longer qualifies for hedge accounting or the Group
revokes designation of the hedge relationship. The cumulative gain or loss is recognised in the income statement as part of the gain/loss
on disposal when the net investment in the foreign operation is disposed.
Derivative financial instruments that do not qualify for hedge accounting are marked to market at the financial position date and gains or
losses are recognised in the income statement immediately.
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 host contracts and the host contracts are not carried at fair value with unrealised gains
or losses recognised in the income statement.
2(b) Application of new and revised standards
The Group has adopted with effect from 1 April 2017, the following new amendments and pronouncements.
IAS 7 Statement of Cash Flows
Narrow-scope amendments: The amendments introduce an additional disclosure that will enable users of financial statements to evaluate
changes in liabilities arising from financing activities. The required disclosure is given in Note 26.
Amendments to IAS 12
Recognition of Deferred Tax Assets for Unrealised Losses: These amendments clarify that unrealised losses on debt instruments measured
at fair value for financial reporting purposes but at cost for tax purposes can give rise to a deductible temporary difference and how such a
temporary difference should be assessed in determining whether a deferred tax asset should be recognised. This does not have any
significant impact on the amounts reported in the financial statements.
Amendments to IFRS 12 Disclosure of Interests in Other Entities issued in the Annual Improvements Cycle 2014–2016
The amendments to IFRS 12 introduced in the 2014–2016 annual improvement cycle clarify that all requirements of that Standard (other
than those covered by an existing exemption from disclosure of summarised financial information on interests in subsidiaries, joint ventures
and associates) apply to interests classified as held for sale or discontinued operations in accordance with IFRS 5 Non-current Assets Held
for Sale and Discontinued Operations. This does not have any impact on the financial statements.
The Group has not early adopted any other amendments, standards or interpretations that have been issued but are not yet effective. The
Group plans to adopt new amendments, standards or interpretations as and when they become they effective.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
179
2(b) Application of new and revised standards continued
Recently issued accounting pronouncements and not effective for the year ended 31 March 2018:
Standards not yet effective for the financial statements for the year ended 31 March 2018
Amendments to IAS 40 – Transfers of Investment Property
Effective for annual periods
beginning on or after
1 January 2018*
Amendments to IFRS 2 – Classification and measurement of Share-Based Payment Transactions
1 January 2018
Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
1 January 2018
Annual Improvements to IFRSs 2014–2016 Cycle
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRS 16 Leases
Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
IFRIC 23 Uncertainty over Income Tax Treatments
Annual Improvements to IFRSs 2015–2017 Cycle
IFRS 17 Insurance Contracts
* Subject to EU endorsement
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
1 January 2019*
1 January 2019*
1 January 2019*
1 January 2019*
1 January 2021*
Except specifically covered below, the Group is evaluating the requirements of these standards, improvements and amendments and has
not yet determined the impact on financial statements.
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. It eliminates the rule-based requirement of segregating embedded derivatives from financial assets and
tainting rules pertaining to held to maturity investments. For financial assets which are debt instruments, IFRS 9 establishes a principle
based approach for classification based on cash flow characteristics of the asset and the business model in which an asset is held. 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 on such equity investment would ever be reclassified to profit or loss. It requires the entity,
which chooses to designate a liability as at fair value through profit or loss, 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 the adoption of IFRS 9 is annual periods beginning on or after 1 January 2018, though early adoption is permitted.
Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group has completed its assessment of the effects of transition to IFRS 9 and will adopt the same from 1 April 2018. The areas
impacted on adopting IFRS 9 on the Group are detailed below.
Classification and measurement
IFRS 9 establishes a principle-based approach for classification of financial assets based on cash flow characteristics of the asset and the
business model in which an asset is held. The measurement and accounting treatment of the Group’s financial assets is materially
unchanged with the exception of equity securities previously categorised as available-for-sale. These will be held at fair value through
other comprehensive income, meaning the recycling of gains and losses on disposal and impairment losses is no longer permitted for
this category.
Impairment
Based on the Group’s assessment, under the expected credit loss model, the impairment of financial assets held at amortised cost is not
expected to have a material impact on the Group’s results, given the low exposure to counterparty default risk as a result of the credit risk
management processes that are in place.
Hedge accounting
The Group plans to adopt the IFRS 9 hedge accounting requirements. The adoption of the new standard would have no effect on the
amounts recognised in relation to the existing hedging arrangements.
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2(b) Application of new and revised standards continued
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 of the current revenue recognition guidance. The core principle of the
new standard is for companies to recognise revenue when the control of the goods and services is transferred to the customer as against
the transfer of risk and rewards. The amount of revenue recognised should 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
improved guidance for multiple element arrangements. The new standard comes into effect for the annual reporting periods beginning on
or after 1 January 2018 with early application permitted.
In order to identify the potential impact of the standard on the Group’s consolidated financial statements, the Group has analysed
contracts of the relevant revenue streams of the Group. The work done is focused on evaluating the contractual arrangements across
the Group’s principal revenue streams, particularly key terms and conditions which may impact the timing of revenue recognition and
measurement of revenue.
Based on the work carried out, the impact in implementing IFRS 15 on the Group results is detailed below:
On the basis of the analysis conducted, the new standard would result in identification of freight and insurance services as a separate
performance obligation implying segregation of revenue on account of sale of goods and sale of services. The revenue on account of
these services is required to be deferred along with the associated costs and recognised over time as this obligation is fulfilled.
The Group has products which are provisionally priced at the date revenue is recognised. Revenue in respect of such contracts will be
recognised when control passes to the customer and will be measured at the amount the entity expects to be entitled – being the
estimate of the price expected to be received at the end of the measurement period. Post transfer of control of goods, provisional pricing
features will be accounted in accordance with IFRS 9 ‘Financial Instruments’ rather than IFRS 15 and therefore the IFRS 15 rules on variable
consideration do not apply. These ‘provisional pricing’ adjustments i.e. the consideration received post transfer of control will continue to
be included in consolidated revenue on the face of the income statement and these would be disclosed by way of note to the financial
statements.
The implementation of changes required as per IFRS 15 as mentioned above is identified to be not materially affecting the current
recognition and measurement of revenues, though there would be significant additional disclosure requirements for the Group to
comply with.
The Group will adopt the modified transitional approach to implementation where any transitional adjustment is recognised in retained
earnings at 1 April 2018 without adjustment of comparatives and the new standard will only be applied to contracts that remain in force
at that date.
IFRS 16 Leases
IFRS 16 Leases, specifies recognition, measurement and disclosure criteria for leases. The standard provides a single lessee accounting
model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset
has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially
unchanged from its predecessor, IAS 17. The new standard will come into effect for annual reporting periods beginning on or after
1 January 2019. Earlier application is permitted if IFRS 15 Revenue from Contracts with Customers has also been applied. The Group is
currently in the process of determining the potential impact of adopting the above standard and expects to implement the same from
1 April 2019.
2(c) Significant accounting estimates and judgements
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. These judgements and estimates are based on management’s best knowledge of the relevant facts and
circumstances, having regard to previous experience, but actual results may differ materially from the amounts included in the financial
statements.
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.
The information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the
most significant effect on the amounts recognised in the financial statements are as given below:
Significant Estimates:
(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 annually. 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 oil & gas prices could impact the
depreciation rates, carrying value of assets and environmental and restoration provisions.
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181
2(c) Significant accounting estimates and judgements continued
(ii) Carrying value of exploration and evaluation oil and gas assets
The recoverability of a project is assessed under IFRS 6. Exploration assets are assessed by comparing the carrying value to higher of fair
value less cost of disposal or value in use, if an impairment indicator exists. Change to the valuation of exploration assets is an area of
judgement. Further details on the Group’s accounting policies on this are set out in accounting policy 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/reversal impact and the assumptions used are disclosed in Note 5.
(iii) Carrying value of developing/producing oil and gas assets
Management perform impairment tests on the Group’s developing/producing oil and gas assets where indicators of impairment or
impairment reversal of previous recorded impairment are identified in accordance with IAS 36.
The impairment assessments are based on a range of estimates and assumptions, including:
Estimates/assumption
Basis
Future production
Proved and probable reserves, resource estimates and, in certain cases, expansion projects
Commodity prices
Management’s best estimate benchmarked with external sources of information, to ensure they are within
the range of available analysts’ forecast
Discount to price
Management’s best estimate based on historical prevailing discount
Extension of PSC
Assumed that PSC for Rajasthan block would be extended till 2030 on the expected commercial terms as
per the announced government policy
Discount rates
Cost of capital risk-adjusted for the risk specific to the asset/CGU
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/reversal impact and the assumptions and sensitivities 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.
In the current year the Group has reassessed the parameters for mine development depletion including cost to complete at HZL, which
has resulted in an additional depletion charge of $57.3 million for the current year.
Management performs impairment tests when there is an indication of impairment or impairment reversal. The impairment assessments
are based on a range of estimates and assumptions, including:
Estimates/assumptions
Basis
Future production
Commodity prices
Exchange rates
Discount rates
Proved and probable reserves, resource estimates (with an appropriate conversion factor) considering the
expected permitted mining volumes and, in certain cases, expansion projects
Management’s best estimate benchmarked with external sources of information, to ensure they are within
the range of available analysts’ forecast
Management best estimate benchmarked with external sources of information
Cost of capital risk-adjusted for the risk specific to the asset/CGU
Details of impairment charge are disclosed in Note 5.
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2(c) Significant accounting estimates and judgements continued
(v) Assessment of impairment at Lanjigarh Refinery
During financial year 2015-16, the Group has received the necessary approvals for expansion of the Lanjigarh refinery to 4 million tonnes
per annum (MTPA). Accordingly, second stream operations were commenced in Alumina refinery from April 2016 and the refinery was
debottlenecked to nameplate capacity of 2 MTPA in this year. We continue to explore the feasibility of expanding our alumina refinery
capacity, from 2 to 4 million and then up to 6 million tonnes per annum, subject to bauxite availability and regulatory approvals.
The State of Odisha has abundant bauxite resources and given the initiatives by the Government of Odisha, management is confident that
bauxite will be made available in the short to medium term. The Group has entered into agreements with various suppliers internationally
and domestically to ensure the availability of bauxite to run its refinery.
Recoverability value assessment during the previous year ended 31 March 2017 including sensitivity analysis on the key assumptions
indicated recoverable value exceeds the carrying value. No negative developments have occurred since the previous year and accordingly,
it is not expected that the carrying amount would exceed the recoverable amount and hence the recoverable value for the year ended
31 March 2018 was not re-determined.
As at 31 March 2018, the carrying amount of property, plant and equipment related to alumina refinery operations at Lanjigarh and related
mining assets is US$1,043.5 million (31 March 2017 : US$1,099.4 million).
(vi) Assessment of impairment of Goa iron ore mines:
Pursuant to an order passed by the Honourable Supreme Court of India on 7 February 2018, the second renewal of the mining leases
granted by the State of Goa in 2014–15 to all miners including Vedanta were cancelled. Consequently, all mining operations stopped with
effect from 16 March 2018 until fresh mining leases (not fresh renewals or other renewals) and fresh environmental clearances are granted
in accordance with the provisions of The Mines and Minerals (Development and Regulation) (MMDR) Act. Significant uncertainty exists
over the resumption of mining at Goa under the current leases. The Group has assessed the recoverable value of all its assets and liabilities
associated with existing mining leases which led to a non-cash impairment charge in March 2018. Details of this impairment charge and
method of estimating recoverable value is disclosed in Note 5.
(vii) Assessment of impairment at Konkola Copper Mines (KCM)
The KCM operations in Zambia have experienced lower equipment availability, throughput constraints and other operational challenges
including production ramp-up. Due to these factors, the Group has reviewed the carrying value of its property, plant and equipment at
KCM as at balance sheet date, estimated the recoverable amounts of the 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 Group has also carried out a sensitivity analysis on key variables like movement in copper prices, discount rate and production. Based
on the sensitivity analysis, the recoverable amount is still expected to exceed the carrying value.
The carrying value of assets as at 31 March 2018 is US$1,575.8 million (31 March 2017: US$1,663.6 million).
(viii) 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 or oil
fields. The costs are estimated on an annual basis on the basis of mine 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. The provision
for decommissioning oil and gas assets is based on the current estimate of the costs for removing and decommissioning producing
facilities, the forecast timing and currency of settlement of decommissioning liabilities and the appropriate discount rate.
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.
Details of such provision are set out in Note 30.
(ix) 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. This
is set out in Note 30.
(x) 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 40. 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.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
183
2(c) Significant accounting estimates and judgements continued
(xi) Recoverability of deferred tax and other income tax assets
The Group has carry forward tax losses, unabsorbed depreciation and MAT credit that are available for offset against future taxable profit.
Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the unused tax
losses or tax credits can be utilised. This involves an assessment of when those assets are likely to reverse, and a judgement as to whether
or not there will be sufficient taxable profits available to offset the assets. This requires assumptions regarding future profitability, which is
inherently uncertain. To the extent assumptions regarding future profitability change, there can be an increase or decrease in the amounts
recognised in respect of deferred tax assets and consequential impact in the income statement.
Additionally, the Group has tax receivables on account of refund arising on account of past amalgamation and relating to various tax
disputes. The recoverability of these receivables involve application of judgement as to the ultimate outcome of the tax assessment and
litigations. This pertains to the application of the legislation, which in certain cases is based upon management’s interpretation of country
specific tax law, in particular India, and the likelihood of settlement. Management uses in-house and external legal professionals to make
informed decisions.
The details of MAT assets (recognised and unrecognised) are set out in Note 31.
(xii) Copper operations India
The annual consent to operate (CTO) under the Air and Water Acts for copper smelter in India was rejected by the State Pollution Control
Board on 9 April 2018 for want of further clarifications and consequently, the operations have presently been suspended. The Company
has filed an appeal in the Tribunal. Even though there can be no assurance regarding the final outcome of the process, as per the
Company’s assessment, it is in compliance with the applicable regulations and expects the renewal of CTO in the next few months.
The carrying value of assets as at 31 March 2018 is US$256.3 million.
Judgements:
(i) Assessment of IFRIC 4 – Determining whether an arrangement contains a lease
The Group has ascertained that the Power Purchase Agreement (PPA) entered into between one of the Subsidiary and a State Grid
qualifies to be an operating lease under IAS 17 ‘Leases’. Accordingly, the consideration receivable under the PPA relating to recovery of
capacity charges towards capital cost have been recognised as operating lease rentals and in respect of variable cost that includes fuel
costs, operations and maintenance etc. is considered as revenue from sale of products/services.
Significant judgement is required in segregating the capacity charges due from the State Grid, between fixed and contingent payments.
The Group has determined that since the capacity charges under the PPA are based on the number of units of electricity made available
by its Subsidiary which would be subject to variation on account of various factors like availability of coal and water for the plant, there are
no fixed minimum payments under the PPA, which requires it to be accounted for on a straight-line basis. The contingent rents recognised
are disclosed in Note 38.
(ii) Contingencies
In the normal course of business, contingent liabilities may arise from litigation, taxation and other claims against the Group. A tax provision
is recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle
that obligation.
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.
When considering the classification of legal or tax cases as probable, possible or remote, there is judgement involved. This pertains to the
application of the legislation, which in certain cases is based upon management’s interpretation of country specific applicable law, in
particular India, and the likelihood of settlement. Management uses in-house and external legal professionals to make informed decisions.
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.
(iii) Revenue recognition and receivable recovery in relation to the Power division
In certain cases, the Group’s Power customers are disputing various contractual provisions of Power Purchase Agreements (PPA).
Significant judgement is required in both assessing the tariff to be charged under the PPA in accordance with IAS 18 and to assess the
recoverability of withheld revenue currently accounted for as receivables.
In assessing this critical judgement, management considered favourable external legal opinions the Group has obtained in relation to the
claims and favourable court judgements in the related matter. In addition, the fact that the contracts are with government-owned
companies implies the credit risk is low. Refer Note 38.
(iv) 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 IFRS.
The determination as to which items should be disclosed separately requires a degree of judgement. The details of special items is set out
in Note 5.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 184
Vedanta Resources plc | Annual Report FY2018
3. Segment information
The Group is a diversified natural resources Group engaged in exploring, extracting and processing minerals and oil and gas. We produce
zinc, lead, silver, copper, aluminium, iron ore, oil and gas, commercial power and glass substrate and have a presence across India, Zambia,
South Africa, Namibia, UAE, Ireland, Australia, Liberia, Japan, South Korea and Taiwan. The Group is also in the business of port operations
and manufacturing of glass substrate.
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
‘Others’ segment mainly comprises of port/berth and glass substrate business and those segments which do not meet the quantitative
threshold for separate reporting.
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 years ended 31 March 2018 and 31 March 2017. Items after operating profit are not allocated by segment.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
185
3. Segment information continued
(a) Reportable segments
Year ended 31 March 2018
(US$ million)
REVENUE
Sales to external
customers
Inter-segment
sales1
Zinc-India
Zinc-
International
Oil & Gas
Iron Ore
Copper-
India*/
Australia
Copper-
Zambia
Aluminium
Power
Others
Elimination
Total
operations
3,368.7
534.7
1,479.6
483.4 3,832.3 1,181.3
3,583.7
853.6
41.4
– 15,358.7
–
–
–
4.1
0.4
101.7
3.9
23.4
1.9
(135.4)
–
Segment revenue 3,368.7
534.7 1,479.6
487.5 3,832.7 1,283.0 3,587.6
877.0
43.3
(135.4) 15,358.7
Segment result
EBITDA2
Depreciation and
amortisation3
Operating profit/
(loss) before
special items
Investment revenue
Finance costs
Other gains and
(losses) net
Special items
PROFIT BEFORE
TAXATION
Segment assets
Financial asset
investments
Deferred tax assets
Liquid investments
Cash and cash
equivalents
Tax assets
Others
TOTAL ASSETS
Segment liabilities
Short-term
borrowings
Current tax
liabilities
Medium and
long-term
borrowings
Deferred tax
liabilities
Others
TOTAL
LIABILITIES
Other segment
information
Additions to
property, plant and
equipment
including intangible
assets**
Impairment
reversal/(losses)4
1,902.8
219.5
849.1
57.3
200.6
73.2
452.4
258.9
37.4
–
4,051.2
(232.9)
(28.3)
(461.3)
(68.6)
(24.9)
(111.8)
(256.9)
(75.1)
(10.9)
– (1,270.7)
1,669.9
191.2
387.8
(11.3)
175.7
(38.6)
195.5
183.8
26.5
–
2,780.5
465.1
(1,342.6)
(1.0)
580.1
2,482.1
2,575.2
862.0 3,706.0
613.2
1,447.0
2,017.2
7,440.4 2,950.3
424.0
– 22,035.3
(637.6)
(170.3)
(851.3)
(249.8)
(1,367.8)
(757.6)
(2,061.0)
(268.2)
(30.5)
– (6,394.1)
24.5
916.7
4,807.8
798.7
523.3
132.1
29,238.4
(5,460.3)
(53.9)
(9,733.5)
(743.0)
(332.6)
(22,717.4)
473.0
254.7
162.6
21.6
84.1
27.4
221.0
11.1
281.4
1,536.9
–
– 1,447.4
(758.5)
–
–
–
–
–
–
688.9
* The annual consent to operate (CTO) under the Air and Water Acts for copper smelters in India was rejected by the State Pollution Control Board on 9 April 2018
for want of further clarification and consequently the operations have presently been suspended. The matter is presently pending in Tribunal.
** Including acquisition through business combination.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 186
Vedanta Resources plc | Annual Report FY2018
3. Segment information continued
Year ended 31 March 2017
(US$ million)
REVENUE
Sales to external
customers
Inter-segment
sales1
Zinc-India
Zinc-
International
Oil & Gas
Iron Ore
Copper-
India/
Australia
Copper-
Zambia
Aluminium
Power
Others
Elimination
Total
operations
2,521.9
332.4 1,222.7
609.3 3,131.4
830.1
2,037.1
822.6
12.6
–
11,520.1
3.1
–
–
6.1
2.3
44.2
2.9
13.3
1.0
(72.9)
–
Segment revenue 2,525.0
332.4 1,222.7
615.4 3,133.7
874.3 2,040.0
835.9
13.6
(72.9) 11,520.1
Segment result
EBITDA2
Depreciation and
amortisation3
Operating profit/
(loss) before
special items
Investment revenue
Finance costs
Other gains and
(losses) net
Special items
PROFIT BEFORE
TAXATION
Segment assets
Financial asset
investments
Deferred tax assets
Liquid investments
Cash and cash
equivalents
Tax assets
Others
TOTAL ASSETS
Segment liabilities
Short-term
borrowings
Current tax
liabilities
Medium and
long-term
borrowings
Deferred tax
liabilities
Others
TOTAL
LIABILITIES
Other segment
information
Additions to
property, plant and
equipment
including intangible
assets
Impairment
reversal/(losses)4
1,423.2
138.3
597.2
194.2
252.2
5.9
344.2
244.8
(8.9)
(149.2)
(27.5)
(411.0)
(69.9)
(28.9)
(113.3)
(141.0)
(88.2)
(1.5)
1,274.0
110.8
186.2
124.3
223.3
(107.4)
203.2
156.6
(10.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
3,191.1
(1,030.5)
2,160.6
642.6
(1,340.6)
(23.8)
(58.9)
1,379.9
2,422.7
553.2 2,548.9 1,409.0 1,183.5 2,006.8
7,103.5 2,837.5
85.6
–
20,150.7
(615.7)
(173.7)
(716.7)
(228.2)
(1,708.1)
(570.0) (1,561.5)
(266.0)
(25.9)
–
(5,865.8)
10.7
1,111.0
8,043.0
1,682.2
436.7
69.1
31,503.4
(7,658.5)
(37.8)
(10,570.2)
(371.1)
(985.4)
(25,488.8)
325.1
74.6
151.9
11.5
24.9
28.3
280.6
82.0
0.5
–
979.4
–
–
12.6
–
–
–
(29.9)
–
–
(17.3)
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
187
3. Segment information continued
1 Transfer prices for inter-segment sales are on an arm’s length basis in a manner similar to transactions with third parties. However, inter-segment sales at BALCO
amounting to US$20.6 million for the year ended 31 March 2018 (31 March 2017 US$6.2 million), is at cost.
2 EBITDA is a non-IFRS measure and represents earnings before special items, depreciation, amortisation, other gains and losses, interest and tax.
3 Depreciation and amortisation is also provided to the chief operating decision maker on a regular basis.
4
Included under special items (Note 5).
(b) Geographical segmental analysis
The Group’s operations are located in India, Zambia, Namibia, South Africa, UAE, Liberia, Ireland, Australia, Japan, South Korea and
Taiwan. The following table provides an analysis of the Group’s sales by region in which the customer is located, irrespective of the origin
of the goods.
(US$ million)
India
China
UAE
Malaysia
Others
Total
Year ended
31 March
2018
8,262.1
2,184.7
620.5
827.8
3,463.6
Percentage
54%
14%
4%
5%
23%
Year ended
31 March
2017
6,712.1
1,501.9
716.5
431.2
2,158.4
Percentage
58%
13%
6%
4%
19%
15,358.7
100%
11,520.1
100%
The following is an analysis of the carrying amount of non-current 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)
India
Zambia
Namibia
South Africa
Taiwan
Others
Total
Carrying amount of
non-current assets1
As at
31 March
2018
16,045.1
1,623.6
170.7
570.1
188.4
130.5
As at
31 March
2017
15,496.6
1,639.0
112.7
322.3
–
27.5
18,728.4
17,598.1
1 Non-current assets do not include deferred tax assets, derivative assets, financial asset investments and other non-current financial assets.
Information about major customers
No customer contributed 10% or more to the Group’s revenue during the year ended 31 March 2018 and 31 March 2017.
4. Total revenue
(US$ million)
Sale of products (including excise duty)
Less: Excise duty
Sale of products (net of excise duty)
Sale of services
Export incentives
Total revenue
Year ended
31 March
2018
Year ended
31 March
2017
15,426.7
(163.9)
15,262.8
31.2
64.7
11,998.7
(588.2)
11,410.5
71.4
38.2
15,358.7
11,520.1
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 188
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
5. Special items
(US$ million)
Reversal of provision of DMF1
Gratuity-change in limits2
Gross profit special items
Impairment reversal of Oil and Gas assets3
Impairment of Iron Ore assets4
Impairment of assets under construction- Aluminium5
Total impairment charge
Loss on unusable assets under construction –
Aluminium5
Operating special items
Financing special items6
Bargain gain net of acquisition cost7
Year ended 31 March 2018
Year ended 31 March 2017
Special
items
Tax effect of
special
items
Note
45.8
(12.7)
33.1
1,447.4
(758.5)
–
688.9
(15.9)
2.9
(13.0)
(569.9)
224.6
–
(345.3)
(39.0)
683.0
(108.2)
5.3
13.6
(344.7)
6.2
–
Special
items after
tax
29.9
(9.8)
20.1
877.5
(533.9)
–
343.6
(25.4)
338.3
(102.0)
5.3
Special
items
–
–
–
12.6
–
(29.9)
(17.3)
–
(17.3)
(41.6)
–
Tax effect
of special
items
–
–
–
(4.9)
–
–
(4.9)
–
(4.9)
–
–
Special
items
after tax
–
–
–
7.7
–
(29.9)
(22.2)
–
(22.2)
(41.6)
–
Special items
580.1
(338.5)
241.6
(58.9)
(4.9)
(63.8)
1
During the year ended 31 March 2018, the Group has recognised the reversal of provisions of US$45.8 million relating to contribution
to the District Mineral Foundation. Effective 12 January 2015, the Mines and Minerals Development and Regulation Act, 1957
prescribed the establishment of the District Mineral Foundation (DMF) in any district affected by mining related operations. The
provisions required contribution of an amount equivalent to a percentage of royalty not exceeding one-third thereof, as may be
prescribed by the Central Government of India. The rates were prescribed on 17 September 2015 for minerals other than coal,
lignite and sand and on 20 October 2015 for coal, lignite and sand as amended on 31 August 2016. The Supreme Court order dated
13 October 2017 has determined the prospective applicability of the contributions from the date of the notification fixing such rate of
contribution and hence DMF would be effective;
a) for minerals other than coal, lignite and sand from the date when the rates were prescribed by the Central Government; and;
b) for coal, lignite and sand, DMF would be effective from the date when the rates were prescribed by the Central Government
of India or from the date on which the DMF was established by the State Government by a notification, whichever is later.
Pursuant to the aforesaid order, the Group has recognised a reversal of DMF provision for the period for which DMF is no longer
leviable.
2 The Indian subsidiaries of the Company participate in a defined benefit plan (the ‘Gratuity Plan’) covering certain categories of
employees. In a few of these companies, the maximum liability was capped at the statutory prescribed limit of INR 1 million (US$0.2
million). Consequent to the increase in the statutory limit to INR 2 million (US$0.3 million), the increase in provision representing past
service cost has been recognised as special items.
3 During the year ended 31 March 2018, the Group has recognised net impairment reversal of US$1,447.4 million on its assets in the oil
and gas segment comprising of:
a) reversal of previously recorded impairment charge of US$1,464.5 million relating to Rajasthan oil and gas block (‘CGU’) mainly
following the progress on key Growth Projects expected to result in the enhanced recovery of resources in a commercially viable
manner leading to a higher forecast of oil production and adoption of an integrated development strategy for various projects leading
to savings in cost. Of this reversal, US$499.9 million reversal has been recorded against oil and gas properties and US$964.6 million
reversal has been recorded against exploratory and evaluation assets. The recoverable amount of the CGU, US$2,514.0 million
(March 2017: US$2,007.0 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 reflects 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 and 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 use assumption for oil price of US$62 per barrel for FY2019 (March 2017: US$58 per barrel) and scales up to the
long-term nominal price of US$65 per barrel over the next three years thereafter (March 2017: US$70 per barrel) derived from a
consensus of various analyst recommendations. Thereafter, these have been escalated at a rate of 2.5% per annum (March 2017:
2.5% per annum). The cash flows are discounted using the post-tax nominal discount rate of 10.1% (March 2017: 10.2%) derived
from the post-tax weighted average cost of capital after factoring in the risks ascribed to PSC extension including successful
implementation of key Growth Projects. Based on the sensitivities carried out by the Group, change in crude price assumptions by
US$ 1/bbl and changes to discount rate by 0.5% would lead to a change in recoverable value by US$64 million and US$53 million
respectively.
b) Impairment charge of US$17.1 million representing the carrying value of assets relating to exploratory wells in Block PR-OSN-2004/1
which has been relinquished during the year.
During the year ended 31 March 2017, the Group has recognised net impairment reversal of US$12.6 million relating to Rajasthan block
net of the charge in relation to change in the decommissioning liability due to change in discount rate in the previous year. Of this net
reversal, US$63.0 million charge has been recorded against Oil & Gas properties and US$75.6 million reversal has been recorded
against exploratory and evaluation assets.
Vedanta Resources plc | Annual Report FY2018
189
5. Special items continued
4 During the year ended 31 March 2018, the Group has recognised an impairment charge of US$758.5 million as against the net carrying
value of US$865.0 million on its iron ore assets in Goa in the Iron Ore segment. Pursuant to an order passed by the Hon’ble Supreme
Court of India on 7 February 2018, the second renewal of the mining leases granted by the State of Goa in 2014–15 to all miners
including Vedanta were cancelled. Consequently, all mining operations stopped with effect from 16 March 2018 until fresh mining
leases (not fresh renewals or other renewals) and fresh environmental clearances are granted in accordance with the provisions of
The Mines and Minerals (Development and Regulation) (MMDR) Act.
Significant uncertainty exists over the resumption of mining at Goa under the current leases. The Group has assessed the recoverable
value of all its assets and liabilities associated with existing mining leases which led to a non-cash impairment charge in March 2018.
The recoverable value of the mining reserve (grouped under ‘mining property and leases’) has been assessed as Nil, as there is no
reasonable certainty towards re-award of these mining leases. Similarly, upon consideration of past precedence, the provision for
restoration and rehabilitation with respect to these mines has been assessed as Nil, as the Group believes that the same would be
carried out by the future successful bidder at the time of mine closure. The net recoverable value of other assets and liabilities has been
assessed at US$114.0 million based on the fair value less cost of sales methodology using a Level 3 valuation technique. The fair value
was determined based on the estimated selling price of the individual assets using depreciated replacement cost method.
5 During the year ended 31 March 2018, the Group has recognised a loss of US$39.0 million relating to certain items of capital work-in-
progress at the aluminium operations, which are no longer expected to be used.
During the year ended 31 March 2017, the Group has recognised a US$29.9 million impairment charge relating to certain old items
of capital work-in-progress at the Alumina refinery operations.
6 a) During the year ended 31 March 2018, the Group has recognised US$90.6 million loss as financing costs arising on the bond
buybacks completed during the year. Similarly, during the year ended 31 March 2017, the Group has reclassified US$41.6 million
as a special item under finance cost arising on the bond buybacks completed during the year then ended.
b) Charge pursuant to unfavourable arbitration order – US$17.6 million (Refer Note 38 – Vedanta Limited: Contractor claim)
7
On 28 December 2017, the Group through its wholly owned subsidiary, acquired 51.6% equity stake in AvanStrate Inc. (ASI) for a
cash consideration of JPY 1 million ($0.01 million) and acquired debts for JPY 17,058 million ($150.8 million) and incurred acquisition
expenses of US$7.0 million. Additionally, a loan of JPY 814.8 million ($7.2 million) was extended to ASI. The transaction has been
accounted for on a provisional basis in the financial statements under IFRS 3 and the resultant bargain purchase gain, net of
US$7.0 million of acquisition expenses, has been recorded in the income statement.
6. Investment revenue
(US$ million)
Fair value gain on financial assets held for trading
Interest income:
Interest – financial assets held for trading
Interest – bank deposits
Interest – loans and receivables
Dividend income:
Dividend – available-for-sale investments
Dividend – financial assets held for trading
Foreign exchange gain/(loss) (net)
7. Finance costs
(US$ million)
Interest on bonds and other borrowings
Coupon interest on convertible bonds
Accretive interest on convertible bonds
Other borrowing and finance costs (including bank charges)
Total interest cost
Unwinding of discount on provisions (Note 30)
Net interest on defined benefit arrangements
Special items (Note 5)
Capitalisation of finance costs/borrowing costs (Note 17)
Year ended
31 March
2018
Year ended
31 March
2017
258.1
483.5
108.5
21.0
71.6
–
4.0
1.9
87.3
26.5
48.3
0.1
–
(3.1)
465.1
642.6
Year ended
31 March
2018
1,203.8
–
–
172.0
1,375.8
13.0
7.9
108.2
(54.1)
Year ended
31 March
2017
1,210.0
15.5
3.1
186.3
1,414.9
13.0
12.4
41.6
(99.7)
1,450.8
1,382.2
All borrowing costs are capitalised using rates based on specific borrowings with the interest rate of 8.1% per annum.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report
190
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
8. Other gains and (losses) (net)
(US$ million)
Gross foreign exchange (losses)
Qualifying exchange losses capitalised (Note 17)
Net foreign exchange (losses)
Change in fair value of financial liabilities measured at fair value
Net (loss)/gain arising on qualifying hedges and non-qualifying hedges
Bargain gain net of acquisition cost (Note 5)
9(a). Profit/(loss) for the year has been stated after charging/(crediting):
(US$ million)
Depreciation and amortisation
Costs of inventories recognised as an expense
Auditor’s remuneration for audit services (Note 28)
Research and development
Net loss/(profit) on disposal of property, plant and equipment
Provision for receivables*
Impairment of assets
Impairment reversal of oil & gas assets
Employee costs
*
Includes provision of US$65.6 million relating to Iron Ore business recognised as special items (refer Note 5).
9(b). Exchange gain/(loss) recognised in the Consolidated Income Statement:
(US$ million)
Cost of sales
Investment revenue
Other gains and losses
Total
10. 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
Year ended
31 March
2018
(11.0)
–
(11.0)
(1.1)
11.1
5.3
4.3
Year ended
31 March
2018
1,270.7
5,533.0
2.5
1.3
(0.5)
75.6
692.9
(1,447.4)
630.7
Year ended
31 March
2017
(16.4)
1.9
(14.5)
(0.4)
(8.9)
–
(23.8)
Year ended
31 March
2017
1,030.5
3,586.2
2.2
1.2
5.2
3.8
29.9
(12.6)
591.1
Year ended
31 March
2018
Year ended
31 March
2017
44.8
1.9
(11.0)
35.7
6.4
(3.1)
(14.5)
(11.2)
Year ended
31 March
2018
6,035
4,506
1,529
2,869
7,724
1,162
6,562
6,296
223
1,780
156
Year ended
31 March
2017
6,170
4,556
1,614
2,928
7,994
1,196
6,798
5,684
335
1,763
161
25,083
25,035
Vedanta Resources plc | Annual Report FY2018
191
10. Employee numbers and costs continued
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
Gratuity – Special items (Note 5)
* Non-IFRS measure.
Year ended
31 March 2018
Year ended
31 March 2017
544.0
16.4
37.1
20.5
12.7
630.7
531.5
13.8
29.5
16.3
–
591.1
11. Business Combination
On 28 December 2017, the Group acquired 51.63% equity stake in AvanStrate Inc. (ASI) for a cash consideration of JPY 1 million
(US$0.01 million) and acquired debts for JPY 17,058 million (US$150.8 million). Additionally, a loan of JPY 814.8 million (US$7.2 million)
was extended to ASI. ASI is involved in manufacturing of glass substrate. The financial results of ASI from the date of acquisition to
31 March 2018 have been included in the Consolidated Financial Statements of the Group.
As per the shareholding agreement (SHA) entered with the other majority shareholder holding 46.6% in ASI, the Group has a call option,
conversion option to convert part of its debt given to ASI into equity of ASI as well as it has issued put option to the other majority
shareholder. These are exercisable as per the terms mentioned in the SHA.
The fair values and business combination have been accounted for on a provisional basis under IFRS 3, in so far as it relates to property,
plant and equipment and other intangible assets, and the resultant bargain gain as computed below has been recognised in the
Consolidated Income Statement.
The fair value of the identifiable assets and liabilities of ASI as at the date of the acquisition were provisionally estimated as below:
(US$ million)
Particulars
Property, plant and equipment
Intangible assets
Deferred tax assets
Other non-current assets
Non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets (A)
Medium and long-term borrowings (excluding borrowings from immediate parent)
Deferred tax liabilities
Trade and other payables
Total liabilities (B)
Net assets (A-B)
Satisfied by:
Cash consideration paid for 51.63% stake and debt acquired
Non-controlling interest on acquisition (48.37% of net assets after adjustment of fair value of borrowings from immediate
parent of US$158.0 million)
Bargain gain
Acquisition costs
Provisional
fair value
242.2
32.1
19.7
6.4
300.4
21.6
36.0
23.6
81.2
381.6
98.7
77.5
23.6
199.8
181.8
158.0
11.5
12.3
(7.0)
The gross carrying amount of trade and other receivables equals the fair value of trade and other receivables. None of the trade and other
receivables was impaired and the full contractual amounts were expected to be realised. Property, plant and equipment have been valued
using the cost approach – cost of reproduction based on new (CRN) method. For estimating CRN, appropriate indices were used to
develop trend factors that have been applied on the acquisition/historical costs of the different assets over the period during which the
asset has been commissioned or, in other words, life spent. The estimated CRN was further adjusted for applicable physical deterioration
to arrive at fair value. The physical deterioration was based on the estimated age and remaining useful life. Fair value of assumed debt was
determined using the yield-method, wherein, the expected cash flows including interest component and principal repayments have been
discounted at an appropriate market interest rate.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 192
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
11. Business Combination continued
Since the date of acquisition, ASI has contributed US$23.3 million to the Group revenue and has reduced the profit before taxation by
US$10.8 million (including impact of borrowings from the immediate parent) for the year ended 31 March 2018. If ASI had been acquired
at the beginning of the year, the Group revenue would have been US$15,465.8 million and the profit before taxation of the Group would
have been US$2,477.9 million.
Non-controlling interest has been measured at the non-controlling interest’s proportionate share of ASI’s identifiable net assets.
12. Tax
(US$ million)
Current tax:
Current tax on profit for the year
Charge/(credit) in respect of current tax for earlier years
Total current tax
Deferred tax: (Note 31)
Origination and reversal of temporary differences
Charge in respect of deferred tax for earlier years
Charge in respect of special items (Note 5)
Total deferred tax
Net tax expense
Effective tax rate
Tax expense
(US$ million)
Tax effect of special items (Note 5)
Tax expense – others
Net tax expense
Year ended
31 March
2018
Year ended
31 March
2017
515.6
6.1
521.7
140.0
13.0
338.5
491.5
1013.2
40.8%
589.5
(1.5)
588.0
(83.0)
(9.6)
4.9
(87.7)
500.3
36.2%
Year ended
31 March
2018
338.5
674.7
1,013.2
Year ended
31 March
2017
4.9
495.4
500.3
A reconciliation of income tax expense applicable to accounting profit/(loss) before tax at the Indian statutory income tax rate to income
tax expense/(credit) at the Group’s effective income tax rate for the year ended 31 March 2018 is as follows. Given the majority of the
Group’s operations are located in India, the reconciliation has been carried out from the Indian statutory income tax rate.
(US$ million)
Accounting profit before tax
Indian statutory income tax rate
Tax at local statutory income tax rate
Disallowable expenses
Non-taxable income
Tax holidays and similar exemptions
Effect of tax rates differences of subsidiaries operating in other jurisdictions
Dividend distribution tax
Unrecognised tax assets (net)
Changes in deferred tax balances due to change in income tax rate from 34.608% to 34.944%
Capital gains subject to lower tax rate
Investment allowances
Charge/(credit) in respect of previous years
Others
Total
Year ended
31 March
2018
Year ended
31 March
2017
2,482.1
1,379.9
34.608%
34.608%
859.0
21.0
(37.4)
(157.5)
72.9
62.7
165.2
11.5
(11.8)
–
19.1
8.5
477.6
58.0
(96.5)
(204.8)
76.1
244.5
149.2
–
(68.0)
(74.7)
(11.1)
(50.0)
1,013.2
500.3
Certain businesses of the Group within India are eligible for specified tax incentives which are included in the table above as tax holidays
and similar exemptions. Most of such tax exemptions are relevant for the companies operating in India. These are briefly described
as under:
Vedanta Resources plc | Annual Report FY2018
193
12. Tax continued
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 an 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). In the current
year, Haridwar and Pantnagar units are eligible for deduction at 30% of taxable profits.
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 ten consecutive years within the 15-year period following commencement of the power plant’s operation. The
Group currently has total operational capacity of 8.4 Giga Watts (GW) of thermal-based power generation facilities and wind power
capacity of 274 Mega Watts (MW). 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 various locations of Hindustan Zinc Limited (where such benefits have
been drawn), and Talwandi Sabo Power Limited, Vedanta Limited and Bharat Aluminium Company Limited (where no benefit has
been drawn).
The Group operates a zinc refinery in the Export Processing Zone, Namibia which has been granted tax exempt status by the
Namibian government.
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$157.5 million for the year ended 31 March 2018 (31 March 2017:
US$204.8 million).
13. Earnings/(loss) per share
Basic earnings/loss per share amounts are calculated by dividing net profit/loss for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during the year.
Weighted average number of treasury shares, 24,373,820 (2017: 24,347,664) outstanding during the year are excluded from the total
outstanding shares for the calculation of EPS.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after
adjusting for the impact of share options issued by the subsidiary) by the weighted average number of ordinary shares outstanding during
the year (adjusted for the effects of dilutive options). The following reflects the income and share data used in the basic and diluted
earnings per share computations:
(US$ million)
Net profit/(loss) attributable to equity holders of the parent
Earnings/(loss) per share based on profit/(loss) for the year
(US$ million except as stated)
Profit/(loss) for the year attributable to equity holders of the parent
Weighted average number of shares of the Company in issue (million)
Earnings/(loss) per share on profit/(loss) for the year (US cents per share)
Computation of adjusted weighted average number of shares
Weighted average number of ordinary shares for basic earnings per share (million)
Effect of dilution:
Potential ordinary shares relating to share option awards
Adjusted weighted average number of shares of the Company in issue (million)
Year ended
31 March
2018
235.6
Year ended
31 March
2017
(22.7)
Year ended
31 March
2018
235.6
277.7
84.8
Year ended
31 March
2017
(22.7)
277.3
(8.2)
Year ended
31 March
2018
Year ended
31 March
2017
277.7
277.3
4.7
5.0
282.4
282.3
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 194
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
13. Earnings/(loss) per share continued
Computation of adjusted profit/(loss) attributable to equity holders of the parent
Profit/(loss) for the year attributable to equity holders of the parent
Effect of dilution:
Reduction in attributable profit on account of stock options of subsidiary
Year ended
31 March
2018
Year ended
31 March
2017
235.6
(22.7)
(1.8)
–
Adjusted profit/(loss) for the year attributable to equity holders of the parent (US$ million)
233.8
(22.7)
Diluted earnings/(loss) per share on profit/(loss) for the year
(US$ million except as stated)
Adjusted profit/(loss) for the year attributable to equity holders of the parent
Adjusted weighted average number of shares of the Company in issue (million)
Diluted earnings/(loss) per share on profit/(loss) for the year (US cents per share)
Year ended
31 March
2018
Year ended
31 March
2017
233.8
282.4
82.8
(22.7)
277.3
(8.2)
The outstanding awards of 4.7 million as at 31 March 2018 under the LTIP are reflected in the diluted earnings per share through an
increased number of weighted average shares.
For the year ended 31 March 2017, the effect of 5.0 million potential ordinary shares, which relate to share option awards under the
LTIP scheme, on the attributable loss for the year was anti-dilutive and thus these shares were not considered in determining diluted loss
per share.
The loss for the previous year would have decreased if holders of the convertible bonds in Vedanta had exercised their right to convert
their bond holdings into Vedanta equity as this conversion would have lowered interest payable on the convertible bond. The adjustment
in respect of the convertible bonds had an anti-dilutive impact on the number of shares and earnings/loss and thus diluted EPS is
not disclosed.
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 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)
Profit/(loss) for the year attributable to equity holders of the parent
Special items
Other gains/(losses) [net]
Tax and non-controlling interest effect of special items (including taxes classified as special
items) and other gains/(losses) [net]
Note
5
8
Underlying attributable profit/(loss) for the year
Reduction in attributable profit on account of stock options of subsidiary
Adjusted underlying profit for the year
Basic earnings per share on underlying profit for the year (Non-GAAP)
(US$ million except as stated)
Underlying profit for the year
Weighted average number of shares of the Company in issue (million)
Earnings/(loss) per share on underlying profit for the year (US cents per share)
Year ended
31 March
2018
235.6
(580.1)
1.0
505.3
161.8
(1.8)
160.0
Year ended
31 March
2018
161.8
277.7
58.3
Year ended
31 March
2017
(22.7)
58.9
23.8
(15.4)
44.6
–
44.6
Year ended
31 March
2017
44.6
277.3
16.1
Vedanta Resources plc | Annual Report FY2018
195
13. Earnings/(loss) per share continued
Diluted earnings per share on underlying profit for the year (Non-GAAP)
(US$ million except as stated)
Adjusted underlying profit for the year
Adjusted weighted average number of shares of the Company in issue (million)
Diluted earnings/(loss) per share on underlying profit for the year (US cents per share)
Year ended
31 March
2018
160.0
282.4
56.7
Year ended
31 March
2017
44.6
282.3
15.8
The outstanding awards of 4.7 million under the LTIP (31 March 2017: 5.0 million) are reflected in the diluted underlying earnings per share
through an increased number of weighted average shares.
The profit for the previous year would have increased if holders of the convertible bonds in Vedanta had exercised their right to convert
their bond holdings into Vedanta equity. The impact on profit for the previous year of this conversion would have lowered interest payable
on the convertible bond. The adjustment in respect of the convertible bonds had an anti-dilutive impact on the number of shares and
earnings/loss and thus diluted EPS is not disclosed.
14. Dividends
(US$ million)
Amounts recognised as distributions to equity holders:
Equity dividends on ordinary shares:
Final dividend for FY 2016–17: 35.0 US cents per share (FY 2015–16: 30.0 US cents per share)
Interim dividend paid during the year: 24.0 US cents per share (FY 2016–17: 20.0 US cents per share)
Proposed for approval at AGM
Equity dividends on ordinary shares:
Final dividend for FY 2017–2018: 41.0 US cents per share
(FY 2016–2017: 35.0 US cents per share)
15. Goodwill
(US$ million)
Cost (gross carrying amount)
Impairment losses
Net carrying amount at 31 March
Year ended
31 March
2018
Year ended
31 March
2017
96.9
67.5
82.4
55.1
114.6
96.9
As at
31 March
2018
16.6
(4.4)
12.2
As at
31 March
2017
16.6
–
16.6
Goodwill is allocated for impairment testing purposes to the following CGU’s. The allocation of goodwill to CGU’s is as follows:
• US$12.2 million Copper India (as at 31 March 2018 and 31 March 2017)
• US$4.4 million (as at 31 March 2017) – impaired during the year – refer to Note 5
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$12.2 million as at 31 March 2018. The carrying amount of goodwill
allocated to the relevant cash generating unit is considered to be insignificant in comparison with the total carrying value of the cash
generating unit. The carrying amount of goodwill was evaluated using the higher of fair value less cost of disposal (‘FVLCD’) or value in use
based on discounted future cash flows of the cash generating unit to which the goodwill pertains and comparing this to the total carrying
value of the relevant cash generating units. It was determined that the carrying amount of goodwill is not impaired and nor was impairment
indicated following a reasonably possible change in a key assumption.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 196
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
16. Intangible assets
Intangible assets include Port concession rights to operate a general cargo berth for handling coal at the outer harbour of the
Visakhapatnam port on the east coast of India, software licences, technological know-how, acquired brand and others.
(US$ million)
Cost
As at 1 April 2016
Addition
Disposal
Foreign exchange differences
As at 1 April 2017
Addition
Disposal
Acquisition through business combination (Note 11)
Foreign exchange differences
As at 31 March 2018
Accumulated amortisation
As at 1 April 2016
Charge for the year
Disposal
Foreign exchange differences
As at 1 April 2017
Charge for the year
Disposal
Foreign exchange differences
As at 31 March 2018
Net book value
As at 1 April 2016
As at 1 April 2017
As at 31 March 2018
Port
concession
rights1
Software
licence
Others2
Total
91.5
0.4
(1.0)
2.1
93.0
0.1
(0.3)
–
(0.3)
92.5
10.4
3.4
(0.1)
0.3
14.0
3.5
–
(0.1)
17.4
81.1
79.0
75.1
10.5
7.1
(0.6)
0.6
17.6
0.9
(1.2)
0.2
0.2
17.7
8.0
2.4
(0.6)
0.4
10.2
3.9
(1.2)
0.1
13.0
2.5
7.4
4.7
9.3
0.8
–
0.2
10.3
0.2
–
31.9
1.9
111.3
8.3
(1.6)
2.9
120.9
1.2
(1.5)
32.1
1.8
44.3
154.5
0.7
0.4
–
–
1.1
–
–
(0.1)
1.0
19.1
6.2
(0.7)
0.7
25.3
7.4
(1.2)
(0.1)
31.4
8.6
9.2
43.3
92.2
95.6
123.1
1
2
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 wholly owned by Vedanta Limited. 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 licence fee an exclusive licence 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 upgraded berth would be 10.18 mmtpa and that the Vishakhapatnam Port would be entitled to receive
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 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.
Others include technological know-how and acquired brand relating to the acquisition of AvanStrate Inc.
Vedanta Resources plc | Annual Report FY2018
197
Mining
property and
leases
Land and
buildings
Plant and
equipment1
Assets under
construction
Oil & Gas
properties
Exploratory
and evaluation
assets
Others
Total
141.6
8.0
77.1
2,615.5 1,646.0 11,421.2 3,409.2 9,770.2 9,983.1
–
(140.2)
–
(6.5)
–
–
419.9
226.1
19.4
15.4 1,492.0 (1,382.3)
(29.3)
(43.8)
–
–
(18.0)
(63.6)
45.1
295.4
–
–
(8.1)
43.6
–
(54.8)
75.9
–
–
–
–
–
151.1
149.5 38,994.7
971.1
13.0
7.1
(33.3)
–
(38.6)
15.9
–
(29.3)
(6.5)
(183.1)
475.9
2,863.3
1,716.3 13,327.3
2,444.6
252.2
11.1
–
24.5
3.8
(0.7)
341.2
552.1
(142.2)
474.9
(568.2)
(15.7)
9,921.3
138.7
30.8
(2.2)
9,836.4
19.6
(30.8)
(9.8)
113.6 40,222.8
1,261.4
10.3
–
1.2
(173.5)
(2.9)
–
53.4
49.2
12.9
163.1
33.6
26.8
16.3
–
–
–
–
3.1
2.4
242.2
118.6
17. Property, plant and equipment
(US$ million)
Cost
At 1 April 2016
Additions
Transfers
Reclassification
Unsuccessful exploration costs
Disposals
Foreign exchange differences
At 1 April 2017
Additions
Transfers
Disposal
Acquisition through business
combination (Note 11)
Foreign exchange differences
At 31 March 2018
3,180.0 1,806.0 14,275.1 2,378.7 10,088.6 9,815.4
127.7 41,671.5
Accumulated depreciation,
amortisation and impairment
At 1 April 2016
Charge for the year
Disposal
Reclassification
Impairment/(impairment reversal) of
assets (Note 5)
Foreign exchange differences
At 1 April 2017
Charge for the year
Disposal
Reclassification
Impairment/(impairment reversal) of
assets (Note 5)
Foreign exchange differences
At 31 March 2018
Net book value
At 1 April 2016
At 1 April 2017
At 31 March 2018
1,300.9
125.4
(54.8)
23.0
284.7 3,676.1
410.9
(24.2)
(30.5)
65.0
(7.3)
1.0
46.4 8,539.0 8,511.9
–
409.7
–
–
–
–
–
–
–
39.0 22,398.0
11.3 1,022.3
(124.2)
(37.9)
–
6.5
–
30.8
–
–
13.6
100.1
4,132.4
557.4
(125.1)
0.4
1,425.3
182.7
–
–
638.3
11.5
357.0
51.7
–
–
12.8
9.6
29.9
2.0
78.3
–
–
–
63.0
–
(75.6)
–
–
12.1
17.3
158.6
9,011.7
460.7
(2.2)
–
8,436.3
–
–
–
31.0 23,472.0
10.8 1,263.3
(128.6)
(1.3)
–
(0.4)
28.7
37.2
45.5
(0.4)
(499.9)
–
(947.5)
–
0.5
1.2
(721.6)
59.1
2,257.8
431.1 4,631.0
123.4 8,970.3 7,488.8
41.8 23,944.2
1,314.6
1,438.0
922.2
1,361.3
1,359.3
1,374.9
7,745.1
9,194.9
9,644.1
3,362.8
2,366.3
2,255.3
1,231.2
909.6
1,118.3
1,471.2
1,400.1
2,326.6
110.5
82.6
85.9
16,596.7
16,750.8
17,727.3
1
2
3
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 2018, land with a carrying value of US$166.2 million (31 March 2017: US$131.1 million) was not depreciated.
During the year ended 31 March 2018, interest and foreign exchange losses capitalised was US$54.1 million (31 March 2017: US$101.6 million).
Certain property, plant and equipment are pledged as collateral against borrowings, the details related to which have been described in Note 24 on Borrowings.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 198
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
18. Financial asset investments
Financial asset investments represent investments classified and accounted for as available-for-sale investments
Available-for-sale investments
(US$ million)
At 1 April
Movements in fair value
Exchange difference
At 31 March
As at
31 March
2018
10.7
13.9
(0.1)
24.5
As at
31 March
2017
6.5
4.1
0.1
10.7
Financial asset 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 2018 and 31 March 2017.
19. Other non‑current assets
(US$ million)
Site restoration fund
Others1, 2
Financial (A)
Deposits with government authorities
Claims and other receivables
Non-financial (B)
Total (A+B)
1
2
Includes trade receivables in Power business (Refer to Note 38 – Other Matters).
Includes US$15.9 million of restricted bank deposits maintained as debt service reserve account (31 March 2017: Nil).
20. Inventories
(US$ million)
Raw materials and consumables
Work-in-progress
Finished goods
As at
31 March
2018
61.3
310.2
371.5
164.0
123.7
287.7
659.2
As at
31 March
2017
50.5
248.7
299.2
57.5
187.7
245.2
544.4
As at
31 March
2018
1,329.4
578.2
130.1
As at
31 March
2017
896.6
585.1
188.4
2,037.7
1,670.1
Inventories with a carrying amount of US$1,251.3 million (31 March 2017: US$790.4 million) have been pledged as security against certain
bank borrowings of the Group.
Inventory held at net realisable value amounted to US$168.2 million (31 March 2017: US$71.0 million). The write-down of inventories
amounts to US$6.8 million (31 March 2017: US$2.2 million) and has been charged to the consolidated income statement.
Vedanta Resources plc | Annual Report FY2018
199
As at
31 March
2018
644.3
3.7
98.8
82.9
829.7
233.1
309.0
155.1
697.2
As at
31 March
2017
387.4
1.5
130.3
34.4
553.6
231.8
183.1
116.3
531.2
1,526.9
1,084.8
21. Trade and other receivables
(US$ million)
Trade receivables1
Trade receivables from related parties
Cash call/receivables from joint operations
Other receivables
Financial (A)
Balance with Government authorities
Advances for supplies
Other receivables
Non-financial (B)
Total (A+B)
1 Refer Note 38 – Other matters.
The credit period given to customers ranges from zero to 90 days. Other receivables, under non-financial, primarily include excise
balances, customs balances, advances to suppliers and claims receivables.
22. Liquid investments
(US$ million)
Bank deposits1
Other investments
As at
31 March
2018
482.5
4,325.3
As at
31 March
2017
882.6
7,160.4
4,807.8
8,043.0
1
Includes US$48.7 million of restricted bank deposits for closure costs/for securing banking facilities. The amount in the prior year relates to US$59.0 million of
bank deposits for securing banking facilities. It also includes US$8.9 million of restricted bank deposits maintained as debt service reserve account (31 March
2017: US$7.9 million).
Bank deposits are made for periods of between three months and one year depending on the cash requirements of the companies within
the Group and earn interest at the respective fixed deposit rates.
Other investments include mutual fund investments and investment in bonds which are held for trading and recorded at fair value with
changes in fair value reported through the income statement. These investments do not qualify for recognition as cash and cash
equivalents due to their maturity period and risk of change in value of the investments. Refer to Note 29 for further details.
23. Cash and cash equivalents
(US$ million)
Cash and cash equivalents consist of the following:
Cash at bank and in hand
Short-term deposits
Restricted cash and cash equivalents1
Total
As at
31 March
2018
604.8
158.3
35.6
As at
31 March
2017
1,323.7
185.3
173.2
798.7
1,682.2
1 Restricted cash and cash equivalents includes US$35.6 million (31 March 2017: US$156.0 million) kept in a specified bank account to be utilised solely for the
purposes of payment of dividends to non-controlling shareholders, which is being carried as a current liability. Of the same, US$21.8 million (31 March 2017:
US$99.0 million) has been utilised to pay dividends to the non-controlling shareholders subsequent to the Balance Sheet date. Restricted cash and cash
equivalents as at 31 March 2017 further includes US$17.2 million kept in short-term deposits under lien, which can be utilised by the Group for the repayment of
bills of exchange facilities against which these have been pledged as security.
Short-term deposits are made for periods of between one day and three months, depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term deposit rates.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report
200
Vedanta Resources plc | Annual Report FY2018
24. Borrowings
(US$ million)
Short-term borrowings consist of:
Banks and financial institutions
Current portion of medium and long-term borrowings
Short-term borrowings (A)
Medium and long-term borrowings consist of:
Banks and financial institutions
Bonds
Non-convertible debentures
Preference shares (Note 42)
Other
Medium and long-term borrowings
Less: Current portion of medium and long-term borrowings
Medium and long-term borrowings, net of current portion (B)
Total (A+B)
As at
31 March
2018
As at
31 March
2017
3,606.7
1,853.6
5,460.3
5,587.9
2,070.6
7,658.5
5,892.0
3,360.1
1,779.2
462.8
93.0
11,587.1
(1,853.6)
9,733.5
6,595.5
3,457.6
2,109.1
464.2
14.4
12,640.8
(2,070.6)
10,570.2
15,193.8
18,228.7
At 31 March 2018, the Group had available US$613.0 million (31 March 2017: US$911.0 million) of undrawn committed borrowing facilities
in respect of which all conditions precedent had been met. The Group facilities are subject to certain financial and non-financial
covenants. The primary covenants which must be complied with include fixed charge cover ratio, net borrowing to EBITDA ratio, total net
assets to borrowings ratio and net interest expense to EBITDA ratio.
Details of the bonds and non-convertible debentures issued by the Group have been provided below:
(US$ million)
Particulars
Bonds:
6.125% bonds due August 2024
9.50% bonds due July 2018*
6.00% bonds due January 2019
8.25% bonds due June 2021
6.375% bonds due July 2022
7.125% bonds due June 2023
0.23% bonds due December 2032 (Repayable in 10 instalments)
* The bond has been pre-paid during the year.
As at
31 March
2018
As at
31 March
2017
991.7
–
223.6
640.0
993.2
494.1
17.5
–
361.1
744.3
865.4
991.5
495.3
–
3,360.1
3,457.6
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018
24. Borrowings continued
(US$ million)
Non-convertible debentures
9.24% NCDs due December 2022*
7.60% NCDs due May 2019
9.10% NCDs due April 2018**
9.17% NCDs due July 2018**
9.45% NCDs due August 2020
7.80% NCDs due December 2020
9.24% NCDs due October 2022*
9.40% NCDs due November 2022*
9.40% NCDs due December 2022*
9.36% NCDs due October 2017
9.36% NCDs due December 2017
7.90% NCDs due March 2020**
8.00% NCDs due July 2020
10.25% NCDs due August 2017
7.85% NCDs due August 2020
9.70% NCDs due September 2017
9.27% NCDs due November 2017
8.91% NCDs due April 2018
8.20% NCDs due November 2019
7.75% NCDs due September 2019
8.25% NCDs due September 2020
8.65% NCDs due September 2019
8.70% NCDs due April 2020
8.75% NCDs due April 2021
8.75% NCDs due September 2021
8.25% NCDs due October 2019
7.95% NCDs due April 2020**
7.50% NCDs due November 2019**
Vedanta Resources plc | Annual Report FY2018
201
As at
31 March
2018
As at
31 March
2017
–
53.7
384.4
184.5
307.5
76.9
–
–
–
–
–
30.7
46.1
–
76.9
–
–
153.7
46.1
38.4
65.3
23.1
92.2
38.4
38.4
46.1
46.1
30.7
77.1
–
385.6
185.1
308.5
–
77.1
77.1
77.1
150.4
81.0
–
–
77.1
–
27.8
30.8
153.9
46.3
38.6
–
23.1
92.5
38.6
38.6
46.3
46.3
30.2
1,779.2
2,109.1
* The NCDs have been pre-paid during the year.
** The debenture holders of these NCDs and the Company have put and call option at the end of 5 years from the respective date of the allotment of the NCDs.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 202
Vedanta Resources plc | Annual Report FY2018
24. Borrowings continued
Security details
The Group has taken borrowings in various countries towards the funding of its acquisitions and working capital requirements. The
borrowings comprise of funding arrangements from various banks and financial institutions taken by the parent and subsidiaries. Out of the
total borrowings of US$15,193.8 million (31 March 2017: US$18,228.7 million) shown above, total secured borrowings are US$5,655.1
million (31 March 2017: US$6,161.7 million) and unsecured borrowings are US$9,538.7 million (31 March 2017: US$12,067.0 million). The
details of security provided by the Group in various countries, to various lenders on the assets of the parent and subsidiaries are as follows:
Facility category
Security details
Buyers credit
(grouped under
banks and
financial
institutions)
First pari passu charge on the entire current assets of Vedanta Limited, both present and future.
First pari passu charge on all rights, title, claim and benefit in all the whole of the current assets
of the borrower, both present and future, including stock and raw material, stock in process,
semi-finished, finished goods and stores and spares not relating to plant and machinery
(consumable stores and spares).
Secured by first charge on entire stock of raw material, semi-finished goods, finished goods,
consumable stores and spares and such other movables including book debts and bills of
Vedanta Limited’s Iron Ore division at Goa and charge on Iron Ore Goa’s all other current assets
including outstanding monies and receivables on pari passu basis.
Other secured buyers credit.
As at
31 March
2018
(US$ million)
As at
31 March
2017
19.3
–
0.3
–
–
115.4
Cash credit
(grouped under
banks and
financial
institutions)
Secured by first pari passu charge on current assets, present and future of Vedanta Limited.
47.3
102.1
Secured by hypothecation of stock of raw materials, work-in-progress, semi-finished, finished
products, consumable stores and spares, bills receivables, book debts and all other movables,
both present and future in BALCO. The charges rank pari passu among banks under the
multiple banking arrangements, for fund and non-fund based facilities.
First pari passu charge on the entire current assets of Vedanta Limited, both present and future.
First pari passu charge on all rights, title, claim and benefit in all the whole of the current assets
of the borrower, both present and future, including stock and raw material, stock in process,
semi-finished, finished goods and stores and spares not relating to plant and machinery
(consumable stores and spares).
Secured by first charge on entire stock of raw material, semi-finished goods, finished goods,
consumable stores and spares and all book debts of Vedanta Limited’s Iron Ore division at Goa
on pari passu basis.
Secured by a first pari passu charge on all present and future inventories, book debts and all
other current assets of TSPL.
Secured by hypothecation of stock of raw materials, work-in-progress, semi-finished, finished
products, consumable stores and spares, bills receivables, book debts and all other movables,
both present and future in BALCO. The charges rank pari passu among banks under the
multiple banking arrangements, both for fund based and non-fund based facilities.
0.1
0.1
98.2
–
25.6
25.5
90.5
–
26.2
–
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
203
24. Borrowings continued
Facility category
Security details
External
commercial
borrowings
(grouped under
banks and
financial
institutions)
The facility is secured by first pari passu charge on all movable property, plant and equipments
related to power plants and aluminium smelters located at Korba both present and future along
with secured lenders.
The facility is secured by first pari passu charge on all movable project assets related to the
1200 MW power project and 3.25 LTPA Smelter project both present and future along with
secured lenders at BALCO.
Other secured external commercial borrowings.
Non-convertible
debentures
a) Secured by way of movable fixed assets in relation to the Lanjigarh Refinery Expansion
Project including 210 MW Power Project for the Lanjigarh Refinery Expansion Project at
Lanjigarh, Orissa.
b) Secured by way of ‘movable fixed assets’ in relation to the 1.6 MTPA aluminium smelter along
with 1215 MW (135MW * 9) captive power plant located in Jharsuguda and 1 MTPA alumina
refinery along with 90 MW co-generation power plant located at Lanjigarh in Odisha State and
shall include all present movable plant and machinery, machinery spares, tools and accessories,
fixtures, mechanical and electrical equipment, machinery and all other movable fixed assets
and all estate, right, title, interest, property, claims and demands whatsoever in relation to
assets.
c) The whole of the movable fixed assets of the 1.6 MTPA aluminium smelter along with 1215
MW captive power plant in Jharsuguda and 1 MTPA alumina refinery along with 75 MW
co-generation plant in Lanjigarh, including its movable plant and machinery, capital works-in-
process, machinery spares, tools and accessories, and other movable fixed assets.
As at
31 March
2018
(US$ million)
As at
31 March
2017
74.7
73.9
50.0
49.8
–
233.2
568.8
647.6
First pari passu charge on the movable fixed assets both present and future of 2400 MW
(600 MW*4) Jharsuguda power plant.
384.3
385.5
Secured by way of first ranking pari passu charge on movable fixed assets in relation to the
Lanjigarh Refinery Expansion Project (having capacity beyond 2 MTPA and up to 6 MTPA)
situated at Lanjigarh, Orissa. The Lanjigarh Refinery Expansion Project shall specifically exclude
the ‘1 MTPA alumina refinery of the Company along with 90 MW power plant in Lanjigarh’ and
all its related capacity expansions.
Secured by way of movable fixed assets of the Lanjigarh Refinery Expansion Project including
210 MW Power Project for the Lanjigarh Refinery Expansion Project with a minimum security
cover of 1 time of the outstanding amount of the debenture.
Secured by first pari passu charge over plant, property, equipment (excluding coal block) of
BALCO.
238.3
239.1
130.6
76.8
–
–
Secured by first pari passu charge on movable and/or immovable fixed assets of TSPL with a
minimum asset cover of 1 time during the tenure of NCD.
161.4
84.8
Secured by first pari passu charge on movable and/or immovable fixed assets of TSPL with a
minimum asset cover of 1.1 times during the tenure of NCD.
153.7
212.5
Secured by way of first pari passu charge on the specific movable and/or immovable property,
plant and equipment of VGCB, as may be identified and notified by the Issuer to the Security
Trustee from time to time, with minimum asset coverage of 1 time of the aggregate face value
of bonds outstanding at any point of time.
Other secured non-convertible debentures.
65.3
–
–
539.6
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 204
Vedanta Resources plc | Annual Report FY2018
24. Borrowings continued
Facility category
Security details
As at
31 March
2018
(US$ million)
As at
31 March
2017
Term loans
(grouped under
banks and
financial
institutions)
Secured by first pari passu charge on fixed assets of TSPL both present and future.
626.6
561.4
Secured by first pari passu charge by way of hypothecation on the entire movable property,
plant and equipment (including WIP) of the Aluminium and Power Project, both present and
future except for assets acquired under buyer’s credit where there is a second charge; and
mortgage by deposit of documents of title of the land pertaining to the property, plant and
equipment. Aluminium and Power Project shall mean the manufacturing facilities comprising of
(i) alumina refinery having output of 1 MTPA along with co-generation captive power plant with
an aggregate capacity of 75 MW at Lanjigarh, Orissa, (ii) aluminium smelter having an output of
1.6 MTPA along with a 1215 (9x135) MW CPP at Jharsuguda, Orissa.
Secured by creating first pari passu charge by way of hypothecation of the movable property,
plant and equipment except for assets acquired under buyer’s credit where there is a second
charge, and mortgage on all the immovable property, plant and equipment of the Aluminium
division of Vedanta Limited, both present and future, including leasehold land.
Secured by a first pari passu charge by way of hypothecation on the entire movable property,
plant and equipment (including CWIP) of the project at Vedanta Limited’s Jharsuguda
Aluminium division except for assets acquired under buyer’s credit where there is a second
charge, both present and future; and mortgage by deposit of documents of title of the land
pertaining to the property, plant and equipment.
Secured by aggregate of the net property, plant and equipment of the Aluminium division and
the Lanjigarh Expansion Project reduced by the outstanding amount of other borrowings having
first pari passu charge on the property, plant and equipment of the Aluminium division and the
Lanjigarh Expansion Project except for assets acquired under buyer’s credit where there is a
second charge.
314.9
410.1
848.7 1,433.1
290.6
299.5
189.6
192.0
Secured by first pari passu charge on moveable property, plant and equipment (except for coal
block) of the Company.
232.3
–
Secured by first pari passu charge on all present and future moveable fixed assets including but
not limited to plant and machinery, spares, tools and accessories of borrower (excluding of coal
block assets ) by way of a deed of hypothecation.
151.9
–
Secured by charge on Cairn Energy Hydrocarbons Limited’s (CEH) all banks accounts, cash and
investments, all receivables and current assets (but excluding any shares issued to CEH by its
subsidiaries, all of its rights, title and interest in and to Production Sharing Contract and all of its
fixed assets of any nature).
Secured against company assets of KCM.
Other secured term loans.
Others
Secured by way of first charge over AvanStrate’s asset.
Total
426.3
293.4
–
–
–
556.5
69.4
–
5,655.1
6,161.7
25. Non‑equity non‑controlling interests
As at 31 March 2018, non-equity non-controlling interests amounts to US$11.9 million (31 March 2017: 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$0.99 per share, which is the maximum
amount payable to the deferred shareholders. These deferred shares have not been discounted as the effect would not be material.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018
Vedanta Resources plc | Annual Report FY2018
205
26. Movement in net debt1
(US$ million)
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
At 1 April 2016
Cash flow
Other non-cash changes3
Foreign exchange currency translation differences
428.3
1,187.2
–
66.7
8,508.2
(921.5)
321.0
135.3
8,936.5
265.7
321.0
202.0
(4,313.8) (11,949.5)
(1,144.6)
2,643.4
(119.5)
74.1
(3,266.6)
(152.2)
(2.0)
–
2.0
–
(7,328.8)
(804.8)
(300.2)
(69.7)
At 1 April 2017
1,682.2
8,043.0
9,725.2
(7,658.5) (10,570.2)
–
(8,503.5)
Cash flow
Net debt on acquisition through business
combination (Note 11)
Other non-cash changes3
Foreign exchange currency translation differences
(923.2) (3,441.5)
(4,364.7) 3,859.2
(694.8)
– (1,200.3)
23.6
–
16.1
–
208.8
(2.5)
23.6
–
208.8 (1,668.6)
7.6
13.6
(98.7)
1627.5
2.7
–
–
–
(75.1)
167.7
23.9
At 31 March 2018
798.7 4,807.8 5,606.5
(5,460.3)
(9,733.5)
– (9,587.3)
1 Net debt is a Non-IFRS measure and represents total debt after fair value adjustments under IAS 32 and 39 as reduced by cash and cash equivalents and liquid
investments.
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 interest accretion on convertible bonds, amortisation of borrowing costs, foreign exchange difference on net debt and
preference shares issued on merger and reclassification between debt due within one year and debt due after one year. It also includes US$208.8 million
(31 March 2017: US$321.0 million) of fair value movement in investments and accrued interest on investments.
27. Trade and other payables
(a) Current trade and other payables
(US$ million)
Bills of exchange
Dividend payable to NCI
Trade payables
Project creditors
Other payables
Financial (A)
Statutory liabilities
Advance from customers1
Other payables
Non-financial (B)
Total (A+B)
As at
31 March
2018
1,447.8
46.1
1,652.8
507.7
1,008.5
4,662.9
453.4
886.4
74.8
1,414.6
As at
31 March
2017
1,550.8
671.6
1,515.8
578.8
729.8
5,046.8
308.2
783.9
84.5
1,176.6
6,077.5
6,223.4
Non-interest bearing trade payables are normally settled on 60 to 90-day terms.
Interest bearing trade and other payables amount to US$1,447.8 million (31 March 2017: US$1,550.8 million).
Bills of exchange are interest-bearing liabilities and are normally settled within a period of 12 months. These represent arrangements
whereby operational suppliers of raw materials are paid by financial institutions, with the Company recognising the liability for settlement
with the institutions at a later date.
The fair values of the trade and other payables are not materially different from the carrying values presented.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 206
Vedanta Resources plc | Annual Report FY2018
27. Trade and other payables continued
(b) Non-current trade and other payables
(US$ million)
Security deposits and retentions
Project creditors
Put option liability with non-controlling interests2
Others
Financial (A)
Advance from customers1
Non-financial (B)
Total (A+B)
As at
31 March
2018
1.5
19.2
45.9
9.5
76.1
66.7
66.7
142.8
As at
31 March
2017
0.2
47.1
–
21.2
68.5
–
–
68.5
1 Advance from customers include amounts received under long term supply agreements. The advance payment plus a fixed rate of return/discount will be settled
by supplying the respective commodity over a period up to 24 months under an agreed delivery schedule as per the terms of the respective agreements. As these
are contracts that the Group expects, and has the ability, to fulfil through delivery of a non-financial item, these are recognised as advance from customers and will
be released to the income statement as the respective commodity is delivered under the agreements. The portion of the advance that is expected to be settled
within the next 12 months has been classified as a current liability.
2 The non-controlling shareholders of ASI have an option to offload their shareholding to the Group. The option is exercisable after 5 years from the date of
acquisition at a price higher of US$0.757 per share and the fair market value of the share. Therefore, the liability is carried at higher of the two. Subsequent
changes to the put option liability are treated as equity transaction and hence accounted for in equity.
28. Auditor’s remuneration
The table below shows the fees payable globally to the Company’s auditor, Ernst & Young LLP, for statutory external audit and audit
related services, as well as fees paid to other accountancy firms for statutory external audit and audit related services in each of the
two years ended 31 March:
(US$ 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
2018
Year ended
31 March
2017
0.7
1.8
2.5
1.8
0.1
0.8
0.4
3.1
5.6
0.0
–
0.0
0.7
1.5
2.2
1.8
0.0
0.7
0.2
2.7
4.9
0.0
–
0.0
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 and overseas tax regulations.
3 Corporate finance services principally comprise services in connection with debt raising transactions, Group simplification and other acquisition related
certifications. These assurance-related services are ordinarily provided by the auditor.
Includes certification related services.
4
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
207
29. Financial instruments
Financial assets and liabilities
The following tables present the carrying value and fair value of each category of financial assets and liabilities as at 31 March 2018 and
31 March 2017:
(US$ million)
As at 31 March 2018
Held for
trading
Loans and
receivables
Available-
for-sale
Derivatives
Total
carrying value
Total
fair value
Financial assets
Financial instruments (derivatives)
Financial asset investments held at fair value
Liquid investments
– Bank deposits
– Other investments
Cash and cash equivalents
Trade and other receivables
Other non-current assets
Total
(US$ million)
As at 31 March 2018
Financial liabilities
Financial instruments (derivatives)
Trade and other payables
Borrowings
Total
–
–
–
4,325.3
–
–
–
–
–
482.5
–
798.7
829.7
371.5
–
24.5
24.0
–
–
–
–
–
–
–
–
–
–
–
24.0
24.5
482.5
4,325.3
798.7
829.7
371.5
24.0
24.5
482.5
4,325.3
798.7
829.7
371.5
4,325.3
2,482.4
24.5
24.0
6,856.2
6,856.2
Amortised
cost
–
(4,693.1)
(15,193.8)
(19,886.9)
Derivatives
Others*
Total carrying
value
Total
fair value
(40.2)
–
–
(40.2)
–
(45.9)
–
(40.2)
(4,739.0)
(15,193.8)
(40.2)
(4,739.0)
(15,310.5)
(45.9)
(19,973.0)
(20,089.7)
* Represents put option liability accounted for at fair value – refer to Note 27(b).
(US$ million)
As at 31 March 2017
Held for
trading
Loans and
receivables
Available-
for-sale
Derivatives
Total
carrying value
Total
fair value
–
–
–
7,160.4
–
–
–
7,160.4
Financial assets
Financial instruments (derivatives)
Financial asset investments held at fair value
Liquid investments
– Bank deposits
– Other investments
Cash and cash equivalents
Trade and other receivables
Other non-current assets
Total
(US$ million)
As at 31 March 2017
Financial liabilities
Financial instruments (derivatives)
Trade and other payables
Borrowings
Total
–
–
–
10.7
882.6
–
1,682.2
553.6
299.2
3,417.6
–
–
–
–
–
2.2
–
–
–
–
–
–
2.2
10.7
882.6
7,160.4
1,682.2
553.6
299.2
2.2
10.7
882.6
7,160.4
1,682.2
553.6
299.2
10.7
2.2
10,590.9
10,590.9
Amortised
cost
Derivatives
Total
carrying value
Total
fair value
–
(5,115.3)
(18,228.7)
(135.5)
–
–
(135.5)
(5,115.3)
(18,228.7)
(135.5)
(5,115.3)
(18,374.5)
(23,344.0)
(135.5)
(23,479.5)
(23,625.3)
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 208
Vedanta Resources plc | Annual Report FY2018
29. Financial instruments continued
The below tables summarise the categories of financial assets and liabilities as at 31 March 2018 and 31 March 2017 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/designated for hedging
– Financial instruments (derivatives)
Trade and other payables
Total
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/designated for hedging
– Financial instruments (derivatives)
Total
As at 31 March 2018
Level 1
Level 2
Level 3
1,163.3
3,162.0
24.0
22.9
–
1,186.2
3,186.0
–
–
–
40.2
–
40.2
–
1.6
1.6
–
45.9
45.9
As at 31 March 2017
Level 1
Level 2
Level 3
2,891.9
–
4,268.5
2.2
9.2
–
2,901.1
4,270.7
–
–
135.5
135.5
–
–
1.5
1.5
–
–
The below table summarises the fair value of financial liabilities other than those where carrying value is determined to be the fair value
and which are carried at amortised cost as at 31 March 2018 and 31 March 2017:
(US$ million)
Financial liabilities
– Borrowings
Total
As at 31 March 2018
As at 31 March 2017
Level 1
Level 2
Level 1
Level 2
(3,444.2)
(11,866.3)
(3,622.8)
(14,751.7)
(3,444.2)
(11,866.3)
(3,622.8)
(14,751.7)
The fair value of the financial assets and liabilities are at the amount that would be received to sell an asset and paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to
estimate the fair values:
• Investments traded in active markets are determined by reference to quotes from the financial institutions; for example: Net asset
value (NAV) for investments in mutual funds declared by mutual fund house. For other listed securities traded in markets which are
not active, the quoted price is used wherever the pricing mechanism is the same as for other marketable securities traded in active
markets. Other current investments are valued on the basis of market trades, poll and primary issuances for securities issued by the
same or similar issuer and for similar maturities or based on the applicable spread movement for the security derived based on the
aforementioned factor(s).
• Trade and other receivables, cash and cash equivalents (including restricted cash and cash equivalents), bank deposits, trade and other
payables and short-term borrowings: Approximate their carrying amounts largely due to the short-term maturities of these instruments.
• Other non-current financial assets and financial liabilities: Fair value is calculated using a discounted cash flow model with market
assumptions, unless the carrying value is considered to approximate to fair value.
• Long-term fixed-rate and variable rate borrowings: Fair value has been determined by the Group based on parameters such as interest
rates, specific country risk factors, and the risk characteristics of the financed project. Listed bonds are fair valued based on the
prevailing market price. For all other long-term fixed-rate and variable-rate borrowings, either the carrying amount approximates the fair
value, or fair value has been estimated by discounting the expected future cash flows using a discount rate equivalent to the risk-free
rate of return adjusted for the appropriate credit spread.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018
Vedanta Resources plc | Annual Report FY2018
209
29. Financial instruments continued
• Quoted available-for-sale financial asset investments: Fair value is derived from quoted market prices in active markets.
• Derivative financial assets/liabilities: The Group enters into derivative financial instruments with various counterparties. Interest rate
swaps, foreign exchange forward contracts and commodity forward contracts are valued using valuation techniques, which employs
the use of market observable inputs. The most frequently applied valuation techniques by the Group include forward pricing and swap
models, using present value calculations. The models incorporate various inputs including the foreign exchange spot and forward rates,
yield curves of the respective currencies, interest rate curves and forward rate curves of the underlying commodity. Commodity
contracts are valued using the forward LME rates of commodities actively traded on the listed metal exchange i.e. London Metal
Exchange, United Kingdom (UK).
For all other financial instruments, the carrying amount is either the fair value, or approximates the fair value.
The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge
relationship and the value of other financial instruments recognised at fair value.
The estimated fair value amounts as at 31 March 2018 have been measured as at that date. As such, the fair values of these financial
instruments subsequent to reporting date may be different than the amounts reported at each year-end.
There were no transfers between Level 1, Level 2 and Level 3 during the year.
Risk management framework
The Group’s businesses are subject to several risks and uncertainties including financial risks.
The Group’s documented risk management polices act as an effective tool in mitigating the various financial risks to which the businesses
are exposed to 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, counterparty credit risk and capital management.
Risks are identified at both the corporate and individual subsidiary level with active involvement of senior management. 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 other committees of the Board including the Risk Management Committee, which
meets regularly to review risks as well as the progress against the planned actions. Key business decisions are discussed at the periodic
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.
The risk management framework aims to:
• improve financial risk awareness and risk transparency
• identify, control and monitor key risks
• identify risk accumulations
• provide management with reliable information on the Group’s risk situation
• improve financial returns
Treasury management
Treasury management focuses on liability management, capital protection, liquidity maintenance and yield maximisation. The treasury
policies are approved by the Committee of the Board. Daily 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 managed jointly by the business treasury team and the central team at corporate treasury while short-term funding
for routine working capital requirements is delegated to subsidiary companies. A monthly reporting system exists to inform senior
management of the Group’s investments and debt position, exposure to currency, commodity and interest rate risk and their mitigants
including the derivative position. The Group has a strong system of internal control which enables effective monitoring of adherence to
Group’s policies. The internal control measures are effectively supplemented by regular internal audits.
The investment portfolio at the Group is independently reviewed by CRISIL Limited and Group portfolio has been rated as Tier I or
‘Very Good’ meaning highest safety. The investments are made keeping in mind safety, liquidity and yield maximisation.
The Group uses derivative instruments to manage the exposure 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, interest rate and currency swaps and these are subject to the Group’s policies.
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. The commodity price risk in import of input commodities such as
Copper Concentrate and Alumina, for our Copper and Aluminium business respectively, is hedged on a back-to-back basis ensuring no
price risk for the business. 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, the basis clearly laid down in guidelines.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 210
Vedanta Resources plc | Annual Report FY2018
29. Financial instruments continued
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 the international crude oil price and the discount in the price of Rajasthan crude oil to the
Brent price.
Financial instruments with a commodity price risk are entered into in relation to the following activities:
• economic hedging of prices realised on commodity contracts
• cash flow hedging of revenues and forecasted highly probable transactions
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 average month of sale LME prices.
Copper
The Group’s custom smelting copper operations at Tuticorin are benefited by a natural hedge except to the extent of a possible mismatch
in quotation periods between the purchase of concentrate and the sale of finished copper. The Group’s policy on custom smelting is to
generate margins from Treatment charges/Refining charges or TcRc, 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 quotation 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.
TcRc is a major source of income for the Indian copper smelting operations. Fluctuation in TcRc is 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 engages in hedging for its custom smelting operations in line with the Group’s policy on custom smelting
at Tuticorin, as explained above.
Zinc, lead and silver
The sales prices are linked to the LME prices. The Group also enters into hedging arrangements for its Zinc, Lead and Silver sales to realise
average month of sale LME prices.
Zinc International
Raw material for zinc and lead is mined in Namibia and South Africa with sales prices linked to the LME prices.
Iron ore
The Group sells its Iron Ore production from Goa on the prevailing market prices and from Karnataka through the e-auction route as
mandated by State Government of Karnataka in India.
Oil & Gas
The prices of various crude oils are based upon the price of the key physical benchmark crude oil such as Dated Brent, West Texas
Intermediate, and Dubai/Oman, etc. The crude oil prices move based upon market factors like supply and demand. The regional producers
price their crude basis these benchmark crude with a premium or discount over the benchmark based upon quality differential and
competitiveness of various grades.
Natural gas markets are evolving differently in important geographical markets. There is no single global market for natural gas. This
could be owing to difficulties in large-scale transportation over long distances as compared to crude oil. Globally, there are three main
regional hubs for pricing of natural gas, which are USA (Henry Hub Prices), UK (NBP Price) and Japan (imported gas price, mostly linked
to crude oil).
Provisionally priced financial instruments
On 31 March 2018, the value of net financial liabilities linked to commodities (excluding derivatives) accounted for on provisional prices
was US$467.6 million (31 March 2017: liability of US$465.5 million). These instruments are subject to price movements at the time of final
settlement and the final price of these instruments will be determined in the financial year beginning 1 April 2018.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
211
29. Financial instruments continued
Set out below is the impact of a 10% increase in LME prices on pre-tax profit/(loss) for the year and pre-tax equity as a result of changes in
value of the Group’s commodity financial instruments:
For the year ended 31 March 2018:
(US$ million except as stated)
Commodity price sensitivity
Copper
For the year ended 31 March 2017:
(US$ million except as stated)
Commodity price sensitivity
Copper
Total exposure
(568.1)
Effect on pre-tax profit/(loss) of a
10% increase in the LME
Effect on pre-tax equity of a
10% increase in the LME
(56.8)
–
Total exposure
(543.0)
Effect on profit/(loss) of a
10% increase in the LME
31 March 2017
(54.3)
Effect on total equity of a
10% increase in the LME
31 March 2017
–
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. A 10% decrease in LME prices would have an equal and
opposite effect on the Group’s financial statements.
Included above is also the impact of a 10% increase in closing copper LME for provisionally priced copper concentrate purchased at
Vedanta Limited Copper division custom smelting operations of US$56.6 million (31 March 2017: US$48.2 million), which is pass-through
in nature and as such will not have any impact on the profitability.
Financial risk:
The Group’s Board approved financial risk policies include monitoring, measuring and mitigating the 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 risk
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 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$613.0 million, and cash and liquid investments of US$5,606.5 million as at
31 March 2018, are expected to be sufficient the meet the liquidity requirement of the Group in the near future.
During FY2018, Moody’s upgraded the Group’s corporate family ratings from B1/Stable to Ba3/Stable on account of improved operating
performance and significant reduction in gross debt which led to improved financial metrics. S&P has maintained their rating at B+/Stable.
The Group remains committed to maintain a healthy liquidity, a low gearing ratio, deleveraging and strengthening the balance sheet.
The maturity profile of the Group’s financial liabilities based on the remaining period from the balance sheet date to the contractual
maturity date is given in the table below. The figures reflect the contractual undiscounted cash obligation of the Group:
At 31 March 2018
(US$ million)
Payment due by period
Trade and other payables1
Bank and other borrowings2
Derivative liabilities
Total
At 31 March 2017
(US$ million)
Payment due by period
Trade and other payables1
Bank and other borrowings2
Derivative liabilities
Total
< 1 year
1–3 years
3–5 years
> 5 years
Total
4,469.0
6,425.6
22.1
30.2
4,163.5
18.1
45.9
4,823.4
–
–
2,956.2
–
4,545.1
18,368.7
40.2
10,916.7
4,211.8
4,869.3
2,956.2
22,954.0
< 1 year
1–3 years
3–5 years
4,827.0
8,780.3
126.9
38.3
–
5,387.9
4,508.7
2,735.0
8.6
–
–
> 5 years
30.2
Total
4,895.5
21,411.9
135.5
13,734.2
5,434.8
4,508.7
2,765.2
26,442.9
1 Excludes accrued interest which has been included with borrowings.
2
Includes medium and long-term borrowings, short-term borrowings and committed interest payments.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 212
Vedanta Resources plc | Annual Report FY2018
29. Financial instruments continued
At 31 March 2018, the Group had access to following funding facilities:
(US$ million)
As at 31 March 2018
Fund/non-fund based
Total
(US$ million)
As at 31 March 2017
Fund/non-fund based
Total
Total facility
Drawn
12,003.4
10,256.2
Undrawn
1,747.2
12,003.4
10,256.2
1,747.2
Total facility
Drawn
Undrawn
11,905.5
10,283.7
1,621.8
11,905.5
10,283.7
1,621.8
(b) Foreign currency risk
Fluctuations in foreign currency exchange rates may have an impact on the Consolidated Income Statement, the Consolidated Statements
of Change in Equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency
other than the functional currency of the respective consolidated entities.
Considering the countries and economic environment in which the Group operates, its operations are subject to risks arising from
the fluctuations primarily in the US dollar, Australian dollar, Namibian dollar, AED, ZAR, GBP, INR, JPY and Euro against the functional
currencies of its subsidiaries.
Exposures on foreign currency loans are managed through the Group-wide hedging policy, which is reviewed periodically to ensure that
the results from fluctuating currency exchange rates are appropriately managed.
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 except for Oil and Gas business. 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. A more conservative approach has been adopted for project expenditures to avoid budget overruns, where cost of the
project is calculated taking into account the hedge cost. However, all new long-term borrowing exposures are being hedged. The hedge
mechanisms are reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed. The
following analysis is based on the gross exposure as at the reporting date which could affect the Consolidated Income Statement. The
exposure summarised below is mitigated by some of the derivative contracts entered into by the Group as disclosed under the section on
‘Derivative financial instruments’.
The carrying amount of the Group’s financial assets and liabilities in different currencies are as follows:
(US$ million)
USD
INR
Kwacha
EURO
ZAR
NAD
Others
Total
At 31 March 2018
At 31 March 2017
Financial
assets
1,220.6
5,490.1
–
6.3
15.9
33.9
89.4
Financial
liabilities
10,164.0
9,473.6
11.8
68.8
53.2
23.7
177.9
Financial
assets
1,551.9
8,951.4
Financial
liabilities
11,624.7
11,727.6
0.2
27.9
19.0
12.1
28.4
31.0
41.6
29.3
16.0
9.3
6,856.2
19,973.0
10,590.9
23,479.5
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 USD (US dollar) being the major non-functional currency of the Group’s main
operating subsidiaries.
The foreign exchange rate sensitivities calculated by aggregation of the net foreign exchange rate exposure with a simultaneous parallel
shift in foreign exchange rates in the currencies by 10% against the functional currencies of the respective entities.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
213
29. Financial instruments continued
Set out below is the impact of a 10% strengthening in the functional currencies of the respective entities on pre-tax profit/(loss) and pre-
tax equity arising as a result of the revaluation of the Group’s foreign currency financial assets/liabilities:
(US$ million)
USD
(US$ million)
USD
31 March 2018
Effect on pre-tax
profit/(loss) of
10% increase in
currency
Effect on pre-tax
equity of
10% increase in
currency
233.8
–
Closing
exchange rate
65.0441
31 March 2017
Effect on pre-tax
profit/(loss) of
10% increase in
currency
Effect on pre-tax
equity of
10% increase in
currency
317.3
–
Closing
exchange rate
64.8386
A 10% weakening of the functional currencies of the respective entities would have an equal and opposite effect on the Group’s financial
statements.
(c) Interest rate risk
At 31 March 2018, the Group’s net debt of US$9,587.3 million (31 March 2017: US$8,503.5 million net debt) comprises cash, cash
equivalents and liquid investments of US$5,606.5 million (31 March 2017: US$9,725.2 million) offset by debt of US$15,193.8 million
(31 March 2017: US$18,228.7 million).
The Group is exposed to interest rate risk on short-term and long-term floating rate instruments and on the refinancing of fixed rate debt.
The Group’s policy is to maintain a balance of fixed and floating interest rate borrowings and the proportion of fixed and floating rate debt
is determined by current market interest rates. The borrowings of the Group are principally denominated in Indian rupees and US dollars
with mix of fixed and floating rates of interest. The USD floating rate debt is linked to US dollar LIBOR and INR floating rate debt to bank’s
base rates. The Group has a policy of selectively using interest rate swaps, option contracts and other derivative instruments to manage its
exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis.
The Group invests cash and liquid investments in short-term deposits and debt mutual funds, some of which generate a tax-free return, to
achieve the Group’s goal of maintaining liquidity, carrying manageable risk and achieving satisfactory returns.
Floating rate financial assets are largely mutual fund investments which have debt securities as underlying assets. The returns from these
financial assets are linked to market interest rate movements; however, the counterparty invests in the agreed securities with known
maturity tenure and return and hence has manageable risk.
The exposure of the Group’s financial assets to interest rate risk is as follows:
(US$ million)
Financial assets
Derivative assets
At 31 March 2018
At 31 March 2017
Floating rate
financial assets
Fixed rate
financial assets
Non-interest
bearing financial
assets
Floating rate
financial assets
Fixed rate
financial assets
Non-interest
bearing financial
assets
3,021.5
–
2,259.7
–
1,551.0
24.0
5,379.4
–
3,043.0
–
2,166.3
2.2
Total financial assets
3,021.5
2,259.7
1,575.0
5,379.4
3,043.0
2,168.5
The exposure of the Group’s financial liabilities to interest rate risk is as follows:
(US$ million)
Financial liabilities
Derivative liabilities
At 31 March 2018
At 31 March 2017
Floating rate
financial liabilities
Fixed rate
financial liabilities
Non-interest
bearing financial
liabilities
Floating rate
financial liabilities
Fixed rate
financial liabilities
Non-interest
bearing financial
liabilities
6,483.0
–
10,211.1
–
3,238.7
40.2
8,253.5
11,896.7
–
3,193.8
135.5
Total financial liabilities
6,483.0
10,211.1
3,278.9
8,253.5
11,896.7
3.329.3
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 214
Vedanta Resources plc | Annual Report FY2018
29. Financial instruments continued
The weighted average interest rate on the fixed rate financial liabilities is 6.8% (31 March 2017: 7.5%) and the weighted average period for
which the rate is fixed is 2.5 years (31 March 2017: 2.4 years).
Considering the net debt position as at 31 March 2018 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 analysis
below has been determined based on the exposure to interest rates for financial instruments at the balance sheet date.
The below table illustrates the impact of a 0.5% to 2.0% increase in the interest the rate of floating rate financial assets/liabilities (net) on
profit/(loss) and equity and represents management’s assessment of the possible change in interest rates. The year end balances are not
necessarily representative of the average debt outstanding during the year. This analysis also assumes that all other variables, in particular
foreign currency rates, remain constant.
At 31 March 2018:
(US$ million)
Increase in interest rates
0.5%
1.0%
2.0%
Effect on pre-tax
profit/(loss) during
the year ended
31 March 2018
Effect on pre-tax
profit/(loss) during
the year ended
31 March 2017
(17.3)
(34.6)
(69.2)
(14.4)
(28.7)
(57.5)
A reduction in interest rates would have an equal and opposite effect on the Group’s financial statements.
(d) Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group
has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of
mitigating the risk of financial loss from defaults.
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. For short-term investments, counterparty limits are in place to limit
the amount of credit exposure to any one counterparty. This, therefore, results in diversification of credit risk for our mutual fund and bond
investments. For derivative and financial instruments, the Group attempts to limit the credit risk by only dealing with reputable banks and
financial institutions.
Credit risk on receivables is limited as almost all credit sales are against letters of credit and guarantees of banks of national standing.
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 2018 and 31 March 2017, 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 2018 is US$6,856.2 million (31 March 2017: US$10,590.9 million).
Of the year end trade and other receivable balance the following, though overdue, are expected to be realised in the normal course of
business and hence, are not considered impaired as at 31 March:
(US$ million)
Neither past due nor impaired
Past due but not impaired
– Less than 1 month
– Between 1–3 months
– Between 3–12 months
– Greater than 12 months
Total
2018
585.1
125.9
59.9
111.9
238.0
1,120.8
2017
248.4
130.6
34.0
199.3
188.6
800.9
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
215
29. Financial instruments continued
Derivative financial instruments
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 these are subject to the Group guidelines and policies.
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. Derivatives that are designated as hedges are classified as current or non-current
depending on the maturity of the derivative.
The use of derivatives can give rise to credit and market risk. The Group tries to control credit risk as far as possible by only entering into
contracts with reputable banks and financial institutions. The use of derivative instruments is subject to limits, authorities and regular
monitoring by appropriate levels of management. The limits, authorities and monitoring systems are periodically reviewed by management
and the Board. The market risk on derivatives is mitigated by changes in the valuation of the underlying assets, liabilities or transactions, as
derivatives are used only for risk management purposes.
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 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 other comprehensive
income until the hedged transaction occurs, at which time, the respective gain or losses are reclassified to the Consolidated Income
Statement. These hedges have been effective for the year ended 31 March 2018.
The Group uses foreign exchange contracts from time to time to optimise currency risk exposure on its foreign currency transactions. The
Group hedged part of its foreign currency exposure on capital commitments during fiscal year 2018. Fair value changes on such forward
contracts are recognised in the Consolidated Statement of Comprehensive Income.
The majority of cash flow hedges taken out by the Group during the year comprise non-derivative hedging instruments for hedging the
foreign exchange rate of highly probable forecast transactions and commodity price contracts for hedging the commodity price risk of
highly probable forecast transactions.
The cash flows related to above are expected to occur during the year ending 31 March 2019 and consequently may impact the
Consolidated Income Statement for that year depending upon the change in the commodity prices and foreign exchange rates
movements. For cash flow hedges regarded as basis adjustments to initial carrying value of the property, plant and equipment, the
depreciation on the basis adjustments made is expected to affect the Consolidated Income Statement over the expected useful life of the
property, plant and equipment.
Fair value hedges
The fair value hedges relate to forward covers taken to hedge currency exposure and commodity price risks.
The Group’s sales are on a quotational period basis, generally one month to three months after the date of delivery at a customer’s facility.
The Group enters into forward contracts for the respective quotational period to hedge its commodity price risk based on average LME
prices. Gains and losses on these hedge transactions are substantially offset by the amount of gains or losses on the underlying sales. Net
gains and losses are recognised in the income statement.
The Group uses foreign exchange contracts from time to time to optimise currency risk exposure on its foreign currency transactions.
Fair value changes on such forward contracts are recognised in the Consolidated Income Statement.
Non-qualifying/economic hedge
The Group enters into derivative contracts which are not designated as hedges for accounting purposes, but provide an economic hedge
of a particular transaction risk or a risk component of a transaction. Hedging instruments include copper, aluminium and zinc future
contracts on the LME and certain other derivative instruments. Fair value changes on such derivative instruments are recognised in the
Consolidated Income Statement.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 216
Vedanta Resources plc | Annual Report FY2018
29. Financial instruments continued
The fair value of the Group’s open derivative positions at 31 March 2018, recorded within financial instruments (derivative), is as follows:
(US$ million)
Current
Cash flow hedges
– Commodity contracts
– Forward foreign currency contracts
Fair value hedges
– Commodity contracts
– Forward foreign currency contracts
Non-qualifying hedges
– Commodity contracts
– Forward foreign currency contracts
– Other (foreign currency swap)
Total
Non-current
Fair value hedges
– Forward foreign currency contracts
Non-qualifying hedges
– Commodity contracts
– Forward foreign currency contracts
Total
Grand total
Hedging reserve reconciliation
(US$ million)
At 1 April 2016
Amount recognised in OCI
Amount transferred to income statement
Exchange difference
At 1 April 2017
Amount recognised in OCI
Amount transferred to income statement
Exchange difference
At 31 March 2018
As at 31 March 2018
As at 31 March 2017
Liability
Asset
Liability
Asset
(14.6)
–
(0.1)
(1.4)
(2.3)
(3.5)
(0.2)
18.2
0.1
0.7
2.2
0.6
2.1
0.1
(13.2)
(2.1)
(0.5)
(82.1)
(3.7)
(25.1)
(0.2)
(22.1)
24.0
(126.9)
(16.4)
(0.1)
(1.6)
(18.1)
(40.2)
–
–
–
–
(8.6)
–
–
(8.6)
24.0
(135.5)
0.1
0.1
–
–
1.4
–
–
1.6
0.6
–
–
0.6
2.2
Hedging
reserves
Non-controlling
interests
(87.7)
3.3
(5.0)
(1.5)
(90.9)
(13.7)
12.2
(0.1)
(92.5)
(52.6)
0.5
(3.0)
(0.9)
(56.0)
(24.3)
23.6
(0.1)
(56.8)
Total
(140.3)
3.8
(8.0)
(2.4)
(146.9)
(38.0)
35.8
(0.2)
(149.3)
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 30. Provisions
(US$ million)
At 1 April 2016
Additions
Amounts used
Unwinding of discount (Note 7)
Change in estimates
Reclassifications to trade payables
Exchange differences
At 1 April 2017
Additions
Amounts used
Unused amounts reversed
Unwinding of discount (Note 7)
Change in estimates
Reclassified during the year
Exchange differences
Acquisition through business combination
At 31 March 2018
Current 2018
Non-current 2018
Current 2017
Non-current 2017
Vedanta Resources plc | Annual Report FY2018
217
Restoration,
rehabilitation
and
environmental
KCM Copper
price
participation
191.7
4.1
(12.8)
12.6
112.4
–
8.8
102.0
–
(6.0)
0.4
–
(96.3)
(0.1)
Other
Total
25.8
12.5
(1.2)
–
–
(4.4)
(4.7)
319.5
16.6
(20.0)
13.0
112.4
(100.7)
4.0
316.8
–
28.0
344.8
8.1
(1.0)
(9.5)
13.0
23.1
(6.1)
3.4
4.0
351.8
7.8
344.0
351.8
9.8
307.0
316.8
–
–
–
–
–
–
–
–
–
–
–
–
6.4
–
–
–
–
(12.5)
0.2
–
22.1
14.3
7.8
22.1
14.5
(1.0)
(9.5)
13.0
23.1
(18.6)
3.6
4.0
373.9
22.1
351.8
373.9
–
–
–
7.7
20.3
17.5
327.3
28.0
344.8
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 are calculated by considering
discount rates within the range of 2% to 12%, and become payable on closure of mines and are expected to be incurred over a period
of one to 30 years. The discount rates at major units are in the range of 2% to 12% at Zinc International and of 2% to 4% at the Oil &
Gas division.
Within India, the principal restoration and rehabilitation provisions are recorded within Cairn India where a legal obligation exists relating to
the oil and 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.
KCM copper price participation
KCM and ZCCM-IH, through a consent order recorded in the English Court, agreed to settle the price participation payments in stages
and consequently US$96.3 million had been reclassified to trade payables during the previous year.
Subsequently, during the current year, the London High Court has given a ruling that ZCCM-IH is entitled to its claim on interest at an
accelerated rate for US$25.0 million.
Accordingly, the Company has recognised, an additional charge of US$25.0 million for the year.
Others
Others include provision for deferred cash liability. The expected period of settlement of deferred cash liability is 2 to 3 years.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 218
Vedanta Resources plc | Annual Report FY2018
31. Non‑current tax assets and deferred tax (assets)/liabilities
Non-current tax assets of US$521.1 million (31 March 2017: US$434.6 million) mainly represents income tax receivable from Indian tax
authorities by Vedanta Limited relating to the refund arising consequent to the Scheme of Amalgamation & Arrangement made effective
in August 2013 pursuant to approval by the jurisdiction High Court and receivables relating to matters in tax disputes in Group companies
including tax holiday claim.
The Group has accrued significant amounts of deferred tax. The majority of the deferred tax liability represents accelerated tax relief
for the depreciation of capital expenditure and the fair value uplifts created on acquisitions, net of losses carried forward by Vedanta
Limited (post reorganisation) and MAT credits carried forward in Vedanta Limited, Cairn Energy Hydrocarbons Limited and Hindustan
Zinc Limited.
The amounts of deferred tax on temporary differences, recognised or not recognised, in the Consolidated Statement of Financial Position
is as follows:
Deferred tax (assets)/liabilities
For the year ended 31 March 2018
(US$ million)
Opening
balance as at
1 April 2017
Charged/
(credited) to
income
statement
Charged/
(credited) to
OCI
Deferred tax
on acquisition
through
business
combination
(Refer Note 11)
Exchange
difference
transferred to
translation of
foreign
operation
Total as at
31 March 2018
Property, plant and equipment, Exploration and Evaluation and
other intangible assets
Unabsorbed depreciation/business loss
Voluntary retirement scheme
Employee benefits
Fair value of derivative assets/liabilities
Fair value of other assets/liabilities
MAT credit
Other temporary differences
2,178.9
(989.3)
(7.4)
(28.1)
(4.7)
176.6
(1,915.6)
(150.3)
297.5
72.5
1.0
1.7
1.4
(96.5)
200.3
13.6
–
–
–
(0.5)
(5.4)
–
–
–
Total
(739.9)
491.5
(5.9)
(3.3)
–
–
–
–
61.1
–
–
57.8
10.4
1.5
0.0
(0.4)
0.1
4.3
2,483.5
(915.3)
(6.4)
(27.3)
(8.6)
145.5
11.3 (1,704.0)
(141.1)
(4.4)
22.8
(173.7)
Unused tax losses/unused tax credit on which no deferred tax asset has been recognised:
As at 31 March 2018
(US$ million)
Unutilised business losses
Unabsorbed depreciation
Capital losses
Unused tax credit
Total
Within
one year
614.5
–
19.6
–
634.1
Greater than
one year, less
than five years
Greater than
five years
No expiry
date
865.9
–
21.8
–
887.7
2.2
–
–
46.1
1,601.6
25.3
–
1.3
Total
3,084.2
25.3
41.4
47.4
48.3
1,628.2
3,198.3
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
219
31. Non‑current tax assets and deferred tax (assets)/liabilities continued
Deferred tax asset/liabilities
For the year ended 31 March 2017
(US$ million)
Property, plant and equipment, Exploration and Evaluation and other
intangible assets
Unabsorbed depreciation/business loss
Voluntary retirement scheme
Employee benefits
Fair value of derivative assets/liabilities
Fair value of other assets/liabilities
MAT credit
Other temporary differences
Total
Opening
balance as at
1 April 2016
Charged/
(credited) to
income
statement
Charged/
(credited) to
OCI
Exchange
difference
transferred to
translation of
foreign
operation
Total as at
31 March 2017
2,175.0
(816.1)
(8.9)
(23.9)
(2.2)
134.2
(1,966.7)
(126.6)
(33.1)
(156.8)
1.7
(3.3)
(3.9)
37.8
96.4
(26.5)
(635.2)
(87.7)
–
–
–
(0.6)
1.5
–
–
–
0.9
37.0
(16.4)
(0.2)
(0.3)
(0.1)
4.6
(45.3)
2.8
2,178.9
(989.3)
(7.4)
(28.1)
(4.7)
176.6
(1,915.6)
(150.3)
(17.9)
(739.9)
Unused tax losses/unused tax credit on which no deferred tax asset has been recognised:
For the year ended 31 March 2017
(US$ million)
Unutilised business losses
Unabsorbed depreciation
Capital losses
Unused tax credit
Total
Within
one year
470.3
–
–
–
Greater than
one year, less
than five years
1,268.7
Greater than
five years No expiry date
Total
– 1,520.3
–
–
–
–
–
45.6
37.0
–
1.3
3,259.3
37.0
–
46.9
470.3 1,268.7
45.6 1,558.6
3,343.2
No deferred tax asset has been recognised on these unutilised tax losses as there is no evidence that sufficient taxable profit will be
available in future against which they can be utilised by the respective entities.
Deferred tax assets and liabilities have been offset where they arise in the same legal entity and taxing jurisdiction but not otherwise.
Accordingly, the net deferred tax (assets)/liability has been disclosed in the Consolidated Statement of Financial Position as follows:
(US$ million)
Deferred tax assets
Deferred tax liabilities
Net deferred tax (assets)/liabilities
Unrecognised MAT credit
(US$ million)
2023
2024
2025
2026
2027
2028
2029
2032
Total
As at
31 March 2018
As at
31 March 2017
(916.7)
743.0
(1,111.0)
371.1
(173.7)
(739.9)
As at
31 March 2018
As at
31 March 2017
2.1
8.0
7.9
15.9
9.8
1.2
0.6
0.6
46.1
2.1
8.0
8.0
16.0
9.8
1.2
0.5
–
45.6
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 220
Vedanta Resources plc | Annual Report FY2018
31. Non‑current tax assets and deferred tax (assets)/liabilities continued
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.
MAT credits are taxes paid to Indian tax authorities which can be offset against future tax liabilities, subject to certain restrictions, within a
period of 15 years from the year of origination. The Group recognises MAT assets only to the extent it expects to realise the same within
the prescribed period.
The Group has not recognised any deferred tax liabilities for taxes that would be payable on the Group’s share in unremitted earnings
of certain of its subsidiaries because the Group controls when the liability will be incurred and it is probable that the liability will not be
incurred in the foreseeable future. The amount of the Group’s share of unremitted earnings are US$4,830.0 million, US$5,160.4 million as
at 31 March 2018 and 31 March 2017 respectively.
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 2003. 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. In 2015, the Board also introduced a Deferred Share Bonus Plan (DSBP). In 2016, Vedanta
Limited (subsidiary of Vedanta Resources plc) introduced an Employee Stock Option Scheme 2016 (ESOS), which was approved by the
Vedanta Limited shareholders.
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 Vedanta Resources plc and their
cost to the Company (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 – dependent on the level of employee, part of these awards will be subject to a continued service condition only with the remainder
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 or groups of peer companies 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 rounding down to the nearest whole share.
Vedanta’s TSR performance against comparator group
Below median
At median
At or above upper quintile
(% 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 or groups. 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 outperformed a group or groups of industry peers, 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 Company issued further awards on 1 January 2015 and subsequently
on 30 December 2015 and 12 May 2016. All these plans were equity-settled. The exercise price of the awards is 10 US cents per share
and the performance period is three years, with no re-testing being allowed. On 2 March 2017 and 14 November 2017 the Company also
launched cash-based plans under the same scheme. In the cash-based scheme launched in November 2017, business performance set
against business plan for the financial year is included as an additional condition.
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 the 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.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
221
32. Share‑based payments continued
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 outperformed a group or groups of industries peers, 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. In FY2017, the Company issued awards under the LTIP scheme on
11 November 2016. During the current year, the Company further issued awards under this scheme on 14 November 2017. The exercise
price of the awards is 10 US cents per share and the performance period is three years, with no re-testing being allowed.
The Vedanta Resources Deferred Share Bonus Plan (the ‘DSBP’)
In 2015, Vedanta introduced the DSBP, with initial awards being made in May 2015 and August 2015. In 2016, fresh awards were granted
in May 2016 and September 2016. Further, in 2017, fresh awards were granted in June 2017 and August 2017. Under the plan, a portion
of the annual bonus is deferred into shares and the awards granted under this scheme are not subject to any performance conditions,
but only to service conditions being met. The vesting schedule is staggered over a period of one to three years. In the case of the DSBP,
the shares are purchased from the open market and allotted to employees, officers and directors. As on 31 March 2018, the options
outstanding under the DSBP scheme are 440,780.
In general, the awards will be settled in equity. The awards are accounted for in accordance with the requirements applying to equity
settled, share-based payment transactions. The fair value of each award on the day of grant is equal to the average of the middle market
quotations of its share price for 5 dealing days before the grant date.
Further details on these schemes are available in the Remuneration Report of the Annual Report.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 222
Vedanta Resources plc | Annual Report FY2018
32. Share‑based payments continued
The details of share options for the year ended 31 March 2018 and 31 March 2017 is presented below:
Year of grant Exercise date
2014
2015
2015
2016
2016
2017
2017
2017
17 November 2017 – 17 May 2018
1 January 2018 – 1 July 2018
30 December 2018 – 30 June 2019
12 May 2019 – 12 November 2019
11 November 2019 – 11 May 2020
2 March 2020 – 2 September 2020
(cash-based plan)
14 November 2020 – 14 May 2020
(cash-based plan)
14 November 2020 – 14 May 2020
10
10
10
10
10
–
–
10
Exercise
price US
cents per
share
Options
outstanding
1 April
2017
Options
granted
during the
year
Options
lapsed during
the year
4,247,283
21,500
4,930,183
32,000
475,000
678,550
–
–
–
–
–
–
(120,483)
(6,000)
(430,857)
–
(103,056)
(50,890)
Options
lapsed during
the year
owing to
performance
conditions
(963,690)
(6,655)
–
–
–
–
Options
exercised
during the year
(26,79,770)
–
–
–
–
–
Options
outstanding at
31 March
2018
483,340
8,845
4,499,326
32,000
371,944
627,660
–
–
805,900
(25,720)
300,670
–
–
–
–
–
780,180
300,670
10,384,516 1,106,570 (737,006)
(970,345) (26,79,770) 7,103,965
Year of grant Exercise date
2011
2012
2012
2012
2013
2014
2015
2015
2016
2016
2017
1 October 2014 – 1 April 2015*
1 January 2015 – 1 July 2015*
1 April 2015 – 1 October 2015*
24 September 2013 – 24 March 2016*
16 May 2014 – 16 November 2016
17 November 2017 – 17 May 2018
1 January 2018 – 1 July 2018
30 December 2018 – 30 June 2019
12 May 2019 – 12 November 2019
11 November 2019 – 11 May 2020
2 March 2020 – 2 September 2020
(cash-based plan)
Exercise
price US
cents per
share
Options
outstanding
1 April
2016
Options
granted
during the
year
10
10
10
10
10
10
10
10
10
10
–
3,200
2,800
1,760
74,750
781,997
4,658,329
21,500
5,418,842
–
–
–
–
–
–
–
–
–
–
–
32,000
475,000
679,270
Options
lapsed during
the year
–
–
(1,080)
(16,749)
(66,227)
(411,046)
–
(488,659)
–
–
(720)
10,963,178 1,186,270 (984,481)
Options
lapsed during
the year
owing to
performance
conditions
–
–
–
–
–
–
–
–
–
–
–
–
Options
exercised
during the year
Options
outstanding at
31 March
2017
–
(3,200)
–
(2,800)
–
(680)
–
(58,001)
–
(715,770)
4,247,283
–
–
21,500
– 4,930,183
32,000
–
475,000
–
678,550
–
(780,451) 10,384,516
* The exercise period of the schemes expiring before 31 March 2016 was extended up to June 2016.
In the year ended 31 March 2018, 1,707,351 options lapsed in total (year ended 31 March 2017: 984,481) and 2,679,770 options exercised
(year ended 31 March 2017: 780,451). As at 31 March 2018, 7,103,965 options remained outstanding and 492,185 options were
exercisable at the year end. The weighted average share price for the share options exercised during the year ended 31 March 2018 was
GBP 7.44 (year ended 31 March 2017: GBP 4.82). The weighted average maturity period for the options outstanding as on 31 March 2018
is 18 months (year ended 31 March 2017: 23 months).
Most of the 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 on a straight-line basis over the vesting period. Where an award is cash-settled the fair value is recalculated at each reporting
date until the liability is settled.
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. Expected volatility has been calculated using historical return indices
over the period to the date of grant that is commensurate with the performance period of the award. The volatilities of the industry peers
have been modelled based on historical movements in the return indices over the period to the 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 comparator companies and is needed for the Stochastic valuation model to estimate their future TSR performance relative to the
Company’s TSR performance. All options are assumed to be exercised immediately after vesting.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
223
32. Share‑based payments continued
The assumptions used in the calculations of the charge in respect of the PSP/LTIP awards granted during the year ended 31 March 2018
and 31 March 2017 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 2018
PSP/LTIP
Year ended
31 March 2017
PSP/LTIP
November 2017
November 2017
March 2017
November 2016
805,900
US$0.10
GBP7.8
3 years
61.33%
3 years
5.77%
0.51%
10%p.a.
GBP3.1/GBP6.6
300,670
US$0.10
GBP7.8
3 years
61.33%
3 years
5.77%
0.51%
10%p.a.
GBP3.1
679,270
US$0.10
GBP8.92
3 years
66.3%
3 years
4.6%
0.10%
10%p.a.
GBP5.6/GBP7.8
475,000
US$0.10
GBP8.22
3 years
63.5%
3 years
4.8%
0.31%
10%p.a.
GBP5.15
May 2016
32,000
US$0.10
GBP3.45
3 years
61.4%
3 years
6.0%
0.38%
10%p.a.
GBP1.80
The Group recognised total expenses of US$12.1 million (including expenses on DSBP of US$1.9 million) and US$13.4 million (including
expenses on DSBP of US$1.6 million) related to equity-settled-share-based payment transactions in the year ended 31 March 2018 and
31 March 2017 respectively.
The total expense recognised on account of cash-settled share-based plans during the year ended 31 March 2018 is US$1.0 million
(31 March 2017 : US$0.1 million) and the carrying value of cash-settled share-based compensation liability as at 31 March 2018 is
US$1.1 million.
The Vedanta Limited Employee Stock Option Scheme (ESOS) 2016
During the year 2016, Vedanta Limited (subsidiary of Vedanta Resources plc) introduced an Employee Stock Option Scheme 2016
(ESOS), which was approved by the Vedanta Limited shareholders. The maximum value of shares that can be conditionally awarded
to an Executive Committee in a year is 125% of annual salary. The maximum value of options 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 attached to the award is measured by comparing the Company’s performance in terms of TSR over the performance period
with the performance of the companies as defined in the scheme. The extent to which an award vests will depend on Vedanta Limited’s
TSR rank against a group or groups of peer companies at the end of the performance period and as moderated by the Remuneration
Committee. Dependent on the level of employee, part of these awards will be subject to a continued service condition only with the
remainder measured in terms of TSR. 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’s TSR performance against comparator group
Below median
At median
At or above upper decile
(% of award
vesting)
–
30
100
The performance condition is measured by taking Vedanta Limited’s TSR at the start and end of the performance period (without
averaging), and comparing its performance with that of the comparator group or groups. 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 Vedanta Limited’s total return has outperformed a group of industry peers, provides a
reasonable alignment of the interests of participants with those of the shareholders.
Initial awards under the ESOS were granted on 15 December 2016. Further, in 2017 fresh awards were granted in September 2017,
October 2017 and November 2017. The exercise price of the awards is 1 INR per share and the performance period is three years, with
no re-testing being allowed. However, in the scheme launched in November 2017 business performance set against business plan for the
financial year is included as an additional condition.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report
224
Vedanta Resources plc | Annual Report FY2018
32. Share‑based payments continued
The details of share options for the year ended 31 March 2018 and 31 March 2017 is presented below:
Year of grant
Exercise Date
Options
outstanding
1 April 2017
Options granted
during the year
Options lapsed
during the year
Options lapsed
during the year
owing to
performance
conditions
Options
exercised during
the year
Options
outstanding
31 March 2018
2017
2018
2018
2018
15 December 2016 – 14 December 2019 7,803,400
1 September 2017 – 31 August 2020
16 October 2017 – 15 October 2020
1 November 2017 – 31 October 2020
–
– 10,048,650
11,570
–
28,740
–
(704,798)
(431,310)
–
–
7,803,400 10,088,960 (1,136,108)
Year of grant
Exercise Date
Options
outstanding
1 April 2016
Options granted
during the year
Options lapsed
during the year
2016
15 December 2016 – 14 December 2019
– 8,000,000
(196,600)
– 8,000,000
(196,600)
–
–
–
–
–
–
–
–
–
7,098,602
9,617,340
11,570
28,740
– 16,756,252
Options lapsed
during the year
owing to
performance
conditions
–
–
Options
exercised during
the year
Options
outstanding
31 March 2017
–
7,803,400
– 7,803,400
In the year ended 31 March 2018, 1,136,108 options lapsed. As at 31 March 2018, 16,756,252 options remained outstanding.
The fair value of all 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 on a straight-line basis 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. 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 volatilities of the industry peers have
been modelled based on historical movements in the return indices 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
comparator companies and is needed for the Stochastic valuation model to estimate their future TSR performance relative to Vedanta
Limited’s TSR performance. All options are assumed to be exercised immediately after vesting.
The assumptions used in the calculations of the charge in respect of the ESOS awards granted during the year ended 31 March 2018 and
31 March 2017 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
March 2018
ESOS September,
October & November 2017
10,081,350
INR 1
INR 308.9
3 years
48%
3 years
3.7%
6.5%
10% p.a.
INR 275.3/INR 161.1
March 2017
ESOS
December 2016
8,000,000
INR 1
INR 235.9
3 years
48%
3 years
3.2%
6.5%
10% p.a.
INR 213.6/INR 82.8
The Group recognised total expenses of US$7.4 million (2017: US$1.0 million) related to equity-settled, share-based plan under the above
scheme in the year ended 31 March 2018.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
225
33. Retirement benefits
The Group participates in defined contribution and benefit schemes, the assets of which are held (where funded) in separately
administered funds.
For defined contribution schemes the amount charged to the Consolidated Income Statement is the total amount of contributions payable
in the year.
For defined benefit schemes, the cost of providing benefits under the plans is determined by actuarial valuation separately each year for
each plan using the projected unit credit method by independent qualified actuaries as at the year end. Remeasurement gains and losses
arising in the year are recognised in full in the Consolidated Statement of Comprehensive Income for the year.
(i) Defined contribution schemes
The Group contributed a total of US$16.4 million and US$13.8 million for the years ended March 31 2018 and 2017 respectively, to the
following defined contribution plans.
Indian pension schemes
Central Recognised Provident Fund
In accordance with the Indian Provident Fund Act, employees are entitled to receive benefits under the Provident Fund. Both the
employee and the employer make monthly contributions to the plan at a pre-determined rate (12%) of an employee’s basic salary. All
employees have an option to make additional voluntary contributions. These contributions are made to the fund administered and
managed by the Government of India (GOI) or to independently managed and approved funds. The Group has no further obligations under
the fund managed by the GOI beyond its monthly contributions which are charged to the Consolidated Income Statement in the period
they are incurred. Where the contributions are made to independently managed and approved funds, shortfall in actual return, if any, from
the return guaranteed by the State are made by the employer. There is no such shortfall in the actual return for independently managed
funds for the year ended 31 March 2018 and 31 March 2017.
The benefits are paid to employees 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 of 5% to the KCM Pension Scheme and the member makes a monthly contribution of 5%.
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%.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 226
Vedanta Resources plc | Annual Report FY2018
33. Retirement benefits continued
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 2 times annual salary in the event of death before retirement.
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 (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 pays 5% with the option to make Additional Voluntary
Contributions (‘AVC’s’) if desired. Executive contributions are 15% by Lisheen and a minimum of 5% by the employee with the option to
make AVC’s 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.
(ii) Defined benefit schemes
(a) Contribution to provident fund trust (the trusts) of Iron Ore division, BALCO, HZL, SRL and SMCL
The provident funds of Iron ore division, BALCO, HZL, SRL and SMCL are exempted under section 17 of The Employees Provident Fund
and Miscellaneous Provisions Act, 1952. Conditions for grant of exemption stipulate that the employer shall make good deficiency,
if any, between the return guaranteed by the statute and actual earning of the Fund. Based on actuarial valuation in accordance with
IAS 19 and the Guidance note issued by the Institute of Actuaries of India for interest rate guarantee of exempted provident fund
liability of employees, there is no interest shortfall that is required to be met by the Iron Ore division, BALCO, HZL, SRL and SMCL as
at 31 March 2018 and 31 March 2017. Having regard to the assets of the fund and the return in the investments, the Group does not
expect any deficiency in the foreseeable future. The Group contributed a total of US$9.7 million and US$8.3 million for the years ended
31 March 2018 and 2017 respectively in relation to the independently managed and approved funds. The present value of obligation and
the fair value of plan assets of the trust are summarised below.
(US$ million)
particulars
Fair value of plan assets of trusts
Present value of defined benefit obligation
Net liability from defined benefit scheme
Government securities
Debentures/bonds
Fixed deposits
Equity instruments
As at
31 March 2018
As at
31 March 2017
232.8
(225.9)
–
205.6
(202.2)
–
% allocation of plan assets of the trust
Particulars
Year ended
31 March 2018
Year ended
31 March 2017
71.2
28.0
0.2
0.6
77.2
22.6
0.2
–
100.0
100.0
(b) Post-retirement medical benefits:
The Group has a scheme of post-retirement medical benefits for employees at BMM and BALCO. Based on an actuarial valuation
conducted as at year end, a provision is recognised in full for the benefit obligation. The obligation relating to post-retirement medical
benefits as at 31 March 2018 was US$10.0 million (reclassified US$5.5 million from provisions during the current year). The obligation
under this plan is unfunded. The Group considers these amounts as not material and accordingly has not provided further disclosures
as required by IAS 19 (Revised 2011) ‘Employee benefits’. The remeasurement gain and net interest on the obligation of post-retirement
medical benefits of US$0.7 million and US$0.5 million for the year ended 31 March 2018 have been recognised in other comprehensive
income and finance cost respectively.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
227
33. Retirement benefits continued
(c) Post-employment benefits:
India – Gratuity Plan
The Indian subsidiaries of the Company contribute to a defined benefit plan (the Gratuity Plan) covering certain categories of employees.
The Gratuity Plan provides a lump sum payment to vested employees at retirement, disability or termination of employment being an
amount based on the respective employee’s last drawn salary and the number of years of employment with the Group.
Based on actuarial valuations conducted as at year end using the projected unit credit method, a provision is recognised in full for the
benefit obligation over and above the funds held in the Gratuity Plan. For entities where the plan is unfunded, full provision is recognised in
the Consolidated Statements of Financial Position.
The Iron Ore division of Vedanta Limited, Sesa Resources Limited, Sesa Mining Corporation, Limited and Hindustan Zinc Limited have
constituted a trust recognised by Indian income tax authorities for gratuity to employees. Contributions to the trust are funded with Life
Insurance Corporation of India (LIC), ICICI Prudential Life Insurance Company Limited and HDFC Standard Life Insurance.
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 2018, membership of pension schemes across Vedanta Limited, BALCO, HZL, TSPL, and KCM stood at 22,941 employees
(31 March 2017: 22,054). The deficits, principal actuarial assumptions and other aspects of these schemes are disclosed in further detail in
notes given below.
Amounts of US$70.4 million and US$67.1 million in respect of defined benefit schemes were outstanding as at 31 March 2018 and
31 March 2017 respectively.
Contributions to all pension schemes in the year ending 31 March 2019 are expected to be around US$6.1 million. (Actual contribution
during the year ended 31 March 2018: US$5.0 million.)
Principal actuarial assumptions
Principal actuarial assumptions used to calculate the defined benefit schemes’ liabilities are:
Particulars
Discount rate
Salary increases
Year ended
31 March 2018
Year ended
31 March 2017
7.7% to 18.50%
2% to 15%
7.6% to 22.95%
5.0 %to 15%
In India, the mortality tables used, assume that a person aged 60 at the end of the balance sheet date has a future life expectancy of
19 years.
Assumptions regarding mortality for Indian entities are based on the mortality table of ‘Indian Assured Lives Mortality (2006–2008)’,
published by the Institute of Actuaries of India.
Assumptions regarding mortality for KCM are based on World Health Organisation Life Tables for 1999 applicable to Zambia, which has
been taken as a reference point. Based on this, a mortality table which is appropriate for the workers of Konkola Copper Mines plc has
been derived.
Balance sheet recognition
(US$ million)
Particulars
Fair value of pension scheme assets
Present value of pension scheme liabilities
Net liability arising from defined benefit obligations
As at
31 March 2018
As at
31 March 2017
52.1
(122.5)
(70.4)
49.1
(116.2)
(67.1)
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 228
Vedanta Resources plc | Annual Report FY2018
33. Retirement benefits continued
Amounts recognised in income statement in respect of defined benefit schemes:
(US$ million)
Particulars
Current and past service cost
Net interest cost
Total charge to the income statement
Amounts recognised in the Statement of Comprehensive Income:
(US$ million)
Particulars
Actuarial gains/(losses) on defined benefit obligation
Actuarial (gains)/losses on plan asset (excluding amount included in net interest cost)
Remeasurement of the net defined benefit liability (gains)/losses
Year ended
31 March 2018
Year ended
31 March 2017
20.0
7.4
27.4
8.8
12.4
21.2
Year ended
31 March 2018
Year ended
31 March 2017
0.6
0.2
(0.4)
(1.0)
(0.2)
0.8
Movements in the present value of defined benefit obligations
The movement during the year ended 31 March 2018 of the present value of the defined benefit obligation was as follows:
(US$ million)
Particulars
Opening balance
Current and past service cost
Gratuity benefits paid
Derecognition of death benefit obligation during the year
Reclassification from provisions
Interest cost of scheme liabilities
Remeasurement gains/(losses)
Foreign exchange differences
Closing balance
Movements in the fair value of plan assets
(US$ million)
Particulars
Opening balance
Contributions received
Benefits paid
Remeasurement gains/(losses)
Interest income
Foreign exchange differences
Closing balance
As at
31 March 2018
As at
31 March 2017
(116.2)
(20.0)
7.7
23.4
(7.0)
(11.2)
0.6
0.2
(110.0)
(8.8)
10.2
–
–
(16.1)
(1.0)
9.5
(122.5)
(116.2)
As at
31 March 2018
As at
31 March 2017
49.1
5.0
(5.4)
(0.2)
3.8
(0.2)
52.1
43.5
7.1
(5.8)
0.2
3.7
0.4
49.1
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
229
33. Retirement benefits continued
All the plan assets of the Group are invested in the qualified insurance policies.
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 reporting year 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
(3.2)
3.3
3.0
(2.9)
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.
Risk analysis
The 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 fund 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 Government of India
bonds for the 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 ratio
As at
31 March 2018
As at
31 March 2017
6,521.0
9,587.3
16,108.3
6,014.6
8,503.5
14,518.1
59.5%
58.6%
The increase in the gearing ratio compared to 2017 ratio is primarily due to increase in net debt pursuant to special dividend paid by a
subsidiary of the Company.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 230
Vedanta Resources plc | Annual Report FY2018
35. Share capital
Shares in issue
Ordinary shares of 10 US cents each
Deferred shares of £1 each
As at 31 March 2018
As at 31 March 2017
Number
Paid up amount
(US$ million)
Number
Paid up amount
(US$ million)
303,987,039
50,000
30.4 301,300,825
50,000
–
304,037,039
30.4 301,350,825
30.1
–
30.1
Rights and obligations attaching to shares
The rights and obligations attaching to the ordinary and deferred shares are set out in the Articles.
During the year ended 31 March 2018, the Company issued 2,686,214 shares at par value of 10 US cents per share to the employees
pursuant to the Vedanta Performance Share Plan (31 March 2017: 778,027 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 2018, 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 Global Depositary Receipts and carry no voting rights. Apart from the above, each ordinary share
carries the right to one vote at general meetings of the Company and is entitled to dividends.
At 31 March 2018, the total number of treasury shares held was 24,369,395 (31 March 2017: 24,370,066). Out of these, 1,704,333 shares,
which had previously been purchased under Vedanta’s Buyback Programme, were held by an independent company, Gorey Investments
Limited (Gorey) and this company will not vote on these shares. These shares purchased by Gorey are treated as treasury shares.
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 Holdings Limited (CIHL) and its
subsidiaries and Vedanta Limited.
As at 31 March 2018, NCIs hold an economic interest of 67.38%, 49.75% and 49.75% respectively in HZL, CIHL and its wholly owned
subsidiaries, and Vedanta Limited. In ASI (partly owned subsidiary of CIHL), the NCI’s economic interest is 74.06%. The respective NCI
holdings as at 31 March 2017 were 67.46% and 49.87% in HZL and Vedanta Limited respectively.
Pursuant to the merger of Cairn India Limited with Vedanta Limited, the NCI holding in CIHL as at 31 March 2017 was 49.87%.
Principal place of business of HZL, CIHL and its subsidiaries and Vedanta Limited is set out under Note 44.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
231
36. Non‑controlling interests (‘NCI’) continued
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
The summarised financial information below is on a 100% basis and before inter-company eliminations.
(US$ million)
Particulars
CIHL and its
subsidiaries
HZL
Vedanta
Limited
Others**
Total
HZL
Cairn India
Vedanta
Limited
Others**
Total
Year ended 31 March 2018
Year ended 31 March 2017
Profit/(loss) attributable to NCI
Equity attributable to NCI
Dividends paid/payable to NCI
251.5
968.1
771.6
3,772.1 1,021.7 6,258.4 (4,192.4) 6,859.8 3,254.7
(781.7)
(494.3) 1,233.3
(606.9)
(828.3)
(221.4)
508.0
–
–
284.3
454.0
(607.6)
902.3
– 6,888.6* (3,720.2) 6,423.1
– (1,340.1)
(517.9)
(40.5)
Includes erstwhile Cairn India Limited merged with Vedanta Limited in March 2017.
*
** Others consist of investment subsidiaries of Vedanta Limited, other individual non-material subsidiaries and consolidation adjustments.
Summarised financial information in respect of the components of the Group including subsidiaries that have material non-controlling
interests is set out below:
As at 31 March 2018
As at 31 March 2017
(US$ million)
Particulars
Non-current assets
Current assets
Current liabilities
Non-current liabilities
CIHL and its
subsidiaries
HZL
Vedanta
Limited
Others**
Total
CIHL and its
subsidiaries
HZL
Vedanta
Limited*
2,830.3 2,413.2 19,046.7 (4,249.1) 20,041.1 2,621.5 2,679.2 14,161.2
5,337.6 1,411.9 2,988.8
3,712.3 1,105.5 3,573.6
(7,375.1)
(7,625.6)
(408.0)
(183.2)
(81.6) (3,380.7)
(2,414.7)
(1,124.8)
9,197.3
(2,707.4) (11,653.9) (3,102.8)
(31.5)
(7,492.8) (11,063.5)
(912.9)
(31.2)
805.9
Others
Total
(442.3) 19,019.6
2,745.5 12,483.8
(3,410.5) (14,071.6)
(7,923.4) (11,417.2)
Net assets
5,598.5 1,985.9 12,580.0 (13,643.4) 6,521.0 4,824.8 3,826.3 6,394.2 (9,030.7) 6,014.6
Includes erstwhile Cairn India Limited now merged with Vedanta Limited in March 2017.
*
** Others consist of investment subsidiaries of Vedanta Limited, other individual non-material subsidiaries and consolidation adjustments.
(US$ million)
Particulars
CIHL and its
subsidiaries
HZL
Vedanta
Limited
Others**
Total
HZL
Cairn India
Vedanta
Limited
Others**
Total
Revenue
Profit/(loss) for the year
3,393.9
1,436.8
714.0
7,030.2
511.7 1,021.1
4,220.6 15,358.7 2,551.3 1,222.7 4,786.2 2,959.9 11,520.1
879.6
(1,500.7) 1,468.9 1,305.4
456.3 1,226.3 (2,108.4)
Year ended 31 March 2018
Year ended 31 March 2017
Other comprehensive
income/(loss)***
(6.2)
–
7.1
12.4
13.3
(0.6)
1.0
1.8
(1.7)
0.5
** Others consist of investment subsidiaries of Vedanta Limited, other individual non-material subsidiaries and consolidation adjustments.
*** Excluding exchange differences arising on translation of foreign operations
The effect of changes in ownership interests in subsidiaries that did not result in a loss of control is as follows:
(US$ million)
As at 31 March 2018
Changes in NCI due to merger (Note 42)
Other changes in non-controlling interests
(US$ million)
As at 31 March 2017
Changes in NCI due to merger (Note 42)
Other changes in non-controlling interests
HZL
–
–
CIHL and its
subsidiaries
–
(10.5)
Vedanta Limited
Others
–
3.5
–
–
HZL
403.7
–
Cairn
Vedanta Limited
Others
(1,001.7)
0.9
813.4
(16.9)
(1,032.5)
–
Total
–
(7.0)
Total
(817.1)
(16.0)
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 232
Vedanta Resources plc | Annual Report FY2018
37. Joint arrangements
Joint operations
The Group’s principal licence interests in its oil and gas business are joint operations. The principal licence interests for the year ended
31 March 2018 and 31 March 2017 are as follows:
Oil & Gas blocks/fields
Area
Operating blocks
Ravva block
CB-OS/2 – Exploration
CB-OS/2 – Development and production
RJ-ON-90/1 – Exploration
RJ-ON-90/1 – Development and production
KG-OSN-2009/3
South Africa Block 1
Relinquished blocks
PR-OSN-2004/11
Non-operating blocks
KG-ONN-2003/12
Krishna Godavari
Cambay Offshore
Cambay Offshore
Rajasthan Onshore
Rajasthan Onshore
Krishna Godavari Offshore
Orange Basin South Africa Offshore
Palar Basin Offshore
Krishna Godavari Onshore
1 Relinquished on 30 June 2017.
2 Operatorship has been transferred to Oil and Natural Gas Corporation (ONGC) w.e.f. July 7, 2014.
38. Commitments, guarantees, contingencies and other disclosures
Commitments
The Group has a number of continuing operational and financial commitments in the normal course of business including:
• Exploratory mining commitments;
• Oil and gas commitments;
• Mining commitments arising under production sharing agreements; and
• Completion of the construction of certain assets.
Participating
Interest
22.50%
60.00%
40.00%
100.00%
70.00%
100.00%
60.00%
35.00%
49.00%
(US$ million)
Capital commitments contracted but not provided
Commitments primarily related to the expansion projects:
Oil & Gas sector
Cairn India
Aluminium sector
BALCO-325 KTPA smelter and 1200 MW power plant (4 x 300 MW)
Lanjigarh Refinery (Phase II) 5.0 MTPA
Jharsuguda 1.25 MTPA smelter
Power sector
Jharsuguda 2400 MW Power Plant
Zinc sector
Zinc India (mines expansion)
Gamsberg mining and milling project
Copper sector
Tuticorin Smelter 400 KTPA
Others
Total
As at
31 March 2018
As at
31 March 2017
1,893.4
1,351.5
As at
31 March 2018
As at
31 March 2017
668.3
22.0
33.9
205.2
75.5
50.2
249.0
332.9
15.0
32.8
305.1
162.5
424.0
3.9
239.7
206.0
217.6
1.3
1,893.4
1,351.5
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018
Vedanta Resources plc | Annual Report FY2018
233
38. Commitments, guarantees, contingencies and other disclosures continued
Guarantees
Companies within the Group provide guarantees within the normal course of business.
A summary of the most significant guarantees is set out below:
As at 31 March 2018, US$308.2 million of guarantees were advanced to banks, suppliers etc. in the normal course of business
(31 March 2017: US$281.0 million). The Group has also entered into guarantees and bonds advanced to the customs authorities in India
of US$107.3 million (31 March 2017: US$67.7 million) relating to the export and payment of import duties on purchases of raw material
and capital goods.
Cairn PSC guarantee to Government
The Group has provided Parent Company guarantee for the Cairn India Group’s obligation under the Production Sharing Contract (‘PSC’).
Vedanta Limited has 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$26.2 million included in the above outstanding as of 31 March 2018 (31 March 2017:
US$19.9 million).
Export obligations
The Indian entities of the Group have export obligations of US$1,904.2 million (31 March 2017: US$2,647.3 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$169.3 million (31 March 2017:
US$261.7 million), reduced in proportion to actual exports, plus applicable interest.
The Group has given bonds of US$226.3 million (31 March 2017: US$258.6 million) to custom authorities against these export obligations.
Contingencies
The Group discloses the following legal and tax cases as contingent liabilities.
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$51.3 million as at 31 March 2018 and 31 March 2017. 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 it is unlikely that the claim will lead to a future obligation and
thus no provision has been made in the financial statements. HZL had filed appeals (writ petitions) in the High Court of Rajasthan in
Jodhpur. The High Court restrained the Department of Mines and Geology from undertaking any coercive measures to recover the
penalty. Central Government has also been made a party to the case and the matter is likely to be listed now for hearing after completion
of pleadings by the Central Government.
Richter and Westglobe: Income tax
The Group, through its subsidiaries Richter Holdings Limited and Westglobe Limited, in 2007 acquired the entire stake in Finsider
International Company Limited (FICL) based in the United Kingdom which held 51% shares of Sesa Goa Ltd, an Indian Company.
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 gains on the indirect acquisition of shares in April 2007.
The Tax Authorities determined the liability for such non-deduction of tax as US$134.7 million in the case of Richter and US$89.8 million in
the case of Westglobe, comprising tax and interest as at 31 March 2018 and 31 March 2017. Richter and Westglobe filed appeals before
the first appellate authority. Appeals (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. The Karnataka High Court passed interim orders and directed that the adjudication of liability
(TDS quantum and interest) shall no longer remain in force since the tax department passed the orders on merits travelling beyond the
limited issue of jurisdiction. The jurisdiction issue will be heard by the High Court.
Erstwhile Cairn India Limited: Income tax
In March 2014, Cairn India Limited (referred to as 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), for acquiring shares of
Cairn India Holdings Limited (CIHL), as part of their internal reorganisation. The Tax Authorities have stated in the notice that a short-term
capital gain has accrued to CUHL on transfer of the shares of CIHL to Cairn India, in the financial year 2006–2007, on which tax should
have been withheld by Cairn India. Pursuant to this various replies were filed with the Tax Authorities.
Cairn India also filed a writ petition before the Delhi High Court wherein it has raised several points for assailing the aforementioned
Income Tax Authority’s order. The matter is next listed for hearing on 6 July 2018 before the Honourable Delhi High Court.
After several hearings, the Income Tax Authority, in March 2015, issued an order holding Cairn India as ‘assessee in default’ and raised a
demand totalling US$3,150.9 million (including interest of US$1,575.4 million). Cairn India had filed an appeal before the First Appellate
Authority, Commissioner of Income Tax (Appeals) which vide order dated 3 July 2017 confirmed the tax demand against Cairn India.
Cairn India has challenged the Commissioner of Income Tax’s (Appeals) order before the Income Tax Appellate Tribunal (ITAT).
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 234
Vedanta Resources plc | Annual Report FY2018
38. Commitments, guarantees, contingencies and other disclosures continued
Separately CUHL, on whom the primary liability of tax lies, has received an Order from the ITAT holding that the transaction is taxable in
view of the clarification made in the Act but also acknowledged that being a retrospective transaction, interest would not be levied. Hence
affirming a demand of US$1,575.5 million excluding the interest portion that had previously been claimed. The tax department is appealing
this order.
As a result of the above order from ITAT, the Group now considers the risk in respect of the interest portion of claim to be remote. Further,
as per the recent attachment notice received from the Tax Recovery Officer appointed for CUHL, they have adjusted the dividend of
US$102.6 million which was due to CUHL and was recovered by the tax department. Vedanta Limited has further remitted additional
dividend of US$68.0 million further reducing the principal liability to US$1,404.9 million. Accordingly, the Group has revised the
contingent liability to US$1,404.9 million.
Additionally, the tax department has initiated the process of selling the attached CUHL investment in equity and preference shares of
Vedanta Limited valuing US$937.8 million based on the quoted price as at 31 March 2018.
In the event, the case is finally decided against Cairn India, along with interest, the potential liability would be US$3,150.9 million.
Separately, but in connection with this litigation, Vedanta Resources plc has filed a Notice of Claim against the Government of India (‘GOI’)
under the UK India Bilateral Investment Treaty (the BIT). The International Arbitration Tribunal recently passed a favourable order on
jurisdiction and now the matter will be heard on merits – the hearing is scheduled in April–May 2019. The Government of India has
challenged the jurisdiction order of Arbitration Tribunal before the High Court of Singapore.
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 210 MW co-generation power plant for the 6 MTPA
expansion project, and filed a claim of US$252.4 million. SSNP also filed a petition under Section 9 of the Arbitration and Conciliation Act,
1996 before the Bombay High Court requesting 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 Vedanta Limited to deposit a bank guarantee for an amount of
US$28.7 million as a security, being a prima facie representation of the claim, until arbitration proceedings are completed. Vedanta Limited
has deposited a bank guarantee of an equivalent amount. Based on the assessment, the Company had booked the liability for
US$30.7 million in earlier years.
On 9 November 2017, the Arbitral Tribunal has pronounced the award in favour of SSNP for US$34.0 million along with the interest and
cost of US$18.1 million (@ 9% p.a. from date of filing petition, i.e. 18 April 2012). The amount is payable subject to SSNP handing over all
the plant drawings to the Company. Given the Company was already carrying a part provision it recognised additional liability of
US$21.4 million including interest and cost making the total liability towards SSNP as US$52.1 million. The additional amount recognised
in the income statement includes US$17.6 million which has been presented under special items.
The company has challenged the award under section 34 of The Arbitration and Conciliation Act, 1996, which was dismissed.
Subsequently, the company has filed an appeal under section 37 of The Arbitration and Conciliation Act, 1996 with the Delhi High Court.
The court has granted a stay subject to deposit of the award amount, which has been complied by the Company. The hearing on the
arguments in the matter have been completed and the matter has now been reserved for orders.
Ravva Joint Venture arbitration proceedings: ONGC Carry
Cairn India Limited (referred to as Cairn India) is involved in a dispute against the Government of India relating to the recovery of
contractual costs in terms of calculation of payments that the contractor party were required to make in connection with the Ravva field.
The Ravva Production Sharing Contract PSC obliges the contractor parties to pay a proportionate share of ONGC’s exploration,
development, production and contract costs in consideration for ONGC’s payment of costs related to the construction and other activities
it conducted in Ravva prior to the effective date of the Ravva PSC (the ONGC Carry). The question as to how the ONGC Carry is to be
recovered and calculated, along with other issues, was submitted to an International Arbitration Tribunal in August 2002 which rendered a
decision on the ONGC Carry in favour of the contractor parties whereas four other issues were decided in favour of GOI in October 2004
(Partial Award).
The GOI then proceeded to challenge the ONGC Carry decision before the Malaysian courts, as Kuala Lumpur was the seat of the
arbitration. The Federal Court of Malaysia which adjudicated the matter on 11 October 2011, upheld the Partial Award. Per the decision of
the Arbitral Tribunal, the contractor parties and GOI were required to arrive at a quantification of the sums relatable to each of the issues
under the Partial Award.
Pursuant to the decision of the Federal Court, the contractor parties approached the Ministry of Petroleum and Natural Gas (MoPNG) to
implement the Partial Award while reconciling the statement of accounts as outlined in the Partial Award.
However, MoPNG on 10 July 2014 proceeded to issue a Show Cause Notice alleging that since the Partial Award has not been enforced,
the profit petroleum share of GOI has been short-paid. MoPNG threatened to recover the amount from the sale proceeds payable by the
oil marketing companies to the contractor parties. The contractor party replied to the Show Cause Notice taking various legal contentions.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
235
38. Commitments, guarantees, contingencies and other disclosures continued
As the Partial Award did not quantify the sums, therefore, contractor parties approached the same Arbitral Tribunal to pass a Final Award
in the subject matter since it had retained the jurisdiction to do so. The Arbitral Tribunal was reconstituted and the Final Award was
passed in October 2016 in Cairn India’s favour. GOI’s challenge of the Final Award was dismissed by the Malaysian High Court. GOI has
challenged the decision before the Court of Appeal, the procedural hearing for which is scheduled on 30 August 2018. Further, Cairn India
has also filed for the enforcement of the Partial Award and Final Award with Delhi High Court which is scheduled to be heard on
4 September 2018. While Cairn India does not believe the GOI will be successful in its challenge, if the Arbitral Award is reversed and
such reversal is binding, Cairn India could be liable for approximately US$63.9 million plus interest.
Proceedings related to the Imposition of Entry Tax
Vedanta Limited and other Group companies i.e. Bharat Aluminium Company Limited (BALCO) and Hindustan Zinc Limited (HZL)
challenged the constitutional validity of the local statutes and related notifications in the states of Chhattisgarh, Odisha and Rajasthan
pertaining to the levy of entry tax on the entry of goods brought into the respective states from outside.
Post some contradictory orders of High Courts across India adjudicating on similar challenges, the Supreme Court referred the matters to
a nine judge bench. Post a detailed hearing, although the bench rejected the compensatory nature of tax as a ground of challenge, it
maintained status quo with respect to all other issues which have been left open for adjudication by regular benches hearing the matters.
Following the order of the nine judge bench, the regular bench of the Supreme Court proceeded with hearing the matters. The regular
bench remanded the entry tax matters relating to the issue of discrimination against domestic goods bought from other States to the
respective High Courts for final determination but retained the issue of jurisdiction for levy on imported goods, for determination by the
regular bench of the Supreme Court. Following the order of the Supreme Court, the Group filed writ petitions in respective High Courts.
On 9 October 2017, the Supreme Court has held that states have the jurisdiction to levy entry tax on imported goods. With this Supreme
Court judgment, imported goods will rank pari passu with domestic goods for the purpose of levy of Entry tax. Vedanta Limited and its
subsidiaries have amended their appeals (writ petitions) in Orissa and Chhattisgarh to include imported goods as well. With respect to
Rajasthan, the State Government has filed a counter petition in the Rajasthan High Court, whereby it has admitted that it does not intend to
levy the entry tax on imported goods.
The issue pertaining to the levy of entry tax on the movement of goods into a Special Economic Zone (SEZ) remains pending before the
Odisha High Court. The Group has challenged the levy of entry tax on any movement of goods into an SEZ based on the definition of
‘local area’ under the Odisha Entry Tax Act which is very clear and does not include an SEZ. In addition, the Government of Odisha further
through its SEZ Policy 2015 and the operational guidelines for administration of this policy dated 22 August 2016, exempted the entry tax
levy on SEZ operations.
The total claims against Vedanta Limited and its subsidiaries are US$203.0 million (31 March 2017: US$165.0 million).
TSPL: Proceedings related to claim for Liquidated Damages
TSPL entered into a long-term PPA with PSPCL for the supply of power. Due to delays in the fulfilment of certain obligations by PSPCL as
per the PPA and force majeure events, there was a delay in completion of the project as per the PPA timelines. TSPL has received notices
of claims from PSPCL seeking payment of Liquidated damages (LD) for delay in commissioning of Unit I, II and III totalling to US$146.4
million as on 31 March 2018 and 31 March 2017.
During the financial year 2014–15, PSPCL had invoked the Performance Bank Guarantee (PBG) of US$23.1 million to recover the LD on
account of delay in the Commercial Operation Date (COD). Against the PBG, invocation stay was granted by PSERC and this was later
upheld by APTEL as well. The matter was referred to arbitration by a panel of three Arbitrators. The arbitration proceedings have
concluded and the order was passed on 18 September 2017 in TSPL’s favour. The said claim of US$146.4 million was part of contingent
liability as on 31 March 2017, however pursuant to the order passed, the claim has been considered to be resolved with no exposure
remaining for the Company. PSPCL has filed a Sec 34 Application, which is to be listed on 27 July 2018.
BALCO: Challenge against imposition of Energy Development Cess
BALCO challenged the imposition of Energy Development Cess levied on generators and distributors of electrical energy @ 10 paise per
unit on the electrical energy sold or supplied before the High Court on the grounds that the Cess is effectively on production and not on
consumption or sale since the figures of consumption are not taken into account and the Cess is discriminatory since captive power plants
are required to pay @ 10 paise while the State Electricity Board is required to pay @ 5 paise. The High Court of Chhattisgarh by order
dated 15 December 2006 declared the provisions imposing ED Cess on CPPs as discriminatory and therefore ultra vires the Constitution.
The Company has sought refund of ED Cess paid till March 2006 amounting to US$5.3 million.
The State of Chhattisgarh moved an SLP in the Supreme Court and whilst issuing notice has stayed the refund of the Cess already
deposited and the Supreme Court has also directed the State of Chhattisgarh to raise the bills but no coercive action be taken for recovery
for the same. Final argument in this matter started before the Supreme Court. In case the Supreme Court overturns the decision of the
High Court, BALCO would be liable to pay an additional amount of US$100.8 million (31 March 2017: US$88.6 million) and the Company
may have to bear a charge of US$106.1 million (31 March 2017: US$88.6 million).
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 236
Vedanta Resources plc | Annual Report FY2018
38. Commitments, guarantees, contingencies and other disclosures continued
South Africa Carry Cost
As part of the farm-in agreement for Block 1, the Group was required to carry its joint venture partner, Petro SA, up to a gross expenditure
of US$100.0 million for a work programme including 3D and 2D seismic studies and at least one exploration well. The Group has spent
US$38.0 million towards exploration expenditure and a minimum carry of US$62.0 million (including drilling one well) was outstanding at
the end of the initial exploration period. The Group had sought an extension for execution of deed for entry into the second renewal phase
of the exploration period with a request to maintain status quo of the prior approvals due to uncertainty in the proposed changes in fiscal
terms impacting the Group financial interest in the block. The same was granted by the South African authority subject to risk of
exploration right getting expired on account of recent High Court judgments. After assessing past judicial precedents followed by
independent legal advice, the Group has provided for the requisite damages as applicable under the South African Regulations and
obligation for the aforesaid carry cost of US$62.0 million has been assessed as possible and disclosed as a contingency.
Class actions against KCM on behalf of Zambian nationals
Vedanta and KCM had challenged the jurisdiction of the English courts to hear and adjudicate the claims by Zambian residents in relation
to KCM’s operations in Zambia. The allegations relate to claims of personal injury, significant pollution, environmental damage and claims
for aggravated and exemplary damages and for injunctive relief. These allegations are currently defended by KCM. On 27 May 2016, the
English High Court of Justice, Queen’s Bench Division, Technology and Construction Court ruled that the English courts have jurisdiction
to hear and adjudicate the claims. Vedanta and KCM appealed this ruling.
The English Court of Appeal released a judgement on 13 October 2017, dismissing this appeal and ruling that the English courts have
jurisdiction to hear and adjudicate the claims. This judgement relates solely to the jurisdiction of the English courts to hear these claims.
Vedanta and KCM had sought permission from the Supreme Court of London to appeal the Court’s decision, which has been granted by
the Supreme Court on 23 March 2018.
There has been no hearing or proceeding in any court on the merits of any of these claims to date, none has been scheduled, and the
amount of the claims has not been specified. Given the stage of proceedings the amount is presently not quantifiable.
Miscellaneous disputes-Income Tax
The Group is involved in various tax disputes amounting to US$1,074.6 million (31 March 2017: US$966.3 million) relating to income tax.
These mainly relate to the disallowance of tax holiday for 100% Export Oriented Undertaking under section 10B of the Income Tax Act,
1961, disallowance of tax holiday benefit on production of gas under section 80IB of the Income Tax Act, 1961, tax holiday for undertakings
located in certain notified areas under section 80IC of the Income Tax Act, 1961, disallowance of tax holiday benefit for power plants
under section 80IA of the Income Tax Act, 1961, on account of depreciation disallowances, disallowance under section 14A of the Income
Tax Act and interest thereon which are pending at various appellate levels.
The Group believes that these disallowances are not tenable and accordingly no provision is considered necessary.
Miscellaneous other disputes
The Group is subject to various claims and exposures which arise in the ordinary course of conducting and financing its business from the
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 (excluding the items as set out separately above) against the Group companies total US$571.9 million
(31 March 2017: US$623.4 million).
The Group considers that it can take steps such that the risks can be mitigated and that there will be no significant unprovided liabilities arising.
Other Matters
In July 2017, the Appellate Tribunal for Electricity dismissed the appeal filed by one of the Group’s subsidiaries, Talwandi Sabo Power
Limited (TSPL) with respect to the interpretation of how the calorific value of coal and costs associated with it should be determined. TSPL
has filed the appeal before the Honourable Supreme Court, which by an order dated 7 March 2018 has decided the matter in favour of the
Company. The outstanding trade receivables in relation to this dispute as at 31 March 2018 is US$123.3 million (US$90.0 million as at
31 March 2017). This was classified as other non-current asset as at 31 March 2017 which has been reclassified to trade and other
receivables as at 31 March 2018.
In another matter relating to assessment of whether there has been a change in law following the execution of the Power Purchase
Agreement, the Appellate Tribunal for Electricity has dismissed the appeal in July 2017 filed by TSPL. TSPL has filed an appeal before the
Honourable Supreme Court to seek relief which is yet to be listed. The outstanding trade receivables in relation to this dispute and other
matters as at 31 March 2018 is US$59.3 million (US$40.2 million as at 31 March 2017). The Group, based on external legal opinion and its
own assessment of the merits of the case, remains confident that it is highly probable that the Supreme Court will uphold TSPL’s appeal
and has thus continued to treat these balances as recoverable.
Additionally, at Vedanta Limited US$111.8 million as at 31 March 2018 (31 March 2017: US$113.2 million) were outstanding on account of
certain disputes with another customer relating to computation of tariffs and differential revenues recognised with respect to tariffs
pending finalisation by the state regulatory commission.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
237
38. Commitments, guarantees, contingencies and other disclosures continued
Operating Lease commitments: As lessee
(i) Operating leases are in relation to the office premises, office equipment and other assets, some of which are cancellable and some are
non-cancellable. There is an escalation clause in the lease agreements during the primary lease period. There are no restrictions imposed
by lease arrangements and there are no sub-leases. There are no contingent rents. The total of the future minimum lease payments under
non-cancellable leases are as under:
(US$ 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 2018
As at
31 March 2017
0.6
0.8
1.4
0.4
0.4
0.8
Lease payments recognised as expenses during the year ended 31 March 2018, on non-cancellable leases, is US$0.2 million (31 March
2017: US$1.1 million).
(ii) TSPL has ascertained that the Power Purchase Agreement (PPA) entered with Punjab State Power Corporation Limited (PSPCL)
qualifies to be an operating lease under IAS 17 ‘Leases’. Based on the assessment that the lease payments by PSPCL are subject to
variations on account of various factors like availability of coal, water, etc., the management has determined the entire consideration
receivable under the PPA relating to recovery of capacity charges towards capital cost to be contingent rent under IAS 17. The contingent
rent recognised as revenue in the statement of profit and loss during the year ended 31 March 2018 and 31 March 2017 is US$190.0 million
and US$188.9 million respectively.
39. Related party transactions
The information below sets out transactions and balances between the Group and various related parties in the normal course of business
for the year ended 31 March 2018.
Sterlite Technologies Limited (‘STL’)
(US$ million)
Sales to STL
Recovery of expenses
Purchases
Net interest income
Net amounts receivable at year end
Net amounts payable at year end
Outstanding advance received at year end
Dividend income
Investment in equity share
Year ended
31 March 2018
Year ended
31 March 2017
10.8
–
0.1
–
0.8
–
–
0.1
22.9
127.8
0.0
2.6
1.3
4.0
0.2
2.1
0.1
9.2
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 2018, 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$0.04 million (31 March 2017: US$0.03 million).
Sterlite Power Transmission Limited (‘SPTL’)
(US$ million)
Sales to SPTL
Purchases
Other income from SPTL
Net interest received
Net amounts receivable at year end
Investment in equity share
Net amounts payable at year end
Year ended
31 March 2018
Year ended
31 March 2017
175.1
2.0
0.0
0.1
0.8
1.6
0.5
2.6
0.4
–
–
–
1.5
–
Sterlite Power Transmission Limited is related by virtue of having the same controlling party as the Group, namely Volcan.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 238
Vedanta Resources plc | Annual Report FY2018
39. Related party transactions continued
Vedanta Foundation
(US$ million)
Donation*
Net advance given at year end
Year ended
31 March 2018
Year ended
31 March 2017
0.0
0.8
10.2
–
* Donation for 31 March 2017 includes donation in kind, having fair market value of US$1.7 million.
The Vedanta Foundation is a registered not-for-profit entity with a broad focus mainly on education, nutrition and livelihood. 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 Sea 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 2018, US$0.8 million (31 March 2017: US$0.3 million) was paid to the
Sesa Goa Community Foundation Limited.
Sterlite Iron and Steel Limited
(US$ million)
Loan given/repaid
Loan balance receivable at year end
Net amount receivable at year end (including interest and advance given)
Net interest income
Year ended
31 March 2018
Year ended
31 March 2017
0.0
0.7
1.9
0.1
0.0
0.7
1.9
0.1
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
Guarantees given balance at year end
Guarantees given during the year
Year ended
31 March 2018
Year ended
31 March 2017
12.8
5.3
5.3
5.2
–
–
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 2018
Year ended
31 March 2017
0.6
0.3
110.6
0.4
0.2
93.7
Volcan Investments Limited is a related party of the Group by virtue of being an ultimate controlling party of the Group.
Bank guarantee has been provided by the Group on behalf of Volcan in favour of the Income tax department, India as collateral in respect
of certain tax disputes of Volcan. The guarantee amount is US$17.7 million (31 March 2017: US$17.7 million).
Volcan Investments Limited is a related party of the Group by virtue of being an ultimate controlling party of the Group.
Cairn Foundation
(US$ million)
Net amount payable at the year end
Donation
Year ended
31 March 2018
Year ended
31 March 2017
1.7
2.5
2.8
1.8
Cairn Foundation, though not a related party as per the definition under IAS 24, related party disclosure has been included by way of a
voluntary disclosure, following the best corporate governance practices.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
239
39. Related party transactions continued
India Grid Trust
(US$ million)
Dividend income
Investment redeemed during the year
Investment in equity share at year end
Year ended
31 March 2018
Year ended
31 March 2017
1.2
0.1
18.8
–
–
–
India Grid Trust is a related party of the Group on the basis that the ultimate controlling party of the Group, Volcan Investments Limited,
exercises significant influence.
Associates
(US$ million)
Investment made during the year
Investment redeemed during the year
Loan balance receivable at year end
Year ended
31 March 2018
Year ended
31 March 2017
0.0
0.1
1.2
–
–
1.0
Post-Retirement employees benefit trust
Details of transactions during the year with post-retirement employee benefit trusts. The below mentioned trusts are related parties
because these are employee trusts.
(US$ million)
BALCO Employees Provident Fund Trust
Hindustan Zinc Ltd. Employee Contributory Provident Fund Trust
Sesa Group Employees Provident Fund
Sesa Resources Limited Employees Provident Fund
Sesa Mining Corporate Limited Employees Provident Fund
HZL Employee Group Gratuity Trust
Sesa Group Employees Gratuity Fund and Sesa Group Executives Gratuity Fund
Sesa Resources Limited Employees Gratuity Fund
Sesa Mining Corporation Limited Employees Gratuity Fund
HZL Superannuation Fund
Sesa Group Executives Superannuation Scheme
Sesa Resources Limited and Sesa Mining Corporation Limited Employees Superannuation Fund
Details of balance payable at the end of the year to post-retirement employee benefit trusts.
(US$ million)
BALCO Employees Provident Fund Trust
Hindustan Zinc Ltd. Employee Contributory Provident Fund Trust
Sesa Group Employees Provident Fund
Sesa Resources Limited Employees Provident Fund
Sesa Mining Corporate Limited Employees Provident Fund
HZL Superannuation Fund
Sesa Group Executives Superannuation Scheme
Sesa Resources Limited and Sesa Mining Corporation Limited Employees Superannuation Fund
Remuneration of Key Management Personnel
(US$ million)
Short-term employee benefits
Post-employment benefits
Share-based payments
Compensation for Non-Executive Directors
Commission/sitting fees to KMP
Year ended
31 March 2018
Year ended
31 March 2017
2.0
4.7
0.7
0.1
0.2
2.5
0.2
0.0
0.0
0.4
0.3
0.0
2.4
4.6
0.9
0.1
0.1
3.8
0.8
0.1
0.1
0.3
0.2
0.0
As at
31 March 2018
As at
31 March 2017
0.8
1.4
0.3
0.0
0.0
0.0
0.0
0.0
0.7
0.4
0.2
0.0
0.0
0.0
0.1
0.0
Year ended
31 March 2018
Year ended
31 March 2017
19.5
0.7
5.5
25.7
0.9
0.0
20.0
1.0
3.9
24.9
0.9
0.0
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).
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 240
Vedanta Resources plc | Annual Report FY2018
39. Related party transactions continued
Other related party#
(US$ million)
Salary paid to relative
Commission/sitting fees to relatives of KMP
# close relative of the Executive Chairman.
(US$ million)
Year ended
31 March 2018
(US$ million)
Year ended
31 March 2017
1.2
0.0
1.2
0.0
40. Share Transactions Call Options
a. HZL
Pursuant to the Government of India’s policy of divestment, the Group in April 2002 acquired 26% equity interest in HZL from the
Government of India. Under the terms of the Shareholder’s Agreement (‘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 Group 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 on 21 July 2009. The Government of India disputed the validity of the call option
and has refused to act upon the second call option. Consequently the Group invoked arbitration which is in the early stages. The next date
of hearing is scheduled for 24 November 2018. The Government of India without prejudice to the position on the Put/Call option issue has
received approval from the Cabinet for divestment and the Government is looking to divest through the auction route. Meanwhile, the
Supreme Court has, in January 2016, directed status quo pertaining to disinvestment of Government of India’s residual shareholding in a
public interest petition filed which is currently pending and sub-judice.
b. BALCO
Pursuant to the Government of India’s policy of divestment, the Group in March 2001 acquired 51% equity interest in BALCO from the
Government of India. Under the terms of the SHA, the Group has a call option 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 (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. In the arbitration filed by the Group, the arbitral tribunal by a majority award 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 has challenged the validity of the majority award 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 matter is currently scheduled for hearing by the Delhi High Court on 3 July 2018. Meanwhile, the
Government of India without prejudice to its position on the Put/Call option issue has received approval from the Cabinet for divestment
and the Government is looking to divest through the auction route.
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, and hence the call options have not been recognised in the financial statements.
41. Konkola Copper Mines: Value Added Tax
As of 31 March 2018, backlog Value Added Tax (falling under older VAT rule 18 regime) on inputs amounting to US$72 million (31 March
2017 : US$71 million) for 10 month’s period between October 2013 to December 2014 was pending for refund from the Government of
Republic of Zambia (GRZ). Based on various VAT audits to the satisfaction of Zambia Revenue Authority (ZRA), KCM was granted refunds
for US$56 million in FY2017.
During FY2018, Government of Republic of Zambia have initiated an industry-wide audit of governance and documentations surrounding
VAT rules through independent professional audit firms in order to have a more comprehensive review of compliance and governance in
VAT regime between 1 January 2013 to 31 December 2015.
The Company believes the new comprehensive review would only reaffirm the position of its compliance, given positive outcomes in
earlier audits as conducted by ZRA. Accordingly, the Company does not recognise any provision against the carrying amount of this
receivable, however due to delays in start of the comprehensive assessment, the VAT receivables of US$72 million related to the period
under audit has been reclassified to ‘Other non-current assets’ in the Statement of Financial Position as at 31 March 2018.
42. Group Restructuring
Consequent to the receipt of all substantive approvals for the merger of Cairn India Limited with Vedanta Limited on 27 March 2017, the
merger was accounted for in the financial year ended 31 March 2017. As per the terms of the scheme, upon the merger becoming
effective, non-controlling i.e. public shareholders of Cairn India Limited received one equity share in Vedanta Limited of face value Re 1
each (US$0.0) and four 7.5% Redeemable Preference Shares in Vedanta Limited of INR10 each (US$0.2) for each equity share held in
Cairn India Limited. No shares were issued to Vedanta Limited or any of its subsidiaries for their shareholding in Cairn India Limited. Cairn
India Limited ceased to be a separate legal entity with effect from 11 April 2017.
The above had resulted in a decrease in the shareholding of the Company in Vedanta Limited (merged entity) from 62.85% to 50.13% and an
increase in the shareholdings of erstwhile Cairn India Limited’s subsidiaries from 37.64% to 50.13%. Given the Company continues to control
Vedanta Limited, this was accounted for as an equity transaction with no gain or loss recognised in the income statement.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
241
43. Subsequent events
There are no material adjusting or non-adjusting subsequent events, except as disclosed in Note 2 (c)(xii) and below.
Vedanta Limited’s resolution plan to acquire Electrosteel Steels Limited (ESL) was approved by the National Company Law Tribunal
(NCLT) in India on 17 April 2018 and the Competition Commission of India has subsequently approved the acquisition of ESL by Vedanta
Limited. Further, the proposed acquisition was approved by the shareholders of the Company on 18 May 2018. In regard to an appeal filed
before it, the National Company Law Appellate Tribunal (NCLAT) has directed that pending final resolution, status quo on ESL as on 1 May
2018 is to be maintained until the appeal is resolved. The Steering Committee, already constituted, shall continue to run the operations of
ESL until final resolution.
44. List of Subsidiaries
The financial statements comprise the financial statements of the following subsidiaries:
Subsidiaries
Principal activities
Registered Address
The Company’s economic
percentage holding
31 March
2018
31 March
2017
Country of
incorporation
Immediate
holding
company
Immediate percentage
holding
31 March
2018
31 March
2017
Direct Subsidiaries of the Parent Company
Vedanta Resources Holding
Limited (‘VRHL’)
Holding
company
Vedanta Resources Jersey
Limited (‘VRJL’)
Investment
company
Vedanta Resources Jersey
II Limited (‘VRJL-II’)
Investment
company
Vedanta Finance (Jersey)
Limited (‘VFJL’)
Investment
company
Vedanta Jersey Investments
Limited (‘VJIL’)
Investment
company
5th Floor,
6 St. Andrew Street,
London EC4A 3AE
100.00% 100.00%
United
Kingdom
VR plc 100.00% 100.00%
100.00% 100.00%
Jersey (CI)
VR plc 100.00% 100.00%
100.00% 100.00%
Jersey (CI)
VR plc 100.00% 100.00%
100.00% 100.00%
Jersey (CI)
VR plc 100.00% 100.00%
100.00% 100.00%
Jersey (CI)
VR plc 100.00% 100.00%
47 Esplanade,
St. Helier,
Jersey JE1 0BD
47 Esplanade,
St. Helier,
Jersey JE1 0BD
47 Esplanade,
St. Helier,
Jersey JE1 0BD
13 Castle Street,
St. Helier,
Jersey JE4 5UT
Channel Islands
Indirect Subsidiaries of the Parent Company
Copper smelting,
Vedanta Limited
Iron Ore mining,
Aluminium
mining, refining
and smelting,
Power generation,
Oil and Gas
exploration,
and production
Vedanta Limited
1st Floor, ‘C’ wing,
Unit 103,
Corporate Avenue,
Atul Projects,
Chakala,
Andheri (East),
Mumbai–400093,
Maharashtra, India
Bharat Aluminium Company
Limited (‘BALCO’)
Aluminium
mining and
smelting
Aluminium Sadan,
2nd Floor, Core-6-
Scope Complex,
7 Lodi Road,
New Delhi-110 003
50.25%
50.13%
India
Twin Star
37.20%
37.11%
25.63%
25.56%
India
Vedanta
Limited
51.00%
51.00%
Copper Mines of Tasmania
Pty Limited (‘CMT’)
Copper mining C/O Henry Davis
50.25%
50.13%
Australia
MCBV 100.00% 100.00%
Fujairah Gold FZC
Gold and Silver
processing
Hindustan Zinc Limited
(‘HZL’)
Zinc mining and
smelting
York, 44 Martin Place,
Sydney,
New South Wales
P.O. Box 3992,
Fujairah,
United Arab Emirates
Yashad Bhawan,
Udaipur (Rajasthan)
– 313004
50.25%
50.13%
UAE
MEL 100.00% 100.00%
32.62% 32.54%
India
Vedanta
Limited
64.92% 64.92%
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 242
Vedanta Resources plc | Annual Report FY2018
44. List of Subsidiaries continued
The Company’s economic
percentage holding
Subsidiaries
Principal activities
Registered Address
Monte Cello BV (‘MCBV’)
Holding
company
WTC Schipol Airport,
Tower B, 5th Floor,
Schipol Boulevard 231,
1118 BH Schipol,
The Netherlands
31 March
2018
31 March
2017
Country of
incorporation
50.25%
50.13% Netherlands
Immediate percentage
holding
31 March
2018
31 March
2017
100.00% 100.00%
Immediate
holding
company
Vedanta
Limited
Monte Cello Corporation
NV (MCNV’)
Holding
company
Kaya Flamboyan 3c,
Curaçao,
Netherlands Antilles
100.00% 100.00%
Curaçao
Twin Star 100.00% 100.00%
Konkola Copper Mines PLC
(‘KCM’)
Copper mining
and smelting
KCM Smelter Co Limited
Production and
marketing of
copper slimes
Sesa Resources Limited
(‘SRL’)
Iron ore
Sesa Mining Corporation
Limited
Iron ore
Private Bag KCM (C)
2000, Stand M 1408,
Fern Avenue,
Chingola
Private Bag KCM (C)
2000, Stand M 1408,
Fern Avenue,
Chingola
Sesa Ghor, 20 EDC
Complex, Patto,
Panaji (Goa)-403001
Sesa Ghor, 20 EDC
Complex, Patto,
Panaji (Goa)-403001
79.42%
79.42%
Zambia
VRHL 79.42%
79.42%
79.42%
79.42%
Zambia
KCM 79.42%
79.42%
50.25%
50.13%
India
Vedanta
Limited
100.00% 100.00%
50.25%
50.13%
India
SRL 100.00% 100.00%
Thalanga Copper Mines Pty
Limited (‘TCM’)
Copper mining C/o Henry Davis York,
50.25%
50.13%
Australia
MCBV 100.00% 100.00%
Twin Star Holdings Limited
(‘Twin Star’)
Holding
company
MALCO Energy Limited
(‘MEL’)
Power
generation
Richter Holding Limited
(‘Richter’)
Investment
company
Westglobe Limited
Investment
company
Finsider International
Company Limited
Investment
company
Vedanta Resources Finance
Limited (‘VRFL’)
Investment
company
Vedanta Resources Cyprus
Limited (‘VRCL’)
Investment
company
44 Martin
Place, Sydney,
New South Wales
C/o SGG Corporate
Services LTD
Les Cascades
Building, Edith Cavell
Street, Port Louis,
Mauritius
100.00% 100.00%
Mauritius
VRHL 100.00% 100.00%
50.25%
50.13%
India
Vedanta
Limited
100.00% 100.00%
SIPCOT Industrial
Complex, Madurai
Bypass Road,
Thoothukudi
(Tamil Nadu) – 628 002
66, Ippocratous
Street, 1015 Nicosia,
Cyprus
C/o SGG Corporate
Services LTD
Les Cascades
Building,
Edith Cavell Street,
Port Louis, Mauritius
5th Floor,
6 St. Andrew Street,
London EC4A 3AE
5th Floor,
6 St. Andrew Street,
London EC4A 3AE
66, Ippocratous
Street, 1015 Nicosia,
Cyprus
100.00% 100.00%
Cyprus
VRCL 100.00% 100.00%
100.00% 100.00%
Mauritius
Richter 100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
United
Kingdom
United
Kingdom
Richter 60.00% 60.00%
VRHL 100.00% 100.00%
100.00% 100.00%
Cyprus
VRFL 100.00% 100.00%
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
243
The Company’s economic
percentage holding
31 March
2018
31 March
2017
Country of
incorporation
Immediate
holding
company
Immediate percentage
holding
31 March
2018
31 March
2017
100.00% 100.00%
Cyprus
VRCL 100.00% 100.00%
50.25%
50.13% Netherlands
50.25%
50.13%
Mauritius
THL Zinc
Holding
B.V.
Vedanta
Limited
100.00% 100.00%
100.00% 100.00%
50.25%
50.13%
Mauritius
BFL 100.00% 100.00%
50.25%
50.13%
Mauritius
100.00% 100.00%
THL Zinc
Ventures
Ltd
50.25%
50.13%
USA
Vedanta
Limited
100.00% 100.00%
50.25%
50.13%
India
Vedanta
Limited
100.00% 100.00%
50.25%
50.13%
Mauritius
TEHL 100.00% 100.00%
44. List of Subsidiaries continued
Subsidiaries
Principal activities
Registered Address
Welter Trading Limited
(‘Welter’)
Investment
company
Lakomasko B.V.
Investment
company
THL Zinc Ventures Limited Investment
company
Twin Star Energy Holdings
Limited (‘TEHL’)1
Holding
company
THL Zinc Limited
Investment
company
Sterlite (USA) Inc.
Investment
company
Talwandi Sabo
Power Limited
Power
generation
Twin Star Mauritius
Holdings Limited
(‘TMHL’)1
Holding
company
28th Oktovriou
Street, 205 Louloupis
Court, 1st Floor P.C.
3035, Limassol,
Cyprus
Herengracht 458,
1017 CA Amsterdam,
The Netherlands
C/o SGG Corporate
Services LTD
Les Cascades Building,
Edith Cavell Street,
Port Louis, Mauritius
C/o SGG Corporate
Services LTD
Les Cascades Building,
Edith Cavell Street,
Port Louis, Mauritius
C/o SGG Corporate
Services LTD
Les Cascades
Building,
Edith Cavell Street,
Port Louis, Mauritius
Corporation Service
Company,
2711 Centerville Road,
Suite 400, City of
Wilmington, Country
of New Castle,
Delaware, 19808
Vill. Banawala,
Mansa – Talwandi
Sabo Road, Distt.
Mansa,
Punjab – 151302
C/o SGG Corporate
Services LTD
Les Cascades Building,
Edith Cavell Street,
Port Louis, Mauritius
THL Zinc Namibia
Holdings (Pty)
Limited (‘VNHL)
Skorpion Zinc (Pty)
Limited (‘SZPL’)
Namzinc (Pty)
Limited (‘SZ’)
Skorpion Mining
Company (Pty)
Limited (‘NZ’)
Mining and
Exploration
Acquisition of
immovable and
movable
properties
Mining
Mining
24 Orban Street,
Klein Windhoek,
Windhoek
24 Orban Street,
Klein Windhoek,
Windhoek
24 Orban Street,
Klein Windhoek,
Windhoek
24 Orban Street,
Klein Windhoek,
Windhoek
50.25%
50.13%
Namibia
THL
100.00% 100.00%
Zinc Ltd
50.25%
50.13%
Namibia
VNHL 100.00% 100.00%
50.25%
50.13%
Namibia
SZPL 100.00% 100.00%
50.25%
50.13%
Namibia
SZPL 100.00% 100.00%
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 244
Vedanta Resources plc | Annual Report FY2018
44. List of Subsidiaries continued
Subsidiaries
Principal activities
Registered Address
Amica Guesthouse
(Pty) Ltd
Rosh Pinah Healthcare
(Pty) Ltd
Accommodation
and catering
services
24 Orban Street,
Klein Windhoek,
Windhoek
The Company’s economic
percentage holding
31 March
2018
31 March
2017
Country of
incorporation
Immediate
holding
company
Immediate percentage
holding
31 March
2018
31 March
2017
50.25%
50.13%
Namibia
SZPL 100.00% 100.00%
24 Ondye Drive,
Rosh Pinah
34.67% 34.59%
Namibia
SZPL
69.00%
69.00%
Leasing out
of medical
equipment and
building and
conducting
services related
thereto
Black Mountain Mining
(Pty) Ltd
Mining
24 Orban Street,
Klein Windhoek,
Windhoek
37.19%
37.10% South Africa
THL Zinc Holding BV
Investment
company
Penge Road,
Aggeneys
50.25%
50.13% Netherlands
THL
Zinc
Ltd
Vedanta
Limited
74.00%
74.00%
100.00% 100.00%
Lisheen Mine Partnership Mining
Partnership Firm
Vedanta Lisheen Holdings
Limited (‘VLHL’)
Investment
Company
Vedanta Exploration
Ireland Limited
Exploration
Company
Vedanta Lisheen Mining
Limited (‘VLML’)
Mining
Killoran Lisheen Mining
Limited
Mining
Killoran Lisheen Finance
Limited
Investment
Company
Lisheen Milling Limited
Manufacturing
Vizag General Cargo
Berth Private Limited
Infrastructure
Paradip Multi Cargo
Berth Private Limited
Infrastructure
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Killoran, Moyne,
Thurles,
Co. Tipperary
Sterlite Industries(I)
Limited, SIPCOT
Industrial Complex,
Madurai Bypass Road,
T.V. Puram P.O
Tuticorin – 628002,
Tamil Nadu, India
Sterlite Industries(I)
Limited, SIPCOT
Industrial Complex,
Madurai Bypass Road,
T.V. Puram P.O
Tuticorin – 628002,
Tamil Nadu, India
50.25%
50.13%
Ireland
VLML 50.00% 50.00%
50.25%
50.13%
Ireland
100.00% 100.00%
THL Zinc
Holding
BV
50.25%
50.13%
Ireland
VLHL 100.00% 100.00%
50.25%
50.13%
Ireland
VLHL 100.00% 100.00%
50.25%
50.13%
Ireland
VLHL 100.00% 100.00%
50.25%
50.13%
Ireland
VLHL 100.00% 100.00%
50.25%
50.13%
Ireland
VLHL 100.00% 100.00%
50.25%
50.13%
India
Vedanta
Limited
100.00% 100.00%
50.25%
50.13%
India
Vedanta
Limited
100.00% 100.00%
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Vedanta Resources plc | Annual Report FY2018
245
44. List of Subsidiaries continued
The Company’s economic
percentage holding
Subsidiaries
Sterlite Ports
Limited (‘SPL’)
Principal activities
Registered Address
Infrastructure
31 March
2018
31 March
2017
Country of
incorporation
50.25%
50.13%
India
Immediate percentage
holding
31 March
2018
31 March
2017
100.00% 100.00%
Immediate
holding
company
Vedanta
Limited
Sterlite IndustriesI
Limited, SIPCOT
Industrial Complex,
Madurai Bypass Road,
T.V. Puram P.O
Tuticorin – 628002,
Tamil Nadu, India
Sterlite IndustriesI
Limited, SIPCOT
Industrial Complex,
Madurai Bypass Road,
T.V. Puram P.O
Tuticorin – 628002,
Tamil Nadu, India
Sterlite IndustriesI
Limited, SIPCOT
Industrial Complex,
Madurai Bypass Road,
T.V. Puram P.O
Tuticorin – 628002,
Tamil Nadu, India
C/o SGG Corporate
Services Limited,
Les Cascades
Building, Edith Cavell
Street, Port Louis,
Mauritius
Amir Building,
18th Street, Sinkor,
Tubman Boulevard,
Sinkor, Monrovia,
Liberia, West Africa
C/o SGG Corporate
Services LTD
Les Cascades
Building, Edith Cavell
Street, Port Louis,
Mauritius
5th Floor,
6 St. Andrew Street,
London EC4A 3AE
47 Esplanade,
St. Helier,
Jersey JE1 0BD
Channel Islands
Maritime Ventures
Private Limited
Infrastructure
Goa Sea Ports
Private Limited
Infrastructure
Bloom Fountain
Limited (‘BFL’)
Operating
(Iron Ore) and
Investment
Company
Western Cluster Limited
Mining
Company
Sesa Sterlite Mauritius
Holdings Limited1
Investment
company
Vedanta Finance
UK Limited
Valliant (Jersey) Limited
Investment
company
Investment
Company
Cairn India Holdings
Limited
Investment
company
50.25%
50.13%
India
SPL 100.00% 100.00%
50.25%
50.13%
India
SPL 100.00% 100.00%
50.25%
50.13% Mauritius
Vedanta
Limited
100.00% 100.00%
50.25%
50.13%
Liberia
BFL 100.00% 100.00%
50.25%
50.13% Mauritius
BFL 100.00% 100.00%
100.00% 100.00%
United
Kingdom
Welter 100.00% 100.00%
100.00% 100.00%
Jersey(CI)
VRJL-II 100.00% 100.00%
50.25%
50.13%
Jersey
Vedanta
Limited
100.00% 100.00%
4th Floor, 22–24 New
Street, St. Paul’s Gate,
St. Helier,
Jersey JE1 4TR
Channel Islands
Cairn Energy
Hydrocarbons Ltd
Oil & gas
exploration,
development
and production
Summit House,
4–5 Mitchell Street,
Edinburgh EH6 7BD,
Scotland
50.25%
50.13%
Scotland
100.00% 100.00%
Cairn
India
Holdings
Limited
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 246
Vedanta Resources plc | Annual Report FY2018
44. List of Subsidiaries continued
Subsidiaries
Principal activities
Registered Address
Cairn Exploration
(No. 2) Limited
Cairn Energy Gujarat
Block 1 Limited
Cairn Energy Discovery
Limited
Cairn Energy India
Pty Limited
Oil & gas
exploration,
development
and production
Oil & gas
exploration,
development
and production
Oil & gas
exploration,
development
and production
Oil & gas
exploration,
development
and production
CIG Mauritius Holdings
Private Limited
Investment
company
CIG Mauritius
Private Limited
Investment
company
Cairn Lanka
Private Limited
Cairn South Africa
Pty Limited
Avanstrate (Japan)
Inc. (‘ASI’)2
Avanstrate Korea2
Avanstrate Taiwan2
Oil & gas
exploration,
development
and production
Oil & gas
exploration,
development
and production
LCD glass
substrate
manufacturing
LCD glass
substrate
manufacturing
LCD glass
substrate
manufacturing
Summit House,
4-5 Mitchell Street,
Edinburgh EH6 7BD,
Scotland
Summit House,
4–5 Mitchell Street,
Edinburgh, EH6 7BD,
Scotland
Summit House,
4–5 Mitchell Street,
Edinburgh, EH6 7BD,
Scotland
Level 12,
680 George Street,
Sydney NSW 2000,
Australia
Abax Corporate
Services Ltd.
6th Floor, Tower A,
1 CyberCity, Ebene,
Mauritius
Abax Corporate
Services Ltd.
6th Floor, Tower A,
1 CyberCity, Ebene,
Mauritius
Level 27, West Tower,
World Trade Centre,
Echelon Square,
Colombo 1, Sri Lanka
22 Bree Street,
Cape Town, 8001,
South Africa
The Company’s economic
percentage holding
31 March
2018
31 March
2017
Country of
incorporation
50.25%
50.13%
Scotland
50.25%
50.13%
Scotland
50.25%
50.13%
Scotland
50.25%
50.13%
Australia
50.25%
50.13%
Mauritius
Immediate percentage
holding
31 March
2018
31 March
2017
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
100.00% 100.00%
Immediate
holding
company
Cairn
India
Holdings
Limited
Cairn
India
Holdings
Limited
Cairn
India
Holdings
Limited
Cairn
India
Holdings
Limited
100.00% 100.00%
Cairn
Energy
Hydrocarbons
Limited
50.25%
50.13%
Mauritius
CIG
100.00% 100.00%
50.25%
50.13%
Sri Lanka
Mauritius
Holding
Private
Limited
CIG
Mauritius
Pvt Ltd
100.00% 100.00%
50.25%
50.13%
South
Africa
Cairn
100.00% 100.00%
Energy
Hydrocarbons
Limited
1-11-1 Nishi-Gotanda,
Shinagawa-ku, Tokyo,
Japan
84, Hyeongoksandan-
ro, Cheongbuk-myeon,
Pyeongtaek-city,
Gyeonggi-province
451–831, South Korea
No 8, Industry 3rd
Road, Annan District,
Tainan 709–55,
Taiwan, R.O.C.
25.63%
25.63%
–
–
Japan
Avanstrate
51.63%
(Japan)
Inc.
South
Korea
Avanstrate
100%
(Japan)
Inc.
25.63%
–
Taiwan
Avanstrate
100%
(Japan)
Inc.
–
–
–
1 Under liquidation.
2 On 28 December 2017, the Group through its wholly owned subsidiary, acquired 51.6% equity stake in AvanStrate Inc. (ASI) (Refer to Note 5).
3 Subsequent to the balance sheet date, Vedanta Star Limited, a 100% subsidiary of Vedanta Limited was incorporated on 23 April 2018.
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.
45. Ultimate controlling party
At 31 March 2018, 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.
Notes to the Financial Statements continuedAs at and for the year ended 31 March 2018 Company Balance Sheet
As at 31 March 2018
(US$ million)
Fixed assets
Tangible assets
Investments in subsidiaries
Investment in preference shares of subsidiaries
Financial asset investment
Current assets
Debtors due within one year
Debtors due after one year
Investments
Cash and cash equivalents
Creditors: amounts falling due within one year
Trade and other creditors
External borrowings
Loan from subsidiary
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 account
Share-based payment reserve
Other reserves
Treasury shares
Profit and loss account
Equity shareholders’ funds
Vedanta Resources plc | Annual Report FY2018
247
As at
31 March
2018
As at
31 March
2017
Note
2
3
4
5
6
6
7
8
8
8
0.1
1,226.3
–
0.2
0.1
1,226.3
4.7
0.3
1,226.6
1,231.4
2,207.0
2,565.0
8.9
54.3
2,151.4
2,358.8
14.6
0.9
4,835.2
4,525.7
(77.1)
(252.0)
–
(88.4)
(173.8)
(176.5)
(329.1)
(438.7)
4,506.1
4,087.0
5,732.7
5,318.4
9
9
(176.5)
(4,237.1)
–
(4,250.8)
(4,413.6)
(4,250.8)
1,319.1
1,067.6
30.4
201.5
13.3
(2.1)
(490.6)
1,566.6
30.1
201.5
28.2
(2.0)
(490.6)
1,300.4
1,319.1
1,067.6
The separate Financial Statements of Vedanta Resources plc, registration number 4740415 were approved by the Board of Directors on
22 May 2018 and signed on its behalf by
Navin Agarwal
Executive Vice Chairman
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 248
Vedanta Resources plc | Annual Report FY2018
Company Statement of Changes in Equity
For the year ended 31 March 2018
(US$ million)
Equity shareholders’ funds at 1 April 2017
Profit for the year
Dividends paid (Note 14 of Group financial
statements)
Exercise of stock options (Note 32 of Group
financial statements)
Recognition of share-based payments
(Note 32 of Group financial statements)
Gift to Employees Benefit Trust****
Movement in fair value of financial asset investment
Share
capital*
30.1
–
Share
premium
201.5
–
Share-based
payment
reserve
Treasury
Shares**
Retained
earnings
Other
Reserves
Total
28.2
–
(490.6)
–
1,300.4
407.0
(2.0)
–
1,067.6
407.0
–
0.3
–
–
–
–
–
–
–
–
–
– (165.4)***
–
–
–
–
27.0
–
(2.4)
–
–
–
–
–
(0.1)
(165.4)
0.3
12.1
(2.4)
(0.1)
Equity shareholders’ funds as at 31 March 2018
30.4
201.5
(490.6)
1,566.6
(2.1)
1,319.1
(US$ million)
Share capital*
Share
premium
Share-based
payment
reserve
Convertible
bond reserve
Treasury
Shares**
Retained
earnings
Other
Reserves
Total
Equity shareholders’ funds at
1 April 2016
Profit for the year
Dividends paid (Note 14 of Group
financial statements)
Exercise of stock options (Note 32 of
Group financial statements)
Recognition of share-based payments
(Note 32 of Group financial statements)
Gift to Employees Benefit Trust****
Convertible bond transfer
(Note 28 of Group financial statements)
Movement in fair value of financial
asset investment
Equity shareholders’ funds as at
31 March 2017
30.1
–
–
0.0
–
–
–
–
201.5
–
–
–
–
–
–
–
29.9
–
–
(15.1)
13.4
–
–
–
30.1
201.5
28.2
10.8
–
(490.6)
–
724.6
690.2
(2.2)
–
504.1
690.2
– (138.4)***
15.1
–
(1.9)
10.8
–
–
–
–
–
–
–
–
–
–
(138.4)
0.0
13.4
(1.9)
–
0.2
–
0.2
(490.6)
1,300.4
(2.0)
1,067.6
(27.0)
12.1
–
–
13.3
–
–
–
–
(10.8)
–
–
For details, refer Note 35 of Group financial statements.
*
** At 31 March 2018, the total number of treasury shares held by the Company was 22,502,483 (31 March 2017: 22,502,483).
*** Total dividends of US$165.4 million (2017:US$138.4) million includes dividend of US$1.0 million (US$0.9 million) paid to a separate investment trust which is
consolidated in the Group’s financial statements with that element of dividends paid by the Company being eliminated (Refer to Note 14 of Group financial
statements).
**** Gift to Employees Benefit Trust relates to net purchase of treasury shares under the employee Deferred Share Bonus Plan (Refer to Note 32 of Group financial
statements).
Vedanta Resources plc | Annual Report FY2018
249
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
1. Company accounting policies
Basis of Accounting
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 ‘Application of Financial Reporting
Requirements’ (FRS 100) issued by the Financial Reporting Council and in accordance with 101 Reduced Disclosure Framework (FRS 101).
Accordingly, these financial statements have been prepared on a going concern basis and in accordance with the provisions of the UK
Companies Act 2006 and applicable UK accounting standards.
These financial statements have been prepared under the historical cost convention.
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$407.0 million (2017: Profit US$690.2 million)
These financial statements are presented in US dollars being the functional currency of the Company.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• The requirements of paragraph 38, 134 and 136 of IAS 1 ‘Presentation of Financial Statements’
• The requirements of IAS 7 ‘Statement of Cash Flows’;
• The requirements of IFRS 7 ‘Financial Instruments : Disclosures’;
• The requirements of Paragraph 17 of IAS 24 ‘Related party disclosures’;
• The requirements of IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more
members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member;
• The requirements of Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ in relation to
standards not yet effective.
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 of cash at bank, short-term bank deposits and cash in hand.
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.
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 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 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/creditors
until repaid.
The resultant increase in equity is recorded in share-based payment reserve.
In case of cash-settled transactions, a liability is recognised for the fair value of cash-settled transactions. The fair value is measured
initially and at each reporting date up to and including the settlement date, with changes in fair value recognised in employee benefits
expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is
determined with the assistance of an external valuer.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 250
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
1. Company accounting policies continued
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.
Convertible Bonds
The Convertible bond issued by VRJL and VRJL-II 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.
Financial instruments
The Company has elected to take the exemption provided in paragraph 8 of FRS 101 in respect of these parent Company financial
statements. Full disclosures are provided in Note 29 to the financial statements of the Group for the year ended 31 March 2018.
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.
Cash flow statement
The Company financial statements are prepared under FRS 101, which does not require application of IAS 7. Accordingly, the Company
does not present the individual company cash flow statement.
Financial guarantees
Guarantees issued by the Company on behalf of subsidiaries are designated as ‘Insurance Contracts’. Accordingly, these are shown as
contingent liabilities. (Note 10)
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.
2. Company tangible fixed assets
(US$ million)
Cost
At 1 April 2016
Additions
At 31 March 2017
Additions
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the period
At 31 March 2017
Charge for the period
At 31 March 2018
Net book value
At 1 April 2016
At 31 March 2017
At 31 March 2018
3. Investments in subsidiaries
(US$ million)
Cost
At 1 April 2016
At 1 April 2017
At 31 March 2018
Vedanta Resources plc | Annual Report FY2018
251
2.3
0.0
2.3
0.1
2.4
2.1
0.1
2.2
0.1
2.3
0.2
0.1
0.1
1,226.3
1,226.3
1,226.3
At 31 March 2018, the Company held 157,538,524 shares in Vedanta Resources Holdings Limited (‘VRHL’) (March 2017: 157,538,524
shares), being 100% of VRHL’s issued equity share capital. The Company also held one deferred share in VRHL (March 2017: one). At
31 March 2018, the Company held two shares in Vedanta Finance Jersey Limited (‘VFJL’) (March 2017: two), two shares in Vedanta
Resources Jersey Limited (‘VRJL’) (March 2017: two), two shares in Vedanta Resources Jersey II Limited (‘VRJL-II’) (March 2017: two),
two shares in Vedanta Jersey Investment Limited (‘VJIL’) (March 2017: two), being 100% of its issued equity share capital.
VRHL is an intermediary holding company incorporated in the United Kingdom (Note 44 of the financial statements of the Group) 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.
4. Investment in preference shares of subsidiaries
(US$ million)
Fair value
At 1 April 2017
Additions
Redemption
At 31 March 2018
At 1 April 2016
Additions
Redemption
At 31 March 2017
4.7
–
(4.7)
–
4.7
–
–
4.7
As at 31 March 2018, the Company held nil preference shares in Vedanta Resources Jersey Limited (VRJL) (31 March 2017: 47 preference
shares). During the year, all the preference shares have been redeemed by VRJL.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 252
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
5. Financial asset investment
(US$ million)
Fair value
At 1 April 2017
Fair value movement
At 31 March 2018
At 1 April 2016
Fair value movement
At 31 March 2017
0.3
(0.1)
0.2
0.1
0.2
0.3
The investment relates to an equity investment in the shares of Victoria Gold Corporation. At 31 March 2018, the investment in Victoria
Gold Corporation was revalued and loss of US$0.1 million (2017: gain of US$0.2 million) was recognised in equity.
6. Company debtors
(US$ million)
Amounts due from subsidiary undertakings
Prepayments and accrued income
Other taxes
Total
Debtors due within one year
Debtors due after one year
Total
As at
31 March 2018
As at
31 March 2017
4,771.0
0.9
0.1
4,509.4
0.5
0.3
4,772.0
4,510.2
2,207.0
2,565.0
2,151.4
2,358.8
4,772.0
4,510.2
Amounts due from subsidiary undertakings
At 31 March 2018, the Company had loans due from VRHL of US$2,110.4 million (2017: US$1,790.3 million) which represented the funds
being loaned for funding the subsidiaries. Out of the total loan, US$1,423.4 million bears interest 6.82%, US$500.0 million at 5.8%,
US$140.0 million at US$LIBOR plus 385 basis points and US$47.0 million at 9.7%.
At 31 March 2018, the Company had loans of US$2,270.3 million (2017: US$1,757.1 million) due from Vedanta Resources Jersey II Limited
(VRJL-II). Out of the total loan, US$522.9 million bears interest at 6.82%, US$1,200.0 million at 6.50%, US$121.4 million at LIBOR plus 300
basis points, US$60.0 million at 6.5%, US$121.0 million at 6.75% and US$245.0 million at 6 months US$LIBOR plus 430 basis points.
At 31 March 2018, the Company had loans of US$83.9 million (2017: US$125.0 million) due from Vedanta Resources Jersey Limited (VRJL)
bearing interest at 6.75%.
The Company was owed US$298.5 million (2017: US$344.9 million) of accrued interest from VRHL and VRJL-II and VRJL.
As at 31 March 2018, the Company had dividend receivable from VRHL of US$ NIL million (2017: US$475.0 million).
In addition to the loans, the Company was also owed US$7.9 million (2017: US$17.0 million) of other receivables from Group companies.
7. Company current asset investments
(US$ million)
Bank term deposits
Total
8. Company creditors: amounts falling due within one year
(US$ million)
Accruals
Loan from subsidiary (Note 9)
Term loans
Bonds:
6% bonds due in January 2019
Total
As at
31 March 2018
As at
31 March 2017
8.9
8.9
14.6
14.6
As at
31 March 2018
As at
31 March 2017
(77.1)
–
–
(88.4)
(176.5)
(173.8)
(252.0)
–
(329.1)
(438.7)
Vedanta Resources plc | Annual Report FY2018
253
8. Company creditors: amounts falling due within one year continued
As at 31 March 2017 loans from subsidiaries included a loan of US$176.5 million due to Vedanta Finance UK Limited. During the year, its
maturity has been extended to January 2021 and the rate of interest has been amended to US$LIBOR plus 410 basis points. Accordingly,
the loan has been reclassified to creditors falling due after one year.
In April 2013, the Company entered into a Standby Letter of Credit agreement arranged by Axis Bank for an amount of US$150.0 million at a
commission of 1% per annum payable quarterly. This facility was funded by the Bank of India to the extent of US$148.5 million with interest
rate at three months US$LIBOR plus 290 basis points. The facility was payable in two equal annual instalments starting April 2017. During the
year, the total amount outstanding under this facility of US$148.5 million was repaid out of which US$74.2 million was shown under creditors
falling due within one year and US$74.3 million was shown under creditors falling due after one year respectively in the previous year.
In December 2013, the Company entered into a facility agreement with the Bank of India for borrowing up to US$100 million at an interest
rate of US$LIBOR plus 357 basis points repayable to the extent of 50% in October 2017 and balance in January 2018. During the year, the
Company repaid the total amount outstanding under this facility.
9. Company creditors: amounts falling due after one year
(US$ million)
Loan from subsidiary (Note 8)
Term loans
Bonds:
6.125% bonds due August 2024
9.50% bonds due July 2018*
8.25% bonds due June 2021*
6.375% bonds due July 2022
7.125% bonds due May 2023
6% bonds due January 2019*
Less: current maturities (Note 8)
6% bonds due January 2019
Total
* Prepaid fully/partially during the current year.
As at
31 March 2018
As at
31 March 2017
(176.5)
(1,087.7)
–
(716.8)
(991.7)
–
(667.4)
(993.2)
(497.1)
(252.0)
–
(378.8)
(895.1)
(991.5)
(496.5)
(772.1)
252.0
–
(4,413.6)
(4,250.8)
Term loans are made up of the following loans that the Company has entered into:
• In March 2015, the Company entered into a facility agreement with State Bank of India for borrowing up to US$350.0 million.
US$100.0 million is repayable in March 2020 and bears interest at a rate of US$LIBOR plus 370 basis points. US$250.0 million bears
interest at a rate of US$LIBOR plus 403 basis points repayable in two instalments being US$100.0 million due in June 2021 and
US$150.0 million in June 2022. As at 31 March 2018, the outstanding amount under this facility is US$350.0 million.
• In January 2016, the Company entered into a facility agreement with State Bank of India for borrowing up to US$300.0 million.
US$120.0 million is repayable in February 2022 and bears interest at a rate of US$LIBOR plus 450 basis points. US$180.0 million is
repayable in February 2023 and bears interest at a rate of US$LIBOR plus 453 basis points. As at 31 March 2018, the outstanding
amount under this facility is US$300.0 million.
• During the current year, the Company entered into a facility agreement with Syndicate Bank for borrowing up to US$100.0 million and
bears interest at a rate of 3 months US$LIBOR plus 325 basis points. US$1.0 million is repayable in November 2021 and US$99.0
repayable in November 2022. As at 31 March 2018, the outstanding amount under this facility is US$100.0 million.
• During the current year, the Company entered into facility agreements with Yes Bank in different tranches for borrowings up to
US$150.0 million and bears interest at a rate of 3 months US$LIBOR plus 299 basis points. US$15.0 million is repayable in July 2020,
US$20.0 million is repayable in January 2021, US$25.0 million is repayable in July 2021, US$40.0 million is repayable in January 2022
and US$50.0 million is repayable in July 2022. As at 31 March 2018, the outstanding amount under this facility is US$150.0 million.
• During the current year, the Company entered into facility agreements with State Bank of India in different tranches for borrowings up
to US$200.0 million and bears interest at a rate of US$LIBOR plus 339 basis points. The loan is repayable in January 2025. As at
31 March 2018, the outstanding amount under this facility is US$200.0 million.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 254
Vedanta Resources plc | Annual Report FY2018
Notes to the Financial Statements continued
As at and for the year ended 31 March 2018
10. Company contingent liabilities
The Company has given a corporate guarantee to Konkola Copper Mines for an amount of US$689.1 million (2017: US$709.0 million).
The Company has guaranteed US$170.0 million (out of which, US$34.0 million has been repaid during the year) (2017: US$170.0 million)
for a loan facility entered by Valliant Jersey Limited with ICICI bank and US$180.0 million for loan facility entered by Vedanta Finance
Jersey Limited (VFJL) with ICICI bank which has been fully repaid during the year (2017: US$120.6 million).
The Company has guaranteed US$500.0 million for a syndicated facility agreement entered by its subsidiary, Welter Trading Limited with
Standard Chartered Bank as facility agent. The loan has been fully repaid during the year (2017: US$500.0 million).
The Company has guaranteed US$500.0 million for loan facility entered by Monte Cello NV with ICICI bank. The loan has been fully
repaid during the year (2017: US$500.0 million).
The Company has guaranteed US$100.0 million for revolving credit facility entered by Twin Star Holdings Limited with First Abu Dhabi
Bank PJSC as facility agent. (2017: US$80.0 million).
The Company has guaranteed US$500.0 million for a syndicated facility entered by Twin Star Holdings Limited with Axis Bank as lead
arranger and facility agent. During the year, US$100.0 million was repaid under this facility. (2017: US$500 million).
The Company has guaranteed US$1,200.0 million for a syndicated facility entered by Twin Star Mauritius Holdings Limited with Standard
Chartered Bank as facility agent. During the previous years US$600.0 million has been repaid and during the year the balance US$600.0
million has been repaid. Hence, the guarantee stands withdrawn. (2017: US$600.0 million).
The Company has guaranteed US$500.0 million for a loan facility entered by Twin Star Mauritius Holdings Limited with Standard
Chartered Bank and First Gulf Bank PJSC of which $250.0 million is under a commodity murabaha structure (Islamic financing) and
balance $250.0 million is under a conventional loan structure. During the previous years, US$50.0 million has been repaid and during the
year the balance US$450 million has been repaid (2017: US$450.0 million).
The Company has guaranteed US$1,250.0 million for a loan facility entered by its subsidiaries THL Zinc Limited with Cairn India Holdings
Limited (Intercompany loan). During the year, the guarantee has been withdrawn. (2017: US$1,250.0 million).
The Company has guaranteed US$900.0 million for a loan facility entered by its subsidiaries Twin Star Mauritius Holdings Limited with
Fujairah Gold FZC (Intercompany loan). During the year, the guarantee has been withdrawn. (2017: US$900.0 million).
The Company has provided a guarantee for the Cairn India Group’s (now merged with Vedanta Limited) obligation under the Production
Sharing Contract (‘PSC’).
The Company has provided guarantee for the redeemable preference shares issued by its subsidiary Twin Star Mauritius Holdings Limited
to its intermediate parent Bloom Fountain Limited amounting to US$2,200.0 million. During the year, the guarantee has been withdrawn.
(2017: US$2,200.0 million).
During the year, the Company has guaranteed US$180.0 million for a facility agreement entered by Vedanta Resources Jersey II Limited
with Yes Bank as facility agent. (2017: Nil).
During the year, the Company has guaranteed US$100.0 million for a facility agreement entered by Welter Trading Limited with Axis Bank
as facility agent. (2017: Nil).
During the year, the Company has guaranteed US$575.0 million for a facility agreement entered by Twin Star Holdings Limited with
Citicorp International Limited as facility agent. (2017: Nil).
During the year, the Company has guaranteed US$100.0 million for a facility agreement entered by Twin Star Holdings Limited with
First Abu Dhabi Bank PJSC as facility agent. US$80.0 million was drawn under this facility and US$8.0 million was repaid during the year.
(2017: Nil).
Vedanta Resources plc | Annual Report FY2018
255
11. Related party transactions
During the year the Company entered into transactions, in the ordinary course of business, with other related parties. The Company has
taken advantage of the exemption under paragraph 8(k) of FRS 101 not to disclose transactions with wholly owned subsidiaries.
Transactions entered into and trading balances outstanding at 31 March with other related parties, are as follows:
(US$ millions)
Name of Company
Vedanta Limited
Konkola Copper Mines Plc
Sterlite Technologies Limited
Volcan Investments Limited
Vedanta Limited
Vedanta Limited
Vedanta Limited
Konkola Copper Mines Plc
Copper Mines of Tasmania Pty Limited
Fujariah Gold FZC
Vedanta Lisheen Holdings Limited
Namzinc Pty Limited
Black Mountain Mining (Pty) Limited
Western Cluster Limited
Twin Star Mauritius Holdings Limited*
Twin Star Energy Holdings Limited*
THL Zinc Limited
THL Zinc Ventures Limited
Konkola Copper Mines Plc
Cairn India Holdings Limited
Sesa Sterlite Mauritius Holdings Limited*
Outstanding balances
(US$ millions)
Name of Company
Vedanta Limited
Konkola Copper Mines Plc
Sterlite Technologies Limited
Copper Mines of Tasmania Pty Limited
Fujariah Gold FZC
Vedanta Lisheen Holdings Limited
Namzinc Pty Limited
Black Mountain Mining (Pty) Limited
Western Cluster Limited
Twin Star Mauritius Holdings Limited*
Twin Star Energy Holdings Limited*
THL Zinc Limited
THL Zinc Ventures Limited
Monte Cello BV
Cairn India Holdings Limited
Sesa Sterlite Mauritius Holdings Limited*
Bloom Fountain Limited*
Relationship
Nature of transaction
Management and Brand Fees charged
Management and Guarantee Fees charged
Management Fees charged
Subsidiary
Subsidiary
Related Party
Holding Company Dividend paid
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Receipt of Service
(Reimbursement)/Payment of expenses
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Recovery against share option expense
Reimbursement of Expenses
Reimbursement of Expenses
Reimbursement of Expenses
Reimbursement of Expenses
Reimbursement of Expenses
Reimbursement of Expenses
Reimbursement of Expenses
Relationship
Nature of transaction
Subsidiary
Subsidiary
Related Party
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
(Payable)/Receivable
Receivable
Receivable
Receivable
(Payable)/Receivable
(Payable)
(Payable)
Receivable/(Payable)
Receivable
Receivable
Receivable
Receivable
Receivable
(Payable)
Receivable
Receivable
Receivable
2018
53.1
2.7
0.0
110.6
(0.5)
(1.7)
7.6
1.3
0.0
0.1
0.0
0.0
0.3
0.0
0.0
0.1
0.0
0.0
0.3
0.8
0.0
2018
(7.6)
12.0
0.1
0.0
0.0
(0.0)
(0.1)
0.3
0.1
–
–
–
0.0
(1.0)
0.8
0.0
0.1
2017
8.8
2.9
0.0
93.7
(0.5)
0.1
9.4
1.7
0.0
0.1
(0.0)
(0.2)
0.1
0.0
0.1
0.0
0.0
0.0
0.7
0.0
–
2017
3.2
7.7
0.1
0.0
0.1
(0.0)
(0.1)
(0.0)
0.1
0.1
0.1
0.0
0.0
(1.0)
–
–
–
* During the year, Twin Star Mauritius Holdings Limited, Twin Star Energy Holdings Limited and Sesa Sterlite Mauritius Holdings Limited have filed for liquidation and
have assigned their payables to the Company to their parent company, Bloom Fountain Limited.
Directors’ ReportAdditional InformationFinancial StatementsStrategic Report 256
Vedanta Resources plc | Annual Report FY2018
Five Year Summary
Summary Consolidated Income Statement
(US$ million except as stated)
Revenue
EBITDA
Depreciation and amortisation
Special items
Operating profit
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)
1 Restated
Summary Consolidated Statement of Financial Position
(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
Year ended
31 March 18
Year ended
31 March 17
Year ended
31 March 16
Year ended
31 March 15
Year ended
31 March 14(1)
15,358.7
11,520.1
10,737.9
12,878.7
12,945.0
4,051.2
(1,270.7)
683.0
3,191.1
(1,030.5)
(17.3)
2,336.4
(1,455.2)
(5,210.1)
3,741.2
(2,005.7)
(6,744.2)
3,463.5
(981.4)
2,143.3
(763.4)
(4,328.9)
(655.1)
(5,008.7)
(631.5)
4,491.2
(2,203.1)
(138.0)
2,150.1
(1,032.0)
2,482.1
(1,013.2)
1,468.9
1,233.3
235.6
(182.1)
53.5
84.8
58.3
65.0
1,379.9
(500.3)
(4,984.0)
1,481.9
(5,640.2)
1,852.5
1,118.1
(128.7)
879.6
(902.3)
(3,502.1)
1,664.7
(3,787.7)
1,989.1
989.4
(1,185.4)
(22.7)
(137.5)
(1,837.4)
(110.6)
(1,798.6)
(171.3)
(196.0)
(162.5)
(160.2)
(1,948.0)
(1,969.9)
(358.5)
(8.2)
16.1
55.0
(665.8)
(131.9)
30.0
(654.5)
(14.2)
63.0
(71.7)
14.7
61.0
31 March
2018
31 March
2017
31 March
2016
31 March
2015
31 March
2014
12.2
123.1
17,727.3
24.5
16.6
95.6
16,750.8
10.7
16.6
92.2
16,647.8
6.5
16.6
101.9
23,352.0
4.2
16.6
108.6
31,043.5
1.7
17,887.1
16,873.7
16,763.1
23,474.7
31,170.4
2,037.7
1,526.9
5,606.5
1,670.1
1,084.8
9,725.2
1,365.8
1,344.3
8,936.5
1,605.7
1,839.2
8,209.8
1,742.5
1,739.9
8,937.9
9,171.1
12,480.1
11,646.6
11,654.7
12,420.3
(5,460.3)
(6,193.6)
(7,658.5)
(6,413.1)
(4,313.8)
(6,097.8)
(3,179.2)
(5,003.4)
(4,358.5)
(4,931.5)
(11,653.9)
(14,071.6)
(10,411.6)
(8,182.6)
(9,290.0)
(2,456.4)
(1,587.8)
1,288.8
3,528.8
3,541.9
Total assets less current liabilities
17,584.7
17,431.8
19,907.7
28,806.3
36,084.3
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
(9,733.5)
(160.9)
(1,157.2)
(10,570.2)
(77.1)
(758.0)
(11,949.5)
(224.7)
(869.2)
(13,488.6)
(194.4)
(2,854.0)
(12,512.7)
(230.7)
(5,354.2)
(11,051.6)
(6,859.4)
(11.9)
(11,405.3)
(6,423.1)
(11.9)
(13,043.4)
(7,565.2)
(11.9)
(16,537.0)
(10,654.3)
(11.9)
(18,097.6)
(13,964.4)
(11.9)
Net assets attributable to the equity holders of the parent
(338.2)
(408.5)
(712.8)
1,603.1
4,010.4
Vedanta Resources plc | Annual Report FY2018
257
2018
2017
2016
2015
2014
3,903.4
2,857.4
2,502.5
2,943.9
2,856.8
3,368.7
534.7
1,479.6
487.5
5,115.7
3,832.7
1,283.0
3,587.6
877.0
(92.1)
2,525.0
332.4
1,222.7
615.4
4,008.0
3,133.7
874.3
2,040.0
835.9
(59.3)
2,111.0
391.5
1,322.3
350.0
4,169.7
3,197.2
972.5
1,694.3
707.5
(8.4)
2,357.0
586.9
2,397.5
326.5
4,777.8
3,700.7
1,077.1
2,081.9
588.1
(237.0)
2,195.4
661.4
3,092.8
267.1
4,676.2
3,404.8
1,271.4
1,785.4
622.7
(355.0)
15,358.7
11,520.1
10,737.9
12,878.7
12,945.0
2018
2017
2016
2015
2014
2,122.3
1,561.5
1,063.1
1,373.3
1,358.4
1,902.8
219.5
1,423.2
138.3
849.1
57.3
273.8
200.6
73.2
452.4
258.9
37.4
597.2
194.2
258.1
252.2
5.9
344.2
244.8
(8.9)
995.0
68.1
570.4
73.4
318.7
336.6
(17.9)
106.7
196.3
7.8
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
4,051.2
3,191.1
2,336.4
3,741.2
4,491.2
2018
2017
2016
2015
2014
54
56
41
57
12
5
5
6
13
251
26
55
56
42
49
32
6
8
1
17
29
28
42
47
17
43
21
8
11
(2)
6
28
22
47
51
31
62
10
6
8
(0)
20
26
29
48
52
32
76
(9)
8
6
12
16
27
35
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
1 Excluding one-offs.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 258
Vedanta Resources plc | Annual Report FY2018
Five Year Summary continued
Production
(000’s MT)
Aluminium
BALCO1
Jharsuguda Aluminium2
Copper
Copper India
KCM
Iron Ore (WMT)
Zinc total
HZL
Skorpion
Zinc and Lead MIC
BMM
Lisheen
2018
2017
1,675
1,213
569
1,106
599
403
195
427
786
582
402
180
2016
923
332
592
566
384
182
7,903
12,300
5,630
876
791
84
72
72
–
757
672
85
70
70
–
841
759
82
144
63
81
2015
877
324
553
531
362
169
667
836
734
102
209
59
150
2014
794
252
542
471
294
177
1,577
874
749
125
239
67
172
Oil & Gas – gross production (mmboe)
Oil & Gas – working interest (mmboe)
67.7
43.3
69.3
44.2
74.6
46.9
77.3
48.4
79.8
50.1
1 BALCO – including trial run production of 16 KT in 2018 and 47 in 2017.
2 Jharsuguda – including trial run production of 62 KT in 2018 and 95 in 2017.
Cash costs of production in US cents
(US cents/lb)
Aluminium – BALCO
Aluminium – Jharsuguda
Copper India
Copper – KCM
Zinc including royalty – HZL
Zinc without royalty – HZL
Zinc COP – Skorpion
Zinc COP – BMM
Zinc COP – Lisheen
Oil & Gas (Opex) (US$/boe)
Cash costs of production in INR
(INR/mt)
Aluminium – BALCO
Aluminium – Jharsuguda
Copper India
Zinc including royalty
Zinc without royalty
Capital expenditure
(US$ million)
Sustaining
Expansion
Total capital expenditure
2018
87.2
84.7
5.7
239.1
61.9
44.3
84.7
58.8
0.0
6.6
2017
68.3
65.3
5.0
208.6
52.4
37.6
75.1
51.1
0.0
6.2
2016
75.3
68.9
5.7
197.9
47.4
36.5
73.8
62.7
56.7
6.5
2015
89.0
73.9
6.4
257.7
49.6
39.4
70.1
74.3
52.8
6.2
2014
80.8
72.6
9.7
238.4
44.7
37.4
56.7
52.2
50.1
4.1
2018
2017
2016
2015
2014
123,947
120,349
8,112
87,971
62,882
101,051
96,622
9,047
77,454
55,679
108,629
99,408
8,203
68,408
52,629
119,922
99,676
8,639
66,805
53,071
107,728
96,893
12,994
59,561
49,834
2018
385.0
819.8
1,204.8
2017
145.4
668.2
813.6
2016
184.9
565.8
2015
2014
221.4
1,530.8
321.6
1,424.7
750.7
1,752.2
1,746.3
Vedanta Resources plc | Annual Report FY2018
259
2018
3,507
3,411
96
754
(176)
(382)
(7)
(375)
(4,400)
(1,693)
(7,197)
(9,587)
2017
3,881
3,741
140
4,185
(404)
(496)
57
(553)
(5,098)
(1,574)
(8,997)
(8,503)
2016
5,415
5,318
97
3,240
(459)
(494)
132
(627)
(4,131)
(1,802)
(9,096)
(7,329)
2015
5,073
4,937
137
2,857
(634)
(705)
33
(738)
(4,068)
(1,577)
(9,406)
(8,460)
2014
4,514
4,345
169
3,912
(512)
(882)
(159)
(723)
(3,204)
(737)
(11,010)
(7,920)
2018
60%
2017
59%
2016
52%
2015
41%
2014
31%
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)
2018
2017
2016
2015
2014
Group Free Cash Flow after Capital Creditors
1,745.0
2,211.8
2,338.7
2,578.0
2,695.0
Group Free Cash Flow after Project Capex
925.2
1,543.6
1,772.9
1,047.3
1,269.9
Capital employed
(US$ million)
Average capital employed
ROCE
(%)
ROCE
2018
15,313
2017
14,350
2016
17,448
2015
23,312
2014
26,694
2018
2017
14.9%
12.8%
2016
3.4%
2015
5.2%
2014
5.6%
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 260
Vedanta Resources plc | Annual Report FY2018
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
Finished Copper
Copper Mining Summary
Year ended
31 March 2018
mt
Year ended
31 March 2017
mt
328,076
1,033,250
191,746
216,749
67,207
186,418
135,332
195,337
400,620
1,043,748
200,119
216,119
71,178
186,611
136,352
179,837
Mine
Type of mine
Ore mined
Copper concentrate
Copper in concentrate
31 March 2018
mt
31 March 2017
mt
31 March 2018
mt
31 March 2017
mt
31 March 2018
mt
31 March 2017
mt
Mt Lyell (CMT)
Underground
Konkola & NUG (KCM) Underground
–
4,726,590
–
3,182,001
–
218,085
–
173,794
–
49,780
–
47,854
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
BALCO
Jharsuguda Aluminium
Alumina Production Summary
Company
Jharsuguda Aluminium
Bauxite Production Summary
Company
BALCO – Mainpat
BALCO – Bodai Daldali
Measured
and indicated
million mt
29.6
147.8
Resources
Reserves
Copper
grade
%
1.09
1.86
Inferred
million mt
30
319.8
Copper
grade
%
Proved and
probable reserves
million mt
1.06
3.07
–
223.6
Copper
grade
%
–
1.18
Year ended
31 March 2018
mt
569,050
1,106,041
Year ended
31 March 2017
mt
427,079
786,323
Year ended
31 March 2018
mt
Year ended
31 March 2017
mt
1,209,314
1,207,957
Year ended
31 March 2018
mt
589,320
581,920
Year ended
31 March 2017
mt
73,170
1,065,300
Vedanta Resources plc | Annual Report FY2018
261
Bauxite Mine Resource and Reserve Summary
Mine
BALCO
Mainpat
Bodai-Daldali
Total BALCO
MALCO
Kolli Hills and Yercaud
Resources are additional to Reserves.
Hindustan Zinc
Zinc and Lead Production Summary:
Company
HZL
Zinc
Lead
Zinc and Lead Mining Summary:
a) Metal mined and metal concentrate
Measured and
indicated
million mt
Resources
Aluminium
grade
%
Inferred
million mt
Aluminium
grade
%
Proved and
probable reserves
million mt
Aluminium
grade
%
Reserves
9.1
5.3
14.4
0.8
44.7
44.5
44.6
44.0
1.0
0.9
1.9
45.5
46.2
45.8
5.2
2.8
8.1
0.2
43.2
42.8
43.1
43.0
Year ended
31 March 2018
mt
Year ended
31 March 2017
mt
791,461
168,247
671,988
139,009
Ore mined
Zinc concentrate
Lead concentrate
Bulk concentrate
Mine
Type of mine
Rampura Agucha1 Open cut
Rampura Agucha Underground
Underground
Rajpura Dariba
Underground
Sindesar Khurd
Underground
Zawar
31 March
2018
mt
29,63,564
20,78,623
895,568
45,00,000
21,76,111
31 March
2017
mt
4,321,192
13,79,746
745,534
3,664,768
1,770,000
31 March
2018
mt
606,700
456,938
76,495
326,890
51,288
31 March
2017
mt
31 March
2018
mt
31 March
2017
mt
31 March
2018
mt
31 March
2017
mt
1,121,463
–
65,012
92,228
57,198
–
33,997
14,851
18,394
230,677 146,148 109,007
3,088
32,849
3,441
–
–
–
–
–
–
–
–
41,697 113,015
Total
12,613,866
11,881,240
1,518,310
1,420,593 288,585 219,174
41,697 113,015
1
Includes development ore MT from Kayar.
b) Metal in Concentrate (MIC)
Mine
Type of mine
Rampura Agucha
Rajpura Dariba
Sindesar Khurd
Zawar
Total
Open cut & Underground
Underground
Underground
Underground
Zinc concentrate
Lead concentrate
31 March
2018
mt
532,998
37,237
162,709
40,071
31 March
2017
mt
568,724
31,799
116,944
38,497
31 March
2018
mt
52,355
7,100
84,070
30,842
31 March
2017
mt
54,705
6,082
60,203
30,029
773,015
755,964
174,368
151,019
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 262
Vedanta Resources plc | Annual Report FY2018
Production and Reserves Summary continued
Zinc and Lead Mine Resource and Reserve Summary
Zinc India
Zinc
grade
%
15.0
6.9
4.8
14.3
4.8
4.5
7.5
Zinc
grade
%
9.12
2.88
0.84
6.20
Mine
Rampura Agucha
Rajpura Dariba
Zawar
Kayad
Sindesar Khurd
Bamnia Kalan
Total
Measured and
indicated
million
mt
16.2
22.9
22.3
1.5
15.8
5.4
84.1
Resources are additional to Reserves.
Zinc International
Mine
Skorpion
BMM
– Deeps
– Swartberg
– Gamsberg
Measured and
indicated
million mt
2.92
10.60
35.68
97.91
Resources are additional to Reserves.
Zinc Production Summary:
Company
Skorpion
Zinc and Lead Mining Summary:
a) Metal mined and metal concentrate
Resources
Reserves
Lead
grade
%
Inferred
million
mt
1.9
2.1
1.8
2.0
3.0
1.6
2.1
34.3
27.8
67.8
1.3
75.6
14.7
221.5
Zinc
grade
%
10.0
6.4
4.6
4.6
3.6
3.7
5.3
Proved and
probable
reserves
million
mt
46.0
9.3
10.4
5.5
34.6
–
105.7
Lead
grade
%
2.6
1.8
2.6
1.9
1.8
1.8
2.2
Zinc
grade
%
13.8
4.9
3.0
5.6
4.0
–
8.3
Resources
Reserves
Lead
grade
%
–
2.97
3.70
0.54
Inferred
million mt
1.84
–
26.49
64.36
Zinc
grade
%
8.65
–
2.19
7.81
Lead
grade
%
–
–
3.04
0.52
Proved and
probable
reserves
million mt
2.74
5.59
2.33
53.18
Zinc
grade
%
9.88
2.98
0.62
6.63
Lead
grade
%
1.9
1.7
2.1
0.8
3.0
–
2.2
Lead
grade
%
–
2.24
3.26
0.51
Year ended
31 March 2018
mt
Year ended
31 March 2017
mt
84,215
85,427
Ore mined
Zinc concentrate
Lead concentrate
31 March 2018
mt
31 March 2017
mt
31 March 2018
mt
31 March 2017
mt
31 March 2018
mt
31 March 2017
mt
Mine
Skorpion
BMM
Total
Type of mine
Open Cast
Underground
537,066
1,605,892
1,206,176
1,590,600
Underground
2,142,958
2,796,776
–
55,501
55,501
–
58,005
58,005
–
65,381
65,381
–
59,518
59,518
Zinc in concentrate
Lead in concentrate
31 March 2018
mt
31 March 2017
mt
31 March 2018
mt
31 March 2017
mt
27,175
28,708
45,113
41,770
b) Metal in Concentrate (MIC)
Mine
BMM
Type of mine
Underground
Vedanta Resources plc | Annual Report FY2018
263
Iron Ore
Iron Ore Production Summary
Company
Vedanta Limited
Saleable Iron Ore
Goa
Karnataka
Dempo
Iron Ore Resource and Reserve Summary
Mine
Iron ore Karnataka
Year ended
31 March 2018
million wmt
Year ended
31 March 2017
million wmt
7.9
4.3
2.3
1.3
12.3
8.8
2.3
1.2
Resources
Reserves
Measured
and indicated
million mt
43.8
Iron ore
grade
%
43.6
Inferred
million mt
10.5
Iron ore
grade
%
42.9
Proved and
probable
reserves
million mt
45.9
Iron ore
grade
%
54.1
During the year ended 31 March 2018, The Honourable Supreme Court of India issued a judgment directing that all mining operations in
the state of Goa were to cease with effect from 16 March 2018. Pursuant to this order, we halted our mining activities. The Company has
taken an impairment (non-cash item) of US$534 million net of taxes (US$758 million gross of taxes) pursuant to this order. This is mainly
related to mining reserves. Therefore, the Company has not shown any Reserves and Resources related to Iron Ore Goa.
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
The Company’s gross reserve estimates are updated at least annually based on the forecast of production profiles, determined on an
asset-by-asset basis, using appropriate petroleum engineering techniques. The estimates of reserves and resources have been derived in
accordance with the Society for ‘Petroleum Engineers Petroleum Resources Management System (2007)’. The changes to the reserves
are generally on account of future development projects, application of technologies such as enhanced oil recovery techniques and true
up of the estimates. The management’s internal estimates of hydrocarbon reserves and resources at the period end, based on the current
terms of the PSCs, are as follows:
Particulars
Rajasthan MBA Fields
Rajasthan MBA EOR
Rajasthan Block Other Fields
Ravva Fields
CBOS/2 Fields
Other fields
Total
Gross proved and probable
hydrocarbons initially in place
(mmboe)
Gross proved and probable
reserves and resources
(mmboe)
Net working interest proved and
probable reserves and resources
(mmboe)
31 March
2018
2,288
–
3,460
733
251
335
7,066
31 March
2017
2,197
–
4,034
696
225
335
7,486
31 March
2018
31 March
2017
31 March
2018
31 March
2017
371
335
430
45
34
48
410
272
478
41
23
48
1,263
1,273
260
235
301
10
13
24
842
287
191
334
9
9
24
854
The Company’s net working interest proved and probable reserves is as follows:
Particulars
Reserves as of 1 April 2016*
Additions/revision during the year
Production during the year
Reserves as of 31 March 2017**
Additions/revision during the year
Production during the year
Reserves as of 31 March 2018***
Proved and Probable reserves
Proved and Probable reserves
Oil
(mmstb)
160.20
(4.81)
(43.43)
111.96
27.68
(41.86)
97.78
Gas
(bscf)
55.05
(2.48)
(4.84)
47.73
12.01
(8.42)
51.32
Oil
(mmstb)
144.73
(1.60)
(43.43)
99.70
13.44
(41.86)
71.27
Gas
(bscf)
28.47
(8.83)
(4.84)
14.80
20.95
(8.42)
27.32
*
Includes probable oil reserves of 40.05 mmstb (of which 27.31 mmstb is developed) and probable gas reserves of 29.80 bscf (of which 5.81 bscf is developed).
** Includes probable oil reserves of 32.37 mmstb (of which 20.62 mmstb is developed) and probable gas reserves of 37.84 bscf (of which 4.92 bscf is developed).
*** Includes probable oil reserves of 26.77 mmstb (of which 5.00 mmstb is developed) and probable gas reserves of 25.12 bscf (of which 4.17 bscf is developed).
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 264
Vedanta Resources plc | Annual Report FY2018
Production and Reserves Summary continued
Source of information:
In respect of all businesses, the information has been certified by geologist on behalf of Group management.
Basis of Preparation
Ore reserves and mineral resources reported herein comply with the ‘The Australasian Code for Reporting of Exploration Results, 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 and 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 Geologist, 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.
Other Information
Vedanta Resources plc | Annual Report FY2018
265
Alternative performance measures
Introduction
Vedanta Group is committed to providing timely and clear information on financial and operational performance to investors, lenders and
other external parties, in the form of Annual Reports, disclosures, RNS feeds and other communications. We regard high standards of
disclosure as critical to business success.
Alternative Performance Measure (APM) is an evaluation metric of financial performance, financial position or cash flows that is not
defined or specified under International Financial Reporting Standards (IFRS).
The APMs used by the group fall under two categories:
• Financial APMs: These financial metrics are usually derived from financial statements, prepared in accordance with IFRS. Certain
financials metrics cannot be directly derived from the financial statements as they contain additional information such as profit
estimates or projections, impact of macro-economic factors and changes in regulatory environment on financial performance.
• Non-Financial APMs: These metrics incorporate non-financial information that management believes is useful in assessing the
performance of the Group.
APMs are not uniformly defined by all the companies, including those in the Group’s industry. APM’s should be considered in addition to,
and not a substitute for or as superior to, measures of financial performance, financial position or cash flows reported in accordance
with IFRS.
Purpose
The Group uses APMs to improve comparability of information between reporting periods and business units, either by adjusting for
uncontrollable or one-off factors which impacts upon IFRS measures or, by aggregating measures, to aid the user of the Annual Report
in understanding the activity taking place across the Group’s portfolio.
APMs are used to provide valuable insight to analysts and investors along with Generally Accepted Accounting Practices (GAAP).
We believe these measures assist in providing a holistic view of the Company’s performance.
Alternative performance measures (APMs) are denoted by ◊ where applicable.
◊ APM terminology*
Closest equivalent IFRS measure
Adjustments to reconcile to primary statements
EBITDA
Operating profit/(loss) before special items
Operating Profit/(Loss) before special items Add:
Depreciation & Amortisation
EBITDA margin (%)
No direct equivalent
Not applicable
Adjusted revenue
Revenue
Adjusted EBITDA
Operating profit/(loss) before special items
Revenue
Less: revenue of custom smelting operations at our Copper &
Zinc business
EBITDA
Less:
EBITDA of custom smelting operations at our Copper & Zinc
business
Adjusted EBITDA margin No direct equivalent
Not applicable
Underlying profit/(loss)
Attributable profit/(loss) before special items
Underlying earnings
per share
Project Capex
Basic earnings per share before special items
Expenditure on Property, Plant and Equipment
(PPE)
Free cash flow
Net cash flow from operating activities
Attributable profit/(loss) before special items
Less: NCI share in other gains/(losses) (net of tax)
Underlying attributable profit/(loss) divided by weighted
average number of shares of the company in issue
Gross Addition to PPE
Less: Gross disposals to PPE
Add: Accumulated Depreciation on disposals
Less: Decommissioning liability
Less: Sustaining Capex
Net Cash flow from operating activities Less: purchases of
property, plant and equipment and intangibles less proceeds
on disposal of property, plant and equipment
Add: Dividend paid and dividend distribution tax paid
Add/less: Other non-cash adjustments
Net debt
Borrowings and debt related derivatives
Less: cash and cash equivalents and liquid
investment
No Adjustments
ROCE
No direct Equivalent
Not Applicable
* Glossary and definition section includes further description as relevant.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 266
Vedanta Resources plc | Annual Report FY2018
Other Information continued
ROCE for FY2018 is calculated based on the working summarised below. The same method is used to calculate the ROCE for all previous
years (stated at other places in the report).
Particulars
Operating profit before special items
Less: cash tax outflow
Operating profit after tax (a)
Opening capital employed (b)
Closing capital employed (c)
Average capital employed (d) = (a+b)/2
ROCE (a)/(d)
Year ended
31 March 2018
2,781
(498)
2,283
14,518
16,108
15,313
14.9%
Glossary and Definitions
Vedanta Resources plc | Annual Report FY2018
267
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)
Company financial statements
The audited financial statements for the Company for the year
ended 31 March 2018 as defined in the Independent Auditor’s
Report on the individual Company Financial Statements to the
members of Vedanta Resources plc
AGM or Annual General Meeting
The annual general meeting of the Company
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
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.
Copper India
Copper Division of Vedanta Limited comprising of a copper
smelter, two refineries and two copper rod plants in India
Attributable Profit
Profit for the financial year before dividends attributable to the
equity shareholders of Vedanta Resources plc
Cents/lb
US cents per pound
BALCO
Bharat Aluminium Company Limited, a company incorporated
in India.
CRRI
Central Road Research Institute
BMM
Black Mountain Mining Pty
CRISIL
CRISIL Limited (a S&P Subsidiary) is a rating agency incorporated
in India
Board or Vedanta Board
The Board of Directors of the Company
CSR
Corporate social responsibility
Board Committees
The committees reporting to the Board: Audit, Remuneration,
Nominations, and Sustainability, each with its own terms
of reference
CTC
Cost to company, the basic remuneration of executives, which
represents an aggregate figure encompassing basic pay, pension
contributions and allowances
Businesses
The Aluminium business, the Copper business, the Zinc, Lead,
Silver, Iron Ore, Power and Oil & Gas business together
CY
Calendar year
Cairn India
Erstwhile Cairn India Limited and its subsidiaries
Capital Employed
Net assets before Net (Debt)/Cash
Capex
Capital expenditure
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CII
Confederation of Indian Industries
CO2
Carbon dioxide
DDT
Dividend distribution tax
Deferred shares
Deferred shares of £1.00 each in the Company
DFS
Detailed feasibility study
DGMS
Director General of Mine Safety in the Government of India
Directors
The Directors of the Company
DMF
District Mineral Fund
DMT
Dry metric tonne
CMT
Copper Mines of Tasmania Pty Limited, a company incorporated
in Australia
Company or Vedanta
Vedanta Resources plc
Dollar or $
United States dollars, the currency of the United States of America
EAC
Expert advisory committee
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 268
Vedanta Resources plc | Annual Report FY2018
Glossary and Definitions continued
EBITDA
EBITDA is a non-IFRS measure and represents earnings before
special items, depreciation, amortisation, other gains and losses,
interest and tax.
Gratuity
A defined contribution pension arrangement providing pension
benefits consistent with Indian market practices
EBITDA Margin
EBITDA as a percentage of turnover
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
EPS
Earnings per ordinary share
ESOP
Employee share option plan
ESP
Electrostatic precipitator
Group
The Company and its subsidiary undertakings and, where
appropriate, its associate undertaking
Gross finance costs
Finance costs before capitalisation of borrowing costs
HIIP
Hydrocarbons Initially in Place
HSE
Health, safety and environment
HZL
Hindustan Zinc Limited, a company incorporated in India
IAS
International Accounting Standards
IFRIC
IFRS Interpretations Committee
IFRS
International Financial Reporting Standards
INR
Indian Rupees
Executive Committee
The Executive Committee to whom the Board has delegated
operational management. It comprises of the Chief Executive
Officer and the senior management of the Group
Interest cover
EBITDA divided by gross finance costs (including capitalised
interest) excluding accretive interest on convertible bonds,
unwinding of discount on provisions, interest on defined benefit
arrangements less investment revenue
Executive Directors
The Executive Directors of the Company
Expansion Capital Expenditure
Capital expenditure that increases the Group’s operating capacity
Financial Statements or Group financial statements
The consolidated financial statements for the Company and the
Group for the year ended 31 March 2018 as defined in the
Independent Auditor’s Report to the members of Vedanta
Resources plc
FY
Financial year i.e. April to March
GAAP, including UK 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
IPP
Independent power plant
Iron Ore Sesa
Iron Ore Division of Vedanta Limited, comprising of a Iron ore
mines in Goa and Karnataka in India
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
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
GDP
Gross domestic product
Gearing
Net Debt as a percentage of Capital Employed
GJ
Giga joule
Government or Indian Government
The Government of the Republic of India
KPIs
Key performance indicators
KTPA
Thousand tonnes per annum
Kwh
Kilo-watt hour
LIBOR
London inter bank offered rate
Vedanta Resources plc | Annual Report FY2018
269
LIC
Life Insurance Corporation
NGO
Non-governmental organisation
Listing or IPO (Initial Public Offering)
The listing of the Company’s ordinary shares on the London Stock
Exchange on 10 December 2003
Non‑Executive Directors
The Non-Executive Directors of the Company
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
Oil & Gas business
Oil & Gas division of Vedanta 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
OPEC
Organisation of the Petroleum Exporting Countries
PBT
Profit before tax
Lost time injury
An accident/injury forcing the employee/contractor to remain
away from his/her work beyond the day of the accident
PPE
Property plant and equipment
LTIFR
Lost time injury frequency rate: the number of lost time injuries per
million man hours worked
Provident Fund
A defined contribution pension arrangement providing pension
benefits consistent with Indian market practices
LTIP
The Vedanta Resources Long-Term Incentive Plan or Long-Term
Incentive Plan
MALCO
The Madras Aluminium Company Limited, a company incorporated
in India
PSC
A ‘production sharing contract’ by which the Government of India
grants a license 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
Management Assurance Services (MAS)
The function through which the Group’s internal audit activities
are managed
PSP
The Vedanta Resources Performance Share Plan
MAT
Minimum alternative tax
MBA
Mangala, Bhagyam, Aishwariya oil fields in Rajasthan
MIC
Metal in concentrate
MOEF
The Ministry of Environment, Forests and Climate change of the
Government of the Republic of India
mt or tonnes
Metric tonnes
MU
million Units
Recycled water
Water released during mining or processing and then used in
operational activities
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
Operating profit before special items net of tax outflow, as a ratio
of average capital employed
RO
Reverse osmosis
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, liquid investments and debt related derivative
Senior Management Group
For the purpose of the remuneration report, the key operational
and functional heads within the Group
SEWT
Sterlite Employee Welfare Trust, a long-term investment plan for
Sterlite senior management
SHGs
Self help groups
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report 270
Vedanta Resources plc | Annual Report FY2018
Glossary and Definitions continued
SBU
Strategic Business Unit
SEBI
Securities and Exchange Board of India
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
(refer to Note 2(A) (IV) special items of accounting policies)
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
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
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
TC/RC
Treatment charge/refining charge being the terms used to set the
smelting and refining costs
WBCSD
World Business Council for Sustainable Development
ZCI
Zambia Copper Investment Limited, a company incorporated
in Bermuda
ZCCM
ZCCM Investments Holdings plc, a company incorporated
in Zambia
ZRA
Zambia Revenue Authority
TGT
Tail gas treatment
TLP
Tail Leaching Plant
tpa
Metric tonnes per annum
TPM
Tonne per month
TSPL
Talwandi Sabo Power Limited, a company incorporated in India
TSR
Total shareholder return, being the movement in the Company’s
share price plus reinvested dividends
Twin Star
Twin Star Holdings Limited, a company incorporated in Mauritius
Twin Star Holdings Group
Twin Star and its subsidiaries and associated undertaking
US cents
United States cents
UK Corporate Governance Code or the Code
The UK Corporate Governance Code 2014 issued by the Financial
Reporting Council
Vedanta Limited (formerly known as Sesa Sterlite Limited/Sesa
Goa Limited)
Vedanta Limited, a company incorporated in India engaged in the
business of oil & gas exploration and production, copper smelting,
iron ore mining, alumina & aluminium production and
Energy generation
Shareholder Information
Shareholder interests as at 31 March 2018
Number of shareholders
Number of shares in issue
By size of holding
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
Vedanta Resources plc | Annual Report FY2018
271
2018
2017
1,938
2,158
303,987,039 300,522,798
Shareholders %
Shares %
2018
51.86
12.28
20.79
9.29
4.54
1.24
2017
52.61
12.38
20.78
8.80
4.20
1.23
2018
0.07
0.06
0.44
2.28
8.78
88.37
2017
0.07
0.06
0.45
2.02
8.52
88.87
100.00
100.00
100.00
100.00
Company website
The Company’s half-year and Annual Reports and results announcements are available on our website at www.vedantaresources.com.
Shareholders can also access on the website 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 Annual General Meeting, 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:
Email:
+44 (0)370 707 1388
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.
Beware of share fraud
Shareholders should be very wary of any unsolicited calls or correspondence offering to buy or sell shares at a discounted price. These
calls are typically from fraudsters operating ‘boiler rooms’. Boiler rooms use increasingly sophisticated means to approach investors and
often leave their victims out of pocket. If you are concerned that you may have been targeted by fraudsters, please contact the FCA
Consumer Helpline on 0800 111 6768 (freephone) or 0300 500 8082 from the UK or +44 207 066 1000 from outside the UK.
Dividend Mandate and Currency Option
The Registrar can arrange for the dividends declared by the Company to be paid directly into a shareholder’s UK bank account. To take
advantage of this facility, please contact the Registrar who will provide a Dividend Mandate Form. 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 together with the Dividend Mandate Form to the registrar by 23 July 2018. 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.
Directors’ ReportFinancial StatementsAdditional InformationStrategic Report
272
Vedanta Resources plc | Annual Report FY2018
Contacts
Investor Relations
For investor enquiries, please contact:
Rashmi Mohanty
Director – Investor Relations
Vedanta Resources plc
16 Berkeley Street
London W1J 8DZ
Telephone: +44 (0)20 7659 4732 (London)
+91 22 6646 1531 (Mumbai)
Email: ir@vedanta.co.in
Registered Number
4740415
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:
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Latham & Watkins LLP
99 Bishopsgate
London EC2M 3XF
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OIL & GAS
| ZINC-LEAD -SILVER
VEDANTA RESOURCES PLC
| ALUMINIUM & POWER
| COPPER
|
IRON ORE
5TH FLOOR, 16 BERKELEY STREET LONDON W1J 8DZ
| T +44 (0) 20 7499 5900 F +44 (0) 20 7491 8440