Introduction to Business Review

Excluding inventory write-down, EBITDA was US$1,691.2 million which was 43.8% lower compared with FY 2008, primarily due to the sharp fall in the commodity prices of aluminium by 15%, copper by 22%, zinc by 48%, lead by 42% and lower TC-RC realisations.

The key reasons for the movement in EBITDA between FY 2009 and FY 2008 are set out below.

• Lower average LME prices of all metals reduced EBITDA by US$1,422 million.
• Higher sales volumes resulted in higher EBITDA of US$244 million.
• Sharp fall in LME prices resulted in inventory write-downs of US$79 million.
• Industry-wise escalations in input costs in H1 FY 2009 were partly offset by positive cost efficiency initiatives across most of our operations in H2 FY 2009. Total operating costs negatively impacted EBITDA by US$276 million, during the year.
• During the year, the Indian rupee depreciated against the US dollar by 14.1%, increasing EBITDA by US$58 million, net of translation losses.
• A 25% decrease in TC-RC realisations during FY 2009 resulted in lower operating margins for the business, reducing EBITDA by US$27 million.
• Surplus power sales in FY 2009, primarily at MALCO and BALCO contributed US$24 million to EBITDA.
• Our allied businesses ie phosphoric acid, met coke, pig iron, etc, benefited from record prices in H1 FY 2009 and contributed positively to EBITDA by US$88 million.

In addition to the initiatives to increase volumes and reduce costs, the Group also has made progress in consolidating minorities, selectively acquiring assets and increasing the resource base through exploration.

Following the sharp fall in the price of copper, we arrived at a revised agreement with Asarco for acquiring substantially all of its operating assets for a reduced consideration of US$1.7 billion down from US$2.6 billion comprising of US$1.1 billion in cash and US$0.6 billion of deferred payments over nine years. The agreement is subject to the approval of the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division and is also likely to require the approval of the Company’s shareholders.

Continued focus on exploration has yielded significant success during the year, with gross addition of 46.3 million tonnes to reserves and resources in the Zinc business and a gross addition of 57.8 million tonnes in the Iron Ore business, adding approximately four years of mine life in each of these businesses.

EBITDA recorded by the individual businesses is set out below.