Cash generation and conservation are key business drivers and more so in the current economic environment. Free cash flow (‘FCF’) was US$1.7 billion in FY 2009, down 22.7% compared with FCF of US$2.2 billion in FY 2008. FCF as a percentage of EBITDA has improved significantly to 106% in FY 2009 up from 74% in FY 2008. Strong focus on working capital management has resulted in a contribution of US$620.6 million to free cash flow during the year.
Gross working capital, represented by inventory and receivables, reduced from US$2,346.8 million at 31 March 2008 to US$1,644.1 million at 31 March 2009. Gross working capital turnover, a parameter to determine efficiency of working capital management, improved from 3.5 times revenue in FY 2008 to 4.0 times revenue in FY 2009. Our net working capital, represented by gross working capital less trade and other payables, in FY 2009 was approximately negative 4.9% of turnover compared with 4.0% of turnover in FY 2008. Some of our subsidiaries, which are not fully integrated operations normally, carry relatively higher working capital levels. These operations manage their working capital effectively by matching their receivable and payable cycles. Tax outflow reduced to US$330.8 million in FY 2009 from US$655.2 million in 2008 partially due to tax effectiveness measures put in place in previous years, the benefit of which has accrued during the year and also due to lower taxable profits.
Of the total interest cost of US$362.2 million in FY 2009, US$250.2 million is charged in the income statement and the remainder has been capitalised as a part of our expansion in fixed assets. Interest expense (including capitalised interest) of US$362.2 million is higher than the previous year by US$60.1 million due to an increase in average debt taken to fund expansion projects. Interest rates also increased during the year as a result of tighter liquidity and an increase in credit spreads. Consequently our borrowing rates in FY 2009, despite being competitive in the current market environment, were at a rate higher than the average of FY 2008.
Sustaining capital expenditure of US$306.3 million in FY 2009 is higher than the previous year mainly due to investments to improve operational efficiencies, to modernise our older plants and to meet our health, safety and environmental goals. During H2 FY 2009, we have significantly scaled down our sustaining capital expenditure.
We invested US$3.0 billion in expansion projects. We remain committed to completing our expansion projects at or under budget and at or ahead of the estimated timelines.
During the year we reviewed some of our major expansion projects and have deferred spending on some of the projects to remain focused on conserving cash. A large part of the expansion capital expenditure was spent in our aluminium and energy businesses. We have spent US$375 million on the 1.25 mtpa Jharsuguda smelter expansion project and US$882 million in the 2,400 MW commercial energy project at the same location.
We spent US$397.1 million in buying back shares of Vedanta as well as buying shares in our subsidiaries - KCM, MALCO, Sesa and Sterlite. We continue to look for opportunities to increase our stake in key subsidiaries at attractive prices.
Return on Capital Employed (‘ROCE’) in FY 2009 was 24.4%, lower than 45.6% in FY 2008 due to lower operating profits, largely a factor of lower metal prices during the year. ROCE is an important KPI in our businesses. We accord high priority to capital productivity and we enhance the ratio by optimising asset performance and by minimising capital investment. The operating review has discussed the measures we have taken and the results of these measures in improving our asset performance. We have demonstrated our strong track record of completing our expansion projects on or ahead of schedule as well as within their budget. A good example of the former measure is the significantly higher output of iron ore in FY 2009 over FY 2008 without incurring any major capital expenditure. ROCE is also affected by the timing of expansion projects being delivered during the year due to the time lag in capturing the full benefit from additional capacities.
