I have great pleasure in reporting another strong year for Vedanta Resources plc and our sixth as a London listed company. We reported strong revenues of US$6.6 billion and EBITDA of US$1.6 billion, despite sharply deteriorating commodity prices and economic environment. I am delighted to report that we are exceptionally well positioned in these uncertain times due to our strong balance sheet, low cost operations, strong organic growth pipeline and track record of delivering capital projects at benchmark low costs and timelines. This provides the foundation for delivering profitable growth and creating long-term shareholder value.
Delivering operational efficiencies
In line with the first pillar of our strategy to optimise the performance of our existing assets, we remained focused on achieving productivity enhancements and operating efficiencies to ensure we retain our competitive advantage as one of the lowest cost producers of our commodities. In 2009, we also continued to aggressively implement the turnaround plan at our KCM operations which has begun to yield promising results, reflected in the sharp fall in costs over the last quarter.
Organic growth opportunities
We continue to make excellent progress against our second strategic pillar of delivering industry leading organic growth. The Group’s attractive project pipeline is value accretive even at lower commodity prices and we are on track to produce 1 million tonnes each of copper and zinc-lead, 2.5 million tonnes of aluminium, 25 million tonnes of iron ore and 6,500 MW of captive and commercial power.
The first stream of the Lanjigarh alumina refinery is now fully operational. We also successfully commissioned the Nchanga smelter and the zinc concentrator at Rampura Agucha during the year. I am also pleased to report that the Indian Supreme Court cleared the bauxite mining project at Niyamgiri. We expect to commence mining our own bauxite from Niyamgiri in the current year.
Expansion of our reserve and resource base through exploration is an extension of our sustainable growth strategy and I am happy to report that we successfully added significant reserves at our Zinc and Iron Ore businesses.
Well positioned through the cycle
The inherent strength of our sustainable low cost operations ensures we are well positioned in a period of difficult economic conditions and commodity prices. We have responded decisively and promptly to current market conditions, temporarily shutting down our MALCO smelter and a part of the BALCO I smelter. We have sold surplus power at attractive rates and optimised returns. We also reviewed our capital expenditure programme and reduced the total spend for our growth projects by US$5.3 billion on account of savings and deferrals. Finally, working capital initiatives have enhanced free cash flow in the period. These initiatives, together with our growth programme, ensure we are also well positioned to deliver superior shareholder returns when commodity prices recover.
Strong balance sheet and liquidity position
Excellent cash conversion in 2009 has ensured that we exited the year with a strong balance sheet despite the significant capital investment of US$3 billion in the period. Net debt at the end of the year was US$200 million. Furthermore, we have made substantial progress in strengthening Vedanta’s liquidity. In addition to gross cash and liquid investments of US$4.9 billion on the balance sheet at the year end, we have secured US$3.7 billion of long-term project finance, including US$2 billion which is subject to final documentation. Over the past five years, we have consistently generated strong free cash flow. We remain confident that even at distressed commodity prices we are well positioned to fund the remaining expenditure required to complete our expansion projects from existing liquid resources and internal cash generation.
Consolidation of minorities
Consistent with the third pillar of our strategy to consolidate minorities and rationalise the group structure, the Group increased its holding in MALCO, Sesa Goa and Sterlite. In April 2008, we also successfully acquired ZCI’s 28.4% stake in KCM, taking our total shareholding to 79.4%. In respect of the acquisition of the Indian Government’s residual stakes in BALCO and HZL, we continue to make progress and anticipate an early resolution.
