Vedanta Resources — FY2017 Earnings Presentation
47 slides from Vedanta Resources's earnings presentation, May 24, 2017
Slide 1: Vedanta Resources Plc FY2017 Results
Vedanta Resources Plc FY2017 Results 24 May 2017 Results conference call details are on the last page of this document VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 2: Cautionary Statement and Disclaimer
Cautionary Statement and Disclaimer The views expressed here may contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness, reasonableness or reliability of this information. Any forwa
Slide 3: Contents
Contents Section Presenter Page Anil Agarwal, Executive Overview 4 Chairman Strategic Update Tom Albanese, CEO 5 Financial Update Arun Kumar, CFO 15 Business Review Tom Albanese, CEO 23 Q&A 33 VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION 3
Slide 4: Overview
Vedanta Resources plc FY2017 Results 24 May 2017 Overview Anil Agarwal Executive Chairman VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 5: Strategic Update
Vedanta Resources plc FY2017 Results 24 May 2017 Strategic Update Tom Albanese Chief Executive Officer VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 6: Sustainable Development
Sustainable Development Building a Zero Harm Culture Safety 7 Fatalities during FY17 - crane related accident at a site in Rajasthan (4 fatalities in Q4) Social Licence to Operate Social Investment of $18mn benefitted 2.2mn people 71 Model ‘Nand Ghar’ (signature project of Vedanta) made operational
Slide 7: A world-class natural resources powerhouse
A world-class natural resources powerhouse 6th largest diversified resources company in the world1 Only global resources player with significant operations, expertise and majority sales in the Indian market – the fastest growing G-20 economy2 Completed Vedanta Ltd – Cairn India merger − Simplified g
Slide 8: A diversified resources company with low cash cost positions
A diversified resources company, with low cash cost positions, market- leading growth and consistent shareholder returns Commodity diversification1 Attractive cost position I II III IV Zinc India Zinc Intl. Peers O&G Increasing EBITDA from ramp ups Copper India Aluminium Copper Zambia % Revenue (CY
Slide 9: FY2017 Results Highlights
FY2017 Results Highlights Operations Group EBITDA Mix Ramp-ups and record production FY2017 FY2016 Gamsberg zinc project on track for CY 2018 production 5% 3% 8% 14% Financial: Strong free cash flow of $1.5bn 8% 8% 46% 49% Robust EBITDA growth (up 37%) and improved EBITDA 11% 5% margin Cumulative co
Slide 10: Capital Allocation: Focus on Shareholder Returns
Capital Allocation: Focus on Shareholder Returns World class assets and operational excellence to deliver strong and sustainable cash flows Production growth and asset optimization Strong Shareholder Returns De-lever the Balance Sheet Grow Existing Businesses FY2017 dividend of 55 US cents Continued
Slide 11: Vedanta well-positioned to benefit from strong Zinc fundamentals
Vedanta well-positioned to benefit from strong Zinc fundamentals Refined Zinc inventory (mt) at 7 year lows, supporting zinc prices LME SHFE Zinc LME $/t (RHS) 1.8 3,500 1.6 3,000 1.4 2,500 1.2 1.0 2,000 0.8 1,500 0.6 1,000 0.4 0.2 500 0.0 0 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Lo
Slide 12: Ideally positioned to capitalize on India's growth and natural resource potential
Ideally positioned to capitalize on India’s growth and natural resource potential Secular growth trends… …to drive increasing resources demand 30 India key themes 25 China Germany consumption South Korea (kg/capita) Aluminium 20 Population (mn) US 15 1,600 Japan 10 1,500 5 India Population 1,400 0 g
Slide 13: Ground floor opportunity to India growth story
Ground floor opportunity to India growth story Government’s strong push for Infrastructure Growth Industrial Production Growth Rates Allocation of $35bn for infrastructure development China India United States OECD Global 1.65 “Housing for All” budget of $12bn over next three years 1.55 − Plans to c
Slide 14: Delivering on our Strategic Priorities
Delivering on our Strategic Priorities Strategic Priority What we Achieved in FY2017 Focus Areas for FY2018 Record production at several operations Continued production ramp up Production Significant ramp ups at Aluminium, Iron Ore Progress towards production at Gamsberg growth and Power Continue to
Slide 15: Financial Update
Vedanta Resources plc FY2017 Results 24 May 2017 Financial Update Arun Kumar Chief Financial Officer VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 16: Strong EBITDA driving High Free Cash Flow
Strong EBITDA driving High Free Cash Flow FY2017 $mn or as stated FY2017 Pro-forma FY2016 Change EBITDA 3,191 2,336 37% Adjusted EBITDA margin1 36% 28% Free Cash Flow before Growth Capex 2,212 2,339 (5)% Growth Capex 668 566 18% Free Cash Flow after Growth Capex 1,544 1,773 (13)% Gross Debt 17,0092
Slide 17: EBITDA Bridge
EBITDA Bridge FY2017 vs. FY2016 ($mn) Brent 12 Kwacha dep’n 50 Power 105 Initiatives 305 Brent Disc 35 Rupee dep’n 53 Iron Ore 90 Volume Led (111) LME 548 South African Rand dep’n 2 Aluminium 45 Premium (43) Copper 24 Others (1) Cairn (51) Zinc (61) 194 3,191 151 (18) 105 (28) 552 2,892 (2) (47) (52
Slide 18: Cost Savings and Marketing Initiatives
Cost Savings and Marketing Initiatives Achieved cumulative savings of $814mn in last 2 years Cost and marketing savings program ($mn) with $489mn in FY 2017 (monthly run rate of $40mn, progressing ahead of original plan up from $25mn in FY 2016) 1,300 − $784mn in cost and marketing savings 489 814 −
Slide 19: Income Statement
Income Statement Depreciation $mn or as stated FY2017 FY2016 Lower on account of lower production at Oil & Gas and EBITDA 3,191 2,336 closure of Lisheen mine in Nov 2015; partly offset by Depreciation (928) (1,108) new capacities at Aluminum and Power Amortisation (102) (347) EBIT 2,161 881 Amortiza
Slide 20: Optimising Capex to drive Cash Flow Generation
Optimising Capex to drive Cash Flow Generation Prioritised capital to high-return, low-risk projects to Growth Capex Profile and Free Cash Flow pre capex maximise cash flows ($bn) Oil & Gas Capex Zinc Capex Al & Power Capex Copper Capex spent for FY2017 at $0.7bn against original Optionality Capex F
Slide 21: Maturity Profile
Maturity Profile Maturity Profile of Term Debt ($13.8bn) (as of 31st March 2017) Debt at VED plc Term Debt at Subsidiaries 3.7 2.9 2.6 1.9 0.8 1.9 1.6 1.7 3.3 1.3 0.6 1.9 1.8 1.2 1.8 1.0 1.2 1.1 0.4 0.1 FY2018 FY2018 FY2019 FY2019 FY2020 FY2021 FY2022 FY2023 and later as of date1 as of date1 As of d
Slide 22: Financial Priorities: Shareholder returns while continuing to strengthen Balance Sheet
Financial Priorities: Shareholder returns while continuing to strengthen Balance Sheet Focus on FCF and return on capital FCF ($ bn) ROCE, RHS 15.6% Disciplined Capital Allocation; focus on FCF 8.7% 6.2% Deleveraging; Strengthening the Balance Sheet 1.0 1.8 1.5 FY 2015 FY 2016 FY 2017 Cost Savings V
Slide 23: Business Review
Vedanta Resources plc FY2017 Results 24 May 2017 Business Review Tom Albanese Chief Executive Officer VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 24: Zinc India
Zinc India FY2017 Results As a low cost Zinc producer, well positioned in any Record production: MIC at 907kt; silver at 14.6moz cycle Integrated refined metal production at 809kt CY 2017E Zinc C1 composite cost curve ($/t) CoP at $830/t; 1st quartile on global cost curve 2,000 Projects – key highli
Slide 25: Zinc International
Zinc International FY2017 Results Significant progress at Gamsberg Project Production at 156kt: Skorpion at 85kt; BMM at 70kt CoP $1417/t, higher mainly due to lower production 250kt Gamsberg Project On target for first production by mid-2018 Mining contract outsourced; 16mt of waste moved to date O
Slide 26: Cairn: Oil & Gas
Cairn: Oil & Gas MPT: Facility modifications Rajasthan: Raageshwari Gas Terminal FY 2017 Results FY2017 gross average production at 189,926boepd − Rajasthan production at 161,571boepd Mangala EOR, world’s largest polymer program − Successful ramp up with production level of 56 kboepd in Q4 RJ FY2017
Slide 27: Copper – Zambia
Copper – Zambia Results Integrated volumes and C1 cash costs¹ Lower integrated production in H2 FY17 due to: − Low fleet availability at Konkola underground (UG) & Nchanga 258 open pit 238 198 209 − Low plant reliability at TLP Custom smelter production 31% higher augmented by: 220 225 187 201 − Str
Slide 28: Copper – Zambia (contd.)
Copper – Zambia (contd.) Regulatory Update Volumes (kt) Power situation now stabilising in Zambia − Water levels at Kariba dam currently at 50% Konkola Nchanga TLP Custom − New power agreement for FY18 signed, reduction in power cost 190-210 by c. 15% 186 178 Past VAT refunds receivable: continue to
Slide 29: Aluminium
Aluminium FY 2017 Results Aluminium Costs and Margins (in $/t, for Q4 FY2017) Record production of Aluminium: 1,213kt and Alumina: 1,208kt Q3 17 1,710 56 72 1,838 (560) (571) (298) (68) 342 Aluminum Q4 CoP at $1,492/t higher q-o-q due to higher imported 86 1,982 1,851 45 Alumina offset by lower powe
Slide 30: Power
Power Results Power Generation Capacity – c. 9GW TSPL: All 3 units became operational in FY 2017; record plant IPP: 3.6GW CPP:5.1GW availability of 85% in Q4 FY2017 and 79% in FY2017 600MW Jharsuguda 1,215MW Jharsuguda − Plant currently out of production due to fire at coal conveyor in (of 2400MW pl
Slide 31: Iron Ore and Copper India
Iron Ore and Copper India Iron Ore Goa iron ore costs and margin (Q4 FY2017, $/t) Achieved full year production cap in Goa and Karnataka FY2017 72 25 7 1 39 5 7 7 19 − Produced additional allocation of 2.6mt in Goa 86 39 Q4 Goa CoP reduced to $19/t − FY2017 CoP at $21/t, 38% lower y-o-y 7 FY2018 pro
Slide 32: Strategic Priorities Remain Unchanged
Strategic Priorities Remain Unchanged Production Growth and Asset optimisation De-lever the Balance Sheet Simplification of the Group structure Protect and preserve our License to Operate Identify next generation of Resources VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION 32
Slide 33: Q&A
Vedanta Resources plc FY2017 Results 24 May 2017 Q&A VEDANTA RESOURCES PLC - FY2017 RESULTS PRESENTATION
Slide 34: FY2018 Guidance
FY2018 Guidance Segment FY18e Comments Zinc-Lead Integrated: 950kt; Silver volume: +500 tonnes Zinc India CoP ($/t): marginally higher than FY2017 Zinc-Lead volume: c.160kt Zinc International Gamsberg expected CoP: $1000-1,150/t CoP: c.$1,500/t RJ Gross Volume: 165kboepd Oil & Gas Ravva Gross volume
Slide 35: Project Capex
Project Capex Spent up Capex to March Spent in Unspent as at Capex in Progress Status ($mn) 2017 FY2017 31 Mar 171 Cairn India - RDG, Mangala Infill, Aishwariya & 306 56 56 250 Bhagyam EOR, Barmer Hill, Liquid handling etc Aluminium Sector Smelter: fully operational and to be BALCO – Korba-II 325ktp
Slide 36: Segment-wise summary
Segment-wise summary Oil & Gas FY2016 FY2017 Zinc-India FY2016 FY2017 Average Daily Gross Operated Mined Metal (kt) 889 907 Production (boepd) 203,703 189,926 Refined Zinc – Integrated (kt) 759 670 Rajasthan 169,609 161,571 Refined Lead – Integrated (kt)1 140 139 Ravva 23,845 18,602 Saleable Silver
Slide 37: Segment-wise summary (contd.)
Segment-wise summary (contd.) Copper-Zambia FY2016 FY2017 Aluminium FY2016 FY2017 Mined Metal (kt) 123 94 Aluminium Production (kt) 923 1,213 Finished Metal – Total (kt) 182 180 Jharsuguda I - 500kt 516 525 Integrated (kt) 117 96 Jharsuguda II - 1,250kt1 76 261 Custom Smelting (kt) 64 84 Korba-I 245
Slide 38: Segment-wise summary (contd.)
Segment-wise summary (contd.) Power Iron Ore and Pig Iron FY2016 FY2017 FY2016 FY2017 Power Sales (million units) 12,121 12,916 Sales (mt) 5.3 10.2 Jharsuguda 600MW1 7,319 3,328 Goa 2.2 7.4 BALCO 270MW 169 - Karnataka 3.1 2.7 BALCO 600MW 1,025 2,609 Production 5.2 10.9 MALCO 100MW 402 190 Goa 2.2 8.
Slide 39: Entity Wise Cash and Debt
Entity Wise Cash and Debt Net Debt Summary ($mn) 31 Mar 2016 30 Sep 2016 31 Mar 2017 Company Debt Cash & LI Net Debt Debt Cash & LI Net Debt Debt Cash & LI Net Debt Vedanta plc1 7,364 30 7,334 6,145 19 6,126 6,173 17 6,156 KCM 659 33 626 642 1 641 554 1 553 Vedanta Ltd. Standalone 4,982 203 4,779 6,
Slide 40: Entity-wise financials
Entity-wise financials FY2017 VED Plc VED Ltd VED Ltd Cairn ($mn or as stated) Consol KCM Plc Cos Elim Consol stand-alone India HZL ZI BALCO TSMHL TS Others¹ Elim Group Revenue 11,520 874 - (44) 10,690 4,786 1,223 2,551 332 853 - 532 855 (442) EBITDA 3,191 8 (9) (3) 3,195 709 589 1,447 138 136 (0) 1
Slide 41: Debt Profile
Debt Profile Diversified Funding Sources for Term Debt ($13.8bn) Debt Breakdown (as of 31 Mar 2017) (as of 31 March 2017) 1% Debt breakdown as of 31 Mar 2017 (in $bn) Term debt 13.8 Bonds - USD 18% Working capital 0.4 Bonds - INR Short term borrowing 2.3 41% Term Loan - INR Temporary short term borr
Slide 42: Net Debt for FY2017
Net Debt for FY2017 ($mn) 732 8,504 1,532 7,329 Project capex (inc. creditors) 827 Sustaining capex 145 455 972 (2,221) (158) (137) Free Cash Flow post Capex $1,544mn Net Debt Cash Flow from WC movement Debtors & Capex DDT¹ Dividend to FX translation Net Debt (1 Apr 2016) Operations Creditors Cycle
Slide 43: Credit Metrics
Credit Metrics Covenant FY2016 FY2017 (Up to March 2017) Net Debt/EBITDA 3.14x 2.7x < 4.0 x EBITDA/Net Interest Expense1 3.86x 4.0x Waiver Net Assets/Debt 1.55x 1.42x > 1.4x Several of our facilities initially had the covenants of Net Debt/EBITDA of <2.75x and EBITDA/Net Interest of >4.0x, as disclo
Slide 44: Currency and Commodity Sensitivities
Currency and Commodity Sensitivities Foreign Currency - Impact of a 10% depreciation in FX Rate FY2017 FY2017 Currency Average FX rate EBITDA ($mn) INR/USD 67.0896 191 Commodity prices – Impact of a 10% increase in Commodity Prices FY2017 FY2017 Commodity Average price EBITDA ($mn) Oil ($/bbl) 49 78
Slide 45: Sales Summary
Sales Summary Sales volume FY2016 FY2017 Sales volume FY2016 FY2017 Zinc-India Sales Iron-Ore Sales Refined Zinc (kt) 760 696 Goa (mn DMT) 2.2 7.4 Karnataka (mn DMT) 3.1 2.7 Refined Lead (kt) 145 138 Total (mn DMT) 5.3 10.1 Zinc Concentrate (MIC) - 27 Pig Iron (kt) 663 714 Lead Concentrate (MIC) - -
Slide 46: Group Structure
Group Structure Vedanta Resources Plc Divisions of Vedanta Limited 79.4% 50.1% Sesa Iron Ore Sterlite Copper (Tuticorin) Konkola Copper Vedanta Ltd Power (600 MW Jharsuguda) Mines (KCM) Aluminium (Odisha aluminium and power assets) Cairn India (O&G) Subsidiaries of Vedanta Ltd 64.9% 51% 100% 100% 10
Slide 47: Results Conference Call Details
Results Conference Call Details Results conference call is scheduled at 9:00 AM (UK Time) on Wednesday, 24 May 2017. The dial-in numbers for the call are given below: Event Telephone Number Toll free: 0 808 101 1573 UK – 9:00 AM (UK Time) Other: +44 20 3478 5524 Toll Free: 1 800 120 1221 1 800 200 1