Vedanta Resources net loss widens in H1 FY'16; halts dividend

London: Vedanta Resources Wednesday reported widening of its net loss to USD 324.5 million in the first half of the current fiscal as the mining conglomerate faced challenging commodities market.

The net loss attributable to equity holders of the parent stood at USD 12.8 million in the year-ago period, the company said in a statement.

Its revenue fell by 12 percent to USD 5.7 billion in the April-September period of 2015-16, from USD 6.5 billion during the six months of 2014-15.

Vedanta Resources Chairman Anil Agarwal said: "We have delivered a sound financial performance over the past six months and maximised free cash flow, while facing challenging commodity markets. This accomplishment is attributable to cost optimisation across our diversified asset portfolio."

The London Stock Exchange-listed firm's exposure to meeting India's future resources demands enhances its growth opportunities, in addition to its global prospects, he added.

"Our financial performance however has been impacted by low commodity prices with revenues down 12 percent at USD 5.7 billion," he said in a statement.

Aggarwal said that during the first half of this fiscal the firm generated free cash flow post project capex of USD 1.3 billion driven by reduction in opex, capex and better working capital management.

In line with its stated strategic priority of reducing debt and increasing cash flows, Vedanta Resources reduced gross debt by USD 200 million and net debt by USD 0.9 billion as compared to 2014-15, he noted.

Agarwal, however said: "During this period we have witnessed continued volatility in commodity markets, creating challenging conditions for all resource companies.

"As a result of this market uncertainty, the Board has decided not to pay an interim dividend and the Board will review dividend payments in May 2016 when we deliver our 2015-16 results."

Vedanta Resources reduced its net debt by USD 0.9 billion to USD 7.5 billion for the six months ended September 2015.

On outlook, Agarwal said: "From my perspective, though the global resource sector outlook is challenging over the short-to-medium term, I am optimistic about the longer-term future."

Following a disciplined approach to capital spending and efficiency in operations is key to managing this period of volatility, he added.

"Our efforts over past few quarters have been on driving efficiencies across our diversified portfolio of tier-one assets, optimising operating expenditure and deploying capital in a disciplined manner taking measured steps to drive positive free cash flow at each of our businesses," he said.

Agarwal said in July this year the firm broke ground at

the USD 680 million Gamsberg project in South Africa, one of the world's largest underdeveloped deposits of zinc and where the overall capex has been reduced by USD 100 million.

Vedanta said its revenue reduction of 12 per cent was partially offset by an increase in volumes, up 29 per cent at Zinc India; 9 per cent in Aluminium and 16 per cent at Copper India, and with the commissioning of the first unit of the Talwandi Sabo power plant in November, 2014.

Free cash flow increased to USD 1.3 billion, due to cost savings initiatives including the rationalisation of capex and a reduction in working capital through temporary and sustainable initiatives, it added.

Positive headroom on interest cover during this low commodity price environment has been driven by improved volumes and lower costs (including lower interest payments due to refinancing), it noted.

"In light of the volatile commodity prices, the Group has focused on maximising volumes through operational efficiencies, commissioning well-invested facilities, cost optimisation and reducing capex, in order to maximise cash flows and de-lever the balance sheet," it added.

This has resulted in a USD 0.9 billion reduction in net debt in H1 2015-16, Vedanta Resources said.

"We reduced our FY'16 capex guidance from USD 2 billion to USD 1 billion at the beginning of the year, which has been further reduced to USD 0.7 billion. Apart from reducing capex, we have also re-phased our ramp-up at Gamsberg in view of current soft commodity prices," the firm said.

Higher free cash flows have been through a combination of both one-off and sustainable initiatives, we have generated cash savings through better working capital management.

Vedanta plc's 2015-16 maturities have already been refinanced.

"For our USD 2 billion 2016-17 maturities due in mid-2016, we are in advanced discussions with banks for term loan proposals of USD 0.7 billion to USD 0.9 billion, with the balance repayment expected to be made through part repayment of the USD 2.6 billion inter-company loan by Vedanta Ltd to Vedanta plc," it added.

On merger of Vedanta Ltd and Cairn India, the firm said its Board and that of Cairn India at their respective meetings held on June 14, 2015 have approved the Scheme of Arrangement between Vedanta and Cairn India.

"On September 10, 2015, BSE and National Stock Exchange of India issued the 'No adverse observation' letter to the Scheme. We continue to work towards completion of the transaction by Q2 2016," it added.

Overall, Vedanta Resources said the challenging operating environment of low commodity prices (including premia) have had an impact of nearly USD 1 billion on EBITDA/operating profit.

"In this environment, the company continues to focus on controllable factors such as cost initiatives, marketing initiatives and volume," it added.