LONDON (Alliance News) - Vedanta Resources PLC Thursday said it has slashed its dividend by more than half after the multi-commodity miner failed to escape the red during the last financial year as significantly lower commodity prices offset record levels of production in some of its divisions.
Vedanta said its dividend for the year ended March 31 would be 30.0 cents per share, more than half the 63.0 cents per share paid the year before, which the company's chairman said was a "prudent decision" that has been taken to weather the current commodity rout.
Although Vedanta still made a hefty loss of USD4.98 billion, it was narrower than the USD5.64 billion loss made in the previous year, even though revenue declined to USD10.73 billion from USD12.87 billion due to volatile and lower commodity prices, which also impacted its margins.
Stripping out exceptional items, which fell to USD5.21 billion from USD6.74 billion, Vedanta did manage to squeeze out a pretax profit of USD226.1 million in the year, but that has plummeted from USD1.10 billion in the previous year.
The special items were primarily booked against the oil and gas business, accounting for USD4.93 billion of those items due to the weakness in oil prices. A further USD228.0 million was booked against the iron ore unit in Liberia, USD18.0 million relating to the idle Bellary assets in the iron ore division, USD8.0 million on a copper mine Tasmania and USD23.0 million against its retirement scheme.
Earnings before interest, tax, depreciation and amortisation dropped to USD2.33 billion from USD3.74 billion as its Ebitda margin was squeezed to 21.8% from 29.1%. Excluding customer smelting, which has "different business economics," that margin moved to 27.6% from 38%.
Operating losses amounted to USD4.32 billion compared to a USD5.00 billion loss. Excluding special items, Vedanta made a USD881.2 million operating profit compared to USD1.73 billion.
The reduction in revenue, margins and profit all comes down to commodity prices, which in total negatively impacted operating profit by USD1.54 billion.
Oil and gas prices were, on average, 44% lower in the year and reduced operating profit by USD737.0 million, zinc, lead and silver prices were all down between 13% and 16% to reduce profit by USD367.0 million. Aluminium prices were down 16% to hit profit by USD225.0 million and copper prices feel 21% to impact profit by USD146.0 million.
Other prices also adversely hit profit, with a 27% fall in pig iron prices reducing profit by USD40.0 million and lower energy prices having an adverse effect of USD34.0 million.
"We achieved record production in zinc, lead, silver at Zinc India; Aluminium, Power and Copper cathodes. There is a huge opportunity for Vedanta to support India's future resources demand, which we are well placed to seize with our combination of low cost and well-invested assets. We look to the future with cautious optimism," said Chairman Anil Agarwal.
Oil production was down 3.1% year-on-year as all of its fields produced less oil, with a 10% rise in gas production helping to offset that. Vedanta said it has slashed capital expenditure for the division this year by USD100.0 million.
Zinc India saw mined metal production, covering zinc, lead and silver, rise by 0.2%. Zinc production was down 3.9% but production of lead rose by 28% and silver production was up by 30%. Vedanta expects to report a small rise in production this year, it said.
Its other zinc businesses outside of India saw production fall by 28% to 226,000 tonnes, and will drop even more this year to 170,000 to 190,000 tonnes.
Copper cathode production from India and Australia was up 6.1% in the year to 384,000 tonnes and will rise to above 400,000 tonnes this year. Mined metal production of copper in Zambia was up 6.0%.
Aluminium production was up 5.2% to 923,000 tonnes and will rise to 1.2 million tonnes this year.
Power sales rose 23% in the year and Vedanta said it will continue to build its power generation capacity moving forward.
Vedanta managed to significantly reduce its net debt to USD7.32 billion from USD8.46 billion as free cashflow increased in the year, but the company's net gearing has risen to 52% from 41% due to the non-cash impairments booked in the year and the effect that had on the net assets.
Free cashflow rose 63% to USD1.70 billion from USD1.00 billion as operational and capital expenditure were both slashed in the year.
"We had already set in train initiatives to reduce costs, optimise assets and address operational issues, and these continued to gain ground throughout the year. These steps, together with minimal additional capex requirements, helped to mitigate the effects of a depressed world market for commodities," said Vedanta.
The company laid out plans last year to make costs savings of USD1.30 billion over four years, and in the first year of that plan Vedanta delivered USD325.0 million toward that target.
In a separate statement later Thursday, Vedanta said its subsidiary, THL Zinc Ltd, has agreed to extend the maturity of its USD1.25 billion loan. THL originally took the loan from Cairn India, another Vedanta subsidiary, for two years but this has been extended by another two years until May 2018. The loan remains secured through a guarantee from Vedanta.
Vedanta said simplifying the business remains a priority building on its previously announced plans to merge two subsidiaries, Cairn India and Vedanta Ltd.
"This will result in improved financial flexibility to allocate capital to the highest return projects and sustain strong dividends, marking a significant step forward towards achieving our stated long term vision of alignment of interests between all shareholders for the creation of long term sustainable value," said Chairman Anil Agarwal.
Vedanta shares were down 3.7% to 365.60 pence per share on Thursday afternoon.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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