Hindalco Industries : Chairman Kumar Mangalam Birla’s Address to Shareholders of Hindalco Industries Limited at the 60th Annual General Meeting

Dear fellow shareholders,

Welcome to the 60th Annual General Meeting of your Company. Thank you for your presence today and your continued support, which is critical to the success of your Company. I begin with a tribute to my grandfather, Shri. Basant Kumar Birla, who left for his heavenly abode on 3rd July 2019. An industrialist of great standing, a statesman of repute, an avid educationist and a philanthropist par excellence, Shri. B.K. Birla was widely respected for his profound humanism. With his blessings, we have come a long way, and we will miss his guidance immensely. I would now like to apprise you on your Company's performance during the financial year gone by and our outlook for the year ahead.

The global economy recorded a healthy growth of 3.6 per cent in 2018

The International Monetary Fund (IMF) expects growth to slide to 3.3 per cent in 2019 and its projections suggest that all three major engines of the global economy, viz. US, China and Europe are likely to slow down in 2019. On the positive side, however, IMF expects world economic output to recover and grow at 3.6 per cent in 2020.

During the second half of the year, the global economy lost some momentum, mainly on account of the increased trade frictions between the US and China, and the tightening of financial conditions. These challenges signal that global commodity prices could be under pressure.

The Indian economy delivered a mixed performance in the just-concluded fiscal year. GDP growth slowed from 7.2 per cent in FY18 to 6.8 per cent in FY19. Below-normal rainfall, tight financial conditions in the non-banking financial sector and moderation of external demand were some of the key challenges faced by the economy.

I remain optimistic on the medium term growth prospects of the Indian economy. Significant reforms undertaken in the recent years such as GST and insolvency code would raise India's growth potential in the coming years, amplifying the effect of the long-term structural cornerstones of the Indian growth story such as demography and urbanisation.

The ongoing global trade tension between the US and China is worrisome. It can have a negative spillover effect on India. Accordingly, the outlook for the Indian economy in FY20 is one of cautious optimism at this juncture.

It was a volatile year for aluminium and copper. The macro-economic scenario emerging from the US-China trade dispute and moderation of economic activities in Europe and China resulted in lacklustre growth of the non-ferrous metals sector in 2018.

The amplification of the trade war and lifting of sanctions on UC Rusal by the USA were the most significant events for the aluminium industry in the second half of 2018. These events led to a sharp fall in global aluminium price to less than USD 1,900/t by the end of second half of 2018 from the peak of USD 2,700/t in the first half of the year.

The growth in consumption of aluminium in rest of the world excluding China, was at approximately 2 per cent in 2018, against 3 per cent in 2017 owing to subdued demand from construction, electrical, machinery and equipment and transportation sectors. China too recorded a significant slide in demand - from the robust 8 per cent growth in 2017 to 3 per cent in 2018 on account of the trade war and an economic slowdown. On a broader canvas, economic growth and material substitution continue to be the key drivers for the rise in the global demand for aluminium and rolled products.

In the domestic market, aluminium continued to notch up more than 9 per cent growth for the second year in a row. The 9.5 per cent growth in FY19 was driven by transportation, construction and consumer durables sectors. In the copper market, there were fears of major supply disruptions owing to key labour negotiations, due in 2018. However, the smooth conclusion of negotiations assuaged fears. Benchmark TC/RC recorded a moderation from 23.7 cents/pound in 2017 to 21.1 cents/pound in 2018, due to supply constraints from major mines.

The demand growth for refined copper in the rest of the world, excluding China, continued to be modest at around 1 per cent in 2018 as compared to a dismal growth of 0.3 per cent in 2017. In FY19, the demand for refined copper in India, at 10 per cent, remained the same as the previous year. The growing needs of the power and renewable sectors, as well as, the construction and consumer durables segments, will drive demand for copper in India. However, low priced imports remain a concern for domestic producers.

Moving on to your Company's Performance in FY19, I am happy to inform you that it was another year of resilient performance despite a tough business environment. Your Company continued to register yet another best-ever consolidated full year performance in FY19. This spirited show was driven by a record performance from Novelis, the Indian Aluminium Business and a sustained performance by the Copper Business. Your Company registered its highest ever Consolidated EBITDA of Rs.16,627 crore on a turnover of Rs.1,30,542 crore in FY19. Your Company's aluminium and copper businesses in India and Novelis continued to deliver exceptional operational and financial performance. The major enablers were stable operations, better efficiencies, realisations, and supportive macros in the first half of FY19.

Novelis reported a remarkable performance once again this year with a record shipment of 3.274 million tonnes, higher by 3 per cent over the previous year, and an EBITDA of $1.368 billion, up by 13 per cent. Adjusted EBITDA per tonne of $418 was its highest ever, and indeed, notable. Novelis continues to improve its product mix with the share of automotive sector at 20 per cent, and beverage can sheet at 63 per cent. Your Company reported an increase in the share of recycled contents to 61 per cent in FY19, from 57 per cent a year before.

During the year, your Company announced its acquisition of Aleris at an EV of $2.58 billion. This acquisition is subject to customary closing conditions and regulatory approvals by the government authorities in the US, EU and China. Since its acquisition by Hindalco in 2007, I am proud to say that Novelis has grown to become the world's number 1 aluminium rolling and recycling company. It is the preferred choice for marquee customers across the globe in both segments - beverage cans and automotive body sheets.

In India's aluminium business, your Company, including Utkal Alumina, achieved record alumina and aluminium production levels at 2.89 million tonnes and 1.29 million tonnes respectively. All of your Company's plants, including Aditya and Mahan, operated at their rated capacities. Aluminium value-added products, excluding wire rods, did remarkably well and achieved a production of 321 Kt in FY19, up 5 per cent year-on-year.

In the Copper Business, cathode production at 347 Kt, was lower compared to the previous year on account of a planned maintenance shutdown. The CC Rod production was higher at 245 Kt, up by 48 per cent on account of the ramp-up of the new CCR-3 plant at Dahej which was commissioned a year before.

Your Company, with its continuous focus on strengthening the balance sheet, has prepaid Rs.1,575 crore of long-term project loans in India in FY19. This has led to a noteworthy improvement in the Consolidated Net Debt to EBITDA at 2.48x at the end of March 2019. Having provided you with a brief overview of the major developments during FY19, let me now move on to dividend. Your Directors have recommended a dividend of Rs.1.20 per equity share of face value Rs.1 each.

Outlook

Your Company's sustainable business model, backed by resource security, fully integrated aluminium business, excellent operational capabilities and an enriched product portfolio, will support us in the current challenging business environment.

Your Company remains focused on strengthening its balance sheet through allocation of capex towards growth strategies and generating positive free cash flows. Novelis' organic and inorganic expansions will help drive overall business to the next level with its product diversity and market leadership. Novelis announced organic expansion plans of 200 Kt in Guthrie, Kentucky in the US and 100 Kt in Changzhou, China, of the automotive finishing line which are expected to be commissioned in FY21. In addition, it has also announced plans to expand rolling, casting and recycling capacity in Pinda, Brazil to meet growing customer demand. This is expected to be commissioned in FY22. Novelis will continue to take a balanced approach with a focus on operational improvements and innovations that will drive profitable volume growth in its current product lines and other core end-markets

On the downstream VAP side, your Company aims to double the share of value-added products in the domestic aluminium business over the next 5-6 years with an investment of around $1.0 - 1.2 billion in India. It will also expand its alumina capacities with an expansion at Utkal Alumina refinery by 500 Kt, to be commissioned by FY21. Since per capita aluminium consumption in India is still far below the global average, there is significant potential for higher consumption, given India's current demographic and economic outlook.

In Copper, your Company will continue to focus on expanding its value added products capacity. The newly commissioned continuous copper cast rod plant CCR-3 is ramping up well. The share of CC rods to total cathodes has risen to nearly 71 per cent in FY19, from the earlier 41 per cent. This will enable your Company to cater to the growing demand for copper rods in the domestic market. However, imports of aluminium and copper continue to hurt the domestic aluminium and copper industries.

Let me now share with you, your Company's endeavours towards inclusive and sustainable growth. Your Company reaches out to more than 1.2 million people across 732 villages and 39 slums, spanning 11 states in close proximity to its manufacturing plants. Its activities are implemented under the aegis of the Aditya Birla Centre for Community Initiatives and Rural Development, led by Mrs. Rajashree Birla, your Director.

As a responsible corporate citizen, your Company actively contributes to the social and economic development of the communities among which it operates. Its focus areas are education, healthcare, sustainable livelihood, infrastructure development and social empowerment and welfare. For the year 2018-19, your Company's CSR spend was Rs.56.62 crore (Hindalco - Rs.34.14 crore; Utkal - Rs.9.13 crore; Dahej - Rs.1.44 crore; ESC: Enterprise Social Commitment - Rs.11.91 crore). Its Corporate Social Responsibility, environment conservation and safety efforts have been elaborated upon in the Social Report section of the Annual Report.

Your Company is nothing without its people, and I am proud of the steps we are taking to promote diversity in our workforce. As a measure of our commitment, we hired 27 per cent women engineers at the entry-level. The 'Dual Career' option for both spouses at our plant, apart from other family-friendly policies, bear testimony to the intentions of your Company.

Your Company has reduced its environmental footprint and is operating in a sustainable manner. The commitment is stronger today as your Company has aligned its sustainability initiatives and strategies with the UN Sustainable Development Goals (SDGs). These SDGs outline 17 clear goals, all of which are universally relevant.

Your Company has undertaken various initiatives to conserve water and has achieved a reduction in specific water consumption of 44.3 per cent in FY19 from the base year of FY2011-12 in the aluminium business. With its focus on waste management, it has achieved a high utilisation of the fly ash and bauxite residue for various alternative applications such as brick making, road construction, plastering material, and as an input for the cement industry.

A number of initiatives have been taken towards energy efficiency and reduction of Green House Gas emissions. Your Company commissioned a 30 MW captive solar power plant at Aditya Aluminium in Odisha, in November 2018 and I am happy to share with you that it has already started operations. It is a matter of pride that natural gas and electricity form 97 per cent of Novelis' total energy consumption cost. All these have been discussed in detail in the sustainability report of your Company published separately and uploaded on the website.

On behalf of your Company's Board, I would like to record our deep appreciation to the banks, financial institutions, stakeholders, business associates and the Central Governments. Their support has been invaluable in extending your Company's business. Our people are the real source of our growth. We appreciate their contribution and commitment. Our shareholders have always stood behind us, and we are grateful to them for their faith.

Having given a bird's eye view of your Company, I bring forward the first resolution relating to the adoption of financial statements for the year ended 31st March, 2019 and the Reports of the Directors' and Auditors' for your consideration and approval.

(This document does not purport to be a record of the proceedings at the Annual General Meeting)