The State Atomic Energy Corporation ROSATOM

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Management of the financial strategy

 РОСАТОМ » Capital management efficiency » Management of the financial capital » Management of the financial strategy

Nikolay Solomon
First Deputy CEO for Corporate Functions and Chief Financial Officer

– How effective was ROSATOM’s financial strategy in 2013, do you think?

– The financial strategy is an inseparable part of the overall development strategy of the Corporation, but essentially being more down to earth, it is designed until 2020 and is further defined by general principles. Finances are the basis on which the business rests when planning its key mid- and long-term indicators, the measure of success of projects and an indicator of the company’s health.

Given the scale of ROSATOM’s business and its influence on the country’s GDP and Russia’s social commitments and image/competitiveness in the international market, the issues of financial soundness always receive higher attention. For each year, specific priorities are set, along with tasks for each of the activity areas that concern financial matters; plans for financing instrument development are set, etc., but always the cornerstone is the principle of economic reason and financial soundness. This means that it is not important whether you managed a public issue of bonds last year or it was a loan; the main thing is that those funds were raised at the best market terms.

Now, in 2014, given its political stress tests and turbulence in the financial market, 2013 appears a year of stability and planned development. In particular, over the past year, the sectoral loan portfolio grew by 13.5 %, while remaining within the acceptable debt burden indicators approved by the federal executive bodies. Much attention was paid to gradual maturity periods, while retaining interest rates. For instance, at the end of the year, we took RUB 30 billion of five-year loans that raised the average weighted credit portfolio maturity.

Last year, we tested cash pooling bank instruments (both tangible and virtual) and built up a plan for further development of these instruments to improve the efficiency of financing inside the group. Not all of the instruments are applicable to the nuclear industry because of its features and risk portfolio. However, the total amount of the in-group financing was RUB 4.47 billion in 2013. This is three times what it was in 2010, when the centralisation of treasury operations had just begun and the difference between passive rates of different sectoral companies was at the critical point. Now, owing to the centralisation, the external loan impact has been smoothed out for the sectoral companies, and the efficiency of a division’s operations can be compared using performance indicators without reducing to uniform financial terms.

Also in 2013, JSC Atomenergoprom, a key affiliate of ROSATOM and the management company of all civil assets of the nuclear industry, was given, in addition to the earlier Russia sovereign rating given by Standard & Poor’s, credit ratings by two international rating agencies: the maximum sovereign level BBB by Fitch Ratings and Baa2 by Moody’s Investor Service. The ratings are an extremely important milestone of the financial strategy implementation in terms of increasing the investment attractiveness of the sector and a necessary condition for using a number of financial instruments in future, for instance bonds and Eurobonds, attracting investors to projects, guarantees to international customers, etc.

In the framework of the rating process, our objective is to convince analysts of the rating agencies that JSC Atomenergoprom receives an unprecedented level of support from the Government, has sustainable business perspectives and is capable of maintaining an acceptable balance of debt/EBITDA in the mid-term. In my view, we coped perfectly with this task.

Now ROSATOM spends about US$ 10 billion annually for investments, and plans to invest over US$ 350 billion before 2030. I am absolutely sure that we cannot do without diversification of financial instruments, including entry into international markets, to ensure the full and timely financing of such large-scale investment plans on acceptable terms. All these are part of the financial strategy, which is consistently implemented and regularly adjusted to meet the external conditions and business needs.

– What mechanisms are envisioned to ensure the financial soundness of ROSATOM in the mid and long term?

– The Corporation and its organisations’ financial soundness in the mid and long term is ensured by the strategic and operative target-setting system, a balance of the Corporation’s financing needs and sources of financing on the five-year horizon, and monitoring of its companies within the budgeting process. The tasks of integrated ensuring the financial soundness of companies are solved at each level of planning. At the level of strategic planning, the key development areas and assessments of needed resources and capabilities are selected. The task of maintaining the credit rating of the Corporation and efficient allocation of resources for the ambitious strategy of the Corporation is addressed on a five-year planning basis, while the task of efficiency and competitiveness growth of the sector’s operations and of increasing the financial soundness of individual entities of ROSATOM is considered on a one-year planning basis.

The main objective of ROSATOM’s financial strategy is to ensure the financial soundness of the Corporation and its organisations under changing conditions and to arrange for the most efficient financing and management of financial risks.

In 2013, work continued to improve the efficiency of the treasury functions and KPIs in the following areas:

  • consolidation of temporary redundant cash in the pool leader accounts;
  • increasing payment planning accuracy (rolling forecast of liquidity);
  • securing the cost of servicing the consolidated debt portfolio at a competitive level;
  • centralisation of treasury operations (meeting the financial policy requirements).

Improvement of financial capital management efficiency

Priorities of 2013 included improving the efficiency of cash management of ROSATOM’s entities and their security through:

  • accuracy of managerial solutions,
  • higher speed of managerial decision-making,
  • decreasing labour intensity of provision of information.

In 2013, the treasury information system the “Corporation’s Processing Centre” was put into commercial-scale operation. The system encompasses the 127 largest entities of the Corporation. The use of the information system reduced by two times the labour required to produce the treasury management reports. The task of de-bureaucratisation of the process of collection and consolidation of reports from subordinate entities was fulfilled, and the organisations that use the information system were relieved of having to submit five types of reports.

The use of integrating solutions with captive banks ensured unconditional fulfilment of stringent requirements for the information security of payment settlements, that in turn ensured the security of cash, quality and timeliness of bank services and control and accounting of treasury operations, as well substantially improving the efficiency of satisfying the uniform corporate rules of the treasury operations management.

In 2014, work will continue to optimise business processes to identify opportunities of reducing labour costs for treasury operations and reporting, including expense automatisation and the use of the RPS (process mapping, charting methodology of all process interlinks).

In the reporting period, work started in 2009-2010 to centralise treasury operations and intra-group financing development was continued to ensure liquidity for timely and full financing of the investment programme of the nuclear industry entities on optimal terms. Over the period of 2011–2013, the economic effect of the use of the intra-group financing was about RUB 9.8 billion in the sector as a whole, including RUB 3.7 billion in 2013.

To reduce the costs of trade finance transactions and loans, the Corporation continued using guarantees as a means of both ensuring advance repayment and contractual obligation fulfilment in purchases at own and extra-budgetary funds and a measure of reduction of expenditures to attract financing. In 2013, this allowed a saving on commissions for bank guarantees and loan interest of RUB 1.6 billion.

Establishment of JSC AtomCapital (a 100 % affiliate of ROSATOM which functions as the pool leader for intra-group financing of FSUEs) helped to optimise the debt burden among JSC Atomenergoprom and companies and organisations outside its system in 2013. As of 31 December 2013, a cash pool of about RUB 9.15 billion was transferred to JSC AtomCapital.

In 2013, JSC Atomenergoprom was rated by two international rating agencies:

  • Moody’s Investors Service gave the long-term international rating Baa2 with a “Stable” outlook and the national rating;
  • Fitch Ratings gave JSC Atomenergoprom the long-term international maximum possible sovereign rating BBB with a “Stable” outlook and the long-term national rating AAA(rus).

Given the volume of the sectoral investment programme, the ratings are essential for attracting drawings for longer terms at lower market rates.

Improvement of investment attractiveness of the Russian nuclear industry

ROSATOM continued working to improve the investment attractiveness of the Russian nuclear industry, attracting strategic investors to NPP construction projects in Russia and abroad, maintaining relations with current investors and creditors, as well as establishing relations with and limits in new banks:

  • in April 2013, bilateral meetings with the Chinese investment community were held in Beijing and Hong Kong;
  • in June 2013, at the 17th St. Petersburg International Economic Forum, ROSATOM and JSC Sberbank of Russia signed a cooperation agreement, which stipulated the priority areas of the cooperation and interaction procedure of the parties on new projects;
  • in December 2013, in the framework of the International Nuclear Suppliers’ Forum ATOMEX-2013, a round-table session “Financial Instruments to Support Suppliers” was held;
  • in July and September 2013, visits were organised of representatives of Russian and foreign banks to Novovoronezh NPP.

Main finance management problems of the reporting period and solutions

The main problem of finance management in 2013 was a shortage of investment resources. As the cost of drawn financing grows, the optimal terms may be gained through the centralised attracting of loans and by maintaining the high credit ratings of JSC Atomenergoprom. In 2013:

  • work was carried out towards obtaining credit ratings for JSC Atomenergoprom from international rating agencies Fitch Ratings and Moody’s Investors Service, as well as affirming the credit rating at the achieved sovereign level given by Standard & Poor’s;
  • work on the project to set up JSC AtomCapital and transfer FSUE’s cash pool to JSC AtomCapital continued.

Plans for 2014 and on the mid-term horizon

Given the existing risks of growing the debt burden under external factors, in 2014 it is planned to:

  • maintain strict repayment discipline as related to intra-group financing;
  • improve planning accuracy of cash flows in the mid-term;
  • avoid internal competition over credit resources between entities;
  • continue centralising cash management;
  • focus on relations with the core banks as the most reliable partners in terms of availability of funding both in volume of funds and cost;
  • strictly fulfil obligations, including covenants, with existing creditors (including consortium loans) and rating agencies.

Also in 2014, it is planned to broaden the array of financial instruments used to reduce the debt servicing cost and ensure timely and full-scale financing of the sectoral organisations’ investment programme on acceptable terms.

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