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 TENEX » Dear Readers » Appendices » Appendix No. 7. Response to key strategic and financial risks Response to key strategic risks
 

Appendix No. 7. Response to key strategic and financial risks Response to key strategic risks

Response to key strategic risks

RiskResponse
Commodity pricing risk Developing a pricing policy that rules out any excessive risk preparedness (in the future, with involvement of the portfolio analysis methods and tools). Maintaining an optimum balance between the market-oriented and escalated (inflation-induced price growth) pricing in contracts. Reaching agreements with suppliers on pricing mechanisms that “mirror” the pricing mechanism of contracts featuring high commodity risks.
Commodity volume risk Early working out of future order volumes to be contracted with buyers. Assessment of future buyers’ orders based on their interaction history and market situation. Setting quantity flexibilities and options that harmonise volumes of procurements and sales in contracts with suppliers of U3O8, conversion, and SWU.
Market capacity reduction risk Geographic diversification of exports with a focus on growing markets, including the diversification of delivery points (Subsection 4.2.1). Active marketing in the market of fuel for newly built reactors, including alliances with foreign companies to offer packaged services (Subsection 1.6.3).
Competitive environment risks Raising non-price competitiveness through rendering packaged services to consumers and finding new forms and tools of strategic marketing. The work to achieve trading regimes in countries and regions featuring trade restraints, which are acceptable and appropriate for the Company’s competitiveness (Section 1.7). Signing of uranium enrichment contracts with foreign suppliers in terms of the industrial cooperation. Achievement of mutual openness, within reasonable limits, in the information exchange regarding enrichment and conversion capacity development plans.
Political risks Obtaining general export licences (Subsection 4.2.3). Consideration of political interests of the target market states.
Perception risks (reputation risks) Improvement of the Company’s business processes, QMS (Subsection 4.4.1), SCSMS (Subsection 4.4.3), and information security to impeccably meet the Company’s commitments and maintain a reliable supplier image. Inviolable observance of the pacta sunt servanda principle. Continuous outreach to the customers and other stakeholders as justification of the Company’s fulfilling of its commitments irrespective of political factors or situations. Development of a poly-variant transport and logistics chain (Subsection 4.2.1).
Planned transaction failure risk Achievement of compromises with consumers concerning changes in their product delivery due dates on conditions of their changed requirements after the Fukushima- Daiichi accident as the best alternative to deal cancellation. Account of planned deals in the Company’s performance indicators after a reasonable confidence in their feasibility has been reached.

Response to key financial risks

RiskResponse
Currency risk The “natural” hedging of the currency risk through loan agreements and purchases of goods and services (when possible) at the currency of the deal to reduce the Company’s open currency interest. Hedging of the currency risk based on the financial market instruments: currency forwards and/or options (hedging of the currency risk that has run since July 2013 helped to narrow the 80% gains volatility spread by 1.5 times in the reporting year).
Inflation risk Maintaining an optimum balance between the market-directed and escalation (inflationinduced price growth) pricing in the Company’s contracts. Achieving the market and inflation risks between the Company and suppliers of products and services as proceeds from the Company’s objective of taking on the market risks and from the sectoral production companies’ objectives of resisting the inflation price growth through cost reduction.
Credit risks (failure to pay to the Company)

Since 2009, the Company has annually insured its credit risks with respect to contractors who are consumers of uranium products (business risk).

In 2014, the Company plans to shift to a combined credit risk management system:

  • inclusion of terms providing for transition to guaranteed payment modes (advance payment, letter of credit, bank securities, etc.) in all new and altered contracts in case of excess in the credit risk level estimated using a methodology for analysis of financial standing and qualitative characteristics of a contractor’s business continuity threshold credit risk; and
  • insurance of the residual risk of spot contracts and contracts without terms providing for transition to guaranteed payment modes.
Risks of loss of liquidity, financial stability, and borrowing power Control over the observance of covenants (obligations to lending banks to keep the Company’s indicators within the range they preset). Commensurate the required uranium reserves with the borrowing power of the Company. Distribution of risks among the Company and other ROSATOM entities who are the Company’s contractors (Section 4.5).

Response to key operational risks

RiskResponse
Delay of the Company’s goods in the transport and logistic chain Implementation of SCSMS (Subsection 4.4.3) and certification against the standard ISO 28000:2007. Enhancement of QMS on the whole. Stress tests of business processes of the Company and measures to improve them. Elimination of causes of revealed noncompliances. Implementation of projects on improvement of the transport and logistic infrastructure (Subsection 4.2.1).
Untimely obtaining of licences for export and import of uranium products Development and approval of the licence application filling out methodology (Subsection 4.2.3).
Untimely or wrong order of TUKs for uranium product deliveries Allocation and documenting of personal responsibility of employees for proper and timely formalising of TUK orders.
Failures of IT equipment and information resources entailing departures from the normal course of business processes of the Company Development and approval of an equipment maintenance and repair plan and equipment servicing procedures. Conclusion of the essential equipment servicing contracts. Remote access to IT resources. Setting up back-up data transfer lines/units. Computeraided system of filing requests for failure repairs and implementation of the work quality assurance programme.
Risk of failure to detect a material malfunction due to failure of putting risk-initiating aspects on the inspection plan, which leads to sanctions from regulators Appointment of risk owners and charging them, among others, with regular detection and assessment of risks, as well as informing on their level and dynamics (done in 2011).


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