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The Company’s key risks, risk response, and management measures

In the reporting period, the Company continued the practice of risk rating through inquiries of the Company’s top managers, risk owners, and other key employees. The inquiry objective is to build up a list of the 15 (Top-15 risks) most significant risks to the Company out of the general register of identified risks covering three time periods, i.e. in the coming year, mid-term, and in the strategic planning horizon.

In the reporting period, the Company continued the practice of risk rating through inquiries of the Company’s top managers, risk owners, and other key employees. The inquiry objective is to build up a list of the 15 (Top-15 risks) most significant risks to the Company out of the general register of identified risks covering three time periods, i.e. in the coming year, mid-term, and in the strategic planning horizon.

A relative risk value of Top-15 measure against the 2012 values is given on the “risk radars” below. The risk radar on the left shows the relative significance of risks in the short-term (2014), mid-term (2014–2016), and strategic (until 2030) time intervals. The risk radar on the right shows the risk level dynamics as estimated in the IV quarter of 2013 compared to the estimates made in the IV quarter of 2012 (for the purpose of comparison, the mid-term estimated risks are shown).

As compared to 2012, the significance estimation greatly increased with respect to the following classes of risk:

  • commodity price and volume risks because of the drop in demand for NFC products and services continued in 2013, meaning a decrease in the quotes for these products and, as a consequence, the potential refusal of the Company’s partners to get option quantities; and
  • currency risk because of the continuing high level of turbulence in global financial markets.

The greatest change in the significance estimation downward from 2012 is seen in terms of:

  • financial stability drop risks and risks of the impossibility of borrowing required funds as a result of the Company’s measures to stabilise financial indicators (reduction of proceeds volatility and revenues through the hedging of the currency risk); and
  • perception risks (reputation risks) as a result of the Company’s measures to implement systems of quality management, security of the chain of supplies, and information security management as well as continuous interaction with contractors or other stakeholders to clarify more objective assessments of their risks when interacting with the Company (including the clarification that the Company meets its commitments, irrespective of political factors and business trends).
The VaR was also assessed by the adjusted free cash flow (AFCF

Adjusted Free Cash Flow
) due to the fact that in 2013, ROSATOM moved to measure the efficiency of its divisions by AFCF

Adjusted Free Cash Flow
; traditionally they had been measured by proceeds.
The VaR quantitative assessment is carried out mid-term related to certain financial and strategic risks, which are based on the uncertainty (volatility) of future market quotes for natural uranium

EA material with low activity and a uranium-235 content equal to 0.7%.
, the conversion and enrichment services, and macroeconomic parameters, i.e. inflation indices, interest rates, and some other market uncertainties.
The VaR was also assessed by the adjusted free cash flow (AFCF

Adjusted Free Cash Flow
) due to the fact that in 2013, ROSATOM moved to measure the efficiency of its divisions by AFCF

Adjusted Free Cash Flow
; traditionally they had been measured by proceeds.
The results of the VaR assessment made in 2013 for a mid-term, three-year planning horizon (2014–2016), with regard to risks that are estimated quantitatively, show that a contribution of the currency risk to proceeds (А) and EBITDA

Earnings before Taxes, Depreciation, and Amortisation.
(B) is the largest risk in the coming year and reduces in subsequent years, while the commodity price risk otherwise grows.

The Company’s ability to effectively manage the currency risk is much higher than that of the commodity risk. Poor manageability of the commodity risk in mid-term planning is explained by various objective causes, including the practice of long-term contracting with five to ten (and more) years of delivery that is specific to the global uranium market, as well as the period between the contract signing and first year delivery, which may be several years in length; the buyer’s prerogative regarding the selection of option quantities and specification of delivery volumes under so-called requirements type contracts (RTC); the dependence of natural uranium

EA material with low activity and a uranium-235 content equal to 0.7%.
contract prices on future market quotes and inflation indices, of which the volatility is rather high; and the absence of, or poor and low-liquidity market of, financial instruments (derivatives) tied to uranium product prices.
In this situation, the Company provides, and plans to provide in the future, its risk preparedness in terms of the proceeds, EBITDA

Earnings before Taxes, Depreciation, and Amortisation.
, free cash flow, and other financial indicators in the fiscal year and mid-term by primarily hedging the currency risk; beginning in July 2013, it helped to reduce the 80% proceeds volatility range by 1.5 times.

Proceeds distribution before and after currency risk hedging


Proceeds departure from target

In order to optimise the commodity price risk in the strategic planning horizon, the plan is to implement the portfolio analysis method, implying an estimation of the available contract portfolio in the risk-benefit coordinates to identify the boundaries of efficiency when making new contracts, an adjustment of the obtained boundary with consideration of the market situation changes, and the verification of new commercial offers based on their conformance to the efficiency region, given the changing market conditions.

Appendix No. 7 describes the most significant risks for the Company (of the said Top-15 list) and the operational risks that exceeded the threshold value as a result of FMEA23.

23 The English language term is “Failure Mode and Effects Analysis”.


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