Financial Policy

Financial management is maintained in accordance with the approved Financial Policy of TVEL Fuel Company to be agreed upon with ROSATOM State Corporation.

Main provisions of the Financial Policy:

• TVEL JSC provides overall guidance of relationship between its subsidiaries and financial institutions (base banks, partner banks) regarding the matters of consolidated debt portfolio management, placement of available cash assets, subsidiaries liquidity management, management of payment and cash services for trade finance and currency exchange transactions, hedging and other financial transactions;
• TVEL JSC approves transactions of the subsidiaries regarding attraction and placement of temporary funds. Conclusion of financial transactions (borrowing, except for borrowing from ROSATOM State Corporation), execution of bank guarantees on the part of the principal, issuing and placement of securities, disposal of derivative financial instruments (under contracts that are concluded outside the exchange business, and that provide for liabilities on products supplies), unsecured letters of credits are executed in accordance with the requirements of the Uniform Industrial Procurement Standard.
• The system of borrowings is being implemented with the purpose to optimize the consolidated credit portfolio of TVEL Fuel Company and expenses on attraction of external funding, as well as for central funding of operating activity of subsidiaries of the Fuel Company and current liquidity management.

Budgeting in the subsidiaries of TVEL JSC is set in accordance with the Unified Budgeting Procedure and the standards of ROSATOM State Corporation. Budgets of the subsidiaries of TVEL FC are approved at the meetings of the Board of Directors of subsidiary companies based on the results of consideration of the consolidated budget of the Company by the budget committees of TVEL JSC and ROSATOM State Corporation.

In December 2018, to recover expenses connected with registration of intellectual property items at the external markets TVEL Fuel Company received subsidies from the Ministry of Industry and Trade of the Russian Federation at the amount of RUB 2.330.518.73 (70% of expenses incurred by the Company).

INVESTMENT MANAGEMENT

Investment management system of TVEL Fuel Company is based on the principle of efficiency. TVEL Fuel Company carries out its investment activities in line with the Uniform Industry-Specific Policy of Rosatom State Corporation and its organizations. The Investment Committee of TVEL JSC is a permanent collegiate advisory board (further on — the Committee).

The activity of the Committee is aimed at formulation of the concerted position in regard to:

• investment priorities in order to implement the Business Strategy of Rosatom State Corporation and TVEL Fuel Company;
• structure, parameters of the Portfolio components of TVEL Fuel Company, and amendments thereto, and control over sales of its components at all stages of their life cycle;
• preventive and corrective actions.

Investment control mechanisms include:

1. Collective investment decisions depending on the Portfolio yield and its strategic importance taken by the Investment Committee of TVEL JSC or Investment Committee of ROSATOM State Corporation; concerning the components of Portfolio of new businesses development aimed at creation of new product/service and/or new markets entry, - at the meeting of the Council for Development and Globalization of ROSATOM within the yearly investment limit set by the Strategic Council of ROSATOM (unless otherwise required by the decision of the Strategic Council of ROSATOM State Corporation);
2. Optimal Portfolio budgeting, annual preparation and updating of the business-plan that determines the mid- and long-term prospects of investment activities of subsidiary companies of TVEL Fuel Company, with subsequent approval by the Investment Committee of TVEL JSC;
3. Redistribution within the year of the approved funding limits for financing the implemented, deferred and new (with the exception of new business development projects) - achieved savings by component, formation of a reserve of costly components, distribution of the limit of SSDP500;
4. “Phase gate” approach in Portfolio components management;
5. Certification of the Portfolio components, including elaboration and description of the current state, feasibility studies and implementation plans;
6. Technical and economical audit of the implemented components of the Portfolio.

Results 2018

In 2018, the Investment Committee of TVEL JSC held 28 meetings. Amount of financing of the Portfolio components of TVEL Fuel Company made RUB 31.908 mln (in 2017 - RUB 26.514 mln). Financing of investment projects on the following directions:

• nuclear industry;
• development of general industrial activities;
• development of infrastructure;
• safety and encumbrances, etc.

Amount of the Portfolio financing tends to yearly fluctuations, as it depends on combination of different stages of life cycle of the components available (more than 200) at the same time.

Funding of industrial and technological base accounts for the biggest share in overall investment outlay.

Efficiency of investment activity in TVEL Fuel Company is estimated using the Investment activity integrating efficiency indicator. This indicator consists of several elements that describe efficiency by directions:

• short-term investment activity efficiency;
• long-term Portfolio efficiency
• quality of major projects implementation that enables estimation of key events performance indicator for the current period.

According to the results 2018, the Investment Activity Integrating Efficiency Indicator of TVEL Fuel Company is 98.10%.

FINANCIAL RESULTS

Changes in total revenue 2018 by 10% as compared to the previous reporting period are stipulated both by one-time events, such as shipment in 2017 of initial loading fuel for new power unit of Rostov NPP, and by changes in the orders volume under the contract conditions, and influence of prices and exchange rates.

The main part of revenue of TVEL Fuel Company comes from sales of nuclear fuel and its components (65.1%), and rendering of conversions and enrichment services (16.9%), and sales of other products (15.4%); R&D accounts for 2.6%.

Downward trend for net profit of the Company (-11% as compared to 2017) is connected with changes in total revenue and increase in revenue through exchange differences.

Decrease in net profit had an impact on slight decline of profitability indices.

In 2018, the export products were sold to the total amount of USD 961 mln. Sales of nuclear fuel and its components amount to 93.7% — the largest share in the export revenue.

In 2018, share of revenue received from FA sales made RUB 100.532 mln – 62% in total consolidated revenue. Main consumers are Russian and European NPPs.

Following the results 2018, volume of sales from general industrial activities increased by 22.8%, to RUB 13.494 mln.

Financial soundness and liquidity indicators of the Company are at high level. In 2018, the current liquidity ratio improved considerably.

Dividend policy of TVEL JSC with regard to subsidiary companies is set with account of need for investment in production, its reconstruction and improvement of technical facilities.