2.2. Financial Capital 

This section includes information about construction cost management and investment management, key financial results.
GRI 102-48

Nikolay Podorov,
Senior Vice-President
for Economy and Finance

What are the most significant outcomes of the reporting year?

The important outcome of the Company’s activity based on the results of 2016 was the increase of the portfolio of foreign contracts by more than 30 % in comparison with the previous period. The increase of portfolio of orders, first of all at foreign markets, gives reasons for positive forecasts and for company’s sustainability for the long-lasting planning perspective. At the same time, regarding the quantity of power units, the number of which in portfolio amounts to 33 power units upon the results of the year, the Company continues maintaining its leadership on the global market holding more than 30 % of the global NPP construction market.

Following the results of reporting period, the significant EBITDA growth in comparison with the previous year can be considered as one more our achievement. Upon the results of 2016, EBITDA has amounted to 32.4 bln rubles. Significantly, this achievement has been ensured due to obtaining of the reimbursement for the Belene Project, but due to implementation of the measures on increasing efficiency of main operational processes as well. Increase of the labour productivity as per the own income by 10 % in the reporting year confirms the abovesaid.

What are the main priorities for 2017 and mid-term prospects?

Besides its own main functions aimed at providing support to operational processes in the Company, the most important task for the Finance and Economy Divisions for a midterm prospect is the following increase of efficiency of the economy management in each individual project. This assumes the following introduction of the cost management tools in all Company’s projects, as well as execution of the plan of actions within the framework of implementation of industry total cost and time management system TCM NC.

2.2.1. Financial Capital Management

Construction Cost Management

The construction cost management procedures for facilities constructed in Russia are automated through the Automated Cost Management System (ACMS) module. The system is online accessible for the Investor, Customer and the EPC-Contractor.

ACMS is implemented at the Rostov, Kursk and Belarus NPP projects.

ACMS functional characteristics allow to:

  • estimate the forecasted construction cost throughout the years of construction;
  • generate the limited cost to the level of LSE/FSE;
  • generate starting price level with account of the limits;
  • accumulate actual project costs for the structure of costs;
  • execution control of limits in the course of construction;
  • forecast the construction cost under various scenarios of macroeconomic indices.

At the Novovoronezh NPP-2 Unit 2 site, ACMS functional features are implemented on the basis of the operating 1C platform. The system is put into the trial commercial operation and processes the operating data. The forecast of the cost before the completion of construction is calculated using the functionality of Novovoronezh NPP ACMS.

The cost management for foreign projects is implemented in the Integrated Risk Management System (IRMS) software package based on the 1C platform.

IRMS functional exploitation:

  • keeping records of the full cost of construction, taking into account specific features of the foreign contracts;
  • cost accounting in several currencies (multi-currency support);
  • introduction of cost limits for cost items in the required detail;
  • accumulating actual project costs for the structure of costs;
  • follow-up and review of execution of the limits on the actual construction;
  • delimitation of access to the data based on the role matrix.

In connection with the implementation of the industry solution, i.e – Milestone IPMS system on the S / 4 HANA platform, the transition from ACMS and IRMS to a new unified platform is planned.

In accordance with the decision of the ROSATOM Strategic Council, the Program for implementation of the integrated system of the complex TCM NC cost and time management was approved to develop the "Cost management” element of the Multi-D industry platform. The program is necessary to improve the effectiveness of assessment, planning and cost control processes, as well as to reduce the cost of NPP construction projects.

Total Cost Management Nuclear Construction (TCM NC) is a system of the ROSATOM integrated project cost and time management, which is based on branch-specific knowledge, complex methods and processes used by the enterprises to manage investment costs in strategic assets within the portfolio throughout their whole life cycle.

TCM tasks:

  • a credible valuation estimation of project costs;
  • achievement of target indicators in terms of the project cost and time;
  • an effective management system that is understandable for foreign investors.

The key project of the Program is "Development and implementation of the Integrated Cost and Time Management Information System".

Financial capital is a reserve of resources the Company has to be used in production of goods/services rendering and which is generated as the result of commercial and investment activity, as well as received through financing (debt, shared capital). Financial capital management is effective use of all financial instruments to implement the Division strategic goals.

Scrollable table
Cost Management Stages in the Concept of the Unified Information Space
Item No.StageStage Description
1 Calculation of cost at the pre-project stage Formation of the cost at the pre-project stage is performed on the similar objects, taking into account the planned changes and depending on design solutions, geology, climate, seismic features of the construction site and the subsequent parametric modeling based on the previously concluded contracts and the final expert assessment of the current and estimated cost.
2 Calculation of cost at the stage of the detailed design documentation issuance and implementation The subsequent clarification of cost with account of the issued detailed design documentation and actual capital investment performance, construction deadlines according to the level 3 schedule.
3 Setting the limits to NPP construction cost Updating the cost in view of cost and time optimization and risk assessment.
4 Cost and change control Compilation of the analytical reports and plan-fact analysis (PFA) for CI implementation, elaboration of remedial measures.
5 Decision-making on modification of the planned cost Following the implementation of remedial measures and with account of the analytical information on CI and PFA.

Tendencies in the Cost Management System Development

Investment Management

The investment performance management process in the Division is arranged in accordance with regulatory documents and standards of ROSATOM and JSC ASE EC local regulatory acts.

The primary internal regulatory document that governs investment processes of the Engineering Division and determines the uniform rules for cooperation between the Division’s subdivisions when making and implementing investment decisions is CS 35.02-15 "Investment Activity Management".

The main parameters of the Division’s investment program are determined by the decisions of the ROSATOM Investment Committee.

The Investment Committee of JSC ASE EC, JSC ASE, JSC Atomenergoproekt and JSC ATOMPROEKT is the authority that makes investment decisions in ASE Group. This is a collective body that implements principles of the single industrial investment practice of ROSATOM and its companies.

To ensure the continuity of the principles of the industry's investment policy, the Division’s Investment Committee includes representatives of ROSATOM.

Starting from 2015, the Division has introduced a Task Group of the Investment Committee intended to improve the efficiency of investment activities and control over the implementation of investment decisions.

Main Results of Investment Management Improvement in 2016

  • Adoption of gate approach practice in management of investment projects, thus allowing to ensure more effective structure of the Division investment portfolio.
  • Implementation of the unified industry project management System.
  • Formation of practice of monthly reports on meeting the deadlines of key project stages.
  • As part of the investment planning for 2017, the feasibility study of investment applications of the Company’s subdivisions was carried out, followed by investment programme optimization by 1,478 mln rubles without changing the project deadlines and targets.
  • Assurance of performance of key portfolio indicators required by the superior organization in the current and forecast periods;
  • Including of individual indicators in investment project managers KPI cards in order to ensure implementation of the stated portfolio parameters.

Plans for Mid-term Investment Management

The mid term (3–5 years) investment management intends to ensure:

  • Automation of investment decision-making processes in the implementation of adjustments to the investment budgets of the Division's organizations through the use of a specialized internal business process information management system.
  • Adaptation for the Engineering Division’s business purposes of the method for carrying out a feasibility study based on industry standards used to further optimize the Division's investment costs.
  • Red tape reduction in initiating new investment projects by the Division's units by for reducing the excessive administrative burden on project managers.
  • Development of motivation principles for the Division’s organizations in order to identify and implement investment projects for new business lines of the Engineering Division.
  • Development of an internal standard for planning and accounting of innovative R & D projects to develop one of the priority areas of the Division's investment programme.
Bushehr NPP (Iran)
Click image to zoom

Investment portfolio

The investment portfolio of the Division includes the projects aiming to maintain the Division's main activities in the area of object design and construction programmes implementation as part of participation in ROSATOM’s investment and construction projects.

The Breakdown of Division’s Investments in 2016

The Breakdown of Division’s Investments Planned in 2017

The priority task in the implementation of investment projects to equip construction sites is to provide production needs for the timely execution of contracts for the construction of the Rostov NPP, Novovoronezh NPP-2, Belarus NPP, Kursk NPP, Bushehr NPP, Ruppur NPP and other facilities constructed as part of the implementation of investment and construction projects of ROSATOM.

IT projects implementation aims to upgrade the key assets, in particular, electronic computing equipment and provision of production processes with automation and software tools.

Infrastructural investments provide the necessary renewal of fixed assets and the required level of safety.

Financing of investment projects is implemented at the expense of the consolidated investment resource of ROSATOM.

Scrollable table
Results of Implementation of the Major (in terms of financing) Investment Projects
Groups of projectsProject description2016 results

Motorization of construction sites for performance of CEW

Equipping NPP construction sites with required mechanisms having high lifting capacity, equipment and fixtures for construction and installation works. The project implies purchasing construction machinery to fulfill the Division’s duties as the EPC-Contractor, including provision of subcontractors with expensive machinery on a rental basis. The project implementation excludes the risk of failure to meet the delivery date of construction, since contracts with the subcontractors can be concluded regardless of the availability of construction machinery.

The major portion of investments is spent on the equipment of construction sites for Belarus NPP (purchasing construction machinery and fixtures for the main construction stage) and Kursk NPP-2 (purchasing machinery and mechanisms for preliminary stage of NPP construction).

In 2016, the delivery of the key equipment for the construction of these facilities was financed in the amount of 348 mln rubles including: Two Putzmeister concrete pumps, an assembly truck of 400 tons carrying capacity t and two gantry cranes of 50 tons carrying capacity, four KAMAZ dump trucks, a Volvo truck tractor.

IT-projects

Introduction of unified information space systems in JSC ASE EC, JSC ASE, JSC Atomenergoproekt and JSC ATOMPROEKT (serial replication of information systems for NPP projects).

The Division's key assets were upgraded though purchasing state-of-the-art computers, office equipment and communication devices.

The process of the Division’s IT infrastructure optimization as part of creation of the unified information space has started to reduce the number of information systems used to improve the efficiency of processes in the areas of the Division's interfaces: ROSATOM State Atomic Energy Corporation, customers, suppliers of equipment, partner organizations.

In 2016, the Strategic Council of ROSATOM approved the new "Replication of corporate ERP systems in the “Engineering and Construction” Division investment project.

The project aims at creation of a single reliable corporate information source for the Engineering and Construction division for the control panel of the Director General of ROSATOM.

As part of the project, end-to-end business processes are being automated:

  • Contact to Cash (from the first contact with the Customer to receipt of cash).
  • Design to Supply (from design to supply and installation).
  • Presentation in a unified information system from JSC ASE EC Russian and foreign branches and from subcontractors.

Also, the Division's main business will be transferred to a unified corporate information system instead of a set of traditional systems.

The main objectives of the project implemented in the reporting year:

  • Automation of capital construction and local accounting of foreign branches, as the main project priority.
  • Optimization of existing business processes to be transferred to SAP, while maintaining (not decreasing) the existing Division automation level.
  • Development and implementation of technical and organizational decisions on the connection of foreign affiliates, which ensures the deployment of Milestone IPMS in the corporate data center.
  • Replication of CFT (corporate financial template) in JSC ASE EC.

R&D

Implementing R & D projects aims to develop innovative design and engineering solutions in the following areas:

  • Maintenance of hydrogen-potassium water chemistry;
  • Generation of software tools and design codes for design;
  • Storage of spent ion-exchange resins;
  • Creation of metal thermal insulation for pipelines.

A positive expert opinion was received based on the results of the expertise carried out by the "Scientific and Technical Center for Nuclear and Radiation Safety" Federal Budgetary Institution, of the Kupol-M software tool designed to calculate environmental parameters in the scope of WWER NPP containments to substantiate the safety of NPPs under construction.

The software for calculation of thermal hydraulic systems for the "Virtual NPP power unit" software-technical complex has been developed. According to expert estimates, it allows to shorten the time for complex systems modelling as compared to the currently used tool, for up to 6 calendar months.

Scrollable table
ROSATOM Engineering Division’s Investments Breakdown, mln RUB
Name of legal entity 2014
fact
2015
fact
2016
plan
2016
fact
Δ 2016–
–2015, %
2017
plan
JSC ASE114.12118.15156.87118.781012,248.48
JSC ASE EC767.73887.911,464.36701.14793,155.21
JSC Atomenergoproekt308.38151.34386.10302.76200412.59
JSC ATOMPROEKT77.57231.48288.62269.88117199.69
NUKEM (including: Nukem)7.445.1710.537.6314817.59
JSC NIKIMT-Atomstroy19.65133.0569.8759.8245121.57
Trest RosSEM LLC13.4911.815.374051.82
JSC Energospecmontazh51.744.073.843.709119.22
Total scope of investments1,346.641,544.652,392.001,469.09956 226.18

Investments in fixed income are growing annually. The trend in CAPEX sustainable growth is seen from 2014. The tendency to increase the amount of investment projects over 2014–2017 has been reported.

The priority task in the implementation of investment projects to equip construction sites is to provide production needs for the timely execution of contracts for the construction of the Rostov NPP, Novovoronezh NPP-2, Belarus NPP, Kursk NPP, Bushehr NPP, Ruppur NPP and other facilities constructed as part of the implementation of investment and construction projects of ROSATOM.

IT projects implementation aims to upgrade the key assets, in particular, electronic computing equipment and provision of production processes with automation and software tools.

Infrastructural investments provide the necessary renewal of fixed assets and the required level of safety.

Financing of investment projects is implemented at the expense of the consolidated investment resource of ROSATOM.

Most of the deviations of the planned values from actual ones in 2016 is caused by the updating of the schedule of delivery of construction equipment in accordance with the current production need. The significant growth of the plan in 2017 as compared to 2016 is related to the plan of project implementation for motorization of the construction site in the People's Republic of Bangladesh (Rooppur NPP) for construction and assembly works of the main construction period.

Investment Efficiency Indicators

The overall effect of investments for the Division consists in the upward trend of financial and economic performance indicators and the growth of productivity in the Division companies.

The main indicator established by the ROSATOM for monitoring the effectiveness of the investment programme is the integral investment performance indicator of (IIPI), which takes into account the compliance of the estimated return profitability on the planned portfolio of projects, as well as the fulfillment of the key milestones of investment projects established for the current year.

The value of the Division’s IIPI based on 2016 results amounts to 108 % (with the target level being 100 %).

Infrastructure Investments Trend

The portfolio of the Division's projects assumes investment costs solely in terms of financing activities for upgrading and renovation of capital assets owned by the Division’s organizations.

In the territory of Russia, the Engineering Division implements infrastructure investment projects for renovation of the fixed assets, such as: upgrading of IT equipment, reconstruction of production buildings, security of production facilities.

Projects are implemented in Russia too, to retrofit construction sites of the Kursk NPP, Novovoronezh NPP-2 and Rostov NPP.

The Division implements investment projects outside Russia that envisage to:

Taking into account the specific features of the investment projects and the structure of the Division's fixed assets ownership, the current investments in infrastructure and social facilities in the Russian Federation regions are implemented indirectly, through cooperation with ROSATOM organizations or participation in charitable events.

2.2.2. Financial Results*

The medium-term planning, the key tool of which is a 3-year business plan, on the basis of which planned values for 2017 are given in this Report, is applied in the Engineering Division.

* The indicators of the Division financial report (GRI 102-48).

Revenue, bln RUB

In 2016, the revenue trend data is accounted for by the reduction of active projects: Some projects are being finalized (Novovoronezh, Rostov, Tianwan NPPs) In 2017, it is planned revenue increase the income through beginning of active operations under new projects.

Expences, bln RUB

The trend in expenditures in 2016 is directly connected with the change of the production programme. The growth of labour productivity had a positive influence.

EBITDA, bln RUB

The significant growth in the actual level of the EBITDA for 2016 is accounted for by the Customer’s reimbursement pays-off awarded by the Tribunal in favor of JSC ASE EC for cancellation the Belene NPP construction project (Bulgaria) (see Results of Production Activities).

Gross Profit, bln RUB

The result of the efficient cost management was the upward trend of gross profit.

Added Value/Revenue, %

The growth of the indicator in 2016 is related to the positive trend in the operational profit.

Profitability Ratios, %

Scrollable table
Name2014201520162017
Forecast
EBITDA profitability-3.12.721.26.0
EBIT profitability-4.02.320.75.5
Net return on sales (ROS)-0.8-0.93.20.2
The trend of profitability indicators is accounted for by the growth of the operational profit.
Next section
Intellectual Capital Here one can read about Knowledge management system, intellectual property portfolio and Rosatom production system.
Previous section
Manufactured Capital Management This section describes key features of Division project management system, procurement management including procurement results, information about NPP construction and other business performance results.