Energia s. P. Korolev Rocket and Space Corporation Energia
Internal control and risk management
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- Bu səhifədəki naviqasiya:
- Internal control and audit
- Information about the Corporation Auditing Committee
- Membership of RSC Energia Auditing Committee during 2014
- Remuneration paid to the Auditing Committee members in 2014
Internal control and risk managementDescription of the key risk factors associated with the Corporation activitiesInformation about possible circumstances which can hamper progress of the Corporation business (legal, financial, industry risks, country and regional risks; risks associated with the Corporation operation). Risks related to acquisition of issuing securities placed. Investments in the Issuer securities involve a certain degree of risk. In this connection, in taking investment decisions potential investors shall thoroughly study the risk factors given below. In addition, provisions of this paragraph do not take the place of own analysis of investment risks on the part of shares acquirers. The Issuer cannot guarantee that the risk factors to be determined are complete and exhaustive to take a decision on acquiring the Corporation shares. In the course of its activity, RSC Energia is running a considerable risk of being affected by current political, economic situation and the situation on the Russian Federation financial markets. In the course of its operation, RSC Energia considers both internal and external factors associated with economic and political trends, the situation existing on space services market and other risks, character and level of which do not fall under immediate control of the Corporation. In order to reduce some of the risks to the extent possible, the Corporation undertook some protective measures having to do more with implementation of the main production program of the Corporation (in particular, insurance against some risks is common). However, it should be noted that working out preliminary adequate measures to counteract unforeseen events is difficult due to uncertainty about how the situation unfolds. Risk control function is distributed in the Corporation, i.e. risks identifying and analysis; taking and implementing decisions required to counteract/minimize risks consequences are undertaken by top managers responsible for respective lines of activity:
When responsible top manager does not have enough authority for decision taking or risk may affect several lines of activity, the Board of Management and RSC Energia President are to be involved. Space industry risks At the present time, demand for space services (both manned and unmanned) on the world market is gradually increasing. After closure of the Space Shuttle Program, Russia dominates on the manned flights market. The demand for RSC Energia – made manned transport space vehicles such as the Soyuz and cargo vehicles Progress from a near-term outlook (throughout ISS operational use as a minimum) is expected to be stable. It is determined by the need to meet international commitments by Russia to deliver crew members and cargoes to support the ISS operation (including fuel supply). Since 2012 the US Agency NASA was capable to provide cargo traffic and return cargoes from the ISS via cargo space vehicle Dragon. Since 2013 the same tasks can be performed by means of cargo space vehicle Cygnus as well. Therefore, cargo traffic by means of Progress space vehicles has been somewhat reduced. Steady demand is expected for the Corporation activities on the ISS utilization and purpose-oriented use, including international projects for Earth and space exploration from the ISS; building new ISS elements; advanced developments in the field of manned cosmonautics, including development of an advanced manned transportation system and long-term programs of deep space exploration. As the US companies continue to implement their plans for building manned space vehicles, Russia’s dominance on the manned space flights market will not be held for a long time (according to the forecasts). The Corporation has no competitors in this area on the home market. The main competitors of the Corporation in cargo delivery to the ISS and back are two commercial unmanned logistics vehicles developed under NASA’s order within the Commercial Orbital Transportation Program (COTS). These vehicles are Cygnus made by the Orbital Sciences Corporation whose pioneer commercial flight took place in January - February 2014; Dragon developed by the SpaceX which has been flying to the ISS with payloads since October 2012. Under the NASA/SpaceX Contract, it is planned that Dragon vehicles will deliver cargoes and later (after 2017) astronauts to the ISS. Moreover, the SpaceX (manned modification of Dragon vehicle) and the Boeing (CST – 100 space vehicle) concluded next contract with NASA in September 2014 under the commercial manned vehicles development program. The above space vehicles are to perform first trial manned space flights to the ISS in 2017. Should they be successful, they will be granted special certificates authorizing to perform scheduled flights to the ISS. With a systematic improvement of Chinese manned space vehicle «Shen Chzhou» and building Chinese national orbital station «Tyangun», the risk of a reduced demand for Russian manned space vehicles without their technical and cost characteristics being improved will significantly increase on the world market too. Prospects for further development of Russian manned cosmonautics in the field of transport space vehicles depend upon building a new-generation manned transport vehicle. One of the most critical factors determining space industry risks is cost of an orbital flight per man as well as cost of mass unit orbital insertion and payload volume unit orbital insertion. For the Corporation space industry risks are associated with an increase in the product cost and the ratio between dynamics of this increase and world analogues. The Corporation is also running the risk of restrictions being imposed while cooperating with foreign customers and suppliers of completing items due to the sanctions introduced by European Union and the USA relative to Russia. Therefore, the need may arise to undertake additional efforts to replace foreign-made completing items. At the present time, demand for space services using unmanned spacecraft on the Russian and world markets tends to grow steadily (satellite services market is the largest on the world space market). Major directions of commercial communication and broadcasting spacecraft manufacture market development worldwide are currently the following:
In so doing, there is a certain risk of potential lag in technology of national SC manufacturers which is due to some extent to insufficient quantity of electronic components and materials with the required performance made in Russia. There exists the risk of restrictions being imposed while cooperating with foreign suppliers of electronic parts (components) and materials due to the sanctions initiated by the European Union and the USA and, accordingly, the need for undertaking additional efforts to replace foreign-made electronic components and materials. The most critical factors determining space industry risks on the world market for unmanned spacecraft manufacture are the following:
Also it is worth noting that there is robust competition among national manufacturers of spacecraft such as OAO Information Satellite Systems after academician M.F. Reshetnev, GNPRKTs TsSKB-Progress, FSUE Scientific and Production Association after S.A. Lavochkin, etc. In order to prevent possible negative consequences of space industry risks, RSC Energia pursues an active scientific-technical policy of participation in the RF Federal Space Program, conducts continually search for potential Russian and foreign customers of satellites and foreign partners interested in advanced space technologies. RSC Energia gives great attention to research and development activities on improvement and mastering new technologies for building unmanned spacecraft. Work is currently underway for building a new modification of multipurpose space bus. In order to master and introduce advanced technologies in designing and manufacturing of SC for different applications, the RSC Energia extends cooperation with the leading European company Airbus Defence & Space including joint activity within joint venture “Energia-Satellite Technologies (OOO Energia SAT). As to RSC Energia-made upper stages DM which are operated with Proton and Zenit launch vehicles, the Corporation competes with Russian manufacturers of upper stages such as FSUE GNPTs after M.V. Khrunichev (Briz-M upper stages which are operated with Proton-M launch vehicle) and FSUE NPO after S.A. Lavochkin (Fregat-SB upper stages which are designed to operate with Zenit and Soyuz launch vehicles). The Corporation, therefore, is busy all the time with efforts to improve and upgrade technical and operational characteristics of upper stage DM which present, by current estimates, one of the best choices worldwide in energy efficiency, accuracy in delivery of «heavy» payloads (SC) to desired high-energy orbits/flight courses, ecological safety. Country and regional risks Core activities of the Corporation are concentrated in Russia. The enterprise operation can be impacted by the risks associated with political situation and industrial production downturn. The political situation is getting worse due to the geopolitical processes displaying themselves in Ukraine, as well as economic sanctions imposed on Russia. Also it is necessary to consider a possibility of economic destabilization in the country related to crisis on financial markets and further decline in oil and gas prices. In addition, the Corporation activities may be affected by the risks caused by phasing out of production or short deliveries of certain commercial component parts which could enhance risks of nonfulfilment of some contracts for product deliveries. The Corporation is registered and conducts its activities in dynamically developing region, namely Moscow Region which is one of the most promising regions of Russia, with fast-growing economy. Moscow Region is an economically stable area. Geographic features of the region account for extremely low risks of exposure to disasters (including hurricanes, floods, earthquakes, etc.). The region is located in the central part of the Russian Federation where transportation is well developed. Moscow region is connected via motor, railway and air transport with all Russian regions, as well as all countries, which entirely excludes the risk of possible termination of transportation due to remoteness of the city and/or its being difficult of access. Moscow Region is regarded as one of the most politically stable areas which does not border directly upon zones of warfares, as well as the regions, in which there is a high probability of introducing state of emergency. At the same time, geographical remoteness of the Corporation from sites of vehicles prelaunch processing on Processing Facility and Launch Complex of cosmodromes (including Baikonur Cosmodrome) determines arising of risks of the Corporation property loss and damage during its transportation to point of destination. The Corporation provides for insurance against these kinds of risks. Due to the fact that the Corporation conducts its activities on the territory of the Republic of Kazakhstan (Baikonur Cosmodrome), impact of country risks associated with unfavorable development of political and economic factors on interstate relations is possible. However, the agreement concluded between Russia and Kazakhstan on the use of Baikonur Cosmodrome up to 2050, as well as entry into force of the Treaty on the Euro-Asian Economic Union planned for January 1, 2015 within the framework of which free flow of goods, services, capital and manpower will be ensured allow to assess risk like that as insignificant. Due to the fact that the Corporation is involved in a number of projects for foreign customers located in African countries, unstable political situation in the above region might have an adverse effect on the Corporation operation due to a possible customers withdrawal from the contracts. Financial risks Inflation risks, changes in exchange rates and interest rates on credits affect RSC Energia operation and its financial stability, as well as size of proceeds of the sale of goods (works, services) and profit. Inflationary processes which result in costlier products and materials used in economic activities could produce significant negative effect on the Corporation net profit margin in case of absence of compensating component in the price of products to be sold. Inflation creeping upward may become a reasonably significant factor, because it will result in escalation of costs of products manufacture which could affect adversely the Corporation operation. By RF CB forecasts, inflation may vary in 2015 from 8% at its beginning to 11.5 % at the year end. Changes in interest rates can affect the Corporation financial – credit activities, because the enterprise is active in using borrowed funds during performance of its activities. Exchange rate risks are important for RSC Energia due to the fact that the Corporation is the exporter of science-intensive and high-technology products; accordingly, part of proceeds are in US dollars or Euros; in so doing, basic part of expenses are in rubles. Therefore, changes in inflation rates and exchange rates have a considerable effect on the Corporation financial-economic performance. Value dating of the contracts entered into with foreign counterparts is carried out in US dollars and Euros, therefore the Corporation benefits by their high exchange rates to ruble. Legal risks One of the most important components of legal risks is tax risk. One of the peculiarities of the Russian legislation on taxes and charges is its continuous changeability. The laws making amendments to the Russian Federation Tax Code with respect to changes to specific tax calculation and payment procedure are passed annually. This adds complexity to making medium-term and long-terms forecasts for taxpayer activity, complicates tax planning as a whole. Instability of tax regulations exposes the Corporation to risk of being charged and having to pay rather high penalties and fines (despite its intention to operate in strict compliance with the legislation), as well as can lead to an increase in tax burden as a whole. The Corporation continues to carry out an analysis of amendments to existing tax legislation with the aim to reduce tax risks. Changes in the rules of customs regulation caused (among other things) by accession of Russia to WTO membership can have quite a considerable impact on the Corporation operation. During the accounting period, there has not been significant changes in the rules of custom clearance which could increase risks of the Corporation in this area. The Corporation participates in foreign economic relations; part of its liabilities are expressed in foreign currency; therefore, it is exposed to the risks associated with exchange adjustment change. The process of foreign exchange legislation liberalization is currently underway; significant changes in exchange adjustment rules during the accounting period were not observed; in this connection, these risks are regarded as low risks. During the accounting period, no changes in judicial practice on the matter related to the Corporation operation (including licensing problems) which could adversely impact the Corporation performance, as well as the results of current legal proceedings, in which the Corporation is involved, have taken place. Appendix 13 to the Annual Report presents information about the risks associated with specific legal proceedings. Changes in the requirements for licensing of the Corporation core activities could result in some additional expenses of the Corporation related to getting a new license, extension or change of the already available license; however, the Corporation forecasts the risk of occurring such events as unlikely. RSC Energia meets all license requirements established by active legislation in due time and in full volume; no difficulties whatsoever in extending validity of the available licenses are forecasted by the Corporation. Appendix 13 to the Annual Report provides information about ongoing court proceedings where the Corporation acts as a plaintiff or defendant on debt claim. Risks related to the Corporation operation Possible loss of customers, turnover with which accounts for at least 10% of the total proceeds of the issuer products (work, services) sale, is insignificant, because during the five complete fiscal years the Russian Federation has been such a customer, in the name of which Federal Space Agency acts. In addition, the Corporation activities are covered by the RF Federal Space Program for a period from 2006 through 2015 and draft Federal Space Program for a period from 2016 to 2025. Since October 1, 2014 amendments to the Russian Federation Civil Code concerning Section VII of Chapter 4 “Rights to Intellectual Property Results and Means of Individualizing”, introduced by Federal Law No.35FZ of 12.03.2014 have become effective. No significant risks associated with the amendments made exist for the Corporation. The Corporation liability for debts incurred by its subsidiary companies may arise in accordance with the RF current legislation. In accordance with the Russian Federation Civil Code provisions and provisions of the Federal Law “On Joint-Stock Companies” No 208 of 26.12.1995, shareholders of Russian joint-stock company are not liable for commitments (debts) of its subsidiary companies and are only running the risk of their investments loss. However, in some cases specified by legislation when “the parent company” is in a position to define decisions to be taken by “the subsidiary company”, “the parent company” may be brought to joint responsibility or subsidiary liability. Accordingly, RSC Energia as the parent company of the subsidiary companies, in which RSC Energia owns more than 50% of the Charter capital, has the right to give binding instructions and may become liable for their debts. Performance of similar obligations may affect adversely the Corporation performance. However, taking into account absence of legal proceedings in which the Corporation acts as the defendant on liabilities incurred by subsidiary, affiliated and other companies, the Corporation does not find materiality criterion in the risks related to occurrence of liability for third persons debts, including its subsidiary companies. Corporation manufacturing activity involves a possibility of causing damage to environment and risk of civil responsibility arising from it due to expenses on efforts to be made to repair such damage. In order to mitigate such risks, the Corporation monitors all manufacturing processes with the aim to adhere to the corresponding environmental protection standards throughout all phases of its activity; implements measures to ensure environmental protection and mitigate environmental impact. The Corporation is granted the Ecological Certificate of Conformance, registration number SER(2062) – G – 24/OS – 61, date of issue – 05.06.2014, issued by OOO NVTs “Ecosafety” of the Russian Federation Ministry of Natural Resources and Ecology, effective period is up to 04.06.2017 as well as license for conducting activity for decontamination and disposal of waste products with I-IV class of Hazard (issued by Federal Nature Management Supervision Service). Besides, the Corporation provides insurance against risks of damage to third persons and environment during operation of hazardous production facilities in compliance with the requirements of active legislation. Information about the Corporation investments whose level of income is expected to be higher than 10% per annum, with stated objective and amount of capital invested, as well as source of funds There are no investments with an expected income level higher than 10%. Internal control and auditThe main concept of internal control being exercised at RSC Energia lies in the fact that internal audit is part of ongoing monitoring of the Corporation internal control system and its financial-economic activity, because internal audit ensures independent assessment of adequacy and adherence to the techniques, provisions and procedures established in the Corporation. In this respect, internal control and audit services give assistance to top-level management and the Board of Directors in performance of their duties aimed at efficient management. In order to make internal audit activity more efficient, the Board of Directors approved the “Provision on Internal Audit Subdivision of the Corporation” with due regard for the recommendations provided by the Auditing Committee at the Board of Directors (Minutes No. 8 of 25.03.2014). In accordance with the resolution adopted by RSC Energia Board of Directors, internal audit department has been set up by the Corporation President’s order No. 247 of 20.06.2014. Internal audit department is an independent structural subdivision of the Corporation which is subordinate functionally to RSC Energia Board of Directors. Internal audit department is aimed to take measures on:
As applied to bookkeeping and drawing up financial statements, control environment is described in accounting policy, provisions on accounting subdivisions and other documents which establish general requirements for environment where bookkeeping is organized and carried out; for the procedure regulating interaction between RSC Energia subdivisions and personnel, as well as taking decisions on bookkeeping matters. There is a separate subdepartment as part of the Accounting Department which executes internal control over accounting record-keeping. This subdepartment in charge of checking results of individual economic transactions performance; giving assessments and making adjustments on a regular basis in the existing organization – regulatory documentation. The subdepartment coordinates its activities with the Corporation independent auditor with regard to audits and consulting services. Information about the Corporation Auditing CommitteeAuditing Committee is elected every year at annual General Shareholders’ Meeting and carries out control over RSC Energia financial - economic activities. Major objectives set by the Auditing Committee are:
Membership of RSC Energia Auditing Committee during 2014Membership of RSC Energia Auditing Committee from 12.07.2014 up to now
Membership of RSC Energia Auditing Committee from 06.07.2013 through 12.07.2014
Remuneration paid to the Auditing Committee members in 2014Provision of Remuneration and Compensations to be paid to RSC Energia Auditing Committee members is approved at annual General Shareholders’ Meeting held on 06.07.2013. No remuneration is paid to the Auditing Committee members who are government officials. Remuneration paid to the Auditing Committee members in 2014 No decision was taken on remuneration payment to the Auditing Committee members by the Corporation performance in 2013 at the annual General Shareholders’ Meeting: therefore, no remuneration was paid in 2014. However, at the extraordinary General Shareholders’ Meeting held on January 14, 2015 (Minutes No. 28 of 16.01.2015) it was resolved that remuneration by the 2013 performance should be paid. In accordance with the resolution adopted amounts of remuneration were as follows:
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