Ensuring Financial Stability

The main objective of financial management is to ensure financial stability and economic efficiency of Federal Grid Company and meet obligations to contractors, shareholders and investors in a timely manner.

For Management’s Discussion and Analysis for 2015 please refer to the section FINANCIAL CAPITAL

Financial Management Business Processes

“Budgeting and budget performance reporting” . defines the processes for business planning and budgeting, budget and business plan adjustments and monitoring of their performance, approval of business planning standards for subsidiaries. The Company’s budget system has the following planning levels (horizons):

• Long-term planning (a five-year planning horizon) – corresponds to the periods of Federal Grid’s investment planning and tariff approval with the planning step of one year in the form of a financial plan for Federal Grid’s investment programme and business plan.
  
• Short-term planning – current planning in the form of the Company’s budget with the planning horizon of one year and the planning step of one quarter. The budget enables the management to use targets set at the stage of long-term planning as benchmarks for day-to-day operations.

  MAIN STAGES OF FEDERAL GRID’S FINANCIAL MANAGEMENT

  • Financial planning
    
  • Budget performance monitoring
    
  • Selection of banking institutions for cash management services
    
  • Selection of debt instruments
    
  • Financial risk management
    
  • Liquidity management
    
  • AR and AP management
    
  • IT system to automate financial management processes

“Single Treasury” implements the functions of a single treasury at the level of Federal Grid’s executive office and provides more efficient use of intra-group liquidity, including the following:

• Liquidity management: limiting the list of service banks (TOP 10) and deposit instruments
  
• Payments: setting up payment approval process and payment arrangements, implementing financial control
  
• Intra-group cash flow management: optimising liquidity management and treasury operations within the Group
  
• IT-system – a set of software used for the automation of Single Treasury functions

“Raising external finance” establishes the Company’s borrowing policy with a view to minimise insolvency risks and preserve the financial stability.

The Company’s borrowing policy is focused on maintaining high financial stability and the status of a reliable borrower, placing a priority on the following conditions for attracting external funding:

• The use of long-term debt instruments
  
• Maintaining a prudent level of debt burden and prudent debt management
  
• Search for new sources of finance

In order to enhance the internal efficiency of financial activities and planning, starting from 2016, business plans are developed not only for Federal Grid Company and separately for its subsidiaries but for Federal Grid Group on the whole based both on RAS and IFRS (consolidated parameters of Federal Grid Company and its controlled subsidiaries).