Shareholder Executive

Urenco

Purpose

URENCO is a leading global provider of enrichment and technology services to the nuclear generation industry worldwide. Its principal activity is the provision of a service to enrich uranium to provide fuel for nuclear power utilities. URENCO focuses on providing safe, cost effective and reliable uranium enrichment services for civil power generation. It operates in a pivotal area of the nuclear fuel supply chain for the generation of electricity for consumers around the world.

Legal Status and Ownership

URENCO is a UK registered private limited company in which the UK Government has a 33.3% shareholding. The other shareholders are the Dutch Government with 33.3%, and the German utilities RWE Power AG and E.ON Kernkraft GmbH, with 33.3%. As at 31 March 2009, the UK Government owned 56m ‘A’ ordinary shares in URENCO Limited through its wholly-owned subsidiary, Enrichment Holdings Limited. The Secretary of State for Energy and Climate Change owns Enrichment Holdings Limited.

Government Objectives

The Government’s objectives for the URENCO business include:

• ensuring the Group remains a leading supplier of global enrichment and technology services and maintains its position as a reliable, long-term supplier, with future business based on long-term contracts
• successful execution of the Group’s expansion programmes and capital investments on target and within budget
• profitable and sustainable long-term growth
• ensuring a robust capital structure is maintained that enables URENCO to invest in its business, provide returns to its shareholders and retain financial flexibility
• maximising operational efficiency and minimising costs across the Group
• improvement of risk management
• maintaining high levels of compliance with health, safety, environmental and security standards (including compliance with international treaties) demanded by the type of industry in which URENCO operates
• investment in the Group’s employees upon whom future success depends.

Financial Performance⁵

£m	2008	2007	2006
Turnover	898	755	609
Operating Profit	366	261	241
Profit/(Loss) for the year	202	176	147
Net Cash flow	47	(8)	(4)
Net Operating Assets1	2,212	1,751	1,347
RONA	16.6%	14.9%	17.9%
Shareholders' Funds	520	638	491
Dividends	95	72	80

Dividend policy

The Group’s policy is to target a dividend payout of 50% of its annual net recurring income. However, it has significant capital investment plans and is seeking to increase the cash reinvested in the business. As such, the dividend for 2008 is 30% of net recurring income.

Performance targets

Targets focus on maintaining uninterrupted operational output, minimising operational costs and the delivery of planned capacity expansion on time and on budget, to drive growth in operating cash flow.Targets also focus on strong safety performance and culture.

Notes

¹ As at financial year ended 31 December 2008.
² Appointed Deputy Chair on 3 April 2008, on Walter Hohlefelder’s retirement.
³ Walter Hohlefelder retired on 3 April 2008 and was succeeded by Bernhard Fischer.
⁴ Michael Parker retired on 31 December 2008, and Richard Nourse was appointed to the Board of Directors on 1 January 2009.
⁵ URENCO reports in euros.These figures are converted into sterling using average exchange during the year. URENCO has a 31 December year end.

Commentary

URENCO demonstrated a strong operating performance in 2008.The year saw significant increases in enrichment capacity, strong growth in revenues and operating profits, and ongoing capital investments progressing to schedule.

In 2008, URENCO’s global market share increased to 25% (2007: 23%).This has been achieved in a growing market and has been supported by capacity expansion at a time when competitors are undertaking the lengthy transition to centrifuge technology. URENCO’s enrichment capacity increased by 15% to 11,000 tSW/a by the end of 2008 (2007: 9,600 tSW/a) with this capacity installation on target and within budget.

Revenues increased 10% during 2008 to €1,130m (2007: €1,024m), driven by the additional volumes sold. Volumes sold and revenues generated by URENCO are underpinned by long term contracts. URENCO has a strong order book which stands at €18bn and extends beyond 2025.

EBITDA increased 21% in 2008 to €654m (2007: €542m).This was driven by the growth in operations, but was also favourably impacted by foreign exchange results. URENCO reported net income before exceptional items of €254m (2007: €239m). Whilst net income increased, the result was impacted by a significant increase in financing costs due to accounting losses relating to some of its hedging instruments.

URENCO continues to expand capacity to respond to customers’ needs within a growing nuclear sector. It is focused on the successful execution of its expansion programme in Europe and the US, with particular emphasis on the new enrichment plant, the National Enrichment Facility in the US, being ready to start operations by the end of 2009.

URENCO’s funding needs are met through external debt financing as well as internally generated cash flows. In 2008, despite the challenging financing environment, URENCO successfully raised over €600m in new funds. At year end, total committed borrowing facilities were €1,985m and reported net debt was €1,503m.