dreams of flying 1

Соntents:

Russian at a Glance 2

Key 2015 Highlights 3

Chairman’s Statement 10

Director General’s Statement 12

Russian Helicopters Today 16

Market Overview 26

Civil 28 Military Helicopters 29 Company’s Market Positions 30

2015 – year of efficiency growth and strengthening the results obtained 34

Deliverie 34 Service and After-sales Support 36 Order Book 37 CAPEX 38 Organizational Development 39 2015 Financial Performance 39

Strategy 44

Key Objectives for 2016 45

Social Responsibility 46

Corporate Governance 47

Board of Directors 47 Management 57 Internal audit 62 Capital Markets and Investor Relations 63

Risk Management 64

IFRS Financial Statements for the Year ended 31 December 2015 70 2 Dreams of flying / annual report 2015 KEY HIGHLIGHTS 3

RUSSIAN 20.15 HELICOPTERS

EBITDA Firm order Profit AT A GLANCE 212 increased by book totaled helicopters 39.5% totaled RUB 494

JSC “” is a leading player in the global were supplied to RUB 65.6 42.1 helicopters billion helicopter industry, the sole Russian designer in 2015 billion as at and manufacturer of helicopters. 31.12. 2015

Headquartered in , “Russian Latin America, , and the CIS Helicopters” Holding Company include countries.

five helicopter plants, two design Although «Russian Helicopters» Non-controlling interest in the subsidiaries is bureaus, component production and was established only in 2007, some maintenance enterprise, a helicopter of the Company’s key entities have Revenue service company, which ensures after- existed for more than 60 years. The EBITDA1 margin grew by sales services in Russia and abroad new shape of the Holding Company amounted to 29.5% and five aircraft repair enterprises. combines updated production and 29.8% to RUB 220.0 billion Our helicopters are popular among leading intellectual potential of one the Russian ministries and state of the most historically successful authorities (Ministry of Defense, high-tech industries in Russia with the Ministry of Internal Affairs, and modern global system of service and ~12.2% EMERCOM), operators (Gazpromavia, after-sales maintenance. UTair) and major Russian JSC “UIC “” is the 1 The Company defines EBITDA as operating profit before depreciation and amortization, adjusted for gain /loss on disposal of property plant and equipment, corporations. Over 8500 helicopters Company’s majority shareholder with impairment of property, plant and equipment with share in results of associates included. EBITDA is a non-IFRS financial measure; therefore, the Company’s of Soviet/Russian production are the ownership of 96.02%1 of shares, definition of EBITDA may differ from similar measures defined by other companies. operated in 100 countries worldwide. including nominal holders. State Traditionally the demand is higher in Corporation “” holds 3.98 % the Middle East, Africa, Asia-Pacific, of shares. revenue, billion rub EBITDA, billion rub Profit, billion rub delivery, billion rub

+29.5% +39.5% +103.7% -21.8%

169,8169.8 220.0 47.0 65.6 20.7 42.2 271 212

2015 2015 1 94.61% – direct ownership, 1.41% – through VTB Capital Asset Management 2014 2015 2014 2015 2014 2014 4 Dreams of flying / annual report 2015 5

Dream of a helicopter: Aerodynamic Vehicle

mazing as it may seem, but if we appeal to history we Afind that the mankind had dreamed of a helicopter since the dawn of time. The designs and models of rotary-wing vehicles had appeared long before the first of them cut the air with its rotor. For example, the Chinese scholar Ge Hong, who lived 17 centuries ago, mentioned in his notes a «flying Lomonosov’s “aerodynamic vehicle» which is lifted into the air machine” by «revolving blades resembling sword blade». The heritage of Leonardo da Vinci, genius of the the following: «The honorable Italian Renaissance, consists Advisor Lomonosov demonstrated of a sketch of a helicopter-like his invention called «Aerodynamic» device which is believed to be the to be used for the purpose of predecessor to the modern day depressing the air by means of flying machine. wings rotated horizontally in the In his sketch dated to 1475-1483 opposite directions powered by a he wrote that: «If the screw were wound-up spring device of the type made with linen surfaces airtight with used in clocks in order to lift the starch. The machine would be rotated machine into the upper layers of with speed that said screw bores the air...» through the air and climbs high...» This «aerodynamic machine» Three centuries later the model invented by Lomonosov, which, in of the helicopter was demonstrated fact, was the mechanical model of by the Russian genius - Mikhail the helicopter, was intended for Lomonosov. The records of the use in lifting thermometers and minutes of the meeting at the other small instruments into the Imperial Academy of Sciences and air. Almost two centuries were yet Arts (now the Russian Academy of to pass before the first helicopters Sciences) of 12 July 1754 contained appeared in Russia... 6 Dreams of flying / annual report 2015 7

22.05.2015 / «Russian Helicopters» Holding 21.05.2015 / «Russian Helicopters» announces Key news of 2015: Company announces the start of serial production IAC AR certification of Ka-226T of new heavy Mi-26T2 helicopter > «Russian Helicopters» obtained a type certificate > «Russian Helicopters» started delivering a new 21.05.2015 / «Russian Helicopters» successfully for Mi-38 helicopter batch of Mi-171Sh helicopters to Peru 21.05.2015 / Ansat and Ka-226T of «Russian completed flight testing phase of Mi-171A2 > «Ansat» helicopter was certified in VIP configuration > «Russian Helicopters» transferred first «arctic» Helicopters» production entered the Russian civil helicopter laboratory > «Russian Helicopters» successfully completed flight helicopter to the RF Ministry of Defence aviation market testing phase of Mi-171A2 helicopter laboratory > «Russian Helicopters» Holding Company fulfilled > Ansat helicopter (light utility helicopter) received the contract for the repair of 19 helicopters of the Certificate for transportation of commercial Mexican Air Force passengers Helicopter supplies

10.12.2015 / «Russian Helicopters» Holding 16.07.2015 / «Russian Helicopters» continues Helicopter program Company delivered five Mi-171Sh helicopters to deliver Mi-8MTV-5-1 helicopters to the RF to Bangladesh Ministry of Defence

30.12.2015 / «Russian Helicopters» obtained a type 10.09.2015 / «Russian Helicopters» produced 03.12.2015 / «Russian Helicopters» Holding 17.04.2015 / «Russian Helicopters» transferred certificate for Mi-38 helicopter a fuselage of first serial Mi-38 Company will deliver Mi-8MTV-1 helicopter to the a batch of Ka-226 helicopters to the RF Ministry Nenets Autonomous Area of Defence 30.12.2015 / «Ansat» helicopter was certified 27.08.2015 / Passenger configuration of Ansat in VIP configuration helicopter became equipped with enhanced stability 26.10.2015 / «Russian Helicopters» Holding 05.05.2015 / «Russian Helicopters» supplied a first system Company signed the agreement for the delivery of batch of repaired Ka-31 helicopters to India 25.11.2015 / «Russian Helicopters» transferred first two Mi-171 helicopters and two Mi-8AMT helicopters «arctic» helicopter to the RF Ministry of Defence 27.08.2015 / «Russian Helicopters» Holding for Rosneft Oil Company Company entered a final stage of tests and 19.11.2015 / The flights within the framework of certification of Mi-38 test flight trials of Mi-8AMTSH-VA helicopter were completed at Ulan-Ude Aviation Plant 27.08.2015 / «Russian Helicopters» Holding Company started flight tests of arctic Service support 18.11.2015 / «Russian Helicopters» Holding Mi-8AMTSH-VA Company produced and delivered Mi-8AMT helicopter in a convertible configuration 26.08.2015 / «Russian Helicopters» Holding 21.12.2015 / «Russian Helicopters» will offer a system 22.05.2015 / «Helicopter service company» and Company will enhance flight and functional of after-sales support of Mi-8/17 type civil helicopters Strategy Partners Group will develop «After-sales 09.11.2015 / «Russian Helicopters» Holding characteristics of Ansat helicopter to the operators in the Middle East maintenance 2030» service strategy Company launched flight tests of the second prototype of Mi-171A2 helicopter 02.07.2015 / «Russian Helicopters» presents 02.11.2015 / «Russian Helicopters» proposes a project of Mi-14PS amphibian helicopter helicopter modernization and after-sales support 12.10.2015 / «Russian Helicopters» Holding production resumption program to the operators in Latin America and Company presented Mi-171A2 helicopter of new Caribbean countries generation to Vice Prime Ministers of Russia and 08.06.2015 / «Russian Helicopters» made China presentation of Ansat helicopters with hydro- mechanical control system (HMCS) 07.10.2015 / «Russian Helicopters» Holding Company presented Ka-52 Alligator helicopter 22.05.2015 / «Russian Helicopters» entered into within the framework of «Innovation days of the the first contracts for the delivery of light Ansat East military region» helicopters 8 Dreams of flying / annual report 2015 9

Promotion in Holding Company news international markets 17.09.2015 / Dmitry Rogozin presented an award 25.08.2015 / «Russian Helicopters» Holding to «Russian Helicopters» for the implementation Company signed an agreement on cooperation 22.12.2015 / «Russian Helicopters» Holding Company 09.09.2015 / «Russian Helicopters» Holding Company of state defense order with VTB bank offers Mi-171, Mi-171E, Ka-32A11BC and Ka-226T is planning to deliver 2 Mi-171E helicopters to China helicopters to Iran 15.09.2015 / «Russian Helicopters» Holding Company 09.07.2016 / «Russian Helicopters» will switch 26.08.2015 / «Russian Helicopters» Holding Company invested RUB 2 billion in the construction of helicopter to computer-aided and robot-based production 23.11.2015 / «Russian Helicopters» Holding Company will sign contracts with the Indian Air Force, Navy and gearbox and transmission assembly and testing signed the contract with the PRC for the supply of four MHA for the after-sales support of helicopters facility 08.07.2016 / «Russian Helicopters» presented Ka-32A11BC Ansat to 30.07.2015 / «Russian Helicopters» Holding Company 08.09.2015 / «Russian Helicopters» Holding 10.11.2015 / «Russian Helicopters» Holding Company supplied a batch of Mi-171Sh helicopters to Peru. Company signed an agreement with UAC on the joint 03.06.2015 / «Russian Helicopters» is planning fulfilled the contract for the repair of 19 helicopters development of composite technologies to switch to national software of the Mexican Air Force 22.05.2015 / India chooses Ka-226T of «Russian Helicopters» production 27.08.2015 / «Russian Helicopters» Holding Company 29.05.2015 / The enterprises of «Russian 10.09.2015 / «Russian Helicopters» Holding Company will begin development of conceptually Helicopters» will start working on the unified is planning to establish a network of service centers to 08.05.2015 / «Russian Helicopters» and AVIC signed new protective and anti-icing coatings for arctic information platform maintain Russian helicopters in China. the agreement in the Kremlin on the cooperation and offshore helicopters in the sphere of development of advanced heavy-lift 13.05.2015 / Mi-26T of «Russian Helicopters» 10.09.2015 / «Russian Helicopters» Holding Company helicopter 27.08.2015 / The helicopters of «Russian Helicopters» production performed a unique transport operation will supply 3 Ka-32A11BC helicopters to China will be equipped with state-of-the-art avionics of 6th generation 08.05.2015 / «Russian Helicopters» provided one 09.09.2015 / «Russian Helicopters» Holding Company of the first Mi-8T helicopters for demonstration proposes modernization of Mi-17, Mi-171, Ka-27, Ka- 26.08.2015 / «Russian Helicopters» Holding Company in VDNH (Exhibition of Economic Achievements) 28 and Ka-31 helicopters to China signed an agreement with the resident of the space cluster of Skolkovo on the development of advanced 23.04.2015 / «Russian Helicopters» and PFC CSKA UAVs will continue cooperation in 2015

25.08.2015 / «Russian Helicopters» Holding Company 31.03.2015 / «Russian Helicopters» trained over Production modernization presented new Ansat and Mi-38 in VIP configuration to 1,000 Russian and foreign aviation specialists in 2015 11.03.2015 / Ulan-Ude Aviation Plant trained 30.12.2015 / «Russian Helicopters» successfully 15.09.2015 / «Russian Helicopters» Holding Company 25.08.2015 / «Russian Helicopters» Holding Company the crews of Mi-8/17 helicopters for three aviation tested national telecommunication equipment invested RUB 2 billion in the construction of helicopter presented a project of tilt-rotor UAV companies since the beginning of the year for IT-infrastructure gearbox and transmission assembly and testing facility 02.11.2015 / «Russian Helicopters» Holding Company strengthens production facilities, uniting enterprises 10.09.2015 / » of «Russian from Kazan and Kumertau Helicopters» Holding Company opened a new aggregate assembly facility for Mi-8/17, Ansat and 13.10.2015 / A policy in the sphere of lean Mi-38 helicopters production was approved in «Russian Helicopters» Holding Company 10.06.2015 / «Russian Helicopters» is modernizing production at Ulan-Ude Aviation Plant 05.10.2015 / «Russian Helicopters» Holding Company implements new processes of helicopter production 02.04.2015 / «Russian Helicopters» is modernizing management Ka-27 for Navy at Kumertau pant 10 Dreams of flying / annual report 2015 11

For «Russian Helicopters» Holding strategic partners, primarily, India and Company 2015 became another year China. of positive growth. Despite the difficult Russian Helicopters’ key strategic CHAIRMAN’S macroeconomic situation, the Holding objectives in the mid-term perspective Company managed to keep its leadership will be further launch of new models positions in the segments of attack, of helicopters in the global market, medium and heavy-lift helicopters, development of after-sales support STATEMENT and totally fulfilled its obligations to services, implementation of innovative Russian and foreign clients with regard production and technologies, further to supplies of helicopters. The Company implementation of the Import increased its profitability and improved Substitutions Programs to eliminate the competitiveness of its products. The technological dependence on the new product range of helicopters was Western countries, as well as focus developed, the program of the company’s on deepening of cooperation with the innovative development was generated key partners of the Holding Company and balanced market-focused strategy following global trends in expanding of the Holding Company’s development is cooperation within production networks. being implemented. The implementation of the objectives The current foreign exchange market will allows the Holding Company to conditions (owing to arising exchange strengthen its positions as one of the differences and, as a result, additional leading manufacturers of helicopters, as marginal revenue) provided additional well as to increase the market share in opportunities for the penetration and the segments of civil and dual-purpose strengthening of new helicopters in the helicopters. competitive market in the countries of the Middle East, Africa and Latin America. In 2015 type certificates were obtained for Мi-38 medium utility helicopter and Ansat light utility helicopter with HMCS. Chairman of the Board of Directors These helicopters are now ready to enter of JSC «Russian Helicopters» into the commercial markets. First Deputy Director General The Holding Company continues of State Corporation “Rostec” implementing the Import Substitutions Programs in pursuance of the Vladimir Atyakov requirements of the RF Government Instructions, manufacturing and certifying new helicopters, as well as actively participates in the processes of international production cooperation to S develop high-tech products with various 12 Dreams of flying / annual report 2015 13

We welcome the outcomes of 2015 Russian equipment, including VK-2500 for «Russian Helicopters» Holding engines manufactured by «». Company. According to the IFRS financial Similar work is carried out for the whole statements, the Holding Company’s line of Russian helicopters, and in the revenue amounted to almost RUB 220 coming years the dependence of the billion, of which the helicopter sales Russian helicopter industry on foreign amounted to RUB 177,0 billion, and products will be minimized. maintenance and after-sales support It should also be noted that we Director services — RUB 38,3 billion. EBITDA continue our active cooperation with increased to RUB 65,6 billion. Despite foreign partners in the field of industrial a slight decrease in the number of cooperation, which sets the world trends General’s delivered aircraft (212 units), we were and is essential for the implementation able to increase the revenue to RUB 50,1 of breakthrough high-tech projects. billion, and net profit - twice. «Russian Helicopters» Holding Company We remain leaders in the segment continues to successfully cooperate with Statement of military helicopters. We consider the organizations from China and India, our position to be quite strong due to as well as with European companies such the supply of new military helicopters. as Safran and AgustaWestland. «Russian Helicopters» Holding Company In 2016 we will continue to work in has fulfilled in full the State Defense the above mentioned directions. The Order in a timely manner in 2015 and will elimination of technological dependence continue supplies for the Russian Ministry on Western decisions, the launch of Defense in the current 2016. of new models of helicopters, the I would particularly like to implementation of comprehensive after- acknowledge the work of the Holding sales support service through the entire Company in launching of new models of life cycle of helicopters, as well as the civil helicopters. In 2015 Mi-38 medium expansion of the global network of service utility helicopter and light utility ANSAT centers and expansion of cooperation helicopter with hydro-mechanical control within international production networks system (HMCS) received type certificates will make it possible for «Russian and are ready for market. Helicopters» Holding Company to The foundation was laid for increasing not only keep its market share, but the volume of sales and services in the also to strengthen its position as one area of comprehensive service support of of the world’s leading developer and Russian-made helicopters abroad. Active manufacturer of helicopters. work was carried out for registration of the Holding Company as a supplier of Director General goods and services in the area of after- of JSC «Russian Helicopters» sales support in other countries. The Holding Company also prepared various Alexander Mikheev commercial proposals and concluded long-term framework contracts. The Company is actively implementing import substitution programs. At the end of last year we launched the first «arctic» Mi- 8AMTSh-VA helicopter manufactured with the use of Russian components. In order to reduce the dependence on foreign suppliers all Mi-8AMTSh-VA S helicopters are fit out with modern 14 DreamsDreams of flying / annual report 2015 15

Dream footstep away from reality: 74 vertical screws of Jules Verne and electrical helicopter (electrolyot) of Lodygin

was in the XIXth century that the enthusiasts of science and Ittechnology already predicted the appearance of real helicopters capable of transporting people and cargo. Thus, in 1886 Jules Verne, science fiction luminary, depicted «Albatross», a huge helicopter resembling a clipper-ship lifted by 74 vertical screws. The description of this fantastic machine was provided with a hint of Flying machine “Albatross” anticipation: «Round the deck a few light uprights supported a wire trellis that did duty for bulwarks. Above the deck and within various directions serving as rose thirty-seven vertical axes. The a means of transportation of people and Albatross might be called a clipper with cargo. It may at the same time meet the thirty-seven masts. But these masts special military needs...» instead of sails bore each two horizontal Lodygin called its design «electrolyot» screws... Each of these axes had its as the electric engine was to drive own movement independent of the rest, two screws, horizontal and vertical. and each alternate one spun round in a Moreover, this inventor, who was well in different direction from the others, so as advance of his time, even proposed the to avoid any tendency to gyration. Hence idea of an adjustable pitch of the rotor the screws as they rose on the vertical blades. But 140 years ago the generals column of air retained their equilibrium of the considered that by their horizontal resistance.» such proposal was not to be «taken But 15 years prior to the works seriously». of Jules Verne the junker, Alexander However, the time and technological Lodygin, reported at the Military Ministry advancement dotted the i’s and crossed of the Russian Empire on the design the t’s: Russian-made helicopters are of the «lighter-than-air machine that currently playing a valuable role in the could move freely at various altitudes industry 16 DREAMS OF FLYING / ANNUAL REPORT 2015 17

RUSSIAN HELICOPTERS TODAY

LEADING GLOBAL A&D PLAYER Vertically integrated structure Over 8 850 Russian helicopters are includes 5 helicopter production operated globally, representing ~15.0% plants; 2 design bureaus; 100.0%** of the world helicopter fleet. 2 components production plants; State-Owned Aerospace & The Company’s market share 2 service providers, five aircraft Defence Holding Company reached 12.4%*. Best positioned for repair plants. The ownership interest international expansion, especially in of JSC «Russian Helicopters» in its the fast growing emerging markets. subsidiaries exceeds 92.5%. Leader in Russia with over ~94.0% More than 41 000 employees and market share; holds leading positions experienced management team with DESIGN*** ASSEMBLY*** SERVICE*** COMPONENTS*** in the key emerging markets. deep knowledge of the industry and World’s leader in medium and ultra- needs of the end customer. heavy-lift utility and 80.8% 98.3% 100.0% 69.3% segments (Mi and Ka brands). JSC «MIL MOSCOW HELICOPTER MIL HELICOPTER PLAN KAZAN HELICOPTERS HELICOPTER SERVICE STUPINO MACHINE Fully vertically integrated structure PLANT» COMPANY PRODUCTION PLANT that allows the Company to control the This experimental design bureau 99.8% whole product cycle – from design, launched its activities in 1947, headed 73.9% 95.1% 100.0% manufacturing of key components, by the legendary Soviet rotorcraft ROSVERTOL NOVOSIBIRSK AIRCRAFT REDUCTOR-PM final assembly to sales and after-sales designer Mikhail Mil. Under Mil’s REPAIR PLANT services. Unique and world-renowned leadership, the bureau developed the 98.4% R&D base world-famous Mi- helicopter series, ULAN-UDE AVIATION PLANT including the most popular model in 99 ZATO 0.0% HIGH OPERATING AND FINANCIAL history – Mi-8/17. Today Mil Moscow RESULTS Helicopter Plant is one of the world’s 85.1% 356 АRP 69.9% Strong growth of all the key indicators most respected rotorcraft developers, PROGRESS ARSENYEV during the recent years. producing helicopters that operate in AVIATION COMPANY 12 АRP 99.9% Healthy and sustainable margins. over 100 countries. Stable order book and, as a result, 100.0% 810 АRP 99.9% stable revenue forecast. JSC «Kamov» KUMERTAU AVIATION JSC «Kamov» was set up in 1948 at PRODUCTION ENTERPRISE 150 АRP 99.9% INTEGRATED BUSINESS MODEL the design bureau, which specialized JSC “UIC “OBORONPROM” is the in the development of helicopters for OTHER 419 АRP 99.9% Company’s majority shareholder with the Navy. The bureau was headed the ownership of 94.6% of shares JSC by Nikolay Kamov, talented designer CPL HI PROCUREMENT, IHP, RH-TECHNOLOGY, LIK, INTERNATIONAL ROTORCRAFT SERVICES FZC, RH FOUNDRY PRODUCTION, RH LOBED «Russian Helicopters». and engineer and one of the founders PRODUCTION, HELIPORT, INTEGRATED HELICOPTER SERVICES PVT LTD (IHS)

* In terms of money * In terms of money ** 94.61% – direct ownership, 1.41% – via VTB Capital Asset Management, 3.98% – SC «Rostec» *** effective ownership as of 31.12.2015 18 Dreams of flying / annual report 2015 19

of the Russian school of helicopter established in 1939 and has produced for export. The company is also JSC «Novosibirsk Aircraft Repair manufacturing. The distinctive coaxial both helicopters and airplanes in its preparing to start production of the Plant» rotor system of the Kamov design history. Today it produces Mi-8/17 naval modification of this helicopter – JSC “Novosibirsk Aircraft Repair bureau ensures high maneuverability helicopters designed by «Mil Moscow the Ka-52K. Plant” (JSC «NARZ») was established and good controllability in spite of Helicopter Plant»: civil models of Mi- in 1941 on the base of aircraft repair smaller dimensions of helicopters. 8AMT and Mi-171 series, and military Kumertau Aviation Production shops evacuated from Moscow transport models of Mi-8AMTSh and Enterprise during the World War II. In 1965 Kazan Helicopter Plant Mi-171Sh series. The plant is also JSC «KumAPE» («Kumertau Aviation “Novosibirsk Aircraft Repair Plant” Kazan Helicopters dates back to 1940. preparing to start production of a new Production Enterprise») was began to specialize in repair and The enterprise produces the latest upgraded Mi-171A2, one of the core established in 1962 as the development maintenance of rotary-wing aircraft. modifications of civil and military Mi- models in Russian Helicopters’ range of Kumertau repair and engineering Over the years, the plant has become 8/17 series helicopters designed by of medium helicopters. Rotorcraft plant. JSC «KumAPE» specializes the leading company in Russia for Mil Moscow Helicopter Plant, produced by Ulan-Ude Aviation in producing coaxial helicopters repairing helicopters designed by Mil including: Mi-8MTV-5, Mi-17V-5 and Plant are supplied to governmental designed by Kamov Design Bureau. Moscow Helicopter Plant, and has Mi-172 helicopters. JSC «Kazan and commercial clients in Russia JSC «KumAPE» produces all types repaired over 6 500 helicopters to date. helicopters» is also responsible for and around the world, and operate of helicopters for the , NARZ operates a global network for the development and production of successfully in more than 40 countries including the Ka-27, Ka-29 and Ka-31 Mi- series helicopters maintenance the Ansat Ansat light helicopter and in Europe, Asia, Africa, South America, modifications, which boast unique and repair and offers the option its military modification, the Ansat-U, Australia and Oceania. The plant technical characteristics and are used of reconditioning repair at clients’ designed for pilot training. Helicopters has produced approximately 10 000 by naval forces worldwide. In addition premises. According to the strategy of Russian production manufactured rotorcraft to date. to military helicopters, the enterprise of «Russian Helicopters» associated in Kazan have logged more than 50 produces civil rotorcraft, including new with the modernization of its entities, million flight hours all around the JSC “Progress” Arsenyev Aviation utility Ka-32A11BC helicopter, further NARZ is upgrading and expanding world. Since its founding, Kazan Company” development of search and rescue its production facilities, and works Helicopter Plant has produced over The history of the Progress Arsenyev Ka-27PS helicopter, as well as light closely with other Russian Helicopters 12 000 helicopters. Aviation Company (Progress AAC) Ka-226T helicopter. Ka- helicopters enterprises. named after Nikolai Sazykin dates are operated in more than 30 countries back to 1936, when it opened as and are employed in special operations Stupino Machine Production Plant The aviation plant in Rostov-on- Aircraft Repair Plant No. 116 in the worldwide. JSC «SMPP» («Stupino Machine Don was founded in 1939 as a town of Arsensyev in Russia’s Far East. Production Plant») was founded in manufacturer of military and civil During its more than 70-year history Helicopter Service Company 1948 as Plant No.120 for the mass airplanes. It was subsequently the plant has changed its activity from JSC «Helicopter Service Company» production of airplane propellers. restructured and became the first repair work to production of aircraft (HSC) was established in 2006 to Since its foundation, SMPP has serial producer of helicopters in and has become one of the leading perform maintenance and after-sales mastered the production of 20 Russia. The Mi-1 light utility helicopter enterprises of Primorsky Kray. The service of Russian-made helicopters baseline items, each of which has designed by «Mil Moscow Helicopter company is named in honour of Nikolai worldwide. JSC «HSC» is expanding led to numerous modifications and is Plant» was put into serial production Sazykin, who served as director from its geography of service centers while employed in various aircraft models in 1956. In 1992 the company was 1959 to 1976 and made an enormous promoting the products of «Russian operated worldwide. Today the plant renamed from «Plant No.168» to contribution to the development of the Helicopters» in the new markets. HSC produces accessories for the majority JSC «Rostvertol». JSC «Rostvertol» company and the town of Arsenyev. In is responsible for overseeing after- of Russian-made helicopters, including produces helicopters for both Russian 1969, Progress AAC started production sales servicing systems, supplying civil, and military Mi-8/17 and Mi- and foreign state and commercial of the legendary Mi-24 and continued materials and aviation equipment to 26(T), as well as Mi-35M, Mi-28N Night operators. Helicopters manufactured to produce this model for almost «Russian Helicopters» enterprises, Hunter and Ka-52 Alligator helicopters. by Rostvertol operate in over 30 twenty years. Today AAC «Progress» and establishing service centers for countries (CIS, Europe, Asia and South produces one of the most exceptional Russian-made helicopters both in JSC «Aviation Gearboxes and America). combat helicopters in its class – Ka- Russia and abroad. The company Transmissions - Perm Motors» 52 Alligator reconnaissance attack also supplies products and parts to JSC «Aviation Gearboxes and Ulan-Ude Aviation Plant helicopters, which is supplied to the companies operating Russian-made Transmissions - Perm Motors» (JSC JSC «Ulan-Ude Aviation Plant» was and may be offered helicopters around the globe. «Reductor-PM») was established in 20 Dreams of flying / annual report 2015 21

1995 at the premises of a separate the enterprise got in 1959. Starting JSC «419 Aircraft Repair Plant» cycle - from disassembly of helicopters gearbox facility of Perm Motors from the 70ies the plant has been JSC «419 Aircraft Repair Plant» (419 to flight tests. Strict compliance with engine-building holding company. performing repair of helicopters and ARP) specializes in the overhaul of all the requirements of regulatory and JSC «Reductor-PM» is one of as of today it has vast experience in modifications of military and transport technical documentation is provided at the largest enterprises in Russia working with Mi type helicopters. helicopters of Mi-8/17 type, Mi-24 all the stages of work. specializing in the production and combat helicopters, as well as Ka- 810 ARP was established in 1984 after-sales servicing of helicopter JSC «150 Aircraft Repair Plant» 27, Ka-28, Ka-29 military and naval and is now one of the leading aircraft gearboxes and transmission units. JSC «150 Aircraft Repair Plant» helicopters. It also repairs all Mi-8/17- repair enterprises in Eastern Russia. The enterprise produces, repairs (150 ARP) has a complete range series and Ka-32 civil helicopters of all and services main gearboxes and of production facilities to perform modifications. JSC «356 Aircraft Repair Plant» transmission units of Mi-8/17, Mi- overhaul of aircraft - Mi-8/17, Mi-24, 419 ARP has a powerful production JSC «356 Aircraft Repair Plant» (356 26(T), Mi-28N Night Hunter and Ansat Ka-27/28/29, as well as Ka-32 type and technical facilities and modern ARP) specializes in the repair of all helicopters. In the near future it will helicopters. It carries out overhaul equipment, highly-accurate metal Mi-8/17 helicopter modifications also begin production of gearboxes and modernization of TV3-117 engines processing machines and highly skilled (including Mi-8MT, Mi-8MTV, Mi- and transmission units for Mi-38 (all modifications), VR-252 main specialists. Great importance is paid 8AMT). helicopters. gearboxes, AI-9/9V APU, as well as to the issues of aircraft repair quality 356 ARP has all the necessary technical servicing of aircraft. enhancement by development and infrastructure, production facilities, JSC «12 Aircraft Repair Plant» The plant applies innovative implementation of new technologies information support and highly JSC «12 Aircraft Repair Plant» (12 repair methods and state-of-the- at the enterprise, development of skilled specialists. QMS of the aircraft ARP) offers overhaul services to Mi-2, art technologies, which allows the facilities and infrastructure. repair and maintenance enterprise Mi-8/17, and Mi-24 helicopters and enterprise to perform overhaul and 419 ARP was established in 1942. complies with the current Russian and TVЗ-117 engines. maintenance of modern aircraft In 1977 the plant launched mastering international standards. The quality of 12 ARP performs modernization efficiently. the repair of Mi-24 type helicopters, repair and maintenance of the plant is of helicopters and installation of Having design and technical after which it completely retargeted acknowledged by many competent and additional equipment. Moreover, support of design bureaus and serial for the repair of helicopters. More than authoritative enterprises. the plant offers services related to plants of «Russian Helicopters» 1500 helicopters were repaired for the 356 ARP, one of the oldest aircraft helicopter painting with polyurethane Holding Company, 150 ARP performs whole period of its activities. repair facilities in Russia, was enamels and development, as well repair of a wide line of helicopters, established in 1931. 356 ARP has as application of brand image on their systems and aggregates, as JSC «810 Aircraft Repair Plant» been specializing in the repair and helicopters. well as engines. The repair is also JSC «810 Aircraft Repair Plant» (810 maintenance of helicopters produced 12 ARP has modern equipment and performed with regard to a complete ARP) repairs and services all Mi-8/17- by JSC «Moscow Mil Helicopter highly trained specialists are capable set of armament, instrument and series naval and civil helicopters, Plant» since 1995. The activity on the of repairing aircraft within the short avionics. Mi-24 combat helicopters, as well as enhancement of after-sales reliability period and at the high level of quality. 150 ARP provides technical support ВР-14 and ВР-14 main gearboxes. of aircraft is constantly under way at Technicians of the enterprise have of helicopter operation during the The production facilities of 810 ARP the enterprise. vast experience in the preparation of warranty period, as well as their allows repairing helicopters in three production and mastering of repair upgrade and modernization and fitting batches. The plant is equipped with all of helicopters, their engines and additional equipment. Moreover, 150 the necessary equipment for repair, aggregates. ARP offers helicopter repair services monitoring, testing and maintenance The plant has access to the airfield at the Customer’s base. of helicopters. and its own railways that allows 150 ARP history dates back to 8 Specialized equipment of its delivering aircraft for the repair and December 1954. The predecessors own production is also used at back to the customer by rail and air. of the enterprise were two repair the enterprise. Active work on 12 ARP was established in 1934 bases - 11th plane repair and 308th the modernization, technical when 60th Stationary Aviation engine repair bases. The bases were re-equipment, engineering and Workshops of the Airforce specialized located in the territory of the former production of non-standard equipment in the repair of aircraft and their German plant «Seerappen Northwest is under way. 810 ARP performs a engines were formed. Its current Aircraft Repair Workshops» in Lublino complete repair and maintenance name - 12 Aircraft Repair plant - settlement (former Seerappen). 22 Dreams of flying / annual report 2015 23

Ка-32 Ка-226 Ка-52 Ка-31 Ка-27/28 Ка-226Т – scheduled for serial production

scheduled for Мi-26Т2 scheduled for scheduled for Мi-8/17 Мi-28Н Мi-35М Мi-38 – – Ка-62 – serial production serial production serial production

Extensive Model Range

Russian Helicopters is the absolute up to 20 tons (MTOW – 56 tons), more global leader in the medium segment than any other helicopter in the world. (MTOW of 8 to 15 tons) by fleet «Russian Helicopters» is the only strength. Mi-8/17 is the world’s most manufacturer of unique co-axial rotor widely operated super medium heavy- platforms. lift helicopter with over 12,000 units Key features of our products are delivered to over 100 countries. reliability, safety and simplicity of The Company produces unique operation. Мi-26Т Мi-171А2 Ansat ultra-heavy-lift rotorcraft with the largest lift capacity in the market. Mi- 26(T) is the technological leader in the ultra-heavy segment, capable of lifting 24 DreamsDreams of flying / annual report 2015 25

Kamov’s fighnting autogyro

efore the first helicopter saw the light, the term itself, indicating Brotorcraft, should have been born. They used to call it «helicopter» in the West - the word is derived from the Greek language, combining «rotor» and «wing». Neither «helicopter», nor «rotorcraft» has taken root in our country and it is no wonder - the developer of the first Russian helicopters created the name for these helicopters as well. The term «vertolyot» (helicopter in Russian) was first recorded on 8 February 1929. It was that day during the meeting of engineers, who tried to build a gyroplane (hybrid of a plane and a helicopter), when Nikolay Kamov, 26 years old, pronounced the word «vertolyot», which from that moment and forever would mean such type of aircraft. Kamov himself later recollected his work with colleagues-engineers not in the technical sphere, but in the linguistic one: «We were scratching our heads over the name for a long time, understanding that sooner or later it would take root and come into general use. Finally, we decided to call the machine «vertolyot», forming this word from two words - «vertitsya» (rotate) and «letaet» (fly). So, we called it a helicopter («vertolyot»)...» 19 years later Nikolay Kamov The dream took the lead of the first helicopter manufacturing design bureau in our country. Now it is a famous design bureau named after Kamov or just JSC «Kamov», one of the lead developers of gets a name: the modern helicopters in Russia and in the world that is a part of «Russian «So, we called it a helicopter» Helicopters» Holding Company. 26 Dreams of flying / annual report 2015 27

MARKET OVERVIEW Segmentation of the current global helicopter Anticipated market volume by segments fleet by regions, % at the end of 2015 2016-2025 (%)

Based on the results of 2015, the highest rates of fleet growth within global helicopter fleet amounted to the period of 2014-2015. However, 60 761 units, out of which 38,613 industry experts are taking a “prudent 6.0 4.6 11.6 0.5 5.3 0.6 are civil units and 22 148 – military approach” to forecasting military 14.1 units (excluding Russia). During aircraft segment and are evaluating 12.4 2014-2015 the civil helicopter fleet it in a less optimistic way as several 10.6 changed insignificantly, while the years ago. military fleet increased almost in all Helicopters have been actively used 10.7 the regions. This is with the exception for military purposes, by emergency 15.5 of CIS countries (the fleet decreased services, as well as commercial by 9%) and European countries (4%). companies of the oil and gas sector. 13.8 The markets of China (24%) and India The volume of the target segment for (21%), which are key to the Holding the next 10 years is estimated at USD Company, were characterized by the 214.4 billion.

18.7 34.7 40.9

North America Asia-Pacific Region Africa Other Pisition Light Medium Medium-Heavy Europa CELAC East Combat Heavy-Lift Super Heavy-Lift Spesial

Helicopter market capacity as of 2016-2025 (USD bln)

24.1 23.3 23.2 22.7 22.1 Anticipated market volume by segments 2016-2025 (USD bln) 20.4 18.8 19.9 20.2 19.7 6.6 7.1 8.0 8.5 9.1 8.2 7.7 8.4 8.8 9.2

17.5 16.2 15.2 14.2 13.0 12.2 11.1 11.5 11.4 10.5

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 33.2 11.4 1.2 30.2 22.9 87.6 1.3 26.6

Military Сivil Light Pistion Combat Special Medium Heavy-Lift

Medium-Heavy Super Heavy-Lift 28 Dreams of flying / annual report 2015 29

Civil Helicopters Military Helicopters

According to the data provided by the Holding Company, the world fleet of civil helicopters as at Today’s world fleet of military helicopters, excluding Russia, totals approximately 22 148 helicopters. December 2015 amounted to approximately 38 613 helicopters, the largest share of which falls within More than 74% of which is represented by military transport helicopters. Almost 50% of the military the markets of North America, Europe, Asia-Pacific and Latin America. RF civil helicopters fleet ranks helicopter fleet is used by US and European armed forces. No. 5 in size. According to the data provided by Forecast International and Holding, the value of military helicopters to be supplied to the armed forces of the world countries during the period of 2016-2025 is estimated as Civil helicopters were delivered to Africa, Europe and North America USD 132.9 billion. more than 70 countries of the world were characterized by the growth in 2015 (most of them to the USA). dynamics. Other large customers are as follows: The markets of CIS countries and China, Australia, United Kingdom and India remain stable. As per takeoff Russia. weight class of helicopters, stable In 2015 the civil helicopter market growth in 7-10t. class was recorded. Anticipated volume of Segmentation of the current military was characterized by the decrease in Piston helicopters market was stable. market by segments (USD bln) helicopter fleet by regions, supplies - around 964 new helicopters, The decline in deliveries was noted in % at the end of 2015 which was the worst result for the last other classes. three years. According to the data provided by 11.6 Asia-Pacific, Latin America and Forecast International, the volume of 30.5 Caribbean countries, Russia, Eastern the global civil helicopter market in 7.4 countries and China were marked by 2016-2025 is estimated as USD 81.6 the downward trend. The markets of billion. 7.5

Segmentation of the current global helicopter Anticipated volume of civil helicopter fleet by regions, % at the end of 2015 market by segments (USD bln) 9.5 6.4 5.1 37.5 15.1 18.4 33.2 11.4 88.3 7.0 40 North America Europe Asia-Pasific Ragion East CELAC Africa Other Spesial 12.0 30 Combat

20

Military and transport 10

0 13,1 1.2 26.4 19.9 34.1 0 0

18,9 Light Pistion Medium Heavy-Lift

Medium-Heavy North America Europe Asia-Pasific Ragion CELAC Super Heavy-Lift Russia Africa Other 30 Dreams of flying / annual report 2015 31

Market share in terms of money Market share in terms of money Company’s Market Positions in 2014 (USD bln) in 2015 (USD bln) 13.0 12.4 > Leading positions in the most > Upgrade of the aging Russian attractive market segments; civil helicopter fleet as part of the > Significant presence in both civil and implementation of the program aimed military segments; at improving the transport accessibility > 94.0% share in the Russian market1; in the remote regions; > 12.4% share in the global market1 > Large-scale re-equipment program for the Russian Army (by 2020); –17.1% Our proactive marketing efforts allowed > Growing demand for our helicopters us to increase the Company’s market in the key emerging markets of Latin share to 12.4% by the end of 2015. America, India and China, and stable We are definitely going to continue to interest in the developed markets. increase our presence in the global market. The active development of Russian Helicopters will be stimulated 87.0 87.6 by the following:

Other RH helicopters Total: 25.2 Other RH helicopters Total: 20.9

Market share in terms of quantity Market share in terms of quantity Market Share in total number of Russian Helicopters competitive advantage in 2014 in 2015 segment helicopters Russia & CIS No. 1 in Russia & CIS The sole provider of military helicopters to the Russian Ministry of Defense; 13.3 11.8 Possibility to obtain government support.

Emerging No. 1 in the military Best cost-effectiveness ratio; Leader in reliability and simplicity of helicopter markets market of India and China operation in adverse weather conditions (high mountains, hot climate, low temperatures) Large number of Russian helicopters are already in operation in these markets. -9.0% Medium No.1 globally Market cost-effectiveness leader; Mi-8/17 - the most high-volume helicopters of heavy-lift this class in the history. Ultra heavy-lift No.1 globally1 Mi-26 is the most powerful cargo helicopter in the world, capable of lifting up to 20 tons. Civil One of the leading Best cost-effectiveness ratio; Leader in reliability and simplicity of helicopter producers operation in adverse weather conditions (high mountains, hot climate, low temperatures); Leader in the Russian and CIS markets. 86.7 88.2 Attack One of the leaders in the Mi-28NE and Ka-52 rank among the most efficient attack helicopters in the world world; Excellent protection capabilities; Operation in adverse conditions; Ka-52 helicopter is the only combat helicopter with unique aircrew emergency escape Other RH helicopters Total: 2,035 Other RH helicopters Total: 1,851 system Attack One of the leaders in the Mi-28NE and Ka-52 rank among the most efficient attack helicopters in the world; world Excellent protection capabilities; Operation in adverse conditions; Ka-52 helicopter is the only combat helicopter with unique aircrew emergency escape system

1 Company’s data 1 Company’s data 32 DreamsDreams of flying / annual report 2015 33

A dream comes true - helicoptermen from

elieve it or not, but two Russian helicopter manufacturing Bfounding fathers were born in one Siberian town. In 1902 Nikolay Kamov was born to a teacher’s family in and seven years later Michail Mil was born to a railroadman’s family in the same town. Almost at the same time in the middle of the past century Kamov and Mil would develop their Mil’s Helicopter- 1 helicopters - the first ones in their designer biography and the first ones in Russia. Ka-8, Kamov’s debut helicopter that he named «Irkutyanin», was - «vertolyot» - that was how Mi-1 the simplest design of steel pipes helicopter appeared, the predecessor on two inflatable cylinders, without a of all the famous Mi helicopters. cockpit and with an open pilot’s seat. Mi-1 helicopter that appeared in A motor-cycle engine that ran on September 1948 was a full-fledged alcohol rotated two co-axial rotors in rotorcraft with a closed cockpit and the contrary direction. tail that was capable of lifting two This «air motorcycle», as it pilots together with two passengers. was called by the witnesses, was It became one of the first serial demonstrated for the first time during helicopters in the world, several the flight display in Tushino in 1948 thousands of these helicopters have together with state-of-the-art jet been manufactured for the next fighters. Two months after this display decade. the first Mil helicopter also took off. Today the helicopter manufacturing At first, Mil aircraft was called the schools of Kamov and Mil - Moscow same old way -»helicopter» - MH-1 Mil Helicopter Plant and JSC «Kamov» or «Mil Helicopter-1». But the foreign - form a research and development name was promptly superseded by base of «Russian Helicopters» Holding the Russian term invented by Kamov Company 34 Dreams of flying / annual report 2015 35

Supply scheme in 2015 by types (%) revenue sceme in 2015 by regions (%) year of efficiency ~8.5 ~0.1 20. ~23.9 ~28.7 growth and

strengthening the ~0.2 results obtained ~9.3 15. ~3.9 ~44.3 ~47.2 ~33.9

Russia Asia UIS America Deliveries Domescic stace order Military export Сivil Europe Africa Other

1 the Company’s date Due to the stable demand for technical cooperation to foreign helicopter deliveries from our customers ~ 44.3%, as part of civil customers, the Company’s deliveries to commercial customers consolidated financial results ~ 8.5%. have demonstrated steady growth From 2012 to 2014 a positive and market positions have been dynamics related to the advanced deliverits,pcs strengthened. Helicopter deliveries in deliveries of helicopters as per the 2015 decreased by 59 helicopters or contract with the Ministry of Defence CAGR -0.2% 21.8% and amounted to 212 units, as was observed. In 2015 the deliveries compared to 2014. stabilized with account of the current 300 Revenue from the sales of trends of the global market. As of 250 helicopters in 2014 amounted to RUB today the strategic objective of the 200 177.0 billion. On the whole, in 2015 Holding Company is to retain the the Company delivered helicopters production volumes achieved recently 150 to 17 countries of the world. and methodical diversification of 100 Deliveries under the Russian sources of income by growing the state orders amounted to ~ 47.2% service side of our business in the 50 of total deliveries, as part of military face of the sanctions and crisis. 214 262 290 275 271 212 0

2010 2011 2012 2013 2014 2015 36 Dreams of flying / annual report 2015 37

Service Order Book and After-sales The main factor for the significant represents orders for 2016, 25.3% – Support increase (in 2010-2011) was entering orders for 2017, and 39.1% – orders into long-term contracts with the RF for the period of 2018-2020. Ministry of Defence for the supply Our delivery schedule for 2016 is The Company continued to develop a modernization programs to extend of more than 600 helicopters up to 100% secured with firm orders. global system of after-sales service service life and improve operational 2020. The order book has currently The main customers are Russian and logistics. As a result, revenue from performance. normalized. companies (49.4%). The rest of the the implementation of service support At the end of May 2016 a service The Company’s firm order book portfolio is allocated among our and after-sales support amounted to center of CJSC «HeliVert», which reached 494 units by the end of 2015 traditional markets: Africa, Middle RUB 38.3 billion, representing 17.4% of is a joint enterprise of «Russian and its value is estimated as RUB East, Southeast Asia, China, CIS the Company’s total revenue in 2015. Helicopters» Holding Company and 396.1 billion. countries, India, etc. As part of the strategy development AgustaWestland (part of Finmeccanica As far as maturity date is aimed at increasing sales of the corporation) obtained the right to concerned, 35.6% of the order book product life cycle, JSC «HSC» delivered implement maintenance and repair aviation goods and provided after- of AW189 medium helicopters. sales support to 222 clients in 27 The list of scheduled maintenance countries in 2015. activities includes the replacement Order Book, pcs. In May 2016 «Russian Helicopters» of aircraft engines, performance of Holding Company presented a new laboratory checks and reconditioning strategy of Russian-made rotorcraft of aggregates and components. CAGR 3.5% after-sales support. A comprehensive In February 2016 «Russian implementation of the new strategy Helicopters» Holding Company signed will allow the Holding Company to a framework agreement with Chinese achieve a fundamentally new level companies, AVIC International Holding 430 859 817 808 546 494 of after-sales services rendering in Corporation and CITIC Offshore compliance with the world standards, Helicopter Corporation (COHC), on as well as increase revenue share the organization of maintenance and 2010 2011 2012 2013 2014 2015 from this type of services and enhance repair center for the Russian-made competitiveness of its products in helicopters in China. the global market. Special attention in a new strategy is paid to the Backlog breakdown by years Backlog breakdown by geography formation and promotion of after- sales package proposals and services, 12.1 49.4 development of the global network of services centers all around the 39.1 35.6 28.1 Russia world, improving logistics and system of spare parts delivery to meet the 2016 China+India requirements of an operator, as well as development of helicopter 2017 UIS

2018-2020 America 2.8 Еurope 0.6 3.3 25.3 3.7 38 Dreams of flying / annual report 2015 39

CAPEX Organizational Development

The Company’s CAPEX decreased in 2015. Major R&D activities in 2015 Within the framework of the assigned oriented mechanism of management, by 7.1% for the previous period and focused on Mi-38, Ka-62, Mi-171A2 objectives aimed at improving which involves managing the product amounted to RUB 19.4 billion, out of and Ansat. operational efficiency, we continued to throughout its life cycle - from which the investments in production The Company’s activities related work effectively on the organizational design to after-sales service and facilities amounted to RUB 15.8 to the modernization of production development of the Company in 2015. decommissioning. The management billion, having increased by 19.7%, facilities and development of new A number of key areas, such as of helicopter programs has been as compared to 2014. As part of products are actively supported by the pricing and management of treasury centralized in the parent company of technical re-equipment program, JSC Government. In 2015, 35% of capital operations, are characterized by the Holding Company. Russian Helicopters continued the investments into R&D activities was secondment matrix which increased To improve the efficiency of implementation of the following key funded by the Government under the efficiency of making strategically industrial enterprises, the Company activities in 2015 the Targeted Federal Program important decisions and provided further localizes key manufacturing > Production reconstruction to ensure “Development of aviation industry of for the use of human resources of processes through the establishment manufacturing of helicopters of PJSC the Russian Federation”. enterprises. of centers of excellence. «Kazan Helicopters»; The Company continues to pursue We have started a transition > Comprehensive technical re- the strategy aimed at increasing process from geographic to product equipment of stamping production of innovation capacity. Overall CAPEX are JSC «U-UAP»; expected to be 3.5 - 4.5% of the total > Technical production re-equipment revenue in the medium and long term. and reconstruction, 2nd stage JSC «SMPP»; 2015 Financial The Company’s R&D costs decreased by 51.4%, as compared to Performance 2014, and amounted to RUB 3.6 billion

The Company’s consolidated revenue the reporting period. EBITDA for the in 2015 totaled RUB 220.0 billion, an helicopter sales segment amounted increase of 29.5%. Revenue from the to RUB 48.1 billion, and EBITDA for sales of helicopters for the previous services and after-sales support year amounted to RUB 177.0 billion., segment amounted to RUB 16.1 billion. capex, billion rub. while revenue from services and after- EBITDA margin for 2015 was 29.8%. sales support reached RUB 38.3 billion The Company’s profit based on 50 in 2015. the results of 2015 reached RUB 42.2 Cost of sales increased by 15.2%, as billion and increased by 103.7%, as 40 CAGR 9.1% compared to 2014, and amounted to compared to 2014 30 Production facilities RUB 102.4 billion in 2015. Operating expenses increased by 20 20.6 19.4 R&D 42.0% and totaled RUB 58.9 billion 13.7 12.9 16.2 10 based on the results of 2015. 7.4 1 4.9 5.3 7.9 3.6 EBITDA increased by 39.6% and 0 9.1 7.6 8.3 13.2 15.8 amounted to RUB 65.6 billion for

2011 2012 2013 2014 2015

1 The Company defines EBITDA as operating profit before depreciation and amortization, adjusted for gain /loss on disposal of property plant and equipment, impairment of property, plant and equipment with share in results of associates included. EBITDA is a non-IFRS financial measure; therefore, the Company’s definition of EBITDA may differ from similar measures defined by other companies. Revenue by years, billion rub. Revenue, billion rub. 5.9 -3.6 4.2 40 Dreams of flying / annual report 2015 0.8 78.9 41 14.4 19.7 79.7

Revenue by years, billion rub. Total: 103.9 Total: 17.9

CAGR 22.0% 6.6 8.1 -2.0 0.1 78.7 14.6 20.1

103.9 125.7 138.3 169.8 220.0 73.8

2011 2012 2013 2014 2015 Total: 125.7 Total: 20.7

5.1 -2.7 3.2 0.1 83.7 11.4 EBITDA, billion rub. / EBITDA Margin,% 11.1

CAGR 36.9% 88.1 27.7 29.8 19.0 Total: 138.3 Total: 26.3 16.5 17.2 3.7 -1.7 3.6 83.7 0.3 12.7 13.2 17.9 20.7 26.3 47.0 65.6

2011 2012 2013 2014 2015 84.9

Total: 169.8 Total: 47.0

1.1 -0.3 2.6 Profit, billion rub. 1.0 80.5 17.4 24.5 CAGR 46.8%

73.2 20.7 7.0 9.4 9.5 42.2 Total: 220.0 Total: 65.6

2011 2012 2013 2014 2015 helicopters Service and support R&D helicopters Service and support R&D Other Other 42 Dreams of flying / annual report 2015 43 The dream and the reality of the largest helicopter – flying «dragonflies» and «cows»

is the largest and most powerful helicopter ever constructed in Itthe world. It was developed in the summer of 1968. The unique machine was created in the design bureau of Mikhail Mil and received the designation B-12 or Mi-12. Created at the height of the «cold war», it was intended for rapid transportation of intercontinental ballistic missiles and the establishment of their pads in remote inaccessible areas. This is Mi-12 created in the hottest part of “Cold war” why the unprecedented load capacity was necessary. example, the whole bus can be easily The largest helicopter, weighing almost carried under the aircraft’s fuselage, 69 tonnes, is carried by two five-blade between its long «legs». rotors with a 35-meter diameter each, There were more than 40 of this mounted side by side on a small inverse- giant «dragonflies» built. However, the tapered wing that is widest near the tip. largest of the serial helicopters produced On 6 August 1969 the Mi-12 set a world in the world, has become another Mil’s record in lifting capacity that still remains creation - Mi-26, nicknamed the «Flying unbeaten when it took off with 44 tonnes Cow». The diameter of its rotor - «only» on board to a height of more than 2 km. 32 meters, and cargo capacity - 20 Only two of these giant helicopters tonnes or 85 passengers. In 1996 the Mi- were built, now both kept in museums as 26 set a world record which was listed an illustration of a dream of humankind of in the Guinness Book of Records when the largest helicopter. it released into the air 224 sky-divers at The story of the largest helicopters the height of 6 km. would be incomplete without mentioning Nowadays “Russian Helicopters” the huge «dragonfly» Mi-10 with four tall holding is a producer of this rotary-wing landing gears - a real «flying crane». With vehicle that is the most capable load- rotor diameters of 35 meters, this «flying lifting vehicle of the serially-produced crane» is able to lift 15 tons of cargo. For ones. 44 Dreams of flying / annual report 2015 45

STRATEGY

Our strategy is very transparent and range, upgrading existing models, as focused on receiving additional profit, well as developing new and advanced As part of the strategic while ensuring stable growth, and models; KEY comprises the following: > Diversify the Company’s activities development, > Receive maximum return on the to establish new sources of income domestic market, which is of top and, as a result, increase the share of OBJECTIVES the Company sets priority (both military and civil after-sales revenue to the level of best sectors), as result of an increase in practices; the following objective the Company’s market share both in > Increase the efficiency of production, FOR Russia and globally, and to sustain and which will further enhance profitability for 2016 strengthen our leadership positions in and net margin. the key emerging markets, including India, China and Brazil; > Increase the Company’s > Ensure helicopters deliveries at the competitiveness and receive additional same level as in 2015 profit from enhancing the model

> Ensure the revenue at the level of 2015;

> Increase EBITDA margin up to more 20. than 16%; > Maintain the Net Debt/EBITDA ratio at 3 or lower;

> Increase the Company’s global market 16. share. 46 Dreams of flying / annual report 2015 47

SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE

Personnel policy of the Holding is > Focusing on the achievement medical care, corporate parties and Although Russian Helicopters is a requirements of the Russian and aimed at expanding human resources of strategic goals of the Holding entertainment. private company, we are moving international Codes of Corporate potential of the Holding, forming Company The Holding Company’s social towards implementing a system of Conduct and Codes of Ethics as well a team of professionals able to To solve this task, the program of policy is defined together with corporate governance in line with as the requirements of the Bank of implement the Holding Company’s selecting and training of candidates’ employees and Russian trade union of the best international practice and Russia and FSA. strategy – establish a competitive, pool has been being implemented aviation industry workers (Profavia). highly cost-effective and self- within the Holding for a few years Approximately 92% of the Holding developing . already. The program enables Company’s employees were members Recruiting young and promising not only meeting the challenge of Profavia as at 31 December 2015. Board of Directors professionals is one of our top priority of timely closing of executive (top The main priorities of Russian objectives, as part of our personnel management) vacancies, but also Helicopters have always been health The Company’s Board of Directors, the Region Duma. From policy. The entities of the Holding using such personnel development and safety of our 41 thousand which has been established as August 2007 to May 2012 he was Company work in close cooperation tools as rotation. employees. part of the new effective Corporate the Governor and Chairman of the with the core professional training The Holding Company has taken an Governance system, consists of Government of the Samara Region. and higher education institutions, active part in developing its personnel nine members, three of which are In May 2012 he was appointed as which allows monitoring and ensuring through the training programs, which independent (in accordance with the deputy director general of «Rostec» the proper level of young people’s are planned in full compliance with interpretation established in the Code State Corporation, in February 2014 training for further working in the the strategic objectives of each of the of Corporate Governance, Letter of – First Deputy Director General of helicopter industry. Holding Company’s enterprises. the Bank of Russia No. 06-52/2463 of «Rostec» State Corporation. Focused interaction with the 2015 also witnessed the successive 10.04.2014). Since 2014 he has also been the students of the key specialized efforts to improve the system of The Board of Directors carries out Chairman of the Board of Directors of technical universities, vocational incentives across the Holding its activities in accordance with the Vladimir Artyakov JSC «UEC». schools and training colleges Company. The main objective of such Charter of Russian Helicopters. The Chairman Mr Artyakov was born on 30 July ensures the inflow of young qualified activities is to provide consistency main responsibilities of the Board of 1959 in Moscow. In 1986 he graduated specialists to the enterprises. between the achieved results and Directors are: Mr Artyakov, First Deputy Director from the All-Union Polytechnic Proven system of staff remuneration. The majority of the > Establishment of strategic goals General of State Corporation Institute with a degree in construction reproduction, establishment of Holding Company’s enterprises and overseeing the work of «Rostec», became a member of engineering. In 2000 he graduated attractive working conditions and implemented the system of bonuses management toward achieving the Board of Directors of Russian from the Russian Academy of State active development of the enterprises based on the gained key performance these goals Helicopters in 2013. Service and completed a higher have already resulted in the average indicators (KPIs). > Development of systems and education at the Military Academy of age of employees as 42 years in 2015. Special attention is also paid ensuring compliance with the From 1997 to 1999 Mr. Artyakov the Russian Federation Military High This allows the Holding Company to to developing the non-financial risk management and mitigation worked for the Presidential Property Command. effectively implement the assigned motivation. The system is operated procedures Management Division. From 1999 He has been awarded the Order strategic objectives. across the Holding Company to > Development and analysis of to 2000 he was the Deputy Director of Honour, the IV Degree Order of The Holding Company needs reward and encourage the staff investment policy, including General of Promexport. From 2000 to Merit for the Homeland, the Order professional, high-skilled, promising for excellent job performance, development proposals from the 2006 he worked as the Deputy CEO of Friendship and a for managerial personnel experienced in including for the development and management of . In 2005-2006 Strengthening Comradeship-in-Arms. areas as follows: implementation of new hardware/ Members of the Board of Directors he was the Chairman of the Board of He has a PhD in Economics and is > Project management; equipment, and for the improvement of JSC «Russian Helicopters» elected Directors of AvtoVAZ and in 2006- a professor at the Academy of Military > Strategic and systems thinking; of industrial efficiency. Employee at the extraordinary general meeting 2007 he was the President of AvtoVAZ Sciences. > Use of modern methods of efficient benefits and social support include of the shareholders of the Company Group. production management a wide range of sporting events, on 11.12.2015 (Minutes of the meeting From March to August 2007 He does not own any shares in JSC No. 22 of 14.12.2015), are as follows:: Vladimir Artyakov was a Deputy in «Russian Helicopters». 48 Dreams of flying / annual report 2015 49

Since 2006 he has been Director Affairs and Corporate Development of of the Russian Academy of Science’s State Corporation “Rostec”. Institute for Global Economy and Alla Laletina was born on 12 International Relations. May 1976 in Moscow. In 1999 she Since 2010 Alexander Dynkin graduated from the faculty of has been academic secretary of international law at Moscow State the Russian Academy of Sciences’ University of International Relations Department of International Relations, (MGIMO, MFA RF) specializing a member of the Academy’s in international law with foreign Presidium. He was elected to the languages (English, French). Academy as a corresponding member From 2001 to 2003 she completed Alexander Mikheev Aleksander Dynkin in 2000, becoming a full member in Dmitry Lelikov Alla Laletina a postgraduate course of studies at Director General Independent Member of the Board 2006. Non-executive Director Non-Executive Director MGIMO, and in 2004 she defended her of Directors Born in 1948, Alexander Dynkin dissertation. Mr Mikheev was appointed as graduated from the Ordzhonikidze Mr Lelikov, Director General of UIC Alla Laletina was elected a member In 2010-2012, she studied for her Director General of JSC «Russian Mr Dynkin was elected member Aviation Institute in Moscow in 1971 Oboronprom (from 2012), became a of Russian Helicopters’ Board of doctorate at the Institute of State Helicopters» in September 2013 of the Board of Directors of JSC with a major in aircraft engines. member of the Board of Directors of Directors in December 2014. and Law at the Russian Academy of and has been member of the «Russian Helicopters» in December He is a member of the Presidential Russian Helicopters in 2008. Sciences, and in 2012 she defended Board of Directors of JSC «Russian 2014. Council on Science and Education, Alla Laletina – Director of Legal Affairs her doctoral dissertation. Helicopters» since 2008. a member of the Presidential From 2004 to 2012 he was and Corporate Development of State She is a Doctor of Law and a Alexander Dynkin is an expert on the Committee on the Strategic First Deputy General Director Corporation “Rostec”, and since Professor. Alexander Mikheev worked for global economy and international Development of the Energy Sector of Oboronprom. Before joining November 2013 – Chairman of the Rosoboronexport since 2001, politics. His research focuses on and the Environment, a member of Oboronprom he was Chairman of the Arbitration Court of State Corporation He does not own any shares in JSC where, before joining JSC «Russian global economic development and the Presidential Economic Council, Management Board of International “Rostec”. 2014 - 2015 – Head of «Russian Helicopters». Helicopters» as Director General, forecasting, the energy sector, a member of the Federation Council Commercial Bank (within 2001 - 2004) Corporate and Legal Department at he was Deputy Director General of comparative perspectives, innovation- Chairman’s Expert Scientific and State Corporation “Rostec”. From Rosoboronexport, and before that based development and international Committee, a member of the Russian ORGRES-BANK (within 1999 - November 2013 to July 2014 she he was responsible for export of security. He has developed long-term Security Council’s Scientific Advisory 2001). In 2001 Mr Lelikov served headed the legal department of State special equipment and services to social and economic forecasting tools Board, a member of the Foreign as advisor to the Chairman of the Corporation Rostec. the Air Force at Federal State Unitary and produced a series of long- and Ministry’s Scientific Council and Management Board of Tempbank. From 2009 to 2013 she was Deputy Enterprise «Rosoboronexport». short-term forecasts for the global Chairman of the Scientific Committee Mr Lelikov was born on 9 May Director for Corporate and Legal Born on 18 November 1961, economy. of the Russian Council on International 1968. In 1992 he graduated from Issues at Tobolsk Polymer (JSC Sibur Alexander Mikheev graduated in Alexander Dynkin has headed the Affairs. the Financial University under the Holding). aeronautical engineering from Economics and Finance Department He holds a PhD in economics and Government of the Russian Federation From 2007 to 2010 she was Moscow Institute of Civil Aviation at Moscow’s International University the rank of professor, with a degree in finance, and in Director of the Corporate and Legal Engineering in 1985. In 2005 he since 2001. and has been awarded the Badge 1994 he completed his postgraduate Department at SiburTyumenGaz (JSC obtained a masters’ degree from the From 2004 to 2008 he was a of Honour (1986), studies at the Russian Academy Sibur Holding). Military Academy of the General Staff member of the Russian Government’s (2006) and Order of Merit (2012). of Public Administration under the From 2005 to 2007 – Project of the , and Advisory Council on Competition and President of the Russian Federation Manager of Crude Hydrocarbons in 2006 graduated from the Russian Entrepreneurship. He does not own any shares in JSC with a degree in economics. He has Directorate at SIBUR. Government Financial Academy. From 2003 to 2007 he served as a «Russian Helicopters». been awarded the , From 2003 to 2005 she was Deputy He holds a candidate degree in member of the Management Board of and Medal for Services to the Director General for Legal Affairs at economics. the Russian Union of Industrialists and Fatherland (2nd class). Tsentrprof2000. Before that she spent He has been awarded the Order of Entrepreneurs, and from 1998 to 1999 four years teaching international Honour, and Medal for Services to the was an advisor on economics to the He does not own any shares in JSC corporate and civil law at MGIMO. Fatherland (2nd class). Russian Prime Minister. «Russian Helicopters». From 1997 to 2001 she worked as In 1994-1996 he was an invited a legal counsel, and headed the legal He does not own any shares in JSC professor at Georgetown University in department at the company Agros. «Russian Helicopters». Washington, D.C. Since 2015 – Director of Legal 50 Dreams of flying / annual report 2015 51

In 1988 he became Co-founder Deputy Director General of «Rostec» From 2000 to 2004 he was deputy January 1962. In 1984 he graduated and Director of Moscow Business State Corporation. chief of inspectorate, deputy and then from Saint-Petersburg Trade and Consultants (MBC). From 1998 to 2003 Member of the Board of Directors of head of Directorate of the Ministry of Economics University, specializing in he held a position as managing director PJSC «» and OJSC «AUTOVAZ». the Russian Federation for Taxes and Economics. In 2001 he graduated from of the investment banking department Mr Skvortsov was born on 1 Levies for Major Taxpayers in Saint- Saint-Petersburg State University, at Troika Dialog. From 2003 to 2005 he March 1964 in Moscow. In 1986 he Petersburg. In 2004 – Deputy, Acting specializing in Law. He holds a PhD in was Executive Director at Troika Dialog graduated from the Moscow State Minister of the Russian Federation for economics. (Sberbank CIB). From 2005 to 2013 he Institute of International Relations Taxes and Levies. Starting from 27 July was the main partner at Troika Dialog, (MGIMO), specializing in international 2004 – Head of the Federal Tax Service. He does not own any shares in JSC President of Troika Capital Partners. economics. He holds a candidate degree From 2007 to 2012 Mr Serdukov was «Russian Helicopters». On 25 March 2013 Mr Skvortsov in economics. In 1992 he finished a the Minister of Defense of the Russian Sergey Skvortsov was appointed Managing Director training course on investments in the Anatoly Serdukov Federation. Non-executive Director for Investments at State Corporation developing markets organized by Merrill Non-executive Director In 2014 he was appointed Advisor Rostec. On 16 October 2013 he was Lynch Bank in the USA, and in 2005 he to First Deputy Director General of Mr Skvotsov, member of the Board elected member of the Strategy had training in Advanced Management Mr Serdukov, Industrial Director «Rostec» State Corporation. and First Deputy Director General of Committee of the Board of Directors of Program at INSEAD (France). the Aviation Cluster of Rostec State Since 2015 he has been Industrial State Corporation «Rostec», became ROSNANO representing «Rostec» State Corporation, became a member of Director the Aviation Cluster of a member of the Board of Directors Corporation. He does not own any shares in JSC the Board of Directors of Russian «Rostec» State Corporation. of Russian Helicopters in February In January 2014 he was appointed «Russian Helicopters». Helicopters in 2015. Anatoly Serdukov was born on 8 2014..

Aviation Industry Department of the Andrey Boginsky was born on From 1997 to 1998 was Director Technical University, specializing Ministry of Industry and Trade. From 11 August 1974 in Bryansk. Before General of Sukhoi Aviation Military in Aircraft Manufacturing. In 1989 2010 to 2012 he was Deputy Director being admitted to the university, he Industrial Combine (Sukhoi AIMC). he finished Business School of the General for Economics and Finance had various blue-collar jobs. In 1996 From 1998 to 2004 he was Oklahoma University (USA), majoring of FSUE Central Aerohydrodynamic he got a bachelor degree in Financial President of OJSC Irkut R&D in Business Management. Institute named after N.E. Zhukovsky Management at the Economics and and Manufacturing Corporation He has the following awards: RF (TsAGI). Management Department of the New (previously OJSC «IAPO»). Government Order of Honour, Order From 2010 to 2012 Mr Boginsky Humanitarian University. In 2000 he From 2004 to 2007 he was Director «For Merit to the Fatherland» IV class, served as Vice President for graduated from the Russian Foreign General – General Designer of FSUE Peter the Great Golden Mark. Finances at AvtoVAZ. From 2004 to Affairs Ministry Diplomatic Academy, «Russian Aircraft Corporation MiG». 2006 – Deputy Chairman of the Board specializing in Global Economics. From 2006 to 2011 Mr Fedorov He does not own any shares in JSC Andrey Boginsky of Bank Otkrytiye (former Russian Andrey Boginsky holds a Alexey Fedorov served as President, Senior Vice- «Russian Helicopters». Non-executive Directorр Bank of Development), from 1999 to candidate degree in economics and Independent Member of the Board President of OJSC “United Engine 2004 – Manager of the Branch office, is a recipient of the lifetime aircraft of Directors Corporation”. Mr Boginsky – Deputy Minister for Director for the Region of OJSC engineering achievement award. From 2011 to 2012 – President of Industry and Trade of the Russian First Mutual Credit Society Bank. Mr Fedorov has been independent OJSC Irkut Corporation. Federation, and has been member Starting from 1995 and up to 1999 He does not own any shares in member of the Board of Directors From 2012 to 2015 Mr Fedorov of the Board of Directors of JSC Mr Boginsky worked at JSC «Russian Helicopters». of JSC «Russian Helicopters» since was Advisor to Director General «Russian Helicopters» since 30 June Branch office of OJSC «SBS-Agro» 2015. of «Rostec» State Corporation, 2015. as a consultant on loans, expert, Managing Director for Aviation chief accountant, Manager of the From 1974 – 1997 he worked as an Projects, Industrial Director the Andrey Boginsky was appointed RF Branch and Director. Previously, engineer, chief engineer, and then Aviation Cluster. Deputy Minister of Industry and Trade from 1994 to 1995 Andrey Boginsky since 1993 headed Irkutsk Aviation Aleksey Fedorov was born on on 5 February 2015. Since May 2012 worked as an economist in «National Production Association (OJSC 14 April 1952 in Ulan-Ude. In 1974 he has served as the Director of Loan» Bank. «IAPO»). he graduated from Irkutsk State 52 Dreams of flying / annual report 2015 53

Committees of Strategy Committee HR and Remuneration the Board of of the Board Committee of the Board Directors of Directors of Directors

The committees of the Board of Directors provide Was established to ensure the efficient fulfillment of Was established to ensure the efficient 3. HR policy of the Company and management oversight within the scope of their the functions of the Board of Directors in the area fulfillment of the functions of the Board entities of the Holding Company, competency. While decision-making authority and of strategic management and control by means of of Directors by means of preliminary strengthening of the professional responsibility lies with the full Board of Directors, preliminary review of the issues related to: review of the issues related to: staff and system of planning of the separate committees allow for a more detailed 1. Priority areas of activities of the Company and Holding 1. Operating performance of the Board succession of members of the control. The committees analyze information provided Company, medium-term and long-term strategy of Directors and its committees, management bodies, members by the management, highlight issues to be brought to of development of the Company and entities of the members of executive bodies of of executive bodies, and other the attention of the full Board and ensure that proper Holding Company the Company, other key executive key executive employees of the attention is paid to these issues. 2. Programs (business plans) of financial and economic employees of the Company the list of Company. activities of the Company and entities of the Holding which is approved by resolution of the Company; Board of Directors; 3. Investment activities of the Company and entities of 2. Development of an efficient and the Holding Company. transparent system of the Company’s remuneration of the members of the Board of Directors, members of the executive bodies, other key executive employees of the Company; No Members of the Strategy Committee Members of the Strategy Committee from 01.01.2015 to 24.07.2015 from 24.07.2015 to 18.12.2015 1. Dmitry Lelikov (chairman) – member of the Company's Dmitry Lelikov (chairman) – member of the Board of Board of Directors, Director General of JSC “UIC Directors of JSC “Russian Helicopters”, Director General of “OBORONPROM”; JSC “UIC “OBORONPROM”; 2. Aleksander Dynkin – member of the Company's Board Aleksander Dynkin – independent member of the Board of Directors, independent director, economist, member of Directors of JSC "Russian Helicopters", economist, of the Russian Academy of Sciences, Director of the member of the Russian Academy of Sciences, Director Institute of World Economy and International Relations of the Institute of World Economy and International (IMEMO) (Russian Academy of Science), member of Relations (IMEMO) (Russian Academy of Science), member No Members of the HR and Remuneration Committee Members of the HR and Remuneration Committee the Bureau of the Presidential Council of the Russian of the Bureau of the Presidential Council of the Russian from 01.01.2015 to 24.07.2015 from 24.07.2015 to 18.12.2015 Federation for Science and Education; Federation for Science and Education; 1. Vitaly Baranov (chairman) – member of the Company's Vitaly Baranov (chairman) – independent member of the 3. Sergey Skvortsov – member of the Company's Board Sergey Skvortsov – member of the Board of Directors of Board of Directors, independent director, Deputy Board of Directors of JSC "Russian Helicopters", Deputy of Directors, Deputy Director General of the State JSC “Russian Helicopters”, Deputy Director General of Chairman of the Board of OJSC Gazprom Neft, Deputy Chairman of the Board of PJSC Gazprom Neft, Deputy Corporation “Russian Technologies”; State Corporation “Rostec”; Director General for Administration of OJSC Gazprom Director General for Administration of PJSC Gazprom Neft; 4. Vassily Ponomarev – Deputy Head of Planning and Vassily Ponomarev – Deputy Head of Planning and Neft; Industrial Policy Department of State Corporation Industrial Policy Department of State Corporation “Rostec”; 2. Evgenyi Kuzmenkov – Personnel and Organizational Dmitry Lelikov – member of the Board of Directors of “Rostec”; Development Director of JSC “Russian Helicopters”; JSC “Russian Helicopters”, Director General of JSC “UIC 5. Vyacheslav Kozlov – Deputy Director General for Vyacheslav Kozlov – Deputy Director General for Finance “OBORONPROM”; Finance and Investments of JSC “Russian Helicopters”; and Investments of JSC “Russian Helicopters”; 3. Dmitry Lelikov – member of the Company's Evgenyi Kuzmenkov – Personnel and Organizational 6. Vladimir Makareykin – Director for Innovative Vladimir Makareykin – Director for Innovative Development Board of Directors, Director General of JSC “UIC Development Director of JSC “Russian Helicopters”; Development and State Programs of JSC "Russian and State Programs of JSC "Russian Helicopters"; “OBORONPROM”. Helicopters"; 4. – Alla Laletina – member of the Board of Directors of JSC 7. Aleksander Idrisov – President of CJSC "Strategy Aleksander Idrisov – President of CJSC "Strategy Partners “Russian Helicopters”, Head of Corporate and Legal Partners Group" Group" Department of State Corporation “Rostec”. 54 Dreams of flying / annual report 2015 55

No. Members of the Audit Members of the Audit Members of the Audit Members of the Audit Committee Audit Committee Committee from 01.01.2015 Committee from 06.03.2015 Committee from 24.07.2015 from 18.12.2015 to 06.03.2015 to 24.07.2015 to 18.12.2015 to 31.12.2015 of the Company’s Board 1. Aleksander Dynkin Nataliya Smirnova Nataliya Smirnova Nataliya Smirnova (chairperson) (Chairman) – independent (chairperson) - Head of Entities (chairperson) - Head of - Director of Internal Audit of Directors director, economist, member Audit Department of State Entities Audit Department of Department of State Corporation of the Russian Academy of Corporation "Rostec"; State Corporation "Rostec"; "Rostec"; Sciences, Director of the Institute of World Economy Was established to ensure the 2. Ensuring the compliance with the and International Relations efficient fulfillment of the functions of legal requirements and informing (IMEMO) (Russian Academy the Board of Directors for preliminary the sole executive body of the of Science), member and review of the issues related to the Company on the violations in this secretary of Department system of control of financial and regard; of Global Problems and economic activities of the Company 3. Control over the financial International Relations and entities of the Holding Company. statements. (Russian Academy of Science), Chairman of the The following issues fall within the Academic Board, member of competence of the Committee: the Supervisory Board of the 1. Control over the system of Russian International Affairs internal control, audit and risk Council; management; 2. Alla Laletina – Head of Aleksander Vetvitsky - Aleksander Vetvitsky - Aleksander Vetvitsky - Head of Corporate and Legal Deputy Head of Entities Deputy Head of Entities Audit, Revision and Methodology Department of State Audit Department of State Audit Department of State Division of State Corporation Corporation “Rostec”; Corporation "Rostec"; Corporation "Rostec"; "Rostec"; 3. Pavel Osin – First Deputy Galina Kuzmina - Head of Galina Kuzmina - Head Galina Kuzmina - Head of 1 Director General of JSC «UIC Revision and Audit Subdivision of Revision and Audit category projects, Audit, Revision «OBORONPROM» of State Corporation "Rostec"; Subdivision of State and Methodology Division of State Corporation "Rostec"; Corporation "Rostec"; 4. Aleksander Dynkin – Aleksander Dynkin – Aleksander Dynkin – independent independent director, independent member of member of the Board of Directors economist, member of the the Board of Directors of of JSC «Russian Helicopters», Russian Academy of Sciences, JSC «Russian Helicopters», economist, member of the Russian Director of the Institute economist, member of Academy of Sciences, Director of of World Economy and the Russian Academy of the Institute of World Economy and International Relations (IMEMO) Sciences, Director of the International Relations (IMEMO) (Russian Academy of Science), Institute of World Economy (Russian Academy of Science), member and secretary of and International Relations member of the Bureau of the Department of Global Problems (IMEMO) (Russian Academy Presidential Council of the Russian and International Relations of Science), member of the Federation for Science and (Russian Academy of Science), Bureau of the Presidential Education; chairman of the academic Council of the Russian board, member of the Federation for Science and supervisory board of Russian Education; International Affairs Council; 5. Alla Laletina – Head of Alla Laletina – Head of Alla Laletina – member of the Corporate and Legal Corporate and Legal Board of Directors of JSC “Russian Department of State Department of State Helicopters”, Director of Legal Corporation “Rostec”; Corporation “Rostec”; Affairs and Corporate Development of State 6. . Pavel Osin – First Deputy Pavel Osin – First Deputy Pavel Osin – First Deputy Director General of JSC "UIC Director General of JSC "UIC Director General of JSC "UIC "OBORONPROM". "OBORONPROM". "OBORONPROM". 56 Dreams of flying / annual report 2015 57

Budget Committee of the Company’s Independent Directors Board of Directors At present, the Board of Directors objectivity. The independent directors has three members who fully qualify are obliged to inform the Corporate Was established to ensure the efficient 2.1.1. financial and economic and budget as independent directors according Secretary should their status change, fulfillment of the functions of the Board management within the Company and to international best practice. This including informing about events that of Directors for preliminary review entities of the Holding Company; means that they are independent of could impact their independent status of the issues related to the planning 2.1.2 budget and financial, as well the Company’s officials and affiliated and about any conflicts of interest of financial and economic activities as credit policy of the Company and parties. Apart from participation in that could arise during the process of of the Company and entities of the entities of the Holding Company; the Board of Directors, they have their participation in the work of the Holding Company and control over 2.1.3. corporate decisions which have no relation to the company or its Board of Directors. such activities. The following issues a significant impact on the financial affiliates that could affect their fall within the competence of the status of the Company and entities of Committee: the Holding Company.

No. Members of the Budget Committee Members of the Budget Committee Members of the from 01.01.2015 to 24.07.2015 from 24.07.2015 to 18.12.2015 Budget Committee from 18.12.2015 to 31.12.2015 1. Kirill Gaidash (chairman) - Head Kirill Gaidash (chairman) - Head of Kirill Gaidash (chairman) - Director General of Financial and Economic Policy Financial and Economic Policy Department of Unitary Enterprise "Microgen" of the Department of the State Corporation of the State Corporation “Rostec” Ministry of Health “Rostec” Management 2. Pavel Osin – First Deputy Director Pavel Osin – First Deputy Director General Pavel Osin – First Deputy Director General General of JSC «UIC «OBORONPROM». of JSC «UIC «OBORONPROM». of JSC «UIC «OBORONPROM». 3. Vyacheslav Kozlov – Deputy Director Vyacheslav Kozlov – Deputy Director Vyacheslav Kozlov – Deputy Director General Alexander Mikheev worked for Government Financial Academy. General for Finance and Investments General for Finance and Investments of for Finance and Investments of JSC “Russian Rosoboronexport since 2001, He holds a candidate degree in of JSC “Russian Helicopters”; JSC “Russian Helicopters”; Helicopters”; where, before joining JSC «Russian economics. 4. Aleksander Dynkin – member of Aleksander Dynkin – member of Aleksander Dynkin – independent member Helicopters» as Director General, He has been awarded the Order of the Company's Board of Directors, the Company's Board of Directors, of the Board of Directors of JSC "Russian he was Deputy Director General of Honour, and Medal for Services to the independent director, economist, independent director, economist, member Helicopters", economist, member of the Rosoboronexport, and before that Fatherland (2nd class). member of the Russian Academy of of the Russian Academy of Sciences, Russian Academy of Sciences, Director he was responsible for export of Member of the Board of Directors Sciences, Director of the Institute Director of the Institute of World Economy of the Institute of World Economy and special equipment and services to of JSC «Russian Helicopters», JSC of World Economy and International and International Relations (IMEMO) International Relations (IMEMO) (Russian Relations (IMEMO) (Russian Academy (Russian Academy of Science), member Academy of Science), member of the Bureau the Air Force at Federal State Unitary “Mil Moscow Helicopter Plant”, JSC of Science), member of the Bureau of of the Bureau of the Presidential Council of the Presidential Council of the Russian Enterprise «Rosoboronexport». «Kamov», JSC «U-UAP», PJSC “Kazan the Presidential Council of the Russian of the Russian Federation for Science and Federation for Science and Education; Alexander Mikheev Born on 18 November 1961, Helicopters”, PJSC «AAC «Progress», Federation for Science and Education; Education; Director Genera Alexander Mikheev graduated in JSC «HSC», JSC «Reductor-PM», 5. Svetlana Bezyzvestnykh – Senior Svetlana Bezyzvestnykh – Senior Expert of Svetlana Bezyzvestnykh – Senior Expert of aeronautical engineering from JSC «SMPP», JSC «KumAPE», PJSC Expert of Budgeting and Consolidated Budgeting and Consolidated Management Budgeting and Consolidated Management Mr Mikheev was appointed as Director Moscow Institute of Civil Aviation «Rostvertol», JSC «NARZ», JSC «356 Management Reporting Subdivision Reporting Subdivision of Financial and Reporting Subdivision of Economics General of JSC «Russian Helicopters» Engineering in 1985. In 2005 he ARP», and JSC «99 ZATO». of Financial and Economic Policy Economic Policy Department of the State and Finances Department of the State in September 2013 and has been obtained a masters’ degree from the Department of the State Corporation Corporation “Rostec”; Corporation “Rostec”; member of the Board of Directors Military Academy of the General Staff “Rostec”; of JSC «Russian Helicopters» since of the Russian Armed Forces, and 6. Sergey Zheltikov – Economy and Sergey Zheltikov – Economy and Finance Sergey Zheltikov – Economy and Finance 2008. in 2006 graduated from the Russian Finance Director of JSC “Russian Director of JSC “Russian Helicopters”. Director of JSC “Russian Helicopters”. Helicopters”. 7. – – Ilina Migal – Head of Treasury Division at State Corporation "Rostec" 58 Dreams of flying / annual report 2015 59

Yuriy Kaptelkin Andrey Shibitov Grigory Kozlov Alexander Scherbinin Roman Chernyshev Vladimir Kudashkin Head of Director General Deputy Director General for Deputy Director General for Sales Deputy Director General for Marketing Deputy Director General Deputy Director General for Legal Administration Production and Innovations and Business Development for Program Management Affairs and Corporate Development Kozlov was appointed deputy general Was born on 21 March 1983 in Mr. Shibitov has held the position director for sales and marketing at Mr Scherbinin was appointed Deputy Mr Chernyshev was appointed Mr Kudashkin was appointed Moscow. of Deputy Director General for Russian Helicopters on 24 March 2014. Director General for Marketing Deputy Director General for Program Deputy Director General for Legal Education: Production at JSC «Russian and Business Development of JSC Management at JSC «Russian Affairs and Corporate Development Graduated from the Moscow Helicopters» since July 2012. Kozlov has extensive experience in «Russian Helicopters» on 16 October Helicopters» on 1 December 2011. of JSC «Russian Helicopters» on 12 University of the Ministry of Internal Russian helicopter sales. From 2010- 2015. November 2013. Affairs of Russia, international law Prior to this appointment, Mr. 2014 he was head of the helicopter From 1996 to 1998 he held From July 2013 he served as chief faculty, with a degree in international Shibitov was the Deputy Director export department at Rosoboronexport, Mr. Shcherbinin has an extensive various management positions at of staff at Rostec State Corporation, law with a knowledge of foreign General for Marketing and Export and from 2001-2007 he served as management experience in the area Norilsk Nickel. In 2003-2004, Roman and before that for six years headed languages (English, Spanish). Sales at JSC «Rostvertol» in 2000- deputy head of department for Air of international economic activities. Chernyshev served as deputy CEO of up Rostec’s legal department and Work experience: 2004. From 2004 to 2008 he served Force special property and services at From 2010 to 2014, he occupied Energomash-Project. From 2004 to was a member of the Board of the 2000 – 2005 – served with Interior as Director General of JSC «Mil Rosoboronexport. Kozlov also served management posts at Norilsk 2008 he worked as director of finance State Corporation. From 1998 to 2007 Ministry bodies; Moscow Helicopter Plant», and as deputy director general for external Nickel Group. From 2012 to 2014, and economics and First Deputy he worked at Rosvooruzhenie and 2006 – 2008 – Rosoboronexport, from 2007 to 2010 Mr Shibitov was economic affairs at Oboronprom Shcherbinin was Director General Director General at JSC “Progress” Rosoboronexport, where he was an Assistant to First Deputy Director Director General of JSC «Russian from 2007-2010 and has held a range of the main sales division at CJSC Arsenyev Aviation Company” (AAC adviser to the CEO and head of the General; Helicopters». He was a member of of management positions within Normetimpex, the company’s main “Progress”). one of Russia’s largest legislative support group. 2008-2009 – Chief of Staff, United the Board of Directors of Russian Promexport. revenue-generating arm, with an aerospace companies and owner Vladimir Kudashkin was born in Shipbuilding Corporation; Helicopters from 2007 to 2011. Kozlov was born on 15 October 1945 annual turnover of in excess of 10 of unique aviation and missile 1964 in , and graduated 2010 – 2013 – Rosoboronexport, Mr. Shibitov graduated from the in Moscow. He graduated from the billion USD. He was responsible for technologies. from the Nakhimov Naval Academy Assistant to Deputy Director General; Kharkiv Aviation Institute with a Zhukovsky Military Aviation Engineering sales within Russia, and to countries Roman Chernyshev was born in Leningrad in 1981. In 1985 he Since 2013 – Head of Director degree in aircraft construction in Academy in 1972, specializing in electrical across Europe, Asia and America. on 21 September 1976 in the town graduated from the Kiev Higher Navy General Administration of JSC 1988. He was born in1961. and mechanical engineering, and holds From 2004 to 2010, Shcherbinin of Penza-19 and graduated from Political Academy, and in 1997 from «Russian Helicopters»; Member of the Board of Directors the rank of Colonel (Rtd.). Before 1995, occupied several different positions the Moscow Physics and Technical the Russian Presidential Academy of Member of the Board of Directors of JSC “Mil Moscow Helicopter Kozlov served with the USSR Armed within Rosoboronexport. Institute in 1999. State Service, where he also obtained of JSC “Mil Moscow Helicopter Plant”, PJSC «AAC «Progress», JSC Forces and the Russian Armed Forces. Shcherbinin was born on 27 Member of the Board of Directors a master’s degree (jointly with the Plant”, JSC «Kamov», PJSC “Kazan «Reductor-PM», JSC «SMPP» and He has the following awards: April 1978 in Leningrad (now St. of JSC «Kamov», PJSC AAC Russian Foreign Trade Academy) in Helicopters” and JSC «HSC». PJSC «Rostvertol». order of excellence by the Federal Petersburg). In 2000, he graduated «Progress», and PJSC «Rostvertol». 1999. He holds a doctorate in legal Military-Technical Cooperation Service from St Petersburg State University studies, For Services to Military-Technical of Economics, specializing in finance and has been awarded the Order Cooperation, the jubilee medal from the and lending, and in 2007 graduated for Military Merit and an official Defence Ministry celebrating 100 years from the Russian Foreign Affairs citation from the President of Russia of the Russian Air Force, the medal For Ministry Diplomatic Academy, for services to the country. Strengthening Military Cooperation, and specializing in Global Economics. He Member of the Board of Directors Medal for Services to the Fatherland has a PhD in Economics. of JSC «Kamov», PJSC AAC (2nd class). «Progress», PJSC «Rostvertol», JSC Member of the Board of Directors of «356 ARP», and JSC «99 ZATO». PJSC «Rostvertol» and JSC «U-UAP». 60 Dreams of flying / annual report 2015 61

Member of the Board of Directors of JSC «Reductor-PM» He has the following awards: order of excellence by the Federal Military- Technical Cooperation Service For Services to Military-Technical Cooperation, medal of the RF MoD for Strengthening Military Cooperation, as well as medal of the FSMTC «For Distinction»

Vyacheslav Kozlov Igor Chechikov Deputy Director General for Deputy Director General for After- Finance and Investments Sales Support Services

Mr Kozlov was appointed Deputy Graduated from the Military University, Director General of JSC «Russian Russian Presidential Academy of State Helicopters» on 12 November 2013. Service, Russian Government Financial Academy, Kutafin Moscow State Law From 2006 to 2013 he served as first University. deputy managing director of Ulan- 2000-2004 – Lead Specialist, Chief Ude Aviation Plant, part of Russian Specialist, Russian Munitions Agency; Nikolay Gryaznov Helicopters Holding Company. 2004-2005 – Chief Specialist, CJSC Deputy Director General for Security Since 2009 he has been a New Regional Airplanes (NORS); member of the Board of Directors 2005 – Deputy Head of Section, Mr Gryaznov was appointed Deputy of JSC «Helicopter Innovation the Federal Service for Ecological, Director General for Security of JSC Industrial Company». Technological and Nuclear Supervision; «Russian Helicopters» on 5 November Before joining the helicopter 2006-2009 – Head of Section, Deputy 2014. industry, Vyacheslav Kozlov worked Director General, Executive Director, at the Ministry for Economic CJSC Astrasystems; Nikolay Gryaznov was born in 1955 in Development and Trade (2004- 2009-2011 – Deputy Head of the Buryat Autonomous Soviet Socialist 2006). Marketing and Sales Department, OJSC Republic. In 1977 he graduated from Vyacheslav Kozlov was born in Managing Company “United Engine National Research Irkutsk State Technical 1981, and in 2002 graduated from Corporation”; University majoring in aircraft mechanical Novosibirsk State University in 2011-2012 – Deputy Director General engineering. Nikolay worked at Irkutsk mathematics and economics. In for Cooperation with India, OJSC “OPK Aviation Plant for five years and occupied 2004 he obtained a master’s degree Oboronprom”; various management positions. in economics from the Higher 2012-2013 – Deputy Director Nikolay Gryaznov is a lieutenant School of Economics in Moscow. He General for Marketing and Control Over general of the Federal Security Service holds an Executive MBA International Business Activities, OJSC of the Russian Federation. Since 1982 and has been awarded the “OPK Oboronprom”; he has been serving with the state Certificate of Merit of the Republic Since October 2013: – deputy director security bodies. He has the following of Buryatia. general for international business awards: , Order «For Member of the Board of Directors activities, OJSC “OPK Oboronprom”; Military Merit», Order «For Merit to the of JSC «U-UAP», PJSC «Kazan Since December 2014 – Director for Fatherland» IV class with swords, Order Helicopters», JSC «HSC» and JSC International Business Development of Alexander Nevsky, Order of Saint «KumAPE» and After-Sales Support Programs Righteous Grand Duke Dmitry Donskoy II in the area of Military and Technical class, more than 20 and badges. Cooperation. The honorary citizen of the Republic of Kalmykia and city of Makhachkala (Republic of Dagestan). 62 Dreams of flying / annual report 2015 63

Internal audit Capital Markets and Investor Relations Internal Audit Department was recommendations of UK Corporate established in 2011, as part of the Governance Code and Enterprise activities aimed at improving the Risk Management and Internal Russian Helicopters is actively Fitch Ratings estimates our Long- efficiency of the Holding Company’s control Framework of Committee of working on the implementation of Term Issuer Default Ratings at BB, corporate governance system. The Sponsoring Organizations (COSO). the highest standards of information Outlook Stable. In turn, Moody’s main activities the Department The existence and the above- disclosure in order to build a strong Investors Service evaluates Russian carries out are as follows: described functioning of Internal relationship with the global financial Helicopters probability of default 1. Performance of internal audits Audit allows the Holding to obtain markets and the media. rating of Russian Helicopters at Ba3, aimed at improving the Holdings reasonable assurance that the goals The main principles of our Outlook Stab. operations. set up by the shareholders, Board of Information Disclosure Policy are: 2. Establishment and continuous Directors and Executive Management > to provide all the stakeholders improvement of risk management will be achieved, as well as that with a constant and actual news and internal controls. the resources used are effectively flow, which fully and clearly covers 3. Establishment and continuous employed and financial reporting is all the aspects of the Company’s improvement of the processes reliable and transparent. activities; aimed at timely fraud detection and > to provide all the stakeholders prevention. with a timely response to any Internal Audit is an inherent information requests part of public business company. We have Investor Center on Its main goal, in accordance with our corporate website www. international corporate governance russianhelicoptres.aero, accessible and stock exchange standards and at www.russianhelicopters.aero/ru/ recommendations, is to contribute investors/.It contains information to the improvement of governance, for analysts and investors interested risk management, and control in Russian Helicopters, including processes by bringing a systematic, financial statements, information on disciplined approach to assess the corporate governance, Company’s effectiveness of these systems and structure etc. If information is not provide recommendations on their accessible on the website, the IR improvement. team can be contacted at any time. Internal Audit Department is Improvements continued to be made an independent unit within the to our Investor Center in 2015 to organization that functionally reports make it the most convenient source to the Audit Committee of The Board of information about the Company. of Directors. The Department is In 2012 Russian Helicopters organized and performs its activities began to cooperate closely with in compliance with International rating agencies. As result of Practice Professional Standards of that Fitch Ratings and Moody’s the Institute of Internal Auditors, Investors Service have assigned our first rating. At the moment, 64 Dreams of flying / annual report 2015 65

RISK MANAGEMENT Moreover, the US and EU sector- In general, the Holding Company specific sanctions imposed in 2014 is unable to have a material impact targeting the key elements of the on the business environment in the Risk is an integral part of business. and control. We maintain the Risk Russian economy. No direct sanctions RF. However, in case of negative The Holding Company, as any other Register that covers the key strategic were officially imposed on the entities changes in the business environment company, is constantly dealing with risks, including their description, key of “Russian Helicopters” Holding globally and in the Russian Federation, risks and opportunities that can either risk owners, as well as control and Company. However, the imposed the Holding Company will take all negatively or positively influence its procedures to be implemented for sanctions, including those against the necessary actions to reduce the business. To minimize the negative mitigating those risks on a corporate Russian banks, may indirectly have a negative impact on the possibility impact of risks and to capitalize level. The content of the Register is negative impact on the activities of the to meet obligations with regard to opportunities, we have introduced an determined by senior management entities of the Holding Company. In securities, including diversification of integrated risk management system and approved by Director General. particular, the following circumstances production. aimed at ensuring transparency At the operational level, risk may arise: of decision-making process and management is performed through > Limitations on the supply of imported Risks of helicopter industry effective risk management. internal controls documented in equipment and components. Demand for helicopters largely Though we are not yet a public our internal policies & procedures. > More expensive borrowings due depends on long-term budget company, the risk management Monitoring activities of risk to limited access to foreign capital priorities of consumer countries system of the Company is in management effectiveness are markets for state banks, and, as a which the Holding Company is compliance with the international performed by the Risk Manager of the result reduced volume of the RF debt unable to have influence on. Besides, standards, such as an integrated Company, and assessed by Internal market. helicopter industry, especially its civil risk management model developed Audit Department. The results of such > Difficulties with the processing of sector, is highly dependent on the by the Committee of Sponsoring evaluation are delivered to the Audit payments in foreign currency (USD, risk of technological breakthrough, Organizations (COSO) and its Committee, as well as to the attention EUR) through correspondent banks including adjacent industries that Enterprise Risk Management of the Board of Directors. of the US and European Union. may lead to a decrease in demand Framework, as well as international > Potential ban to use SWIFT paralyzes for existing helicopter models and/ aerospace engineering standards AS/ all settlements with the use of foreign or will require substantial financial EN 9100С. currency when carrying out activities investments aimed at developing Risk management system ensures with foreign counterparties on a new models in line with the new that risks are fully understood and temporary basis, which may negatively competitive environment. managed through the system of impact the Holding Company’s inflows, Market positions of the Holding, their identification, assessment which, in turn, may lead to inability to therefore, are dependent on the pay current debt liabilities (primarily following key factors: contract financing). > Economic and political stability of The Company makes various main customer countries, including arrangements aimed at organizing the stability of their long-term KEY RISK FACTORS early supplies of the required items national defense policies. in sufficient quantity (provisions), > The ability to keep our leadership as well as arrangements as part of position on internal market Below are the main risks the Holding globally and in the Russian Federation. the Import Substitutions Program including efficiency and quality of Company currently faces that can Adverse changes arising from (see also risks of interactions with performance of obligations under the have a significant impact on the systemic risks in global financial suppliers) to minimize the influence State Defense Order of Ministry of achievement of strategic goals and system, including decline in the oil of limitations to supplies of imported Defense, our main customer. objectives. The Holding Company and gas prices, could slow or disrupt components and equipment on > The success of current design may be exposed to additional risks, the RF economy, adversely affect the the activities of the entities of the and development projects aimed including those that that are not Company’s access to capital and cost Holding Company. at modernization and upgrade yet known to us and/or considered of capital for the Holding Company Also, the Holding Company of existing models, as well as at insignificant. and, more generally, its business, optimizes current and investment development of new and advanced Risks related to changes in the results of operations, financial stability expenses to minimize the volume of models to be competitive in the political and economic environment and prospects. external borrowings. domestic and foreign markets. 66 Dreams of flying / annual report 2015 67

Our activities aimed at the simultaneous decrease in the orders of with reliable guarantee and post- to fast changes and ambiguous mitigation of the above mentioned Ukrainian engines of JSC to guarantee services and necessary interpretation, there is a risk of risks are described in «Market ensure the fulfillment of obligations of spare parts negative impact of these changes on position», «Model range» and the Holding Company to its customers. Sections “Deliveries”, “After-sales the activities of the Holding Company, «Strategy» sections of this Annual As a result, the impact of this risk support”, “CAPEX”, “organizational in particular, changes to the regulation report. on the Company’s activities will be development”, “key objectives for of the State Defence Order, state minimized to the acceptable level. 2014”, “HR policy” of this Annual subsidies, etc. Risks of relationships with Apart from that, the Holding Report include the description of Therefore, the Holding Company suppliers Company imposes certain strict actions that we perform to mitigate the monitors regulatory development and The major part of materials and key requirements on potential suppliers above mentioned risks. enforces a strong compliance regime. parts used for helicopter production during the contract negotiation Moreover, our layers are performing are purchased from the third parties. process. Quality monitoring activities Financial risks expertize of all potential contracts and In addition, key parts are purchased and supplier effectiveness evaluation The main financial risks faced by obligations on protection of Holding from suppliers that hold a monopoly are performed as part of the the Holding relate to the availability rights and compliance with applicable in their industry. Therefore, the implemented quality management of funds to meet business needs laws and regulations. Holding is highly dependent on the system. (liquidity, credit and capital risks) and Note 39 “Commitments and effectiveness of our key suppliers, i.e. fluctuations in interest and foreign Contingencies” to the consolidated on the following factors:: Operational risks exchange rates. financial statements in this Annual > Financial stability of suppliers that Our customers are our main focus. We We are currently operating the Report contains risk description and directly influence their capacity constantly analyze and improve key information system using Oracle mitigation measures in these areas. to timely and effectively fulfill operational processes to increase their Hyperion Planning, which allows contractual agreements to provide effectiveness and to provide our clients us to monitor and take efficient See the respective Financial the Holding with necessary materials with the best quality product at a management decisions to minimize Statements attached. and key parts necessary for reasonable price. The key risk factors financial risks, including current helicopter production. in this area are as follows: monetary assets and cash position, > The ability of our suppliers to keep > ЭEffective personnel management, funding requirements, interest rates, the price level on a competitive basis including recruitment, training, and currency positions. by the efficient monitoring of prices development and retaining of unique Note 36 “Capital management” on parts and materials that they use competencies, as well as ensuring and note 38 “Risk management for production. an optimal number of employees activities” to the consolidated financial Moreover, due to the current and establishment of a balanced statements in this Annual Report unstable geopolitical and organizational structure that enables contain a detailed description of macroeconomic environment, there is and motivates them to achieve the financial risks and risk management a risk of short deliveries of Ukrainian objectives of the Holding Company. tools used by the Holding Company to vendor items and materials, as well as > The success of our marketing and mitigate these risks. vendor items and materials produced sales of helicopters, pricing and in the US, countries of the European contract management as well as Regulatory environment Union and those countries that joined production cost control mechanisms and compliance the EU in imposing sanctions. in order to provide substantial The activities of the Holding Company To minimize the negative impact of growth in the total number of are regulated by various laws and this risk on the activities, the Holding helicopter orders and deliveries and regulations related to, among other Company considered the possibility ensure sustainable profitable growth. areas, federal anti-monopoly rules, to work with the suppliers of similar > Effective production platform intellectual property protection, equipment and components and is infrastructure and reliable transfer pricing, currency and customs actively involved in the implementation management and IT systems rules, export regulations as well as of activities stipulated by the import to ensure efficient allocation of international financial statements substitution programs. resources across the entire supply standards. Thus, procurement of engines chain Due to the fact that the legal manufactured by JSC “Klimov” > ЭEffectiveness of after-sales support and regulatory framework of the may be significantly increased with system to provide our customers Russian Federation is still exposed 68 DreamsDreams of flying / annual report 2015 69

Keep dreaming the most unconventional rotary-wing projects

he world’s largest helicopter launchers with six rockets of S-75 Mi-12 can be challenged by the air-defense system (“Dvina”) would be as a helicopter for development of Tproject of the design bureau of between the rotors on the 49-meter the depths of the Siberian and Far Alexander Sergeevich Yakovlev. The platform (12 meters longer than the Northern regions. It was to carry famous constructor of a renowned WW largest helicopter (V-12) in the world). large-tonnage equipment over great II jet fighter also took a crack in the They proposed the “vertically distances for extracting gas, oil and field of helicopter building. Prototype taking-off platform” would become other mineral resources. To this of Yak-60 helicopter was created by a transportable air-defense missile end the design load capacity of the Yakovlev’s engineers in the late 60-s system that could be rapidly moved “triangular” (Mi-32) should have of the 20th century, and the designers’ hundreds of kilometers away. exceeded 55 tons, and flight range intentions were to make its take-off Theoretically, the missiles were to be with such load should have grown to weight 100 tons and to transport a tank launched right from the fuselage of one thousand or more kilometers. at the external sling. this “impossible” helicopter, just as it is Particularly heavy loads had to be They gave Yak-60 project a name done on missile carrying submarines. carried on adjustable cables, their “Huge flying carriage”, and the Neither Yak-60 nor “flying platform” length up to 60 meters, hanging down helicopter would have been able to (VVP-6) projects were ever realized. from each end of the “flying triangle”. carry up to 228 paratroopers in full But another planned and quite As we can see, the dream of a gear in the cargo compartment or unconventional giant helicopter was helicopter still stirs the humankind’s three IFVs with crews. They proposed almost gotten to the production stage. imagination even after coming true, Yak-60 would be of use in the national Mil Design Bureau was not going to now it has just become the dream of a economy as well, for example, it would terminate work even after creating the more perfect and capable rotorcraft. carry by air drill rigs for oil production, world largest Mi-12 helicopter. By early And now that we have come into transmission tower and other oversize 80-s of the last century one of the most the XXI century, the time of new loads. unconventional rotary-wing aircrafts technologies and innovations, making But the “huge flying carriage” (triangular Mi-32 helicopter with three this dream come true is up to “Russian was far from being the most original rotors) was produced there. Helicopters” Holding Company. project of the Yakovlev design bureau. In fact, this machine represented Following the Yak-60 they envisioned three 36-meter fuselages connected by the so called Yak VVP-6 or “Vertically a triangle, with the rotor in each corner. taking-off platform”, an exotic machine They believed such arrangement of that strikes imagination. As many as 6 rotors is more efficient, it reduces rotors would carry this platform, they the chance of air resonance without would be installed on six short wings on requiring the synchronization. each side of the fuselage. Three missile “Flying triangular” was intended 70 Dreams of flying / annual report 2015 71

Consolidated Contents Statement of management’s responsibilities for the preparation and approval financial of the consolidated financial statements 72 Consolidated statement of comprehensive income 74 statements of Consolidated statement of financial position 76 Consolidated statement of changes in equity 78

Consolidated statement of cash flows 81 Joint Stock Company Russian Helicopters Notes to the consolidated financial statements 84 and its subsidiaries for the year ended 31 December 2015

April 2016 72 Dreams of flying / annual report 2015 73

Statement of management’s The following statement, which • providing additional disclosures should be read in conjunction with when compliance with the responsibilities for the preparation and the independent auditor’s report, is specific requirements in IFRS made with a view to distinguishing are insufficient to enable users to approval of the consolidated financial the respective responsibilities of understand the impact of particular the management and those of the transactions, other events and statements independent auditors in relation to conditions on the Group’s financial the consolidated financial statements position and financial performance; for the year ended 31 December 2015 of Joint Stock Company Russian and Helicopters and its subsidiaries (the • making an assessment of the «Group»). Group’s ability to continue as a going concern. Management is responsible for the preparation of the consolidated Management is also responsible for: financial statements that present • designing, implementing and fairly the financial position of the maintaining an effective and Group as at 31 December 2015, sound system of internal controls 2014 and 2013, and the results of its throughout the Group; operations, cash flows and changes • maintaining adequate accounting in equity for the years then ended, records that are sufficient to in compliance with International show and explain the Group’s Financial Reporting Standards transactions and disclose with («IFRS»), accepted in the Russian reasonable accuracy at any time Federation. the financial position of the Group, and which enable them to ensure In preparing the consolidated that the financial statements of the financial statements, management Group comply with IFRS; is responsible for: • taking reasonably available steps to • properly selecting and applying safeguard the assets of the Group; accounting policies; and • presenting information, including • preventing and detecting fraud and accounting policies, in a manner other irregularities. that provides relevant, reliable, comparable and understandable information;

These consolidated financial statements were approved by management on 19 April 2016

S.S. Zheltikov A.A. Mikheev Director on Finance General Director and Economy 74 Dreams of flying / annual report 2015 75

Consolidated statement Year ended 31 Year ended 31 Year ended 31 Notes of comprehensive income December 2015 December 2014 Dece-mber 2013 Net other comprehensive income/(loss) (in millions of Russian Roubles, except number of shares) to be reclassified to profit or loss in 13 9 (39) subsequent periods

Items not to be reclassified to profit or loss in subsequent periods: Year ended 31 Year ended 31 Year ended 31 Notes Actuarial incomes/(losses) on defined December 2015 December 2014 Dece-mber 2013 (308) 481 (55) benefit plans Revenue 5.7 219,972 169,842 138,263 Income tax effect 62 (94) 11 Cost of sales 8 (102,432) (88,917) (88,036) Net other comprehensive income/(loss) Gross profit 117,540 80,925 50,227 not to be reclassified to profit or loss (246) 387 (44) in subsequent periods Government grants 378 1,985 2,737 Selling, general and administrative expenses 9 (55,416) (37,915) (28,537) Other comprehensive income/(loss), Impairment of property, plant and equipment, (233) 396 (83) 13,14,16 (1,407) (2,396) (787) net of income tax goodwill and intangible assets Research and development costs (228) (1,492) (1,609) Total comprehensive income for the Other operating income 10 569 300 327 41,965 21,108 9,390 period, net of income tax Other operating expenses 10 (2,842) (2,003) (1,744) Attributable to Operating profit 58,594 39,404 20,614 The shareholders of the Company 37,746 20,163 9,002 Finance income 11 2,933 852 637 Non-controlling interests 4,219 945 388 Finance costs 11 (7,340) (5,436) (5,184) Weighted average number of ordinary shares 96,768,778 95,273,116 95,273,116 Loss from associates and joint ventures 17 – (251) (338) Basic and diluted earnings per share 0.00039 0.00021 0.00010 Foreign exchange (losses)/gains (222) (4,987) (1,181) Profit before income tax 53,965 29,582 14,548 Income tax expense 12 (11,767) (8,870) (5,075) Profit for the year 42,198 20,712 9,473 Attributable to: These consolidated financial statements were approved The shareholders of the Company 37,951 19,802 9,077 by management on 19 April 2016 Non-controlling interests 4,247 910 396 Other comprehensive income/(loss)

Other comprehensive income to be reclassified to S.S. Zheltikov profit or loss in subsequent periods A.A. Mikheev Director on Finance Revaluation of available-for-sale securities 16 11 (49) General Director and Economy Income tax effect (3) (2) 10 76 Dreams of flying / annual report 2015 77

Year ended 31 Year ended 31 Year ended 31 Consolidated statement Notes December 2015 December 2014 December 2013 of financial position Equity and liabilities (in millions of Russian Roubles) Capital and reserves Share capital 28 101 95 95 Additional paid-in capital 13,185 8,567 8,567 Year ended 31 Year ended 31 Year ended 31 Notes December 2015 December 2014 December 2013 Retained earnings and other reserves 81,210 49,970 30,966 Attributable to the shareholders of Assets 94,496 58,632 39,628 the Company Non-current assets Non-controlling interests 11,583 4,538 2,867 Property, plant and equipment 13 64,520 53,247 45,812 106,079 63,170 42,495 Goodwill 14 854 780 943 Non-current liabilities Intangible assets 15 11,861 12,658 12,608 Loans and borrowings 29 57,681 55,333 47,681 Investments in associates and joint ventures 17 – – 251 Obligations under finance leases, net of current 30 129 87 129 portion Trade receivables 18 3,437 741 318 Retirement benefits obligations 31 1,786 1,418 1,033 Prepayments 19 2,230 653 2,366 Provisions 32 515 458 378 Other financial assets 20 254 185 208 Deferred tax liabilities 22 4,406 1,688 1,402 Available-for-sale securities 21 811 806 808 Advances received 33 19,597 – – Deferred tax assets 22 2,610 793 898 84,114 58,984 50,623 86,577 69,863 64,212 Current liabilities Current assets Loans and borrowings 29 62,865 40,882 34,437 Inventories 23 62,798 47,065 36,431 Obligations under finance leases, current portion 30 104 63 71 Amounts due from customers under construction Trade payables 38 7,421 5,294 4,358 24 35,210 22,864 15,876 contracts Advances received 33 28,528 26,252 13,661 Trade receivables 18 22,789 18,091 19,383 Other payables 34 21,590 13,162 10,447 Amounts due to customers under construction Prepayments 19 43,465 28,847 24,054 24 17,123 16,749 25,546 contracts Income tax receivable 130 446 601 Income tax payable 1,555 3,294 930 Other taxes receivable 25 10,988 6,608 5,822 Other taxes payable 25 3,329 2,988 2,681 Other receivables 19 6,261 5,532 2,810 Provisions 32 2,600 1,084 527 Other financial assets 20 517 842 563 145,115 109,768 92,658 Cash and cash equivalents 26 65,746 31,764 16,024 247,904 162,059 121,564 Total liabilities 229,229 168,752 143,281 Assets held for sale 27 827 – – Total assets 335,308 231,922 185,776 Total equity and liabilities 335,308 231,922 185,776

These consolidated financial statements were approved by management on 19 April 2016

S.S. Zheltikov A.A. Mikheev Director on Finance General Director and Economy 78 Dreams of flying / annual report 2015 79

Consolidated statement of changes in equity Consolidated statement of changes in equity (continued) (in millions of Russian Roubles) (in millions of Russian Roubles) Share capital A dditional paid-in capital Retained earnings Revaluation of available- for-sale securities A ctuarial losses on defined benefit plans T otal equity attributable to the shareholders N on-controlling interests T otal Share A dditional paid-in capital Retained earnings Revaluation of available- for-sale securities A ctuarial losses on defined benefit plans T otal equity attributable to the shareholders N on-controlling interests T otal

Balance at 1 January 2013 95 8,567 22,563 (66) (47) 31,112 2,273 33,385 Balance at 1 January 2014 95 8,567 31,154 (97) (91) 39,628 2,867 42,495 Profit for the year – – 19,802 – – 19,802 910 20,712 Profit for the year – – 9,077 – – 9,077 396 9,473 Other comprehensive income (loss) for Other comprehensive income (loss) for – – – 9 352 361 35 396 – – – (31) (44) (75) (8) (83) the year the year Total comprehensive income for Total comprehensive income for – – 19,802 9 352 20,163 945 21,108 – – 9,077 (31) (44) 9,002 388 9,390 the year the year Dividends 28 – – (975) – – (975) (453) (1,428) Dividends 28 – – (916) – – (916) (138) (1,054) Additional shares issue: Increase in ownership in subsidiaries: AO Arsenyev Aviation Company – – (95) – – (95) 626 531 AO Reductor PM – – 234 – – 234 (331) (97) PROGRESS

Decrease in ownership in subsidiaries: AO Ulad-udensky aviational plant – – 57 – – 57 203 260

AO Kamov – – 236 – – 236 (100) 136 AO Rostvertol – – (138) – – (138) 374 236

AO Kumertau Aviation Production Increase in ownership in subsidiaries: – – 284 – – 284 (131) 153 Enterprise AO MIL Moscow Helicopter Plant – – (13) – – (13) (9) (22) AO Rostvertol – – (324) – – (324) 906 582 AO Rostvertol – – 5 – – 5 (15) (10) Balance at 31 December 2013 95 8,567 31,154 (97) (91) 39,628 2,867 42,495 Balance at 31 December 2014 95 8,567 49,797 (88) 261 58,632 4,538 63,170

These consolidated financial statements were approved by management on 19 April 2016

S.S. Zheltikov A.A. Mikheev Director on Finance General Director and Economy 80 Dreams of flying / annual report 2015 81

Consolidated statement of changes in equity (continued) (in millions of Russian Roubles) Consolidated statement of cash flows

(in millions of Russian Roubles)

Year ended Year ended Year ended Notes 31 December 31 December 31 December N otes Share capital A dditional paid-in capita Retained earnings Revaluation of available- for-sale securities A ctuarial losses on defined benefit plans T otal equity attributable to the shareholders N on-controlling interests T otal 2015 2014 2013 Balance at 1 January 2015 95 8,567 49,797 (88) 261 58,632 4,538 63,170 Operating activities Profit for the year – – 37,951 – – 37,951 4,247 42,198 Profit for the year 42,198 20,712 9,473 Other comprehensive income (loss) – – 13 (218) (205) (28) (233) Adjustments to reconcile profit for the year to net cash flows: for the year Income tax expense 11,767 8,870 5,075 Total comprehensive income – – 37,951 13 (218) 37,746 4,219 41,965 for the year Finance income and costs, net 11 4,407 4,584 4,547 Increase due to the exchange of our own Depreciation and amortisation 5,765 5,160 4,863 2 1,505 – – – 1,507 – 1,507 shares with AO «OPK Oboronprom» Impairment of property, plant and equipment, 13,14, 1,407 2,396 787 Increase due to the exchange of our own goodwill and intangible assets 16 shares with GC «Rostec» and acquisitions of 4 3,113 – – – 3,117 277 3,394 Foreign exchange losses/(gains), net 222 4,987 1,181 subsidi Change in allowance for doubtful receivables 825 2,923 517 Dividends 28 – – (4,372) – – (4,372) (520) (4,892) Write-down of inventories to net realisable value 2,184 621 539 Additional shares issue: Change in provisions and retirement obligations 198 115 448 AO Ulad-udensky aviational plant – – 315 – – 315 180 495 Loss on disposal of property, plant and equipment (160) 305 378 AO Arsenyev Aviation Company PROGRESS – – 749 – – 749 (97) 652 Gain on disposal of a subsidiary – – (179) AO Stupino Machine Production Plant – – 230 – – 230 809 1,039 Loss from associates and joint ventures 17 – 251 338 PAO Rostvertol – – (428) – – (428) 1,545 1,117 Other 90 – – PAO Kazan Helicopter Plant – – 1,191 – – 1,191 465 1 656 68,903 50,924 27,967 AO MIL Moscow Helicopter Plant – – 258 – – – 258 (72) 186 Movements in working capital: Increase in ownership in subsidiaries: Increase in inventories (14,278) (11,255) (6,853) AO Ulad-udensky aviational plant – – (285) – – (285) 2 (284) (Increase)/decrease in amounts due from customers AO Arsenyev Aviation Company PROGRESS – – (827) – – (827) – (827) (9,978) (9,511) 994 under construction contracts AO Kamov – – (516) – – (516) 243 (273) (Increase)/decrease in trade and other receivables (6,257) 964 (11,176) AO Stupino Machine Production Plant – – (354) – – (354) (655) (1,009) (Increase)/decrease in prepayments (16,893) (3,101) (3,086) (Stupino) (Increase)/decrease in other taxes receivable (4,380) (786) 54 PAO Kazan Helicopter Plant – (1,336,) – – (1,336) – (1,336) Increase in trade and other payables 8,397 6,355 1,758 AO Kumertau Aviation Production Enterprise – – (804) – – (804) 649 (155) Increase/(decrease) in advances received 19,735 12,926 4,819 AO MIL Moscow Helicopter Plant – – (327) – – (327) – (327) Increase/(decrease) in amounts due to customers Balance at 31 December 2015 101 13,185 81,242 (75) 43 94,496 11,583 106,079 374 (8,797) 12,623 under construction contracts 82 Dreams of flying / annual report 2015 83

Consolidated statement of cash flows (continued) Consolidated statement of cash flows (continued) (in millions of Russian Roubles) (in millions of Russian Roubles)

Year ended Year ended Year ended Year ended Year ended Year ended Notes 31 December 31 December 31 December Notes 31 December 31 December 31 December 2015 2014 2013 2015 2014 2013 Increase/(decrease) in provisions and other Contribution to share capitals of the Group’s subsidiaries by 1,437 1,157 137 1,289 – 547 employee benefit obligations AO OPK Oboronprom Increase in other taxes payable 181 347 184 Dividends paid by the Company to the shareholders (723) (975) (1,384) Cash generated from operating activities 47,241 39,223 27,421 Dividends paid to non-controlling shareholders (528) (448) (136) Net cash generated from / (used in) financing Interest paid (9,426) (4,600) (5,798) 14,251 (1,488) 2,687 activities Government grants - compensation of finance costs 1,176 598 453 Income tax paid (12,289) (5,960) (5,494) Net increase/(decrease) in cash and cash 26,635 13,007 5,153 Net cash generated from / (used in) equivalents 26,702 29,261 16,582 operating activities Effect of foreign exchange rate changes on cash and cash 7,347 2,733 161 equivalents Cash and cash equivalents at beginning of the Purchases of property, plant and equipment (15,779) (13,162) (8,260) 31,764 16,024 10,710 year Proceeds from disposal of property, plant and 1,649 748 474 equipment Cash and cash equivalents at end of the year 65,746 31,764 16,024 Purchases and costs to develop intangible assets (3,579) (7,420) (7,927) Government grants – compensation of capitalised 15 1,951 4,470 1,935 development costs Loans provided (371) (544) (386) Loans repaid 486 239 96 These consolidated financial statements were approved by management on 19 April 2016 Purchases of other financial assets (25) (4) (70) Proceeds from sale of other financial assets 167 53 249 Contribution to share capital of associate – – (570) S.S. Zheltikov Disposal of subsidiaries, net of cash on the balance – – (294) A.A. Mikheev Director on Finance sheets of subsidiaries General Director and Economy Interest received 11 1,183 852 637 Net cash used in investing activities (14,318) (14,768) (14,116) Cash flows from financing activities Proceeds from loans and borrowings 81,690 51,669 75,019 Repayments of loans and borrowings (66,790) (52,262) (71,940) Principal repayments of obligations under finance leases (146) (90) (276) Acquisitions of non-controlling interests in subsidiaries (653) (34) (96) Proceeds from sale of non-controlling interests in – – – subsidiaries Advances received from AO OPK Oboronprom as 112 652 953 contribution to share capitals of the Group’s subsidiaries 84 Dreams of flying / annual report 2015 85

31 December 31 December 31 December notes to the consolidated 2015 2014 2013 Entity and its location Nature of business (1) (2) (1) (2) (1) (2) Producer of helicopter allied AO Stupino Machine Production financial statements products (for helicopter 68.3 69.3 60 61.1 61.1 80.5 Plant (Stupino) brands Mi and Ka) Producer of helicopter allied AO Reductor-PM (Perm) products (for helicopter 100 100 100 100 100 100 brands Mi and Ansat) Producer of helicopter allied ZAO Ulan-Ude Blade Plant products (for helicopter 98.4 98.4 99.1 99.1 100 100 (Ulan-Ude) 1. General information brand Mi) Producer of helicopter allied AO Helicopter Innovation products (for helicopter 98.4 98.4 99.1 99.1 100 100 industrial Company (Ulan-Ude) Joint Stock Company Russian a Russian state-controlled aerospace brand Mi) Helicopters (the «Company») was holding company. The share of Helicopter repair and AO Novosibirsk Aircraft Repair established on 9 January 2007 as a «Oboronprom» on 31 December 2015 maintenance services (for 95.1 95.1 95.1 95.1 95.1 95.1 Plant (Novosibirsk) wholly-owned subsidiary of AO OPK is 94.6% based with nominal holders. helicopter brand Mi) Oboronprom («Oboronprom»), AO Helicopter Service Company Supplier of materials and 100 100 100 100 100 100 (Moscow) spare parts ZAO Company Rostvertol-Avia Helicopter services supplier 73.9 73.9 81.5 81.5 84.2 84.2 The entities included in the Group are as follows: (Rostov-on-Don) OOO Purchase and Logistic Supplier of materials and Center of the Helicopter Industry 100 100 100 100 100 100 31 December 31 December 31 December spare parts 2015 2014 2013 (Moscow) OOO Mezhdunarodnie Vertoletnie Entity and its location Nature of business (1) (2) (1) (2) (1) (2) Holding company 100 100 100 100 100 100 Programmy (Moscow) Associated company Helicopter repair and AO 12 Aircraft Repair Plant 99.9 99.9 – – – – JSC Russian Helicopters Management company – – – – – – maintenance services Group subsidiaries Helicopter repair and AO 150 Aircraft Repair Plant 99.9 99.9 – – – – PAO Kazan Helicopter Plant Producer of helicopters: maintenance services 98.3 98.3 99.6 100 99.6 100 (Kazan) Mi-8, Mi-17, Ansat Helicopter repair and AO 419 Aircraft Repair Plant 99.9 99.9 – – – – Producer of helicopters: maintenance services PAO Rostvertol (Rostov-on-Don) 73.9 73.9 81.5 81.5 84.2 84.2 Mi-24, Mi-26, Mi-28, Mi-35 Helicopter repair and AO 810 Aircraft Repair Plant 99.9 99.9 – – – – AO Ulan-Ude Aviation Plant Producer of helicopters: maintenance services 98.4 98.4 99.1 99.1 100 100 (Ulan-Ude) Mi-8, Mi-17 Helicopter repair and AO 356 Aircraft Repair Plant 69.85 69.85 – – – – AO Kumertau Aviation maintenance services Producer of helicopters: ProductionEnterprise 100 100 90.8 90.8 90.8 90.8 Ka-28, Ka-31, Ka-32, Ka-226 Joint ventures (Kumertau) ZAO HeliVert (Moscow) Producer of helicopters AW 50 50 50 50 50 50 Producer of helicopters: PAO Arsenyev Aviation Company Ka-50, Ka-52, producer of 85.1 85.1 79.2 79.2 93.4 93.4 (1) Legal ownership interest PROGRESS (Arsenyev) military missile systems (2) Effective ownership interest AO MIL Moscow Helicopter Engineering centre 79 80.8 73.1 75.3 74.6 80.7 Plant (Moscow) (for helicopters brand Mi) Engineering centre (for OAO KAMOV (Moscow) 99.8 99.8 90.4 90.4 90.4 90.4 helicopters brand Ka) 86 Dreams of flying / annual report 2015 87

1. General information (continued)

The Company and its subsidiaries and internationally. The most Business combinations with the resulting gain or loss, if any, is (hereinafter - the Group) is the significant production, engineering third parties recognised in profit or loss. Amounts producer of civil and military and service operations of the Group Acquisitions of subsidiaries and arising from the interests in the helicopters and includes engineering are incorporated within the Russian businesses from third parties are acquiree prior to the acquisition date centres and production plants Federation. accounted for using the acquisition that have previously been recognised which produce the full spectrum of The head office of the Company is method. in other comprehensive income are helicopters under the Mi, Ka and located at: 12 Krasnopresnenskaya The consideration transferred reclassified to profit or loss where such Ansat brands. The Group products naberezhnaya, Moscow, 123610, in each business combination is treatment would be appropriate if that are sold in the Russian Federation Russian Federation. measured at aggregate acquisition- interests were disposed of. date fair value of the assets given, At the acquisition date, the liabilities incurred or assumed and acquiree’s identifiable assets acquired equity instruments issued by the and the liabilities, meeting the Group, if any, in exchange for control recognition criteria of IFRS 3, are 2. Significant accounting policies of the acquiree. Acquisition-related recognised at their fair value, except costs are recognised in profit or loss as that: incurred. • deferred tax assets or liabilities Statement of compliance an investee if and only if the investor When the consideration and liabilities or assets related The consolidated financial statements has all the following: (a) power over transferred by the Group in a business to employee benefit obligations have been prepared on the basis of the the investee; (b) exposure, or rights, to combination includes any assets or are recognised and measured in requirements of the Federal Law of 27 variable returns from its involvement liabilities resulting from a contingent accordance with IAS 12 Income July, 2010 № 208-FZ «On consolidated with the investee; and (c) the ability consideration arrangement, they are Taxes and IAS 19 Employee financial statements» in accordance to use its power over the investee to measured at the acquisition-date fair Benefits, respectively; with International Financial Reporting affect the amount of the investor’s value and included in the consideration • liabilities or equity instruments Standards («IFRS»), recognized in the returns. transferred in a business combination. related to share-based payment Russian Federation. Income and expenses of Subsequent changes in the fair value transactions of the acquiree or These consolidated financial subsidiaries acquired or disposed of the contingent consideration are share-based payment transactions statements are presented in Russian of during the year are included adjusted against the cost of the of the Group entered into to replace Roubles («RUB»), unless otherwise in the consolidated statement of acquisition when they are qualify as share-based payment transactions indicated. comprehensive income from the measurement period adjustments of the acquiree are measured in The entities of the Group maintain effective date of acquisition and up arising from additional information accordance with IFRS 2 Share- their accounting records in Russian to the effective date of disposal, as obtained during the measurement based Payment at the acquisition Rouble in accordance with the laws, appropriate. Total comprehensive period, which cannot exceed twelve date; and accounting and reporting regulations income or loss of subsidiaries is months from the acquisition date, • assets (or disposal group) that of the Russian Federation, where the attributed to the owners of the about facts and circumstances are classified as held for sale in majority of the Group’s entities are Company and to the non-controlling that existed at the acquisition date. accordance with IFRS 5 incorporated. interests even if this results in the non- Contingent consideration classified as Non-current Assets Held for Sale controlling interests having a deficit equity is not measured at subsequent and Discontinued Operations are Basis of presentation balance. reporting dates and its subsequent measured in accordance with IFRS 5. The consolidated financial statements The financial statements of settlement is accounted for within Goodwill is measured as the have been prepared on the historical the subsidiaries are prepared for equity. Contingent consideration excess of the sum of consideration cost basis except as disclosed in the the same reporting period as the classified as an asset or liability is transferred, the amount of any non- accounting policy below. parent company, when necessary; measured at subsequent reporting controlling interests in the acquiree, adjustments are made to the financial dates in accordance with the relevant and the fair value of the acquirer’s Basis of consolidation statements of subsidiaries to bring IFRSs. previously held equity The Group controls an investee when their accounting policies into line with When business combination is interest in the acquiree (if any) it is exposed, or has rights, to variable those used by the Group. All intra- achieved in stages, the Group’s over the net of the acquisition-date returns from its involvement with the group transactions, balances, income previously held equity interest in the amount of identifiable assets acquired investee and has the ability to affect and expenses are eliminated in full on acquiree is measured to fair value and the liabilities assumed. If the net those returns through its power over consolidation. at the acquisition date (i.e. the date of the acquisition-date amounts of the investee. Thus, the Group controls when the Group obtains control) and the identifiable assets acquired and 88 Dreams of flying / annual report 2015 89

2. Significant accounting policies (continued)

liabilities assumed exceeds the sum transmission side has been obtained Goodwill Non-current assets held for of the consideration transferred, control of the subsidiary. Goodwill arising on an acquisition of a sale the amount of any non-controlling business as described in paragraphs Non-current assets and disposal interests in the acquiree and the fair Changes in the Group’s Business combinations with third groups are classified as assets held value of the acquirer’s previously held ownership interests in existing parties above is carried at cost as for sale if their carrying amount will interest in the acquiree. Then the subsidiaries established at the acquisition date less be recovered principally through a Company reassess whether it has Changes in the Group’s ownership accumulated impairment loss, if any. sale transaction rather than through correctly identified and measured all interests in subsidiaries that do not On disposal of a subsidiary, the continuing use. This condition is the assets acquired and all liabilities result in the Group losing control over attributable amount of goodwill is regarded as met only when the sale assumed, if after such reassessment the subsidiaries are accounted for as included in the determination of the is highly probable and the asset excess is confirmed it is recognised in equity transactions. profit or loss on disposal. (or disposal group) is available profit or loss as bargain purchase gain The carrying amount of the Group’s for immediate sale in its present after additional analysis. interests and the non-controlling Investments in associates condition. Management must be interests are adjusted to reflect the An associate is an entity over which committed to the sale, which should Business combinations with changes in their relative interests the Group has significant influence. be expected to qualify for recognition third parties (continued) in the subsidiaries. Any difference Significant influence is the power as a completed sale within one Non-controlling interests, identified between the amount by which the to participate in the financial and year from the date of classification. separately from the Group’s equity, non-controlling interests are adjusted operating policy decisions of the Non-current assets (or disposal may be initially measured either: (i) at and the fair value of the consideration investee, but is not control or joint group) classified as held for sale fair value; or (ii) at the non-controlling paid or received is recognised control over those policies. are measured at the lower of their interests’ share of the acquiree’s directly in equity and attributed to the The results and assets, and liabilities previous carrying amount and fair identifiable net assets. The choice shareholder of the Company. of associates are incorporated in these value less costs to sell. of measurement basis is made on a When the Group loses control over consolidated financial statements transaction-by-transaction basis. a subsidiary, the profit or loss on using the equity method of accounting, Foreign currency Subsequent to acquisition, the non- disposal is calculated as the difference except when the investment is classified transactions controlling interests carrying amount between: (i) the aggregate of the fair as held for sale and accounted for in The functional currency of the is the amount at initial recognition, value of the consideration received and accordance with IFRS 5 Non-current Company and its subsidiaries plus the non-controlling interests’ the fair value of any retained interest, Assets Held for Sale and Discontinued registered and operating on the share of changes in equity. Total and (ii) the previous carrying amount Operations. Under the equity method, territory of the Russian Federation comprehensive income is attributable of the assets (including goodwill), less investments in associates are carried is the Russian Rouble («RUB»). to non-controlling interests even if this liabilities of the subsidiary and any in the consolidated statement of Transactions in currencies other results in the non-controlling interests non-controlling interests. Amounts financial position at cost as adjusted than the functional currency having a deficit balance. previously recognised in other for post-acquisition changes in the («foreign currencies») are recorded comprehensive income in relation Group’s share of the net assets of at the exchange rates prevailing at The acquisition of companies to the subsidiary are accounted the associate, less any impairment in the dates of the transactions. At each under common control of the for (i.e. reclassified to profit or loss the value of individual investments. reporting date monetary assets and Group or transferred directly to retained Losses of an associate in excess of the liabilities denominated in foreign Assets and liabilities of businesses earnings) in the same manner as Group’s interest in that associate (which currencies are translated at the acquired from companies under would be required if the relevant assets includes any long-term interests that, exchange rates prevailing at that common control of the Group are or liabilities are disposed of. The fair in substance, form part of the Group’s date. Non-monetary items carried at recorded at the carrying amounts value of any investment retained in net investment in the associate) are historical cost are translated at the recognized in the financial statements the former subsidiary at the date recognised only to the extent that the exchange rate prevailing on the date of the transmitting side. The when control is lost is regarded as Group has incurred legal or constructive of transaction. Non-monetary items difference, if any, between the carrying the fair value on initial recognition for obligations or made payments on behalf carried at fair value are translated value of net assets acquired and subsequent accounting under IAS 39 of the associate. at the exchange rate prevailing on the consideration paid is recorded Financial Instruments: Recognition Where a Group entity transacts with the date on which the most recent as an adjustment to equity. The net and Measurement or, when applicable, an associate of the Group, profits and fair value was determined. Exchange assets from the subsidiaries, and the the cost on initial recognition of an losses are eliminated to the extent of differences arising from changes in results of their activities are taken investment in an associate or a jointly the Group’s interest in the relevant exchange rates are recognised in the into account from the time when the controlled entity. associate. statement of comprehensive income. 90 Dreams of flying / annual report 2015 91

2. Significant accounting policies (continued)

Exchange rates for the currencies in which the Group transacts were as follows: in progress for which progress billings based on the shipping conditions, and exceed costs incurred plus recognised is generally at the time of shipment. 31 December 31 December 31 December profits (less recognised losses). 2015 2014 2013 The Group is required to Dividend and interest income Closing exchange rates at the end of the year – RUB export its military helicopters Dividend income from investments is 1 U.S. Dollar ("USD") 72.88 56.26 32.73 through OAO Rosoboronexport recognised when the shareholder’s («Rosoboronexport»). right to receive payment has been 1 Euro 79.70 68.34 44.97 Rosoboronexport charges a established (provided that it is probable Average exchange rates for the year ended – RUB commission for this service. The that the economic benefits will flow to 1 U.S. Dollar 61,32 38.60 31.91 Group recognises the commission the Group and the amount of revenue 1 Euro 67.99 50.99 42.40 expense upon revenue recognition and can be measured reliably). records the commission fee within Interest income is recognised Selling, general and administrative when it is probable that the economic Revenue recognition to the extent that the amount can expenses. benefits will flow to the Group and the The Group derives revenue from the be measured reliably and its receipt amount of revenue can be measured sale of manufactured helicopters, is considered probable. Where the Revenue from helicopter repair and reliably. Interest income is accrued helicopter repair and maintenance outcome of a construction contract maintenance services, and research on a time basis, by reference to the services, research and development cannot be estimated reliably (for and development works principal outstanding and at the works and manufacturing of other example during the early stages of Revenue from long-term contracts to effective interest rate applicable, products, such as helicopter spare a construction contract), contract provide these services is recognised by which is the rate that exactly discounts parts. Revenue is recognised to the revenue is recognised to the extent reference to the stage of completion of estimated future cash receipts through extent that it is probable that the of contract costs incurred when the contract at the end of the reporting the expected life of the financial asset economic benefit arising from the it is deemed probable they will be period, determined based on the to that asset’s net carrying amount on ordinary activities of the Group will recoverable and contract costs are proportion of contract costs incurred initial recognition. flow to the Group, it can be measured recognised as expenses in the period for work performed to date relative to reliably, and that the recognition in which they are incurred. When it the estimated total contract costs. Leases criteria as stated below have been is probable that total contract costs Leases are classified as finance leases met. Revenue is measured at the fair will exceed total contract revenue, the Revenue from manufacturing of other whenever the contract terms of the value of the consideration received total expected loss is recognised as an products lease transfer substantially all of the or receivable after deducting any expense immediately. Revenue from the sale of goods is risks and rewards of ownership to the discounts, rebates and value added The Group presents the amount recognised when all the following lessee. All other leases are classified tax. due from customers under the conditions are satisfied: as operating leases. construction contracts as an asset and • the Group has transferred to the Revenue from helicopter the amount due to customers under buyer the significant risks and Operating lease – the Group as lessor manufacturin the construction contracts as a liability rewards of ownership of the goods; Rental and sub-rental income from The Group accounts its helicopter in the statement of • the Group retains neither continuing operating leases is recognised on a manufacturing business as financial position. The amount managerial involvement to the straight-line basis over the term of construction contracts with customers. due from customers is the amount degree usually associated with the relevant lease. Initial direct costs Where the outcome of a of construction costs incurred plus ownership nor effective control over incurred in negotiating and arranging construction contract can be recognised profits less the sum of the goods sold; lease are added to the carrying amount estimated reliably, revenue and costs recognised losses and progress • the amount of revenue can be of the leased asset and recognised in are recognised by reference to the billings for all construction contracts in measured reliably; profit or loss on a straight-line basis stage of completion of the contract progress for which costs incurred plus • it is probable that the economic over the lease term. activity at the end of the reporting recognised profits (less recognised benefits associated with the period, measured based on the losses) exceed progress billings. transaction will flow to the Group; Operating lease – the Group as lessee proportion of contract costs incurred The amount due to customers is the and Operating lease payments are for work performed to date relative amount of construction costs incurred • the costs incurred or to be incurred recognised as an expense on a to the estimated total contract costs. plus recognised profits less the sum in respect of the transaction can be straight-line basis over the lease term, Variations in contract work, claims of recognised losses and progress measured reliably. except where another systematic basis and incentive payments are included billings for all construction contracts The transfer of risks to the buyer is is more representative of the time 92 Dreams of flying / annual report 2015 93

2. Significant accounting policies (continued)

pattern in which economic benefits profit for the year, which differs from is able to control the reversal of Financial result from disposal of an from the leased asset are consumed. profit as reported in the statement the temporary difference and it item of property, plant and equipment Contingent rentals arising under of comprehensive income/(loss) as it is probable that the temporary is determined by comparing the operating leases are recognised in excludes items of income or expense difference will not reverse in the proceeds from disposal with the profit or loss in the period in which that are taxable or deductible in other foreseeable future. Deferred tax carrying amount of the asset, and is they are incurred. years or excludes items that are not assets arising from deductible recognised within Other operating taxable or deductible. The Group’s temporary differences associated with expenses in the consolidated Finance lease – the Group as lessee liability for current tax is calculated such investments and interests are statement of comprehensive income/ using enacted tax rates by the end of only recognised to the extent that it is (loss). Assets held under finance leases are the reporting period. probable that there will be sufficient recognised as assets of the Group at taxable profits against which to Depreciation their fair value at the inception date of Deferred tax utilise the benefits of the temporary Depreciation is recognised in profit the lease or, if lower, at present value Deferred tax is recognised on differences and they are expected to or loss (unless it is included in the of the minimum lease payments. The differences between the carrying reverse in foreseeable future. carrying amount of another asset) on a corresponding liability to the lessor is amounts of assets and liabilities in The carrying amount of deferred straight-line basis over the estimated included in the statement of financial the financial statements and the tax assets is reviewed at each useful lives of each part of an item position as a finance lease obligation. corresponding tax bases used in the reporting date and reduced to the of property, plant and equipment. Lease payments are apportioned computation of taxable profit and extent that it is no longer probable Leased assets are depreciated over between finance costs and reduction calculated on an entity basis. Deferred that sufficient taxable profits will be the shorter of the lease term and their of the lease obligation so as to achieve tax assets arising from tax losses are available to allow all or part of the useful lives unless it is reasonably a constant rate of interest on the recognised as an asset only where asset to be recovered. certain that the entities of the Group remaining balance of the liability. there was assurance beyond any Deferred tax assets and liabilities will obtain ownership by the end of the Finance costs are charged directly to reasonable doubt that future taxable are measured at the rates that are lease term. Land is not depreciated. profit or loss. income would be sufficient to allow expected to apply in the period in which The estimated useful lives of major the benefit of the loss to be realised. the liability is settled or the asset classes of property, plant and Borrowing costs Deferred tax liabilities are generally realised. The measurement of deferred equipment are as follows: Net borrowing costs directly recognised for all taxable temporary tax liabilities and assets reflects Buildings 10–60 years attributable to the acquisition, differences, and deferred tax assets tax consequences that would follow Machinery and construction or production of are generally recognised for all from the manner in which the Group 7–35 years qualifying assets, which are assets that deductible temporary differences expected, at the end of the reporting equipment necessarily take a substantial period of to the extent that it is probable period, to recover or settle the carrying Transport 2–40 years time to get ready for their intended use that taxable profits will be available amount of its assets and liabilities. Other assets 2–25 years or sale, are added to the cost of those against which deductible temporary Deferred tax assets and deferred assets, until they are substantially differences can be utilised. Such tax liabilities are offset if a legally ready for their intended use or sale. All tax assets and liabilities are not enforceable right exists to set off The estimated useful lives, other finance costs are recognised as recognised if the related temporary current tax assets against current residual values, and depreciation an expense in the year in which they difference arises from the initial income tax liabilities and the deferred method are reviewed at each are incurred. recognition (other than in a business taxes relate to the same taxable entity reporting date, with the effect of any combination) of other assets and and the same taxation authority. changes in estimate accounted for on Income tax liabilities in a transaction that affects a prospective basis. Income tax represents the sum of neither the taxable profit nor the Property, plant and equipment the income tax currently payable accounting profit. In addition to Property, plant and equipment is Intangible assets (recoverable) and deferred tax expense that, deferred tax liabilities are not stated at cost, net of accumulated (income). recognised if the related tax difference depreciation and/or accumulated Intangible assets acquired separately arises from recognition of goodwill. impairment losses, if any. Such cost Separately acquired intangible assets Current income tax Deferred tax liabilities are includes the cost of replacing part of are recorded at cost less accumulated Current income tax has been recognised for taxable temporary the property, plant and equipment amortisation and accumulated computed in accordance with the differences associated with and borrowing costs for long-term impairment losses. These intangible Russian Federation tax law. Income tax investments in subsidiaries and construction projects if the recognition assets primarily represent various currently payable is based on taxable associates, except where the Group criteria are met. purchased software. 94 Dreams of flying / annual report 2015 95

2. Significant accounting policies (continued)

Amortisation is charged on a capitalised development costs are in use. In assessing value in use, Cash and cash equivalents straight-line basis over their estimated amortised over the estimated useful the estimated future cash flows are Cash and cash equivalents is useful lives which are: life. Amortisation of capitalised discounted to their present value comprised of cash balances, cash development costs is recognised in using a pre-tax discount rate that deposits and highly liquid investments Purchased Cost of sales. Internally-generated reflects current market assessments with original maturities of three 2–10 years software intangible assets are reviewed for of the time value of money and the months or less, that are readily impairment annually when the asset risks specific to the asset. convertible to known amounts of cash Other 2–5 years is not yet in use and whenever events If the recoverable amount of an and are subject to an insignificant risk or changes in circumstances indicate asset (or cash-generating unit) is of changes in value. The estimated useful lives and that the carrying amount may not be estimated to be less than its carrying amortisation method are reviewed at recoverable. amount, the carrying amount of the Financial assets each reporting date, with the effect of asset (cash-generating unit) Financial assets are initially measured any changes in estimate accounted for Intangible assets acquired is reduced to its recoverable amount. at fair value plus transaction costs. on a prospective basis. in a business combination An impairment loss is recognised Financial assets of the Group Intangible assets acquired in a immediately in the consolidated are classified into the following Internally-generated intangible business combination and recognised statement of comprehensive specific categories: (i) available-for- assets separately from goodwill are initially income. sale («AFS»), (ii) held-to-maturity, Costs for self-initiated research and recognised at their fair value at the Where an impairment loss and (iii) loans and receivables. The development activities are assessed acquisition date (which is regarded as subsequently reverses, the carrying classification depends on the nature as to whether they qualify for their cost). amount of the asset (cash-generating and purpose of the financial asset and recognition as internally-generated Subsequent to initial recognition, unit) is increased to the revised is determined at the time of initial intangible assets. intangible assets acquired in a estimate of its recoverable amount, recognition. Apart from complying with the business combination are reported at but so that the increased carrying general requirements for and initial cost less accumulated amortisation amount does not exceed the carrying AFS financial assets measurement of an intangible asset, and impairment loss, on the same amount that would have been AFS financial assets are stated at fair qualification criteria are met only basis as intangible assets that are determined had no impairment value. The fair value for AFS financial when technical as well as commercial acquired separately. loss been recognised for the asset assets with standard terms and feasibility can be demonstrated and (cash-generating unit) in prior conditions that are traded in active cost can be measured reliably. Impairment of tangible and years. A reversal of an impairment market is determined based on quoted It must also be probable that the intangible assets excluding loss is recognised immediately market prices. intangible asset will generate future goodwill in the consolidated statement of If the market for AFS financial economic benefits and that it is clearly At each reporting date, the Group comprehensive income. assets is not active, the fair value identifiable and allocable to a specific reviews the carrying amounts of is determined by using a valuation product. Further to meeting these its tangible and intangible assets Inventories technique. criteria, only such costs that relate to determine whether there is Inventories are stated at the lower of Gain and losses arising from solely to the development phase of a any indication that those assets cost or net realisable value. The cost changes in fair value are recognised self-initiated project are capitalised. have suffered an impairment loss. of inventories is determined on the in the consolidated statement of com- Any costs that are classified as part of If any such indication exists, the weighted average basis and includes prehensive income in other compre- the research phase of a self-initiated recoverable amount of the asset is all costs in bringing the inventory to its hensive income and accumulated in project are expensed as incurred. If estimated in order to determine the present location and condition. the investments revaluation reserve. the research phase cannot be clearly extent of the impairment loss (if any). Net realisable value represents the Where the investment is disposed distinguished from the development Where the assets do not generate estimated selling price for inventories of or determined to be impaired, the phase, the respective project related cash flows less estimated costs to completion cumulative gain or loss on revaluation costs are treated as if they were that are independent from other and selling costs. Where appropriate, previously accumulated in the invest- incurred in the research phase only. assets, the Group estimates the the impairment charged to reduce ment revaluation reserve is reclassified Capitalised development costs recoverable amount of the cash- the carrying amount of inventories to to profit or loss. are generally amortised over the generating unit (group of units) to their net realizable value and included Dividends on AFS equity estimated number of units produced. which the assets belong. in the consolidated statement of instruments are recognised in profit or In case the number of units produced Recoverable amount is the higher comprehensive income as Cost of loss when the Group’s right to receive cannot be estimated reliably, of fair value less costs to sell or value sales. the dividends is established. 96 Dreams of flying / annual report 2015 97

2. Significant accounting policies (continued)

Held-to-maturity investments that investment previously recognised cost and the current fair value, less any Derecognition of financial liabilities Promissory notes with fixed or in the income statement – is removed impairment loss on that investment The Group derecognises financial determinable payments and fixed from other comprehensive income and previously recognised in profit or loss. liabilities when, and only when, the maturity dates for which the Group recognised in the income statement. Future interest income continues Group’s obligations are discharged, has the positive intent and ability Impairment losses on equity to be accrued based on the reduced cancelled or they expire. to hold to maturity are classified as investments are not reversed through carrying amount of the asset, using held-to-maturity investments. Held- the income statement; increases the rate of interest used to discount Provisions and contingencies to-maturity investments are recorded in their fair value after impairment the future cash flows for the purpose at amortised cost less accumulated are recognised directly in other of measuring the impairment loss. The Provisions impairment losses, if any. Interest comprehensive income. interest income is recorded as part Provisions are recognised when the income is recognised using the For other financial assets objective of finance income. If, in a subsequent Group has a present obligation (legal effective interest method. evidence of impairment could include: year, the fair value of a debt or constructive) as a result of a past • significant financial difficulty of the instrument increases and the increase event, it is probable that the Group will Loans and receivables counterparty; can be objectively related to an event be required to settle the obligation, and Trade receivables, loans, and other • default or delinquency in interest or occurring after the impairment loss a reliable estimate can be made of the receivables that have fixed or principle payments; or was recognised in profit or loss, the amount of the obligation. determinable payments that are • it becoming probable that the impairment loss is reversed through The amount recognised as a not quoted in an active market are counterparty will enter bankruptcy profit or loss. provision is the best estimate of the classified as loans and receivables. or financial re-organisation. consideration required to settle the Loans and receivables are measured For financial assets carried at Derecognition of financial assets present obligation at the reporting at amortised cost using effective amortised cost, the amount of the The Group derecognises a financial date taking into account the risks interest method, except for short-term impairment is the difference between asset only when the contractual rights and uncertainties surrounding receivables when the recognition of the asset’s carrying amount and the to the cash flows from the asset expire; the obligation. Where a provision interest would be immaterial. present value of estimated future or it transfers the financial asset and is measured using the cash flows cash flows, discounted at the original substantially all the risks and rewards estimated to settle the present Impairment of financial assets effective interest rate. of ownership of the asset to another obligation, its carrying amount is the Financial assets are assessed for The carrying amount of the financial entity. If the Group neither transfers present value of those cash flows. indicators of impairment at the end asset is reduced by the impairment nor retains substantially all the When some or all of the economic of each reporting period. Financial loss directly for all financial assets risks and rewards of ownership and benefits required to settle a provision assets are considered to be impaired with the exception of trade and other continues to control the transferred are expected to be recovered from a when there is objective evidence that receivables where the carrying amount asset, the Group recognises its third party, the receivable is recognised the estimated future cash flows of the is reduced through the use of an retained interest in the asset and as an asset if it is virtually certain that investment have been affected as a allowance account. When trade and an associated liability for amounts reimbursement will be received and result of one or more loss events that other receivables are uncollectible, it may have to pay. If the Group the amount of the receivable can be occurring after initial recognition of the they are written off against the retains substantially all the risks and measured reliably. financial asset. allowance account. Subsequent rewards of ownership of a transferred In the case of equity investments recoveries of amounts previously financial asset, the Group continues to Onerous contracts classified as available-for-sale, written off are credited against the recognise the financial asset and also Present obligations arising under objective evidence would include a allowance account. Changes in the recognises a collateralised borrowing onerous contracts are recognised and significant or prolonged decline in the carrying amount of the allowance for the proceeds received. measured as a provision. An onerous fair value of the investment below its account are recognised in profit or contract is considered to exist where cost. ‘Significant’ is evaluated against loss. Financial liabilities the Group has a contract under which the original cost of the investment In the case of debt instruments Financial liabilities, including loans the unavoidable costs of meeting the and ‘prolonged’ against the period in classified as available for sale, and borrowings, are initially measured obligations under the contract exceed which the fair value has been below its impairment is assessed based on at fair value, net of transaction costs. the economic benefits expected to be original cost. When there is evidence the same criteria as financial assets Financial liabilities are subsequently received under such contract. of impairment, the cumulative loss – carried at amortised cost. However, measured at amortised cost using the measured as the difference between the amount recorded for impairment effective interest method, with interest Warranty provisions the acquisition cost and the current is the cumulative loss measured as expense recognised on an effective The Group provides warranties in fair value, less any impairment loss on the difference between the amortised yield basis. connection with the sale of helicopters. 98 Dreams of flying / annual report 2015 99

2. Significant accounting policies (continued)

The Group generally warrants its new overhead expenses associated with recorded as an expense over the distribution in accordance with the helicopters to be free from defects in the execution and monitoring of such reporting period based on the related applicable legislation and as reflected materials and workmanship appearing projects, which are presented within employee service rendered. in the standalone statutory financial within one to three and a half years selling, general and administrative statements of the Group entities. from the date of delivery or during the expenses. Government grants that Defined benefit plans These amounts may differ significantly first three hundred to one thousand are receivable as compensation for The Group’s entities operate a number from the amounts calculated on the hours of operation, whichever event overhead expenses already incurred of unfunded defined benefit plans basis of IFRS. occurs first. The warranty provision is are recognised in profit or loss in for its employees. Under these plans When the Group accounts granted recorded at the time when helicopters the period in which they become employees are entitled to the following put options to non-controlling interest are shipped to customer based on receivable, and are recorded within payments: shareholders of a subsidiary as the best estimate of the expected Government grants. • an one-time payment upon death liability, any dividends paid to the future costs. The warranty expense The Group receives Government that equals actual funeral expenses but other shareholders are recognised as is included within Selling, general grants for compensation of finance is limited to twice monthly employee’s Finance cost of the Group, unless they and administrative expenses in the costs on borrowings used by the Group monthly salary; represent a repayment of the liability. statement of comprehensive income. for helicopter manufacturing and • an one-time payment on retirement, research and development expenses. which is generally in line with the Changes in accounting policies Contingencies Government grants that are receivable employee’s base salary at the date of and disclosures Contingent liabilities are not as compensation for finance costs retirement. recognised in these consolidated already incurred are recognised in New and amended standards and financial statements unless they profit or loss in the period in which For defined benefit plans, the cost interpretations are arise as a result of a business they become receivable, and are of providing benefits is determined New standards and interpretations, combination. Contingencies recorded as an offset of the Finance using the Project Unit Credit Method, as well as amendments to the existing attributable to specific events are costs. with actuarial valuations being standards and interpretations, adopted disclosed unless the possibility of carried out as at 31 December 2015, by the Group for the first time an outflow or resources embodying Employee benefit obligations 2014 and 2013. Actuarial gains The accounting policies adopted in economic benefit is remote. Employee benefits provided by the and losses are recognised in other the preparation of the consolidated Contingent assets are not Group include salaries, bonuses, comprehensive income and are not financial statements are consistent recognised in these consolidated anniversary payments, monthly reclassified subsequently to profit or with those followed in the preparation financial statements but are disclosed payments and other compensation and loss. Expected returns on plan assets of the Group’s annual financial when an inflow of economic benefits is benefits (i.e. transport, welfare, etc.), are no longer recognised in profit or statements for the year ended 31 probable. a one-time payment upon death, a loss, instead, there is a requirement to December 2014, except for adoption one-time payment on retirement of the recognize interest on the net defined of new standards and amendments to Government grants employee as well as contributions to benefit liability (asset) in profit or loss standards and interpretations effective Deferred income attributable to the the state and non-state pension funds. calculated using the discount rate for annual periods beginning on 1 grants obtained from the Government Remuneration to employees in applied to measure the defined benefit January 2015. is not recognised until there is a respect of services rendered during obligation. Unvested past service costs Application of following new reasonable assurance that the Group the reporting period, including are recognised in profit or loss at the standards and amendments to will comply with the conditions accruals for vacation and bonuses and earlier of when the defined benefit standards and interpretations does attaching to them and that the grants the related social security taxes, as plan is changed or when the related not have impact on the Group’s will be receivable. well as other short –term benefits are restructuring costs or termination consolidated financial statements: The Group receives Government recognised as an expense in the period benefits are recognised. • Amendment to IFRS (IAS) 19, grants for partial compensation of when they are incurred. «Employee Benefits» - contributions development costs capitalised within Dividends of employees intangible assets and recognises Defined contribution plans Dividends and the related taxes are • Annual improvements 2010-2012 the amounts of government grants The Group’s entities are legally obliged recognised as a liability in the period • Annual improvements 2011-2013. received as a deduction from the full to make defined contributions to the in which they have been declared and amount of development costs incurred. Russian Federation State Pension become legally payable. Dividends may As part of such supporting Fund, a defined contribution plan. The only be paid out of legally distributable programs the Government also Group’s contributions to the Russian accumulated profits, which are compensates for a portion of Federation State Pension Fund are based on the amounts available for 100 Dreams of flying / annual report 2015 101

3. Critical accounting judgements and key and, if necessary, records an accordance with the accounting policy. impairment to reduce inventory Initial capitalisation of costs is based sources of estimation uncertainty for obsolete and slow-moving raw on management’s judgement that materials and spare parts. This technological and economic feasibility allowance requires assumptions is confirmed, usually when a product In the application of the Group’s the extent there is such a change, related to future inventory use. development project has reached a accounting policies, management the amount of revenue and costs These assumptions are based defined milestone according to an is required to make judgements, recognised in future periods may on inventory ageing, forecasted established project management estimates and assumptions about vary and if the total estimated costs consumer demands, and technological model. In determining the amounts to the carrying amounts of assets and exceed the total revenue a loss would obsolescence. Any changes in the be capitalised, management makes liabilities that are not readily apparent be recorded at the time such loss is estimates may impact the amount of assumptions regarding the expected from other sources. The estimates and revealed. the impairment for inventory that may future cash generation of the project, associated assumptions are based be required. discount rates to be applied and the on historical experience and other Valuation of trade and other expected period of benefits. factors that are considered relevant. receivables Useful economic life and Actual results may differ from these Trade receivables and other receivables residual value of property, Impairment of non-financial estimates. are stated at their net realisable value plant and equipment assets The key assumptions concerning after deducting the Group’s best The Group’s property, plant and Management reviews the carrying the future and other key sources of estimate of probable credit losses equipment are depreciated using amounts of assets to determine estimation uncertainty at the reporting related to these assets. the straight-line method over their whether there is any indication that date, that have a significant risk of In estimating the level of probable estimated useful lives which are based those assets are impaired. In making causing a material adjustment to credit losses, management considers on management’s business plans and the assessment for impairment, assets the carrying amounts of assets and a number of factors, including current operational estimates. that do not generate independent cash liabilities within the next financial year overall economic conditions, industry- The factors that could affect the flows are allocated to an appropriate are discussed below. specific economic conditions and estimation of the useful economic life cash-generating unit (group of units). historical and anticipated customer of property, plant and equipment and The assessment of whether Revenue recognition on performance. Uncertainties regarding its residual value include the following: there are indicators of a potential construction contracts changes in the financial condition of • changes in asset utilisation rates; impairment are based on various As described in the revenue customers, either adverse or positive, • changes in maintenance assumptions including market recognition policy, the Group could impact the amount and timing of technology; conditions, asset utilisation and accounts for construction projects any additional allowances for doubtful • changes in regulations and the ability to utilise the asset for using the percentage of completion accounts that may be required. This may legislation; and alternative purposes. If an indication method. Critical to the correct have a negative impact on the financial • unforeseen operational issues. of impairment exists, the Group application of this method are the results if additional losses occur that Any of the above could affect estimates the recoverable value accuracy of estimates of the financial were not anticipated in prior periods. prospective depreciation of property, (greater of fair value less cost to sell outcome at completion, as well as plant and equipment and their carrying and value in use) and compares it the determination of the extent of Inventory valuation and residual values. to the carrying value, and records progress towards completion. Inventory consists of finished goods, Management annually reviews the impairment to the extent the carrying In estimating the percentage of work-in-progress and raw materials appropriateness of assets’ useful value is greater. completion, the Group compares the which are stated at lower of cost or economic lives. The review is based on The value in use is based on estimated total cost of the project to net realisable value. In assessing the the current condition of the assets and estimated future cash flows that are the costs incurred to date. The total net realisable value of its inventory, the estimated period during which they discounted to their present value using estimated cost is based on historical management estimates the net will continue to bring economic benefit a pre-tax discount rate. The estimated experience for similar projects, realisable value of finished goods and to the Group. Any change in estimated future cash flows require management the remaining effort to complete work-in-progress based on various useful life or residual value is recorded to make a number of assumptions the contract, and various other assumptions including current market on a prospective basis from the date of including customer demand and assumptions. prices. the change. industry capacity, future growth rates The Group has not historically had At each reporting date, the Group and the appropriate discount rate. Any significant changes in its estimates evaluates its inventory balance for Development costs change in these estimates may result of total costs during a project. To excess quantities and obsolescence Development costs are capitalised in in impairment in future periods. 102 Dreams of flying / annual report 2015 103

3. Critical accounting judgements and key sources 3. Critical accounting judgements and key sources of estimation uncertainty (continued) of estimation uncertainty (continued)

Fair value of financial • Production volumes/capacity – Warranty provisions are estimated and litigation is reassessed and, if instruments Estimated production volumes are based on historical claims statistics, required, estimates are revised. Such When the fair value of financial assets based on detailed development the warranty period, the average revisions in estimates could have a and financial liabilities recorded in the plans agreed by management as time-lag between faults occurring and material impact on the future results statement of financial position cannot part of the long-term planning claims to the Group and anticipated of the Group. be derived from active markets, their process including forecasts on changes in quality indexes, future fair value is determined using valuation production of new types of the expectations. Differences between Tax contingencies techniques including the discounted models which, inter alia, depends actual warranty claims and the The Group is subject to income cash flow model. The inputs to these on outcome of certain tendering estimated claims will impact the tax and other taxes in accordance models are taken from observable procedures. recognised expense and provisions with the legislation of the Russian markets where possible, but where in future periods. Refunds from Federation. Significant judgement is this is not feasible, a degree of Employee benefit obligations suppliers, that decrease the Group’s required in determining the provision judgement is required in establishing The Group’s recognition of the warranty costs, are recognised to for income tax and other taxes due to fair values. The judgements include unfunded retirement benefit the extent these are considered to be the complexity of the tax legislation considerations of inputs such as obligations for defined benefit plans certain. in the Russian Federation. There liquidity risk, credit risk and volatility. depends on a number of significant If actual results are not consistent are a number of transactions and Changes in assumptions about these actuarial assumptions relating to: with the assumptions and estimates calculations for which the ultimate tax factors could affect the reported fair • discount rate; used, the Group may be exposed determination is uncertain. The Group value of financial instruments. • inflation; to additional adjustments that recognises liabilities for anticipated The recoverable amounts of the • projected salary and pension could materially, either positively or tax inspection issues based on CGUs, including allocated goodwill increase; negatively, impact the Group’s profit. management’s estimates of whether and intangible assets not in use, have • mortality rates; and Adjustments to the Group’s profit have it is probable that additional taxes will been determined on a basis of value • participants turnover rate. historically not been material. be due. Where the final tax outcome in use calculations for which the most These assumptions are determined of these matters is different from the significant estimates and assumptions based on the current market Contingencies amounts that were initially recorded, are as follows: conditions, historical information such differences will impact the • Cash flows were projected based on and through consultation with the Legal contingencies amount of tax and tax provisions in the the budgeted amounts approved by Group’s actuaries. Changes in the key Legal proceedings covering a wide period in which such determination is senior management; assumptions can have a significant range of matters are pending or made. • Growth rate estimates – Growth impact of on the projected benefit threatened in various jurisdictions rates in terminal period are based obligations, funding requirements and against the Group. Periodically, Recognition of deferred tax assets on published industry research and periodic pension costs incurred. the status of each significant loss Deferred tax assets are assessed each analysis of the specific environment contingency is reviewed to assess period for recoverability and adjusted, of CGUs; Warranty provision the potential financial exposure. as necessary, based on whether it • A pre-tax discount rate was The Group provide warranties related The Group records provisions for is probable the Group will generate determined by adjusting the to its manufacture and repair of pending litigation when it determines sufficient profits in future periods to Weighted Average Cost of Capital for helicopters and aviation equipment that an unfavourable outcome is utilise the assets. Various factors are the risks specific to the respective and record a warranty provision at the probable and the amount of loss can considered in assessing the probability CGUs; time of sale. Estimated warranty costs be reasonably estimated. Due to the of future utilisation including past • Raw materials price inflation represent the contractual warranty, inherent uncertain nature of litigation, operating results, operational plans, – Estimates are obtained from which provides against any defects in the ultimate outcome or actual cost expiration of tax losses carry- published indices. Forecast materials and workmanship appearing of settlement may materially vary forwards and tax planning strategies. figures are used if data is publicly within one to three and a half years from estimates. Provisions are based If the actual results differ from these available otherwise past actual from the date of delivery, or during the on the best information available at estimates or if these estimates are raw material price movements are first three hundred to one thousand the time. As additional information adjusted in future periods, the result of used as an indicator of future price hours of operation (whichever event becomes available, the potential operations may be impacted in those movements; occurs first). liability related to pending claims periods. 104 Dreams of flying / annual report 2015 105

4. Standards issued but not Amendments to IFRS 10 Consolidated financial yet effective statements and IAS 28 Investments in associates (Amendments) The standards and interpretations IAS 16 Property, Plant and The issued amendments to IFRS 10 that are issued, but not yet effective, Equipment, and IAS 38 Intangible Consolidated Financial Statements up to the date of issuance of the Assets (Amendments) and IAS 28 Investments in Associates Group’s financial statements are The amendments to IAS 16 Property, and Joint Ventures entitled Sale disclosed below. The Group intends to Plant and Equipment, and IAS 38 or Contribution of Assets between adopt these standards, if applicable, Intangible Assets, entitled Clarification an Investor and its Associate or when they become effective. The of Acceptable Methods of Depreciation Joint Venture. These narrow scope Company is currently assessing the and Amortization. Amendments amendments clarify, that a full gain or impact of the new standards and clarify that the use of revenue-based loss is recognised when a transaction amendments on the consolidated methods to calculate the depreciation involves a business (whether it is financial statements. of an asset is not appropriate, because housed in a subsidiary or not), and revenue generated by an activity a partial gain or loss is recognised IFRS 15 Revenue from Contracts that includes the use of an asset when a transaction involves assets with Customers generally reflects factors other than that do not constitute a business. IFRS 15 establishes a single the consumption of the economic The amendments are effective for framework for revenue recognition benefits embodied in the asset. annual periods beginning on or after and contains requirements for related These amendments are effective for January 1, 2016 with earlier application disclosures. The new standard annual periods beginning on or after permitted. replaces IAS 18 Revenue, IAS 11 January 1, 2016 with earlier application Amendments to IAS 19 Employee Construction Contracts, and the permitted. Contributions related interpretations on Revenue The amendments to IAS 19 Employee recognition. The standard is effective IFRS 9 Financial Instruments Benefits, entitled «Improvement». for annual periods beginning on or The final version of IFRS 9 replaces IAS This amendment clarifies that the after January 1, 2017, with earlier 39 Financial Instruments: Recognition obligation to determine the discount application permitted. September 11, and Measurement, and all previous rate must be based on high quality 2015, the International Accounting versions of IFRS 9. IFRS 9 brings corporate bonds, denominated in the Standards Board (IASB) issued an together the requirements for the same currency as the liabilities of the official confirmation of transfer of classification and measurement, plan. the effective date of IFRS (IFRS) impairment and hedge accounting In the absence of sufficiently 15 «Revenue from Contracts with of financial instruments. In respect developed market of high quality Customers» on January 1, 2018. of impairment IFRS 9 replaces the corporate bonds in a particular ‘incurred loss’ model used in IAS currency, a market yields (at the end IFRS 11 Joint Arrangements 39, with a new ‘expected credit loss’ of the reporting period) of government (Amendment) model that will require a more timely bonds denominated in this currency. The amendment adds new guidance recognition of expected credit losses. This amendment is effective for on how to account for the acquisition The standard is effective for annual annual periods beginning on or after of an interest in a joint operation that periods beginning on or after January January 1, 2016 with earlier application constitutes a business and requires 1, 2018, with earlier application permitted. the application of IFRS 3 Business permitted. Combinations, for such acquisitions. The amendment is effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. 106 Dreams of flying / annual report 2015 107

5. Segment information Year ended Year ended Year ended 31 December 31 December 31 December 2015 2014 2013 The reporting segments are as follows: separately and has certain corporate Adjusted EBITDA • Helicopters segment includes costs that are not included in the Helicopters 48,053 39,894 23,169 manufacturing of helicopters; reportable segments. Services and maintenance 16,114 6,208 2,999 • Services and support segment These are included as reconciling includes manufacturing of item between the total reportable Research and development (306) (812) (716) spare parts for helicopters and segments and the consolidated Other 1,745 1,724 852 providing of helicopter repair and results. Total adjusted EBITDA 65,606 47,014 26,304 maintenance services; Amortisation of property, plant and equipment and intangible (5,765) (5,160) (4,863) • Research and development Segment revenues assets segment includes the provision The following is the analysis of the Loss on disposal of property, plant and equipment 160 (305) (378) of research and development Group’s revenue for the years ended Impairment allowance for property, plant and equipment, works mostly related to helicopter 31 December 2015, 2014 and 2013: (1,407) (2,396) (787) engineering and design. goodwill and intangible assets In addition, the Group has various Loss from associates and joint ventures – 251 338 other operations that are not reported Operating profit per IFRS financial statements 58,594 39,404 20,614 Finance income 2,933 852 637 Year ended 31 Year ended 31 Year ended 31 Finance costs (7,340) (5,436) (5,184) December 2015 December 2014 December 2013 Share in results of associates and joint ventures – (251) (338) Helicopters 177,021 141,507 115,767 Foreign exchange (losses)/gains, net (222) (4,987) (1,181) Services and maintenance 38,336 21,641 15,387 Profit before income tax per IFRS financial 53,965 29,582 14,548 Research and development 2,183 397 85 statements Other 2,432 6,297 7,024 Total 219,972 169,842 138,263 Major customers Other segment information During the years ended 31 December Substantially all assets and production, 2015, 2014 and 2013, the Group’s management and administrative we segment revenue reported above loss on disposal of property, plant most significant customers are state- facilities of the Group are located in the represents revenue generated from and equipment and impairment controlled bodies, such as the Ministry Russian Federation. external customers only. Inter- on property, plant and equipment, of Industry and Trade, the Ministry of Revenue by the geographical segment revenue primarily consists goodwill and intangibles assets Defence, the Ministry of Emergency regions is disclosed in Note 7 of sales of semi-products and and to include the Group’s share of Situations of the Russian Federation, research and development services for financial results of associates and joint the Ministry of Internal Affairs of helicopters production. ventures. Since adjusted EBITDA is Russian Federation and other (below not a standard measure under IFRS, – State customers). The Russian Segment operating results the Group’s definition of adjusted Federation state-controlled entities The measure of segment profitability EBITDA may differ from that of other represent significantly more than 10% separately reported to the Chief companies. of the Group’s consolidated revenue for Operating Decision Maker for The following represents the each of the years presented. purposes of allocating resources and analysis of operating results assessing segment performance is measures by adjusted EBITDA and its measured based on segment adjusted reconciliation to the pre-tax operating EBITDA, which the Group defines as profit/(loss) and profit/(loss) for the segment operating profit adjusted to years ended 31 December 2015, 2014 exclude depreciation and amortization, and 2013: 108 Dreams of flying / annual report 2015 109

6. Business combinations The assessment of the net assets at ZAO HeliVert the acquisition date have been positive On 27 May 2013, LLC International and changes in ownership goodwill on JSC «356 ARP» in the Helicopter Programs, Group’s amount of RUB 74 million (See Note subsidiary, sold 50% interest in share 14.) At JSC «810 ARP» and JSC «419 capital of ZAO HeliVert, enterprise Acquisition of subsidiaries the total amount of remuneration ARP» is negative in the amount of RUB assembling AW139 helicopters, during the years ended 31 under the contract of RUB 3,118 443 million, which is recognized in the for cash consideration of RUB 10 December 2015 and 2014 million. In these consolidated financial income period, JSC «150 ARP», JSC thousand to AgustaWestland S.p.A.. 26 August 2015 Group acquired statements transactions reflected on «12 ARZ» - written off in the amount of The Group recognised RUB 179 million 99.9% interest in share capital of the «purchase method» in accordance RUB 497 million. from disposal of ZAO HeliVert in Other the companies : JSC «810 Aircraft with IFRS 3 «Business Combinations», 15 July 2014 Group acquired 100% operating expense. Since 27 May 2013, Repair Plant», JSC «419 Aircraft similar to the previous acquisitions interest in share capital of OOO ZAO HeliVert has been a joint venture Repair Plant», JSC «150 Aircraft of shares in other companies of the Information-consulting group with AgustaWestland S.p.A. and is Repair Plant», JSC «12 Aircraft Repair Group. «Infintrast» for cash consideration of recognised under the equity method. Plant» and 69.85% of the company The fair value of aircraft repair plants RUB 2,271 million. JSC «356 Aircraft Repair Plant» for at the acquisition date are as follows: Disposal of subsidiaries during the years ended 31 December Assets 2015, 2014 and 2013 Fixed assets 2,242 Cash and cash equivalents 644 Financial assets 186 Inventories 3,750 7. Revenue Accounts receivable 2,293 Total assets 9,115 Year ended Year ended Year ended 31 December 31 December 31 December Liabilities By customer destination 2015 2014 2013 Trade and other payables Russian Federation 63,064 63,464 63,314 Advances received (793) Asia 74,509 72,998 45,424 Loans and borrowings (4,082) Other CIS countries 8,684 1,435 11,585 Provisions (372) America 20,470 25,310 13,715 Deferred tax liabilities (272) Europe 398 104 2,754 Total liabilities (329) Africa 52,682 6,497 695 Total net assets at fair value (5,848) Other 165 34 776 Total 219,972 169,842 138,263 Total net assets at fair value 3,267 Non-controlling interest at fair value (277) Goodwill arising on acquisition 128 Consideration transferred on acquisition 3,118

110 Dreams of flying / annual report 2015 111

8. Cost of sales 10. other operating income and expenses

Year ended Year ended Year ended Other operating income 31 December 31 December 31 December 2015 2014 2013 Year ended Year ended Year ended 31 December 31 December 31 December Cost of production, including: 2015 2014 2013 Raw materials and manufacturing supplies 61,650 63,941 60,217 Gain on disposal of inventory 218 174 241 Payroll and related social taxes 20,789 19,447 16,323 Gain on disposal of property, plant and equipment – – 86 Depreciation and amortisation 5,090 4,351 4,136 Income from operating leases 160 – – Production services 12,927 4,845 3,981 Reversal of provision for litigations 108 126 – Energy and utilities 2,239 1,347 1,504 Other income from operating activities 83 – – Other 5,730 1,877 3,184 Total 569 300 327 Total cost of production 108,425 95,808 89,345 Increase in work in progress and finished good (5,993) (6,891) (1,309) Total cost of sales 102,432 88,917 88,036 Other operating expenses Year ended Year ended Year ended 31 December 31 December 31 December 2015 2014 2013 9. Selling, general Loss on disposal of property, plant and equipment – 305 378 and administrative expenses Charity 666 465 141 Maintenance of the local infrastructure facilities 481 423 290 Other 1,695 810 935 Year ended Year ended Year ended 31 December 31 December 31 December Total 2,842 2,003 1,744 2015 2014 2013

Commission fees 27,316 15,776 11,365 Payroll and related social taxes 9,077 8,494 6,842 Professional services 7,076 2,195 1,793 Depreciation and amortisation 675 809 727 Transport expenses 3,080 1,579 1,051 Repair and maintenance expenses 914 997 965 Advertising expenses 609 347 815 Insurance expenses 1,030 533 655 Taxes other than income tax 1,166 904 995 Warranty expenses 649 615 502 Bank charges 897 491 318 Impairment of accounts receivable (1 366) 2,622 517 Other 4,293 2,553 1,992 Total 55,416 37,915 28,537 112 Dreams of flying / annual report 2015 113

11. Finance income 12. Income tax expense and finance costs Income tax expense

Finance income Year ended Year ended Year ended 31 December 31 December 31 December Year ended Year ended Year ended 2015 2014 2013 31 December 31 December 31 December Current income tax expense 11,051 8,564 6,173 2015 2014 2013 Adjustments in respect of current income tax of previous years 25 11 47 Interest income on financing provided 1,183 842 620 Total current income tax expense 11,076 8,575 6,220 Dividends 14 10 16 Deferred tax: Discounting effect 1,462 – – Relating to obligation and reversal of temporary differences 691 295 (1,145) Other income 274 – 1 Total income tax expenses 11,767 8,870 5,075 Total 2,933 852 637

The corporate income tax rate in the Russian Federation, the primary location of the Group’s production entities, for the Finance costs years ended 31 December 2015, 2014 and 2013 was 20% (15.5% in the Perm region where Reductor-PM is located).

Year ended Year ended Year ended 31 December 31 December 31 December 2015 2014 2013 Interest expense on loans and borrowings 8,519 5,984 6,022 A reconciliation between the statutory income tax rate Interest expense on obligations under finance leases 38 26 73 Dividend related to the shares subject to the mandatory offers – – – and the effective rate was as follows: Interest expense on pension liabilities 162 138 46 Year ended Year ended Year ended Total interest expense 8,719 6,148 6,141 31 December 31 December 31 December 2015 2014 2013 Less: amounts included in the cost of qualifying assets (203) (114) (504) Profit before income tax 53,965 29,582 14,548 Less: government grants – compensation of finance costs (1,176) (598) (453) Income tax expense computed at statutory income tax rate Total finance costs 7,340 5,436 5,184 10,793 5,916 2,910 of 20% Adjustments due to: Adjustments in respect of current income tax of previous years – – 383 Effect of income tax preferences in the Repablic Kazan, the (78) (50) (37) Republic of Buryatia and the Perm region Net change in unrecognised and unutilised tax losses (159) 1,085 924 Expenses not deductible for tax purposes 1,327 2,105 945 Income not taxable for tax purposes (116) (186) (50) Total income tax expense 11,767 8,870 5,075 114 Dreams of flying / annual report 2015 115

13. Property, plant and equipment 13. Property, plant and equipment (continued)

Machinery Construc- Machinery Construc- Land and Motor Land and Motor and Other tion-in- Total and Other tion-in- Total buildings vehicles buildings vehicles equipment progress equipment progress Cost Accumulated depreciation At 1 January 2013 23,565 19,402 2,980 4,404 6,012 56,363 and impairment Additions 545 1,305 892 957 4,927 8,626 At 31 December 2014 (7,920) (8,392) (1,282) (3,671) (95) (21,360) Transfers 398 2,467 89 392 (3,346) – Depreciation charge (990) (2,580) (512) (967) – (5,049) Disposal of subsidiaries – (123) (3) (95) – (221) Assets held for sale 189 3 – 0 – 192 Disposals (131) (235) (26) (305) (632) (1,329) Acquisition of subsidiaries (3,245) (551) (106) (53) – (3,955) At 31 December 2013 24,377 22,816 3,932 5,353 6,961 63,439 Disposals 34 197 96 523 – 850 Additions 94 982 2,308 1,195 8,401 12,980 Impairment (13) (13) Transfers 318 3,765 99 179 (4,361) – Reversal of impairment 131 88 14 82 315 Disposals (168) (251) (832) (480) (81) (1,812) At 31 December 2015 (11,801) (11,235) (1,790) (4,086) (108) (29,020) At 31 December 2014 24,621 27,312 5,507 6,247 10,920 74,607 Carrying value Additions 281 2,136 1,313 1,080 12,008 16,818 At 31 December 2013 17,305 16,447 2,807 2,352 6,901 45,812 Assets held for sale (1,016) (3) – – – (1,019) At 31 December 2014 16,701 18,920 4,225 2,576 10,825 53,247 Transfers 1,857 1,289 272 254 (3,672) – At 31 December 2015 19,191 19,677 4,897 2,180 18,575 64,520 Acquisition of subsidiaries 5,339 614 121 61 62 6,197 Disposals (90) (436) (526) (1,376) (635) (3,063) As at 31 December 2015, 2014 and 2013, construction-in-progress included advances issued for acquisition of property, At 31 December 2015 30,992 30,912 6,687 6,266 18,683 93,540 plant and equipment in the amounts of RUB 8,987 million, RUB 3,116 million and RUB 2,611 million, respectively. Accumulated depreciation Certain property, plant and equipment have been pledged to secure bank loans and borrowings granted to the Group: and impairment At 1 January 2013 (6,116) (4,476) (894) (2,167) – (13,653) 31 December 31 December 31 December Depreciation charge (867) (1,954) (234) (1,081) – (4,136) 2015 2014 2013 Disposal of subsidiaries – 24 – 16 – 40 Carrying value of property, plant and equipment 3,563 3,446 3,020 Disposals 41 125 17 294 – 477 Reversal of impairment (130) (88) (14) (63) (60) (355) At 31 December 2013 (7,072) (6,369) (1,125) (3,001) (60) (17,627) Depreciation charge (880) (2,151) (292) (1,107) – (4,430) The Group leases machinery and equipment and transport under a number of finance lease agreements. At the end of the Disposals – – – (28) (35) (63) term of the lease the Group obtains ownership of the assets or has an option to purchase leased assets at a beneficial price. Finance leases obligations are secured by the lessors’ title to the leased assets. Impairment (880) (2,151) (292) (1,107) – (4,430)

31 December 31 December 31 December 2015 2014 2013 Carrying value of leased property, plant and equipment 867 971 1.100 116 Dreams of flying / annual report 2015 117

14. Goodwill 15. Intangible assets (continued)

31 December 31 December 31 December Capitalised Purchased software Total 2015 2014 2013 development costs and other Balance at the beginning of the year 780 943 1.076 At 31 December 2014 16,779 1,179 17,958 Acquisition of subsidiaries 74 436 – Additions 10,120 122 10,242 Impairment – (599) (133) Government grants received (1,951) – (1,951) Balance at the end of the year 854 780 943 Disposals (6,655) (94) (6,749) At 31 December 2015 18,293 1,207 19,500

The carrying value of goodwill was allocated to the following separate cash generating units: Accumulated amortisation At 1 January 2013 (1,869) (388) (2,257) Allocation of goodwill to cash-generating units Amortisation charge (558) (169) (727) 31 December 31 December 31 December Disposals – 46 46 2015 2014 2013 Impairment (299) – (299) AO Ulan-Ude Aviation Plant 755 755 755 At 31 December 2013 (2,726) (511) (3,237) ZAO Avia Company Rostvertol-Avia – – 163 Amortisation charge (501) (229) (730) AO Novosibirsk Aircraft Repair Plant – – – Disposals 388 13 401 AO Reduktor-PM 5 5 5 Impairment (1,734) – (1,734) АО 356 Aircraft Repair Plant 74 – – At 31 December 2014 (4,573) (727) (5,300) Total 854 780 943 Amortisation charge (596) (120) (716) Disposals 35 51 86

As at 31 December 2015, 2014 and 2013 the Group conducted an assessment of the recoverable amount of goodwill (Note 16) Impairment (Note 16) (1,709) – (1,709) At 31 December 2015 (6,843) (796) (7,639)

15. Intangible assets Carrying value At 31 December 2013 12,115 493 12,608 Capitalised Purchased software Total At 31 December 2014 12,206 452 12,658 development costs and other At 31 December 2015 11,450 411 11,861 Cost At 1 January 2013 8,673 955 9,628 Additions 8,137 270 8,407 Government grants received (1,935) – (1,935) Capitalised development costs comprise in the 2013-2025 years.» In accordance the internally-generated intangible with these programs, the Group Disposals (34) (130) (164) assets (including those which were receives funding for research and Disposal of subsidiaries – (91) (91) not in use as at 31 December 2015) development in accordance with the At 31 December 2013 14,841 1,004 15,845 which are primarily consisted of Mi-38, contract with the Russian Ministry Additions 11,419 217 11,636 Mi-171, Ka-62, Ka-226T and other of Industry and Trade (Ministry of helicopter development projects. Industry). Government grants received (4,470) – (4,470) The development of helicopters The Group has performed an Disposals (5,011) (42) (5,053) Ka-62, Mi-38 is included in the State impairment test for intangible assets program of the Russian Federation including not yet in use as at 31 «Development of the aviation industry December 2015 (Note 16). 118 Dreams of flying / annual report 2015 119

16. Impairment testing Individual assets retained updating of the Group’s long-term on the unit generating cash development strategy. As a result, flows impairment loss in the amount of The Group performed impairment testing for goodwill and intangible assets including not in use (capitalised R&D costs) Assets are helicopter development RUB 1 734 million was reflected in the as at 31 December 2015 on Cash Generating Unit (CGU) level. As at 31 December 2015, the carrying value of goodwill and projects «Ka» and «Mi» models. In statement of comprehensive income development costs including not yet in use was allocated to CGUs as presented in the table below: the current unstable macroeconomic for 2014 and RUB 233 million - for 2015 environment of the financial indicators in the «Ka» and models for 2015 in the of the project can be purely indicative. amount of RUB 1 740 million by «Mi» Projects are subject to revision after model. Intangible assets, incl. Cash generating unit Goodwill not yet in use AO Ulan-Ude Aviation Plant (“Ulan-Ude”) 775 916 AO Kumertau Aviation Production Enterprise (“KUMAP”) – 3,059 PAO Arsenyev Aviation Company PROGRESS (“Progress”) – 752 17. Investment in associates PAO Kazan Helicopter Plant (“KHP”) – 3,109 and joint ventures AO «356 ARZ» 74 – Others 5 2,611 ZAO HeliVert ZAO Activnye Operatsyi Individual assets not allocated to CGU – 4,710 Total (joint venture (associate) Impairment – (3,707) At 1 January 2013 – 19 19 Total 854 11,450 Loss (319) (19) (338) Additional share issue 570 – 570 At 31 December 2013 251 – 251 Loss (251) – (251) Results of impairment testing outcome of the ongoing tenders. As at At 31 December 2014 – – – 31 December 2014 the Group confirmed Loss – – – Ulan-Ude, KHP, Progress, 356 ARZ the impairment of cash-generating and the others unit for JSC «Kumertau Aviation At 31 December 2015 – – – Production Enterprise» («KumAPP»), The group did not reveal impairment recognized as of 31 December 2013. of non-current assets as a result of An impairment loss CGU «KumAPP» the audit as of 31 December 2015. relating to intangible assets in the Management believes that regardless amount of RUB 299 million, and fixed 18. Trade receivables of the reasonably possible change in assets in the amount of RUB 280 the key assumptions on which was million, was reflected in the statement calculated the recoverable amount of comprehensive income for the year 31 December 31 December 31 December of units generating cash flows, the ended 31 December 2013. 2015 2014 2013 carrying value of units generating cash As a result of the impairment test at Trade receivables 26,621 19,144 19,948 flows (including development costs) 31 December 2015 impairment of the Less: Allowance for doubtful receivables (395) (312) (247) «Ulan-Ude», «KHP» «Progress», «356 cash generating unit «KumAPP» not Total trade receivables, including 26,226 18,832 19,701 ARZ» and the others does not exceed confirmed due to changes in the cash their recoverable value. flows associated with the improvement Long-term trade receivables 3,437 741 318 of the targets in the years 2016-2018 Short-term trade receivables 22,789 18,091 19,383 KumAPP due to the signing of new contracts. In In the analysis of the presence of connection with this impairment loss impairment indicators of the Group recognized on 31 December 2014 was considers the probability of a favourable restored in full. 120 Dreams of flying / annual report 2015 121

18. Trade receivables (continued) 19. Prepayments and other receivables

The Group’s ageing of trade receivables Advances paid to suppliers of inventories and services is presented as follows

31 December 31 December 31 December 31 December 31 December 31 December 2015 2014 2013 2015 2014 2013 Past due, but not impaired: Non-financial assets 1 month 245 123 16 Advances paid to suppliers of inventories and services 41,514 26,432 24,548 1-3 months 18 71 32 Prepaid commission fee 4,181 3,068 1,872 3 months to 1 year 61 22 98 Total non-financial assets 45,695 29,500 26,420 More than 1 year 184 13 – Long-term advances issued 2,230 653 2,366 Total past due but not impaired 509 229 146 Short-term advances issued 43,465 28,847 24,054

Due in: 1 month 12,440 7,291 8,199 1-3 months 3,641 9,258 4,172 Изменение резерва по авансам выданным 3 months to 1 year 6,384 1,326 6,866 31 December 31 December 31 December More than 1 year 3,253 728 318 2015 2014 2013 Total 26,226 18,832 19,701 Balance at the beginning of the year 214 193 129 Allowance for doubtful debt recognised 775 100 122 Amounts written-off as uncollectible (77) (79) (58) Included in the trade receivables as at 31 December 2015, 2014 and 2013 were receivables with amounts of RUB 509 million, RUB 229 million and RUB 146 million, respectively, that were past due but not included in allowance Balance at the end of the year 912 214 193 for doubtful trade receivables. The Group does not hold any collateral over these balances. Management of the Group believes that these amounts are recoverable in full. As at 31 December 2015, 2014 and 2013, the Group largest balances in advances paid to suppliers of inventories and services represented 44%, 37% and 28% of the total balance, respectively, and were presented as follows:

The following is movement in the allowance 31 December 31 December 31 December for doubtful trade accounts receivables Name of counterparty 2015 2014 2013 AO Klimov 2,622 3,272 1,857 31 December 31 December 31 December Agent 4,181 2,891 1,872 2015 2014 2013 AO Motor Sich 1,779 2,314 1,214 Balance at beginning of the year 312 247 339 AO Ramenskoe priboristroitelnoe konstruktorskoe buro 5,405 1,245 1,240 Allowance for doubtful debt recognised 122 66 46 AO Korporatsiya Fazotron NIIR 969 1,147 1,206 Amounts written-off as uncollectible (39) (1) (138) AO «NII Ekran» 5,375 – – Balance at end of the year 395 312 247 Total 20,331 10,869 7,389

At 31 December 2015, 2014 and 2013, other long-term trade receivables were measured at amortised cost using the weighted average discount rate of 11%, 12% and 8%, respectively. The Group does not hold any collateral over these balances. 122 Dreams of flying / annual report 2015 123

19. Prepayments and other receivables (continued) 21. available-for-sale securities Other receivables 31 December 31 December 31 December Ownership, % 31 December 31 December 31 December 2015 2014 2013 Financial assets 2015 2014 2013 AO TVTz Rostvertol *25.0 359 359 359 Other receivables 6,696 5,924 3,189 AO OPK Oboronprom 0.45 160 160 160 Less: Allowance for doubtful receivables (435) (392) (379) AO AKB Zarechye 15.5 139 139 139 Total financial assets 6,261 5,532 2,810 AO AKB Doncombank 15.0 88 71 60 AO AKB MMB Bank of Moscow 0.03 12 18 18 Other Various 53 59 72 The following is movement in allowance for other receivables Total 811 806 808

31 December 31 December 31 December * Preferred non-voting shares 2015 2014 2013 Balance at beginning of the year 392 379 298 Allowance for doubtful other receivables recognised 263 37 106 In 2015, the Group recognised income on revaluation of available for sales Amounts recovery of impairment losses (4) (24) (25) securities in amount of RUB 16 million Amounts written-off as uncollectible (216) – – and related deferred tax effect in amount Balance at end of the year 435 392 379 of RUB 3 million in the statement of comprehensive income (2014: loss in amount of RUB 11 million and RUB 2 million, respectively; 2013: loss in amount of RUB 49 million and RUB 10 million, respectively). 20. Other financial assets Due to the fact that for the rest of the securities market does not exist and there were no transactions in the recent 31 December 31 December 31 December past, the fair value can not be estimated. 2015 2014 2013 On the reporting date, the likelihood Bank deposits 26 167 166 of a significant difference between the fair value and the carrying amount is Loans issued 653 856 552 insignificant. Other 92 4 53 Total 771 1,027 771 Total other non-current financial assets 254 185 208 Total other current financial assets 517 842 563 124 Dreams of flying / annual report 2015 125

22. Deferred tax assets and liabilities 22. Deferred tax assets and liabilities (continued)

The accumulated unused tax losses carried forward of the certain Group’s subsidiaries which were available for offset against future taxable income and for which no deferred tax assets were recognised are presented as follows:

31 December 31 December 31 December 2015 2014 2013 AO Russian Helicopters 2,020 1,655 1,046

A t 31 D ecember 2015 Recognised in profit or loss A cquisition of subsidiaries Recognised in equity A t 31 D ecember 2014 Recognised in profit or loss Recognised in equity A t 31 D ecember 2013 Recognised in profit or loss D isposal of subsidiary Recognised in equity A t 01 D ecember 2013 AO KAMOV 219 262 377 Inventories 8,059 3,159 – – 4,900 (299) – 5,199 (103) 240 – 5,062 AO Kumertau Aviation Production Enterprise 604 1,085 494 Tax losses carried 237 237 – – – (58) – 58 58 – – – Total 2,843 3,002 1,917 forward Accounts receivable – – – – – (252) – 252 239 (252) – 265 Prepayments and other 471 263 – – 208 208 – – – – – – receivables Deferred tax assets in regard of unused tax losses carried forward were not recognised as it is not probable that future Accounts payable – (169) – – 169 169 – – – – – – taxable profit will be available against which the unused tax losses can be utilised. The unused tax losses will expire during Loans and leases payable – – – – – (9) – 9 (55) – – 64 the period up to 2023. Other financial assets – (1) – – 1 (98) (2) 101 – – 10 91 Deferred tax assets 8,767 3,489 – – 5,278 (339) (2) 5,619 139 (12) 10 5,482 Property, plant and equipment and intangible (3,360) 173 (269) – (3,264) (91) – (3,173) (33) (18) – (3,122) 23. Inventories assets Accounts receivable (3,829) (1,504) – – (2,325) (2,325) – – – – – – At 31 December At 31 December At 31 December 2015 2014 2013 Accounts payable (1,975) (2,037) – 62 – 1,531 (94) (1,437) 244 51 11 (1,743) Materials (at cost or net realisable value) 41,620 31,880 28,137 Prepayments and other – – – – – 1,513 – (1,513) 795 – – (2,308) receivables Work-in-progress (at cost or net realisable value) 16,387 13,846 7,582 Loans and leases payable (1,089) (505) – – (584) (584) – – – – – – Finished goods (at cost or net realisable value) 4,791 1,339 712 Total inventories at the lower of cost and net Other financial assets (310) (307) – (3) – – – – – – – – 62,798 47,065 36,431 realisable value Deferred tax (10,563) (4,180) (269) 59 (6,173) 44 (94) (6,123) 1,006 33 11 (7,173) liabilities Net deferred tax (1,796) (691) (269) 59 (895) (295) (96) (504) 1 145 21 21 (1,691) liabilities In 2015, RUB 3,267 million (2014: RUB 1,238 million; 2013: RUB 825 million) were expensed to write down inventions to net realisable value. In 2015, RUB 1,083 million (2014: RUB 617 million; 2013: RUB 286 million) inventory write offs were reversed to reflect the net realisable value of those inventories. Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. The following is the analysis of the deferred tax balances (after offset) as they are presented in the consolidated statement of financial position: 31 December 31 December 31 December Certain inventories have been pledged to secure bank loans 2015 2014 2013 and borrowings granted to the Group Deferred tax assets 2,610 793 898 At 31 December At 31 December At 31 December Deferred tax liabilities (4,406) (1,688) (1,402) 2015 2014 2013 Net deferred tax liabilities (1,796) (895) (504) Carrying amount of inventories 114 206 609 126 Dreams of flying / annual report 2015 127

24. Construction contracts Amounts due to under the State Program are comprised of the following

Year ended Year ended Year ended 31 December 2015 31 December 2014 31 December 2013 At 31 December At 31 December At 31 December Construction costs incurred plus recognised profits 2015 2014 2013 69,526 44,708 35,966 less recognised losses to date Amounts drawn down under credit line facilities 88,769 120,892 92,616 Less: progress billings (51,439) (38,593) (45,636) under the State Program 18,087 6,115 (9,670) Amounts billed under the State Program (87,256) (90,534) (90,534) Amounts due from customers under the State Program Recognised and included in the consolidated financial statements as: (1,513) (29,093) (1,624) construction contracts Amounts due from customers under construction Amounts due to customers under the State 35,210 22,864 15,876 – 1,265 6,820 contracts Program construction contract (advances received) Amounts due to customers under construction (17,123) (16,749) (25,546) contracts

18,087 6,115 (9,670) As at 31 December 2015, 2014 and 2013 the amounts drawn down under the credit line facilities under the State Program are as follows:

In 2011, in connection with the line facilities tenors and the amounts At 31 December 2015 At 31 December 2014 At 31 December 2013 2011-2020 State Program of the due under the credit line facilities, as Bank Currency Rate, % Balance Rate, % Balance Rate, % Balance Russian Federation («FCP #1») the secured by the guarantees, will be Group’s subsidiaries entered into paid by the Ministry of Finance. As the PAO Bank VTB RUB 9.70–10.05 52,868 8–9.75 69,926 8.2–10.5 40,627 PAO Sberbank of long-term contracts with the State credit line facilities are linked to the RUB 9.10–9.75 33,706 8.2–9.75 48,052 8.0–10.5 49,621 customer of the Russian Federation helicopters construction contracts and Russia to produce and deliver military payments are made automatically and Vnesheconombank RUB 7 2,195 7 2,914 7 2,368 helicopters over the period of 2011- not at discretion of the Group, settled Total 88,769 120,892 92,616 2020. Under these contracts, the when funds are transferred from the substantial portion of amounts due State customer under construction from the State customer is deferred contracts, the proceeds from such and paid on or after the 4-year period credit lines represent, in substance, following the delivery dates. Under advances received. Interest expenses 25. Other taxes the Program the Group’s subsidiaries incurred on these credit line facilities entered into credit facility agreements are fully reimbursed by the State linked to the aforementioned long- customer. At 31 December At 31 December At 31 December term contracts with certain state- 2015 2014 2013 owned banks. Cash receipts from the Other taxes receivable State customer under the long-term VAT receivable 10,916 6,545 5,761 agreements will only be used to reduce the outstanding balances of the credit Other 72 63 61 line facilities. Obligations under these Total 10,988 6,608 5,822 credit line facilities are fully secured Other taxes payable by the guaranties provided by the VAT payable 1,241 1,454 1,857 Ministry of Finance of the Russian Federation (the «Ministry of Finance»). Personal income tax and social taxes 1,499 1,159 619 The Group will be relieved from any Property tax 132 118 105 obligations to pay the outstanding Other 457 257 100 balances of the credit line facilities Total 3,329 2,988 2,681 if the State customer defaults or delays payments beyond the credit 128 Dreams of flying / annual report 2015 129

26. Cash and cash equivalents 27. Assets held for sale

At 31 December At 31 December At 31 December The Group has decided to relocate plot of land at , st. March 2015 2014 2013 «Kamov» on the territory of the 8, 8a (the former office building and Current bank accounts, including: NTC JSC «Helicopters of Russia» production facilities, «Kamov» JSC). RUB-denominated 22,382 11,433 7,113 in the village of Tomilino, Lyubertsy The first half of 2016 is expected date district, Moscow region, and as a of sale. The cost has been estimated at USD-denominated 19,981 9,776 3,206 consequence - for sale real estate the lower of the expected sales price Euro-denominated 2,645 2,806 173 complex administrative and production and the carrying amount of an asset Bank deposits, including: facilities - storage destination total in the amount of RUB 827 million and RUB-denominated 2,645 3,672 5,522 area of 62 371.06 sq.m, located on a reclassified to assets held for sale. Euro-denominated – 376 – USD-denominated 18,078 3 663 – Other cash and cash equivalents 15 38 10 28. Equity 65,746 31,764 16 024 Ordinary shares At 31 December 2015 At 31 December 2014 At 31 December 2013 Bank deposits Number of Share capital Number of Share capital Number of Share capital shares (RUB’000) shares (RUB’000) shares (RUB’000) At 31 December 2015 At 31 December 2014 At 31 December 2013 Balance at the 95,273,116 95,273 95,273,116 95,273 95,273,116 95,273 Bank Currency Rate, % Balance Rate, % Balance Rate, % Balance beginning of the year PAO Bank VTB RUB 10.50–1.8 2,016 2.85 62 – – Additional shares issued 5,982,647 5,983 – – – – PAO Sberbank of Russia RUB 7.55–0.35 629 10.4–26.97 1,844 6.35–6.42 597 (see below) PAO Sberbank of Russia USD 0.78 6,419 3.72–4.1 3,368 – – Balance at the end of 101,255,763 101,256 95,273,116 95,273 95,273,116 95,273 PAO Sberbank of Russia Euro – – 3.3 376 – – the year AO AKB Zarechye RUB – – – – 3 500 AO AKB Rosbank RUB – – 15 11 – – The share capital of the Company During the years ended 31 December as at 31 December 2015 consists of 2015, 2014 and 2013, the Group’s AO AKB Rosbank USD – – 3 281 – – 101,255,763 (2014: 95,273,116, 2013: entities declared the following AO Promstroybank Euro – – – – – 95,273,116) authorised, issued and dividends attributable to non- ZAO AKB RUB – – 16 221 6.9 1,125 outstanding common shares with par controlling interests: АО Gazprombank RUB – – 17 284 – – value of RUB 1. PAO Bank VTB USD 0.01 11,659 2 14 – – Year ended Year ended Year ended АО Rosselkhozbank RUB – – 22.07–28.91 1,250 – – Entity name 31 December 2015 31 December 2014 31 December 2013 АО AK BaikalBank RUB – – – – 8 2,000 PAO Kazan Helicopter Plant 141 9 6 АО NK Bank RUB – – – – 7.3 1,000 AO Ulan-Ude Aviation Plan 64 28 – АО Nomos-Bank RUB – – – – 6.85 300 AO Stupino Machine Production Plant 50 149 30 Other RUB – – – – – – AO AAK Progress 17 13 – Total 20,723 7,711 5,522 AO Reductor-PM – – 1 AO MIL Moscow Helicopter Plant 22 28 10 All bank deposits classified as cash and cash equivalents have an original maturity of less than three months. PAO Rostvertol 226 226 91 Total 1,520 453 138 130 Dreams of flying / annual report 2015 131

28. Equity (continued) 29. Loans and borrowings

Dividends and retained 975 million), the dividend per share is At 31 December 2015 At 31 December 2014 At 31 December 2013 earnings RUB 7.56 per share. The Group declared dividends Interest rate Rate, % Balance Rate, % Balance Rate, % Balance attributable to the shareholder of Earnings per share Secured bank loans, including the Company for 9 months of 2015 in Earnings per share for the years ended RUB–denominated the amount of RUB 3 650 million, the 31 December 2015, 2014 and 2013 PAO Sberbank of Russia Fixed 9.75–14.75 5,910 8–12 12,187 8–11 16,246 dividend per share is RUB 36.05. were calculated based on the weighted The Group declared dividends average number of the Company’s PAO Sberbank of Russia Various 10.5–13.30 1,182 – – – – attributable to the shareholder of ordinary shares outstanding during the Vnesheconombank Fixed 12.10 680 – – – – the Company for the year 2014 in the respective periods. Vnesheconombank Various 10.5 2,064 11–12 4,009 11–12 4,895 amount of RUB 722 million (2013: RUB AO Alfa Bank Fixed 9.70 357 9–13 4,227 9–11 3,452 AO Gazprombank Various 13.25 105 9–11 250 9–10 1,891 Year ended Year ended Year ended PAO Bank VTB Fixed 12.79 1,120 10–12 619 9–10 3,991 31 December 2015 31 December 2014 31 December 2013 ZAO AKB Novikombank Fixed 14.50 995 10–12 1,435 10–12 1,873 Weighted average number 96,768,778 95,273,116 95,273,116 AO AKB Rossia Fixed 12.5–12.8 524 – – – – of the Company’s ordinary shares PAO AKB Rosbank Fixed – – – – 9 150 PAO AKB Ural FD Fixed 11 200 10 200 10 200 The amounts of net profit used for calculation of basic and diluted earnings per AO AKB Perm Fixed 11.4 35 – – – – share for the years ended 31 December 2015, 2014 and 2013 are the same as the Others Various – – 10–11 56 10–11 149 amount of profit attributable to the Company’s shareholders recognised in the consolidated statement of comprehensive income for respective periods. USD-denominated PAO AKB Rosbank Fixed 3 4,765 – – PAO Bank VTB Fixed 4.25 1,564 5 13,633 5 5,853 PAO Sberbank of Russia Fixed 4.50–5 22,911 2–6 12,609 5–6 10,741 Vnesheconombank Various 4.08–7.50 18,552 – – – – AO Gazprombank Fixed – – 6 733 3–6 836 AO Alfa Bank Fixed – – – – 3–4 147 PAO Promsvyazbank Fixed 4,90 6,221 – – – – Euro -denominated PAO Sberbank of Russia Various 5 5 2–5 278 1–7 297 PAO Sberbank of Russia Fixed 1.47–7.50 160 – – – – AO Gazprombank Fixed 7.25 976 7 1,133 7 940 Others Fixed – – – – 7 18 132 Dreams of flying / annual report 2015 133

29. Loans and borrowings (continued) 29. Loans and borrowings (continued)

At 31 December 2015 At 31 December 2014 At 31 December 2013 The Group receives loans from government-related banks at lower interest rates. In financial statements the outstanding Interest rate Rate, % Balance Rate, % Balance Rate, % Balance balances of these loans are stated at amortized cost on the basis of the effective interest rate. A corresponding effect on Unsecured bank loans and borrowings, including the operations reflected in the consolidated statement of comprehensive income is stated below: RUB-denominated PAO Sberbank of Russia Fixed 9,75–15,5 16,551 8–15 16,049 8–9 5,075 Effective interest Book value at 31 Amortized cost at 31 PAO Bank VTB Various 11,5–14 11,095 8–11 1,230 8–10 3,724 Discount Bank name rate December 2015 December 2015 АО AK BaikalBank Fixed – – 10 350 – – AO Gazprombank 13,04% 2,500 124 2,376 AO Alfa Bank Fixed 10,7–11,5 174 11 174 11 139 Bank VBRR (AO) 13,77% 965 38 927 AO Gazprombank Various 11,80 2,376 – – 9 500 PAO Bank VTB 14,03% 2,500 42 2,458 Bank VBRR (AO) Various 12,29 927 – – – – PAO Bank VTB» 13,77% 2,400 94 2,306 AO OPK Oboronprom Fixed – – 12 899 – – PAO Sberbank of Russia 13,04% 2,727 58 2,669 USD-denominated PAO Sberbank of Russia 7,62% 6,825 463 6,362 AO Alfa Bank Fixed – – 4 748 – – PAO Bank VTB» 6,07% 1,711 78 1,633 PAO Bank VTB Fixed 7,50–7,80 1,445 – – – – PAO Promsvyazbank 6,07% 6,399 178 6,221 PAO Sberbank of Russia Fixed 4,40–5,60 2,551 – – – – PAO Sberbank of Russia 14,55% 3,000 129 2,871 AO Rosoborexport Fixed – – – – 6 358 PAO Sberbank of Russia 14,30% 3,317 331 2,986 Euro –denominated 32,344 1,535 30,809 OAO VO Stankoimport Various 1–1,75 100 1–1,75 199 1–1,75 192 PAO Bank VTB Fixed 4,05 707 – – – – PAO Sberbank of Russia Fixed 2,80 558 – – – – The bank loans are subject to certain covenants. These covenants impose restrictions in respect of certain transactions and Accrued interest N/A – 632 – 563 – 582 financial ratios. The Group is in compliance with all covenants stipulated in loan agreements. Long-term bonds Fixed 8,25–8,75 4,869 8,25–8,75 19,869 8,25–8,75 19,869 The maturity profile of loans and borrowings is as follows: Short-term bonds Fixed 8,25–8,75 15,000 – – – – Total 120,546 96,215 82,118 31 December 31 December 31 December 2015 2014 2013 Non-current Due in one month 3,084 613 600 portion of loans and 57,681 55,333 47,681 Due from one to three months 8,374 10,152 833 borrowings Due from three to twelve months 51,407 30,117 33,004 Total current portion repayable 62,865 40,882 34,437 Current portion in one year repayable in one Due in the second year 48,241 22,794 16,432 year and shown 62,865 40,882 34,437 under current Due in the third year 3,697 9,044 8,652 liabilities Due in the fourth year 2,279 17,550 1,434 Due in the fifth year and further 3,464 5,945 21,163 Total non-current portion of loans and 57,681 55,333 47,681 borrowings

Total 120,546 96,215 82,118 134 Dreams of flying / annual report 2015 135

29. Loans and borrowings (continued) 31. Retirement benefit liabilities

Certain numbers of shares of the Group’s subsidiaries have been pledged to secure bank loans and borrowings granted to Defined contribution plan Group made the following contributions the Group: During the years ended 31 December to the Russian Federation State 2015, 2014 and 2013, the entities of the Pension Fund: 31 December 31 December 31 December 2015 2014 2013 AO KAMOV 1,360,447,119 1,360,447,119 1,360,447,119 At 31 December At 31 December At 31 December 2015 2014 2013 РAO Kazan Helicopter Plant – 69,870,671 69,870,671 Contributions to the Russian Federation State 5,913 4,760 4,050 AO Ulan-Ude Aviation Plant – 31,666,919 31,666,919 Pension Fund

Defined benefit plans All of the Group’s entities operate 30. Obligation under finance leases unfunded defined benefit plans for qualifying employees, in particular: • lump-sum retirement or disability Present value of minimum lease Minimum lease payments benefits; payments • periodic (quarterly) or other lifelong At 31 At 31 At 31 At 31 At 31 At 31 benefits to retired employees; December December December December December December • non-state pension benefits to the 2015 2014 2013 2015 2014 2013 retired employees; Due within one year 148 95 115 104 63 71 • anniversary benefits for employees; • payments upon death of employees Due in the second year 67 84 84 45 70 57 and pensioners (retired employees); Due in the third year 45 15 72 30 14 61 • payments upon death of relatives Due in the fourth year 40 4 11 32 3 10 of employees and pensioners (retired Due in the fifth year and further 24 – 2 22 – 1 employees); Defined benefit plans expose the 324 198 284 233 150 200 Group to such actuarial risks as Less: future finance charges (91) (48) (84) N/A N/A N/A interest rate risk, longevity risk and Present value of lease payroll risk. 233 150 200 233 150 200 obligations The actuarial valuation of the Group’s defined benefit obligations as at 31 December 2015, 2014 and 2013 Total current portion of obligations under financial 104 63 71 was performed by an independent leases actuary. Revaluation of defined benefit obligation (asset) is recognised in other Total non-current portion of comprehensive income but not in profit obligations under financial 129 87 129 or loss. leases

The Group leases property, plant and equipment under a number of finance lease agreements. The average lease term is 50 months. All leases are on a fixed repayment basis. 136 Dreams of flying / annual report 2015 137

31. Retirement benefit liabilities (continued) 31. Retirement benefit liabilities (continued)

Amounts recognised in profit or loss in respect of defined benefit plan are presented as follows: Changes in the fair value of the defined benefit plan assets are presented below:

Year ended Year ended Year ended Year ended Year ended Year ended 31 December 2015 31 December 2014 31 December 2013 31 December 31 December 31 December 2015 2014 2013

Net interest expense on

defined benefit plan P ost-employment benefits O ther long-term employee benefits T otal P ost-employment benefits O ther long-term employee benefits T otal P ost-employment benefits O ther long-term employee benefits T otal

Current service cost 38 29 67 94 22 116 35 20 55 P ost-employment benefits O ther long-term employee benefits T otal P ost-employment benefits O ther long-term employee benefits T otal P ost-employment benefits O ther long-term employee benefits T otal Net interest under net At 1 January – – – – – – – – – obligation (asset) under 146 16 162 128 10 138 46 2 48 Interest income – – – – – – – – – defined benefit plan Employer contributions 158 12 170 112 22 134 43 35 78 Revaluation of net obligation Payments made (158) (12) (170) (112) (22) (134) (43) (35) (78) (asset) under defined benefit – 3 3 – (5) (5) – 101 101 plan Revaluation of net obligation (asset) under defined benefit – – – – – – – – – Recognised past service – – – 751 – 751 107 – 107 plan costs At 31 December – – – – – – – – – Other actuarial adjustments – – – – – – 76 – 76 Net interest expense on defined benefit 184 48 232 973 27 1,000 264 123 387 The effect of IAS 19 on the consolidated statement of financial position is presented below: plan Net obligations at 1 January (1,275) (141) (1,416) (897) (136) (1,033) (621) (48) (669) Net expense through profit (184) (48) (232) (973) (27) (1,000) (264) (123) (387) Changes in the present value of the defined benefit plan obligations are presented below or loss At 1 January 1,275 141 1,416 897 136 1,033 621 48 669 Revaluation of net obligation (asset) under defined benefit (308) - (308) 481 – 481 (55) – (55) Current service cost 38 29 67 94 22 116 35 20 55 plan Interest cost 146 16 162 128 10 138 46 2 48 Employer contributions 158 12 170 112 22 134 43 35 78 Past service cost – 3 3 751 3 754 107 – 107 Net obligations at 31 (1,609) (177) (1,786) (1,277) (141) (1,418) (897) (136) (1,033) Actuarial (gains)/losses December arising from changes in (76)) – (76) (5) (5) (10) 83 (4) 79 demographic assumptions Actuarial (gains)/losses arising from changes in 326 15 341 (454) (27) (481) (138) (14) (152) finance assumptions Experience adjustments 58 (15) 43 (22) 24 2 110 119 229 Other actuarial adjustments – – – – – – 76 – 76 Payments made (158)) (12) (170) (112) (22) (134) (43) (35) (78) At 31 December 1,609 177 1,786 1,277 141 1,418 897 136 1,033 138 Dreams of flying / annual report 2015 139

31. Retirement benefit liabilities (continued) 32. Provision

Key actuarial assumptions used to measure the obligations are presented below: Warranty provision Litigations Прочие Итого Year ended Year ended Year ended At 1 January 2013 and claims Other Total 969 31 December 31 December 31 December 2015 2014 2013 Increase in provision 913 – – 913 Discount rate 9.60% 12.00% 8.00% Provision utilised (860) (117) – (977) At 31 December 2013 905 – – 905 Wage growth rate 6.00% 7.00% 7.00% Inflation / Expected post-retirement benefits Increase in provision 896 433 2 1,331 7.50% 8.50% 5.50% increase Provision utilised (694) – – (694) 2013 RF mortality table 2011 RF mortality table 2011 RF mortality table At 31 December 2014 1,107 433 2 1,542 Mortality adjusted for 80% adjusted for 80% adjusted for 80% Increase in provision 279 13 2,027 2,319 Provision utilised (649) (97) – (746) Sensitivity analysis The table below presents the effect At 31 December 2015 737 349 2,029 3,115 Calculation of defined benefit plan of changes in respective actuarial obligations is sensitive to significant assumptions on the defined benefit plan actuarial assumptions. obligations as at the specified date: The amounts of short-term and long-term provisions, as presented in the consolidated statement of financial position, are as follows: -1% +1% At 31 December At 31 December At 31 December Discount rate 82 (76) 2015 2014 2013 Wage growth rate (27) 29 Long-term provisions 515 458 378 Inflation / expected post-retirement benefits increase (52) 57 Short-term provisions 2,600 1,084 527 Employee turnover rate 37 (34) 3,115 1,542 905

Year ended Year ended Year ended 31 December 2015 31 December 2014 31 December 2013 33. Advances received Other Other Other Post-em- long- Post-em- long- Post-em- long- At 31 December At 31 December At 31 December ployment term Total ployment term Total ployment term Total 2015 2014 2013 benefits employee benefits employee benefits employee Non-financial liabilities benefits benefits benefits Advances received 48,013 25,292 12,330 Funding Total long-term and short-term non- 48,013 25,292 12,330 Group entities operate financial liabilities unfunded defined benefit plans for qualifying employees Financial liabilities Group intends to make a Advances received from Oboronprom in relation to contribution to the defined 266 29 295 100 25 125 61 18 79 future contribution to share capital of the Group’s 112 960 1,331 benefit subsidiaries Average weighted term Total financial liabilities 112 960 1,331 of defined benefit plan 10 8 17 8 7 15 11 8 19 obligations at the reporting Total long-term and short-term advances 48,125 26,252 13,661 date was the following: received 140 Dreams of flying / annual report 2015 141

34. Other payables 35. Fair value of financial instruments (continued)

At 31 December At 31 December At 31 December At 31 December 2015 At 31 December 2014 At 31 December 2013 2015 2014 2013 Carrying Fair Carrying Fair Carrying Fair Payroll payable 2,409 2,274 1,921 value value value value value value Unused vacation accrual 1,814 1,610 1,488 Financial assets Dividends payable 3,690 48 43 Cash and cash equivalents 65,746 65,746 31,764 31,764 16,024 16,024 Short-term trade Other payables 13,677 9,230 6,995 22,789 22,789 18,091 18,091 19,383 19,383 receivables Total other payables 21,590 13,162 10,447 Long-term trade 3,437 3,437 741 741 318 318 receivables Other receivables 6,261 6,261 5,532 5,532 2,810 2,810 35. Fair value of financial instruments Bank deposits 26 26 167 167 166 166 Available-for-sale 811 811 806 806 808 808 securities The estimated fair values of certain values due to the short-term nature of Loans issued 653 653 856 856 552 552 financial instruments have been these instruments. The fair values of Other financial assets 92 92 4 4 53 53 determined using valuation technique long-term financial assets, which include 99,815 99,815 57,961 57,961 40,114 40,114 based on available market information loans receivable and bank deposits, or other valuation methodologies that are estimated in the context of the require considerable judgement in significance of outstanding balances at interpreting market data and developing the reporting date. The carrying and fair values of the Group’s financial assets and liabilities are stated below (continued): estimates. Accordingly, the estimates The carrying and fair values of the applied are not necessarily indicative of Group’s financial assets and liabilities the amounts that the Group could realise are stated below: At 31 December 2015 At 31 December 2014 At 31 December 2013 in a current market conditions. The use Carrying Fair Carrying Fair Carrying Fair of different assumptions and estimation value value value value value value methodologies may have a material Financial liabilities impact on the estimated fair values. Loans and borrowings 120,546 118,782 96,215 92,355 82,118 79,536 Obligations under finance The estimated fair values of short- 233 233 150 150 200 200 leases term financial assets and liabilities, which include cash and cash equivalents, Trade payables 7,421 7,421 5,294 5,294 4,358 4,358 trade receivables, loans receivable, bank Other payables 13,677 13,677 9,230 9,230 6,995 6,995 deposits, short-term borrowings, trade 141,877 140,113 110,889 107,029 93,671 91,089 payables, approximated their carrying 142 Dreams of flying / annual report 2015 143

36. Capital management 37. Related parties

The management of the Group reviews Net debt is determined as total Related parties include parent of Financial guarantees and the capital structure on a regular loans and borrowings (Note 29) the Company and key management secured loans basis. Based on the results of this and obligations under finance personnel, entities over which Group’s As at 31 December 2015, 2014 review, the Group takes steps to leases (Note 30) less cash and cash key management personnel exercises and 2013, the related parties ( balance its overall capital structure equivalents (Note 26), as shown in the significant influence and entities under «Oboronprom», Ministry of Finance and through the payment of dividends, new consolidated statement of financial common ownership and control of the certain banks) provided guarantees in share issuances and share buy-backs position. Government of the Russian Federation. the amount of RUB 63,295 million, RUB as well the issuance of new debt or the In the ordinary course of their 65,595 million and RUB 57,847 million, redemption of existing debt. business, the Group’s entities enter respectively, for certain bank loans of The management of the Group is into various sale, purchase and service the Group’s entities. monitoring capital on the basis of the transactions with related parties. The Group had the following significant gearing ratio, and to ensure that the These transactions are primarily with transactions and balances with the ratio is not more than 3.0. This ratio is state bodies of the Russian Federation Government of the Russian Federation, calculated as net debt divided by equity or other Government controlled parties under control of the attributable to the shareholders. entities. These transactions are Government of the Russian Federation effected on terms that are not always and other related parties (as defined applicable to third party transactions. below). At 31 December At 31 December At 31 December The Group has received loans from and 2015 2014 2013 made deposits with related parties, Loans and borrowings 120,546 96,215 82,118 the terms of which are disclosed in the Obligations under finance leases 233 150 200 related notes to these consolidated financial statements. Less: cash and cash equivalents (65,746) (31,764) (16,024) Net debt 55,033 64,601 66,294 Equity attributable to the shareholder of the Company 94,496 58,592 39,628 Accounts receivable Advances paid Cash and deposits Other investments Gearing ratio 0.58 1.10 1.67

A t A t A t A t A t A t A t A t A t A t A t A t 2015 2014 2013 2015 2014 2013 2015 2014 2013 2015 2014 2013 The adjusted EBITDA is calculated as defined in Note 5 Segment information. 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember

Group 1 19,324 13,143 18,204 22,314 18,128 17,690 59,741 23,487 6,944 363 572 591 At 31 December At 31 December At 31 December Group 2 351 344 467 48 100 161 2,860 4,441 2,618 29 414 125 2015 2014 2013 Total 19,675 13,487 18,671 22,362 18,228 17,851 62,601 27,928 9,562 392 986 716 Adjusted EBITDA 65,606 47,014 26,304

Net debt 55,033 64,601 66,294 Group 1 consists of the Government of the Russian Federation and other entities under common control of the Government of the Russian Federation. Group 2 consists of other associates entities over which the Group’s management exercises significant influence. Net debt / Adjusted EBITDA 0.84 1.37 2.52 144 Dreams of flying / annual report 2015 145

37. Related parties (continued) 38. Risk management activities

Loans and borrowings, Advances received, The main risks inherent to the Group’s less than one year at 31 December 2015 financial liabilities and Accounts payable including State operations are those related to liquidity (2014: 42%; 2013: 38%) based on the obligations under finance Armament Program risk, credit risk, currency risk and carrying value of borrowings reflected in lease interest rate risk. A description of the the financial statements. Group’s risks and management policies Presented below is the maturity in relation to these risks follows. profile of the Group’s loans and

borrowings (maturity profiles for A t A t A t A t A t A t A t A t A t 2015 2014 2013 2015 2014 2013 2015 2014 2013 Liquidity risk obligations under finance leases Liquidity risk is the risk that the are presented in Note 30) based on 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember Group 1 consists of the Government of the Russian Federation and other entities under common control of the Government of the Russian Federation. Group will not be able to settle all contractual undiscounted cash flows, Group 2 consists of other associates entities over which the Group’s management exercises significant influence. Group 1 18,379 9,329 8,699 20,206 17,663 14,491 89,451 64,460 62,661 liabilities as they fall due. The Group’s including interest, based on the liquidity position is carefully monitored earliest date on which the Group may Group 2 29 46 92 2 508 4 – – 18 and managed. The Group manages be required to pay. To the extent that Total 18,408 9,375 8,791 20,208 18,171 14,495 89,451 64,460 62,679 liquidity risk by maintaining adequate interest is based on a floating rate, the cash reserves, by continuously undiscounted amount is derived from monitoring forecasted and actual interest rate at the reporting date. As at 31 December 2015, 2014 and 2013, recognised during the reporting period cash flows and matching the maturity The maturity profiles of loans and the Group recognised an impairment for bad debt or doubtful debts due from profiles of financial assets and borrowings, as well as Group’s trade allowance on accounts receivable from related parties equals to RUB 852 million liabilities. The Group prepares a twelve payables are presented as follows: related parties in the amounts of RUB (2014: RUB 98 million; 2013: RUB 29 months financial plan to determine 1 125 million, RUB 273 million and 175 million). whether the Group has sufficient cash million, respectively. The expense/(gain) to meet expected operational expenses, financial obligations and investing activities as they arise. Sales of goods and Purchases of goods and The Group monitors its risk to a Finance costs Interest income services services shortage of funds using a recurring liquidity planning tool. The Group’s objective is to maintain a balance between continuity of funding and 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 flexibility through the use of bank Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended Y ear ended overdrafts, bank loans, debentures, 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember 31 D ecember preference shares and finance leases. Group 1 56,427 58,661 57,176 43,981 34,572 31,054 5,595 5,029 3,280 998 488 465 48% of the Group’s debt will mature in Group 2 146 192 80 386 635 327 4 – 2 4 35 22 Total 56,573 58,853 57,256 44,367 35,207 31,381 5,599 5,029 3,282 1,002 523 487 Due in Group 1 consists of the Government of the Russian Federation and other entities under common control of the Government of the Russian Federation. Three to Group 2 consists of other associates entities over which the Group’s management exercises significant influence. One to three Second to Total Past due One month twelve Thereafter months fifth years months

Remuneration of the Group’s key departments and Members of the At 31 December 2015 key management personnel Board of Directors of the Company) Principal 119,914 – 2,452 8,374 51,407 54,217 3,464 During the years ended 31 December received compensation of RUB 292 Interest 21,596 – 847 1,566 1,374 12,586 5,223 2015, 2014 and 2013, key management million, RUB 367 million and RUB 176 Trade payables 7,421 – 1,007 1,818 4,392 204 – personnel of the Group (who are million, respectively. Key management considered to be the General Director, personnel received only short-term 149,563 – 4,938 11,758 57,173 67,007 8,687 Deputy General Directors, Directors of employee benefits. 146 Dreams of flying / annual report 2015 147

38. Risk management activities (continued) 38. Risk management activities (continued)

Due in As at 31 December 2015, 2014 and 2013, the Group five largest customers represented 84%, 84% and 85% of the total balance Three to of trade receivables, respectively, and is presented as follows: One to three Second to Total Past due One month twelve Thereafter months fifth years months At 31 December At 31 December At 31 December Name of counterparty 2015 2014 2013 At 31 December 2014 State customers 13,521 10,613 9,795 Principal 95,652 – 50 10,152 30,117 50,368 4,965 Foreign customer (through an Agent) 3,357 2,421 5,509 Interest 15,793 – 607 1,146 4,301 8,029 1,710 AO OPK Oboronprom 1,711 1,859 305 Trade payables 5,294 307 1,030 1,549 2,408 – – DP Aero-Kamov LLC 400 578 867 116,739 307 1,687 12,847 36,826 58,397 6,675 AVIC International Holding Coproration 120 648 357 At 31 December 2013 19,109 16,119 16,833 Principal 81,536 – 18 833 30,262 45,070 5,353 Interest 18,802 – 562 1,062 4,586 10,323 2 269 Trade payables 4,358 260 826 1,225 1,820 227 – The maximum exposure to credit risk arising from the Group’s financial assets is presented as follows: 104,696 260 1,406 3,120 36,668 55,620 7,622 At 31 December At 31 December At 31 December At 31 December 2015, 2014 and 2013, the Group did not have any issued financial guarantees. 2015 2014 2013 Cash 65,746 31,764 16,024 Trade and other receivables 32,487 24,364 22,511 Credit risk are entered into by the Group’s Deposits 26 167 166 Credit risk is the risk that a customer companies on a prepayment basis, may default or not meet its obligations except for certain of its agreements Loans issued 653 856 552 to the Group on a timely basis, leading with the Ministry of Defence of the Other financial assets 92 4 53 to financial losses of the Group. A Russian Federation. Total 99,004 57,155 39,306 majority of the Group’s relationships No interest is charged on trade with counterparties have been ongoing receivables. An allowance for trade for many years and in many cases receivables is established based on the counterparties are Government the estimated irrecoverable amounts Foreign currency risk mitigated for the Group by the situation controlled entities of the Russian from the sale of goods, determined by Foreign currency risk is the risk that where approximately 71% of total sales Federation or other countries. As reference to past default experience, the financial results of the Group will of the Group are denominated in foreign such, the Group has not historically but generally the Group has fully be adversely impacted by changes in currencies that reduce negative impact performed a formal credit rating provided for all trade receivables exchange rates to which the Group of changes in exchange rates for the analysis. over 365 days, unless they relate to a is exposed. The Group undertakes Group foreign currencies borrowings Additionally, a majority of the Group’s contract whereby the agreement allows transactions denominated in foreign and purchases, denominated mostly export sales are overseen through the payment later than this point. currencies and consequently is exposed in USD. The Group does not currently Group’s related party, Rosoboronexport to foreign currency risk. The Group use derivative instruments to manage (Agent), a monopoly agent, controlled by does not have formal arrangements exchange rate exposures. the Government of Russian Federation to mitigate foreign currency risk. specifically for the oversight of export Purchases in foreign currency account sales of military and related products. for less than 10% of total purchases. The Group does not typically establish The management of the Group believes credit limits as majority of the contracts that the foreign currency risk is partly 148 Dreams of flying / annual report 2015 149

38. Risk management activities (continued) 39. Commitment and contingencies

The carrying amounts of the Group’s monetary assets and liabilities denominated in currencies other than its functional Contractual commitment regulatory frameworks as required by currency were as follows: In the course of carrying out its a market economy. The future stability operations and other activities, the of the Russian economy is largely At 31 December 2015 At 31 December 2014 At 31 December 2013 Group enters into various agreements dependent upon these reforms and USD Euro USD Euro USD Euro which require the Group to invest developments and the effectiveness in or provide financing to specific Assets of economic, financial and monetary projects. In the opinion of the Group’s measures undertaken by the Cash and cash equivalents 38,059 2,645 13,439 3,182 3,206 173 management, these commitments are government. Other financial assets – – – – – – entered into under standard terms, The Russian economy is vulnerable Trade and other receivables 19,616 898 12,063 2,062 17,814 717 which are representative of each to market downturns and economic project’s feasibility and should not result slowdowns elsewhere in the world. The Total assets 57,675 3,543 25,502 5,244 21,020 890 in unreasonable losses for the Group. global financial crisis has resulted in Liabilities uncertainty regarding further economic Trade and other payables (13,130) (627) (7,114) (600) (5,243) (623) Capital commitments growth, availability of financing and Obligations under finance The Group’s capital commitments cost of capital, which could negatively – – – – – (67) leases including both contractual affect the Group’s future financial Loans and borrowings (53,243) (2,507) (32,489) (1,609) (17,935) (1,446) commitments and future capital position, results of operations and expenditures provided in the annual business prospects. Management Total liabilities (66,373) (3,134) (39,603) (2,209) (23,178) (2,136) budget for the year ending 31 believes it is taking appropriate Total net (liability)/ (8,698) 409 (14,101) 3,035 (2,158) (1,246) December 2016 amount to RUB measures to support the sustainability asset position 14,150 million for property, plant and of the Group’s business in the current equipment and RUB 3,698 million for circumstances. development costs. The table below details the Group’s measure in the current market Operating environment sensitivity to a devaluation of the RUB conditions and which would impact its Social commitments (continued) against USD and Euro by 10%, which operations The Group contributes to the In 2014, economic sanctions foreign management believes is an appropriate maintenance and upkeep of the local states and reciprocal steps taken by infrastructure and the welfare of its the Russian side led to the fact that employees. This includes making the import substitution strategy has USD-impact Euro-impact contributions to the development and become a priority for the Russian 31 December 31 December 31 December 31 December 31 December 31 December maintenance of housing, hospitals, government. The Group is actively 2015 2014 2013 2015 2014 2013 transport services, recreation and cooperating with the Government (Loss)/profit, net other social needs in the geographical Commission on import substitution, (870) (1 410) (216) 41 304 (125) of tax areas in which the Group operates. formed by RF Government Decree from 4 August 2015 number 785. Litigation In April 2014 in the framework In case of an appreciation of RUB against The Group manages this risk through The Group has a number of claims announced by the government USD and Euro, results of the sensitivity analysis of current interest rates, and litigations relating to sale and policy of import substitution Cabinet analysis will be opposite to those performed by the Group’s treasury purchases of goods and services. approved a new version of Russian presented above. function. If there are significant changes Management believes that none state program «The development in market interest rates management of these claims, individually or in of industry and increasing its Interest rate risk may consider refinancing of a particular aggregate, will have a material adverse competitiveness «. One of the main Interest rate risk is the risk that changes financial instrument on more favourable impact on the Group. tasks of the state program, which in floating interest rates will adversely terms. runs until 2020, announced decline impact the financial results of the Group. Operating environment in the share of import products, Russia continues economic reforms including those used by domestic and development of its legal, tax and producers in our country. 150 Dreams of flying / annual report 2015 151

39. Commitment and contingencies (continued) 40. Partially owned subsidiaries with significant non-controlling interest (continued) These consolidated financial years immediately preceding the year statements reflect management’s in which the decision to conduct a AO Stupino AO Kumertau assessment of the Group on the impact tax review is taken. Under certain AO MIL Moscow Machine PAO Rostvertol Aviation Production the business environment in the circumstances, the tax authorities Helicopter Plant Production Plant Enterprise Russian Federation on the operations may review earlier accounting periods. and the financial position of the Group. All group entities apply similar tax The future business environment may accounting principles. 31 31 31 31 31 31 31 31

differ from management’s assessment Management believes that its 2015 2014 2015 2014 2015 2014 2015 2014

at this time. interpretation of the tax laws and the D ecember D ecember D ecember D ecember D ecember D ecember D ecember D ecember principles of industry practice and the Attributable to: Tax contingencies in the Group’s tax positions will be preserved. Russian Federation All Group companies consistently use The shareholders of the Group 2,018 1,336 2,411 1,162 23,447 13,353 (5,046) (6,380) Major part of the Group’s business uniform tax accounting. Non-controlling interests 461 465 ,1,070 743 8,270 3,190 – (647) activity is carried out in the Russian Revenue 7,592 7,973 3,790 3,483 78,313 50,819 7,160 4,875 Federation. Russian tax legislation Insurance expenses Profit for the period 427 474 688 519 15,268 5,605 1,985 (4,208) as currently in effect is vaguely The Group’s entities do not have drafted and is subject to varying full coverage for property damage, Other comprehensive income (79) 77 (5) 6 (25) 36 8 22 interpretations, selective and business interruption and third party Total comprehensive income 348 551 683 525 15,243 5,641 1,993 (4,186) inconsistent application and changes, liabilities. Losses from business Attributable to non-controlling 109 117 209 202 3,987 1,035 – (389) which can occur frequently, at short interruption and third party liabilities interests notice and may apply retrospectively. could have a material adverse effect on Net cash flows from / (used in): Fiscal periods remain open and subject the Group’s operations and financial - operating activities 1,049 652 653 521 3,558 (9,182) 4,248 296 to review for a period of three calendar position. - investing activities (678) (217) (1,204) (69) (4,306) (3,587) (94) – - financing activities 1,029 391 845 (416) 5,582 15,460 (4,371) 410 Net increase/(decrease) in 1,400 826 294 36 4,834 2,691 (217) 706 40. Partially owned subsidiaries with cash and cash equivalents significant non-controlling interest The above subsidiaries are registered financial position, capital structure, Consolidated financial information for each of the Group’s subsidiaries that have non-controlling interests that in the Russian Federation, which is administration and so on to the official are material to the Group (before elimination of intra-group transactions) is stated below: the principal place of their business. website of «Center for Corporate They disclose information about the Information Disclosure Interfax».

AO Stupino AO Kumertau AO MIL Moscow Machine PAO Rostvertol Aviation Production Helicopter Plant Production Plant Enterprise 41. Events subsequent to the reporting date 31 31 31 31 31 31 31 31 2015 2014 2015 2014 2015 2014 2015 2014

D ecember D ecember D ecember D ecember D ecember D ecember D ecember D ecember State Program construction Borrowings Non-current assets 16,756 15,127 1,747 766 13,947 13,575 1,761 1,961 contracts Up to the date of approval of these After the end of the reporting period consolidated financial statements, the Current assets 8,964 5,771 2,619 1,953 85,892 45,008 13,413 10,824 the Group repaid the debt of RUB Group obtained bank loans in the total 25,720 20,898 ,4,366 2,719 99,839 58,583 15,174 12,785 27,689 million under the credit line amount of RUB 18,438 million and Non-current liabilities 1,745 2,178 34 63 30,100 22,414 1,645 12,857 facilities secured by the Ministry of repaid RUB 25,309 million. Current liabilities 21,496 16,919 851 751 38,022 19,626 18,575 6,955 Finance of the Russian Federation. 23,241 19,097 885 814 68,122 42,040 20,220 19,812 Total equity 2,479 1,801 3,481 1,905 31,717 16,543 (5,046) (7,027) 152 Dreams of flying / annual report 2015 153

41. Events subsequent to the reporting date (continued) 41. Events subsequent to the reporting date (continued)

31 December 2015 31 December 2015 31 December 2015 31 December 2015 Interest rate until issuance date Interest rate until issuance date Rate, % Balance Received Paid Balance Rate, % Balance Received Paid Balance Secured bank loans, including: Unsecured loans and borrowings, including: RUB-denominated RUB-denominated PAO Sberbank of Russia Fixed 9.75-14.75 5,910 707 387 6,230 PAO Sberbank of Russia Fixed 9.75–15.5 16,551 1,767 3,270 15,048 PAO Sberbank of Russia Various 10.5-13.3 1,182 – – 1,182 PAO Bank VTB Fixed 11.5–14 11,095 396 150 11,341 Vnesheconombank Fixed 12.10 680 – 680 – AO Alfa Bank Fixed 10.7–11.5 174 – – 174 Vnesheconombank Various 10.50 2,064 – 2,064 – AO Gazprombank Fixed 11.80 2,376 – – 2,376 AO Alfa Bank Fixed 9.70 357 – – 357 AO Bank VBRR Various 12.29 927 685 – 1,612 AO Gazprombank Fixed 13.25 105 145 – 250 PAO Bank VTB Fixed 12.79 1,120 91 3 1,208 Long-term bonds Fixed 8.25–8.75 4,869 10,000 – 14,869 AO AKB Novikombank Fixed 14.50 995 – – 995 Short-term bonds Fixed 8.25–8.75 15,000 – – 15,000 AO AKB Ural FD Fixed 11 200 – – 200 AO AB Rossia Fixed 12.5-12.8 524 255 181 598 USD-denominated AO AKB Perm Fixed 11.40 35 – – 35 PAO Bank VTB Fixed 7.50–7.80 1,445 – 1,445 – Secured bank loans, including: PAO Sberbank of Russia Fixed 4.40–5.60 2,551 – 751 1,800 USD-denominated PAO Rosbank Fixed 4.25 1,564 – 1,564 – Euro-denominated – PAO Bank VTB Fixed 4.50–5.0 22,911 2,878 6,368 19,421 OOO VO Stankoimport Various 1–1.75 100 – 99 1 PAO Sberbank of Russia Fixed 4.08–7.50 18,552 1,439 7,727 12,264 PAO Bank VTB Fixed 4.05 707 – 561 146 PAO Promsvayzbank Fixed 4.9 6,221 22 – 6,243 PAO Sberbank of Russia Fixed 2.8 558 – 22 536 Euro-denominated Total 119,914 18,438 25,309 113,043 PAO Sberbank Various of Russia PAO Sberbank of Russia Fixed 5 5 – 5 – AO Gazprombank Fixed 1.47–7.50 160 13 32 141 АО «Газпромбанк» Фиксир. 7.25 976 40 – 1,016 These consolidated financial statements were approved by management on 19 April 2016

A.A. Mikheev S.S. Zheltikov General Director Director on Finance and Economy 154 Dreams of flying / annual report 2015

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