% % 15JSC «UAC»’s share of the global military aircraft 20civil aircraft share in JSC «UAC»’s market during the last 3 years revenue in 2012
SPECIAL AIRCRAFT
3 MILITARY AIRCRAFT
% p.a. 18compound annual growth rate 171 of JSC “UAC”’s revenue during the last 5 years RUB bln JSC “UAC”’s revenue in 2012 6 >600 years aircraft capacity utilization for the current backlog of JSC “UAC” 2 71 18 Corporation’s backlog ANNUAL REPORT
Joint Stock Company «United Aircraft Corporation» (hereinafter JSC «UAC», or the Corporation) CIVIL was established according to the presidential decree No. 140 of February 20, 2006 through AIRCRAFT the contribution of the state-owned shares of almost all Russian aircraft plants and design bureaus, as well as contributions from private shareholders. TRANSPORT AIRCRAFT The Corporation comprises all the known brands of Russian aircraft industry (Sukhoi, MiG, Ilyushin,Tupolev, Yak, Myasishchev and Beriev). The priorities of JSC «UAC» are design, development, construction, sales, operation maintenance, warranty, service, modernization, overhaul and utilization of civil and military aircraft equipment. Russian Federation through the Federal Agency for State Property Management owns 84.33% of JSC «UAC» stock and Vnesheconombank owns 9.11% of stock. The state will remain the major shareholder of JSC «UAC» for a considerable time in the future: according to the state privatization program, privatization of JSC «UAC» will be realized no later than in 2024. At the same time Russian Federation will retain its stake of 50% plus one share of the Corporation’s stock after 2024. DELIVERIES OF AIRCRAFT TO STRUCTURE OF JSC “UAC” INVESTMENTS AND RETURN ON DISCLAIMER CUSTOMERS, UNITS AIRCRAFT DELIVERIES BY INVESTMENTS This Annual Report of JSC “UAC” (hereinafter the “Annual SEGMENTS IN 2012 Report”) is not an offer or invitation to make an offer (advertisement) in relation to purchase of, or subscription to securities of JSC “UAC” (hereinafter – Corporation). 2011 2012 Neither the Annual Report, nor any of its part, nor the fact of its presentation or distribution serves as a basis for - - - - - entering into any contract or taking an investment 53 95 74 102 94 ------decision, so the Annual Report should not be relied on in - - - - - 18,43618,43611,18611,18612,41812,41815,13315,13327,55627,556 this respect. JSC “UAC” does not bear responsibility for 53 95 74 102 94 3 2 4 2 4 3 3 4 2 the consequences of use of the opinions contained herein ------7- - 0 3 1 3 2 0.9 or in statement, or incompleteness of the information. 2 - 4 - 2 - 4 - 3 - 18 0.9 ------1.3-1.3 Forward-looking statements 06 3 5 1 6 3 7 218 ------Сash Сash flows flows utilized utilized This Annual Report includes statements that are, or may 45 83 65 88 71 -6.2 -6.2 -7.3 6 5 6 7 18 Special aircraft -9.5-7.3 by investing by investing activities, activities, mln mln RUB RUB be deemed to be, “forward-looking statements”. These - - - - - Units Units -9.5 45 83 65 88 71 Transport aircraft forward-looking statements can be identified by the fact Special aircraft that they do not only relate to historical or current events. Civil aircraft ROIC (return on invested capital) Transport aircraft ROIC (return on invested capital) Forward-looking statements often use words such Military aircraft Civil aircraft 71 as “intend”, “anticipate”, “target”, “expect”, “estimate”, 88 Military aircraft “expected”, “plan”, “goal”, “believe”, or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond Corporate’s control. As a result, actual future results may 2008 2009 2010 201 1Military aircraft2012 differ materially from the plans, goals and expectations set 20082008 20092009 20102010 20112011 20122012 out in these forward-looking statements. Any forward- 2008 2009 2010 2011 Civil aircraft2012 - - - - - looking statements made by or on behalf of JSC “UAC” (1,217) (10,252) (1,637) 14,987 4,483 Transport aircraft speak only as at the date of this announcement. Save as required by any applicable laws or regulations, JSC “UAC” Special aircraft 9.3 undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in -1.4 -1.2 this document that may occur due to any change in its -10.4 2.6 expectations or to reflect events or circumstances after REVENUE, MLN RUB REVENUE STRUCTURE BY SEGMENTS EBITDA MARGIN the date of this document. IN 2012 Information obtained from third parties Besides the official information on the activity of JSC “UAC”, 2011 2012 this Annual Report contains information obtained from third parties. This information has been received from sources which, in the opinion of JSC “UAC”, are reliable. Nevertheless, we do not guarantee accuracy of this ------2008 2009 2010 2011 2012 87,465 98,572 140,682 161,653 171,019 (1,217) (10,252) (1,637) 14,987 4,483 information which can be shortened or incomplete. 2 6 Using management accounting and reporting 9 20 9.3 The information contained in this Annual Report is based Military aircraft also on the Corporation’s management accounting and -1.4 Civil aircraft -1.2 reporting, so it may deviate from the rules and principles -10.4 2.6 that apply under IFRS. The Corporation believes that % % Other business segments these management accounting and reporting indicators EBITDA, mln RUB may provide investors with additional information about the current business of the Corporation. The indicators EBITDA margin, % 85 78 of management accounting and reporting should not be 2011 2012 considered without or as replacement of relevant norms and principles of IFRS. In addition, other companies in the industry may keep a record of these indicators in other 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 ways. The Corporation encourages investors to review all financial statements of JSC «UAC» in their entirety and not 6 2 to rely on any single financial figure in this Annual Report. 9 20 Military aircraft Civil aircraft
Other business segments % % EBITDA, mln RUB EBITDA margin, % 85 78
Source: JSC “UAC” TABLE OF CONTENTS
LETTERS TO SHAREHOLDERS, OPERATING RESULTS FOR 2012 FINANCIAL RESULTS COMPANY PROFILE AND BUSINESS MODEL FOR 2012
LETTER FROM THE CHAIRMAN BUSINESS MODEL: stages OVERVIEW OF CONSOLIDATED OF THE BOARD of AIRCRAFT DESIGNING 21 FINANCIAL RESULTS 35 OF DIRECTORS 2 AFTER-SALE MAINTENANCE REVENUE 36 SUPPORT FOR SSJ 100 23 LETTER FROM COST OF SALES 38 THE PRESIDENT, CHAIRMAN OVERVIEW OF OF THE EXECUTIVE BOARD 4 OPERATING RESULTS 24 PROFIT AND PROFIT MARGIN 40 OVERVIEW 6 BETTER INTERACTION INVESTMENTS IN 2012 42 MAP OF KEY ASSETS OF WITH SUPPLIERS 29 JSC “UAC” 8 INTERNATIONAL TARGET BUSINESS STRUCTURE OF OPERATIONS 29 JSC “UAC” 9 PRODUCT PORTFOLIO 10
OPERATIONS ON DEBT AND EQUITY THE AIRCRAFT MARKET: CURRENT DEVELOPMENT CAPITAL MARKETS CONDITIONS AND OUTLOOK STRATEGY
DEBT POLICY 45 POSITION IN THE INDUSTRY 53 BASIC STRATEGIC PRINCIPLES 59 STRUCTURE OF SHARE OVERVIEW OF KEY MARKETS 54 PRIORITY PROJECTS 61 CAPITAL, SHARE ISSUES 47 INVESTMENTS 62 COMMENTS ON THE TECHNICAL INTERRUPTION OF CORPORATION’s SHARES TRADING 48 INVESTOR RELATIONS AND GOVERNMENT RELATIONS 49
CORPORATE SUSTAINABLE DEVELOPMENT GOVERNANCE
CORPORATE GOVERNANCE 67 CORPORATE MANAGEMENT AND CONTROL BODIES STRUCTURE 68 SOCIAL RESPONSIBILITY 93 GENERAL MEETING OF SHAREHOLDERS 69 HR POLICY 94 BOARD OF DIRECTORS 69 CONSOLIDATEDе HR INDICATORs PRESIDENT AND EXECUTIVE BOARD 80 FOR 2008-2012 95 REMUNERATION TO MEMBERS OF HEALTH AND SAFETY 101 BOARD OF DIRECTORS AND EXECUTIVE BOARD FOR 2012 83 AUDIT AND CONTROL 83 RISK MANAGEMENT 85 SHAREHOLDINGS OF JSC “UAC” IN MAIN SUBSIDIARIES AND ASSOCIATES 88 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 107 LETTERS TO L etter from Letter from the Chairman the President, Chairman SHAREHOLDERS of the Board of Directors of the Executive Board
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LETTER FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
Dear Shareholders and Investors,
The results of JSC “UAC” for 2012 confirm ability of Il-76MD-90A aircraft signed last year represents a major step of the Corporation to carry out the strategic tasks set towards the revival of transport aircraft production in Russia. by the Board of Directors for the period up to 2025. These tasks are as follows: Also JSC “UAC” continued to make investments in the development and mass production of innovative products, as • to make JSC “UAC” the third largest player in the global well as taking steps to reduce its weighted-average cost of capital, aircraft market; to achieve a break-even point and positive free cash flow. • to increase the share of revenue from sales of civil aircraft segment to at least 40% of Corporation’s total proceeds; The Corporation is committed to continue work for increasing • to achieve net profit margin of at least 10% and to increase volumes of military equipment production, both for supply productivity by 7.3 times by the year 2025. to the Russian Ministry of Defense and for export, although according to Corporation’s plans production of civil and The Corporation have achieved 100% fulfillment of the Russian transport aircraft should grow at an even faster rate. state defense order for 2012 and doubled deliveries to the Russian Ministry of Defense compared to 2011. JSC “UAC” has set itself the strategic goal of returning Russian aircraft industry to the position it occupied in the 1970s and At the same time Corporation’s deliveries of civil aircraft grew 1980s as a global leader in the civil and transport aircraft by 2.5 times in comparison with 2011. As a result 17 units market. At the same time Corporation should remain a top of SSJ 100 were in commercial operation around the world global supplier of military aircraft. We have already done by the end of 2012. The creation of an international network much to achieve our objectives. During the first five years of spare-part warehouses for SSJ 100 operators is particularly since creation of the Corporation, from 2006 to 2011, JSC significant event, since it represents the first initiative of its kind “UAC” integrated Russian aircraft manufacturing companies, by Russian aircraft manufacturers. Warehouses have been set stabilized their finances and developed a new product portfolio up in Sheremetyevo and Zhukovsky (Moscow Region, Russia), capable of competing with products from the leading global Venice (Italy), Miami (USA), Frankfurt (Germany) and Kuala manufacturers. A new stage of development, based on Lumpur (Malaysia). the growth of mass production of aircraft equipment and gradual achievement of profitability, began in 2012. In addition to its international program of the SSJ regional passenger aircraft Corporation plans further expansion in civil There is no doubt that JSC “UAC” will maintain its efforts to aircraft market. JSC “UAC” intends to offer new MS-21 family in improve competitiveness and operating efficiency in 2013, an even more profitable segment of the international civil aircraft strengthen its position as a major Russian arms exporter and as market – that of narrow-body long-range aircrafts - in 2017. one of the leading players in the global aircraft industry.
During the reporting period the Corporation worked hard VLADIMIR A. DMITRIEV to form its backlog for Russian armed forces, for programs Chairman of the Board of Directors of military and technical cooperation with foreign countries of Joint Stock Company and also for commercial projects. The contract for production “United Aircraft Corporation”
2 www.uacrussia.ru LETTERS TO Letter from Letter from the Chairman the President, Chairman SHAREHOLDERS of the Board of Directors of the Executive Board
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LETTER FROM THE PRESIDENT, CHAIRMAN OF THE EXECUTIVE BOARD
D eAR Colleagues,
The main strategic goal of Joint Stock Company “United Superjet 100 is already operating on passenger routes in Aircraft Corporation” is to achieve long-term Indonesia, Laos and Mexico. competitiveness among global aircraft industry leaders. In order to meet this challenge we need to build our In 2012 another major civil project the MS-21 progressed business model not only on our achievements in as scheduled from the design stage to the stage the global military aircraft market, where we already of component production and large-scale testing. rank among the three top suppliers, but also on winning leading positions in the markets for civil and transport Much work is also being carried out in the transport aircraft. aircraft segment. In Ulyanovsk, the Il-76MD-90A final configuration for mass production is nearing completion The strategic objective of our Corporation for the period and first deliveries of these aircraft are scheduled in 2014. up to 2025 is to achieve annual revenue of at least USD 25 bln and net profit margin no lower than 10%. We We believe that expansion in the civil aircraft segment also intend to increase labor productivity by 7.3 times. and retention of our leading position in the military segment can lead to our strategic goal of making Joint The Corporation has already shown steady rates Stock Company “United Aircraft Corporation” one of revenue growth at 18-20% over a number of years. This of the largest international aircraft construction holdings is an excellent precedent for a company that intends to in the world. become a global player.
The Corporation maintained strong rates of production growth in 2012 and saw further improvement of its financial results. Consolidated revenue in 2012 amounted to RUB 171 bln. Also the Corporation got an operating profit (EBIT) for the first time over last years - RUB 217 mln. Net loss was reduced by 58%.
Military aircraft sales accounted for the largest share (78%) of revenues in 2012. However, sales in the civil aircraft segment grew by nearly 2.5 times and reached 20% of the Corporation’s revenue, which is the highest level to date. MIKHAIL A. POGOSYAN President, Chairman JSC “UAC” delivered 18 civilian airliners in 2012. In of the Executive Board of Joint this way the Corporation is successfully expanding its Stock Company “United Aircraft sales geography in the civil segment: the new Sukhoi Corporation”
4 www.uacrussia.ru 5 COMPANY PROFILE Overview Ma of key assets Target business of JSC “UAC” structure of JSC “UAC”
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OVERVIEW
Joint Stock Company “United Aircraft JSC “UAC”’s companies carry out development, Corporation” is one of the world’s leading construction, testing and operational support, manufacturers of civil and military aircraft. as well as guarantee and service maintenance The Corporation comprises about 30 Russian of aircraft in a number of segments: aircraft companies with such global brands as Sukhoi, MiG, Ilyushin, Tupolev and Yak. • military aircraft; The personnel of the Corporation is over 92,000 • civil aircraft; people. • transport aircraft; • special aircraft. The principal shareholder of the Corporation is the Russian Government through the Federal JSC “UAC” also carries out modernization, Agency for State Property Management overhaul and disposal of aircraft and equipment, and the Bank for Development and Foreign implements new aircraft construction Economic Affairs (Vnesheconombank), which technologies and provides training, retraining together own more than 93% of JSC “UAC”’s and advanced training to aircrew and other shares. The state will remain the major personnel. shareholder of JSC “UAC” for a considerable time in the future: according to the state The construction of military aircraft is privatization program, privatization the Corporation’s main business, accounting of JSC “UAC” will be realized no later than 2024. for the largest share of total production and Anyway the Russian state will retain a stake total revenue. The principal types of military of 50% plus one share of the Corporation’s aircraft built by JSC “UAC”’s companies are as share capital after 2024. follows:
JSC “UAC”’s competitors are leading foreign • Front-line (tactical) military aircraft – aircraft manufacturers: EADS, Boeing, Su-30MK2, Su-30MKI(A), Su-32, MiG-29K/ Bombardier, Embraer, Lockheed Martin, KUB, MiG-29M/M2, MiG-29SE/UB; COMAC, Mitsubishi Heavy Industries and • Front-line (tactical) military aircraft for others. Despite this fact, JSC “UAC” holds the Russian Ministry of Defense – MiG-29K/ a strong position in the global market KUB, Su-30SM, Su-34, Su-35; of military aircraft, with a share of 15%. • The Yak-130 combat-trainer aircraft. The Corporation’s share of the global civil aircraft market was about 1% for the last three years.
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About 400 tactical aircraft and Yak-130 combat The small share of JSC “UAC”’s products on trainers were delivered to customers during the global civil aircraft market (about 1%) 2007-2012, more than 70% of which were at present reflects the fact that JSC “UAC”’s exported. civil aircraft types, which have the greatest operational and sales potential, are still at Civil aircraft and equipment are an important various stages of development (the MS-21 business segment for the Corporation. family and the NG) or are still ramping up Currently civil aircraft segment represents about mass production (the SSJ-100). However, 20% of gross production, both in unit and in the Corporation has already received a large money terms. The Corporation expects civil number of firm orders for new passenger aircraft production to account for 40% of total aircraft, which will ensure high utilization output in the future. of mass production facilities in the medium- term. As of the end of 2012, backlog for civilian A program for creation of a new family aircraft amounted to RUB 1 trln, most of them of narrow-body passenger aircraft, the MS-21, for delivery by 2020. with capacity of 150-180 seats, is currently at the planning stage. Corporation also is carring out studies to assess the feasibility of construction of narrow-body aircraft with up to 130 seats (the NG project).
CORPORATION’S BACKLOG IS SUFFICIENT TO MAINTAIN CURRENT LEVELS OF CAPCITY UTILIZATION FOR SIX YEARS.
7 COMPANY PROFILE Overview Map of key assets Target business of JSC “UAC” structure of JSC “UAC”
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Plants MAP OF KEY ASSETS DesignДивизион bureaus «БоеваяManagement авиация» OF JSC “UAC” companies
JSC “RSK MiG”
JSC “Company Sukhoi” CJSC “Sukhoi new civil technologies” JSC “Company Sukhoi” JSC “OKB Imeni A. S. Yakovlev” KOMSOMOLSK-ON-AMUR JSC “Il” JSC “Myasishchev Design Bureau” (Zhukovsky) JSC “Tupolev” CJSC “M. M. Gromov Flight Research Institute” (Zhukovsky) LLC “UAC - Integration Center” CJSC “Aerocompozit-Ulyanovsk” LLC “UAC-Antonov” СJSC “Aviastar-SP” CJSC “Sukhoi Civil Aircraft” JSC “UAC-TS” CJSC “Aerocompozit” MOSCOW ULYANOVSK
JSC “KAPO” CJSC “KAPO-Compozit” JSC “VASO” KAZAN VORONEZH JSC “Nizhniy JSC “TANTK Imeni Novgorod G. M. Berieva” Aircraft Plant Super Jet Sokol” JSC «Irkut Corporation» International CJSC “Beta-Ir” NIZHNIY MTA Ltd VENICE TAGANROG NOVGOROD Irkutsk BANGALORE
JSC «Company Sukhoi» Novosibirsk
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TARGET BUSINESS STRUCTURE OF JSC “UAC”
Joint Stock Company “United Aircraft Corporation” (Corporate center of the Group)
Military Aircraft Transport Aircraft Special Aircraft Civil Aircraft Division Division Division Division
Design resources Design resources Design resources Design resources
Production base Production base Production base Production base
Centers of competence creating products for all divisions
Research and development centers (carrying out R&D work for the whole Group, creating centers of expertise)
Shared service centers/assets under reconstruction
Service infrastructure company
TRANSITION TO A NEW STRUCTURE BASED ON DIVISIONS WILL IMPROVE THE COMPETITIVENESS AND EFFICIENCY OF RUSSIAN AIRCRAFT INDUSTRY BY REGROUPING AND CONCENTRATING RESOURCES (MANAGEMENT, ENGINEERING, PRODUCTION), CREATING AND DEVELOPING COMPETENCES WHICH THE INDUSTRY NOW LACKS, AND REFOCUSING COMPETITION FROM THE DOMESTIC MARKET TO FOREIGN MARKETS.
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PRODUCT PORTFOLIO
CIVIL AIRCRAFT
Il-96 Life-cycle stage + Long-haul wide-body Design Production Key advantages Maiden passenger aircraft JSC “Il” flight Can be used as The Il-96-300 can carry a platform for special 1988 between 257 and 289 aircraft passengers over distances up Production to 13,500 km. JSC “VASO”
TU-204 Life-cycle stage + Maiden Medium-haul narrow-body Design Production Key advantages flight passenger aircraft JSC “Tupolev” Can be used as Built in various versions: Tu- a platform for special 1989 204-100, Tu-204-300. aircraft Production Can carry between 164 СJSC “Aviastar-SP” and 210 passengers over distances between 4,500 and 7,000 km.
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TU-214 Life cycle stage + Maiden Medium-haul narrow-body Design Production Key advantages flight passenger aircraft JSC “Tupolev” Can be used as Modification of the Tu- a platform for special 1996 204 with maximum aircraft take-off weight increased Production to 110.75 tons and JSC “KAPO” proportionally increased flight range
TU-204SM Life-cycle stage + Maiden Medium-haul narrow-body Design Modernization Key advantages flight passenger aircraft JSC “Tupolev” Equipped with new Modification of the Tu-204 PS-90A2 engines and 2010 with modified main and TA-18-200M auxiliary auxiliary engines and with power unit Production new avionics systems. СJSC “Aviastar-SP” Modernized avionics equipment and systems
Can be used as a platform for special aircraft
AN-148 + Short-haul narrow-body Design Key advantages Prospects passenger aircraft ANTONOV Available in several Maiden Company flight-range versions: Annual production flight Can carry 75 passengers in a single class arrangement. An-148-100A (2,100 km); of up to 10 aircraft An-148-100B(standard, 2004 3,500 km); An-148-100E Production (4,400 km) JSC “VASO” Can be used as a platform for special- purpose aircraft Life-cycle stage Production
11 COMPANY PROFILE Overview Map of key assets Target business of JSC “UAC” structure of JSC “UAC”
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SSJ 100 + Short-haul passenger Design Key advantages Maiden Prospects flight aircraft CJSC “Sukhoi Cooperation with Civil Aircraft” Can carry 98 passengers in the global manufacturers Annual production 2008 a single-class arrangement. of systems and equipment of up to 60 aircraft Available in various flight range versions Production Y. A. Gagarin KnAAZ Can be used for creation branch of highly competitive of JSC “Company business versions Sukhoi” of the aircraft
Life-cycle stage Production
MS-21 + Short- and Design Key advantages Maiden medium-haul family JSC “OKB Imeni flight Reduction of direct operating costs by 12-15% A. S. Yakovlev” Can carry between 150 to 180 compared with the current A320 and B737 2016 passengers in a single-class families arrangement. Increased fuselage diameter (more comfort Production for passengers and easy and quick cleaning Irkutsk Aviation Plant, of the cabin during layovers) branch office of JSC “Irkut Compliance with future environmental impact Corporation” standards
Life-cycle stage Development engineering
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TRANSPORT AIRCRAFT
AN-124-100/ + Design Key advantages Maiden 100M ANTONOV Company flight A unique aircraft in its segment with a ramp, Super-heavy military cargo hinged nose section, on-board crane for end- 1982 aircraft with payload up to to-end loading, capable of carrying single- 120 tons piece cargo up to 120 tons Production The world’s biggest aircraft СJSC “Aviastar-SP” with the largest cargo capacity, designed for long- haul carriage of unique, bulky and non-standard cargos. Life-cycle stage Production was suspended Modernization in 1994.
IL-76/78 + Heavy military cargo Design Key advantages Maiden aircraft with payload up to JSC “Il” flight 50 tons Easy to operate, can use earth landing strips, can be fitted with a crane for autonomous 1971 The main military-transport loading and unloading, equipped with aircraft in Russia and Ukraine, a ground servicing kit. Production and the only refueling craft СJSC “Aviastar-SP” in Russian air force. Subject to replacement due to low remaining service life. Life-cycle stage Modernization
13 COMPANY PROFILE Overview Map of key assets Target business of JSC “UAC” structure of JSC “UAC”
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IL-76MD-90A/ + Design Key advantages Maiden PSZ JSC “Il” Prospects flight Enhanced performance Heavy military transport potential due to the new Existing production 2012 aircraft with payload up to avionics, wing and capacities are 60 tons chassis construction, and insufficient for Production modern engines. potential orders, so СJSC “Aviastar-SP” A deeply modernized version major expansion of the Il-76/78 developed using of production digital technologies, intended capacities is to replace the aging fleet planned. Life-cycle stage of aircraft in this class. Production
MTA/MMTA + Medium military transport Design Key advantages Maiden aircraft with payload up to JSC “UAC-TS”/ flight High thrust-weight ratio enables take-off 20 tons Hindustan Aeronautic from upland aerodromes with concrete and Limited (HAL) 2016 A new aircraft, now in earth landing strips in any climates. development, for transport and paratroop drops of military personnel, cargo Production and equipment on platforms, JSC “KAPO» and non-parachute cargo drop from low altitudes. Replaces the An-12. Life-cycle stage Design and development
IL-112V + Light military transport Design Key advantages Maiden aircraft with payload up to JSC “Il” flight 10 tons Outperforms analogues by cargo capacity, flight range and speed, and ability to take off 2015 A new aircraft, now in from short runways in any geographical and development, for transport climatic conditions. Production of troops with standard JSC “VASO” equipment and weapons, rapid delivery of ammunition and supplies, evacuation of sick and wounded. Life-cycle stage Replaces the An-26 aircraft. Design and development
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PTA + Super-heavy military Design Key advantages transport aircraft with JSC “Il” payload over 80 tons Cost effective, can be used as a basis for standardized wide-body transport aircraft for A future universal military universal use (loading/unloading of non- transport aircraft for carriage standard cargo via rear ramp and/or front Production of standard and non- gangway) СJSC “Aviastar-SP” standard cargo. Replaces the An-124.
Life cycle stage Research and design
SPECIAL AIRCRAFT
BE-200 + Multi-purpose amphibious Design Key advantages Maiden aircraft JSC “TANTK Imeni flight Best performing among international G. M. Berieva” Designed for suppression analogues for suppression of fires in broken 1998 of forest fires using water or terrain. chemical retardants Can also be used for search and rescue Production operations, environmental monitoring, and JSC “TANTK Imeni passenger and cargo carriage, and is suited G. M. Berieva” for operation in regions without aerodromes (landing and take-off from river and sea).
Life-cycle stage Production
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MILITARY AIRCRAFT
Sukhoi PAK-FA T-50
PAK FA Life-cycle stage (T-50) Design Generation Initiation Sukhoi Design 5 Maiden flight Future multi-role Bureau branch 2009 fighter aircraft of JSC “Company Sukhoi”
Production Y. A. Gagarin KnAAZ branch of JSC “Company Sukhoi”
SU-35 Life-cycle stage Multi-role Design Generation Production fighter aircraft Sukhoi Design 4++ Maiden flight Bureau branch 2008 of JSC “Company Sukhoi”
Production Y. A. Gagarin KnAAZ branch of JSC “Company Sukhoi”
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Scale: 1:100 Product portfolio
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SU-34 Life-cycle stage Fighter-bomber Design Generation Production Maiden aircraft Sukhoi Design 4 flight 1990 Bureau branch of JSC “Company Sukhoi”
Production V. P.Chkalov NAZ branch of JSC “Company Sukhoi”
Sukhoi Su-30mk
SU-30 Life-cycle stage Multi-role Design Generation Production fighter aircraft Sukhoi Design 4 Bureau branch Maiden flight of JSC “Company 1989 Sukhoi”
Production Y. A. Gagarin KnAAZ branch of JSC “Company Sukhoi”; 2194 Irkutsk Aviation 1470 Plant, branch Sukhoi Su-27 Flanker office of JSC “Irkut Corporation”
SU-27 Life-cycle stage Multi-role fighter Design Generation Modernization Sukhoi Design 4 of the existing fleet Maiden Bureau branch flight 1977 of JSC “Company Sukhoi”
Production Y. A. Gagarin KnAAZ branch of JSC “Company Sukhoi” 2190 1470
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Scale: 1:100 All measurements in centimeters. © 2000 - 2011, Onno van Braam, www.the-blueprints.com The largest free 3-view, template and blueprint collection on the internet.
Scale: 1:100 All measurements in centimeters. © 2000 - 2011, Onno van Braam, www.the-blueprints.com The largest free 3-view, template and blueprint collection on the internet. COMPANY PROFILE Product portfolio
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YAK-130 Production Combat trainer Design Irkutsk Aviation Life-cycle stage Maiden aircraft JSC “OKB Imeni Plant, branch Production flight 1996 A. S. Yakovlev” office of JSC “Irkut Corporation”
Mikoyan-Gurevich MiG-29 Drawn by Peter Kaboldy
MIG-29 Life-cycle stage Multi-role fighter Multi-role fighter Generation Production JSC “RSK MiG” 4++ Maiden flight 2007
Production JSC “RSK MiG”, JSC “Nizhniy Novgorod Aircraft Plant Sokol” 1140
MIG-35 Life-cycle stage Multi-role fighter Design Generation Initiation JSC “RSK MiG” 4++ Maiden flight 2007 Production JSC “RSK MiG”, JSC “Nizhniy Novgorod Aircraft Plant Sokol”
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Scale: 1:100 All measurements in centimeters. © 2000 - 2011, Onno van Braam, www.the-blueprints.com The largest free 3-view, template and blueprint collection on the internet. OPERATING RESULTS FOR 2012 AND BUSINESS MODEL
sukнoI superJet 100 (ssJ) User airlines Russia Russia Russia Indonesia Mexico
Aircompany Moskovia Yakutia Airlines
DELIVERIES OF THE SSJ-100, units Creation of the SSJ was based on a deep analysis of configuration needs and market prospects. sukнoI superJet 100 (ssJ) Financial efficiency increases proportionally - - flight range. The excellent aerodynamics TYPE: NARROW-BODY SHORT-HAUL AIRCRAFT 5 12 of the Superjet 100 provides significant advantages at cruising speed. Improved take-off and landing characteristics and all-weather capacities make SPECIFICATIONS the aircraft a natural “route developer” (airlines will be able to use the craft to launch new routes, for Cruising speed 830 km/h which other aircraft would be less efficient or less comfortable). 2011 2012 Length 2011 Thanks to its enhanced flight range, the SSJ 29.9 m year Range Commercial launch can be deployed on a wider network of routes, over 4,500 km including long-distance routes, at the same time as PROJECT GEOGRAPHY providing superior efficiency and comfort.
The Sukhoi Superjet 100 family of Russian Service ceiling regional aircraft has been developed 12,000 m by CJSC “Sukhoi Civil Aircraft” (Moscow). The Sukhoi Superjet 100 family is being mass produced in Komsomolsk-on-Amur, where Crew the Delivery Center for the aircraft is also 2 persons SaM146 located. 6,985 – Required 7,940 kgf Leading foreign aircraft manufacturers are runway length supplying key systems for the SSJ. 2,150 m Passengers 98 persons in a single-class arrangement 35.4 mln US dollars Wingspan catalogue price for the SSJ-100 in 2012 27.8 m
Cabin width 3.2 m CERTIFICATES Cabin AND COMPLIANCES height 2.1 m
Max payload 12,245 kg
ON FEBRUARY 3, 2011, THE Meets noise on the ground INTERSTATE AVIATION requirements as per Chapter 4 17 of the ICAO Standard and FAR 36 Height SSJ 100 aircraft COMMITTEE ISSUED of Part 4 (2006). 10.3 m supplied by the Corporation to AN AVIATON REGISTER its commercial customers as Meets the requirements of AR-25, of December 31, 2012 CERTIFICATE FOR THE FAR-25, JAR-25. SUKHOI SUPERJET 100 Meets the requirements of 99% of class-A, class-B, and class-C aerodromes in Russia and CIS. BUSINESS MODEL: stages OF AIRCRAFT DESIGNING
STAGE 0 STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 STAGE 6 STAGE 7 STAGE 8
Assessment of the project Selection of suppliers, finding Production of prototypes request investors and first customers; project design
Conceptual research Initial supply contracts, development Test flights of the technical design and certification, first deliveries
Preparation for preliminary negotiations External funding, Operational with counterparties, conceptual design production design support (maintenance and overhaul)
21 BUSINESS MODEL: STAGE BY STAGE GOALS AND OBJECTIVES OF AIRCRAFT DESIGNING
STAGE 0 STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 STAGE 6 STAGE 7 STAGE 8
Comprehensive Development Preparation of all Matching Initial supply Securing Production Obtaining an aircraft Launch of mass assessment of document project areas the aircraft contracts, external funding, of aircraft type certificate, production, of the formal package providing for preliminary parameters and development development prototypes, certificate operational support. project request and complete negotiations with key performance of the technical of production preparation for of airworthiness feasibility analysis. information to potential suppliers, indicators design. design documents the first flight. and production make a qualified customers, of the project and preparation for Ensuring test flight certification. First decision on project investors and other with market production launch. safety. deliveries. launch and in-house counterparties. requirements (in financing. Development the preliminary of conceptual design negotiations with (technical offer). potential customers, suppliers, investors, etc.) Selection of suppliers. Development of the project design.
22 www.uacrussia.ru AFTER-SALES MAINTENANCE SUPPORT FOR SSJ 100
THE SSJ 100 AFTER-SALES MAINTENANCE PROGRAM WAS DEVELOPED WITH FULL INSIGHT THAT ALL THE FUTURE CUSTOMER NEEDS MUST BE TAKEN INTO ACCOUNT AT THE VERY OUTSET OF THE AIRCRAFT DESIGNING. THIS IS THE ONLY WAY TO ENSURE PRODUCT SUPPORT THROUGHOUT ITS LIFE CYCLE.
A comprehensive after-sales support system All the payments to the maintenance service are made proportionally for a new product has been introduced for to aircraft operation, i.e. as income is generated from operations, on the first time in Russian aircraft industry. a per-flight-hour basis. Airlines can accurately plan their expenses for the continued airworthiness throughout the period of aircraft operation. The standard contract ensures any CJSC “Sukhoi Civil Aircraft” jointly with “SuperJet International” S.p.A. maintenance and spare parts support from are responsible for managing the maintenance. They allocate the work the general warehouse, which has already among part manufacturers and authorized service centers. JSC “UAC” been established by the manufacturer and is planning to establish a single customer support center for all the “SuperJet International” S.p.A. This of the Corporation’s customers. Using the SSJ 100 support experience, international company operates mostly in the center will ensure efficient operation of the delivered aircraft. Western countries (not in Russia), enabling quicker delivery of the failed parts.
WAREHOUSE NETWORK TO PROVIDE OPERATORS WITH SPARE PARTS FOR THE SSJ 100 PROGRAM
SVO (Sheremetyevo, Russia) / “SuperJet International” S.p.A. FRA (Frankfurt, Germany)/ “SuperJet International” S.p.A. MIA (Miami, USA) / “SuperJet International” S.p.A. VCE (Venice, Italy) / “SuperJet International” S.p.A. RHY (Zhukovsky, Russia) / CJSC “Sukhoi Civil Aircraft” XKL (Kuala Lumpur, Malaysia) / CJSC “Sukhoi Civil Aircraft”
23 OPERATING RESULTS Overview of operating Better interaction FOR 2012 AND BUSINESS results with suppliers MODEL
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OVERVIEW OF OPERATING RESULTS
JSC “UAC” accomplished Russian state defense substantially. Civil customers received 18 planes order in 2012. Delivery of military aircraft to from the Corporation in 2012, 12 of which were Russian Ministry of Defense increased almost new-generation SSJ 100 jets. twice. The share of civil aircraft in total sales (by units) Altogether the Corporation delivered 94 aircraft reached 19%, which was the highest level since to domestic and foreign customers (7.8% less JSC “UAC” was created than in 2011).
The number of delivered aircraft in the military segment declined in 2012, but aircraft 2011 2012 shipments in the civil aircraft segment grew
3 3 4 2 7 18
Units Units
STRUCTURE OF NEW AIRCRAFT DELIVERIES BY JSC “UAC“ 71 (UNITS) 88 2011 2012
Military aircraft Civil aircraft 3 3 4 2 7 Transport aircraft 18 Special aircraft
Units Units
71 88
Military aircraft Civil aircraft Transport aircraft Special aircraft
SOURCE: JSC “UAC”.
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STRUCTURE OF NEW AIRCRAFT DELIVERIES BY JSC “UAC“ TO RUSSIAN AND FOREIGN CUSTOMERS (UNITS) 2011 2012
30 39 Units Units 55 72
Domestic market Export
SOURCE: JSC “UAC”.
MILITARY AIRCRAFT
The share of military aircraft in JSC “UAC”’s Current Projects output in physical terms (units) was over 75% in 2012. The Corporation intends to keep its share The main projects providing workload of global military aircraft market by intensive for production facilities of JSC “UAC” are work within both Russian state defense order production of combat aircraft for foreign and export contracts. customers (Su-30MK2, Su-30MKI(A), MiG-29K/KUB, MiG-29SE/UB) and for Russian Ministry of Defense (Su-30SM, Su-30M2, Su-34, Su-35C, MiG-29K/KUB). JSC “UAC”’s main product in the combat-trainer segment is Yak-130.
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The Corporation intends to continue working The main focus in the tactical aircraft segment on overhaul and modernization of MiG-31BM, will be development of the Prospective Su-33, Su-27SM3 aircraft. Airborne Complex of Frontline Aviation (PAK FA or T-50) for Russian Ministry of Defense and The main projects in the long-range aviation Russian-Indian project of the Prospective Multi- segment providing workload for production role Fighter (PMF), as well as the Prospective facilities of JSC “UAC” are modernization UAV for Russian Ministry of Defense. of the Tu-160, Tu-95SM and Tu-22M3 planes. The priority project in the long-range aircraft Future Projects segment is development of the PAK FA.
The Corporation envisions its future in development of new prototypes of military aircraft, as well as in increase of their output, first of all, according to Russian state defense order.
CIVIL AIRCRAFT
Main business priorities of the Corporation in Flight safety, participation in the civil aircraft segment are as follows: international programs
Civil aircraft production • Negotiations on delivery of SSJ, Tu-204, An-148 aircraft to domestic and foreign • Work to reduce cost of purchased customers. components. • Participation in the working group • Reducing production costs through with Chinese partners for development technical upgrade of enterprises and of a wide-body aircraft. improvement of aircraft production • Completion of the 4th stage of the work technology. in the SVETLANA project (“Research in the Field of Advanced Technologies to Automate the Collection, Processing and Analysis of Flight Information to Enhance Civil Aircraft Flight Safety»).
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In October, 2012, the Corporation signed a long- term contract with Russian Ministry of Defense to provide 39 of Il-76MD-90A aircraft.
TRANSPORT AIRCRAFT
JSC “UAC” made a substantial progress in A JOINT RUSSIAN-INDIAN PROGRAM FOR development of its transport aircraft business CREATION OF A MULTI-ROLE TRANSPORT AIRCRAFT during 2012. The Corporation began flight WAS LAUNCHED IN OCTOBER, 2012. JSC “UAC-TS”, testing of the Il-76MD-90A. It signed a long-term INDIA’S HINDUSTAN AERONAUTICS LIMITED AND contract with Russian Ministry of Defense to THE RUSSIAN-INDIAN JOINT VENTURE MTAL provide 39 of Il-76MD-90A aircraft in October, SIGNED A CONTRACT FOR PRELIMINARY DESIGN OF 2012. THE MTA MID-RANGE TRANSPORT AIRCRAFT.
The aircraft are to be delivered during the period since 2014 till 2020. It will significantly increase JSC “UAC”’s workload in the transport segment, ensuring large-scale and rapid development of the transport aircraft product line at Corporation companies.
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AIRCRAFT DELIVERIES BY JSC “UAC”’s COMPANIES IN 2008-2012
Aircraft type/Customer 2008 2009 2010 2011 2012
Military aircraft
Domestic market 1 36 21 19 35
Export 44 47 44 69 36
TOTAL Military aircraft 45 83 65 88 71
Civil aircraft
Domestic market 5 4 6 6 15
SSJ-100 4 9
An-148 2 4 2 4
Tu-204 5 2 2 2
Export 1 1 1 3
Tu-204 1 1
SSJ-100 1 3
TOTAL Civil aircraft 6 5 6 7 18
Transport aircraft
Domestic market 3 1 1 2
Il-96-400 3 1
Il-76 1 1 1
Export 2
Il-76 2
TOTAL Transport aircraft 3 1 3 2
Special aircraft
Domestic market 1 4 2 4 3
Export 1
TOTAL Special aircraft 2 4 2 4 3
TOTAL Aircraft deliveries 53 95 74 102 94
SOURCE: JSC “UAC”.
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BETTER INTERACTION WITH SUPPLIERS
JSC “UAC” is building a transparent purchasing According to the annual comprehensive system to promote quality, transparency and procurement plan of JSC “UAC” for 2012, efficiency of its procurement, since it makes the Corporation has been scheduled an important contribution to competitiveness. the competitive trade and procurement procedures for RUB 30.8 bln, or over 50% The Corporation uses the B2B-Avia of the Corporation’s purchases. JSC “UAC” trading platform, which is integrated into held in electronic form on the electronic the B2B-Center electronic trading system. trading platform B2B-Avia over 80 % of these. The Corporation uses the platform for The average number of participants in competitive purchases of IT, financial and the procurement trades of JSC UAC was 4-5 construction services, etc. companies in 2012. The ratio of successful trades was 90%.
No complaint has been filed to Russian Federal AVERAGE SAVING ON E-PROCUREMENT Antimonopoly Service concerning JSC “UAC”’s WAS 16.8% IN 2012. practice to conduct trades on the B2B-Avia platform.
INTERNATIONAL OPERATIONS
International activities of JSC “UAC” in 2012 were as follows:
• meeting the needs of foreign partners in • implementing current industrial cooperation ongoing supply of military and civil aircraft contracts with foreign aircraft manufacturers; equipment; • developing scientific and technical • expanding cooperation with foreign aircraft cooperation. manufacturers for joint production of aircraft equipment;
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JSC “UAC” involvement in the projects • JSC “Irkut Corporation” signed an Agreement of foreign aircraft companies during 2012: with Pratt & Whitney, USA (a division of the United Technologies Corporation) to • Continued implementation of the production deliver Pratt & Whitney PurePower PW1400G cooperation program with European aircraft engines for the MS-21 family aircraft in manufacturer Airbus and its partners with June 2012. participation of Irkutsk Aviation Plant and JSC • There were further developments in “VASO”; cooperation with India. The Corporation • Developed business cooperation with Ukraine performed under contractual obligations in the scopes of joint mass production projects in a number of projects in 2012: licensed of ANTONOV Company’s planes, particularly production of Su-30MKI aircraft in India; the An-148-100, at JSC “VASO”. modernization of the Indian MiG-29 aircraft (to the level of the MiG-29UPG); Cooperation with foreign partners for delivery of MiG-29K/KUB seaborne aircraft JSC “UAC”’s own projects in 2012: to Indian Navy; designing of the new aircraft prototypes with Indian partners. • The Air Registration Board of the Interstate The Corporation signed a general contract Aviation Committee issued an Addendum to and a contract for preliminary joint the Type Certificate for the SSJ 100 aircraft development of the Multi-role Transport (model RRJ-95V), expanding operating Aircraft (MTA). The joint development temperature range up to +45°С (113°F) in project of the Prospective Multi-role May, 2012. The EASA type certificate for Fighter (PMF) has also developed the SSJ 100 aircraft confirming its compliance successfully. JSC “Sukhoi Company” with European requirements for airworthiness and India’s Hindustan Aeronautic Ltd. and environmental impacts obtained in completed work on preliminary design and February 2012. The type certificate for proceeded with a draft contract for design the SSJ 100 was validated by Mexican and development work. authorities in May, 2012, and by the Civil • The Corporation pursued its cooperation with Aviation Administration of Indonesia in Chinese partners in the wide-body and long- November, 2012. range civil aircraft project. A memorandum • JSC “Beriev TANTK” began negotiations with of understanding on the project was signed Italian counterparties on modernization between JSC “UAC” and COMAC (Commercial projects of the Be-200 amphibious aircraft Aircraft Corporation of China) in 2012. and Be-103 patrol aircraft in order to supply JSC “UAC” has also signed an agreement with them to third countries. COMAC on intellectual property.
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INTERNATIONAL SCIENTIFIC-TECHNICAL COOPERATION
JSC “UAC” applied for the European research JSC “UAC” pursued its cooperation with research project “Electrical Drive System Architectures organizations, companies and institutions with Enhanced Reliability and Safety” in of the Free State of Saxony (Germany). The aim the scopes of Russian-European aviation of the cooperation is to establish effective program FP7-AERONAUTICS AND AIR co-transfer of innovative technologies from TRANSPORT-2010-RTD-RUSSIA in 2013. academic and research institutions in Russia and Saxony to the industry, to develop the approaches, Cooperation between JSC “UAC” and Safran group mechanisms and tools for managing innovative of companies (France) entered a new stage in 2012. performance of the companies. Having signed the Agreement on Non-disclosure and Restriction of the Classified Information JSC “UAC” and Permaswage (France), which Usage, the parties proceeded with joint scientific is a leading producer of sealed integral crimp and technology studies and with development connections for pipe elements in aviation hydraulic of the intellectual aircraft product. systems, began joint work.
JSC “UAC” and LMS International (Belgium) have developed virtual modeling of aggregates in the aircraft design process.
31 OPERATING RESULTS International operations FOR 2012 AND BUSINESS MODEL
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JSC “UAC” traditionally participates in major international aviation events
PARTICIPATION BY JSC UAC IN INTERNATIONAL SHOWS DURING 2012
The Corporation continued to actively participate in the major international aviation events around the world during 2012. It often accompanied own exhibitions by full-scale demonstration of the aircraft.
Date of show Name and location of the show JSC “UAC” participation
January 2012 Bahrain International Airshow 1 chalet showing a full-size SSJ 100, with demonstration flights (Bahrain) February 2012 Singapore Air Show (Singapore) 1 chalet with a 210 sq.m. exhibition, static inspection of the Be-200 amphibious aircraft March 2012 India Aviation (Hyderabad, India) 1 chalet showing a full-size SSJ 100 March – April 2012 FIDAE (Santiago, Chile) A 100 sq.m exhibition July 2012 Farnborough (Farnborough, UK) 6 chalets with 500 sq.m. of exhibition space. The Yak-130 combat-trainer aircraft took part in the flight program of the air show for the first time and was shown for static inspection. A special space was dedicated to the MS-21 program
September 2012 ILA (Berlin, Germany) Exhibition on an area of 80 sq.m. September 2012 Gidroaviasalon-2012 (Gelendzhik, Demonstration flights of the Be-200ChS, Be-103, Il-114 and other aircraft Russia) November 2012 Indo Defense Expo & Forum Exhibition on the area of 100 sq.m. (Jakarta, Indonesia) November 2012 Air Show China (Zhuhai, China) Exhibition on the area of 150 sq.m., showing the SSJ 100
32 www.uacrussia.ru FINANCIAL RESULTS FOR 2012
TU-204 User Airlines Russia Russia Russia Russia Cuba Russia Egypt Russia Russia Russia North China China Korea Rossiya Special Air Aviastar-TU Business Air Koryo Flight Forces Aero AON Detachment Vladivostok Avia
DELIVERIES OF TU-204/214 AIRCRAFT, UNITS A big family of the medium-range Tu-204/214 aircraft created by JSC “Tupolev” can satisfy TU-204/214, TU-204SM many needs of the airlines, both in Russia and abroad. - - - - - TYPE: NARROW-BODY MEDIUM-HAUL AIRCRAFT 7 6 3 2 4 Launch of mass production of these aircraft will meet the challenges associated with SPECIFICATIONS replacement of the aging Russian medium- range aircraft fleet quickly and relatively Cruising speed 810-850 km/h cheaply.
2008 2009 2010 2011 2012 All the aircraft in the Tu-204/214 family ensure Length 1996 full compliance with the strictest existing and up to 46.0 m year launch commercial operation of the TU-204 Range with future environmental impact requirements maximum load up to 5,800 km established by Russian and international PROJECT GEOGRAPHY organizations.
Design: JSC “Tupolev” (Moscow) The Tu-204 is a medium-range aircraft Production: СJSC “Aviastar-SP” (Tu-204) (Ulyanovsk), available in various modifications (Tu-204-100, Flight altitude Crew TFE, PS-90A, JSC “KAPO” (Tu-214) (Kazan) Tu-204-300) designed to carry from 164 to 2 (3) up to 12,600 m TFE, PS-90A1 persons. 210 passengers over a distances of 4,500 up to 2 x PS-90A (Tu-204-120 – 7,000 km. 2 x RB.211-535E4) Tu-204SM – Passengers 2 x PS-90A2 up to Required The Tu-214 is a modified version of the Tu-204 210 persons runway length From 2,250 m with increased take-off weight (110.75 tons instead of 105 tons for the Tu-204-100),allows to increase the flight range.
Wingspan 45,000 42.0 m flight hours Cabin or 25,000 landings (airframe resource) width 3.57 m CERTIFICATES AND COMPLIANCES Cabin height 2.16 m
Max payload up to 23 tons (Tu-204SM) Type certificate Type certificate No. 68-204 for the Tu-204 with PS-90A engines was Height No. 68-204 was issued issued on December 29, 1994. 13.9 m on December 29, 1994 The Corporation received an 60 Addendum to the Type Certificate mln US dollars for the Tu-204SM aircraft with new approximate catalogue price PS-90A2 engines, modernized cabin, and partly modernized systems in May 2013.
34 www.uacrussia.ru OVERVIEW OF CONSOLIDATED FINANCIAL RESULTS
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OVERVIEW OF CONSOLIDATED FINANCIAL RESULTS
Coproration’s financial results showed implementation of a cost reduction program, a positive trend in the reporting year. modernization of production assets, and Consolidated revenue of JSC “UAC” increased increase of profitability. The main goal by 6% to RUB 171,019 bln, while EBIT grew of the Corporation for the next two years is to by 2.6 times to RUB 217 mln. Net losses reach a break-even point.” declined by 58% to RUB 5,650 bln. The Copporation has increased its revenue The Vice-President for Economics and by over 70% and reduced its net loss by five Finances of JSC “UAC”, Vladimir Chirikov, times compared to the year 2009. said: “The key priorities in 2012 were
CONSOLIDATED FINANCIAL RESULTS OF JSC “UAC”, 2008-2012 (RUB MLN)
Ratio/Reporting period 2008 2009 2010 2011 2012
Revenue 87,465 98,572 140,682 161,653 171,019
Cost of sales (59,236) (76,482) (104,243) (111,336) (135,132)
Gross profit 28,229 22,090 36,439 50,317 35,887
Gross margin 32.3% 22.4% 25.9% 31.1% 21.0%
Distribution and administrative expenses (24,969) (30,113) (33,781) (40,501) (39,242)
Other income and expenses (11,761) (6,963) (14,503) (9,813) 3,957
Profit (loss) from operations (8,501) (14,986) (11,845) 3 602
Operating margin -9.7% -15.2% -8.4% 0.0% 0.4%
Finance income and costs, other finance income and costs (13,421) (14,878) (8,217) (10,647) (7,672)
Profit (loss) before tax (21,922) (29,864) (20,062) (10,644) (7,070)
Income tax benefit (expense) 1,277 2,145 (104) (2,702) 1,420
Profit (loss) for the year (20,645) (27,719) (20,166) (13,346) (5,650)
Net margin -23.6% -28.1% -14.3% -8.3% -3.3%
EPS – basic and diluted profit/(loss) per share (0.16) (0.23) (0.12) (0.05) (0.00)
EBIT (8,501) (19,811) (12,194) (360) 217
EBIT margin -9.7% -20.1% -8.7% -0.2% 0.1%
EBITDA (1,217) (10,252) (1,637) 14,987 4,483
EBITDA margin -1.4% -10.4% -1.2% 9.3% 2.6%
SOURCE: Calculations based on IFRS consolidated financial statements of JSC “UAC”.
35 FINANCIAL Overview Revenue Cost of sales of consolidated RESULTS financial results FOR 2012
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REVENUE
Revenue of RUB 171,019 mln for 2012 is Most of the consolidated revenue the highest achieved by the Corporation since components developed positively in 2012: its foundation. Revenue has almost doubled in the last 5 years (since 2008) and compound • revenue earned on aircraft construction annual growth rate (CAGR) has exceeded 18%. contracts rose by 9.5%, mainly due to increase Output per employee grew by 9% compared of output compared to 2011; to 2011. This indicator shows a consistently • revenue earned on R&D services grew positive trend over the past years. by 64.6% due to completion of the next stages of the MS-21 project, and also due to the PMF, T-50, and SSJ 100 projects; • revenue earned on modernization and overhaul services increased by 74.2% comparing to 2011 mainly due to increased workload under the the MiG-29, MiG-31, Il-96, and An-124 programs.
STRUCTURE OF JSC “UAC”’s REVENUE BY ACTIVITIES
2011 2012
4 3.6 6.9 11.4 Revenue earned on aircraft construction contracts 12.1 Revenue on sales of aircraft components % 18.9 % and related products Revenue earned on research 26.7 and development services 50.3 52.0 14.1 Revenue earned on modernisation and overhaul services Other
SOURCE: IFRS consolidated financial statements of JSC “UAC”
36 www.uacrussia.ru Profit and Investments profit margin in 2012
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Reduction of revenue on sales of aircraft The structure of JSC “UAC”’s revenue by business components and related products (-44.0%) segments (military aircraft, civil aircraft, etc.) is primarily due to the fact that a large share is fairly stable. Corporation accounting policy of deliveries under several contracts were in 2012 recognized revenue under the Be-200 effected in 2011, although the contracts were only program pro rata to the share of works completed in 2012. completed, and this had an impact on figures for other business segments. Other revenue in 2011-2012 mainly comprises income from training services for the staff Increased share of civil aircraft segment in of customers, sale of trainer-simulators and JSC “UAC”’s revenue structure in 2012 reflects an provision of consulting services. increase of SSJ 100 aircraft sales. The Corporation expects to further expand the share of civil The share of material transactions with state aircraft segment in revenue structure in 2013. companies decreased slightly from 51% of turnover in 2011 to 49% in 2012.
JSC “UAC”’s REVENUE STRUCTURE BY SEGMENTS
2011 2012
6 2 9 20 Military aircraft Civil aircraft
% % Other business segments
85 78
SOURCE: IFRS consolidated financial statements of JSC “UAC”.
37 FINANCIAL Overview Revenue Cost of sales of consolidated RESULTS financial results FOR 2012
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COST OF SALES
Cost of sales of JSC “UAC” increased by 21.4% • Growth of production costs (including in 2012 compared to 2011 to RUB 135,132 mln. purchase of materials and components, Faster growth of costs compared with revenue services of third-party organizations, R&D was due to a number of factors: expenses, provisions and other expenses) due to: • Downward adjustment of costs in 2011 –– increase of prices for the purchased by RUB 2,981 mln following revision materials and components, which of Corporation accounting policy on represent a substantial part of the cost disclosure of income and expenses arising of shipped products; from write-down of inventories due to –– different configuration of the components obsolescence. In 2011 relevant expenses in products shipped under export were included in Cost of sales. In 2012 these contracts and under the Russian state expenses are included in Other operating defense order. expenses “Impairment of inventory”. • Increase of salaries and social security As noted above, the largest cost of sales contributions by 3% compared to 2011 item is production costs including purchase mainly due to salary indexation at most of materials and components, services of third- JSC “UAC”’s companies. party organizations, R&D expenses and other expenses. R&D expenses, which are recorded as part of cost of sales, are direct expenses as defined by JSC “UAC”’s accounting policy, i.e. expenses that are necessary for execution of the Corporation’s current contractual obligations.
38 www.uacrussia.ru Profit and Investments profit margin in 2012
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Depreciation and amortization expenses COST OF SALES, RUB MLN remained almost unchanged from 2011. This was mainly due to leveling of the impact from disposal of property, plant and equipment (PPE) - - and increase in the book value of PPE due to 75,806 99,354 - - 12,544 12,115 inclusion of CJSC “M. M. Gromov Flight Research - - Institute” as part of the Corporation in June 2012 22,986 23,663 (87% of the Institute’s PPE is land). Additions and transfers of PPE grew by 26% compared to 2011 (including both launching of new PPE, and modernization and restructuring of existing PPE). Acquisition of PPE in 2012 was mainly related to equipment refitting programs. 2011 2012
Decrease of the Corporation’s gross profit Expenses on materials, by 29% in 2012 compared to 2011 was caused provisions, etc. by a reduction in the number of export Depreciation and amortization contracts in the military segment as compared Salary to 2011 (these contracts offer higher margins than Russian state contracts) as well as SOURCE: IFRS consolidated financial by the creation of some provisions against statements of JSC “UAC” contracts.
39 FINANCIAL Overview Revenue Cost of sales of consolidated RESULTS financial results FOR 2012
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PROFIT AND PROFIT MARGIN
Despite the reduction of gross profit margin • Disposal of JSC “Finance Leasing Company” due to objective reasons, the Corporation from the corporate structure of JSC “UAC” , managed to reduce its net loss by 58% in 2012 which ended recognition of the subsidiary’s to RUB 5,650 mln and to achieve EBIT above results in consolidated financial statements, zero (RUB 217 mln, compared to negative was reflected in other operating income as values in previous years). a gain of RUB 7,849 mln. • Reduction of distribution expenses (by 21% Growth of profit from operations and compared to 2011) due to the decline reduction of net loss (by RUB 7,696 mln of export shipments. compared to 2011) was due to the following factors:
ANALYSIS OF THE GROSS MARGIN ANALYSIS OF EBITDA MARGIN
------28,229 22,090 36,439 50,317 35,887 (1,217)(1,217) (10,252)(10,252) (1,637)(1,637) 14,98714,987 4,4834,483
32.3 31.1 9.39.3 -1.4-1.4 -1.2-1.2 25.9 2.62.6 22.4 21 Gross profit -10.4-10.4 Gross margin, %
- - - - - 2020808 2020909 20210010 20211011 20122012 28,229 22,090 36,439 50,317 35,887 2008 2009 2010 2011 2012 32.3 31.1
25.9 22.4 21 Gross profit Gross margin, % EBITDA, EBITDA, mln mln RUB RUB EBITDA EBITDA margin, margin, % %
SOURCE: IFRS consolidated financial statements SOURCE: IFRS consolidated financial statements of JSC “UAC” of JSC “UAC”
2008 2009 2010 2011 2012 40 www.uacrussia.ru Profit and Investments profit margin in 2012
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• Reduction of other operating expenses Weakening of the Russian ruble against by 39%, mainly due to the termination the US dollar in 2012 led to exchange rate of recognition of expenses related to gains of RUB 3,382 mln, enabling reduction JSC “Finance Leasing Company”. In 2011, of the loss before income tax by 34% or such expenses amounted to RUB 2,941 mln. RUB 3,574 mln compared to 2011. • Reduction of net finance costs by 29% compared to 2011.
ANALYSIS OF EBIT MARGIN ANALYSIS OF NET PROFIT MARGIN
------(20,645) (27,719) (20,166) (13,346) (5,650) (8,501) (19,811) (12,194) (360) 217
0.1 -8.3 -3.3 -14.3 -0.2 -9.7 -8.7 -23.6 -28.1
-20.1 2008 2009 2010 2011 2012
2008 2009 2010 2011 2012
EBIT Profit (loss) for the year EBIT margin, % Net profit margin, %
SOURCE: IFRS consolidated financial statements SOURCE: IFRS consolidated financial statements of JSC “UAC” of JSC “UAC”
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INVESTMENTS IN 2012
The Corporation was increasing volumes of investment in recent years because of needs based on growning scale of its business and modernization of its production assets.
Investment expenses of the Corporation, as per management accounting, amounted to RUB 38,133.2 mln in 2012, representing an increase of 30.2% from 2011.
Investments in production assets
INVESTMENT VOLUME AND RATE OF RETURN
- - - - - 18,436 11,186 12,418 15,133 27,556
0.9 -1.3 Сash flows utilized -6.2 -7.3 -9.5 by investing activities, mln RUB
ROIC (return on invested capital)
2008 2009 2010 2011 2012
SOURCE: IFRS consolidated financial statements of JSC “UAC”.
42 www.uacrussia.ru OPERATIONS ON DEBT AND EQUITY CAPITAL MARKETS
YAK-130 Export СИСТЕМА contracts КОРПОРАТИВНОГО УПРАВЛЕНИЯ Preliminary agreements have been reached with Open Joint Stock Company Rosoboronexport for the supply of over 60 Yak- 130 aircraft to a number of foreign countries under intergovernmental military and technical cooperation agreements during 2015-2020.
PRODUCTION The Yak-130 combat-trainer represents a new generation of trainer aircraft for basic and YAK-130 advanced training of military flight school 1991 –Sukhoi start of R&D work PAK-FA for the Yak-130 T-50 CTA cadets, preparing them to fly fourth- or fifth- TYPE: COMBAT-TRAINER AIRCRAFT (CTA) April 26, 1996 – maiden flight by the Yak-130D CTA generation tactical aircraft. The craft can also 2000 – first stage of test flights completed be used for maintaining the aircrew skills 2002 – Yak-130 won a tender for the combat-trainer aircraft of combat pilots, and for operational missions in PERFORMANCE and is included in the state defense program up to 2015 local conflicts. 2006 – first export contract (with Algeria) signed Max cruising speed 1,050 km/h The Yak-130 can cover up to 80% of the entire flight training program for pilots. It can simulate 1996 management algorithms for all modern Length year fighter aircraft: its reprogrammable control 11.25 m maiden flight system makes the Yak-130 easily adaptable Flight range with max fuel at cruising altitude to the requirements of air forces in different 2,000 km PROJECT GEOGRAPHY countries with respect to technical features and operating performance. A training system Design: JSC “OKB Imeni A. S. Yakovlev” is now being created around the Yak-130, Production: including the Yak-152 initial training aircraft, Irkutsk Aviation Plant, branch office Flight altitude of JSC “Irkut Corporation” the Yak-130 combat-trainer, display classes and 12,500 m training simulators. Wing area 23.5 sq.m. Simple design, high reliability of the airframe, Required engine and avionics, long service life and full Wing runway length sweepback 380 m self-sufficiency, advanced engineering with at 1/4 chord: 31° low life-cycle cost and high performance specifications ensure effective execution % of combat missions and rapid, high-quality training of aircrew. 80of the flight training program for combat Max pilots can be covered by the Yak-130 take-off weight The Yak-130 can operate in all the regimes 9,000 kg that are typical for combat aircraft today and in the near future due to its excellent Max internal fuel tank aerodynamics and high armament payload, capacity which enables efficient execution of combat 1,750 kg missions. ARMAMENT
COMBAT PAYLOAD: GSh-23L suspended 23-mm gun system on the belly unit; 3,000 kg R-73, R-60 guided air-to-air missiles (2-4); Wingspan X-25ML guided air-to-surface missiles; 10.4 m Unguided S-8 missiles (2-4); RBK-500 single-use bomb cassettes; 10,000 ZB-500 incendiary tanks; flight hours FAB-500, BetAB-500, ODAB-500, OFAB-250-270 air bombs. aircraft resource
Scale: 1:100
44 www.uacrussia.ru Debt policy
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DEBT POLICY
The Corporation remained active on debt • Increased funding needs for enterprise capital markets in the reporting year. Purposes restructuring and asset modernization of debt policy are funding of Corporation’s programs. Most of these investments are to investments and meeting shortfalls in funding be used for complex technical upgrading and of operating activities, maintaining liquidity R&D in compliance with the Corporation’s ratios and supporting overall financial stability. concept for elimination of low-margin industrial processes, focus on high-level The Corporation worked with creditors and processes, and overcoming gaps in design investors to expand the portfolio of financial capability compared with competitors. instruments for its investment needs. As • Increase of Corporation’s current assets a result, the Corporation reduced its effective associated with ongoing expansion interest rate by 1.3 percentage points in 2012 of aircraft production. (from 8.06% in 2011 to 6.76% in 2012).
Net debt of the Corporation as of December 31, 2012 was RUB 162.7 bln (increase by 9% compared to the previous year).
Increase of total debt of the Corporation based on the following factors: RATIO OF DEBT TO OPERATING ACTIVITY • Growth of investments for the launch of promising, innovative products, which will
enable rapid expansion of mass production - - - - - 87,465 98,572 140,682 161,653 171,019 with resulting reduction of unit costs, - - - - - 91,992 102,909 106,887 148,983 162,746 improvement of production margins and achievement of positive operating cash flow. 1.05 1.04 0.92 0.95 0.76
Revenue, RUB mln Net debt, RUB mln Net debt/revenue
2008 2009 2010 2011 2012
SOURCE: IFRS consolidated financial statements of JSC “UAC”.
45 OPERATIONS Debt policy Structure of share capital, ON DEBT AND EQUITY share issues CAPITAL MARKETS
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Despite additional borrowing, the ratio STRUCTURE OF THE DEBT PORTFOLIO of debt to the volume of operating activities as measured by Net debt/Revenue2011 changed 201120122011 2011 20122012 2012 insignificantly from 0.92 in 2011 to 0.95 in 2012. Net debt/equity decreased to 1.49 from 1.60
(end of 2011 and 2012, respectively).1 0.5 1.3 0.5 1 0.5 1.3 0.5 1 0.51 0.5 1.3 0.51.3 0.5 Bank loans Bank loans 27.5 33.8 27.5 33.8 The debt portfolio as of December 31, 2012 Borrowings Bank Bankloans loans Borrowings 27.5 27.5 33.8 33.8 totaled RUB 215.2 bln (up from% RUB 195.0 bln % Bonds issued % Borrowings% Borrowings Bonds issued a year earlier) and0.7 consisted primarily of bank % % Finance0.7 lease liabilities % % BondsBonds issued issued Finance lease liabilities Other loans Other loans loans (70.3% as of December 31, 2012). 0.7 0.71.1 63.3 1.1 FinanceFinance lease63.3 leaseliabilities liabilities 2011 The Corporation is also keen2012 to70.3 take advantage 70.3 63.3 63.3 OtherOther loans loans of unsecured financing sources in the open 1.1 1.1 70.3 70.3 market. 1 0.5 1.3 0.5
Bank loans 27.5 33.8 Borrowings % % Bonds issued 0.7 Finance lease liabilities Other loans 1.1 63.3 70.3
SOURCE: IFRS consolidated financial statements of JSC “UAC”.
BONDS ISSUED BY JSC “UAC”:
Description Issue amount Coupon rate, % p.a. Date of placement/Matu- rity date
JSC “UAC”’s bonds, Issue 1 (outstanding) March 18, 2011 / March RUB 46,280 mln 8.0% 17, 2020
JSC “UAC”’s Eurobonds, 2010 (LNP, SPV – Moscow River B.V., June 27, 2008 / July 09, USD 200 mln 10.0% issue redeemed) 2010
46 www.uacrussia.ru Comments on Investor relations and the technical Government relations interruption of Corporation’s shares trading
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STRUCTURE OF SHARE CAPITAL, SHARE ISSUES
Share capital of JSC “UAC” at the time STRUCTURE OF JSC “UAC”’s SHARE CAPITAL of its creation was RUB 96.724 bln, divided into 96.724 bln ordinary registered shares with nominal a value of RUB 1.00 each. 2011 2012 The Corporation carried out nine new share issues in 2007-2012 as part of the program of Russian Government support for the aircraft 7 7 and defense industry. Completion of a ninth 10 9 issue in August 2012 increased JSC “UAC”’s share capital to RUB 219,654,789,157 and increased % % the Government stake to 84.33% (changes to JSC “UAC”’s charter to reflect the placement were
registered on June 5, 2012). As of December 31, 83 84 2012 the registered share capital of JSC “UAC” was RUB 219,654,789,158, and the paid-up share capital was also RUB 219,654,789,158. Federal Agency for State Property Management Vnesheconombank Other private shareholders
SOURCE: IFRS consolidated financial statements of JSC “UAC”.
SHARE ISSUES BY JSC “UAC”
Date of state registration Issue amount, RUB Issue volume, shares Share capital, RUB/ Russian Government of the placement report/issue/ shares and VEB holdings, %
October 18, 2007, Foundation issue 96,724,000,000.00 96,724,000,000.00 96,724,000,000.00 RG – 90.1266 March 20, 2008, Issue (001D) 8,906,331,348.00 8,246,603,100 104,970,603,100.00 RG – 90.9022 September 18, 2008, Issue (002D) 5,999,999,999.69 5,309,734,513 110,280,337,613.00 RG – 91.3403 August 18, 2009, Issue (003D) 6,300,000,000.00 6,000,000,000 116,280,337,613.00 RG – 91.7871 November 19, 2009, Issue (004D) 16,091,271,516.60 15,325,020,492 131,605,358,105.00 RG – 89.0442 May 13, 2010, Issue (005D) 45,150,000,000.00 43,000,000,000 174,605,358,105.00 RG – 80.2879; VEB – 11.4544 December 14, 2010, Issue (006D) 14,027,554,493.00 14,027,554,493 188,632,912,598.00 RG – 81.7537; VEB – 10.6026 June 28, 2011, Issue (007D) 13,293,049,800.00 13,293,049,800 201,925,962,398.00 RG – 82.9548; VEB – 9.9046 December 28, 2011, Issue (008D) 2,698,013,701.00 2,698,013,701 204,623,976,099.00 RG – 83.1796; VEB – 9.7740 August 07, 2012, Issue (009D) 15,030,813,059.00 15,030,813,059 219,654,789,158.00 RG – 84.3306; VEB – 9.1052
47 OPERATIONS Debt policy Structure of share capital, ON DEBT AND EQUITY share issues CAPITAL MARKETS
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COMMENTS ON THE TECHNICAL INTERRUPTION OF CORPORATION’s SHARES TRADING
In accordance with clause 6 of Article 35 On September 16, 2013 the MICEX Stock Exchange of the Federal Law No. 208-FZ “On Joint resolved to admit ordinary shares of JSC “UAC” to Stock Companies” (December 26, 1995), trading on the Moscow Stock Exchange (MICEX the Corporation was required to make Order No. 1246-r, dated September 16, 2013) a resolution at the end of the 2012 financial by their inclusion in MICEX SE Non-Listed Securities year on the reduction of its share capital to Segment. an amount not exceeding the value of its net assets.
An extraordinary general meeting of JSC “UAC”’s DETAILS OF ADMISSION OF JSC “UAC”’s SECURITIES shareholders on March 18, 2013 approved TO TRADING ON THE MOSCOW EXCHANGE the reduction of the Corporation’s share capital by decreasing the nominal value of its ordinary shares from RUB 1.00 to RUB 0.86. Shares:
On March 29, 2013 the Board of Directors Type of instrument Ordinary share of JSC “UAC” approved the resolution on Code of the security UNAC an issue of ordinary shares for the purpose ISIN code RU000A0JOLZ7 of conversion (placement by way of conversion State registration number 1-02-55306-E of shares with nominal value of RUB 1.00 to Issue volume 219,654,789,158 shares with nominal value of RUB 0.86), which Nominal value 0.8600 was carried out on April 30, 2013. Currency of the nominal value RUB
On May 8, 2013 the MICEX Stock Exchange Date of admission to trading September 17, 2013 resolved to delist shares of JSC “UAC” due to Listing level Non-Listed Securities Segment redemption of the Corporation’s shares with Bonds: nominal value of RUB 1.00. Type of instrument Corporate bonds
Code of the security RU000A0JRA65 In order to bring ordinary shares State registration number 4-01-55306-E of the Corporation into compliance with ISIN code RU000A0JRA65 the requirements of Russian law and listing rules of the MICEX Stock Exchange, on July Date of admission to trading March 15, 2011 29, 2013 the Corporation’s Board of Directors Date of redemption March 17, 2020 approved a new issue of shares in JSC “UAC” and Nominal value 1,000 the respective securities prospectus. Currency of the nominal value RUB
Listing level Non-Listed Securities Segment
SOURCE: JSC “UAC”’s data.
48 www.uacrussia.ru Comments on Investor relations and the technical Government relations interruption of Corporation’s shares trading
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Vice-President for Economics and Finance (CFO) tasks related to the privatization process of JSC «UAC» Vladimir Chirikov made some of JSC “UAC“. Temporary break in trading does comments about the a dmission of Corporate’s not cancel our strategic vector in the direction shares to trading at Moscow Stock Exchange: of publicity and long-term relationships with «Maintaining of Corporate’s shares trading investors”. at stock exchange is one of our most important
INVESTOR RELATIONS AND GOVERNMENT RELATIONS
INTERACTION OF JSC “UAC” WITH THE INVESTMENT COMMUNITY
JSC “UAC” is developing a program periods). Information about the Corporation is of interaction with representatives presented on the website in both Russian and of Russian and international investment English. community, supported by the Corporation’s Investor and Shareholder Relations Service. Specific steps by the Corporation to further its relationships with the investment community The Corporation regularly discloses information are as follows: about its activities, both according to the requirements set by Russian regulating • Substantial IR-releases are published to authority, and using a number of voluntary clarify news of interest to the investment disclosure formats. community. • Publication of the Corporation’s IFRS The “Investor and Shareholder Relations” financial statements is accompanied section of the corporate website contains by an analytic presentation, as well information about the Corporation’s operating as conference calls with participation and financial results (current materials, as well of Corporation’s top-managers responsible as an archive of information from previous for finance and investments.
49 OPERATIONS Investor relations and ON DEBT AND EQUITY Government CAPITAL MARKETS relations
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• Personal meetings with analysts and investors • Officers of the Corporation take part in are held. investment conferences (e.g. the VTB Capital • Meetings between the management Investment Conference “Russia Calling!” in of JSC “UAC” and representatives Moscow in October 2013). of investment funds are planned in October- November 2013 in Moscow.
INTERACTION OF JSC “UAC” WITH GOVERNMENT AUTHORITIES AND SUPRANATIONAL STRUCTURES
JSC “UAC” has an efficient relationship with • On April 5, 2012, Resolution No. 15 the Russian Government within the framework of the Board of the Eurasian Economic of the Federal Target Programs, “Development Commission set the import customs duty of Russian Civil Aviation Technology in 2002- applicable to civil aircraft simulators and 2010 and up to 2015” and “Development their parts at zero level, enabling reduction of the Russian Military-Industrial Complex in of the value of contracts for the import 2011-2020”. of simulators by up to 20% of their cost. • Resolutions No. 149 (August 30, 2012) and The Corporation also interacts with No. 81 (September 14, 2012) of the Board supranational regulatory organizations of the Eurasian Economic Commission lower of the CIS Customs Union and Single Economic import customs duties applicable to certain Space. Applications made by the Corporation aircraft industry components required for and work carried out with the participation the production of new Russian aircraft to zero of JSC “UAC”’s officers have led to the following level, reducing production costs and thereby important changes to customs regulations in making the aircraft more price competitive. the Customs Union:
50 www.uacrussia.ru THE AIRCRAFT MARKET: CURRENT CONDITIONS AND OUTLOOK
MS-21 Main customers RUSSIA RUSSIA RUSSIA MALAYSIA
JSC “Ilyushin Aviacapital- Finance Co” Service VEB-Leasing Crecom
STAGES OF THE MS-21 PROJECT STAGE OF THE PROJECT: The MS-21 family of short- and medium-haul aircraft is MS-21 Gate 0 Gate 2 Gate 4 Gate 6 a strategic JSC “UAC” project for expansion Business idea Concept is Program Maiden feasible. ready for flight Ready to launch of presence on the civil aircraft market. “show” TYPE: NARROW-BODY MEDIUM-HAUL AIRCRAFT The MS-21 incorporates a large number Gate 1 Gate 3 Gate 5 Gate 7 Confirmation Ready to Approval Launch in of business “propose” of aircraft service of innovations offering competitive advantages. feasibility configuration It can be operated by short-distance and SPECIFICATIONS medium-distance airlines and is currently available in two size versions: the MS-21-200, Cruising speed 850-870 km/h carrying 153 passengers, and the MS-21-300, carrying 182 passengers (both in a single-class 2007 2009 2011 2013 2016 2017 arrangement, with seat pitch of 32 inches). Length (MS-21-200/ 2017 MS-21-300) year 35.9/41.5 m Max range with planned start of deliveries The preliminary design was completed in standard payload 5,200 km 2012. The technical design was prepared PROJECT GEOGRAPHY and an application for certification was filed in compliance with the rules of the Air Design: JSC “OKB Imeni A. S. Yakovlev” Registration Board of the Interstate Aviation Production: Committee. The mock-up Commission Flight altitude Crew Irkutsk Aviation Plant, branch office 11,900 m confirmed compliance of the selected design 2 persons of JSC “Irkut Corporation” and engineering solutions with the certification basis approved by the Air Registration Board. The compliance analysis was carried out using Passengers TFE (MS-21-200/ 2 Required runway length a developed electronic model of the MS-21 MS-21-300) 1,560/1,580 m 153/182 base configuration and expert assessment persons 80,000 of a full-size model of the cockpit and part flight hours of the passenger cabin. The final design or 60,000 landings, resource of the aircraft Wingspan documents (in a first revision) for the aircraft (MS-21-200/MS-21-300) body were delivered to the main manufacturer 359/38.8 m Cabin width for processing and preparation of production 3.81 m CERTIFICATES equipment. Cabin AND COMPLIANCES height 2.2 m As of today that JDP stage has been completed with suppliers of the main aircraft systems. Work has been carried out to finalize development engineering contracts and mass supplies
Max payload of components for main systems of the MS-21 15,300/ (terms of reference for systems, SOW, technical 22,600 kg and commercial appendices to contracts).
AERODROME CATEGORY EPNdB noise margin (chapter 4) 15 Height ICAO-4C NOX emission margin (as per CAEP/6 13.9 m ICAO) 50% 75–85 LANDING CATEGORY - mln US dollars CO, Nox emissions 20% approximate catalogue cost IIIA (OPTION – IIIB)
52 www.uacrussia.ru Position in the industry
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POSITION IN THE INDUSTRY
JSC “UAC” has been a key player on the global OVER THE LAST THREE YEARS JSC “UAC” HAS civil and military aircraft market since 2007. ACCOUNTED FOR ABOUT 15% OF GLOBAL Competitors of the Corporation include almost DELIVERIES OF MILITARY AIRCRAFT AND ABOUT 1% all leading foreign aircraft manufacturers: OF CIVIL AIRCRAFT DELIVERIES. Boeing, Bombardier, Embraer and EADS.
The Corporation is one of the world’s three Main competitors in the military aircraft leading manufacturers of military aircraft. This segment are Lockheed Martin, Dassault position is being maintained due to significant Aviation, CASA, SAAB, COMAC and Mitsubishi increase of orders under the Russian state Heavy Industries. China, India and Ukraine are defense program. Russian aircraft industry also attempting to secure an independent role traditionally has strong positions in terms on global markets for both military and civil of the diversity of its product portfolio and aircraft. in terms of efficiency of the equipment it produces.
Il-96-300 (RA-96011) at Sheremetyevo airport
53 THE AIRCRAFT MARKET: Position Overview in the industry of key markets CURRENT CONDITIONS AND OUTLOOK
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64 18
205
601 OVERVIEW OF KEY MARKETS 233 1,709 EXTERNAL MARKET. UNIT DELIVERIES OF CIVIL AIRCRAFT units CIVIL AIRCRAFT IN 2012 BY COMPANIES
Expansion of the global airline market in 2012 was in line with long-term trends. However, 64 18 growth rates were somewhat lower than forecast, reflecting trends in the global economy 205 and particularly in the economies of Eurozone 588 countries. 601
ACCORDING TO IATA DATA: Boeing Passenger carrying increased by 5.3% in 2012 Airbus 233 compared to 2011. The passenger load factor 1,709 Bombardier was 79.1%, which is 1 percentage point more units Embraer ATR than in 2011. Cargo volumes declined by 1.5%. JSC “UAC” The cargo load factor on cargo flights declined to 45.2% from 45.9% in 2011.
Total profit of airlines worldwide declined from USD 8.8 bln in 2011 to USD 7.6 bln in 2012. Average profitability fell from 1.5% in 2011 to 1.2% in 2012. 588
Demand for new civil aircraft continued to grow in the reporting year despite some reduction of airlines’ income. The number SOURCE: IATA, JSCBoeing “UAC”. of new civil aircraft delivered to the market by all Airbus Bombardier manufacturers rose from 1,514 in 2011 to 1,691 Embraer units in 2012 (588 by Airbus, 601 by Boeing, 233 ATR by Bombardier, 205 by Embraer, and 64 by ATR). JSC “UAC” A total of 1,189 long-haul aircraft, 220 regional craft (50-110 seats), 278 business planes, and 4 amphibious aircraft were delivered.
54 www.uacrussia.ru IATA predicts an increase of passenger carrying be supplied to the global market in 2012-2031. volumes of about 4.5% in 2013 and a 1.4% increase Strongest demand is still expected to be for in cargo volumes. The Association expects industry narrow-body aircraft (from 19,500 to 23,240 units). profits to be about USD 8.4 bln, and average Deliveries of wide-body aircraft are expected to profitability will not exceed 1.3%. be between 6,500 (Airbus) and 7,950 (Boeing) units, while forecasts for regional aircraft deliveries Updated forecasts by leading international vary from 5,900 (Bombardier, 20-99 seats) to aircraft manufacturers predict that between 6,795 (Embraer, 30-120 seats). In value terms it 28,198 (Airbus forecast) and 34,000 (Boeing is expected that 44-57% of total sales will be forecast) new passenger and cargo aircraft will of wide-body aircraft.
EXTERNAL MARKET. MILITARY AIRCRAFT
According to the Centre for Analysis will account for more than half of Russian of Strategies and Technologies, Russia made export deliveries. export deliveries of about 40 combat aircraft in the Su-30 and MiG-29 families in 2012. The main The aircraft industry consultancy, Forecast importers of Russian military aircraft were India, International, predicts that global manufacturers Algeria, Vietnam, Indonesia and Uganda. will build 3,023 tactical aircraft (fighters, fighter-bombers and ground-attack aircraft) in Based on current contracts and direct supply the period from 2012 until 2021. The value of this plans, the Center for Analysis of the World market is expected to be USD 196.7 bln. Arms Trade (CAWAT) forecasts that export deliveries of Russian armaments will amount Russian manufacturers are expected to build to USD 9.4 bln (15.6% of the global volume) in 478 aircraft in 2012-2021 (335 units at Sukhoi 2013, USD 4.9 bln (7.4%) in 2014 and USD 5 bln and 143 units at MiG), and Forecast International (6.5%) in 2015. The CAWAT experts estimate predicts that Russian manufacturers will take total value of export supplies of Russian 15.81% of the market in unit terms (11.08% for military equipment to be at least USD 32.5 bln Sukhoi and 4.73% for MiG) and 12.02% in value (12% of the global volume). Aircraft equipment terms (7.66% for Sukhoi and 4.36% for MiG).
55 THE AIRCRAFT MARKET: Position Overview in the industry of key markets CURRENT CONDITIONS AND OUTLOOK
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DOMESTIC MARKET. civil aircraft
Carrying by Russian airlines grew at an average The number of commercial airlines operating rate of 6.5% per year for cargo turnover and in Russia declined to 120 in 2012 and the four 10.7% for passenger turnover in 2001-2011. leading airlines (Aeroflot, Transaero, UTair, S7) This result exceeds rates of global market accounted for 60% of total passenger turnover, growth by about 2.5 times. Passenger turnover while 90% of the passenger turnover was taken of Russian airlines increased by 2.8 times in by the 14 leaders. Reacting to high fuel prices, 2001-2011, while the increase for the global airlines pursued aircraft fleet upgrading programs, market was 1.5 times. The rate of growth acquiring craft with high fuel efficiency. In 2012, of Russian air transport remained two times Russian airline fleets received 114 foreign-made greater than that of the global market in 2012. aircraft and 15 new aircraft produced in Russia. Passenger turnover of Russian airlines grew by 17.4% in the reporting year to 195.77 bln The long-term forecast is for average growth passenger-kilometers, setting a new record for of passenger carrying in Russia and the CIS at the period since 1990. The passenger load factor a rate of 4.8% for the next 20 years, and cargo increased by 1.1% from 2011 to a level of 78.3%. growth should be 5.7%. The Russian Civil Aviation Cargo turnover of Russian airlines grew by 2.5% Research Institute has calculated that Russian in 2012 to a level of 5.076 bln ton-kilometers. airlines will need 850-1,000 new passenger aircraft The average commercial load factor increased in various capacity classes for the period up to by 0.8% to a level of 65.6%. 2020, taking account of write-offs of aging craft. This will represent 5.5-6% of the global market for new passenger aircraft.
DOMESTIC MARKET. MILITARY AIRCRAFT
Purchases of military aircraft for the Russian for a significant increase of the volumes and Ministry of Defense will be in accordance with the range of combat aircraft delivered to the state’s defense equipment program for Russian military. It is expected that the share the period up to 2020 (approved by Order of supplies to the domestic market will of the President of the Russian Federation reach 60% of total military aircraft output on December 31, 2010) and the state defense by JSC “UAC”. order for 2013-2015. These documents call
56 www.uacrussia.ru DEVELOPMENT STRATEGY
AN-148-100 User Airlines Russia Russia Ukraine Cuba Russia Russia Russia Ukraine North Korea Rossiya Angara Rossiya Emergency Air Koryo (former GTK) Airlines Special Flight Situations Detachment Ministry Antonov Airlines
DELIVERIES OF AN-148 AIRCRAFT BY JSC “UAC”, units A family of aircraft for passenger and cargo carrying on regional and short-haul routes. AN148-100 The aircraft was designed by ANTONOV Company and is produced under license TYPE: NARROW-BODY SHORT-HAUL AIRCRAFT by JSC “VASO”. - - - - 2 4 2 4 The An-148 family has a high level of uniformity SPECIFICATIONS and continuity with equipment assemblies and components of the basic aircraft design Cruising speed 800 – 870 km/h (wing, empennage, body, engines, passenger equipment and avionics). Continuity of design, engineering solutions and operating Length 2009 2009 2010 2011 2012 specifications used in the An-148-100 with those 29.13 m year Range with maximum load commercial launch of the An-148 of Antonov aircraft, which are already in service (An-148-100A/ An-148-100B/ enables significant reduction of expenses in An-148-100E) 2,100/3,500/4,400 km operation of the aircraft for airlines that already PROJECT GEOGRAPHY operate An-24s and An-140s.of
Design: Flight altitude ANTONOV Company (Kiev) Standards of passenger comfort are Crew 11,200 m Production: comparable with those provided by long-haul 2 persons TFE D-436-148 JSC “VASO” (under license) aircraft thanks to well-designed layout and 2 x 6,830 kgf (Voronezh); Antonov Mass- 80,000 production Plant (Kiev, Ukraine) composition of the cabin areas, ergonomic Required runway length flight hours optimization of the common and individual Passengers (An-148-100A/ or 60,000 landings (resource of the airframe) 75 persons in An-148-100B/ space in the passenger cabin, use of modern a single-class An-148-100E) arrangement 1,560/1,800/1,885 m seats, interior design and materials, air and with seat pitch temperature regulation, and low levels of noise. of 32 inches
Cabin width 3.13 m CERTIFICATES Cabin AND COMPLIANCES height 2 m 27–30 mln US dollars approximate catalogue price Wingspan 28.91 m
Max payload 9,000 kg
TYPE CERTIFICATE Certified under AR-25 aircraft rules, harmonized with CS-25 European norms. No. 264-AN-148 ISSUED Complies with the requirements of Chapter 4 Height ON FEBRUARY 26, 2007 of Appendix 16 on noise levels and Appendix 16 8.19 m of Volume 2 (ICAO) for aircraft engine emissions. Complies with international standards (ICAO, MSG-3), ensuring support for aircraft airworthiness 12 throughout its life-cycle. aircraft delivered by the Corporation by December 31, 2012
58 www.uacrussia.ru BASIC STRATEGIC PRINCIPLES
DIVERSIFICATION COMPETITIVENESS GLOBAL 1 AND BALANCE 2 3 OPERATIONS
JSC “UAC” will develop its All future JSC “UAC”’s products Entering new international business in all the main aircraft must be competitive in the global markets is the key to expansion construction segments, treating market. In order to achieve of the Corporation’s business. each segment differently to take this, the Corporation will rely JSC “UAC” aims to achieve an account of available market primarily on its intellectual open business model using its opportunities and proprietary potential and key competences capabilities as a public company competences. The strategic as a system integrator of aircraft to attract investments from goal is for a balance between projects. The Corporation will the market and technological production of civil and military also engage foreign partners or solutions from its partners. aircraft in order to ensure acquire relevant technical and sustainable development industrial solutions in order to be of the Corporation’s business. competitive.
The Russian state, as the major shareholder • Strategy for the Development of the Aircraft of JSC “UAC”, determines the goals, opportunities Industry up to 2015; and limitations relative to implementation • The Transport Strategy of the Russian of the Corporation’s development strategy. Federation; This strategy has been developed and is being • State Armaments Program for 2011-2020; implemented in the light of state policy in • Development of the Aircraft Industry up to the aircraft sector, as set out in the following 2025 (State Program); documents and programs: • Development of Russian Civil Aviation Technology in 2002-2010 and up to 2015 • Fundamentals of Russian State Policy in (Federal Target Program). the Aircraft Sector up to 2020; • Fundamentals of Russian State Policy for the Development of the Defense Industry in 2011-2020 and up to 2025;
59 JSC “UAC”’s STRATEGY IS FOCUSED ON CREATING A HIGHLY COMPETITIVE AIRCRAFT INDUSTRY IN RUSSIA AND ITS RETURN TO THE GLOBAL MARKET AS THE THIRD LARGEST MANUFACTURER BY VOLUME. MEETING THIS CHALLENGE DEPENDS ON IMPLEMENTATION OF THREE-STAGE STRATEGIC MEASURES IN THE MILITARY, CIVIL AND TRANSPORT AIRCRAFT SEGMENTS.
STAGE I STAGE II STAGE III STABILIZATION SUSTAINABLE DEVELOPMENT ACCELERATED GROWTH 2012–2014 2015–2019 2020–2025
• Getting Break-even point. • Sustainable returns and partial • Sustainable returns and full • Investments to R&D and mass self-funding. self-funding. produced innovative products. • Market price for JSC “UAC”’s • Financial results at the level • Reduction of WACC. shares matching their nominal of industry leaders. • Achievement of positive free value. • Partial privatization with cash flow. • Technology breakthrough. retention of state control. • Putting conditions in place for • Further increase of the net the start of privatization. cash flow, ensuring that it remains positive.
60 www.uacrussia.ru PRIORITY PROJECTS
AVIATION ELECTRIC ENGINE COMPOSITE ELECTRIC NOISE- ELECTRONICS WHEEL NACELLES WING DRIVES REDUCTION DRIVE SYSTEMS Creation of new Cost reduction Use of advanced High-power electric highly reliable open Taxiing with technologies drives Promotion architecture systems electrically driven (mixed packages of comfort chassis wheels to of polymer by reduction reduce harmful composites) of noise levels in emissions at the passenger airports cabin and cockpit to 73 dBA
A TOTAL OF 190 INNOVATIVE PROJECTS ARE CURRENTLY IN DEVELOPMENT BY THE CORPORATION
61 DEVELOPMENT Investments STRATEGY
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INVESTMENTS
The investment program in 2013-2015 is Most investments are allocated to upgrading expected to have total value of RUB 148 bln. of production assets and R&D, in line with At the same time investments will decrease the Corporation’s concept for elimination over the next three years. of low-margin industrial processes, focus on high-level processes, and overcoming gaps in Investments in civil aircraft construction will design capability compared with competitors. represent over 53% of total investments by the Corporation in 2013-2015, while 29% will be spent on the military segment.
INVESTMENT BUDGETS OF SUBSIDIARIES AND INVESTMENT BUDGETS OF SUBSIDIARIES AND ASSOCIATES BY BUSINESS SEGMENTS, 2013-2015 ASSOCIATES BY INDUSTRIAL PROCESSES, 2013-2015
Civil aircraft 2 1 Complex refits 4 4 2 9 Unit assembly 1 Military aircraft 4
4 8 Mechanical assembly Transport aircraft 2 1 Complex refits 4 2 RUB RUB Unit assembly Composite production Special aircraft 4 44 148% 8 8 148% Mechanical assembly Flight testing bln Excluding programs bln 53 Composite productionMetallurgy 44 29 Infrastructure8 % Flight testing Design projects 27 Metallurgy Other Design Semi-product and stamping 27 Other Semi-product and stamping
Civil aircraft 2 2 1 Complex refits 4 4 9 4 Unit assembly 1 Military aircraft 4 8 Mechanical assembly Transport aircraft Composite production 44 Special aircraft % 8 % Flight testing 53 Excluding programs Metallurgy 29 Infrastructure Design projects 27 Other Semi-product and stamping
SOURCE: JSC “UAC”’s data SOURCE: JSC “UAC”’s data
* According to management accounting data, including revenue from R&D under the Federal Target Program “Development of Russian Civil Aviation Technology in 2002-2010 and up to 2015”
62 www.uacrussia.ru The investment program is mainly financed THE GREATER PART OF INVESTMENTS ARE SPENT from internal sources and borrowing (43%). ON UPGRADING OF PRODUCTION EQUIPMENT AND Financing is also provided by the Federal Target R&D, THE LARGEST SHARE OF R&D RELATES TO Program “Development of Russian Civil Aviation CIVIL AIRCRAFT Technology in 2007-2010 and up to 2015” (23% of total funding).
INVESTMENT BUDGETS OF SUBSIDIARIES AND INVESTMENT BUDGETS OF SUBSIDIARIES AND ASSOCIATES IN 2013-2015 BY INVESTMENT TYPES* ASSOCIATES IN 2013-2015 BY SOURCES OF FUNDING*
0 R&D 2 2 1 0 0 Upgrading of 23
production equipment Own/borrowed Budget funds (Federal Target RUB Development RUB 41 148 148 43 Program “Development of % Aerodrome % Civil Aviation Technology”) bln 54 bln Overhaul of buildings Budget funds (Federal Target and structures Program “Military-Industrial 0 R&D 34 2 2 1 0 Information Complex”) Upgrading of technologies Budget funds (State support) production equipment Infrastructure Development 41 % Aerodrome 0 54 23 0 R&D Overhaul of buildings Own/borrowed 2 2 1 0 and structures Upgrading of Budget funds (Federal Target Information production equipment 43 Program “Development of technologies % Development Civil Aviation Technology”) 41 Infrastructure % Aerodrome Budget funds (Federal Target Program “Military-Industrial 54 34 Overhaul of buildings Complex”) and structures Budget funds (State support) Information technologies Infrastructure SOURCE: JSC “UAC”’s data SOURCE: JSC “UAC”’s data
* According to management accounting data, including revenue from R&D under the Federal Target Program “Development of Russian Civil Aviation Technology in 2002-2010 and up to 2015”
63 DEVELOPMENT Investments STRATEGY
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TOP 5 LARGEST INVESTMENT PROJECTS (2013-2015)
Creating production facilities for 1 the MS-21 project
Construction of JSC “UAC”’s 2 headquarters in Zhukovsky
Repair and modernization 3 of the Tu-160
Reconstruction of the aerodrome complex 4 at JSC “KAPO”
Reconstruction and refit of the design and 5 production complex (Tu-95MS)
64 www.uacrussia.ru CORPORATE GOVERNANCE
MIG-29KUB The MiG-29K/KUB is Mass production for The aircraft is armed with guided СИСТЕМАElectronic Status: in operation, the base aircraft in a new the Indian Navy air-to-air and air-to-surface missiles, equipment in production. unified family that also guided bombs, unguided missiles, КОРПОРАТИВНОГОuses the open Deployed includes the MiG-29M/ aviation bombs and a built-in 30mm УПРАВЛЕНИЯarchitecture by the Indian Navy M2 and MiG-35/MiG-35D air-gun. Other armaments can be principle based on in May 2013. fighter planes installed at the customer’s request. the MIL-STD-1553V standard.
PROJECT HISTORY A multi-role fighter of the 4++ generation intended for air defense of naval forces, winning MiG-29K/KUB 1994 – development of a light carrier-based fighter-bomber based on air superiority, high-accuracy destruction of sea the MiG-29 and ground targets using guided weapons 1999 – business feasibility confirmed TYPE: CARRIER-LAUNCHED AIRCRAFT Sukhoi PAK-FA T-50 by day or night and in any weather conditions. 2002-2006 – MiG-29K testing 2007 – maiden flight of the test aircraft The aircraft can be based on aircraft-carriers 2008 – maiden flight of mass-produced MiG-29KUB. Aircraft SPECIFICIATIONS commissioning. with tonnage from 28,000 tons, equipped with take-off ramp and landing arrestor, and also at 2016 – mass production at planned capacity Maximum flight speed near ground – 1,400 km/h airfields. at high altitude – 2,100 km/h 2007 The main innovations used in the MiG-29K/KUB year PROJECT GEOGRAPHY fighters are as follows: improved airframe using maiden flight about 15% composite materials; folding wing Production: Dementiev Moscow with upgraded high-lift devices to improve Range without drop tanks Aviation Production Association MiG-29K – 2,000 km The MiG-29K/KUB program has been take-off/landing performance; fly-by-wire MiG-29KUB – 1,700 km Length Height implemented by leading Russian aircraft control system with quadruple redundancy; 17.3 m 4.4 m companies: JSC “Klimov” (developer and manufacturer of a test batch of RD-33MK significantly reduced radar signature; increased engines); JSC “Chernyshev Moscow Machine-Building Enterprise” (manufacturer weapon payload stored at eight external hard of RD-33MK engines for mass production); points; increased internal fuel capacity and Service ceiling JSC “Phazotron-NIIR Corporation” (developer 17,500 m and manufacturer of the Zhuk-ME radar); FSPC in-flight refueling capability; ability to refuel Climbing speed “Ramenskoye Instrument Engineering Design other aircraft using a PAZ-1MK refueling unit 18,000 m/min (300 m/s) Bureau” (avionic systems integrator, developer 28,000 of avionics components). (fitted additionally). Limit load factor mln tons +8 g tonnage of the base aircraft-carrier
Max take-off weight 24,500 kg Fuel tank capacity: internal 5,670 l with 3 drop tanks: 9,470 l with 5 drop tanks: 11,070 l Wing area 42 sq.m. 1,100 ARMAMENT km combat range: External hard points – 8 without drop tanks: 850 km Guided air-to-air missiles: RD-33MK with 1 drop tank: 1,050 km medium range – 6xRVV-AE 2 x 9,000 with 3 drop tanks: 1,300 km short range – 8xR-73E
Wing span guided air-to-surface missiles: 11.99 m anti-ship – 4xX-31A, X-35E anti-radar – 4xX-31P Guided bombs – 4-KAB-500Kr Built-in 30mm air-gun
Scale: 1:100 66 www.uacrussia.ru Corporate governance
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CORPORATE GOVERNANCE
The Corporation uses the best practice The Corporation does all its best (both in corporate governance to ensure in respect of the corporate center and accomplishment of several major tasks, its subsidiaries) to maintain its corporate JSC “UAC”’s internal which include full and timely implementation management standards and bring them into regulations can of JSC “UAC”’s long-term development compliance with the best practices of public be viewed on the Corporation strategy (particularly, further strengthening companies. website at: http:// of the Corporation’s position on global and www.uacrussia. ru/en/investors/ national aircraft construction markets), as Principal internal documents regulating information_ disclosure/charter_ well as continuity and quality of management the structure, powers and procedures and_regulations/ processes within an integrated structure in line of the corporate governance bodies are: with the chosen business model. the Charter of JSC “UAC”, Regulation on the General Meeting of Shareholders, The guiding principles of the Corporation’s Regulation on the Board of Directors, corporate management policy are: distinct Regulation on Executive Bodies, and other allocation of responsibility among management internal regulations. bodies; making and implementing decisions with due regard for risk; a result-based The Corporation has voluntarily undertaken to remuneration system; and transparency and comply with provisions of the Corporate Code accountability to all categories of JSC “UAC”’s of Conduct approved by the General Meeting stakeholders. of JSC “UAC”’s shareholders in November 2006.
THE CORPORATION STRIVES TO MAINTAIN AND DEVELOP ITS CORPORATE MANAGEMENT STANDARDS IN ORDER TO ENSURE THEIR COMPLIANCE WITH BEST PRACTICE FOR PUBLIC COMPANIES.
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MANAGEMENT AND CONTROL BODIES STRUCTURE
The supreme management body There are three specialized committees of the Corporation is the General Meeting of the Board of Directors: the Audit of Shareholders. Committee, Nominations and Remuneration Committee and Strategy Committee. Internal Overall supervision of the Corporation’s business, control over economics and finance is carried except for issues referred to the competence out by the Internal Audit Department and of the General Meeting of Shareholders, is the Internal Audit Commission. the responsibility of the Board of Directors of JSC “UAC”. The Board of Directors is The Corporation’s collective executive body entrusted with such powers in compliance with is the Executive Board. The chief executive the Federal Law “On Joint Stock Companies” and officer of the Corporation is its President. the Corporation’s Charter.
JSC “UAC”’s CORPORATE GOVERNANCE SYSTEM
Corporate center Financial statements Election Independent auditor General Meeting (preparation of IFRS, RAS Internal Audit Commission Approval of Shareholders Report financial statements)
Election Recommendations on Recommendations/ resolutions concerning report main issues Report Election Report Assignments Corporate Secretary Audit Committee Corporate governance system Board of Directors Coordination Corporate governance standards Corporate Governance Formalization Strategy Committee Report on performance Director of corporate Избрание governance processes resolutions by the Board Поручения of Directors Nominations and Remuneration Committee Corporate Governance Department Executive Board
Appointments President Assignments
Report Recommendations Appointment on Subsidiaries the recommendation of the Audit and associates Committee Assignments Internal Audit Department
Reports Management bodies Results of subsidiaries and Appointment; Recommendations for voting associates by the Board of Directors; Corporate projects
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GENERAL MEETING OF SHAREHOLDERS
The annual General Meeting of JSC “UAC”’s In 2012 three General Meetings of JSC “UAC”’s Shareholders is held exclusively in the form Shareholders were held - one annual and two of the joint presence of shareholders no earlier extraordinary. Minutes of the shareholders than two months and no later than six months meetings and agendas of each meeting are after expiry of the financial year. available for review at: 22 Ulansky side-street, bld.1, Moscow 101000, Russia
BOARD OF DIRECTORS
The procedure for formation Committees. The competences of Board of the Corporation’s management bodies of Directors and its Committees members, as vests all the key competences at the level of December 31, 2012, are shown in the table of the Board of Directors and its specialized below.
EXPERIENCE AND COMPETENCES OF CORPORATE’S BOARD OF DIRECTORS MEMBERS
Competences and experience Board of Directors Audit Committee Strategy Committee Nominations and Remuneration Committee
Management and leadership O — O — International business experience O O O O
Development strategy O — O —
Aircraft construction O — O —
Corporate governance O — — O
Financial management O O O —
Investment projects O O — —
Sustainable development O — O —
Remuneration O — — O
Marketing O — O O
External relations O O — — Number of members of the Board of Directors 11 directors 4 directors 7 directors 4 directors
69 CORPORATE Corporate Management General Board President governance and control Meeting of Directors and GOVERNANCE bodies of Shareholders Executive structure Board
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The Board of Directors includes independent the laws of the Russian Federation. Evgeny V. directors who help to promote efficient Lyamtsev and Ilya V. Eliseev were independent operations by the Board. The criteria for Directors serving on the Board as of December independence of a member are set out in 31, 2012 . the Code of Corporate Conduct, the Regulation on the Board of Directors of JSC “UAC” and
MEMBERS OF THE BOARD OF DIRECTORS IN 2012
From January 1, 2012 until June 28, 2012 From June 29, 2012 until December 31, 2012
Vladimir A. Dmitriev (Chairman) Vladimir A. Dmitriev (Chairman)
Sergey V. Alexashenko Boris S. Alyeshin
Oleg F. Demchenko Yury I. Borisov
Alexander N. Zelin Oleg F. Demchenko
Andrey N. Klepach Ilya V. Eliseev
Valery V. Lukyanenko Alexander N. Zelin
Evgeny V. Lyamtsev Andrey N. Klepach
Denis V. Manturov Evgeny V. Lyamtsev
Alexander V. Novak Valery M. Okulov
Valery M. Okulov Mikhail A. Pogosyan
Mikhail A. Pogosyan Vladislav N. Putilin
Vladislav N. Putilin Andrey G. Reus
Aleksey I. Fedorov Yury A. Solovyov
Sergey V. Chemezov Sergey V. Chemezov
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Information about the Board of Directors members in 2012
Vladimir A. Dmitriev Sergey V. Alexashenko Boris S. Alyeshin Yury I. Borisov Oleg F. Demchenko Chairman of the Board Born in 1959. Born in 1955. Born in 1956. Born in 1944. of Directors Graduated from the faculty Graduated from the Moscow Graduated from the Kalinin Graduated from Born in 1953. of economics at Moscow Institute of Physics and Suvorov Military School the Kuibyshev Aviation Graduated from the Moscow State University (1986). Engineering (1978). (1974), Pushkin Higher Institute (1968) and Finance Institute majoring Doctor of Economics Corresponding Member Radio-Electronic Air Defense the Russian Presidential in International Economic (1989). Professor Emeritus of the Russian Academy Training School (1978), and Academy of the National Relations (1975). Doctor of the Jilin University of Sciences since 2003. Moscow State University Economy and Public of Economics and (Changchun, China, 1997). Served as President (1985). Doctor of Technical Administration (1987). Corresponding Member Member of the Scientific of AVTOVAZ Group in 2007- Sciences. CEO and Chief Designer of the Russian Academy Council of the Expert 2008, President of AVTOVAZ CEO of Module Scientific of JSC “OKB Imeni of Natural Sciences. Institute, the Scientific in 2008-2009, and Counsel Technical Center in 1998- A. S. Yakovlev” since 2003, Chairman and Consulting Council to the CEO of Rostec State 2004, Director of the Radio- President and Chairman of Vnesheconombank of the Accounting Chamber Corporation in 2009. CEO Electronic Industry and of the Executive Board of the Russian Federation of the Russian Federation, of the Zhukovsky Central Control Systems Department of JSC “Irkut Corporation” (VEB) in 2004-2007, and the Consultative Board under Aerohydrodynamic Institute at the Federal Agency for in 2005-2011 and since Chairman of the Bank the Chairman of the Bank since 2009. Department Industry and Deputy Head August 2012, Vice-President for Development and of Russia, and the Scientific Chief at the Moscow of the Federal Agency for for the MS-21 project, Foreign Economic Affairs Council of the Moscow Aviation Institute (State Industry in 2004-2008, Senior Vice President for (Vnesheconombank) since Carnegie Center. Served University of Aircraft Deputy Minister for Industry Commercial Aviation, Senior 2007. as Head of the Moscow Technology) since 1998. and Trade in 2008-2011, Vice-President and Member Branch of Merrill Lynch CIS First Deputy Chairman of the Executive Board Limited in 2006-2007, CEO of the Military-Industrial of JSC “UAC” since 2006. of Merrill Lynch Securities Commission of the Russian LLC in 2007-2008, and Federation in 2011-2012, has been the Director for Deputy Minister of Defense Macroeconomic Studies of the Russian Federation of the Higher School since November 2012. of Economics National Research University since 2008.
71 CORPORATE Corporate Management General Meeting Board President governance and control of Shareholders of Directors and GOVERNANCE bodies Executive structure Board
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Ilya V. Eliseev Alexander N. Zelin Andrey N. Klepach Valery V. Lukyanenko Evgeny V. Lyamtsev Independent Director Born in 1953. Born in 1959. Born in 1955. Independent director Born in 1965. Graduated from the Kharkov Graduated from the faculty Graduated from Novosibirsk Born in 1970. Graduated from Leningrad Higher Military Aviation Pilot of economics at Moscow Agricultural University Graduated from Moscow State University (1987). School (1976), Gagarin Air State University (1981). (1981) and the Academy State University majoring Doctoral Candidate of Legal Force Academy (1988) and Doctor of Economics. of Social Sciences majoring in hydrometeorology Science. the General Staff Academy Director in economics. Doctor (1996). Master’s Degree in of the Armed Forces of Economics, Professor Vice-President for General of the Macroeconomic Management (2004). of the Russian Federation of the Specific Economy Issues and President Forecasting Department at Director of Stock Exchange (1997). and Finance Department of the Legal Center the Ministry of Economic Operations at Russian of the Russian Presidential Association in 2003- Served as Deputy Development and Trade Regional Bank in 2006- Academy of the National 2004, Deputy Chairman Commander-in- of the Russian Federation in 2007, Vice President Economy and Public of the Executive Board Chief of the Air Force 2004-2008, Deputy Minister of Rosbank Management Administration. and Member of the Board of the Russian Federation of Economic Development Company LLC in 2007-2009, of Directors of Gazprombank in 2002-2007, Commander- of the Russian Federation From 2002 until the present Counsel to the Chairman since 2005. in-Chief of the Air Force since 2008. time positions at VTB Bank: of the Executive Board of the Russian Federation Head of the First Corporate of Development-Capital in 2007-2012, and has Business Unit, Senior Vice Bank since 2009. served as Assistant Minister President and Head of Mid- of Defense of the Russian Size Corporate Business, Federation since 2012. Senior Vice President for Corporate Business, Vice President and Head of the Fourth Division for Large Corporate Business, Vice President, Counsel to the President and Chairman of the Executive, Member of the Executive Board.
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Denis V. Manturov Alexander V. Novak Valery M. Okulov Mikhail A. Pogosyan Vladislav N. Putilin Born in 1969. Born in 1971. Born in 1952. Born in 1956. Born in 1947. Graduated from Moscow Graduated from the Norilsk Graduated from the Civil Graduated from the Moscow Graduated from the Kharkov State University (1994) Industrial Institute Aircraft Academy in Aviation Institute (MAI) Higher Engineering and the Russian Academy majoring in economics and Leningrad as an engineer- as an engineer-mechanic Command School (1969), for State Service under management in metallurgy navigator (1975). (1979). Lenin Military Political the President of the Russian (1993). CEO of Aeroflot – Russian Doctor of Technical Science Academy (1979). Doctoral Federation (2006). Doctor Acting Director of the Main Airlines in 1997-2009, and Member of the Russian Candidate in Philosophy, of Economics. Financial Administration Deputy Minister of Transport Academy of Sciences. Doctor of Economics. CEO of United Industry of Krasnodar Territory, of the Russian Federation CEO of JSC “Company Deputy Chairman Corporation (Oboronprom) Deputy Governor since 2009. Sukhoi” in 1998-2011, CEO of the Military and in 2003-2007, Deputy of Krasnodar Territory of JSC “OKB Sukhogo” in Industrial Commission Minister of Industry and and Director of the Main 1999-2007, CEO and General under the Government Energy of the Russian Financial Administration Designer of JSC “RSK MiG” of the Russian Federation Federation in 2007-2008, of Krasnodar Territory in in 2009-2011, First Vice and Leader of the working Deputy Minister of Industry 2002-2007, First Deputy President for Coordination group for optimization and Trade of the Russian Governor of Krasnodar of Programs and Tactical of the structure and Federation since 2008. Territory, Chairman Aviation of JSC “UAC” in functions of public entities of the Government 2007-2011, President and in defense and security of Krasnodar Territory in Chairman of the Executive in 2006-2011, Chairman 2007-2008, Deputy Minister Board of JSC “UAC” since of the Board of Directors of Finance of the Russian February 2011. of Rusnano since 2011. Federation in 2008- 2012, Minister of Energy of the Russian Federation since May 2012.
73 CORPORATE Corporate Management General Meeting Board President governance and control of Shareholders of Directors and GOVERNANCE bodies Executive structure Board
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Andrey G. Reus Yury A. Solovyov Aleksei I. Fedorov Sergey V. Chemezov Born in 1960. Born in 1970. Born in 1952. Born in 1952. Graduated from Moscow Graduated from Graduated from the Irkutsk Graduated from the Irkutsk State University. Doctor the Plekhanov Russian Polytechnical Institute (1974) Institute of the National of Economics. University of Economics and Oklahoma University Economy (1975) and Deputy Minister of Industry (1994), London Business Business School (USA) completed Advanced and Energy of the Russian School (2002), has an MBA (1993). Courses of the General Federation in 2004-2007, degree. President and Chairman Staff Military Academy CEO of United Industry Director of the Investment of the Executive Board of the Russian Armed Forces. Corporation (Oboronprom) Block, First Deputy Chairman of JSC “UAC” in 2006-2011, Active Member in 2007-2012, CEO of United of the Management Board President and Chairman of the Academy of Military Engine Corporation of Deutsche Bank Ltd in of the Management Board Sciences. Doctor (Management Company) in 2006-2008, President of VTB of JSC “Irkut Corporation” of Economics. Head 2009-2012. Capital in 2008-2011, Senior from March 2011 until of the Military and Technical Vice-President and First August 2012 (until July 31, Cooperation Department Deputy of the President and 2012). of the Research and Chairman of the Executive Training Center for Defense Board of VTB Bank since Issues of the Academy 2008. of Military Sciences. CEO of Rosoboronexport Federal State Unitary Enterprise in 2004-2007, CEO of Russian Technologies State Corporation for Assistance to Development, Production and Export of High-tech Industrial Products since 2007.
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DIRECTOR’S SHAREHOLDINGS
Members of the Board of Directors owned 0.06% and 0.47% of the Corporation’s of JSC “UAC” held no shares of the Corporation, share capital at the beginning and end with the exception of Evgeny V. Lyamtsev who of the reporting year, respectively.
ACTIVITIES OF THE BOARD OF DIRECTORS OF JSC “UAC” IN 2012
The Board of Directors held 18 meetings during • approval of a Report on JSC “UAC”’s 2012, of which 2 were held in the form of joint Program of Innovative Development for presence and considered the most important 2011, a list of JSC “UAC”’s business priorities issues concerning JSC “UAC”’s activities in 2012, and JSC “UAC”’s Financial and and business development, while the other Economic Plan for 2012-2014; 16 meetings were held in the form of absentee • approval of the program for sale of non- voting. core assets of JSC “UAC”; • election of the Chairman of JSC “UAC”’s The Chairman of the current Board of Directors Board of Directors; of JSC “UAC” is Vladimir A. Dmitriev who is also • appointment of new members of the Audit the Chairman of the Bank for Development and Committee, Strategy Committee and Foreign Economic Affairs (Vnesheconombank). Nominations and Remuneration Committee, as well as election of the chairmen of these During the reporting period JSC “UAC”’s Board Committees; of Directors passed resolutions related to • approval of JSC “UAC”’s new organizational the operations of JSC “UAC”, its subsidiaries structure; and affiliates, including: • definition of JSC “UAC”’s policy with respect to the election of board of directors • increase of JSC “UAC”’s share capital members of subsidiaries and associates, through public placement of new ordinary increase of their share capitals and issues shares of JSC “UAC”; related to their reorganization.
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MAIN GROUPS OF ISSUES CONSIDERED BY JSC “UAC”’s BOARD OF DIRECTORS IN 2012
Definition of policy in respect of subsidiaries and associates Corporate issues 1 2 2 Approval of related party transactions 3 13 Financial and economic issues 2 Preparation of the General Meeting of Shareholders Approval of reports 4
Approval of auditors, insurers and appraisers
56 Organization of Board resolutions of Directors activity 5 Approval of regulations
Activity of Committees of the Board of Directors 12 Other issues 5
7
SOURCE: JSC “UAC”’s data
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COMMITTEES OF THE BOARD OF DIRECTORS
In order to improve standards of corporate conflict of interest, which could prejudice governance, three committees of the Board the interests of JSC “UAC”. of Directors have been set up. The main goal of committees is to monitor main issues The Committees may seek the assistance affecting the Corporation’s business on of JSC “UAC”’s officers and external experts with shareholders behalf. relevant professional knowledge, if necessary.
These Committees are consultative and Resolutions are passed by a majority advisory bodies and assume tasks in particularly of votes of the Committee members important areas of JSC “UAC”’s business. taking part in the meeting. Each member They act in compliance with JSC “UAC”’s of a Committee has one vote. Information Regulations on Board Committees. Meetings on membership of Committees of the Board of the committees are held independently from of Directors as of December 31, 2012 is meetings of the Board of Directors. Resolutions provided below. passed by any Committee may have the status of draft resolutions of the Board of Directors In 2012 the following Committees of the Board and are subject to further consideration at of Directors of JSC “UAC” were established and meetings of the Board of Directors. operating:
Committee members are elected by the Board • Audit Committee. of Directors from current members of the Board • Strategy Committee. of Directors, taking due care to exclude any • Nominations and Remuneration Committee.
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MEMBERS OF THE COMMITTEES OF THE BOARD OF DIRECTORS IN 2012
From January 1, 2012 until August 28, 2012 From August 29, 2012 until December 31, 2012
Audit Committee
Chairman of the Committee – S.V. Alexashenko Chairman of the Committee – Yu.A. Solovyov (independent director). Members of the Committee: V.V. (professional solicitor). Members of the Committee: I.V. Lukyanenko, E.V. Lyamtsev, A.V. Novak Eliseev, E.V. Lyamtsev
Strategy Committee
Chairman of the Committee – D.V. Manturov. Members Chairman of the Committee – B.S. Alyeshin. Members of the Committee: S.V. Alexashenko, A.N. Zelin, A.N. of the Committee: Yu.I. Borisov, A.N. Zelin, A.N. Klepach, Klepach, A.V. Novak, V.M. Okulov, M.A. Pogosyan, A.I. V.M. Okulov, M.A. Pogosyan, A.G. Reus, S.V. Chemezov Fedorov, S.V. Chemezov
Nominations and Remuneration Committee
Chairman of the Committee – S.V. Chemezov. Members Chairman of the Committee – V.N. Putilin. Members of the Committee: O.F. Demchenko, A.N. Klepach, V.N. Putilin of the Committee: O.F. Demchenko, A.N. Klepach, S.V. Chemezov
In total 10 meetings of the Board of Directors • approval of the audit results of JSC “UAC”’s Committees were held in 2012, including accounting statements for 2011; 9 meetings of the Audit Committee and 1 • performance of JSC “UAC”’s budget meeting of the Nominations and Remuneration for 9 months of 2012, accrued financial Committee. obligations of JSC “UAC” and financial results of JSC “UAC”’s companies as per IFRS for 2011; During 2012 the Committees gave • approval of the Regulation on KPI- consideration, within their powers, to issues based Material Incentives for managers which assist approval by the Board of Directors of JSC “UAC”. of reasonable and efficient resolutions. Issues considered by the Committees included:
• the financial and economic plan (budget) of JSC “UAC” for 2012-2014 and target financial ratios of JSC “UAC”’s enterprises for 2012-2014;
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PARTICIPATION BY MEMBERS OF JSC “UAC”’s BOARD OF DIRECTORS IN BOARD MEETINGS AND MEETINGS OF BOARD COMMITTEES DURING 2012
Date of election as a member Participation in work of of the Board of Directors the Board of Directors and its Committees
June 30, June 29, June 28, Board of Di- Audit Com- Strategy Nominations 2011 2012 2013 rectors mittee Committee and Remuneration Committee
18 meetings 9 meetings in No meetings 1 meeting in in 2012 2012 in 2012 2012
Vladimir A. Dmitriev + + + 18/18
Andrey N. Klepach + + + 16/18 - 1/1
Valery M. Okulov + + + 16/18 -
Mikhail A. Pogosyan + + + 18/18 -
Sergey V. Chemezov + + + 11/18 - 1/1
Boris S. Alyeshin + + 6/6 -
Yury I. Borisov + + 5/6 -
Andrey Yu. Ivanov +
Dmitry N. Peskov +
Yury B. Slyusar + Ivan N. Kharchenko +
Ilya V. Eliseev + 4/4
Andrey G. Reus + -
Yury A. Solovyov + 5/6 4/4
Oleg F. Demchenko + + 18/18 1/1
Alexander N. Zelin + + 16/18 -
Evgeny V. Lyamtsev + + 15/18 8/9
Vladislav N. Putilin + + 16/18 1/1
Sergey V. Alexashenko + 12/12 5/5 -
Valery V. Lukyanenko + 8/12 4/5
Denis V. Manturov + 12/12 -
Alexander V. Novak + 1/12 1/5 -
Aleksey I. Fedorov + 12/12 -
Note: A quorum for passing resolutions on agenda items was obtained at all meetings of the Board of Directors and Board Committees.
SOURCE: JSC “UAC”’s data
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PRESIDENT AND EXECUTIVE BOARD
THE CHIEF EXECUTIVE OFFICER, PRESIDENT OF JSC “UAC”
The President is the chief executive officer The President is elected by a majority vote of JSC “UAC” and performs the functions of the Board of Directors for a term of five years. of Chairman of the Executive Board. The President is entitled to make decisions on all issues related Since February 26, 2011 Mikhail A. Pogosyan was to the current business of the Corporation, the President (Chairman of the Executive Board) with the exception of issues referred to of JSC “UAC”. the competence of the General Meeting of Shareholders, Board of Directors and Executive Board.
The President, as well as the Executive Board, reports to the Board of Directors and General Meeting of Shareholders.
Mikhail A. Pogosyan President of JSC “UAC”
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COLLECTIVE EXECUTIVE BODY – EXECUTIVE BOARD
The Executive Board of JSC “UAC” is a collective Alla A. Vuchkovich executive body managing the day-to-day Director of the HR Department of JSC “UAC” business of the Corporation. Members of the Executive Board are elected by a majority Leonid N. Komm vote of the Board of Directors and can be JSC “UAC”’s Vice-President for Programs and reelected an unlimited number of times. Innovations
In accordance with clause 19.5 of JSC “UAC”’s Alexander V. Lyagushkin Charter and employment contracts, the current Director of JSC “UAC”’s Civil Aircraft Programs Members of the Executive Board should remain their positions until January 12, 2017. Vladimir S. Mikhailov Director of JSC “UAC”’s Military Aircraft Programs The Executive Board, which operated during 2012, was formed on December 30, 2011 Nikolay V. Savitskikh by a resolution of JSC “UAC”’s Board of Directors Director of JSC “UAC”’s Special Aircraft Programs and consisted of the following 10 members: Sergey A. Sergeev Mikhail A. Pogosyan Director of JSC “UAC”’s Transport Aircraft Programs JSC “UAC”’s President, Chairman of the Executive Board Alexander V. Tulyakov JSC “UAC”’s Executive Vice-President Oleg F. Demchenko Senior Vice-President of JSC “UAC”, President Vladimir L. Chirikov of JSC “Irkut Corporation”, CEO and General JSC “UAC”’s Vice-President for Economics and Designer of JSC “OKB Imeni A. S. Yakovlev” Finance
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ACTIVITY OF THE CORPORATION’S EXECUTIVE BODIES IN 2012
The Corporation’s day-to-day business in 2012 • preparation of extraordinary general meetings was managed by the Executive Board and of JSC “UAC”’s shareholders; President of the Corporation in accordance with • approval of related-party transactions. their competences as described in JSC “UAC”’s Charter. Within the framework of its competence, the Executive Board of JSC “UAC” considered During the reporting period, the executive various issues related to the business bodies of JSC “UAC” worked on efficient of the Corporation’s subsidiaries and achievement of the Corporation’s strategy and associates, and made recommendations establishing an appropriate procedure for such to JSC “UAC”’s Board of Directors for achievement, also with respect to subsidiaries the approval of respective resolutions. Matters, and associates of JSC “UAC”, which play a key concerning which recommendations were role in the Corporation’s overall business. issued, included:
The Executive Board of JSC “UAC” held 11 • candidates to CEO at JSC “UAC”’s subsidiaries meetings between January and December and associates, including CJSC “M. M. Gromov 2012, at which it considered matters relating to Flight Research Institute”, JSC “Tupolev”, strategic development of the Corporation as well JSC “Irkut Corporation” and LLC “UAC - as urgent matters requiring immediate decisions Integration Center”; by the Corporation’s management bodies. • candidates for membership of the boards of directors of subsidiaries and associates In compliance with JSC “UAC”’s Charter, (CJSC “M. M. Gromov Flight Research the Corporation’s executive bodies prepared Institute”, LLC “UAC - Integration Center”); materials and recommendations to the Board • reorganization of JSC “OKB Sukhogo”, of Directors on key matters submitted for its JSC “Komsomolsk-na-Amure Aviation consideration, including the following: Production Association” and JSC “Novosibirsk Aviation Production • terms of JSC “UAC”’s share capital increase via Association” through their consolidation a new share issue, which was placed in 2012; with JSC “Company Sukhoi”; • new organizational structure of JSC “UAC”; • increase of the share capital • preparation for holding of the Annual General of JSC “UAC”’s subsidiaries and associates Meeting of JSC “UAC”’s Shareholders on results (CJSC “M. M. Gromov Flight Research of 2011 financial year and for approvement Institute”, JSC “UAC-TS”, JSC “TANTK Imeni of the Corporation’s Annual Report for 2011; G. M. Berieva”).
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REMUNERATION TO MEMBERS OF THE BOARD OF DIRECTORS AND EXECUTIVE BOARD FOR 2012
The Annual General Meeting of Shareholders The total amount of remuneration paid in 2012 resolved that no remuneration should by JSC “UAC” to the members of its Executive be paid to the members of JSC “UAC”’s Board Board was RUB 2,676,357. No bonuses of Directors. were paid to Executive Board members and the President of JSC “UAC” in 2012. The members of the Executive Board were paid a monthly salary.
AUDIT AND CONTROL
INTERNAL AUDIT COMMISSION
From January 1, 2012 until holding of the Annual of the Annual General Meeting of Shareholders, General Meeting of Shareholders on results which was held on June 29, 2012: of 2011 financial year (held on June 29, 2012), JSC “UAC”’s Internal Audit Commission Vyacheslav E. Ulupov (Chairman of the Audit comprised of (elected by the Annual General Commission) – Director of the Internal Control Meeting of Shareholders held on June 30, 2011): Service of Vnesheconombank.
1. Vladimir M. Maksimenko; Elena Yu. Litvina – Director of the Corporate 2. Nadezhda A. Markina; Governance Department of the Administration 3. Vyacheslav E. Ulupov; of Innovative Corporate Technologies and 4. Vladislav E. Fedotov; Industrial Organizations at the Federal Agency for 5. Gennady A. Feshin. State Property Management.
In compliance with the Corporation Charter, Vladimir M. Maksimenko – Director the Internal Audit Commission consists of five of the Department for Aircraft, Shipbuilding members. and Conventional Armament Organizations of the Administration for Infrastructure Industries The following persons were elected members and Military and Defense Organizations of JSC “UAC”’s Audit Commission by resolution at the Federal Agency for State Property Management.
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Nadezhda A. Markina – Deputy Director Vladislav E. Fedotov – Deputy Director of the Department for Aircraft, Shipbuilding of the Innovative Development and Corporate and Conventional Armament Organizations Governance Department of the Ministry of the Administration of Infrastructure of Economic Development of the Russian Industries and Military and Defense Federation. Organizations at the Federal Agency for State Property Management. The Annual General Meeting of Shareholders in 2012 resolved that no remuneration should be paid to members of the Internal Audit Commission.
EXTERNAL AUDIT
JSC “UAC” selects an audit organization for Krasnopresnenskaya Embankment, World performance of the obligatory annual audit Trade Center, Moscow). The remuneration of its financial statements through an open paid by the Corporation to HLB Vneshaudit tender held according to the procedures for the year ended on December 31, 2012 was established by the Federal Laws “On Auditing” RUB 1,256,700. and “On Placement of Orders for the Supply of Goods, Performance of Works and Provision Since 2009 the consolidated IFRS of Services for the State and Municipal Needs”. financial statements of the Corporation Based on results of the open tender, the Board have been audited by ZAO KPMG, of Directors selects a candidate auditor for which is part of the KPMG International approval at the Annual General Meeting Cooperative. (License No. E 003330 issued of Shareholders. by the Ministry of Finance of the Russian Federation on January 17, 2003 for a period In 2008-2012 the annual audit of the RAS of 10 years. Address of the auditor: Block accounting statements of JSC “UAC” was C, 10 Naberezhnaya Tower, Presnenskaya carried out by HLB Vneshaudit (Auditing Embankment, Moscow, 123317). License No. E 000548 issued by the Ministry of Finance of the Russian Federation on June 25, 2002; License GT 0002045 No. 11141 dated November 19, 2007 to perform works related to the use of classified data. Address of the auditor: Entrance 3, Office 701, 12
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RISK MANAGEMENT
JSC “UAC”’s RISK MANAGEMENT SYSTEM
The operations of JSC “UAC”, its subsidiaries and associates are subject to a number of risks, so the Corporation takes relevant measures to prevent the occurrence and minimize the possible consequences caused by adverse factors of various origins on its business. Strategic risk management is exercised by the Board of Directors.
Risk description Measures to minimize the risk
Industry risks
Industry risks relate to: JSC “UAC”: • low demand for the Corporation’s products; • makes long-term contracts with the Russian Ministry of Defense, thus reducing levels of business risk associated with state orders for • possible satisfaction of the needs of traditional foreign customers for military aircraft; military aircraft produced by JSC “UAC”’s subsidiaries and associates; • promotes its products on the basis of market research and • possible occurrence of circumstances preventing the sale of products consultations with potential and existing customers; which have been manufactured; • works to expand its product portfolio; • the principal and almost the sole customer of JSC “UAC”’s R&D work is the Russian Government. If Government financing is reduced, • develops and implements new mechanisms for financing of aircraft the Corporation will not be able to carry out its aircraft development equipment sales based on best global practice and on OECD and WTO and modernization plans independently; requirements; • a significant part of aircraft components are purchased from partner • pays much attention to after-sale service and provision companies outside JSC “UAC”. If partners fail to observe terms and of maintenance services, thus making its products more attractive for volumes of component supplies, JSC “UAC” may not be able to customers; perform its contractual obligations in a timely fashion; • shares risks with partners when developing new products, thus • unavailibility (depreciation) of the production facilities of JSC “UAC”’s ensuring that the partners are committed to commercial success civil aircraft subsidiaries. of the project; • is carrying out program of modernization and a program for the creation of specialized manufacturing.
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Risk description Measures to minimize the risk
Country and regional risks
• The Corporation believes that significant change in the levels • JSC “UAC”, its subsidiaries and affiliates are fully able to eliminate of regional risk are unlikely in the near future, although it or at least to minimize any adverse economic or force majeure recognizes that they may affect the business and financial results circumstances of regional scale and consistently implement preventive of the Corporation’s enterprises. measures in the spheres of environment protection, HR policy and development of social infrastructure. • Political risks are of key importance for sales of military products. They are associated with the national policy for the defense industry, Russia’s • In order to prevent decline in demand for its products, JSC “UAC” foreign policy, as well as the policy of foreign countries, which are seeks new customers and offers expansion of the terms the main suppliers and customers of aircraft equipment in the global of cooperation with existing customers, including licensed production market. The risk of change of political regimes in countries which at the customer’s site (both in other regions of Russia, and abroad) import military aircraft equipment is particularly great since these and customer participation in the production of components at countries may reorient their military and technical cooperation, leading the customer’s own production facilities. to reduction of demand for Russian armaments.
Financial risks
• Currency risks arise due to adverse changes in value of the currency • JSC “UAC” makes borrowings in foreign currency for the performance used for settlements with customers and suppliers in comparison of export contracts. with the currency used by the Corporation for its financial operations. • Targeted Government financing of JSC “UAC”’s costs enhances Export deliveries of JSC “UAC”’s products are usually denominated in the Corporation’s creditworthiness and lowers its interest rates. US dollars. The Corporation obtains additional support due to its inclusion • Credit risks can arise due to adverse changes in interest rates. in the list of strategic enterprises of the Russian Federation, • Inflation risks arise when JSC “UAC” ships products (delivers the results and the ability of commercial banks to refinance debts owed of works, services, etc.) on post-payment conditions, due to a temporal by the Corporation at the Central Bank. gap between the time of product shipment (delivery of the result • The Corporation takes measures to obtain advance payment from of works, services) to the customer and the time of their full payment. customers for products (works, services) that are to be delivered and strives to shorten payment periods. JSC “UAC”’s financial strategy is oriented to gradual price increases for its products: price formation in contracts takes account of inflation. Inflation is also taken into account by the Corporation in its production costs.
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Risk description Measures to minimize the risk
Legal risks
• Legal risks are related to possible enactment of regulations that may • JSC “UAC” makes relevant suggestions to Government and also affect the taxation, customs and exchange regimes for JSC “UAC”’s participate in discussion and decision-making related to prospects for business. One such risk is that of reduction of customs duties Russian aircraft industry. on foreign aircraft imports to Russia, which may intensify levels of competition with the Corporation’s civil aircraft production. Legal risks also include outstanding problems related to intellectual property rights.
Issuer risks
• The risk of losses (damages) incurred by the Corporation, its • The Corporation is carrying out large-scale modernization of its fixed subsidiaries and associates, and third parties as the result of violation assets and upgrading of its production facilities, and is applying of the normal production process. information technologies in enterprise management and aircraft design. The Corporation holds tenders to select suppliers, including foreign suppliers, and carries out audits of the quality management systems used by industrial partners in order to ensure proper standards and quality of the products supplied to the Corporation.
87 CPAOR OR TE Corporate Management General Meeting Board President Remuneration Audit and Risk Shareholdings governance and control of Shareholders of Directors and to members control management of JSC “UAC” in GOVERNANCE bodies Executive of the Board main subsidiaries structure Board of Directors and and associates Executive Board for 2012
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SHAREHOLDINGS OF JSC “UAC” IN MAIN SUBSIDIARIES AND ASSOCIATES
Shareholdings of JSC “UAC” in aircraft companies as of December 31, 2012
JSC “UAC”
50.00% 100.00% 95.52% 86.91% 94.02%
LLC “UAC-Antonov” JSC “UAC-TS” JSC “Tupolev” JSC “Company JSC “Irkut Sukhoi” Corporation”
86.91% 58.42% 100.00%
CJSC “Sukhoi new civil JSC “RSK MiG” JSC “KAPO” technologies”
25.00% 96.60% 69.97% 89.33% 100.00%
Multi-role Transport JSC “Nizhniy Aircraft Ltd. CJSC “Aerocompozit” CJSC “Beta-Ir” JSC “Myasishchev Novgorod Aircraft Design Bureau” Plant Sokol”
96.23% 87.06% 89.74% 78.61% 49.48% 100.00%
JSC “VASO” JSC “Il” JSC “Novosibirsk JSC “OKB Imeni JSC “Ilyushin LLC “UAC - Aviation Production A. S. Yakovlev” Finance Co” Integration Center” Association” 90.15% 87.06% 90.19% 100.00% JSC “Komsomolsk- CJSC CJSC “Il-Resours” na-Amure Aviation JSC “TANTK Imeni “M. M. Gromov Production G. M. Berieva” Association” Flight Research Institute” 99.54% 51.64%
СJSC “Aviastar-SP” JSC “OKB Sukhogo”
100.00% 64.32%
CJSC “Aerocompozit- CJSC “Sukhoi Civil Ulyanovsk” Aircraft”
42.59% 100.00% “SuperJet CJSC “KAPO- International” S.p.A. Compozit”
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RESTRUCTURING
Restructuring was the principal task Integration of these two companies will enable for JSC “UAC” in 2012. Restructuring them to work together more efficiently for of the Corporation is vital for the achievement achievement of their goals in the special aircraft of efficient management within a unified segments. structure. The program of optimization, which is being carried out by the Corporation, targets Restructuring in the transport aircraft segment reduction of the number of enterprises and other is being pursued through the integration management units in each business segment. of JSC “UAC-TS”, JSC “Il”, JSC “Myasishchev Design Bureau” and СJSC “Aviastar-SP”. Completion of the consolidation JSC “UAC” believes that the reorganization will of JSC “Company Sukhoi” in 2012 represented enable more efficient management of these an important step in the restructuring process. assets and lead to better financial results. JSC “Company Sukhoi” now comprises an overall management company, as well as Sukhoi Design Bureau branch, Y. A. Gagarin KnAAZ branch and V. P.Chkalov NAZ branch. Consolidation of the resources and business activity, optimization of the business of JSC “Company Sukhoi” will provide significant cost savings, benefiting the financial results shown by the Corporation.
The key task for JSC “UAC”’s restructuring in special aircraft segment for 2013 will be the merger between JSC “Tupolev” and JSC “KAPO”.
A KEY STEP IN FURTHER RESTRUCTURING SCHEDULED FOR 2013 IS FURTHER INTEGRATION BETWEEN JSC “RSK MIG” AND JSC “NIZHNIY NOVGOROD AIRCRAFT PLANT SOKOL”. THE BUSINESSES OF THESE TWO COMPANIES ARE ALREADY CLOSELY LINKED AND THEY WILL EVENTUALLY BE MERGED INTO A SINGLE STRUCTURE.
90 www.uacrussia.ru SUSTAINABLE DEVELOPMENT
Be-200 User Airlines СИСТЕМА Russia Azerbaijan КОРПОРАТИВНОГО EMERCOM EMERCOM УПРАВЛЕНИЯ
DEVELOPMENT PROSPECTS The Be-200 was designed and suited in its base configuration for combatting forest fires using Be-200 Development of an amphibious air patrol function for naval water or chemical retardants. Specific tasks are: use. • Containing and retarding medium and Development as a patrol aircraft for the Indian coastguard Be-200: MULTI-ROLE AMPHIBIOUS AIRCRAFT and Indian Navy with the ATOS complex on 6 aircraft, large forest fires by laying a preventive line manufactured by SELEXGALILEO. of chemical retardants around the fire. Modernization of avionics in 2018-2020 during development • Extinguishing minor and forest fires; of the patrol function. SPECIFICATIONS transporting fire-fighting brigades and equipment to the emergency area by landing Cruising speed 710 km/h on a pre-selected water area or aerodrome. 1998 PROJECT GEOGRAPHY This aircraft has best efficiency compared with year international analogues when carrying out Max range with full load Maiden flight Design: JSC “TANTK Imeni G. M. Berieva” Length missions in broken terrain. It can also be used 1,400 km Production: JSC “TANTK Imeni G. M. Berieva” 32.05 m for search and rescue operations, environmental monitoring, and for passenger and cargo carrying. Water take-off and landing capacity make it well-suited for use in regions, which lack Flight altitude aerodromes. Crew 2 persons 8,000 m The Be-200 can be quickly re-equipped in the following versions with minimum labor costs: Take-off distance Max • Transport. (land/water) payload 700 m / 1,000 m • Passenger (Be-210). 7,500 kg Maximum • Search and rescue. capacity 30 of water tanks years • Flying hospital. 12,000 kg aircraft resource CERTIFICATES AND COMPLIANCES These functions are available concurrently with fire-fighting capability. A version of the aircraft with administrative capabilities is being developed.
TFE D436-TP 2 x 7,500 kgf Wingspan 32.78 m
A TYPE CERTIFICATE Noise on the ground certificate No. SSh136-Be-200ES FOR LIMITED-CATEGORY Limited-category aircraft type certificate 9 AIRCRAFT No. STOK 201- No. STOK220-Be-200ES Be-200ES aircraft BE-200 WAS ISSUED ON Type certificate No. ST229-Be-200ES Height have been built by 2012 AUGUST 10, 2001 Appendix to type certificate 8.9 m No. STOK220-Be-200ES/DO1 for operation on international routes AN EASA.IM.A.114 Appendix to type certificate EUROPEAN TYPE No. STOK229-Be-200ES/DO2 for use in CERTIFICATE HAS BEEN a passenger version ISSUED FOR THE BE-200ES-E Appendix to type certificate No. STOK229-Be-200ES/DO3 for Be-200ES-E for installation of an “English language” cockpit.
92 www.uacrussia.ru CORPORATE SOCIAL RESPONSIBILITY
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CORPORATE SOCIAL RESPONSIBILITY
JSC “UAC”’s system of CSR aims to attract and • develops programs for attracting and retaining retain qualified personnel, enhance productivity, young employees (professional orientation, improve work conditions and strengthen goal-oriented training, complex youth the Corporation’s social image. Corporation uses programs); the following measures of CSR system: • develops a system of social partnership.
• ensures that employment levels at enterprises The Corporation’s commitment to pay are maintained, keeping capacities loaded in remuneration and provide social guarantees to order to reduce down-time; employees is supported by the Social Partnership • monitors average salary levels for employees Agreement for 2012-2013 between JSC “UAC”, its at Corporation enterprises, including those subsidiaries and associates, on the one hand, and of lowest-paid personnel categories; the PROFAVIA labor union, on the other hand. • links personnel benefits with performance The Agreement contains specific indicators for results; performance and social guarantees provided to • develops a system of employee retraining; the employees of JSC “UAC”’s enterprises.
Planting an avenue at the Poklonnaya Gora memorial park in Moscow to commemorate the 100th anniversary of the Russian Air Force.
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HR POLICY
Labor productivity is a key intensive factor used JSC “UAC”’s HEADCOUNT by the Corporation to boost its aircraft production (last 5 years) volumes. JSC “UAC” is therefore gradually reducing numbers of auxiliary and service - - - - - personnel, while increasing the share of highly 102,700 97,500 95,900 92,600 92,100 qualified specialists in program management, - - - - - 970 900 900 1,000 1,200 - - - - - research and market forecasting, after-sale 11,130 11,100 10,500 11,000 10,600 - - - - - maintenance, etc. 90,600 85,500 84,500 80,600 80,300
Management The nature of production tasks in manufacturing and leasing companies is changing drastically. The Corporation is Design bureaus introducing new practices based on modern Plants production technologies. New products are manufactured using new equipment, entailing 2008 2009 2010 2011 2012 a need for more highly qualified personnel. SOURCE: JSC “UAC”’s data Although the total number of Corporation employees is in decline, JSC “UAC” hires about 2,500 new specialists each year. The industry is undergoing rapid renewal, supported by an inflow of young employees. The Corporation needs to The Corporation is requesting its partner make this process sustainable, ensuring that new universities to consistently improve their system recruits remain in the industry and are able to of education. Such improvements should realize their potential and their talent inside it. produce graduates with comprehensive skills in production and business organization, which JSC “UAC” is working closely with Russian make them better suited to work in the modern universities for this purpose, implementing aircraft industry (for example, ability to develop a number of innovative projects in association a project within a fixed budget, and understanding with the country’s leading aircraft industry training of the gate system, which enables ongoing institutions. business analysis of a project at its various stages). The Corporation works with universities Corporate universities attached to JSC “UAC”’s to encourage the establishment of industrial subsidiaries are focused on rapid training standards and standards of personnel training, of specialists to work on improvement and also to ensure that university teachers include of the production system. people with practical experience in the industry.
94 www.uacrussia.ru Consolidated HR Health and safety indicators for 2008-2012
Page 95 Page 101 CONSOLIDATED HR INDICATORS FOR 2008-2012
The Corporation strives to provide young people EDUCATIONAL LEVEL OF JSC “UAC”’s PERSONNEL, % with production experience while they are still in education. This way they acquire deeper understanding of the tasks, which they will have to address when they enter the industry. Much - - - - - 62 61 60 58 54 has already been achieved in this direction. - - - - - By the time they graduate from university, young 31 34 34 38 40 specialists have already worked for a couple Share of employees with complete of years at an aircraft enterprise, making them secondary and secondary better qualified and better able to acclimatize vocational education, % to the work environment. Such practice reduces Share of employees with higher education, % the time and money that the Corporation has to spend on training of the new specialists. 2008 2009 2010 2011 2012
SOURCE: JSC “UAC”’s data
THE AVERAGE AGE OF AGE STRUCTURE OF JSC “UAC”’s PERSONNEL, % CORPORATION EMPLOYEES IS 44 YEARS AT PRODUCTION ENTERPRISES AND 48 YEARS AT DESIGN BUREAUS - - - - - 23.0 24.0 24.5 24.1 23.3 - - - - - 14.0 15.0 16.4 17.5 18.2 - - - - - 21.0 19.0 17.4 16.4 15.5 - - - - - 30.0 29.0 28.5 28.3 27.7 - - - - - 12.0 13.0 13.2 13.7 15.3
Under 30 years old 40-49 years old 30-39 years old 50-59 years old 60 years old and over
2008 2009 2010 2011 2012
SOURCE: JSC “UAC”’s data
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The large share of employees under STRUCTURE OF JSC “UAC”’s PERSONNEL 40 years old (41.5%) reflects the steps taken BY CATEGORIES, % by the Corporation to attract and retain young personnel at its enterprises (industrial and local career events, training programs, ------probations, support for youth council activities, 5454 5353 5151 5151 5050 ------strengthening of social guarantees, etc.). 33 22 22 22 11 ------2929 3030 3232 3232 3434 ------1414 1515 1515 1515 1515
WorkersWorkers ClericalClerical workersworkers SpecialistsSpecialists ManagersManagers
22000088 22000099 22001010 22011011 22001122
SOURCE: JSC “UAC”’s data
THE SHARE OF SPECIALISTS DISTRIBUTION OF JSC “UAC”’s PERSONNEL BY IN THE OVERALL PERSONNEL FEDERAL DISTRICTS, % STRUCTURE IS INCREASING
- - - - - 15.7 16.1 15.6 15.7 15.3 - - - - - 18.4 19.3 20.1 20.3 19.8 - - - - - 24.1 24.4 23.6 22.4 21.4 - - - - - 6.2 6.9 7.2 7.2 7.5 - - - - - Siberian 35.5 33.4 33.6 34.3 36.1 Federal District Southern Federal District Far Eastern Federal District Volga Federal District Central Federal District 2008 2009 2010 2011 2012
SOURCE: JSC “UAC” data
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BENEFIT SYSTEM
The Corporation is operating in the conditions The present average salary level at most of a market economy, and must therefore of the Corporation’s enterprises corresponds to make efforts to retain and attract new qualified the average salary in respective regions of Russia. employees, and particularly young specialists. The Corporation takes a complex approach to In 2013, the Corporation will further optimize the solution of this difficult task, and is particularly these indicators in compliance with provisions attentive to the key factor of salary levels, which of the Corporate Agreement for 2012-2013 must be adequate and must increase pro rata to and effective collective agreements at specific changes in the cost of living in various regions enterprises. of Russia.
The main principles of salary planning for employees at JSC “UAC”’s enterprises are based on indicators that were defined in the Agreement THE AVERAGE MONTHLY SALARY between JSC “UAC”, its enterprises and AT THE CORPORATION’S PRODUCTION ENTERPRISES the PROFAVIA labor union in April 2012: IN 2012 WAS RUB 30,400
• linkage between salaries and performance results (labor productivity should grow faster than salary levels); • differentiated rates of salary increase (for key personnel categories); • privileged rates of salary growth for low- AVERAGE MONTHLY SALARY OF JSC “UAC”’s EMPLOYEES paid employees. i.e. those receiving salaries (PRODUCTION ENTERPRISES) equal to less than double the minimum wage in their region (except for employees 30,400 working short-time, experiencing down- 27,100 time, etc.). 24,900 26,400 22,000 25,100 20,000 23,300 21,200 19,100
2008 2009 2010 2011 2012
Average Average monthly salary monthly salary of primary by enterprises, RUB production employees, RUB
SOURCE: JSC “UAC”’s data
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CORPORATE SYSTEM OF CONTINUOUS EDUCATION
The Corporation has created a corporate Professional training will be based on a system system of continuous education to ensure that of professional standards. As of today personnel at JSC “UAC”’s enterprises has levels the Corporation has completed work on of qualification, appropriate for current and development of the first five professional future business needs. standards relative to aircraft manufacturing. They are as follows: The main tasks of this system are: • structural rigidity; • the implementation of uniform policies • aircraft design; and procedures in the areas of personnel • aircraft mechanical systems, units and training, retraining, education, assessment aggregates; and staff rotation; • aircraft radio-electronics; • creation of a uniform knowledge • after-sale maintenance; management system; • formation and diffusion of corporate culture; An agreement between the Russian Ministry • organization of training; of Education and Science and the Russian Union of Industrialists and Entrepreneurs states JSC “UAC”’s corporate university uses that the new professional standards will be a principle of connectedness throughout used as the basis for development of third- the training and development process, linking generation state educational standards. its work with assessment, attestation, rotation and motivation of personnel in the workplace, with active participation of JSC “UAC”’s top management in its operations. NUMBER OF EMPLOYEES TRAINED The main focuses of work by JSC “UAC”’s AT THE CORPORATION’S EXPENSE, PERSONS Corporate University are as follows:
• program of training for future generations of young specialists; 36,000 34,000 32,000 33,000 32,000 • program of production training and development of functional expertise; • program for improvement of professional and management qualifications; • program for development of corporate culture and creation of a talent pool; 2008 2009 2010 2011 2012
SOURCE: JSC “UAC”’s data
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The Corporation is currently developing further PROFESSIONAL TRAINING OF JSC “UAC”’s professional standards in the sphere of design SPECIALISTS IS BASED ON A SYSTEM OF and production automation, procurement, and PROFESSIONAL STANDARDS IN AIRCRAFT management of aircraft construction projects CONSTRUCTION; DEVELOPMENT OF THE FIRST FIVE and programs. STANDARDS HAS ALREADY BEEN COMPLETED.
CREATING A BASE OF SPECIALIZED EDUCATIONAL INSTITUTIONS
The Corporation has developed and is A key aspect of the joint work by specialized implementing an audit program for technical educational institutions and enterprises is colleges and universities, which offer training in the development of national educational all aspects of aircraft construction and related standards in core aircraft skills in compliance skills. with the professional standards described above. The program covers 78 universities and 34 technical colleges. It aims to create a system JSC “UAC”’s representatives have taken of educational institutions at all levels a role in leading educational and methodical Human Resources Policy of JSC “UAC”: of professional education to enable training associations (Moscow Aviation Institute, http://www.uacrussia. and retraining of specialists in the design, Bauman University) to assist joint work on state ru/en/employment/ development, support, testing, and operation educational standards and develop a system for of aircraft equipment. the training of aircraft construction specialists.
Joint projects for training and retraining of industry specialists were also underway since 2008 in the framework of ongoing federal target programs (initiated by Russian state).
99 SUSTAINABLE Corporate social HR policy DEVELOPMENT responsibility
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SOCIAL GUARANTEES FOR PERSONNEL
On April 10, 2012 JSC “UAC”’s enterprises and in order to remain competitive in their the PROFAVIA labor union signed a Social regional labor markets. The extent of such Partnership Agreement for 2012-2013, setting support depends on the financial situation out specific measures of performance and of the enterprises and it may include: social guarantees for employees at JSC “UAC”’s enterprises. • a lump-sum payment at retirement; • additional leave for mothers with several This document is the first of its kind that has children; been developed by integrated structures in • a lump-sum payment to employees at Russian aviation industry (JSC “UAC”, United the birth (adoption) of a child; Defense Industry Corporation, Russian • annual financial assistance to employees with Нelicopters and United Engine Corporation). handicapped children aged under 18; Application of the Agreement to date has proved • payment of monthly compensation to low- successful. income families with three or more children; • partial compensation of the cost of vouchers The Agreement establishes a minimum to sanatoria and children’s health centers for mandatory package of social benefits for handicapped children; employees, including: • visits to sanatoria and resorts, other rest • catering at the workplace; arrangements for employees; • medical care (at proprietary, municipal or • partial payment of the cost of vouchers to industry-funded health establishments); sanatoria, clinics, holiday bases, children’s • cash assistance in specified instances: death/ recreational institutions; disability of the employee, death of close • preventive vaccination; relatives (spouse, children, parents), destruction • mortgage programs for employees who need of home as the result of a natural disaster, re-housing; other force majeure circumstances. • additional days off and holidays for various categories of employees; JSC “UAC”’s enterprises also provide • additional payments and allowances for non- various other types of social support to working pensioners; their employees (sometimes as part of joint • employee participation in retirement plans, programs with municipal governments) governed by a collective agreement.
THE SOCIAL PARTNERSHIP AGREEMENT BETWEEN JSC “UAC”, ITS SUBSIDIARIES AND associates AND PROFAVIA LABOR UNION IS THE FIRST AGREEMENT OF THE NEW TYPE WITH AN INTEGRATED STRUCTURE IN RUSSIAN AIRCRAFT INDUSTRY
100 www.uacrussia.ru Consolidated HR Health and safety indicators for 2008-2012
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HEALTH AND SAFETY
In 2012, JSC “UAC” spent more than Labor conditions in specific jobs have been RUB 745 mln to implement a number attested: by the end of 2012 over 65,000 jobs of measures for health and safety in at Corporation enterprises had been attested the workplace. (72% of total jobs).
SPENDING ON HEALTH AND SAFETY IN 2012
Enterprise Spending on health and safety, RUB
JSC “Komsomolsk-na-Amure Aviation Production 917,219,200 Association”
СJSC “Aviastar-SP” 131,836,000
JSC “Irkut Corporation” 106,598,000
JSC “RSK MiG” 75,964,000
JSC “Nizhniy Novgorod Aircraft Plant Sokol” 68,331,000
JSC “Novosibirsk Aviation Production Association” 27,362,000
JSC “TANTK Imeni G. M. Berieva” 20,638,000
CJSC “Sukhoi Civil Aircraft” 15,226,000
JSC “Il” 14,555,000
JSC “VASO” 10,916,000
JSC “OKB Sukhogo” 6,256,000
JSC “Tupolev” 4,560,000
JSC “KAPO” 4,091,000
JSC “Myasishchev Design Bureau” 980,000
JSC “Company Sukhoi” 904,520
JSC “UAC” 822,500
JSC “OKB Imeni A. S. Yakovlev” 342,300
CJSC “Aerocompozit” 269,000
Total for JSC “UAC”: 1,406,870,520
* According to JSC “UAC”’s management accounting
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MEASURES TO INCREASE ENERGY EFFICIENCY IN 2012
Specific measures, regulatory and methodical support
The corporate policy for improvement • creation of an efficient energy saving system of energy efficiency, approved by the President in Corporation enterprises; of JSC “UAC” in May 2012 (Decree No. • introduction of uniform standards and 79 dated May 17, 2012), has a goal to methods of calculation for energy resources. enhance the competitiveness of JSC “UAC”’s products through reduction of energy costs JSC “UAC” has prepared a list of enterprises by the introduction of energy saving and at which energy inspections and energy environmentally friendly technologies. efficiency programs are to be implemented. They include: Sukhoi Design Bureau branch The Corporation’s strategic objectives with of JSC “Company Sukhoi”, Y. A. Gagarin KnAAZ respect to energy efficiency include: branch of JSC “Company Sukhoi”, V. P.Chkalov NAZ branch of JSC “Company Sukhoi”, JSC “RSK • reduction of fuel and power consumption MiG”, JSC “Il”, JSC “VASO”, JSC “Tupolev”, in manufacturing, reduction of the energy JSC “KAPO”, СJSC “Aviastar-SP”, JSC “Irkut resources share in the price of finished Corporation”, JSC “TANTK Imeni G. M. Berieva”, products to 5% by 2015 and to 4.2% JSC “Nizhniy Novgorod Aircraft Plant Sokol”, and by 2020; JSC “Myasishchev Design Bureau”. • reduction of overall annual energy resources expenses of the Corporation from forecasted RUB 7.8-8.2 bln in 2015 to RUB 4.8-5.2 bln in comparable prices of 2010;
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Compliance with the requirements of Russian law regarding energy efficiency
Corporation enterprises have carried out based on the results of these inspections and obligatory energy inspections in compliance were registered with self-regulating organizations with the requirements of Federal Law No. 261- in compliance with legal requirements at FZ “On Energy Saving and Energy Efficiency the following enterprises: Y. A. Gagarin KnAAZ and Amendments to Individual Regulations branch of JSC “Company Sukhoi”, JSC “Il”, of the Russian Federation” (dated November JSC “VASO”, JSC “KAPO”, СJSC “Aviastar-SP”, 23, 2009). In 2012, energy passports were prepared JSC “Irkut Corporation”, JSC “TANTK Imeni G. M. Berieva”.
Corporation enterprises have carried out obligatory energy inspections
103 SUSTAINABLE Health and safety DEVELOPMENT
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Implementation of Energy Efficiency Programs
The Corporation took various actions in and ventilation; reconstruction of systems for 2012, which led to energy service contracts lighting of production facilities; heat insulation at the following Corporation enterprises: of buildings). These works were financed JSC “VASO”, JSC “KAPO”, СJSC “Aviastar-SP”. by the enterprises.
The enterprises carried out a number of standard, low-cost organizational and technical measures to reduce their energy spending (optimization TOTAL ANNUAL FINANCIAL GAINS FROM of equipment and operating regimes IMPLEMENTATION OF ENERGY EFFICIENCY of heating, compressor and energy-hungry MEASURES UNDER ENERGY SERVICE CONTRACTS production systems; modernization of heating WILL BE AT LEAST RUB 500 MLN.
ELECTRICITY CONSUMPTION AT JSC “UAC”’s ENTERPRISES IN 2008-2012 (EXCL. VAT)
Enterprise 2008 2009 2010 2011 2012
Energy saving Energy saving Energy saving Energy saving Energy saving
mln mln mln mln mln mln mln mln mln mln kWh RUB kWh RUB kWh RUB kWh RUB kWh RUB
1 СJSC “Aviastar-SP” 114.1 225.9 104.6 238.1 99.2 273.4 101.6 307.3 102.2 300.4
2 JSC “VASO” 71.4 132.9 66.3 146.7 72.1 173.3 75.0 200.2 69.9 163.4
3 JSC “Il” 7.4 14.3 7.9 17.4 7.9 20.4 7.9 24.0 8.0 28.1
4 Irkutsk Aviation Plant, branch office 112.8 122.3 115.1 143.4 110.2 161.5 108.6 187.4 107.3 212.8 of JSC “Irkut Corporation”
5 JSC “KAPO” 69.8 91.3 61.9 102.0 53.6 101.0 49.2 93.3 45.3 86.1
6 JSC “RSK MiG” 70.7 150.3 63.4 150.7 59.3 165.9 61.8 202.6 63.5 192.8
7 JSC “Nizhniy Novgorod Aircraft Plant 52.9 93.7 48.8 115.6 54.0 134.5 45.9 176.0 53.6 143.9 Sokol”
8 JSC “Company Sukhoi” 116.6 262.3 109.5 289.1 111.9 254.4 119.1 283.2 117.8 258.4
9 JSC “TANTK Imeni G. M. Berieva” 23.1 46.4 21.2 56.0 24.6 72.1 26.1 87.0 28.0 95.2
10 JSC “Tupolev” 18.4 31.8 21.8 43.3 23.1 54.0 25.4 69.8 24.8 78.4
11 JSC “Myasishchev Design Bureau” 5.9 9.9 6.0 12.6 6.8 15.8 7.3 18.7 7.8 22.1
12 JSC “Komsomolsk-na-Amure Aviation 116.6 262.3 109.5 289.1 111.9 254.4 119.1 283.2 117.8 258.4 Production Association”
Total 779.6 1,443.3 736.0 1,604.0 734.5 1,680.9 747.1 1,932.7 746.0 1,840.0
104 www.uacrussia.ru CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012
SU-35 MAIN СИСТЕМА CUSTOMERS Russia КОРПОРАТИВНОГО Air УПРАВЛЕНИЯ Force
Contract with the Russian Ministry of Defense for delivery of 48 Su-35S aircraft by 2015 was signed in 2009
PROJECT HISTORY The Su-35 is designed to intercept and destroy all types of aerial targets in medium- and SU-35 The first flight prototype of the Su-35 was assembled at Y. A. Gagarin KnAAZ long-range engagements and dogfights, to branchSukhoi of JSC “Company PAK-FA Sukhoi” in August T-50 2007. gain air superiority, and to destroy targets on In January 2008, the branch of NPO Saturn Scientific Production Association TYPE: MULTI-ROLE SINGLE-SEAT FIGHTER in Moscow Region successfully completed tests of all five 117S type engines land and sea, including ground infrastructure in the trial batch designed for installation on the Su-35. Ground tests facilities located far from base airfields and well of the aircraft’s onboard systems were completed by mid-February. protected by air defense systems. The maiden flight of the new Russian fighter took place on February 19, 2008. SPECIFICATIONS A second prototype was added to the test program on October 02, 2008. The Su-35 is included in the state armament program for the period up to 2015, during which time it will be delivered to the Russian Air Force. The Su-35 is a modernized version of the Su-27 Max speed near the ground First deliveries of the Su-35S to the Russian Ministry of Defense were made in fighter aircraft, substantially upgraded to 1,400 km/h 2011. enhance its combat efficiency against aerial, 2008 ground and sea targets. The design of the Su-35 year incorporates the best engineering solutions maiden flight of the prototype Length of the Su-27/Su-30 family. 21.9 m Max flight range at cruising altitude without in-flight refueling PROJECT GEOGRAPHY The Su-35 combines all the features Height 3,600 km of a modern fighter aircraft (super 5.9 m Design: Sukhoi Design Bureau branch of JSC “Company Sukhoi” maneuverability, sophisticated active and Production: Y. A. Gagarin KnAAZ passive sensor systems, high supersonic branch of JSC “Company Sukhoi” flight speed, long flight range, capacity Ceiling 18,000 m for coordinated action) with the features of the most advanced tactical aircraft (a wide range of armaments, modern multichannel electronic warfare system, enhanced stealth 200 technologies, and combat survivability). Take-off run 500 m km guaranteed detection and interception of typical air targets by the Su-35
Wing span 14.7 m
ARMAMENT
GSh-301 30-mm gun COMBAT LOAD: R-27R1(ER1), R-27T1(ET1) or R-27P1(EP1), RVV-AE, R-73E, AAM 25 guided air-to-air long range missiles years 8,000 KG ON 12 STRAP aircraft resource ASSEMBLIES X-31P(A), X-29TE(L), X-59MK guided air-to-surface missiles; anti-ship long-range missile, advanced-range anti-radar missile KAB-500KR (OD), KAB-500 guided bombs with satellite control, KAB-1500KR (LG) C-8, C-13, C-25 unguided shells RBK-500 single-use bomb cassettes AB-50, AB-100, AB-250, AB-500 air bombs
Scale: 1:100
106 www.uacrussia.ru Auditors’ Report
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Auditors’ Report
Auditors’ Report
To the Shareholders and the Board of Directors Joint Stock Company “United Aircraft Corporation“
We have audited the accompanying consolidated the consolidated statements of income, comprehensive financial statements of Joint Stock Company “United income, changes in equity and cash flows for 2012, and Aircraft Corporation“ (the “Company“) and its subsidiaries notes, comprising a summary of significant accounting (the “Group“), which comprise the consolidated statement policies and other explanatory information. of financial position as at 31 December 2012, and
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair determines is necessary to enable the preparation of presentation of these consolidated financial statements consolidated financial statements that are free from in accordance with International Financial Reporting material misstatement, whether due to fraud or error. Standards, and for such internal control as management
Auditors’ Responsibility
Our responsibility is to express an opinion on the fair pres- In making those risk assessments, the auditor considers entation of these consolidated financial statements based internal control relevant to the entity’s preparation and on our audit. We conducted our audit in accordance with fair presentation of the consolidated financial statements Russian Federal Auditing Standards and International Stand- in order to design audit procedures that are appropriate ards on Auditing. Those standards require that we comply in the circumstances, but not for the purpose of express- with ethical requirements and plan and perform the audit to ing an opinion on the effectiveness of the entity’s internal obtain reasonable assurance about whether the consolidated control. An audit also includes evaluating the appropriate- financial statements are free from material misstatement. ness of accounting policies used and the reasonableness of accounting estimates made by management, as well An audit involves performing procedures to obtain audit as evaluating the overall presentation of the consolidated evidence about the amounts and disclosures in the con- financial statements. solidated financial statements. The procedures selected depend on the auditor’s judgment, including the assess- We believe that the audit evidence we have obtained is suffi- ment of the risks of material misstatement of the consoli- cient and appropriate to express a qualified opinion on the fair dated financial statements, whether due to fraud or error. presentation of these consolidated financial statements.
Basis for Qualified Opinion
1 As explained in Note 7 to the consolidated financial Stock Company “Finance Leasing Company“ (or “FLC“), statements, the Group lost control of Open Joint a subsidiary of the Group, in 2012 following a court
The accompanying notes are an integral part of these consolidated financial statements 107 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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ruling on its bankruptcy. Because we were unable to necessary in respect of the Group’s consolidated financial obtain access to the financial information of FLC, we position as at 31 December 2012, consolidated financial were unable to complete our audit procedures regarding performance and cash flows for 2012. this subsidiary, which contributed to these consolidated financial statements a net gain to the date of disposal of 3 The Group has accounted for certain Government grants RUB 883 million and a gain on disposal of the subsidiary of as revenue and the related costs as cost of sales which is RUB 7,849 million (2011: FLC contributed a net loss of RUB not in compliance with International Financial Reporting 3 618 million for the year resulting in negative net assets Standard IAS 20 Accounting for Government grants and of RUB 8,732 million as at 31 December 2011). As a result, Disclosure of Government Assistance. Had the grants we were unable to determine whether adjustments received been accounted for in accordance with might have been necessary with respect to the Group’s International Financial Reporting Standards, revenues consolidated financial position as at 31 December 2011 and would have been reduced by RUB 12,514 million, cost of 31 December 2012, and consolidated financial performance sales would have been reduced by RUB 9,558 million, and and cash flows for 2011 and 2012. government grants related to income would have been increased by RUB 2,956 million for 2012. 2 As presented in Note 16 to the consolidated financial statements, the Group has estimated its share of profit 4 There are indications that the recoverable amount of its associate, Open Joint-Stock Company “Ilyushin of property, plant and equipment and capitalised Finance Co.“ (or “Ilyushin Finance Co“), for the year ended development costs related to certain Group subsidiaries 31 December 2012. We were unable to obtain sufficient might be lower than their carrying amounts stated at appropriate audit evidence in relation to the Group’s RUB 28,079 million and RUB 622 million, respectively. estimate of the share of profit of Ilyushin Finance Co of International Financial Reporting Standard IAS 36 RUB 121 million for the year ended 31 December 2012, and Impairment of Assets requires that, where such the carrying value of the Group’s investment in Ilyushin indications exist, management makes a formal estimate Finance Co of RUB 9,072 million as at 31 December 2012 of the recoverable amounts. No such estimate has been and the summary financial information of associates made. The effects of this departure from International disclosed in Note 16. As a result, we were unable to Financial Reporting Standards, on the consolidated determine whether adjustments might have been found financial statements have not been determined.
Qualified Opinion
In our opinion, except for the possible effects of financial statements present fairly, in all material respects, the matters described in the first and second paragraphs the financial position of the Group as at 31 December of the Basis for Qualified Opinion and except for the effects 2012, and its financial performance and its cash flows for of the matters described in the third and fourth paragraphs 2012 in accordance with International Financial Reporting of the Basis for Qualified Opinion, the consolidated Standards.
Ilya O. Belyatski
Director, power of attorney dated 3 October 2011 No. 35/11 ZAO KPMG 30 April 2013 Moscow, Russian Federation
www.uacrussia.ru The accompanying notes are an integral part of these 108 consolidated financial statements Consolidated Consolidated Notes to Statement of Cash Statement of Changes the Consolidated Flows in Equity Financial Statements
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ZAO KPMG 10 Presnenskaya Naberezhnaya Moscow, Russia 123317 Telephone +7 (495) 937 4477 Fax +7 (495) 937 4400/99 Internet www.kpmg.ru
Audited entity: Joint Stock Company "United Aircraft Independent auditor: ZAO KPMG, a company Corporation" incorporated under the Laws of the Russian Federation, a part of the KPMG Europe LLP group, and a member Registered by the Moscow Inter-Regional Inspectorate firm of the KPMG network of independent member No. 46 of the Federal Tax Inspection , Registration on firms affiliated with KPMG International Cooperative 20 November 2006, Registration No. 70 008502151. ("KPMG International"), a Swiss entity.
Registered in the Unified State Register of Legal Entities/ Registered by the Moscow Registration Chamber on Entered in the Unified State Register of Legal Entities 25 May 1992, Registration No. 011.585. on 20 November 2006 by the Moscow Inter-Regional Inspectorate No. 46 of the Federal Tax Inspection, Entered in the Unified State Register of Legal Entities Registration No. 1067759884598, Certificate series 77 No. on 13 August 2002 by the Moscow Inter-Regional Tax 008502150. Inspectorate No.39 of the Ministry for Taxes and Duties of the Russian Federation, Registration No. 1027700125628, 22, bld.1, Ulansky side-street, Moscow, Russia, 101000 Certificate series 77 No. 005721432.
Member of the Non-commercial Partnership “Chamber of Auditors of Russia”. The Principal Registration Number of the Entry in the State Register of Auditors and Audit Organisations: No. 10301000804.
The accompanying notes are an integral part of these consolidated financial statements 109 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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Joint Stock Company “United Aircraft Corporation” Consolidated Statement of Income for the year ended 31 D ecember 2012
Mln RUB Note 2012 2011 Restated*
Revenue 8 171,019 161,653
Cost of sales (135,132) (111,336)
Gross profit 35,887 50,317
Government grants related to income 26 456 2,661
Research and development costs (124) (670)
Distribution expenses (15,923) (20,121)
Administrative expenses (23,319) (20,380)
Non-current asset impairment - (2,803)
Other operating income 11 9,783 1,130
Other operating expenses 10 (6,158) (10,131)
Profit from operations 602 3
Finance income 12 6,110 3,068
Finance costs 12 (13,397) (13,352)
Share of loss of equity accounted investees 16 (385) (363)
Loss before income tax (7,070) (10,644)
Income tax benefit (expense) 13 1,420 (2,702)
Loss for the year (5,650) (13,346)
Loss attributable to:
Shareholders of the Company (819) (10,136)
Non-controlling interest (4,831) (3,210)
Loss for the year (5,650) (13,346)
Basic and diluted loss per share (RUB) 23 (0,00) (0,05)
The consolidated financial statements were authorised for issue on 30 April 2013:
President Vice-president for Economics and Finance Mikhail Pogosyan Vladimir Chirikov
* See note 2(e)
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Joint Stock Company “United Aircraft Corporation” Consolidated Statement of COMPREHENSIVE Income for the year ended 31 December 2012
Mln RUB 2012 2011 Restated*
Loss for the year (5,650) (13,346)
Other comprehensive income
Defined benefit plan actuarial loss, net of tax (203) (91)
Effective portion of changes in fair value of cash flow hedges, (1,216) 850 net of tax
Foreign exchange differences (758) 655
Total comprehensive loss for the year (7,827) (11,932)
Total comprehensive loss attributable to:
Shareholders of the Company (2,836) (8,802)
Non-controlling interest (4,991) (3,130)
(7,827) (11,932)
* See note 2(e)
The accompanying notes are an integral part of these consolidated financial statements 111 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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Joint Stock Company “United Aircraft Corporation” Consolidated Statement of Financial Position as at 31 December 2012
31 December 31 December 2011 Mln RUB Note 2012 Restated*
ASSETS
Non-current assets
Property, plant and equipment 14 112,056 96,107
Intangible assets 15 51,733 44,927
Investments in associates and joint ventures 16 9,691 9,220
Investments and non-current financial assets 17 3,698 3,436
Finance lease receivables 784 505
Deferred tax assets 18 6,677 4,612
Other non-current assets 61 4,165
Other receivables, non-current 20 5,811 4,140
Total non-current assets 190,511 167,112
Current assets
Investments 17 3,277 2,792
Inventories 19 155,306 123,043
Trade and other receivables 20 71,454 79,935
Finance lease receivables 68 34
Current income tax receivables 1,057 109
Cash and cash equivalents 21 52,453 46,002
Other current assets 1,389 1,149
Total current assets 285,004 253,064
Total assets 475,515 420,176
EQUITY AND LIABILITIES
Equity 22
Share capital 219,655 201,926
Share premium 4,566 4,566
Revaluation reserve 207 207
* See note 2(e)
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31 December 31 December 2011 Mln RUB Note 2012 Restated*
Prepaid shares reserve - 2,698
Treasury shares (410) (410)
Foreign currency translation reserve 2,915 3,783
Hedging reserve (75) 881
Accumulated loss (116,139) (123,150)
Total equity attributable to shareholders of the Company 110,719 90,501
Non-controlling interest (1,769) 2,452
Total equity 108,950 92,953
Non-current liabilities
Loans and borrowings 24 122,191 115,278
Deferred tax liabilities 18 3,266 4,913
Employee benefits 27 3,296 2,889
Trade and other payables 25 5,624 4,749
Total non-current liabilities 134,377 127,829
Current liabilities
Loans and borrowings 24 93,008 79,707
Income tax payable 479 1,192
Trade and other payables 25 135,701 115,078
Employee benefits 27 423 268
Provisions 28 2,577 3,149
Total current liabilities 232,188 199,394
Total equity and liabilities 475,515 420,176
* See note 2(e)
The accompanying notes are an integral part of these consolidated financial statements 113 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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Joint Stock Company “United Aircraft Corporation” Consolidated Statement of Cash Flows for the year ended 31 December 2012
Mln RUB 2012 2011 Restated*
OPERATING ACTIVITIES
Loss before income tax (7,070) (10,644)
Adjustments for:
Depreciation and amortisation 12,115 12,544
Unrealised foreign exchange gain (3,275) (1,055)
Share of losses in equity accounted investees 385 363
Gain on disposal of subsiadiary (7,849) -
Non-current asset impairment - 2,803
Change in bad debt provision 1,080 572
(Gain)/loss on disposal of property, plant and equipment (431) 9
Interest expense 14,762 13,109
Government grant related to compensation of interest expense (1,174) (486)
Interest income (2,669) (2,049)
Operating profit before changes in working capital and provisions 5,874 15,166
Change in inventories (33,540) (11,053)
Change in trade and other receivables 3,513 (11,883)
Change in trade and other payables 25,829 (23,067)
Change in lease receivable (837) 28
Change in employee benefits 558 279
Change in other current and non-current assets 3,849 948
Change in provisions (572) 1,514
Cash flows utilized by operations before income taxes and interest paid 4,674 (28,068)
Income taxes paid (3,448) (1,412)
Interest paid, net of grant received (13,588) (12,078)
Cash flows utilized by operating activities (12,362) (41,558)
* See note 2(e)
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Mln RUB 2012 2011 Restated*
INVESTING ACTIVITIES
Proceeds from disposal of property, plant and equipment 1,315 213
Acquisition of property, plant and equipment (20,728) (13,945)
Acquisition of intangible assets (9,602) (15,352)
Contribution to equity of associates (1,020) (609)
Change in loans granted and cash deposits (485) 1,508
Government grant received related to assets 126 10,939
Interest received 2,669 2,049
Dividends received 169 64
Cash flows utilized by investing activities (27,556) (15,133)
FINANCING ACTIVITIES
Proceeds from borrowings 131,314 158,061
Repayment of borrowings (100,323) (119,957)
Paid in capital 14,441 15,307
Contributions to equity of subsidiaries by non-controlling shareholders 1,850 1,240
Cash of subsidiary acquired under common control 37 18
Acquisition of non-controlling interest (197) -
Dividends paid (160) (34)
Cash flows from financing activities 46,962 54,635
Net increase/(decrease) in cash and cash equivalents 7,044 (2,056)
Cash and cash equivalents at beginning of year 46,002 47,784
Effect of exchange rates fluctuations on cash and cash equivalents (592) 274
Cash and cash equivalents at end of year (note 21) 52,454 46,002
* See note 2(e)
The accompanying notes are an integral part of these consolidated financial statements 115 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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Joint Stock Company “United Aircraft Corporation” Consolidated Statement of Changes in Equity for the year ended 31 December 2012
Mln RUB Attributable to equity holder of the Company
Share Share Prepaid Treasury capital premium shares reserve shares
Balance at 1 January 2011 as previously reported 188,633 4,566 - (410)
Corrections related to previous periods (note 2(e)) - - - -
Balance at 1 January 2011 as restated 188,633 4,566 - (410)
Total comprehensive loss for the year
Loss for the year - - - -
Corrections loss for the year
Defined benefit plan actuarial loss, net of tax - - - -
Corrections defined benefit plan actuarial loss, net of tax
Cash flow hedges - - - -
Foreign exchange differences - - - -
Total comprehensive loss for the year - - - -
Transactions with owners recognised directly in equity
Share issues of the Company:
Satisfied in cash 12,609 - 2,698 -
Satisfied by contributions of equity interest in subsidiaries 684 - - -
13,293 - 2,698 -
Other transactions with owners
Contributions to equity of subsidiaries by non-controlling - - - - shareholders
Dilution of equity interest in subsidiaries - - - -
Dividends - - - -
Balance at 31 December 2011 201,926 4,566 2,698 (410)
* See note 2(e)
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Attributable to equity holder of the Company
Revaluation Hedge Foreign currency Accumulated Total reserve reserve translation reserve losses Total Non-controlling interest equity
207 (14) 3,261 (110,434) 85,809 3,228 89,037
- - (1) (1,648) (1,649) - (1,649)
207 (14) 3,260 (112,082 ) 84,160 3,228 87,388
- - - (8,667) (8,667) (3,210) (11,877)
(7) (1,462) (1,469) - (1,469)
- - - (99) (99) - (99)
8 8 - 8
- 803 - - 803 47 850
- 92 530 - 622 33 655
- 895 523 (10,220) (8,802) (3,130) (11,932)
- - - - 15,307 - 15,307
- - - 300 984 - 984
- - - 300 16,291 - 16,291
- - - 246 246 994 1,240
- - - (1,394) (1,394) 1,394 -
- - - - - (34) (34)
207 881 3,783 (123,150) 90,501 2,452 92,953
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Mln RUB Attributable to equity holder of the Company
Share Share Prepaid Treasury capital premium shares reserve shares
Balance at 1 January 2012 as previously reported 201,926 4,566 2,698 (410)
Corrections related to previous periods (note 2(e)) - - - -
Balance at 1 January 2012 as restated 201,926 4,566 2,698 (410)
Total comprehensive loss for the year
Loss for the year - - - -
Defined benefit plan actuarial loss, net of tax - - - -
Cash flow hedges - - - -
Foreign exchange differences - - - -
Total comprehensive loss for the year - - - -
Transactions with owners recognised directly in equity
Share issues of the Company:
Satisfied in cash 17,139 - (2,698) -
Satisfied by contributions of equity interest in subsidiaries 590 - -
17,729 - (2,698) -
Other transactions with owners
Contributions to equity of subsidiaries by non-controlling - - - - shareholders
Acquisition of non-controlling interest - - - -
Derecognition of subsidiary JSC “FLC” (note 7) - - - -
Dividends - - - -
Balance at 31 December 2012 219,655 4,566 - (410)
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Attributable to equity holder of the Company
Revaluation Hedge Foreign currency Accumulated Total reserve reserve translation reserve losses Total Non-controlling interest equity
207 881 3,947 (120,048) 93,767 2,452 96,219
- - (164) (3,101) (3,265) - (3,265)
207 881 3,783 (123,150) 90,501 2,452 92,953
- - - (819) (819) (4,831) (5,650)
- - - (193) (193) (10) (203)
- (1,159) - - (1,159) (57) (1,216)
- 203 (868) - (665) (93) (758)
- (956) (868) (1,012) (2,836) (4,991) (7,827)
- - - - 14,441 - 14,441
- - - 7,300 7,890 - 7,890
- - - 7,300 22,331 - 22,331
- - - 1,390 1,390 460 1,850
- - - (194) (194) (3) (197)
- - - (473) (473) 473 -
- - - - (160) (160)
207 (75) 2,915 (116,139) 110,719 (1,769) 108,950
The accompanying notes are an integral part of these consolidated financial statements 119 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
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Note
Background ...... 121 Basis of preparation ...... 122 Significant accounting policies ...... 126 Determination of fair values ...... 138 Financial risk management ...... 139 Operating segments ...... 142 Disposal of subsidiary ...... 144 Revenue ...... 144 Personnel costs ...... 144 Other operating expenses ...... 145 Other operating income ...... 145 Finance income and finance costs ...... 146 Income tax expense ...... 146 Property, plant and equipment ...... 147 Intangible assets ...... 149 Investments in associates and joint ventures ...... 152 Investments and non-current financial assets ...... 154 Deferred tax assets and liabilities ...... 155 Inventories ...... 157 Trade and other receivables ...... 158 Cash and cash equivalents ...... 158 Equity ...... 159 Loss per share ...... 161 Loans and borrowings ...... 161 Trade and other payables ...... 164 Government grants ...... 165 Employee benefits ...... 165 Provisions ...... 167 Financial instruments ...... 168 Commitments ...... 171 Operating lease ...... 172 Contingencies ...... 172 Related party transactions ...... 174 Significant subsidiaries ...... 175 EBITDA ...... 176 Events subsequent to the reporting date ...... 176
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Background
Organisation and operations
Joint Stock Company “United Aircraft Corporation” • Civil aircraft development and construction; (hereinafter the “Company” or “UAC”) was incorporated • Military aircraft development and construction; on 20 November 2006 following the Decree of • Aircraft sales financing and other activities. the President of the Russian Federation No.140 dated 20 February 2006. In accordance with Russian legislation the supply of military equipment to foreign governments is The principal activity of the Company is the manufacturing the competence of the Russian government or of military and civil aircraft under contracts with entities holding appropriate licence and, therefore, Russian and foreign governments. The Company and its certain contracts with foreign governments are subsidiaries (“the Group”) are also engaged in research concluded through the Russian state organization and development works for military and civil aircraft. OJSC “Rosoboronexport” (“Rosoboronexport”).
The Group comprises a number of entities, including The Company’s office is located at Bld. 1, 22 Ulansky leading aircraft plants and design bureaus located pereulok, Moscow, 101000, Russia. in the Russian Federation. The main components of the UAC’s business are as follows:
The shareholding structure of the Company as at 31 December 2012 and 31 December 2011 was as follows:
Shareholders 2012 2011
Russian Federation (Federal Agency for State property management) 84% 83%
Vneshekonombank (VEB) 9% 10%
Private shareholders 7% 7%
The Group is ultimately controlled by the government of Since November 2009 the Company’s shares are traded on Russian Federation. the Russian stock exchanges MICEX with UNAC tickers.
State Secrets
The operations of the Group related to the construction secret can be granted by the appropriate authorities only and sale of military aircraft are subject to the Law of to organizations and individuals holding security licenses the Russian Federation on State Secrets signed by with the appropriate form of clearance. In addition, part of the President of the Russian Federation on 21 July 1993. the property, plant and equipment of the Company makes This Law provides that the information on the foreign up the mobilization capacity of the state (refer note 14(d)) policy, military activities and economic activities of and is also subject to the Law on State Secrets. The law the Russian Federation, disclosure of which can cause also limits the authority of the Company to dispose of damage to the security of the country, is considered these assets. a state secret. Access to information classified as a state
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Russian business environment
The Group’s operations are primarily located in the Russian with other legal and fiscal impediments contribute to Federation. Consequently, the Group is exposed to the challenges faced by entities operating in the Russian the economic and financial markets of the Russian Federation. The consolidated financial statements reflect Federation which display characteristics of an emerging management’s assessment of the impact of the Russian market. The legal, tax and regulatory frameworks business environment on the operations and the financial continue development, but are subject to varying position of the Group. The future business environment interpretations and frequent changes which together may differ from management’s assessment. Basis of preparation
Statement of compliance
These consolidated financial statements have been prepared Standards (“IFRSs”) and related interpretations adopted by in accordance with International Financial Reporting the International Accounting Standards Board (“IASB”).
Basis of measurement
The consolidated financial statements are prepared on • defined benefit plan liability is recognised as the net the historical cost basis except: total of the plan assets less the present value of the defined benefit obligation. • derivative financial instruments, investments at fair value through profit or loss and financial investments classified as available-for-sale are stated at fair value; and
Functional and presentation currency
The national currency of the Russian Federation is States Dollar (“USD”). RUB is the currency in which these the Russian Rouble (“RUB”), which is the functional consolidated financial statements are presented. All currency of the Group entities, except for JSC Irkut financial information presented in RUB has been rounded Corporation, whose functional currency is the United to the nearest million.
Use of estimates and judgements
Management has made a number of estimates and In particular, information about significant areas of assumptions relating to the reporting of assets and liabilities estimation uncertainty and critical judgements in applying and the disclosure of contingent assets and liabilities to accounting policies are described in the following notes: prepare these financial statements in conformity with IFRS. Actual results could differ from those estimates. • Note 3(m) and 8 – Revenue; • Note 15 – Impairment of intangible assets; Estimates and underlying assumptions are reviewed on • Note 3(e)(ii) and 15 – Research and development an ongoing basis. Revisions to accounting estimates • Note 18 – Deferred tax assets; are recognised in the period in which the estimates are • Note 28 – Provisions; revised and in any future periods affected. • Note 32 – Contingencies.
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Changes in presentation of assets and liabilities and corrections related to previous reporting periods
Distribution expenses related to export sales
Management recognises that the application of upon receipt of relevant export report provided by sales the Group’s accounting policy related to marketing agent (Rosoboronexport). As a result of the latest review costs (refer paragraph 3(m) of significant accounting management identified instances when events triggering policies) is subjective and depends on different facts recognition of distribution expenses occurred before and circumstances. Thus there is an ongoing process of settlement and receipt of export agent report. On this review of distribution expenses, in particular, with regard basis, management recognised accruals for distribution to the timing of recognition. During the reporting period expenses as at the reporting date. To ensure consistency management performed a review of sales contracts with previous reporting periods concluded that accruals related to export activities. Previously, distribution for distribution expenses should have been made in expenses were primarily recognised after settlement and similar circumstances at previous reporting dates.
Correction of assessment of net realisable value of inventories
The assessment of the net realisable value of inventories of the recalculation performed within preparation of these (work-in-progress) made by Group management in consolidated financial statements, the net realisable value preparing consolidated financial statements for the years of inventories was decreased and accumulated losses ended 31 December 2011 and 31 December 2010 contained were increased as at 1 January 2011. Related tax effect for an error which resulted in an overstatement of respective the years ended 31 December 2011 and 31 December 2010 work-in-progress balances by RUB 989 million. As a result RUB amounted to 198 million.
Correction of deferred tax liabilities
At 31 December 2010 and 31 December 2011 the Group has from allocation of production overhead expenses on understated deferred tax liabilities by RUB 454 million, inventory balances. As a result, deferred tax liabilities and relating to taxable temporary differences arising accumulated losses were understated.
Presentation of items in the Consolidated Statement of Income
In 2012, Management revised accounting policy in relation expenses were included in Cost of sales. In 2012 these to presentation of the profit and loss effect of the write- expenses are included in Other operating expenses down of inventories due to obsolescence. In 2011 relevant “Impairment of inventory”.
Defined benefit plans
In 2012 management made a decision to formally its significance to the consolidated financial statements determine and recognise a defined benefit plan obligation as a whole. The defined benefit plan obligation was which had previously not been recognised on the basis of recognised retrospectively.
Presentation of accumulated impairment loss of Property, Plant and Equipment
At 1 January 2011, the Group changed the presentation of against the cost of property, plant and equipment instead of property, plant and equipment which was recognised as at being included in accumulated depreciation and impairment 1 January 2009 as impairment previously had been netted (Note 14).
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The results of changes in presentation of assets and liabilities, corrections related to previous reporting periods and changes in accounting policies are as follows:
Consolidated Statement of Income
RUB million 2011 2 (e)(i) 2 (e)(iv) 2 (e)(v) Restated 2011
Cost of sales (114,317) - 2,981 - (111,336)
Distribution expenses (18,285) (1,836) - - (20,121)
Other operating income 1,121 - 9 - 1,130
Other operating expenses (7,141) - (2,990) - (10,131)
Profit from operating activities 1,839 (1,836) - - 3
Loss before income tax (8,808) (1,836) - - (10,644)
Income tax expense (3,069) 367 - - (2,702)
Loss for the year (11,877) (1,469) - - (13,346)
Basic and diluted earnings/(loss) (0.04) (0.01) (0.05) per share (RUB)
Consolidated Statement of Comprehensive Income
RUB million 2011 2 (e)(i) 2 (e)(iv) 2 (e)(v) Restated 2011
Defined benefit plan actuarial (99) - - 8 (91) gain net of tax
Total comprehensive loss (10,315) (1,469) - 8 (11,776)
Consolidated Statement of Financial Position:
31 December 31 December RUB million 2010 2 (e)(i) 2 (e)(ii) 2 (e)(iii) 2 (e)(v) Restated 2010
Non-current assets
Deferred tax assets 2,107 - 198 (454) - 1,851
Total non-current assets 146,337 - 198 (454) - 146,081
Current assets
Inventories 118,009 - (989) - - 117,020
Total current assets 240,338 - (989) - - 239,349
Total assets 386,675 - (791) (454) - 385,430
Equity
Accumulated losses (110,434) (86) (791) (454) (317) (112,082)
Foreign currency translation 3,261 - - - (1) 3,260 reserve
Non-controlling interest 3,228 - - - - 3,228
Total equity 89,037 (86) (791) (454) (318) 87,388
Non-current liabilities
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31 December 31 December RUB million 2010 2 (e)(i) 2 (e)(ii) 2 (e)(iii) 2 (e)(v) Restated 2010
Deferred tax liabilities 1,352 (22) - - (80) 1,250
Employee benefits 2,408 - - - 398 2,806
Total non-current liabilities 81,019 (22) - - 318 81,315
Current liabilities
Trade and other payable 135,697 108 - - - 135,805
Total current liabilities 216,619 108 - - - 216,727
Total equity and liabilities 386,675 - (791) (454) - 385,430
Consolidated Statement of Financial Position:
Restated RUB million 31 December 2011 2 (e)(i) 2 (e)(ii) 2 (e)(iii) 2 (e)(v) 31 December 2011
Non-current assets
Deferred tax assets 4,869 - 198 (454) (1) 4,612
Total non-current assets 167,369 - 198 (454) (1) 167,112
Current assets
Inventories 124,032 - (989) - - 123,043
Total current assets 254,053 - (989) - - 253,064
Total assets 421,422 - (791) (454) (1) 420,176
Equity
Accumulated losses (120,048) (1,553) (791) (454) (304) (123,150)
Foreign currency translation 3,947 (148) - - (16) 3,783 reserve
Non-controlling interest 2,452 - - - - 2,452
Total equity 96,219 (1,701) (791) (454) (320) 92,953
Non-current liabilities
Deferred tax liabilities 5,420 (425) - - (82) 4,913
Employee benefits 2,492 - - - 397 2,889
Total non-current liabilities 127,939 (425) - - 315 127,829
Current liabilities
Trade and other payable 112,952 2,126 - - - 115,078
Income tax payable 1,208 - - - (16) 1,192
Employee benefits 248 - - - 20 268
Total current liabilities 197,264 2,126 - - 4 199,394
Total equity and liabilities 421,422 - (791) (454) (1) 420,176
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Significant accounting policies
The following significant accounting policies have been statements. These accounting policies have been applied in the preparation of the consolidated financial consistently applied, except as disclosed in note 2(e).
Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Group. The acquisition of subsidiaries from third parties is Control exists when the Group has the power, directly or indi- accounted for using the acquisition method of accounting. rectly, to govern the financial and operating policies of an en- The identifiable assets, liabilities and contingent liabilities terprise so as to obtain benefits from its activities. The finan- of a subsidiary are measured at their fair values as at cial statements of subsidiaries are included in the consolidated the date of acquisition. financial statements from the date that control effectively commences until the date that control effectively ceases. Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as When necessary the accounting policies of subsidiaries equity holders and therefore no goodwill is recognised have been changed to align them with the policies as a result. Non-controlling interest is measured at its adopted by the Group. Losses applicable to the non- proportionate interest in the identifiable net assets of controlling interests in a subsidiary are allocated to the acquiree. the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
Associates and jointly controlled entities (equity accounted investees)
Associates are those entities in which the Group has The consolidated financial statements include the Group’s significant influence, but not control, over the financial share of the income and expenses and equity movements and operating policies. Significant influence is presumed of equity accounted investees, after adjustments to to exist when the Group holds between 20% and 50% align the accounting policies with those of the Group, of the voting power of another entity. Joint ventures from the date that significant influence commences until are those entities over whose activities the Group has the date that significant influence ceases. joint control, established by contractual agreement and requiring unanimous consent for strategic financial and When the Group’s share of losses exceeds its interest operating decisions. in an equity accounted investee, the carrying amount of that interest including any long-term investments, is Investments in associates and jointly controlled entities reduced to zero, and the recognition of further losses are accounted for using the equity method and are is discontinued, except to the extent that the Group recognised initially at cost. The cost of the investment has an obligation or has made payments on behalf of includes transaction costs. the investee.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised in preparing the consolidated financial statements. gains arising from intra-group transactions, are eliminated Unrealised gains arising from transactions with associates
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and jointly controlled enterprises are eliminated to Unrealised losses are eliminated in the same way as the extent of the Group’s interest in the enterprise. unrealised gains except that they are only eliminated to Unrealised gains resulting from transactions with associates the extent that there is no evidence of impairment. are eliminated against the investment in the associate.
Acquisitions from entities under common control
The assets and liabilities acquired in business entities are added to the same components within Group combinations arising from transfers of interests in equity except that any share capital of the acquired entities that are under the control of the shareholder entities is recognised as part of share premium. Any cash that controls the Group are recognised at the carrying paid for the acquisition is recognised directly in equity. amounts recognised previously in the financial statements Comparatives are not restated. of the entities. The components of equity of the acquired
Foreign currency transactions
Transactions in foreign currencies are translated to Non-monetary assets and liabilities denominated in the respective functional currencies of Group entities at foreign currencies that are measured at fair value are exchange rates at the dates of the transactions. Monetary retranslated to the functional currency at the exchange assets and liabilities denominated in foreign currencies rate at the date that the fair value was determined. Non- at the reporting date are retranslated to the functional monetary items in a foreign currency that are measured in currency at the exchange rate at that date. The foreign terms of historical cost are translated using the exchange currency gain or loss on monetary items is the difference rate at the date of the transaction. Foreign currency between amortised cost in the functional currency at differences arising on retranslation are recognised the beginning of the period, adjusted for effective interest in profit or loss, except for differences arising on and payments during the period, and the amortised cost the retranslation of available-for-sale equity instruments in foreign currency translated at the exchange rate at which are recognised in other comprehensive income. the end of the reporting period.
Operations with the functional currency other than functional currency of the Parent company
For subsidiaries whose functional currency is different from in full, the relevant amount in the foreign currency the functional currency of the Company, the assets and translation reserve is transferred to profit or loss. liabilities of such operations, including goodwill and fair value adjustments arising on acquisition, are translated into Foreign exchange gains and losses arising from RUB at exchange rates at the reporting date. The income a monetary item receivable from or payable to a such and expenses of these operations are translated into RUB at subsidiary, the settlement of which is neither planned exchange rates at the dates of the transactions. nor likely in the foreseeable future, are considered to form part of the net investment in the subsidiary and Foreign currency differences are recognised in other are recognised directly in equity in the foreign currency comprehensive income in the foreign currency translation translation reserve. reserve. When an operation is disposed of, in part or
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Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment, except for land, the acquisition, construction or production of qualifying are measured at cost less accumulated depreciation and assets are capitalized as part of the cost of the asset. impairment losses. When parts of an item of property, plant and equipment Cost includes expenditures that are directly attributable to have different useful lives, they are accounted for as the acquisition of the asset. The cost of self-constructed separate items (major components) of property, plant and assets includes the cost of materials and direct labour, any equipment. other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of The gain or loss on disposal of an item of property, plant dismantling and removing the items and restoring the site and equipment is determined by comparing the proceeds on which they are located. Purchased software that is from disposal with the carrying amount of property, integral to the functionality of the related equipment plant and equipment, and is recognised net within other is capitalised as part of that equipment. Furthermore, income/other expenses in profit or loss. borrowing costs that are directly attributable to
Subsequent costs
The cost of replacing part of an item of property, plant cost can be measured reliably. The costs of the day-to-day and equipment is recognised in the carrying amount of servicing of property, plant and equipment are recognised the item if it is probable that the future economic benefits in profit or loss as incurred. embodied within the part will flow to the Group and its
Depreciation
Depreciation is determined using the straight-line method to similar owned assets. The estimated useful lives for based on the estimated useful lives of the individual the current and comparative periods are as follows: assets and is recognised in profit or loss. • Buildings, 20–39 years Depreciation commences on the date of acquisition or, • Machinery and equipment, 6–28 years in respect of internally constructed assets, from the time an asset is completed and ready for use. Land is not Depreciation methods, useful lives and residual values depreciated. Leased assets are depreciated over the period are reviewed at each financial year end and adjusted if of useful life which is determined in line with one applied appropriate.
Leased assets
Leases in terms of which the Group assumes substantially for in accordance with the accounting policy applicable to all the risks and rewards of ownership are classified as that asset. finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value Other leases are operating leases and the leased assets and the present value of the minimum lease payments. are not recognised on the Group’s statement of financial Subsequent to initial recognition, the asset is accounted position.
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Intangible assets
Goodwill
Goodwill that arises on the acquisition of subsidiaries • if the business combination is achieved in stages, the fair is included in intangible assets. The Group measures value of the pre-existing equity interest in the aquiree; plus goodwill at the acquisition date as: • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests When the excess is negative (negative goodwill), it is in the acquiree; plus recognised immediately in profit or loss.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment amount of the investment, and any impairment loss is losses. In respect of equity accounted investees, allocated to the carrying amount of the equity accounted the carrying amount of goodwill is included in the carrying investee as a whole.
Research and development
Expenditure on research activities, undertaken with Amortisation of capitalised development costs is charged the prospect of gaining new scientific or technical to the statement of comprehensive income based on knowledge and understanding, is recognised in the unit-of-production method. The carrying amount is the income statement as an expense as incurred. reviewed for impairment annually when the asset is not yet in use and thereafter whenever events or changes in Expenditure on development activities, whereby research circumstances indicate that the carrying amount may not findings are applied to a plan or design for the production be recoverable. of new or substantially improved products and processes, other than development carried out as part of construction Management uses judgement in determination whether contracts, is capitalised if the product or process is techni- proceeds related to externally financed research and cally and commercially feasible and the Group has suffi- development contracts with government related entities cient resources to complete development. The expenditure should be accounted as government grants (Note 3(q)). capitalised includes the cost of materials, direct labour, an In making this judgment, management considers appropriate proportion of overheads and borrowing costs a number of factors, including: the significance of that are directly attributable to the development activity. external financing in total estimated costs of the contract, Other development expenditure is recognised in the in- stage of research and development project at which come statement as an expense as incurred. the government related entity commences participation, whether all substantial risks and rewards attributable Capitalised development expenditure is stated at cost to the result of research and development activities are less accumulated amortisation and impairment losses. transferred to the counterparty.
Other intangible assets
Other intangible assets are recorded at cost less useful lives of the individual assets, which are in the range accumulated amortisation and impairment losses. of 3–5 years. Intangible assets with indefinite useful lives Intangible assets that have limited useful lives are are not amortised but are instead tested for impairment at amortised on a straight-line basis over the estimated least annually.
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Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise substantially all the risks and rewards of ownership investments in equity and debt securities, trade and of the financial asset are transferred. Any interest in other receivables, cash and cash equivalents, loans and transferred financial assets that is created or retained by borrowings, and trade and other payables. the Group is recognised as a separate asset or liability.
The Group initially recognises loans and receivables Financial assets and liabilities are offset and the net and deposits on the date that they are originated. All amount presented in the statement of financial position other financial assets (including assets designated at fair when, and only when, the Group has a legal right to offset value through profit or loss) are recognised initially on the amounts and intends either to settle on a net basis or the trade date at which the Group becomes a party to to realise the asset and settle the liability simultaneously. the contractual provisions of the instrument. The Group classifies non-derivative financial assets into The Group derecognises a financial asset when the following categories: financial assets at fair value the contractual rights to the cash flows from the asset through profit or loss, held-to-maturity financial assets, expire, or it transfers the rights to receive the contractual loans and receivables and available-for-sale financial cash flows on the financial asset in a transaction in which assets.
Financial assets at fair value through profit or loss
A financial asset is classified at fair value through profit or loss risk management or investment strategy. Upon initial if it is classified as held for trading or is designated as such recognition related transaction costs are recognised in profit upon initial recognition. Financial assets are designated at or loss as incurred. Financial assets at fair value through profit fair value through profit or loss if the Group manages such or loss are measured at fair value, and changes therein are investments and makes purchase and sale decisions based on recognised in profit or loss. their fair value in accordance with the Group’s documented
Held-to-maturity financial assets
If the Group has the positive intent and ability to hold interest method, less any impairment losses. Any sale or to maturity debt securities that are quoted in an active reclassification of a more than insignificant amount of market, then such financial assets are classified as held-to-maturity investments not close to their maturity held-to-maturity financial assets. Held-to-maturity would result in the reclassification of all held-to- financial assets are recognised initially at fair value plus maturity investments as available-for-sale, and prevent any directly attributable transaction costs. Subsequent the Group from classifying investment securities as to initial recognition held-to-maturity financial assets held-to-maturity for the current and the following two are measured at amortised cost using the effective financial years.
Loans and receivables
Loans and receivables are a category of financial assets Subsequent to initial recognition loans and receivables are with fixed or determinable payments that are not quoted measured at amortised cost using the effective interest in an active market. Such assets are recognised initially at method, less any impairment losses. fair value plus any directly attributable transaction costs.
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Loans and receivables category comprise the following in note 20 and cash and cash equivalents as presented in classes of assets: trade and other receivables as presented note 21.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative recognised in other comprehensive income and presented financial assets that are designated as available-for-sale within equity in the fair value reserve. When an investment or are not classified in any of the above categories of is derecognised or impaired, the cumulative gain or loss financial assets. Such assets are recognised initially at in equity is reclassified to profit or loss. Investments in fair value plus any directly attributable transaction costs. equity securities that are not quoted on a stock exchange Subsequent to initial recognition, they are measured at and where fair value cannot be estimated on a reasonable fair value and changes therein, other than impairment basis by other means are stated at cost less impairment losses (see note 3(h)(i)) and foreign currency differences losses. on available-for-sale debt instruments (see note 3(b)), are
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and highly liquid investments with maturities at initial recognition of three months or less.
Non-derivative financial liabilities
The Group initially recognises debt securities issued when, and only when, the Group has a legal right to offset and subordinated liabilities on the date that they are the amounts and intends either to settle on a net basis or originated. All other financial liabilities (including to realise the asset and settle the liability simultaneously. liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which The Group classifies non-derivative financial liabilities the Group becomes a party to the contractual provisions as the other financial liabilities. Such financial liabilities of the instrument. are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial The Group derecognises a financial liability when its recognition, these financial liabilities are measured at contractual obligations are discharged or cancelled or amortised cost using the effective interest method. expire. Other financial liabilities comprise loans and borrowings, Financial assets and liabilities are offset and the net bank overdrafts, and trade and other payables. amount presented in the statement of financial position
Derivative financial instruments
Derivative financial instruments, including hedge accounting
The Group holds derivative financial instruments to hedge between the hedging instrument and the hedged item, its foreign currency exposures. including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, On initial designation of the derivative as a hedging together with the methods that will be used to assess instrument, the Group formally documents the relationship the effectiveness of the hedging relationship. The Group
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makes an assessment, both at the inception of the hedge should present an exposure to variations in cash flows relationship as well as on a ongoing basis, of whether that could ultimately affect reported net income. the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash Derivatives are recognised initially at fair value; related flows of the respective hedged items during the period transaction costs are recognised in profit or loss as for which the hedge is designated, and whether the actual incurred. Subsequent to initial recognition, derivatives are results of each hedge are within a range of 80-125 measured at fair value, and changes therein are accounted percent. For a cash flow hedge of a forecast transaction, for as described below. the transaction should be highly probable to occur and
Cash flow hedges
When a derivative is designated as the hedging instrument exercised, or the designation is revoked, then hedge in a hedge of the variability in cash flows attributable to accounting is discontinued prospectively. The cumulative a particular risk associated with a recognised asset or gain or loss previously recognised in other comprehensive liability or a highly probable forecast transaction that income and presented in the hedging reserve in equity could affect profit or loss, the effective portion of changes remains there until the forecast transaction affects profit in the fair value of the derivative is recognised in other or loss. When the hedged item is a non-financial asset, comprehensive income and presented in the hedging the amount recognised in other comprehensive income reserve in equity. The amount recognised in other is transferred to the carrying amount of the asset when comprehensive income is removed and included in profit the asset is recognised. If the forecast transaction is or loss in the same period as the hedged cash flows affect no longer expected to occur, then the balance in other profit or loss under the same line item in the statement comprehensive income is recognised immediately in profit of income as the hedged item. Any ineffective portion of or loss. In other cases the amount recognised in other changes in the fair value of the derivative is recognized comprehensive income is transferred to profit or loss in immediately in profit or loss. the same period that the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated,
Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs options are recognised as a deduction from equity, net of directly attributable to issue of ordinary shares and share any tax effects.
Repurchase, disposal and reissue of share capital (treasury shares)
When share capital recognised as equity is repurchased, in the reserve for own shares. When treasury shares are the amount of the consideration paid, which includes sold or reissued subsequently, the amount received is directly attributable costs, net of any tax effects, is recognised as an increase in equity, and the resulting recognised as a deduction from equity. Repurchased surplus or deficit on the transaction is presented in share shares are classified as treasury shares and are presented premium.
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Inventories
Construction work in progress is stated at cost plus price in the ordinary course of business, less the estimated profit recognised to date less foreseeable losses and less costs of completion and selling expenses. progress billings. Cost includes all expenditure related directly to specific projects and an allocation of fixed The cost of inventories is based on the average cost and variable overheads incurred in the Group’s contract principle and includes expenditure incurred in acquiring activities based on normal operating capacity. the inventories and bringing them to their existing location and condition. In the case of manufactured Other inventories are stated at the lower of cost and net inventories and work in progress, cost includes an realisable value. Net realisable value is the estimated selling appropriate share of overheads based on normal operating capacity.
Construction contracts
Construction contracts in progress represent the gross capacity. Construction contracts in progress are presented unbilled amount expected to be collected from customers as part of inventories in the statement of financial position for contract work performed to date (see note 30). It is for all contracts in which costs incurred plus recognised measured at cost incurred plus profit recognised to date profits exceed progress billings. If progress billings exceed less progress billings and recognised losses. Cost includes costs incurred plus recognised profits, then the difference all expenditure related directly to specific projects and is presented as trade and other payables as liability in an allocation of fixed and variable overheads incurred in the statement of financial position. the Group’s contract activities based on normal operating
Impairment
Non-derivative financial assets
A financial asset is considered to be impaired if objective Individually significant financial assets are tested for evidence indicates that one or more events have had impairment on an individual basis. The remaining financial a negative effect on the estimated future cash flows of assets are assessed collectively in groups that share that asset. An impairment loss in respect of a financial similar credit risk characteristics. asset measured at amortised cost is calculated as the difference between its carrying amount, and All impairment losses are recognised in profit or loss. Any the present value of the estimated future cash flows cumulative loss in respect of an available-for-sale financial discounted at the original effective interest rate. asset recognised previously in equity is transferred to An impairment loss in respect of an available-for-sale profit or loss. financial asset is calculated by reference to its current fair value.
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, other An impairment loss is recognised if the carrying amount of than investment property, inventories and deferred tax assets, an asset or its cash-generating unit exceeds its recoverable are reviewed at each reporting date to determine whether amount. a cash-generating unit is the smallest identifiable there is any indication of impairment. If any such indication asset group that generates cash flows that largely are exists then the asset’s recoverable amount is estimated. independent from other assets and groups. Impairment
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losses are recognised in profit or loss. Impairment losses Impairment losses recognised in prior periods are recognised in respect of cash-generating units are allocated assessed at each reporting date for any indications first to reduce the carrying amount of any goodwill allocated that the loss has decreased or no longer exists. An to the units and then to reduce the carrying amount of impairment loss is reversed where there is an indication the other assets in the unit (group of units) on a pro rata that the impairment loss may no longer exist and there basis. has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed The recoverable amount of an asset or cash-generating only to the extent that the asset’s carrying amount does unit is the greater of its value in use and its fair value not exceed the carrying amount that would have been less costs to sell. In assessing value in use, the estimated determined, net of depreciation or amortisation, if no future cash flows are discounted to their present value impairment loss had been recognised. using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit the periods during which services are rendered by plan under which an entity pays fixed contributions into employees. Prepaid contributions are recognised as an a separate entity and will have no legal or constructive asset to the extent that a cash refund or a reduction in obligation to pay further amounts. Obligations for future payments is available. Contributions to a defined contributions to defined contribution pension plans, contribution plan that are due more than 12 months after including Russia’s State pension fund, are recognised the end of the period in which the employees render as an employee benefit expense in profit or loss in the service are discounted to their present value.
Defined benefit plans
A defined benefit plan is a post-employment benefit The calculation is performed annually using the projected plan other than a defined contribution plan. The Group’s unit credit method. Net interest on the net defined net obligation in respect of defined benefit pension benefit plan liability (asset), current and past service costs, plans is calculated separately for each plan by estimating including gains or losses arising on improving of plan the amount of future benefit that employees have benefits, plan curtailment or settlement, are recognised in earned in return for their service in the current and profit or loss. prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets are The effects of remeasurement of net defined benefit plan deducted. The discount rate is the yield at the reporting liabilities (assets), including actuarial gains and losses and date on government bonds that have maturity dates return on plan assets, excluding amounts included in net approximating the terms of the Group’s obligations and interest on the net defined benefit liability (asset), are that are denominated in the same currency in which recognised in other comprehensive income. the benefits are expected to be paid.
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Short-term benefits
Short-term employee benefit obligations are measured profit-sharing plans if the Group has a present legal or on an undiscounted basis and are expensed as the related constructive obligation to pay this amount as a result of service is provided. a liability is recognised for the amount past service provided by the employee, and the obligation expected to be paid under short-term cash bonus or can be estimated reliably.
Provisions
A provision is recognised if, as a result of a past event, the expected future cash flows at a pre-tax rate that the Group has a present legal or constructive obligation reflects current market assessments of the time value of that can be estimated reliably, and it is probable that an money and the risks specific to the liability. The unwinding outflow of economic benefits will be required to settle of the discount is recognised as finance cost. the obligation. Provisions are determined by discounting
Warranties
A provision for estimated standard warranty costs is based on the Group’s historical experience on previous recognised in the period in which the related product deliveries of aircrafts. Estimates are adjusted as necessary sales occur. An accrual for warranty costs is recognised based on subsequent experience.
Onerous contracts
A provision for onerous contracts is recognised when the expected cost of terminating the contract and the expected benefits to be derived by the Group the expected net cost of continuing with the contract. from a contract are lower than the unavoidable cost of Before a provision is established, the Group recognises meeting its obligations under the contract. The provision any impairment loss on the assets associated with that is measured at the present value of the lower of contract.
Revenues
Management uses judgement in determination whether length of operating cycle required to deliver an item or revenue from manufacturing of an aircraft should be set of items, extent of customer-driven modifications of accounted for in accordance with IAS 11 as construction an aircraft as compared to known specifications, existence contracts or IAS 18 as goods sold. In making this of requirements for formal certification and benchmark judgment, management considers a number of factors, tests to meet customer’s specific needs. including: timing required to complete the contract,
Construction contracts
The operations of the Group include manufacturing reliably, contract revenue is recognised in profit or loss aircraft under fixed price contracts where particular in proportion to the stage of completion of the contract, aircraft item (or items) undergoes significant modification measured by the ratio of total direct materials, labour and in development and/or production to meet customer contract related design and development costs incurred requirements, thus such contracts are accounted for to date relative to the total estimated respective costs under IAS 11 as construction contracts. As soon as on the contract. This method is used as the management the outcome of a construction contract can be estimated of the Group considers this to be the best available
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measure of progress on the contracts. The method the extent of contract costs incurred that are likely to be places considerable importance on accurate estimates at recoverable. completion as well as on the extent of progress towards completion. For the determination of the progress of Provisions for estimated losses on uncompleted contracts, the construction contract significant estimates include if any, are made in the period in which such losses are total contract costs, remaining costs to completion, total determined and are recognised immediately in profit or contract revenues, contract risks and other judgements. loss. Changes in job performance, contract conditions Costs that are incurred to secure a specific contract may and estimated profitability, including those arising from be included in contract costs, but only if these costs can contract penalty provisions, if any, and final contract be directly associated with a specific contract and if their settlements may result in revisions to costs and income recoverability from that contract is probable. and are recognised in the period in which the revisions are determined. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to
Goods sold
Revenue from the sale of goods, primarily related to Revenue is recognised when persuasive evidence exists, production of serial civil aircraft not requiring substantial usually in the form of an executed sales agreement, that customer-related modification and separate military and the significant risks and rewards of ownership have been civil aircraft components, is recognised in the income transferred to the customer, recovery of the consideration statement when the significant risks and rewards of is probable, the associated costs and possible return of ownership have been transferred to the buyer. goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
Services
Revenue from services rendered, which primarily relate to in profit or loss in proportion to the stage of completion of customer-specified aircraft-related development activities, the transaction at the reporting date. aircraft modernisation, overhaul and repair, is recognised
Other expenses
Operating leases
Payments made under operating leases are recognised integral part of the total lease expense, over the term of in profit or loss on a straight-line basis over the term of the lease. the lease. Lease incentives received are recognised as an
Social expenditure
To the extent that the Group’s contributions to social restricted to the Group’s employees, they are recognised programs benefit the community at large and are not in profit or loss as incurred.
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Finance income and costs
Finance income comprises interest income on funds fair value through profit or loss, and impairment losses invested, dividend income, gains on the disposal of recognised on investments. All borrowing costs, which available-for-sale financial assets, changes in the fair value are not directly attributable to the qualifying assets, are of financial assets at fair value through profit or loss, and recognised in profit or loss using the effective interest foreign currency gains. Interest income is recognised as method, except for borrowing costs directly attributable it accrues, using the effective interest method. Dividend to the acquisition, construction or production of income is recognised on the date that the Group’s right to qualifying assets which are recognized as part of the cost receive payment is established. of such assets.
Finance costs comprise interest expense on borrowings, Foreign currency gains and losses are reported on a net unwinding of the discount on provisions, foreign currency basis. losses, changes in the fair value of financial assets at
Income tax
Income tax expense comprises current and deferred and liabilities, and they relate to income taxes levied by tax and tax credits utilized during the year. Current tax the same tax authority on the same taxable entity, or on and deferred tax are recognised in profit or loss except different tax entities, but they intend to settle current tax to the extent that it relates to a business combination, liabilities and assets on a net basis or their tax assets and or items recognised directly in equity or in other liabilities will be realised simultaneously. comprehensive income. In accordance with the tax legislation of the Russian Current tax expense is the expected tax payable on Federation, tax losses and current tax assets of the taxable income for the year, using tax rates enacted a company in the Group may not be set off against or substantively enacted at the reporting date, and any taxable profits and current tax liabilities of other Group adjustment to tax payable in respect of previous years. companies.
Deferred tax is provided using the balance sheet liability Income tax credit is granted in the form of increases method, providing for temporary differences between in tax-deductible expenses. Tax credit is presented in the carrying amounts of assets and liabilities for financial profit or loss as a deduction in current tax expense to reporting purposes and the amounts used for taxation the extent that an entity is entitled to claim the credit purposes. The following temporary differences are not in the tax current reporting period. If the additional provided for: goodwill; initial recognition of assets or deduction exceeds taxable income, then the resulting tax liabilities that affect neither accounting nor taxable loss can be carried forward and utilised in future periods profit; and investments in subsidiaries where the Parent by recognising as a deferred tax asset. company is able to control the timing of the reversal of the temporary difference and it is probable that A deferred tax asset is recognised for unused tax losses, the temporary difference will not reverse in the foreseeable tax credits and deductible temporary differences, to future. The amount of deferred tax provided is based the extent that it is probable that future taxable profits on the expected manner of realisation or settlement of will be available against which they can be utilised. the carrying amount of assets and liabilities, using tax rates Deferred tax assets are reviewed at each reporting enacted or substantively enacted by the reporting date. date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets
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Government grants
Government grants are recognised initially as deferred are recognised as revenue in the income statement income at fair value when there is reasonable assurance on a systematic basis in the same periods in which that it will be received and that the Group will comply the expenses were incurred. Grants that compensate with the conditions attaching to it. Government grants the Group for the cost of an asset are deducted from that compensate the Group for expenses incurred the carrying amounts of the asset.
Earnings per share
The Group presents basic and diluted earnings per share (EPS) is determined by adjusting the profit or loss attributable to information for its ordinary shares. Basic EPS is calculated by ordinary shareholders and the weighted average number dividing the profit or loss attributable to ordinary shareholders of ordinary shares outstanding for the effects of all dilutive of the Parent Company by the weighted average number of potential ordinary shares, which comprise convertible notes ordinary shares outstanding during the period. Diluted EPS and share options granted to employees.
Segment reporting
An operating segment is a component of the Group operating results are reviewed regularly by the Group’s that engages in business activities from which it may President to make decisions about resources to be earn revenues and incur expenses, including revenues allocated to the segment and assess its performance, and and expenses that relate to transactions with any of for which discrete financial information is available. the Group’s other components. All operating segments’
New Standards and Interpretations not yet adopted
A number of new Standards, amendments to The Group has not yet analysedthe likely impact of these Standards and Interpretations are not yet effective new Standarts and Interpretations. Group plans to adopt as at 31 December 2012, and have not been applied these pronouncements when they become effective. in preparing these consolidated financial statements. Determination of fair values
A number of the Group’s accounting policies and and/or disclosure purposes based on the following disclosures require the determination of fair value, for methods. When applicable, further information about both financial and non-financial assets and liabilities. the assumptions made in determining fair values is Fair values have been determined for measurement disclosed in the notes specific to that asset or liability.
Property, plant and equipment
The fair value of property, plant and equipment recognised seller in an arm’s length transaction after proper marketing as a result of a business combination is based on market wherein the parties had each acted knowledgeably, values. The market value of property is the estimated prudently and without compulsion. The market value of amount for which a property could be exchanged on items of plant, equipment, fixtures and fittings is based on the date of valuation between a willing buyer and a willing the quoted market prices for similar items.
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Intangible assets
The fair value of intellectual property rights and or patent being owned. The fair value of other intangible patents acquired in a business combination is based on assets is based on the discounted cash flows expected to the discounted estimated royalty payments that have be derived from the use and eventual sale of the assets. been avoided as a result of the intellectual property rights
Investments in equity and debt securities
The fair value of financial assets at fair value through their quoted bid price at the reporting date. The fair profit or loss, held-to-maturity investments and available- value of held-to-maturity investments is determined for for-sale financial assets is determined by reference to disclosure purposes only.
Trade and other receivables
The fair value of trade and other receivables, excluding value of future cash flows, discounted at the market rate construction work in progress, is estimated as the present of interest at the reporting date.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is interest is determined by reference to similar liabilities calculated based on the present value of future principal that do not have a conversion option. For finance leases and interest cash flows, discounted at the market rate of the market rate of interest is determined by reference to interest at the reporting date. In respect of the liability similar lease agreements. component of convertible notes, the market rate of Financial risk management
Overview
The Group has exposure to the following risks from its use The Board of Directors has overall responsibility of financial instruments: for the establishment and oversight of the Group’s risk management framework. The Executive Board, • credit risk a Group operational management body, and the Group • liquidity risk President are responsible for developing and monitoring • market risk. the Group’s risk management policies. The Executive Board and President report regularly to the Board of This note presents information about the Group’s Directors on its activities. exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and The Group’s risk management policies are established managing risk, and the Group’s management of capital. to identify and analyse the risks faced by the Group, to Further quantitative disclosures are included throughout set appropriate risk limits and controls, and to monitor these consolidated financial statements. risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in
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market conditions and the Group’s activities. The Group, constructive control environment in which all employees through its training and management standards understand their roles and obligations. and procedures, aims to develop a disciplined and
Credit risk
Credit risk is the risk of financial loss to the Group if from the Group’s receivables from customers and a customer or counterparty to a financial instrument fails investment securities. to meet its contractual obligations, and arises principally
Trade and other receivables
Main customers of the Group are Federal Government of The Group establishes an allowance for impairment Russian Federation and governments of other countries. that represents its estimate of incurred losses in The Group’s exposure to credit risk is influenced mainly by respect of trade and other receivables and investments. the economic and political situation in Russian Federation The main components of this allowance are a specific and these countries. Approximately 73% of the Group’s loss component that relates to individually significant revenue is attributable to sales transactions with a group exposures. of five main customers. Therefore, geographically there is high concentration of credit risk. The Group monitors all Credit evaluations are performed on all customers, changes which occur in the target countries. other than related parties, requiring credit over a certain amount.
Investments
The Group limits its exposure to credit risk by only investing in liquid securities.
Guarantees
As at 31 December 2012 and 31 December 2011 the Group did not have any contractual commitments to extend financial guarantees, credit and other assistance.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet Typically the Group ensures that it has sufficient cash on its financial obligations as they fall due. The Group’s approach demand to meet expected operational expenses for a period to managing liquidity is to ensure, as far as possible, that it will of 15–30 days, including the servicing of financial obligations; always have sufficient liquidity to meet its liabilities when due, this excludes the potential impact of extreme circumstances under both normal and stressed conditions, without incurring that cannot reasonably be predicted, such as natural unacceptable losses or risking damage to the Group’s disasters. reputation.
Market risk
Market risk is the risk that changes in market prices, prices will affect the Group’s income or the value of such as foreign exchange rates, interest rates and equity its holdings of financial instruments. The objective of
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market risk management is to manage and control The Group incurs financial liabilities, in order to manage market risk exposures within acceptable parameters, market risks. All such transactions are carried out within while optimising the return. the guidelines set by the Board of Directors.
Currency risk
The Group is exposed to currency risk on sales, purchases In 2010 the Group subsidiary issued three-year rouble and borrowings that are denominated primarily in US Dollars bonds and hedged those using foreign currency exchange (USD) and Euro (EUR), currencies other than the respective forward contracts. This hedge is accounted for as a cash functional currency of Group entities. flow hedge and the effective part of the hedge net of related tax is recognised directly in hedging reserve in Interest on borrowings is denominated in currencies other comprehensive income. that match the cash flows generated by the underlying operations of the Group, primarily USD, but also RUB and In respect of other monetary assets and liabilities EUR. This provides an economic hedge and no derivatives denominated in foreign currencies, the Group ensures are entered into. that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
Interest rate risk
Management does not have a formal policy of whether it believes that a fixed or variable rate would be determining how much of the Group’s exposure should be more favourable to the Group over the expected period to fixed or variable rates. However, at the time of issuing until maturity. new debt management uses its judgment to decide
Operational risk
Operational risk is the risk of direct or indirect loss arising overall Group standards for the management of operational from a wide variety of causes associated with the Group’s risk in the following areas: processes, personnel, technology and infrastructure, and from external factors other than credit, market • requirements for appropriate segregation of duties, and liquidity risks such as those arising from legal including the independent authorisation of transactions and regulatory requirements and generally accepted • requirements for the reconciliation and monitoring of standards of corporate behaviour. Operational risks arise transactions from all of the Group’s operations. • compliance with regulatory and other legal requirements • documentation of controls and procedures The Group’s objective is to manage operational risk so as • requirements for the periodic assessment of operational to balance the avoidance of financial losses and damage risks faced, and the adequacy of controls and procedures to the Group’s reputation with overall cost effectiveness to address the risks identified and to avoid control procedures that restrict initiative and • requirements for the reporting of operational losses and creativity. proposed remedial action • development of contingency plans The primary responsibility for the development and • training and professional development implementation of controls to address operational risk is • ethical and business standards assigned to senior management within each business unit. • risk mitigation, including insurance where this is This responsibility is supported by the development of effective.
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Capital management
The Company’s long-term objectives in managing capital monitors the return on capital. Management seeks to are to safeguard the Group ability to continue as a going maintain a balance between the higher returns that might be concern in order to provide return for shareholders and possible with higher levels of borrowings and the advantages benefits for other stakeholders. In the medium and short- and security afforded by a sound capital position. term, the Group objectives are to maintain an optimal capital structure to reduce the cost of capital. The Group’s return on capital was positive in 2012 (2011: negative). The weighted average interest expense Management’s policy is to maintain a strong capital base so on interest-bearing borrowings (excluding liabilities with as to maintain investor, creditor and market confidence and imputed interest and excluding effect of government grants to sustain future development of the business. Management related to interest expense) was 6.76% (2011: 8.06%)
The Group’s debt to adjusted capital ratio at the end of the reporting period was as follows: * See note 2(e)
2011 Mln RUB 2012 Restated*
Total debt 215,199 194,985
Less: cash and cash equivalents (52,453) (46,002)
Net debt 162,746 148,983
Total equity 108,950 92,953
Debt to capital ratio at 31 December 1.49 1.60
There were no changes in the Group approach to capital have to maintain a minimum level of net assets which is management during the year. considered in managing capital of those entities. As at 31 December 2012 the Group subsidiary CJSC “Sukhoi Under certain loan agreements the Group subsidiaries Civil Aircraft” was in breach of certain financial covenants, have to comply with financial covenants which require although the Company obtained relevant waivers before maintaining minimum levels of Net Debt to EBITDA, the reporting date (Note 24 (d)). Operating segments
The Group has three reportable segments, as described • Irkut Corporation. Primarily includes production of below. The segments represent the sub-holdings which military combat aircraft as well as development of develop and produce different products, and are managed the training military aircraft Yak-130 and civil aircraft separately because they require different technology and programme MC-21. marketing strategies. For each of the segments, the Group’s • Other units. Includes designing and manufacturing President reviews internal management reports on annual of various types of aircraft as well as repair and basis. The following summary describes the operations in maintenance of existing civil and military aircraft each of the Group’s reportable segments: produced in Russia and the former Soviet Union.
• Sukhoi holding. Primarily includes development and The underlying principles on which thereportable segments production of military combat aircraft as well as information are generally derived from the statutory account- development of the civil aircraft programme SSJ-100. ing records adjusted for intergroup transactions. The major
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reconciling differences between the information provided to Information regarding the results of each reportable President and the related IFRS-based amounts relate to: segment is included below. Segment performance is measured based on segment gross profit calculated as • Timing differences relating to when revenue and costs revenue after deduction of direct cost of production and are recognised. directly attributable distribution expenses. Segment profit • Adjustments for net realisable value of inventories and is used to measure performance as management believes change in onerous contracts. that such information is the most relevant in evaluating • Administrative expenses. the results of certain segments relative to other entities • Adjustments to fair value of intangible assets and that operate within these industries. property, plant and equipment.
Information about reportable segments
Mln RUB Sukhoi Group Irkut Corporation Other Total
2012 2011 2012 2011 2012 2011 2012 2011
External revenue for 83,859 83,017 42,139 36,656 51,853 47,121 177,851 166,794 reportable segments
Inter-segment revenue for 2,038 1,397 6,645 12,446 3,565 2,214 12,249 16,057 reportable segments
Reportable segment gross 18,748 16,646 7,830 15,227 1,356 2,422 27,933 34,295 profit
Reconciliation of reportable segments’ revenues and reportable segments’ measure of profit
Mln RUB 2012 2011
Total revenue for reportable segments 190,100 182,851
Elimination of inter-segment revenue (12,249) (16,057)
Difference in timing and principles of revenue recognition (6,832) (5,141)
Consolidated revenue 171,019 161,653
Mln RUB 2012 2011
Reportable segment gross profit 27,933 34,295
Adjustments for:
Net realizable value of inventories (6,955) 3,909
Onerous contracts - 2,229
Fair value of assets related to SSJ-100 programme 2,325 1,147
Presentation of certain types of administrative expenses 7,948 9,723
Adjustments to fair value of intangible assets and property, plant and equipment (54) (1 528)
Difference in timing of recognition of revenue and cost of sales 4,059 4,082
Government grants related to development costs 80 (2,250)
Other 551 (1,290)
Gross profit 35,887 50,317
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Major customer
In 2012 and 2011, revenue from one customer, the Ministry approximately 23% and 13%, respectively, of the Group’s of Defence of the Russian Federation, represented total revenue. Disposal of subsidiary
In September 2012 Moscow Arbitration Court declared “FLC” from September 2012 and ceased consolidation the Group’s subsidiary JSC “FLC” as bankrupt by Moscow of the entity. Net liabilities of JSC “FLC” as of the date Arbitration Court. Bankruptcy proceedings were initiated the loss of the control amounted RUB 7,849 million. for a 6 months term and the Group lost control over JSC Revenue
Mln RUB 2012 2011
Revenue earned on aircraft construction contracts 88,936 81,254
Revenue on sales of aircraft components and related products 24,117 43,087
Revenue earned on research and development services 32,265 19,604
Revenue earned on modernisation and overhaul services 19,473 11,178
Other 6,228 6,530
Total 171,019 161,653
Personnel costs
Mln RUB 2012 2011
Wages and salaries 32,767 27,858
Compulsory social security contributions 8,741 7,622
Expenses related to defined benefit plans 24 148
Total 41,532 35,628
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Other operating expenses * See note 2(e)
Mln RUB 2012 2011 Restated*
Property and other tax expense 1,004 1,213
Bank charges 539 726
Loss on disposal of property, plant and equipment and intangible assets - 9
Charity and social expenses 752 629
Write-off and change in allowance for doubtful receivables 1,080 572
Fines and penalties paid 162 390
Expenses attributed to JSC “FLC” - 2,941
Net loss on reimbursement of insurance AN-148 - 106
Impairment of inventory 2,009 2,981
Other expenses 612 564
Total 6,158 10,131 Other operating income
Mln RUB 2012 2011
Fines and penalties received 206 63
Rental income 160 83
Gain on disposal of property, plant and equipment and intangible assets 158 -
Gain on disposal of other assets 254 190
Reimbursement of insurance 273 794
Gain on disposal of JSC “FLC” 7,849 -
Income attributed to JSC “FLC” 883 -
Total 9,783 1,130
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Finance income and finance costs
Mln RUB 2012 2011
Finance income
Interest income 2,669 2,049
Foreign exchange gain 3,382 858
Other finance income 59 161
6,110 3,068
Finance costs
Interest expense (14,762) (13,109)
Government grant related to compensation of interest expense 1,174 486
(13,588) (12,623)
Net loss from finance lease contracts (11) (366)
Impairment/reversal of impairment on loss on investments 231 (331)
Other finance costs (29) (32)
(13,397) (13,352)
Income tax expense * See note 2(e)
Mln RUB 2012 2011 Restated*
Current tax expense
Current income tax (1,536) (2,057)
Adjustments of prior years 734 (153)
(802) (2,210)
Deferred tax benefit
Origination and reversal of temporary differences 2,222 (492)
2,222 (492)
Total 1,420 (2,702)
The Group’s applicable tax rate is the corporate income tax rate of 20%.
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Reconciliation of effective tax rate: * See note 2(e)
Mln RUB 2012 % 2011 Restated* %
Loss before income tax (7,070) 100 (10,644) 100
Income tax at applicable tax rate 1,414 (20) 2,129 (20)
Non-deductible/ non-taxable items, net (590) 26 (2,162) 20
Adjustments of prior years 151 (2) (153) (1)
Unused tax credit relating to R&D expenses of 377 (5) - - the reporting period
Utilization of previously unrecognised tax credit 800 (11) - - related to R&D expenses of prior years
Change in recognised deferred tax assets/liabilities (359) (5) - -
Unrecognised deferred tax assets (372) (5) (2,516) 18
Total 1,420 (20) (2,702) 25
Property, plant and equipment
Land and Plant and Construction Mln RUB buildings equipment Other in progress Total
Cost
At 1 January 2011 54,584 45,859 4,471 6,437 111,351
Change in presentation (Note 2(е)(vi)) 1,051 (321) 437 872 2,039
At 1 January 2011 restated 55,635 45,538 4,908 7,309 113,390
Acquisition under common control 1,084 16 - - 1,100
Additions and transfers 215 4,900 5,550 3,652 14,317
Reclassifications 414 (1,090) 28 648
Transfers from other assets - 6,329 141 845 7,315
Transfer to finance lease - (784) - - (784)
Reclassification from intangible assets - - - 282 282
Disposals (150) (295) (461) (102) (1,008)
Foreign exchange differences 594 679 141 57 1,471
At 31 December 2011 57,792 55,293 10,307 12,691 136,083
Acquisition under common control 6,875 757 120 106 7,858
Additions and transfers 4,158 8,835 (1,057) 8,791 20,727
Reclassifications 72 (72) - - -
Disposals (1,018) (2,507) (1,248) - (4,773)
Foreign exchange differences (10) (199) (48) (143) (400)
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Land and Plant and Construction Mln RUB buildings equipment Other in progress Total
At 31 December 2012 67,869 62,107 8,074 21,445 159,495
Depreciation
At 1 January 2011 (5,859) (16,694) (1,433) - (23,986)
Change in presentation Note 2(е)(vi)) (1,116) (584) (340) - (2,040)
At 1 January 2011 restated (6,975) (17,278) (1,773) - (26,026)
Depreciation charge (1,592) (7,072) (2,618) - (11,282)
Reclassifications (55) 55 - - -
Impairment charge - (2,670) - - (2,670)
Disposals 104 295 181 - 580
Foreign exchange differences (111) (403) (65) - (579)
At 31 December 2011 (8,629) (27,073) (4,275) - (39,977)
Depreciation charge (1,404) (7,945) (1,053) - (10,402)
Reclassifications (4) (13) 17 - -
Disposals 395 1,474 1,001 - 2,870
Foreign exchange differences (3) 64 9 - 70
At 31 December 2012 (9,645) (33,493) (4,301) - (47,439)
Carrying amounts
At 1 January 2011 48,725 29,165 3,038 6,437 87,365
At 31 December 2011 49,164 28,220 6,032 12,691 96,107
At 31 December 2012 58,224 28,614 3,773 21,445 112,056
Aircraft in operating lease
In 2011 the Group revised the sales contract with Aeroflot aircraft with book value of RUB 6,030 million were to supply SSJ-100 aircraft. According to the revised terms delivered to Aeroflot). the Group has a firm obligation to repurchase at later dates the first ten aircraft out of forty to be delivered. As at 31 December 2012 the cost of the aircraft in Accordingly, the first ten deliveries are accounted for as operating lease was tested for impairment. As at operating lease. As at 31 December 2012, ten completed 31 December 2012 no impairment loss was recognised aircraft with a book value of RUB 8,587 million were (2011: RUB 2,670 million) delivered to Aeroflot (31 December 2011: four completed
Leased plant and machinery
The Group leases production equipment under a number plant and machinery was RUB 4,511 million (2011: RUB of finance lease agreements. The leased equipment 4,434 million). secures the lease obligations (see note 24(e)). At 31 December 2012 the net carrying amount of leased
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Security
At 31 December 2012 property, plant and equipment with 2011: RUB 4,243 million) is pledged as collateral for a carrying amount of RUB 4,872 million (31 December secured loans (see note 24(b)).
Other restrictions
The net book value of property, plant and equipment accordance with the state military programme amounted restricted for sale by the Russian government in to RUB 9,567 million (2011: RUB 12,726 million).
Capitalised borrowing costs
Additions to property, plant and equipment for the year ended 31 December 2012 include RUB 398 million of capitalised borrowing costs (2011: RUB nil million). Intangible assets
Advances given for Mln RUB Goodwill Development costs Software development costs Total
Cost
At 1 January 2011 1,950 41,264 2,494 968 46,676
Additions and transfers - 12,968 798 1,586 15,352
Disposals - (350) (534) (96) (980)
Reclassification to property, - - - (282) (282) plant and equipment
Government grants - (6,125) - - (6,125)
Foreign exchange differences 110 940 - - 1,050
At 31 December 2011 2,060 48,697 2,758 2,176 55,691
Acquisition under common - - 2 - 2 control
Additions and transfers - 8,167 1,316 236 9,719
Disposals - (344) (358) (37) (739)
Government grants - (126) - - (126)
Foreign exchange differences (117) (538) 38 - (617)
At 31 December 2012 1,943 55,856 3,756 2,375 63,930
Amortisation and impairment losses
At 1 January 2011 - (8,809) (897) - (9,706)
Amortisation charge - (919) (343) - (1,262)
Impairment loss - (71) - - (71)
Disposals/reclassification - 147 435 - 582
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Advances given for Mln RUB Goodwill Development costs Software development costs Total
Foreign exchange differences - (307) - - (307)
At 31 December 2011 - (9,959) (805) - (10,764)
Amortisation charge - (943) (771) - (1,714)
Impairment loss - (89) - - (89)
Disposals/reclassification - 103 267 - 370
At 31 December 2012 - (10,888) (1,309) - (12,197)
Carrying amounts
At 1 January 2011 1,950 32,455 1,597 968 36,970
At 31 December 2011 2,060 38,738 1,953 2,176 44,927
At 31 December 2012 1,943 44,968 2,447 2,375 51,733
Goodwill
Goodwill relates to the acquisition of JSC “Irkut until 2026 as the projected cash flows are primarily based Corporation” and its subsidiaries (“Irkut Group”) in 2007. on the lifecycle of MC-21 programme which is expected to reach maturity in 2023. Terminal value, representing As at 31 December 2012 management tested the acquired the cash flows beyond 2026, was calculated applying goodwill for impairment. The recoverable amount of a growth rate of 2.5%. The cash flows were discounted Irkut group’s CGU was determined with reference to its using a post-tax discount rate of 14.0% in each forecast fair value. Applying disounted cashflow approach cash year. As a result, the recoverable amount of assets of Irkut flow projections were based on financial budgets and Group, including related goodwill, exceeded its carrying forecast approved by management covering a period amount as at 31 December 2012.
Development costs
Capitalised development costs comprise of the following programmes:
Mln RUB 2012 2011
Sukhoi Super Jet – 100 aircraft (“SSJ-100”) 25,269 22,456
Yak-130 aircraft 5,470 4,677
MC-21 aircraft 3,710 1,036
Other 10,528 10,569
Total 44,977 38,738
MC-21
Production of MC-21 aircraft and provision of services date. a discount rate of 12% was applied in determining to customers under certain military programmes will the recoverable amount. commence in 2017, respectively. Consequently, the related intangible assets are not amortised. Instead, management tested this asset for impairment as at the reporting
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SSJ-100
The development of the “Sukhoi Super Jet – 100” (“SSJ- flow projections for a period of 10 years as the program 100”) aircraft is included in the Federal Target Program is expected to mature in 2022. The terminal value, “Development of the civil aircraft for 2002-2010 and representing the cash flows beyond the ten-year period, for the period until 2015” approved by the Decision of was calculated based on the 10th forecasted year with zero the Federal Government of the Russian Federation No. 728 growth rate. dated 15 October 2001. In accordance with this program, the Company receives financing from the Federal Forecasted cash flow projections used for impairment Government. Funds are received under the contract with test were based on the latest business plan which was the Ministry of Industry and Trade (Minpromtorg) which is revised in December 2012. The cash flow model is structured as a contract for development services, and as particularly sensitive to changes in key assumptions. Below direct subsidies from the budget to cover certain types of is the analysis of the sensitivity of the cash flow model to expenses. changes in the production capacity, sales price per aircraft and discount rate. In January 2011 the Group obtained the Type Certificate for serial aircraft production and subsequently deliveries • Revised sales volume for 2013 is 27 aircraft with expected commenced to the first customers. increase to maximum production capacity of 70 aircraft in 2016 (under previous year business plan maximum Management concluded that development costs production capacity of 70 aircraft was also expected to be capitalised up to the date of the Type Certificate met achieved in 2016, however expected sales volume for 2013 the requirement of IAS 38 Intangible assets as ‘available was 41 aircraft). This expectation is based on the result for use’ which triggered commencement of amortisation of recent review of achievable production capacity of these costs based on the unit-of-production method. which will be fully utilised in 2016. An even decrease of Management expects that certain development activities annual production volumes by 10% after full utilisation of are still required to complete the development of production capacity (i.e. annual sales volumes would be the aircraft to ensure its operating capabilities and less than expected by 10% in each forecasted year starting required aviation standards in the target markets. from 2016, assuming that actual sales volumes in 2013- 2015 will be as expected) would result in an impairment As a consequence of substantial completion of loss of RUB 4,400 million. If, in addition to lower utilisation development of the SSJ-100 programme management of production capacity after 2016, an annual sales volume ceased capitalisation of borrowing costs in relation to in 2013-2015 would be lower than expected by 5 aircraft in assets capitalised before January 2011. Additions to each of these years, an additional impairment loss of RUB development costs for the year ended 31 December 2012 6,414 million would be required. do not include capitalised borrowing costs (2011: RUB 111 • The overall market demand for SSJ-100 aircraft is expected million). to remain the same. An annual increase in future real sales prices by 3% starting from 2013 would result in additional Management constantly monitors the SSJ-100 program excess of discounted cash flows over the carrying amount for signs of impairment. As at 31 December 2012, of the asset by RUB 26,581 million. An annual decrease in management performed an impairment test taking into future real sales prices by 3% starting from 2013 would account the current financial position of the Company as result in an impairment loss of RUB 3,725 million. an indicator for potential impairment. • As a key assumption, the Company expects to be able to increase real sales prices by 10% starting from 2018 after Following the requirements of IAS 36 Impairment of assets introduction of the enhanced versions of basic and long- and taking into account that the related development range modification of the aircraft to achieve an average costs were considered substantially ‘available for use’, in real sales price of RUB 863 million for SSJ-100 “B” and RUB measuring value in use management calculated the cash 884 million for SSJ-100 “LR”. By this time the Company
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would be able to demonstrate an operating usage expected cash flows increased to 15.6% as compared to history of SSJ-100 fleet by airline customers which should prior year (2011: 15.39%). An application of 14,6% pre-tax further support expected demand for existing and newer nominal discount rate would result in additional excess modifications of SSJ-100 family. Failure to enjoy advantage of discounted cash flows over the carrying amount of increase in future real sales prices in 2018 and beyond of the asset by RUB 18,624 million. An application of would result in an impairment loss of RUB 20,303 million. 16.6% pre-tax nominal discount rate would not result in • Due to adverse change in macroeconomic indicators, impairment loss. the pre-tax nominal rate applied for discounting of
Other projects
By the end of the year 2012 an asset was substantially use of the assets and from their ultimate disposal. completed and became available for use, which triggered a pre-tax discount rate of 21%, which reflects current commencement of amortisation of these costs based on market assessments of the time value of money and the unit-of-production method. Management continues the risks specific to the asset, was applied in determining to monitor the asset for signs of impairment and tests it the recoverable amount. As a result of impairment test, for impairment. The recoverable amount was determined the recoverable amount exceeded the carrying amount of by discounting the future cash flows from the continuing the capitalised development costs by RUB 10,728 million.
Capitalised borrowing costs
No borrowing costs have been capitalised into development costs in the year ended 31 December 2012 (2011: RUB 111 million). Investments in associates and joint ventures
As at 31 December 2012 the Group owned significant Conversion” GmbH (“AFC”) and Multirole Transport influence interests in JSC “Ilyushin Finance Co” (“IFC”), Aircraft Ltd (“MTAL”). “SuperJet International” S.p.A (“SJI”), “Airbus Freighter
IFC
IFC is providing lease finance services of civil aircraft and maintenance of aircrafts. In 2012, IFC distributed and is engaged in investing in construction, sales RUB 169 million (2011: RUB 64 million) in dividends.
SJI
SJI is established by the Group together with Alenia International” S.p.A. in the amount of RUB 392 million. In Aeronautica S.P.A and incorporated in Italy to provide 2012, the Group’s share of loss in “SuperJet International” services to European airlines operating Superjet-100. S.p.A. amounted to RUB 450 million (2011: RUB 785 During the year ended 31 December 2012 cash million). contribution was made to the capital of “SuperJet
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MTAL
In 2012 the Group contributed RUB 618 million to and the Republic of India (share of ownership 50%). the share capital of the newly established joint venture Following the Regulation of the President of the Russian Multirole Transport Aircraft Ltd. (MTAL). MTS Program Federation dated March, 2010 the Group's subsidiary is being executed by MTAL under the Agreement on JSC "UAC-TS" is authorized to trade military products to cooperation in the development and production of foreign governments. The Group’s share in MTAL as at multirole transport aircraft between the Government 31 December 2012 composed 25%. of the Russian Federation (share of ownership - 25%)
AFC
In June 2012 the Group and its joint venture partners as well as following the rules by law for the liquidation of decided to discontinue the A320/A321 Passenger to the company Liquidation Closing Balance Statement were Freighter conversion development programme. On prepared as at 30 December 2012. As per German Law, 30 December 2011, the “Airbus Freighter Conversion the Shareholder’s Meeting should approve AFC’s accounts GmbH” joint venture was deregistered but continued by formal Shareholder’s resolution. to exist for the year ended 31 December 2012 for the purpose of creditors’ protection according to The Group does not expect future losses in respect to AFC German Law. Moreover, fulfilling the provisions of to be recorded in financial statements. Moreover, AFC is the Shareholders’ Agreement and subsequent resolutions liable to the Group in the amount RUB 4 million.
The following is summarised financial information for equity accounted investees:
Mln RUB IFC SJI MTAL Total
2012
Ownership interest 49.48% 42.59% 25%
Current assets 14,621 5,019 882 20,522
Non-current assets 19,226 2,367 189 21,782
Total assets 33,847 7,386 1,071 42,304
Current liabilities 7,042 (822) (1) 6,219
Non-current liabilities 10,678 (6,774) - 3,904
Total liabilities 17,720 (7,596) (1) 10,123
Revenue and gross finance income from lease 8,206 381 8 8,595
Expenses (7,962) (1,438) (3) (9,403)
Profit/(loss) for the year 244 (1,057) 5 (808)
Group share of profit/(loss) 121 (450) 1 (328)
2011
Ownership interest 49.48% 43.9% -
Current assets 15,659 2,856 - 18,515
Non-current assets 19,513 2,328 - 21,841
Total assets 35,172 5,184 - 40,356
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Mln RUB IFC SJI MTAL Total
Current liabilities (424) - - (424)
Non-current liabilities (12,497) - - (12,497)
Total liabilities (12,921) - - (12,921)
Revenue and gross finance income from lease 4,060 274 - 4,334
Expenses (3,207) (2,062) - (5,269)
Profit/(loss) for the year 853 (1,788) - (935)
Group share of profit/(loss) 422 (785) - (363)
The reporting date for all associates listed above is 31 Below is a summary of movement in the carrying amount of December. investments in associates:
Mln RUB IFC SJI MTAL Total
Investments in associates as at 1 January 2011 8,752 283 - 9,035
Acquisition of additional shares/increase of - 609 - 609 investment
Dividends (64) - - (64)
Group share of profit/(loss) 422 (785) - (363)
Foreign exchange differences 10 (7) 3
Investments in associates as at 31 December 2011 9,120 100 - 9,220
Acquisition of additional shares/increase of investment - 392 618 1,010
Dividends (169) - - (169)
Share of profit/(loss) of equity accounted investees 121 (450) 1 (328) (net of income tax) before impairment
Impairment of investment - (57) - (57)
Group share of profit/(loss) 121 (507) 1 (385)
Foreign exchange differences - 15 - 15
Investments in associates as at 31 December 2012 9,072 - 619 9,691 Investments and non-current financial assets
Mln RUB 2012 2011
Non-current
Available-for-sale investments measured at cost 3,454 3,033
Loans given 208 165
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Promissory notes 33 33
Held-to-maturity investments 3 205
Total 3,698 3,436
Current
Deposits 1,394 1,532
Loans given 204 562
Promissory notes 58 174
Other current financial assets 1,621 524
Total 3,277 2,792
Available-for-sale investments stated at cost comprise Investments available for sale as at 31 December 2012 unquoted equity securities in the airspace and defence and 31 December 2011 are mostly attributable to equity industry. There is no market for these investments and there securities in JSC “Oboronprom” held by the Group`s have not been any recent transactions that provide evidence subsidiary JSC “RSK “MIG” in the amount of RUB of fair value. However, management believes it is unlikely 2,698 million. The ownership interest of RSK MIG in that the fair value at the end of the reporting period would JSC “Oboronprom” decreased to 5.79% as a result of differ significantly from their carrying amount. a dilution of share ownership in 2012 (2011: 6%). Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities * See note 2(e)
Mln RUB Assets Liabilities Net
2011 2011 2011 2012 Restated* 2012 Restated* 2012 Restated*
Property, plant and equipment 1,176 416 (8,046) (6,640) (6,870) (6,224)
Intangible assets 1,013 741 (4,993) (4,109) (3,980) (3,368)
Investments 1,043 653 (865) (548) 178 105
Inventories 9,504 9,709 (1,901) (2,985) 7,603 6,724
Trade and other receivables 957 2,853 (6,658) (6,723) (5,701) (3,870)
Trade and other payables 4,050 2,260 (3,829) (1,438) 221 822
Loans and borrowings 204 6 - - 204 6
Provisions and employee benefits 554 640 (104) (26) 450 614
Tax credit for R&D expenses 377 - - 377 0
Tax loss carry-forwards 10,929 4,891 - - 10,929 4,891
Total tax assets/(liabilities) 29,807 22,169 (26,396) (22,469) 3,411 (300)
Offset of tax (23,130) (17,556) 23,130 17,556 - -
Net tax assets/(liabilities) 6,677 4,613 (3,266) (4,913) 3,411 (300)
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Movement in temporary differences during the year * See note 2(e)
Restated* Recognised in Acquisition Restated* 1 January other compre- under common Recognised in Foreign currency 31 December Mln RUB 2011 hensive income control profit or loss translation 2011
Property, plant and equipment (3,969) - (62) (2,116) (77) (6,224)
Intangible assets 1,928 - - (5,198) (98) (3,368)
Investments 202 - - (34) (63) 105
Inventories 346 - 74 6,451 (147) 6,724
Trade and other receivables (55) - (41) (3,719) (55) (3,870)
Trade and other payables 242 - - 573 7 822
Loans and borrowings (306) - - 274 38 6
Provisions and employee benefits 623 24 - (43) 10 614
Tax loss carry-forwards 1,571 - - 3,320 - 4,891
Total 582 24 (29) (492) (385) (300)
Recognised in Acquisition 1 January other compre- under common Recognised in Foreign currency 31 December Mln RUB 2012 hensive income control profit or loss translation 2012
Property, plant and equipment (6,224) - 189 (1,916) 1,081 (6,870)
Intangible assets (3,368) - - (704) 92 (3,980)
Investments 105 - - 62 11 178
Inventories 6,724 - 16 857 6 7,603
Trade and other receivables (3,870) - - (1,957) 126 (5,701)
Trade and other payables 822 - - (576) (25) 221
Loans and borrowings 6 - - 224 (26) 204
Provisions and employee benefits 614 44 - (190) (18) 450
Tax credit for R&D expenses - - 377 - 377
Tax loss carry-forwards 4,891 - - 6,045 (7) 10,929
Total (300) 44 205 2,222 1,240 3,411
Unrecognized deferred tax assets
Mln RUB 2012 2011
Deductible temporary differences 7,577 7,774
Tax loss carry-forwards 16,645 16,076
Total 24,222 23,850
Deferred tax assets have not been recognised in respect of profit will be available against which the Group can utilise these items because it is not probable that future taxable the benefits there from.
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Unrecognised tax losses expire in the future as follows.
Mln RUB 2012 2011
2018–2023 14,301 13,402
2015–2017 1,616 1,912
2013–2014 728 762
Total 16,645 16,076
Unrecognised deferred tax liability
A temporary difference as at 31 December 2012 of RUB 1,733 is able to control the timing of the reversal of the temporary million (2011: RUB 1,099 million) relating to investments in difference and it is probable that the temporary difference subsidiaries has not been recognised because the Company will not reverse in the foreseeable future.
Inventories * See note 2(e)
Mln RUB 2012 2011 Restated*
Advance payments to suppliers 43,337 29,313
Raw materials and other supplies 20,499 16,529
Aircraft components 33,164 24,971
Goods for sale 6,415 6,572
Other work in progress 30,931 28,060
134,346 105,445
Costs incurred and recognised profits on construction contracts less progress billings 20,960 17,598
Total 155,306 123,043
The aggregate amount of costs incurred and recognised profits
The aggregate amount of costs incurred and on construction contracts in progress is RUB 116,513 recognised profits (less recognised losses) to date million (2011: RUB 197,499 million).
Security
Inventory with a carrying amount as at 31 December 2012 pledged as collateral for secured loans (see note 24(b)). of RUB 747 million (31 December 2011 of RUB 121 million) is
Write down to net realisable value
In 2012, as a result of write down of inventories of change in the allowance for inventory obsolescence to net realisable value RUB 4,929 million (2011: RUB 2,009 million (2011: RUB 2,981 million) was included in RUB 4,577 million) was included in cost of sales, as a result other operating expenses.
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Trade and other receivables
Mln RUB 2012 2011
Current
Trade receivables 34,261 44,290
Impairment (2,848) (2,562)
31,413 41,728
VAT recoverable 25,064 21,466
Prepayments 6,849 8,057
Due from tax authorities 600 462
Government grant receivable 1,368 1,440
Other receivables and originated loans 11,649 11,477
Impairment of other receivables (5,489) (4,695)
Total 71,454 79,935
Non-current
Other advances 657 108
VAT receivable 526 2,659
Trade and other receivables, non-current 4,628 1,373
Total 5,811 4,140
The Group’s exposure to credit and currency risks and (excluding construction work in progress) are disclosed in impairment losses related to trade and other receivables note 29. Cash and cash equivalents
Mln RUB 2012 2011
Bank balances, RUB 33,679 22,967
Bank balances, Foreign currency 10,369 14,637
Deposits 7,865 8,186
Other cash and cash equivalents 540 212
Total 52,453 46,002
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 29.
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Equity
Share capital and share premium
Ordinary shares
Thousands of shares 2012 2011
Authorised shares 219,654,789 201,925,963
Par value RUB 1 RUB 1
On issue at 1 January 201,925,962 188,632,913
Paid in cash 17,139,419 12,608,800
Issued for equity instruments of subsidiaries and associates 589,408 684,250
On issue at 31 December, fully paid 219,654,789 201,925,963
In January 2012, the Company issued 2,698,014 thousand entity domiciled in Russian Federation and involved in of additional ordinary shares by open subscription. flight research and flight testing activities.
In June 2012 the Company issued 15,030,813 thousands At the date these consolidated financial statements additional ordinary shares in the form of open were authorised for issue share capital of the Company subscription. The issue was satisfied in cash amounting consisted of 219,654,789 thousand shares. to RUB 14,441 million and the residual amount was contributed by the Russian Federation in the form of 100% In February 2013 the Board of Directors of JSC “UAC” decided interest in “M. M. Gromov Flight Research Institute”, an to reduce share capital of JSC “UAC” by RUB 30 752 million by reducing the nominal value of shares of JSC “UAC“.
Prepaid shares reserve
Prepaid shares reserve represents cash contributions related to share issues not completed within the reporting period.
Revaluation reserve
Revaluation reserve relates to the revaluation of pre- of the controlling interest in JSC “Irkut Corporation” in combination interest held by the Group before acquisition 2007.
Translation reserve
The translation reserve comprises all foreign currency statements of Group subsidiaries with a functional differences arising from the translation of the financial currency other than the Russian Rouble.
Treasury shares
The reserve for the Company’s own shares comprises the reporting date the Group held 309,894,828 (2011: the cost of the Company’s shares held by the Group. At 309,894,828) of its own shares.
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Dividends and dividend limitations
Profits available for distribution to ordinary shareholders RUB 70 million, (31 December 2011: accumulated loss of in respect of any reporting period are determined by RUB 32,882 million). reference to the financial statements of the Company prepared in accordance with the laws of the Russian Before these consolidated financial statements were Federation and Russian Accounting Principles and authorised for issue, no recommendation had been denominated in Russian roubles. At 31 December 2012 made by the Board of Directors with regard to dividend the Company had accumulated losses amounting to RUB distribution. 32,952 million, including the loss for the current year of
Cash contributions to equity of subsidiaries by non-controlling shareholders
During 2012 and 2011 non-controlling shareholders of was paid in cash in 2012. The issue was completed and the Group’s subsidiaries made direct contributions registered in February 2012. to equity of those subsidiaries. The result of those transactions was recognised directly in equity as an In June 2012 the Group’s subsidiary JSC “Company adjustment to non-controlling interest and the Group’s “Sukhoi” initiated a closed-subscription issue of accumulated losses. 626,368 ordinary shares all with par value of RUB 1,000 each for the benefit of the Russian Federation for the total In 2011, the Federal Agency for State property consideration of RUB 1,693 million which was paid in management (“Rosimuschestvo”), acting on behalf cash in 2012. The issue was completed and registered of the Russian Federation further contributed in September 2012. The Group’s effective ownership in RUB 830 million directly to the share capital of the Group’s JSC “Company “Sukhoi” has decreased from 89.60% as at subsidiary JSC “Company “Sukhoi”. 31 December 2011 to 86.91% as at 31 December 2012.
In December 2011 the Group’s subsidiary JSC In 2012, the Federal Agency for State property “Company “Sukhoi” initiated a closed-subscription management acting on behalf of the Russian Federation issue of 458,715 ordinary shares all with par value of further contributed RUB 157 million directly to the share RUB 1,000 each for the benefit of the Russian Federation capital of the Group’s subsidiary JSC “Nizhniy Novgorod for the total consideration of RUB 1,240 million which Aircraft Plant Sokol”.
Contribution of equity interests in entities which resulted in the Group obtaining control over the entities
In 2012, as part of the ninth additional share issue of The assets and liabilities of CJSC “M. M. Gromov Flight the Company, the Russian Federation contributed 100% Research Institute”. as of the date passed under Group’s in the state-owned CJSC “M. M. Gromov Flight Research control are presented below: Institute”. The transaction was accounted for directly in equity as transaction under common control
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JSC “M. M. Gromov Flight Research Institute”
Date of acquisition 6 June 2012
Property, plant and equipment 7,858
Intangible assets 2
Deferred tax assets 206
Inventories 204
Trade and other receivables 539
Cash and cash equivalents 37
Other current assets 4
Short-term borrowings (482)
Trade and other accounts payable (426)
Provisions (53)
Net assets acquired 7,889 Loss per share
The calculation of basic earnings/(loss) per share at shares outstanding of 209,565,484 thousand shares (2011: 31 December 2012 is based on the loss attributable to 194,150,108 thousand shares), calculated as shown below. ordinary shareholders of RUB 819 million (2011: RUB 10,136 The Company has no dilutive potential ordinary shares. million), and a weighted average number of ordinary
Thousands of shares 2012 2011
Issued shares at 1 January 201,925,963 188,632,913
Own shares at 1 January (309,895) (309,895)
Effect of shares issued in July 2011 - 5,827,090
Effect of shares issued in January 2012 2,528,466 -
Effect of shares issued in June 2012 5,420,949 -
Weighted average number of shares for the year ended 31 December 209,565,484 194,150,108
Loans and borrowings
This note provides information about the contractual the Group’s exposure to interest rate, foreign currency terms of the Group’s loans and borrowings, which are and liquidity risk, see note 29. measured at amortised cost. For more information about
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Mln RUB 2012 2011
Non-current liabilities
Secured bank loans 48,325 26,379
Unsecured bank loans 24,787 31,342
Secured borrowings - 76
Unsecured borrowings 925 1,472
Unsecured bonds issued - 8,161
Secured bonds issued 46,280 46,280
Finance lease liabilities 1,066 1,558
Other loans 808 10
122,191 115,278
Current liabilities
Secured bank loans 33,445 25,402
Unsecured bank loans 44,742 40,394
Secured borrowings - 38
Unsecured borrowings 583 500
Unsecured bonds issued 11,858 10,365
Secured bonds issued 1,136 1,116
Finance lease liabilities 1,065 971
Other loans 179 921
93,008 79,707
Terms and debt repayment schedule
Mln RUB Currency Nominal interest rate Year of maturity Face value 2012 Carrying amount 2012 Face value 2011 Carrying amount 2011
Secured RUB 7% – 16% 2012–2017 23,844 23,908 26,836 26,745 bank RUB Mosprime + 3% 2012–2017 1,310 1,310 1,300 1,300 loans: USD 4% – 14% 2012–2015 24,474 24,518 17,241 17,271 USD 7% – 9% 2013–2027 16,742 16,742 USD Libor + 3 -9% 2013–2017 6,596 6,596 4,792 4,792 EUR 3%–7% 2014 8,187 8,202 EUR 3%–16% 2012–2016 1,029 1,019 GBP 9%–12% 2013–2020 494 494 654 654
Unse- RUB 7%–20% 2012–2017 25,487 25,504 23,088 23,221 cured USD 2,9%–12% 2012–2017 25,994 25,841 20,458 20,715 bank USD LIBOR +1,8% -9% 2012–2018 8,069 8,069 8,703 8,703 loans: USD 7.04%–9% 2022–2023 2,354 2,348 EUR 2%–8% 2012–2018 1,312 1,312 11,207 11,231 EUR Euribor+6.%+3М 2013 - - 62 62 EUR Euribor+0.45-7% 2012–2017 6,228 6,228 7,804 7,804 GBP 11% 2013–2020 227 227
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Mln RUB Currency Nominal interest rate Year of maturity Face value 2012 Carrying amount 2012 Face value 2011 Carrying amount 2011 Secured USD 3%–6% 2012–2014 114 114 borrow- ings Unse- USD 3%–16% 2012–2014 1,498 1,508 1,925 1,972 cured borrow- ings Unse- RUB 7.23–9.61% 2012–2015 11,735 11,858 11,755 11,891 cured USD 9%–12% 2010–2012 - - 4,897 6,635 bonds issued: Secured RUB 8% 2012–2013 - 1,136 - 1,116 bonds RUB 8% 2020 46,280 46,280 46,280 46,280 issued: Finance RUB 2%–27% 2012–2016 267 268 159 159 lease USD 0% 2013–2016 141 141 liabilities: USD 10%–38% 2012–2017 347 347 734 720 EUR 8%–22% 2012–2016 1,375 1,375 1,926 1,650 Other RUB 0% 2013–2018 186 186 loans: RUB 16% 2012 906 931 USD 0% 2014 429 429 EUR 0% 2014 372 372 213,948 215,199 191,870 194,985
Security
Group loans are secured over property, plant and 1,313,106 square metres (2011: 1 287 073 sq.m) and shares equipment with a carrying amount of RUB 4,872 million in JSC “Irkut Corporation” (10%). (31 December 2011: RUB 4,243 million), inventory with a carrying amount of RUB 747 million (31 December 2011: Also there are pledged rights to receive future revenues RUB 121 million), titles to rent of land plots with an area of from export sales of Sukhoi Group, Irkut Group, JSC “RSK “MiG” and other Group entities.
Bonds issued
As at 22 February 2011 the Federal Agency on Financial is established equal to 196 days. Bonds are secured Markets of Russia registered the issue of unconvertible with the state guarantee of the Russian Federation. coupon bonds of the Company in a quantity of 46,280,000 The funds raised from placement of the bonds were thousands with a par value of RUB 1,000. Bonds have used for repayment and restructuring of bank loans for 18 coupon periods. Duration of 1–17 coupon periods the purpose of financing the development and production is established equal to 182 days with a coupon rate of activities of the Group. 8% per annum. The duration of the 18th coupon period
Covenants compliance
At 31 December 2012, the Group’s subsidiary CJSC “Sukhoi and consequently breaching cross-covenants included Civil Aircraft” was in breach of certain financial covenants in agreements with West LB, VTB Deutschland and relating to a long-term borrowings facility from EBRD, VTB France. Before the reporting date the EBRD
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granted the Company with a waiver for a grace period JSC Nizhniy Novgorod Aircraft Plant “Sokol” is subject to 31 December 2013 allowing all related loans to be to imposed capital requirements. Under several loans classified as non-current and disclosed in line with agreements, the company must maintain a designated the principle repayment terms of related loan agreements. level of turnover in its current accounts opened with the bank in question. There has not been a breach of covenants by the company in 2012.
Finance lease liabilities as at 31 December 2012 are payable as follows:
31 December 2012
Mln RUB Future minimum lease payments Interest Present value of minimum lease payments
Less than one year 1,249 184 1,065
Between one and five years 1,175 109 1,066
Total 2,424 293 2,131
31 December 2011
Mln RUB Future minimum lease payments Interest Present value of minimum lease payments
Less than one year 1,260 289 971
Between one and five years 1,763 205 1,558
Total 3,023 494 2,529
For more information about the Group’s exposure to interest rate and foreign currency risk, see note 29. Trade and other payables
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 29. * See note 2(e)
Mln RUB 2012 2011 Restated*
Current liabilities
Advances from customers, unrelated to construction contracts 47,625 36,828
Advances related to construction contracts 36,675 27,482
Trade payables 32,969 32,300
Other payables 9,836 9,296
Settlements with employees 4,051 3,307
VAT payable 2,355 3,767
Other tax payable 2,190 2,098
135,701 115,078
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* See note 2(e)
Mln RUB 2012 2011 Restated*
Non-current liabilities
Advances from customers, unrelated to construction contracts 5,113 3,490
Trade payables 331 944
Other payables 180 315
5,624 4,749
141,325 119,827 Government grants
The development of the “MC-21” and “Sukhoi Super Jet – 100” related to externally financed research and development aircraft is included in the Federal Target Program “Develop- contracts with government related entities should be ment of the civil aircraft for 2002-2010 and for the period until accounted as government grants. In 2012 management 2015 approved by the Decision of the Federal Government of of the Group concluded that costs incurred and proceeds the Russian Federation No. 728 dated 15 October 2001. In ac- derived from government contracts related to the MC-21 cordance with this program, the Company receives financing project should be recognised in revenue and cost of sales. from the Federal Government. Relevant funds are received In 2011, MC-21 related costs were included into capitalised under contracts with the Ministry of Industry and Trade development costs net of proceeds received recognised (Minpromtorg) which are structured as contracts for develop- as government grants related to assets. The excess of ment services, as well as in the form of direct subsidies from proceeds over related costs was recognised in profit and the budget to cover certain types of expenses. loss as government grant related to income.
As described in note 3(e)(ii), management applies The summary of government grants received by judgement in determination of whether proceeds the Group is presented below.
Mln RUB 2012 2011
Grants related to development costs 99 91
99 91
Government grants related to income 456 2,661
Government grants related to compensation of interest expense 1,174 486
1,729 3,238
Employee benefits * See note 2(e)
Mln RUB 2012 2011 Restated*
Fair value of plan assets 863 896
Present value of obligations (4,579) (4,054)
Deficit in the plan (3,716) (3,158)
Total employee benefit liabilities (3,716) (3,158)
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Certain Group subsidiaries make contributions to defined the number of years of service and other factors representing benefit plans that provide benefits for employees upon individual merit of performance during individual service retirement in the form of life pensions, pensions with period. Those factors also determine whether the pension a limited number of years of payout or one-off lump-sum is life pension or a pension with limited number of years of payments upon employee retirement. All of those plans entitle payout. Amounts of lump-sum payments are also determined a retired employee to receive payments calculated based on based on the number of years of services upon retirement.
Movements in the present value of the defined benefit obligations: * See note 2(e)
2011 Mln RUB 2012 Restated*
Defined benefit obligations at 1 January (4,054) (3,798)
Current service cost (289) (38)
Benefits paid 229 237
Actuarial gain/(loss) (237) (105)
Interest cost (264) (320)
Forex differences 36 (30)
Defined benefit obligations at 31 December (4,579) (4,054)
Movements in the present value of plan assets:
Mln RUB 2012 2011
Fair value of plan assets at 1 January 896 939
Expected return on plan’s assets 61 72
Benefits paid by the plan (183) (177)
Contributions paid into the plan 157 164
Actuarial gain/(loss) (68) (102)
Fair value of plan assets at 31 December 863 896
Plan assets comprise low–risk fixed income instruments. Expense recognised in the statement of income:
Mln RUB 2012 2011
Current service cost (289) (38)
Expected return on plan’s assets 61 72
Interest expenses (264) (320)
Total recognised in profit or loss (492) (287)
Actuarial gains and losses recognised in other comprehensive income (305) (90)
(797) (376)
The calculation of the defined benefit obligation is sensitive one year in the lives shown above is considered reasonably to the mortality assumptions set out above. As the actuarial possible in the next financial year. estimates of mortality continue to be refined, an increase of
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Principal actuarial assumptions at the reporting date (expressed as weighted averages) are as follows:
Mln RUB 2012 2011
Discount rate 7.2% 8.1%
Expected rate of return on plans assets 7.2% 8.1%
Future pension and salary increases 5.5% 5.5%
Average life expectancy of members from the date of retirement:
Male 12 years 12 years
Female 20 years 20 years
Provisions
Mln RUB 2012 2011
Onerous Onerous Warranty contracts Other Total Warranty contracts Other Total
Balance at 1 January 1,580 682 887 3,149 1,246 72 302 1,620
Provisions made 869 6 481 1,356 1,308 657 698 2,663 during the year
Provisions used (867) 9 (441) (1,299) (879) (10) (94) (983) during the year
Provisions reversed (76) (161) (389) (626) (89) (37) (19) (145) during the year
Foreign exchange (3) - - (3) (6) - - (6) differences
Balance at 1,503 536 538 2,577 1,580 682 887 3,149 31 December
Warranty
The Group provides product warranties in conjunction The warranty liability recorded at each balance sheet with certain product sales. Generally, aircraft sales are date reflects the estimated number of months of accompanied by a twelve to eighteen month warranty warranty coverage outstanding for products produced period that covers systems, accessories, equipment, times the expected monthly warranty payments, as well parts and software manufactured by theGroup to certain as additional amounts, if necessary, for certain major contractual specifications. Warranty coverage includes warranty issues that exceed a normal claims level. non-conformance to specifications and defects in material and workmanship.
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Financial instruments
Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business.
Credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Mln RUB 2012 2011
Finance lease receivables 852 539
Loans given 412 727
Deposits 1,394 1,532
Trade receivables 31,413 41,728
Costs incurred and recognized profits on construction contracts 20,960 17,598
Other receivables 14,266 8,222
Cash and cash equivalents 52,453 46,002
Total 121,750 116,348
Impairment losses
The ageing of trade receivables at the reporting date was:
2012 2011
Mln RUB Gross Impairment Gross Impairment
Not past due (with a start date up to 50 days) 27,551 (90) 36,005 (263)
Past due 0-360 days 4,097 (126) 5,187 (61)
Past due more than one year 2,613 (2,632) 3,098 (2,238)
34,261 (2,848) 44,290 (2,562)
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
Mln RUB 2012 2011
Balance as at 1 January 2,562 1,045
Impairment loss recognised 286 1,517
Balance as at 31 December 2,848 2,562
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Based on historic default rates, the Group believes that losses unless the Group is satisfied that no recovery of no impairment provision is necessary in respect of trade the amount owed is possible; at that point the amounts receivables not past due or past due by up to 360 days. are considered irrecoverable and are written off against the financial asset directly. At 31 December 2012 the Group The provision in respect of trade receivables and held- does not have any collective impairment on its trade to-maturity investments is used to record impairment receivables or its held-to-maturity investments (2011: nil).
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:
31 December 2012
Carrying Contractual 12 month More than Mln RUB amount cash flows or less 2–3 years 4–5 years 5 years
Secured bank loans 81,770 90,133 37,458 13,531 12,081 27,062
Unsecured bank loans 69,529 77,129 50,111 6,940 6,197 13,881
Unsecured borrowings 1,508 1,659 641 1,018 - -
Unsecured bonds issued 11,858 13,044 13,044 - - -
Secured bonds issued 47,416 58,614 1,227 3,702 3,702 49,982
Finance lease liabilities 2,131 2,424 1,249 1,153 22 -
Other loans 987 1,086 197 889 - -
Trade and other payables 43,319 43,319 42,807 512 - -
258,518 287,407 146,734 27,745 22,002 90,925
31 December 2011
Contractual More than Mln RUB Carrying amount cash flows 12 month or less 2–3 years 4–5 years 5 years
Secured bank loans 51,781 61,075 30,573 26,256 3,255 991
Unsecured bank loans 71,736 79,707 43,026 25,109 9,437 2,135
Secured borrowings 114 120 41 79 - -
Unsecured borrowings 1,972 2,499 510 1,858 - 131
Unsecured bonds issued 18,526 20,402 11,661 8,741 - -
Secured bonds issued 47,396 77,796 4,818 7,405 7,405 58,168
Finance lease liabilities 2,529 3,023 1,260 1,415 348 -
Other loans 931 974 974 - - -
Trade and other payables 42,855 42,855 41,596 1,259 - -
237,840 288,451 134,459 72,122 20,445 61,425
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Currency risk
The Group is exposed to currency risk on sales, purchases (USD) which is the functional currency of the Group’s and borrowings that are denominated in currencies subsidiary JSC “Irkut Corporation”. The currencies in which other than the respective functional currencies of Group these transactions primarily are dominated are USD, EUR entities, primarily the Rubles (RUB), but also U.S. Dollars and RUB:
Mln RUB 31 December 2012 31 December 2011
USD EUR RUB USD EUR RUB
Cash and cash equivalents 6,850 3,519 6,655 11,421 1,550 4,401
Trade and other receivables 27,750 838 1,300 21,355 4,852 3,110
Costs incurred and recognised profits on construction contracts 17,429 - 3,531 5,781 - -
Secured bank loans (47,856) (8,202) (1,128) (17,716) (1,019) (8,721)
Unsecured bank loans (36,258) (7,540) (776) (21,588) (19,097) (521)
Secured borrowings - - - (114) - -
Unsecured borrowings (1,508) - (7,635) (1,832) - -
Unsecured bonds issued - - (5,139) (6,635) - (5,137)
Finance lease liabilities (488) (1,375) (6) (233) (1,650) (17)
Other loans (429) (372) - - - (7,231)
Trade and other payables (20,444) (4,146) (4,201) (15,252) (1,370) (3,423)
Gross exposure (54,527) (17,278) (7,399) (24,813) (16,734) (17,539)
Forward exchange contracts (4,806) - 5,201 - - 13,953
Net exposure (49,333) (17,278) (2,198) (24,813) (16,734) (3,586)
The following significant exchange rates applied during the year:
RUB Average rate Reporting date spot rate
2012 2011 2012 2011
USD 31.09 29.39 30.37 32.20
EUR 39.95 40.98 40.29 41.67
GBP 49.25 47.12 48.96 49.63
Sensitivity analysis
A 10% strengthening (weakening) of RUB against the USD date would have increased (decreased) net profit for and EUR based on the Group's exposure at the reporting the year by RUB 5,846 million (2011: RUB 3,037 million).
Interest rate risk
Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
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Carrying amount
Mln RUB 2012 2011
Fixed rate instruments
Financial assets 9,776 10,740
Financial liabilities (188,711) (172,324)
(177,935) (161,584)
Variable rate instruments
Financial liabilities (27,488) (22,661)
(27,488) (22,661)
Fair value sensitivity analysis for fixed rate instruments
The Group does not recognize any fixed rate financial instruments under a fair value hedge accounting model. assets and liabilities at fair value through profit or loss, Therefore a change in interest rates at the reporting date and the Group does not designate derivatives as hedging would not affect equity or net profit for the year.
Cash flow sensitivity analysis for variable rate instruments
An increase of one percentage point in interest rates RUB 275 million (31 December 2011: RUB 180 million). based on the Group’s exposure at the reporting date The analysis assumes that all other variables, in particular for 2012 would have increased loss for the year by foreign currency rates, remain constant.
Fair values
Fair values versus carrying amounts
The Company estimates the fair value of its financial is determined based on discounted future principal and assets and liabilities not to be materially different from interest cash flows. their current values. For receivables and payables with a remaining useful life of less than one year their notional The interest rates used to discount estimated cash flows, where amount is deemed to reflect their fair value. For loans and applicable, are based on the market rates of instruments with borrowings and all other financial instruments fair value similar market risk exposure and are disclosed in Note 24. Commitments
Capital commitments
As at 31 December 2012 the Group is committed to capital expenditure of approximately RUB 21,489 million (2011: RUB 20,239 million).
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Supply commitments
The Group has commitments to provide sales financing The company believes that the estimated fair value of to customers. These sales financing transactions will the aircraft securing such commitments will substantially generally be collateralised by the underlying aircraft. offset any potential losses from the commitments. Operating lease
Mln RUB 2012 2011
Less than one year 241 249
Between one and five years 1,036 1,174
More than five years 10,175 6,798
Total 11,452 8,221
Contingencies
Insurance
The insurance industry in the Russian Federation is environmental damage arising from accidents on Group in a developing state and many forms of insurance property or relating to Group operations. Until the Group protection common in other parts of the world are not obtains adequate insurance coverage, there is a risk yet generally available. The Group does not have full that the loss or destruction of certain assets could have coverage for its plant facilities, business interruption, a material adverse effect on the Group’s operations and or third party liability in respect of property or financial position.
Litigation
Claims against JSC “Finance Leasing Company”
There were no significant litigations and claims against a criminal investigation against certain individuals with the Group during 2012. management responsibilities in FLC during 2007–2008.
As for 2011, certain banks and other creditors claimed During 2011–2012 certain creditors claimed for JSC “FLC” for reimbursement of losses from a Group subsidiary bankruptcy and in September 2012 Moscow Arbitration JSC “Finance Leasing Company” (“FLC”) after FLC refused to Court declared the Group’s subsidiary JSC “FLC” as meet its obligations as a result of significant deterioration bankrupt. Bankruptcy proceedings have been initiated of its financial position in 2007-2008. Responding to for a 6 months term as a result. Thus, the Group lost certain claims of management fraud within FLC and control over JSC “FLC” in September 2012 and ceased undue spending of funds the Russian authorities initiated consolidation of the subsidiary, thereafter.
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In accordance with Russian legislation, neither the Parent management believes that the Group will not suffer from company nor other entities of the Group are liable for any additional liabilities regarding FLC and will not be claims against FLC’s apart from those directly related to exposed to any cash outflows relating to FLC as the Group contract obligations, which the Company’s management does not have any plans or obligations to provide direct assesses as not significant. Therefore the Company’s financial support.
Taxation contingencies
The taxation system in the Russian Federation continues that existed under the previous transfer pricing rules to evolve and is characterised by frequent changes in applicable to transactions on or prior to 31 December 2011. legislation, official pronouncements and court decisions, which are sometimes contradictory and subject to varying The new transfer pricing rules primarily apply to cross-border interpretation by different tax authorities. Taxes are subject transactions between related parties, as well as to certain to review and investigation by a number of authorities, cross-border transactions between independent parties, which have the authority to impose severe fines, penalties as determined under the Russian Tax Code. In addition, and interest charges. a tax year remains open for review by the rules apply to in-country transactions between related the tax authorities during the three subsequent calendar parties if the accumulated annual volume of thetransactions years; however, under certain circumstances a tax year between the same parties exceeds a particular threshold may remain open longer. Recent events within the Russian (RUB 3 billion in 2012, RUB 2 billion in 2013, and RUB 1 billion Federation suggest that the tax authorities are taking in 2014 and thereon). a more assertive and substance-based position in their interpretation and enforcement of tax legislation. Since there is no practice of applying the new transfer pricing rules by the tax authorities and courts, it is difficult to New transfer pricing legislation enacted in the Russian predict the effect of the new transfer pricing rules on these Federation starting from 1 January 2012 provides for major consolidated financial statements. modifications making local transfer pricing rules closer to OECD guidelines, but creating additional uncertainty These circumstances may create tax risks in the Russian in practical application of tax legislation in certain Federation that are substantially more significant than in circumstances. The new transfer pricing rules introduce other countries. Management believes that it has provided an obligation for the taxpayers to prepare transfer pricing adequately for tax liabilities based on its interpretations of documentation with respect to controlled transactions applicable Russian tax legislation, official pronouncements and prescribe new basis and mechanisms for accruing and court decisions. However, the interpretations of additional taxes and interest in case prices in the controlled the relevant authorities could differ and the effect on transactions differ from the market level. The new transfer these consolidated financial statements, if the authorities pricing rules eliminated the 20-percent price safe harbour were successful in enforcing their interpretations, could be significant.
Environmental contingencies
Governmental authorities are continually considering cannot reasonably be estimated. Under current levels of environmental regulations and their enforcement enforcement of existing legislation, management believes and the Group periodically evaluates its obligations there are no liabilities, which will have a materially adverse related thereto. As obligations are determined, they are effect on the financial position or the operating results of recognised immediately. The outcome of environmental the Group. liabilities under proposed or any future legislation, or as a result of stricter enforcement of existing legislation,
The accompanying notes are an integral part of these consolidated financial statements 173 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
page 107 page 110 page 111 page 112
Related party transactions
Control relationship
Related parties comprise the shareholders of the Parent The Federal Government of Russian Federation is company and all other companies in which those the ultimate controlling party of the Group. Related parties shareholders, either individually or together, have disclosures (Note 33 (с)) as at 31 December 2012 include a controlling interest. balances with other government related entities.
Transactions with management
Key management personnel compensation
Key management received the following remuneration during the year, which is included in personnel expenses (see note 9):
Mln RUB 2012 2011
Wages and salaries 879 810
Compulsory social security contributions 122 36
Total 1,001 846
Transactions with government related entities
The Group is indirectly owned by the Federal Government manufacturing of military and civil aircraft and rendering of the Russian Federation (2012: 84.33%, 2011: 83.18%,). services related to principal activity under contracts with The Group operates in an industry dominated by entities Russian and foreign governments, where substantial directly or indirectly controlled by the Federal Government part such contracts is attributed to Russian government. of the Russian Federation through its government The nature and amount of related contractual authorities, agencies, affiliation and other organisations arrangements with government related entities may (collectively referred to as “government related entities”). depend on various factors, such as complexity and The Group has transactions with other government related quantity of product, availability of State budget financing entities including but not limited to sales and purchases and presence of other government objectives. The Group of goods and ancillary materials, rendering and receiving management monitors the size, terms and other relevant services, lease of assets, depositing and borrowing money, factors of related arrangements in order to determine and use of public utilities. whether those would collectively lead to a particular transaction to qualify as individually significant. These transactions are conducted in the ordinary cause of the Group’s business generally on terms comparable to For the year ended 31 December 2012 management those with other entities that are not government related. estimated that the aggregate amount of the Group’s The Group has established procurement policies and collectively significant transactions with government approval process for purchases of products and services, related entities is up to 49% (2011: up to 51%) of its which are independent of whether the counterparties revenues, at least 32% (2011: at least 39%) of its purchases are government-related entities or not. As discussed of materials, equipment and services, and up to 49% of its in the note 1(a), the core business of the Group is borrowings (2011: up to 62%).
www.uacrussia.ru The accompanying notes are an integral part of these 174 consolidated financial statements Consolidated Consolidated Notes to Statement of Cash Statement of Changes the Consolidated Flows in Equity Financial Statements
page 114 page 116 page 120
The Group also benefits from compensation of borrowing borrowing costs incurred by Russian entities engaged in costs related to financing of long-term construction export of industrial products and which obtain financing contract from the government of Russian Federation. This from Russian banks. Management expects that the Group government grant was provided following the Regulation will continue to qualify for further compensation during of the Government of Russian Federation № 357 dated 2013 in relation to loans already secured or to be secured 6 June 2005 which provides for partial compensation of in the future. Significant subsidiaries
The list of significant subsidiaries as at 31 December 2012 is presented below.
Effective ownership
Entity of the Group 2012 2011
Sukhoi Group JSC “Company Sukhoi” 86.91% 89.60% JSC “OKB Sukhogo” 51.64% 51.18% JSC “Komsomolsk-na-Amure Aviation Production Association” 90.15% 92.18% JSC “Novosibirsk Aviation Production Association” 89.74% 91.85% CJSC “Sukhoi Civil Aircraft” 64.32% 66.20% CJSC “Sukhoi new civil technologies” 86.91% 89.60% Irkut Group JSC “Irkut Corporation” 94.02% 94.29% JSC “OKB Imeni A.S. Yakovlev” 78.61% 78.60% CJSC “Beta-Ir” 69.97% 100.00% Other JSC “Tupolev” 95.52% 95.52% JSC “TANTK Imeni G.M. Berieva” 90.19% 89.77% СJSC “Aviastar-SP” 99.54% 99.54% JSC “OAK-TS” 100.00% 100.00% JSC “Il” 87.06% 87.06% JSC “VASO” 96.23% 95.13% LLC “UAC-Antonov” 50% 50% *See note 2(е) JSC “Nizhniy Novgorod Aircraft Plant Sokol” 89.33% 98.27% JSC “Finance Leasing Company” - 89.31% CJSC “Aerocompozit” 99.60% 97.30% LLC “UAC- Integration Center” 100% - JSC “RSK MiG” 58.42% 58.42% JSC “KAPO" 100.00% 100.00% JSC “Myasishchev Design Bureau” 100.00% 100.00% CJSC “Il-Resours” 87.06% 87.06% CJSC “KAPO-Compozit” 100.00% 100.00% CJSC “Aerocompozit-Ulyanovsk” 100.00% 100.00% CJSC “M. M. Gromov Flight Research Institute” 100.00% -
In addition, the Group has other subsidiaries, which are not material to the Group, either individually or in aggregate.
The accompanying notes are an integral part of these consolidated financial statements 175 Consolidated Auditors’ Consolidated Consolidated Consolidated Report Statement of Statement of Statement of Financial Statements Income Comprehensive Financial Position Income
page 107 page 110 page 111 page 112
EBITDA
Management assesses financial results of Group’s impairment of PPE and IA, and extraordinary items. Since activity according to EBITDA, which is calculated as this term is not a standard IFRS measure, the Group’s profit (loss) before tax adjusted for net finance costs/ definition of EBITDA may differ from that of other (income), depreciation of property, plant and equipment companies. (PPE), amortization of Intangible assets (IA), charge for
mln RUB 2012 2011
Loss before income tax (7,070) (10,644)
Adjustments for
Net finance costs 7,287 10,284
EBIT 217 (360)
Adjustments for
Depreciation of property, plant and equipment 10,402 11,282
Impairment of other assets - 2,803
Amortization of intangible assets 1,713 1,262
Gain on disposal of JSC “FLC” (7,849) -
EBITDA 4,483 14,987
Events subsequent to the reporting date
During 2012 management initiated reorganisation of 1,000 each with offering price of RUB 73,966 per share for its sub-holding Sukhoi Group which was completed the benefit of the Company’s subsidiary JSC “Company in January 2013. As a result of reorganisation separate Sukhoi” and non-controlling shareholder of CJSC “Sukhoi legal entities JSC “Sukhoi Design Bureau Company”, Civil Aircraft” World's Wing SA. JSC “Komsomolsk-on-Amur aircraft production association”, JSC “Novosibirsk aircraft production In February 2013 Board of Directors of JSC “UAC” decided association named by V.P. Chkalov” were joined to to reduce share capital of JSC "UAC" by RUB 30,752 million JSC “Company Sukhoi” as branches – Sukhoi Design by reducing the nominal value of shares of JSC “UAC“. Bureau branch, Y.A. Gagarin KnAAZ branch office and V.P.Chkalov NAZ branch office. After the conversion of In February 2013, the Company received EASA Type the shares of the companies above, the number of shares Certificate for Real Fire Simulator (FFS) SSJ-100. owned by JSC “UAC”, increased to 21,305,396 shares.
In January 2013 an extraordinary shareholder’s meeting of significant subsidiary CJSC “Sukhoi Civil Aircraft” approved an issue of 34,275 ordinary shares with a par value of RUB
www.uacrussia.ru The accompanying notes are an integral part of these 176 consolidated financial statements CONTACTS AND FEEDBACK
Postal address of JSC “UAC”: 22 Ulansky side-street, bld.1, Moscow 101000
IR-service of JSC “UAC”: Tel. +7 (495) 926-14-20 (ext. 8065) [email protected]
PR-service of JSC “UAC”: [email protected]
The electronic version of JSC “UAC”’s Annual Report and additional materials are available at www.uacrussia.ru
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