Annual Report 2012 Year

MOTOR SICH JSC MOTOR SICH JSC 15, Motorostroiteley Ave. Zaporozhye, 69068, Ukraine 2012 Tel.: (38 061) 720-48-14 Fax: (38 061) 720-50-00 Е-mail: [email protected] www.motorsich.com Annual report

2012 CONTENTS

Address of the Chairman of the Board Financial and Economic Activity ...... 44 of Directors of Motor Sich JSC ...... 3 - Credit Policy of the Company ...... 46 - Indices of the Company’s Financial Stability, Basic Information about the Company ...... 4 Business Activity and Credit Worthiness ...... 47 - Information about the Company ...... 6 - Information about State Registration Investment Activity of Motor Sich JSC ...... 6 of the Company ...... 48 - Information about Statutory Capital...... 6 - Capital Investments ...... 50 - Information about Auditor ...... 7 - The Company’s Investments - Specialization of the Company ...... 7 into Legal Entities ...... 50 - Corporate Strategy of the Company...... 7 - Attraction of Budgetary Funds and Investments for - Mission of the Company ...... 7 Financing the Development and Preproduct - Positioning of the Company in Industry ...... 8 on of New Kinds of Products in 2012 ...... 51

Structure of the Company ...... 10 Securities...... 52 - Business Units Located - Analysis of Changes in Cost at the Territory of Ukraine...... 12 of the Company’s Shares ...... 54 - Subdivisions Having Rights to Open Current - Quantity and Structure of Shareholders...... 55 - Information about Depositary and Settlement Accounts ...... 13 of the Company’s Shares ...... 55 - Subsidiary Companies ...... 13 - Information about Custodier - Health Resorts ...... 14 of the Company’s Shares ...... 55 - Representative Offices of Motor Sich JSC ...... 16 Main Risk Factors...... 56 - Industry Risks...... 58 Management Bodies of Motor Sich JSC . . . . . 18 - Legal Risks ...... 58 - The Board of Directors...... 20 - Risks Connected with - General Meeting of Shareholders...... 22 Production Activity of Emitter...... 58 - Supervisory Board ...... 23 - Financial Risks ...... 58 - Internal Audit Commission ...... 24 Personnel and Personnel Policy...... 60 Production Activity ...... 26 - Personnel Structure ...... 62 - Main Indices of Production - Personnel Development ...... 62 and Financial Activity ...... 28 - Prospects of Personnel Policy for 2013 ...... 63 - Production Activity - Youth Policy of the Company ...... 64 and Work in progress ...... 29 - Social Sphere ...... 64 - Labour and Salary ...... 30 - Advanced Technologies...... 31 Financial Statements...... 66 - Certificates and Licences...... 32 - Consolidated Balance Sheet ...... 69 - Service Maintenance ...... 34 - Consolidated Statement - Priority Activities...... 36 of Financial Performance ...... 70 - Prospects for 2013 ...... 37 - Consolidated Statement of Changes in Owner's Equity ...... 71 Foreign Economic Activity ...... 38 - Consolidation Principles ...... 72 - Cash Inflow by Regions ...... 40 - Main Aspects of Accounting Policy ...... 72 - Participation in Exhibitions ...... 40 - Notes to Financial Statements ...... 74

MOTOR SICH

Dear Shareholders, Colleagues and Partners!

Motor Sich JSC would like to present you its Annual improvement of labour conditions for increasing the Report for 2012. output of main products. Speaking about the Company’s activity in the past year The Company is concerned with personnel policy, we notice with satisfaction that Motor Sich JSC has fin- solution of social problems of emplyees and their ished reporting year with positive results. It is proved families, maintaining healthy moral environment by financial results of 2012. within the staff. The Company has no wage arrears. The wages are paid I would like to express thanks to the Company team, out without delays, according to terms and conditions our shareholders and business partners, all those of Collective Agreement. who help Motor Sich JSC in its successful activities Throughout its history Motor Sich JSC adheres to prin- and stable development in pursuit of new goals. ciples of fair and conscientious business. It allows us to keep unblemished reputation and gain the trust of partners from all over the world. Successful creation of modern production facilities and development of new kinds of highly demanded products has proved correctness of our strategy. Motor Sich JSC applies advanced means of corporate management in order to increase transparency and availability of information for shareholders and potential investors. Chairman of the Board of Directors, Like in previous years, the Company pays great Motor Sich JSC attention to technical upgrading and reconstruction of production facilities, repairing of buildings, V.A. Boguslayev Basic Information about the Company MOTOR SICH

n Information about the Company n Information about State Registration of Motor Sich JSC n Information about Statutory Capital n Information about Auditor n Specialization of the Company n Corporate Strategy of the Company n Mission of the Company n Positioning of the Company in Industry MOTOR SICH

BASIC INFORMATION ABOUT THE COMPANY

Short title: Motor Sich JSC Full title: Motor Sich Joint Stock Company Enterprise code: 14307794 Legal address: 15 Motorostroiteley Avenue, Zaporozhye 69068, Ukraine

Tel: (38 061) 720-48-14 Fax: (38 061) 720-50-00 E-mail: [email protected] Web-site: www.motorsich.com

INFORMATION ABOUT STATE REGISTRATION OF MOTOR SICH JSC Place of registration – the Executive Committee of Zaporozhye City Council. Date of state registration – 25.05.1994.

INFORMATION ABOUT STATUTORY CAPITAL

The statutory capital of Motor Sich JSC is UAH 280,529,650.00. It is divided into 2,077,990 simple registered shares issued in book-entry form. Nominal value of each share is UAH 135. Number of Certificate about registration of shares in book-entry form: 205/1/11 Registration body: the State Commission on Securities and Stock market. ISIN code assigned to simple registered shares of Motor Sich JSC by the National Depositary of Ukraine: UA 4000143135. Each simple registered share of Motor Sich JSC provides the same scope of rights to its owner (shareholder). Motor Sich JSC is the first Ukrainian issuer who has implemented Global Depositary Receipt Program with Deutsche Bank. Deutsche Bank Trust Company Americas is appointed the exclusive custody of Motor Sich global depositary receipts (GDR). GDR/shares ratio is 10:1. Motor Sich JSC has taken up obligations to protect the rights of GDR holders, inform them, granted the right to participate in the Company management and obtain part of profit in the form of dividends, guaranteed possibility to convert GDR into shares.

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INFORMATION ABOUT AUDITOR

Authenticity and completeness of financial reports of Motor Sich JSC for 2012 is confirmed by private auditing company “ZaporozhAudit. Taxes. Law” (Enterprise Code 13625523) according to Agreement No 2729/09-Д (General Accounting), dated 10.04.2009. Location of auditing company: 8 Tikhy Pereulok Street, Zaporozhye. Date of state registration of private auditing company “ZaporozhAudit. Taxes. Law” – 21.01.1994; Enterprise code – 1 103 120 0000 012930. Certificate of Auditing Chamber No. 0057, dated 26.01.2001, about registration as an auditing entity. Validity term of Certificate is extended till November 04, 2015.

SPECIALIZATION OF THE COMPANY

Development and production of gas turbine engines for military and civil aviation, industrial units for ground application (Gas-turbine power plants, Gas pumping units, Combined heat and power plants), modernization of helicopter equipment.

CORPORATE STRATEGY OF THE COMPANY

Corporate strategy of Motor Sich JSC is based on the large-scale diversification of production, strengthening and expansion of its positions in the market of aviation equipment and its support services, realized in the following basic strategic directions: n development and implementation of special programmes on manufacture of competitive products; n expansion of sales and services markets; n improvement of marketing activity; n creation of efficient high-technology production facilities as a result of their technical upgrading; n arrangement of efficient quality management system.

MISSION OF THE COMPANY

Motor Sich JSC works to be the best company in the sphere of aviation engine-building. Based on successful 100-year activity of the Company, utilizing our highest intellectual potential, using unique advanced technologies, in close cooperation with our business partners, we make Ukraine an aviation power.

Basic Information About the Company 7 MOTOR SICH

POSITIONING OF THE COMPANY IN INDUSTRY

Motor Sich JSC is a specialized enterprise, which Motor Sich JSC is a part of aviation industry complex of basic products are gas turbine engines for civil and Ukraine. Traditionally, it is deeply integrated with military aircraft, created on their basis industrial enterprises of aviation industry of Russia. gas turbine drives for power and gas-pumping stations, as well as gas turbine power stations and gas-pumping units with these drives. At the present time, Motor Sich JSC performs the Tens of thousands of engines produced by Motor following prospective works: Sich JSC are installed in aircraft of worldwide In the sphere of mass production — improvement of known firms: Antonov, Ilyushin, Beriev, Tupolev, wear characteristics of D-18T engines and their modifi- Yakovlev, Kamov, Mil, Czech “Aero Vodochody” cations, AI9-3B, TV3-117VMA-SBM1, D-36 engines and Chinese NAMC. They are operated in civil of all series, TV3-117V, D-436TP, D-436-148, AI-450- and military aircraft of more than 120 countries МS families. of the world. Many engines of the Company became world lead- There was started mass production of: ers in their class: AI-25TL turbojet engines are used n AI-222 engines for Yak-130, L-15 and other combat in more than three thousand training airplanes and trainers produced in Russia and China; training-combat airplanes in 42 countries of the n TV3-117VMA-SBM1V engines designed for world; helicopter engines of TV3-117 family are upgrading a huge fleet of “Mi” and “Ka” helicopters used in 64 countries of the world in all helicopters all over the world, as well as for installation in new of average carrying capacity produced in Russia; D- helicopters; 18 engine are used for “Ruslan” and “Mriya” that n TV3-117VMA-SBM1V series 4 and 4E engines are the highest capacity transport airplanes in the designed for upgrading Mi-8T helicopters; world; D-136 is the most powerful engine in the n small MS-400 engines for unmanned aerial vehicles. world for Mi-26 helicopters, etc. In order to occupy new market niche, Motor Sich JSC is now developing, overhauling and upgrading There was developed, prepared to pilot and mass helicopters under its own Helicopter Engineering production: Programme. n AI-25TLSh engine, a new modification of AI-25TL Taking into account achievements of the Company engine, for upgrading L-39 training airplanes; in helicopter engineering, Vyacheslav Boguslayev, n TV3-117VMA-SBM1V series 1 engine with Full Chairman of the Board of Directors of Motor Sich Authority Digital Engine Control (FADEC) and JSC, was given authority of the General Designer TV3-117VMA-SBM1V series 2 engine with for manufacture and upgrading helicopter equip- upgraded automatic control system and improved ment by Order of the Cabinet of Ministers of performance characteristics for Mi-28, Mi-17 and Ukraine No. 906-р, dated 14.11.2012. other helicopters. Production Plan of the Company includes industrial n MS-14 engine for upgrading An-2 and for installa- power-generating sets. Motor Sich JSC manufac- tion in new short-range aircraft; tures gas-turbine drives with power of 2.5, 6.3, 8 n MS-500V turbo-shaft engine for helicopters with MW, gas-turbine power-generating sets with out- take-off weight from 3.5 to 6 t; put of 2.5, 6 MW. n small MS-400H and MS-450 engines for unmanned Except for main aircraft and industrial products, aerial vehicles; the Company manufactures wide range of con- n D-436TP-М engine with thrust reverser for upgrad- sumer goods. ed Bе-200 aircraft;

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n D-436-148FМ engine for An-178 transport aircraft; n AI-450S and AI-450S2 for general purpose aircraft; n D-27 engine for Аn-70 military transport aircraft; n creation of test benches for development of the n AI-450М/М1 engines for upgrading Mi-2 helicopter; engine main units and different special tests; n AI-9V-1 auxiliary power unit for “Mi” and “Ка” heli- n gas-turbine drives and power generating sets for Russia copters; and Ukraine, including combined heat and power plants n D-36MB engine for Аn-74 aircraft; with gas-steam cycle or cogeneration cycle.

Basic Information About the Company 9 Structure of the Company MOTOR SICH

n Business Units Located at the Territory of Ukraine n Subdivisions Having Rights to Open Current and Settlement Accounts n Subsidiary Companies n Health Resorts n Representative Offices of Motor Sich JSC MOTOR SICH

BUSINESS UNITS LOCATED AT THE TERRITORY OF UKRAINE

Zaporozhye Airline Machine-Building Plant named after V.I. Omelchenko Aircraft fleet of the Airline: Year of foundation – 1988. An-74ТК-200...... 1 An-12B ...... 1 Areas of activity: An-12BК ...... 1 n testing of aircraft engines; An-140 ...... 1 n assembly and testing of EG-1000 and EG-6000 An-24RV ...... 2 gas-turbine power generating sets; Yak-40 ...... 2 n testing of 6.3, 8, 10 MW D-336, AI-336 gas-tur- Mi-8 ...... 1 bine drives; Mi-2 ...... 3 n testing of D-18T engines; n manufacture of blades; n foundry. Airline has representative offices in the following cities and countries: Volochysk Machine- n Kiev – 2 representative offices (Zhyliany and Building Plant (VMZ) Borispol airports) n Year of foundation – 1971. Istanbul/Turkey – “CASIO AIR SERVIS” Company

Areas of activity: International codes: n mass production of parts and metal products for IАТА code - М9 aircraft engines; ICAO code - MSI; n production of technological tooling; Traffic documents code - 011. n overhaul of AI-20 engine and its modifications; n production of EG-1000, PAES-2500 power gener- Airline performs: ating sets; а) Regular passenger flights: n manufacture and assembly of GTE-MS-2,5; AI-2500M n Zaporozhye-Borispol-Zaporozhye; power drives; n Lugansk-Borispol-Lugansk; n production of consumer goods with special empha- n Zaporozhye-Moscow-Zaporozhye (code sharing sis on a wide range of mufflers for motor cars and agreement with “YuTair Ukraine” Airline about joint agricultural equipment. flight operation) b) passenger and cargo charter flights all over the world. Snezhnoye Machine- Building Plant (SMZ) Tickets for the flights of Motor Sich Airline may be Year of foundation – 1970. reserved through the following Global Distribution Systems (GDS): Areas of activity: n production of blades for gas-turbine engines; n Amadeus n production of parts and assembly units for mining n Galileo equipment; n TAIS n production of consumer goods with special empha- n Sirena-Travel. sis on agricultural and utility equipment.

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SUBDIVISIONS HAVING RIGHTS TO OPEN CURRENT AND SETTLEMENT ACCOUNTS

n Lubny Machine-Tool Plant (Lubny, Poltava region) n Company Store “MOTOR SICH” (Zaporozhye) n Pervomaisk Accessories Plant (Pervomaisk, n Medical and Sanitary Department of Motor Sich JSC Lugansk region) (Zaporozhye) n Kiev Accessories Plant (Kiev) n Preschool Education Center (Zaporozhye) n Calibration Center (Zaporozhye) n Sports Complex (Zaporozhye) n Construction Management and Social Development n Vinnitsa Aircraft Plant (Vinnitsa) Department (Zaporozhye) n subsidiary companies n Canteen Center (Zaporozhye)

SUBSIDIARY COMPANIES

The Company has founded the following subsidiaries n production of paint-and-lacquer materials; that are carrying out their activities at the present time: n production of metal and cardboard containers.

Gulaypole Machine-Building Plant Lebedin Engine-Building Plant 17, 9th January Street, Town of Gulaypole, Zaporozhye 18 Grushevaya Street, Town of Lebedin, Sumy region, region, Ukraine Ukraine Main areas of activity: Main areas of activity: n development, preparation and organization of n development, preparation and organization of pilot research and mass production of machine-building and mass production of machine-building products; products; n sales of manufactured products; n production, procurement and sales of agricultural n manufacture of industrial products, consumer products; goods, fuels and oils. n provision of services to people on repairing and Share of Motor Sich JSC in statutory capital of the above maintenance of motor vehicles, as well as delivery of subsidiary companies is 100%. spare parts for them; n sales of process equipment, cars and tractors withdrawn from process usage.

Gulaypole Mechanical Plant 2 Kotovskogo Street, Zheleznodorozhnoye village, Gulaypole district, Zaporozhye region, Ukraine Main areas of activity: n preparation and organization of research and serial production of aircraft engines, aviation equipment and property; n manufacture of electrical machines, equipment and devices, industrial products; n manufacture of agricultural machines, process equipment for textile industry, agricultural and garden tools;

Structure of the Company 13 MOTOR SICH

HEALTH RESORTS

Health Resort “Priboy” n tennis courts with special cover; n two thousand meters of sport grounds; Location: Primorsk, Zaporozhye region (Azov seashore). n gym; n billiard, cinema and concert halls; Capacity: 7 comfortable buildings for 490 persons. n excellent national cuisine; Number of vacationers per year: about 3 thous. persons. n indoor swimming pool. Activity: family recreation. Medical-Care Vacation Hotel “Horizont” Main advantages: n comfortable rooms; Location: Alushta (South coast of the Crimea) n nutritious food; n equipped beach; Capacity: 3 dormitory blocks for 500 persons. n gymnasium; Number of vacationers per year: more than 4 thous. n various leisure facilities; persons. n indoor swimming pool. Specialisation: medical treatment of diseases of respiratory organs, functional diseases of nervous system, Health Resort “Motor” as well as ear, nose and throat diseases. Location: Primorsk, Zaporozhye region (Azov seashore). Activity: family recreation.

Capacity: 4 comfortable buildings for 500 persons Main advantages: Number of vacationers per year: more than 3 thous. n picturesque scenery, clean air, warm sea; persons. n comfortable rooms; Activity: family recreation. n qualified medical service; Main advantages: n balanced diet; n comfortable, family atmosphere; perfect living n various leisure facilities; conditions; n equipped sports and play grounds; n the best equipped beach at the Azov seashore; n chain of stores and cafes.

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Sanatorium “Raduga” Capacity: 6-storey building (with two lifts) for 250 persons Location: Volochysk Time schedule: year-round. Specialization: treatment of locomotor system, periph- Sanatorium can accomodate 100 resting persons at the eral nervous system, upper respiratory tracts, cardio- same time. vascular system, digestive organs; Specialization: treatment of gastrointestinal tract Main advantages: Main advantages: n comfortable double rooms; n comfortable rooms; n balanced diet; n ancient dendrological park, lake, the Zbruch river; n qualified medical service; n sporting grounds, “Terrainkur” paths for dosed n presence of all natural and medical factors that are walking; necessary for health improvement. n fishing in summer period, sleighing and skiing in n “Terrainkur” paths for dosed walking, sporting winter period; ground, beach, billiards, sauna; n gym, library, billiards, evening parties; n cinema and concert hall for 300 persons; n Well No. 35 of “Kryshtaleva krynytsa” mineral n There are conducted evening parties - discos, con- water; certs. There are shown interesting movies. n two well-rooms with water of different temperature; n skilled medical service. Besides, sanatorium-preventorium arranges seminars, conferences, trainings, banquets, professional holidays. Sanatorium-preventorium of Motor Sich JSC

Sanatorium-preventorium of Motor Sich JSC is located 30 km from Zaporozhye in picturesque park area on the bank of the Dnieper river.

Structure of the Company 15 Representative offices of Motor Sich JSC USA

Ukraine 30 Shelkovichnaya Street, Kiev, 01024, Ukraine Phone: +38 044 253 9105, +38 044 253 4083, Fax: +38 044 253 9034 E-mail: [email protected] Director: Gennady Alekseyevich Barbinov Brazil Russia 14 Novopeschanaya Street, Moscow, 125252, Russia Phone: +7 495 411 5155, Fax: +7 495 411 5155 E-mail: [email protected] Http://www.motorsich.ru Director: Petr Ivanovich Kononenko

China Algeria Representative Office Regional Representation Asia Hotel, Office #403, #8 Gongti bei lu, Xinzhong xi 81, Lotissement EI Feth, "Les Sables Rouges", El Biar, jie, Doncheng District, Beijing, 100027, China Algiers, Algeria, 16030 Phone: +8610 65515762, Fax: +8610 65515762 Phone: +213 21 92 3720, Fax: +213 21 79 8749 E-mail: [email protected] E-mail: [email protected] Director: Oksana Nikolayevna Borukha Director: Nikolai Anatolyevich Suprun U.A.E. India Regional Office India Liaison Office Plot F4-02, SAIF Zone, Sharjah, U.A.E. 24 Ferozeshah Rd., New Dehli, 110001, India Phone: +9 716 557 8097, Fax: +9 716 557 8098 Phone: +91 114 350 4903, Fax: +91 114 350 4902 E-mail: [email protected] E-mail: [email protected] Director: Alexander Alexandrovich Lukyanov Director: Andrey Yevgenievich Miliukov Russia Belarus Ukraine

China Algeria U.A.E. Bangladesh India

Uganda

Belarus 131 Bogdanovicha Street, Minsk, 220123. Bangladesh Phone: +003 751 73342157 Representative Office BS GROUP Director: Petr Ivanovich Rogazhevsky House #199, Road #1, DOHS Mohakhali, Dhaka-1206, Bangladesh Brazil Phone: +88-02-8715530/8834617 SQS 403, Bloco R, Apt. 306, Brasilia Fax: +88-02-8824107 Mobile: +55 61 8328 0212 E-mail: [email protected], [email protected] E-mail: [email protected] Director: Valery Vasilyevich Tychkov Representative: Sergey Yuryevich Chernyshev USA Uganda 1375, Coney Island Ave., Brooklyn 13, Gowers St., Entebbe,Uganda New-York, 11230, USA Phone: + 256 414-320-794 Mobile: +00 134 775 567 84 Fax: + 256 414 321-071 e-mail: [email protected] E-mail: [email protected] Director: Valery Vasilyevich Tychkov Representative: Victor Iosifovich Makukh Management Bodies of Motor Sich JSC MOTOR SICH

n The Board of Directors n General Meeting of Shareholders n Supervisory Board n Internal Audit Commission THE BOARD OF DIRECTORS

Pavel Dmitrievich Mikhail Naumovich Vladimir Timofeyevich ZHEMANYUK BEREZOVSKY SHIRKOV Deputy Chairman of the Deputy Chairman of the Board Deputy Chairman of the Board Board of Directors, of Directors, Director of of Directors, Marketing Technical Director of Construction and Social Director of Motor Sich JSC Motor Sich JSC Development of Motor Sich JSC

Roman Sergeyevich Vladimir Borisovich Alexander Petrovich GARANENKO SEMENOV NEDASHKOVSKY Member of the Board of Member of the Board of Member of the Board of Directors, Quality Director of Directors, Director of Directors, Director of Motor Sich JSC Corporate Law and Snezhnoye Machine-Building Investment Projects Plant of Motor Sich JSC of Motor Sich JSC MOTOR SICH

Sergei Anatoliyevich Olimpy Valerianovich Viktor Alekseyevich VOITENKO POKATOV LUNIN Deputy Chairman of the Member of the Board of Member of the Board of Board of Directors, Directors, Director of Human Directors, Financial Production Director of Resources Department of Director of Motor Sich JSC Motor Sich JSC Motor Sich JSC

Konstantin Ivanovich Ruslan Alexandrovich GORBIK PIDORICH Member of the Board of Member of the Board of Directors, Deputy Technical Directors, Head of Youth, Culture Director of Tool Production of and Public Relations Department Motor Sich JSC of Motor Sich JSC MOTOR SICH

GENERAL MEETING OF SHAREHOLDERS

MANAGEMENT BODIES OF MOTOR SICH JSC: CORPORATE MANAGEMENT SYSTEM OF MOTOR SICH JSC IS BASED n General meeting of shareholders (superior body); ON THE FOLLOWING PRINCIPLES: n Supervisory Board; n Board of Directors (executive body); n The Company protects rights of shareholders. n Internal Audit Commission. n The Company provides equal attitude to all shareholders, including minority and foreign shareholders. Management bodies of Motor Sich JSC pay particular n The Company acknowledges legal rights of the inter- attention to honesty, openness, efficiency, responsibil- ested parties and encourages active cooperation ity and achievement of the specified objectives. between the Company and all interested parties for increase of social wealth, creation of new work places Authorities and obligations of management bodies and achievement of financial stability of the Company. are clearly divided and balanced. Corporate man- n The Company provides timely disclosure of reliable agement system of Motor Sich JSC is built according information about all important aspects of the to international standards, the best world experi- Company activities, including data about financial ence and current legislation of Ukraine. It provides state, results of business activity, structure of share- efficient cooperation between management and holders and management. control bodies, as well as external auditors and all n The Board of Directors provides strategic business interested parties (shareholders, contractors, state management and efficient control of all managers. It bodies); monitoring of the Company's activity for regularly reports to its shareholders and the Company. achievement of the specified objectives. COMPETENCE OF THE BOARD COMPETENCE OF GENERAL MEETING OF DIRECTORS OF MOTOR SICH JSC OF SHAREHOLDERS The Board of Directors is a permanent executive body General meeting of shareholders is the superior of the Company that controls its current activities. management body of Motor Sich JSC. General meeting of shareholders may solve all questions related to The Board of Directors, within its powers stipulated by the Company’s activity. Questions that are in exclu- effective legislation, Statute and corporate documents sive competence of general meeting of shareholders of the Company, makes decisions, concludes agree- are stipulated by current legislation, the Company’s ments and acts otherwise on behalf of the Company in Statute and may not be submitted to other bodies of order to achieve the Company’s objectives. the Company. The Board of Directors consists of 12 persons. Term of powers is 4 years. CORPORATE MANAGEMENT SYSTEM OF MOTOR SICH JSC Corporate management of the Company is a system of relations between investors (owners of the Company), its managers, and interested parties for provision of efficient activity of the Company, equal influence of parties and balance of corporate interests. Corporate management creates system of levers and counterbal- ances for correlation of interests of senior managers, shareholders and other interested parties.

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SUPERVISORY BOARD

Anatoly Nikolayevich Petr Ivanovich MALYSH KONONENKO Chairman of the Supervisory Board, Member of the Supervisory Board, Director of Public Relations of Director of Moscow Representative Motor Sich JSC office of Motor Sich JSC Date of birth: 15.04.1956 Date of birth: 05.12.1955 Education: higher Education: higher

Alexander Vyacheslavovich Valery Mikhailovich BOGUSLAYEV LOGVIN Deputy Chairman of the Supervisory Member of the Supervisory Board, Board of Motor Sich JSC, Deputy Director of Catering Center of Director of International Technical Motor Sich JSC Center of Motor Sich JSC Date of birth: 23.07.1952 Date of birth: 02.08.1978 Education: higher Education: higher

Mikhail Nikolayevich Mikhail Ivanovich MOLCHANOV TRUSH Member of the Supervisory Board, Member of the Supervisory Board, Director of Transport and Production Chairman of Trade Union Administration of Motor Sich JSC Committee of Motor Sich JSC Date of birth: 10.11.1954 Date of birth: 10.06.1949 Education: higher Education: higher

Yury Mikhailovich Svetlana Alexandrovna GRECHIKHA KHOREVA Member of the Supervisory Board, Member of the Supervisory Board, Assembly fitter of workshop No. 31 of Head of Finance-and-Economy Motor Sich JSC Administration of Motor Sich JSC Date of birth: 06.07.1954 Date of birth: 21.12.1953 Education: specialized secondary Education: higher

Competence of the Supervisory Board of Motor Sich JSC The Supervisory Board of Motor Sich JSC is a body that protects rights of the Company’s shareholders and, within its competence stipulated by Laws and Statute, controls and regulates activities of the executive body. The Supervisory Board consists of 9 persons. Term of powers is 2 years. MOTOR SICH

INTERNAL AUDIT COMMISSION

Alexander Nikolayevich Polyviany Chairman of Internal Audit Commission, Deputy Head of Finance-and-Economy Administration, Head of Labour and Wages Department of Motor Sich JSC Date of birth: 10.12.1954 Education: higher

Sergei Nikolayevich Vishnevsky Member of Internal Audit Commission, Director of Aviation Engine Production, Head of Production Administration of Motor Sich JSC Date of birth: 01.10.1954 Education: higher

Liudmila Ivanovna Zavgorodniaya Member of Internal Audit Commission, Chief Doctor of Medical and Sanitary Department of Motor Sich JSC Date of birth: 29.05.1954 Education: higher

Andrey Valentinovich Zinchenko Member of Internal Audit Commission, Head of Personnel Administration of Motor Sich JSC Date of birth: 05.11.1975 Education: higher

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Valentin Grigoryevich Pasternak Member of Internal Audit Commission, Director of Volochysk Machine-Building Plant of Motor Sich JSC Date of birth: 16.02.1954 Education: higher

Leonid Alekseyevich Pirogov Member of Internal Audit Commission, Deputy General Designer of Motor Sich JSC Date of birth: 14.04.1948 Education: higher

Alexander Mikhailovich Pospelov Member of Internal Audit Commission, Director of Procurement Administration of Motor Sich JSC Date of birth: 18.09.1956 Education: higher

Competence of Internal Audit Commission of Motor Sich JSC

Internal Audit Commission carries out internal control and audit of financial and economic activity of the Company.

Internal Audit Commission consists of 7 persons. Term of powers is 4 years.

Management Bodies of Motor Sich JSC 25 Production Activity MOTOR SICH

n Main Indices of Production and Financial Activity n Production Activity and Work in progress n Labour and Salary n Advanced Technologies n Certificates and Licences n Service Maintenance n Priority Activities n Prospects for 2013 MOTOR SICH

MAIN ASPECTS OF PRODUCTION AND FINANCIAL ACTIVITY

n Growth rate of production volume in comparable prices to 2011 – 115.6%; n Volume of industrial products shipped to the Customers is by 22.9% more than in 2011; n Specific weight of aviation equipment in the sold products – 92.3%; n Export share in the income from sold products – 93.1%. n Profitability of sales – 29.4%

Structure of products sold by Motor Sich JSC Income from sold products, works and services in 2012 (%) during 2008 – 2012 period.

1,4 400 6,3 347 350 8,3 282 300 313 243 19,8 64,2 250 258 200 182 214 150 165 100 100 50

Mass-produced aircraft engines 2008 2009 2010 2011 2012 Overhauled aircraft engines Total income from sold products, works Other aviation equipment and services: General-purpose products including aviation equipment Consumer goods

28 ANNUAL REPORT 2012

PRODUCTION ACTIVITY AND WORK IN PROGRESS

Motor Sich JSC delivered products according to the There were performed works related to development concluded contracts in 2012. There were executed and introduction into production of the following con- 276 contracts for the delivery of mass-produced and sumer goods: overhauled engines, drives, power generating sets. n There was manufactured pilot batch of “Motor Sich MBE-1” hosehold electrical oil mill; Specific weight of sold products in 2012 is as follows: n There was manufactured batch of “Motor Sich MB- 8E” walking tractors equipped with electric starter, hood and fenders; n There was manufactured pilot batch of “MS-470” 6,3 and “MS-475” petrol-powered saws with improved 1,4 technical characteristics and new design; n There was performed upgrading of electrocars into gas-fired motor cars with “МS10P-03” engine; n There were manufactured upgraded outboard motors “МS-40E” and “МS-40ED”. The company has allocated 116.6 million UAH of own assets into the development and preparation to 92,3 mass production of new types of aviation products, general technical products and consumer goods. This amount will reach 609.3 million UAH, if we take into Aviation equipment account expenses for procurement of equipment, manufacture and modification of test benches, per- General-purpose technical products formance of research and development works. Consumer goods As of 01.01.2013, the process stock at Motor Sich JSC In addition to production of engines the Company per- amounted to 3,207.5 million UAH. During year 2012 formed 98 contracts for the delivery of spare parts (55 the process stock increased by 867.9 million UAH of them – non-CIS countries, 40 – Aircraft Repair (37.1%). Main production process stock increased by Plants in Russia). 827.9 million UAH (36.5%), auxiliary production In 2012 there were sold consumer goods to the process stock increased by 40.0 million UAH (57.8%). amount of 97.5 mln. UAH. The reasons for increase of main production process stock were: increase of prices for material resources, cre- There were continued works on implementation of ation of process stock for shipments in year 2013, devel- mass-production of several new aviation products in opment and manufacture of prototypes of new products. the course of the year. There were manufactured: Percentage of main products in the process stock: n 4 МS-500V engines; n n 2 АI-450М engines; As of 01.01.2012 – 97.0%; n 4 MS-14 engines; n As of 01.01.2013 – 96.6%. n 2 АI-450S engines; Process stock created in 2012 will ensure uninter- There were prepared to production and were manufac- rupted and continuous work of the Company in tured parts of prototype МS-500UBE, ТV3-117VМА- year 2013. SBМ2V, D-136-2 engines.

Production Activity 29 MOTOR SICH

LABOUR AND SALARY

The Company’s labour remuneration system provides The Company’s staff on the payroll during 2008 – fair remuneration for employees’ labour depending on 2012 (persons) complexity and conditions of work, employee’s professional and business qualities, results of the employee’s 25 267 25 000 23 841 work and economic activity of the Company’s corre- 21 236 20 832 21 860 sponding subdivision. 20 000 22 228 23 628 Motor Sich JSC has introduced new wage rates and offi- 20 264 19 573 19 248 cial salaries from July 01, 2012 in order to increase 15 000 social standards for all categories of the Company 9 694 10 000 7 858 9 024 employees pursuant to Law of Ukraine. 7 042 7 206 Increase of average wages from January till December 5000 2012 has made 8.6%. Average salary of production and industrial personnel 2008 2009 2010 2011 2012 in December 2012 have amounted to 3,731 UAH, industrial workers of main shops – 4,123 UAH, chief Total foremen – 5,560 UAH, foremen – 4,136 UAH. including production and industrial personnel Motor Sich JSC occupies 10th place among 40 industrial enterprises of Zaporozhye as per salary level. thereof direct workers and apprentices The Company constantly analyzes average salary of all categories of workers, efficiency rate, labour Growth of average salary of the Company force data. Average efficiency rate has made employees in 2008 – 2012 117.2% in year 2012. The Company has no wage arrears, as well as tax 3750 3577 arrears to budgetary and extra-budgetary funds. 3295 2748 The Company’s labour force has increased by 6% in 3000 3488 2012. Labour force structure has changed due to the 2135 3212 2250 1871 increased amount of direct workers from 38.4% as of 2678 01.01.2012 to 38.9% as of 01.01.2013. 1500 2080 Labour fluctuations has made 0.56% in year 2012. 1821 750

2008 2009 2010 2011 2012

of a worker of a production and industrial employee

Qualitative indices of personnel: Structure of production and 2,1 industrial personnel by categories, % 32,3 Industrial workers — 41.0% Auxiliary workers — 19.5% 41,0 5,1 Quality control personnel — 5.1% Engineers and technicians — 32.3% 19,5 Other categories — 2.1%

30 ANNUAL REPORT 2012

ADVANCED TECHNOLOGIES

Manufacture of aircraft engines which should be capa- n with Kharkov Physics and Technology Institute on ble to compete with the products of the leading world enhancement of process paremeters of hot isostatic companies requires continuous improvement of pro- pressing of high-duty cast products made of titanium duction processes with due consideration of the latest and heat-resistant alloys; achievements of science and engineering. n with Research and Development Centre “Advanced Motor Sich JSC carries out the following activities in Technologies” of Electric Welding Institute named after this respect: Paton on development of thermal protective coating for blades of АI-450-МS engine. Implementation of new production processes: n defect-free single-step braizing of HPT rotor blades Information technologies: of АI-222 engine; The Company carries out purposeful works on applica- n vacuum brazing of steel tubular heat exchangers; tion of computer-integrated technologies. n carbonitriding with controlled carbon potential; Main activities: n casting of HPT rotor blade parts of АI-222 engine n development of Computer-Aided Design (CAD) with redesigned blanks; System for designing of aircraft engines, enhancement n casting of IPT spacers of D-18Т engine with modified of its functionality due to special complex calculation feeding of cast products; and simulation systems. n casting of Fan Turbine rotor blades of D-18Т engine n development of Computer-Aided Process Engineering with usage of ceramic filters; System; n manufacture of titanium alloy bushings of “78” and n development of Management Integrated Control АI-450МS engines by means of powder metallurgy; System (MICS) on the basis of SAP solutions; n restoration of magnesium casing of АI-222-25 n creation and development of Integrated Product engine by means of gas-dynamic spraying; Operation Support System; n restoration of worn-out surfaces by means of gas- n system integration of above mentioned systems and thermal spraying; formation of integrated data field of the Company; n thermostabilizing annealing of large-size thrust n manufacturing application of CAD\CAM software: reverser rings of D-436TP engine that are made of Unigraphics, ADEM, MAGMASOFT, IMS-software; АК4-1 alloy. n development of control software. Implementation of advanced blanks: There was imported new process equipment, as n precision investment casting of heat-resistant and well as components and spare parts to it: structural alloys; n DOOSAN LYNX220LM CNC machining center; n PHOENIX II 275G semiautomatic gear-grinding n precision centrifugal investment casting of titanium alloys; machine for Gleason-type conical gears; n casting of monocrystal blades made of ЖС32, ЖС26 n OMICRON 1000-ET5 multipurpose circular grinding heat-resistant alloys; machine; n metal mould casting of magnesium and aluminum alloys; n LINEA IRON multipurpose surface-grinding machine; n precise casting of large-size parts made of non- n SARIX SX 200 HPM electrical discharge machine; ferrous alloys. n AF-36 FLEMING air flow metering system; n BOEHRINGER VDF32M CNC semiautomatic lathe; Joint research and development: n TRENS SBL300 CNC semiautomatic lathe. n with UkrNIIspetsstal Institute on enhancement of process paremeters of hot isostatic pressing of encapsulants with granules made of ЭП741НП alloy in hot isostatic press QIH 0.9х1.5 for manufacture of turbine disks; n with Zaporozhye National Technical University on complex investigation and development of methods of repair of GTE parts made of high-alloyed titanium compounds by means of welding using nanostruc- tured additive materials;

Production Activity 31 MOTOR SICH

CERTIFICATES AND LICENCES

1. Certification of quality management system, production and overhaul

n Extended the term of “Repair Organization Certificate” No. СПР-11 untill 12.04.2014; n Confirmed validity of Quality Management System Compliance Certificate No. ВР 27.1.4223-2011; issued by Certification Center “Gosaviasertifica” (Russia); n Confirmed validity of Quality System Compliance Certificate No. UA 226244; issued by Bureau Veritas Certification; n Confirmed validity of Quality System Compliance Certificate No. РОСС UA.ИС25.К00031; issued by Certification Center “Quality” (Russia); n Confirmed validity of Quality System Compliance Certificate No. HTI/130-009/2010; for compliance with requirements of AQAP-2110 Standard (NАТО); n Received Maintenance Organization Certificate No. UA.145.0026; the State Aviation Administration of Ukraine.

2. Type certificates for aviation equipment, ground equipment and consumer goods 2.1. Received: n Amendment to Type Certificate for АI-450-МS auxiliary power unit No. СТ260-ВД/Д07, dated 24.04.2012 (AR IAC); n Amendment to Type Certificate No. СТ 267-АМД/Д05, dated 27.04.2012, for ТV3-117VМА-SBМ1V engine (AR IAC); n Data Sheet to Type Certificate No. ТД 0035 ver.3, dated 18.01.2012, for extension of ТV3-117VМА-SBМ1V engine service life (the State Aviation Administration of Ukraine); n Data Sheet to Type Certificate No. ТДД 0009 ver. 05, dated 28.08.2012, for extension of АI-450-МS engine service life (the State Aviation Administration of Ukraine); n Aviation Equipment Developer’s Certificate No. Р-56, dated 13.07.2012 (AR IAC); n Certificate of Conformance No. UA1.050.0241034-12, dated 27.12.2012, for “Motor Sich МB-8” walking tractor (INPOMT, Ukraine); n Type Approval Certificate No. ODC 0550-0209/3.1 for D-336-1/2, D-336-1/2-E, D-336-2Т, D-336-2Т-E, АI-336-2-8, АI-336-2-8-E, GTE-6,3/МS, GTE-6,3/МS-E, GTE-8/МS, GTE-8/МS-E gas turbine drives, dated 27.06.2012 (“SGS-UKRAINE”); n Certificate of Conformance No. РОСС UA.ME22.H00299 for Motor Sich PAES-2500 gas turbine power generation set and its modifications, dated 03.09.2012 (Kursk, Russia); n Certificate of Conformance No. POCC UA.ME22.H00300 for Motor Sich EG 6000Т-Т10500-3ВНМ1УХЛ1 gas turbine power generation set, dated 03.09.2012 (Kursk, Russia);

32 ANNUAL REPORT 2012

n Certificate of Conformance No. C-UA.MХ04.В.00143 for D-336-1/2, D-336-1/2 E, D-336-2Т, D-336-2Т-E, АI-336-2-8, АI-336-2-8-E gas turbine drives, dated 08.08.2012 (Certification Center “Quality”, Russia); n Expert Advice No. 712, dated 03.04.2012, on conformity of products to Unified sanitation-and-epidemiological and hygienic requirements to goods subject to sanitation-and-epidemiological supervision (Research Center “Health”, Russia); n Approval No. РРС 00-046664, dated 19.01.2012, for application of GTE-6/6,3 М1УХЛ1 gas turbine power generation set (Federal Service of Ecological and Atomic Supervision, Russia); n Data Sheet to Additional Type Certificate No. ДТВ-0003, dated 22.08.2012, for Мі-8МSB helicopter.

Licenses n Licence АД No. 041410, dated 02.07.2012, “Rendering of educational services by educational institutions”, issued by the Ministry of Education and Science, Youth and Sport of Ukraine; n Licence АB No. 419865, dated 23.11.2011, “Rendering of preschool educational services”, issued by Department of Education and Science of Zaporozhye Regional State Administration; n Licence АГ No. 592046, dated 22.12.2011, “Rendering of passenger and dangerous cargo transportation services by motor vehicles”, issued by the Ministry of Transport and Communications of Ukraine; n Licence АВ No. 472038, dated 23.09.2009, valid from 27.08.2009 untill 26.08.2014, “Natural gas supply at uncontrollable tariff”; issued by National Power Control Commission of Ukraine; n Licence АВ No. 583195, dated 20.06.2011, valid untill 27.08.2014, “Rendering of fixed local telephone services”; issued by National Power Control Commission of Ukraine; n Licence АГ No. 600416, dated 06.07.2012, “Medical practice”, issued by the Ministry of Health of Ukraine; n Licence АВ No. 583195, dated 20.06.2011, “Rendering of fixed local telephone services”; issued by National Communications Control Commission of Ukraine.

Production Activity 33 MOTOR SICH

SERVICE MAINTENANCE

Motor Sich JSC has an after-sales service division n L-15 airplanes with АI-222К-25 engines in China; (Product Support Department – PSD) that provides n Мi-2 helicopter with АI-450V engines in Rostov- technical support of all manufactured aircraft engines on-Don; within the whole period of their operation. PSD is the main link connecting the Company with n K-8J airplanes with AI-25ТLK engine in China, numerous operating organizations. Sudan, Bolivia, Venezuela; All PSD relations with customers are regulated by the n experimental-industrial operation of Mi-8MSB heli- concluded contracts: at present, more than 346 con- copters with TV3-117VMA-SBM1V series 4E engines, tracts are in force, as well as 274 additional agree- as well as Mi-8MTV and Mi-24 helicopters with TV3- ments to them concerning technical support of 117VMA-SBM1V engines; engines, extension of service life, performance of light n experimental-industrial operation of 10 MW overhaul in service, and other services. gas-turbine units in the urban settlement of Novopskov; In 2012, Product Support Department: n 7 MW gas-turbine drives at CS “Eskisehir” n has rendered various services to the amount of (Turkey), CS “Volkhov”, CS “Pikaleva”, underground 247.2 mln. UAH; n has performed light overhaul of 78 engines: thereof in service conditions - 54, at technical Centers (Technical Center “МSME” in UAE; Technical Center “Borisfen-Avia” in Russia) – 24; n continued to master new production processes for light overhaul in service of AI-93B, AI-450-МS, D-436-148, ТV3-117VМА-SBМ1V, VK-2500, D-336-2-8, D-436ТP engines; n has performed theoretical and practical training of 9 groups of foreign specialists in all aspects of engine maintenance. The sphere of PSD activity has become wider, as new gas-pumping stations were put into operation in Iran, Turkey, Turkmenia, Uzbekistan, Belarus, Russia, Azerbaijan, Kazakhstan. Total of 115 engines are now operated at gas-pumping stations, and 10 engines are operated at power stations.

Presently, highly experienced specialists of PSD render in-service support of the following new equipment: n Аn-148 and An-158 airplanes with D-436-148 and AI-450-МS engines of Russia Airlines JSC (St. Petersburg, Russia), Polet Airlines (Voronezh, Russia), VАSО JSC, Aerosvit (Ukraine), Ukraine International Airlines (Ukraine), Angara Airlines (Irkutsk, Russia), AirKoreya (North Korea), Russia Airlines (Moscow, Russia); n Аn-140-100 airplanes with ТV3-117VМА-SBМ1 and AI9-3B engines of “Yakutia” Airlines (Russia), “Motor Sich” Airlines (Ukraine), “НЕSA Airlines” and “Police Aviation” Airlines (Iran);

34 ANNUAL REPORT 2012

gas storage station “Kanchurinskaya” (Russia), CS Along with aircraft engines and engines of ground “Yaro Yakhinskoye” (Russia), BCS “Krestishe” application, PSD performs warranty repairs of con- (Ukraine); sumer goods not only at the Company facilities, n 8 MW gas-turbine drives at BCS “Shurtan”, but also directly in operating organizations of “Zevardy”, “Pamuk” (Uzbekistan), “Western Shatlyk” Ukraine (Vinnitsa, Kirovohrad, Volyn’, Sumy, Kiev, (Turkmenia), CS “Lozinets” (Bulgaria), CS “Yuzhno- Cherkasy regions), as well as in the Balykskaya” (Russia), CS “Abshirin”, “Sirjan”, Commonwealth of Independent States (Russia, “Hadjiabad”, CS “Proletarskaya”(Ukraine); Uzbekistan, Kazakhstan, Belarus). n GTE-6.3МS at “Severnaya” heat and power station The Company successfully provides paid services. (Belarus), “Kendyk” heat and power station (Kazakhstan), “Igolskaya” gas-turbine power sta- There were repaired consumer goods to the amount of tion, “NGT-Energiya” (Russia). Installation of 4 GTE- 48.879 thous. UAH in 2012. 6,3 МS gas-turbine power generating sets at Tiamkinskoye field (Russia) and 2 sets at Sarakhs field (Iran).

Production Activity 35 MOTOR SICH

MAIN DIRECTIONS OF THE COMPANY ACTIVITY

For stable and successful development of the n development of scientific and technical reserve in Company under conditions of hard competition in the order to provide competitiveness of domestic world aviation market, it needs to perform constant engines in future; monitoring of tendencies in consumer and raw mate- n development and mastering production of helicopters; rial markets, and permanent development of the range of goods. n development of aviation engine modifications for ground application; The Company has specified the following main directions of activity: n high-quality repairs of engines within short period according to flexible contract terms and conditions; n major overhaul and modernization of helicopters, including their remotorization; n field service of mass-produced engines, as well as further improvement of their characteristics (reliability, n development and mastering production of new service life, cost effectiveness); competitive engines with great export potential that cover demands of Ukraine in aviation products; n extension and deep integration of relations with Russian aviation engine-building complex; n development of engine modifications demanded by the market of aviation products within short time n expansion of presence at the international market and with low money expenses for the development with primary orientation to the market of CIS and of new kinds of products; Asian countries.

36 ANNUAL REPORT 2012

PROSPECTS FOR THE DEVELOPMENT OF NEW EQUIPMENT IN 2013 Works on aircraft engines designed by Motor Sich JSC

Works on МS-14 engine: n increasing power-to-weight ratio of АI-9V engines (creation of АI-9V-1 version) n completion of research and development works, and works on engine certification; n preparation to mass production of D-27 engines; n participation in flight development tests of Аn-2-100 n continuation of joint creation and development aircraft with МS-14 turboprop engine; of AI-450-MS series 1 and AI-450M/M1 engines with Ivchenko-Progress SE. n finalizing the engine design documents. Works on ground equipment: Works on МS-500V engine: n creation of GTE-8.3/МS gas-turbine drive for n research and development works, developmental EG-8000МS power generating set; and special tests on the test bench; n creation of GTE-МS-2.5D gas-turbine drive with n finalizing the engine design documents; gas-regulating unit produced domestically; n manufacture of prototype models. n manufacture of GTE-МS-2.5М gas-turbine Works on TV3-117VMA-SBM1V engine: drive with set of attachment parts for upgrading PAES-2500. n flight tests of Mi-24, Mi-8MT/Mi-17, Ка-27, Ка-29 and Ка-50 helicopters in cooperation with Mil and Works on helicopter themes: Kamov Companies; n certification of Мi-2 helicopter with new navigation n works on further extension of the engine service life; and radiocommunication equipment; n creation of different modifications of TV3-117VМА- n starting up Mi-2МSB helicopter for full-scale testing; SBМ1V series 1 engine with new electronic automatic n certification tests of Мi-8МSB(P) helicopter; control system for engines of Мi-28NM, Мi-171 and Ка-52К helicopters; n creation of advanced МSB-6 helicopter. n creation of modification of TV3-117VМА-SBМ1V Development of production facilities: series 2 engine with upgraded automatic control system; n introduction of advanced technologies for economy n research and development works on creation of of materials, increase of materials utilization rate, TV3-117VМА-SBМ2V engine with increased power. reduction of labour-output ratio; Creation of МS-500UBE auxiliary power unit. n reconstruction of ТEК-3 with transfer of steam waste-heat exchanger to water-heating mode; Works on other aircraft engines: n mastering repair of new kinds of equipment at Lubny n modification of D-436TP engines into D-436TP- machine-tool plant; M version (D-436TP engine with thrust reverser) n introduction of energy-saving technologies, alterna- for performance of flight development tests in Bе- tive energy sources etc. 200 aircraft; n manufacture, bench and flight tests, certification of TV3-117VMA-SBM1I engine; n cooperative deliveries of assembly units for AI- 222-25 turbofan engines manufactured under the concluded contracts; n manufacture of parts and units for AI-222К-25F engine, testing of prototype engines;

Production Activity 37 Foreign Economic Activity MOTOR SICH

n Cash Inflow by Regions n Participation in Exhibitions MOTOR SICH

CASH INFLOW BY REGIONS

Implementation of export contracts concerning n In Ukraine: Antonov SE, Kharkov State Aircraft aviation and ground equipment is traditionally Production Enterprise, “Ukrainian Helicopters” JSC, the main financial resource. The Company sup- Lugansk Aircraft Repair Plant. plies new aircraft engines, gas-turbine drives and Cash inflow has increased by 42.4% as compared to other ground application products, spare parts, 2011. The Company delivered AI-20 series 5, D-436- repair-assembling tools, consumer goods. It car- 148, AI-450-МS aircraft engines, gas turbine drives of ries out overhauling, aftersale maintenance of AI-20DME family to the internal market, as well as aviation and ground equipment, renders in-oper- repaired various modifications of aircraft engines and ation services. ground equipment. Export ratio in goods sold is 93.1%. n In CIS countries: Kazakhstan, Uzbekistan, Belarus, Export ratio in goods sold during 2008-2012 Moldova. period. The Company repaired aircraft engines, rendered services 100 for extension of service life, as well as delivered and 93,2 93,1 repaired ground equipment for CIS countries. 95 91,5 88,7 n In non-CIS countries: India, China, Algeria, Iran, 90 Peru, Colombia. 83,8 Money was received for the delivery and repair of vari- 85 ous modifications of aircraft engines, as well as for the 80 delivery of corresponding spare parts. In 2012 there was opened second stage of Motor Sich 2008 2009 2010 2011 2012 Technical Center in UAE. New building of Technical Center will be used for remororization of Мi-8 helicopters. It will allow Motor Sich JSC to increase the scope of rendered services and sales at Middle East and African markets. Cash inflow under the concluded contracts has The Company paid 30,240.5 thous. US dollars under increased by 13.2% in 2012 as compared to 2011. import contracts for acquisition, overhaul and refur- Cash inflow from customers in Russia, CIS and non- bishment of equipment in the accounting year accord- CIS countries has increased. There was also observed ing to the foreign currency expediture plan. growth of cash inflow from Ukrainian customers. Germany, Switzerland, USA, Poland, Bulgaria, Korea, In 2012 main customers were: Czechia, Slovakia and other countries are main part- n In the Russian Federation: “Russian Helicopters” ners of Motor Sich JSC in the sphere of importing Holding Company, Klimov JSC, Voronezh Aircraft equipment and spare parts, as well as overhauling and Production Association, Beriev Taganrog Aviation upgrading equipment. Scientific Technical Complex, Rostov Helicopter The following machines were purchased: machining Plant JSC. centers HURON, turning-milling centers DOOSAN, Money was received for the delivery of mass produced high-vacuum furnaces SECO/WARWICK and TAV, aircraft engines: TV3-117 of different versions, D-436- gear-grinding centers Gleason-PFAUTER, turning- 148, AI-450-MS, VK-2500, D-136, D-436TP, TV3- milling centers, CNC machines TOSHULIN and other 117VMA-SBM1, AI-9V. process equipment.

40 ANNUAL REPORT 2012

EXHIBITION ACTIVITY

Cash inflow for the shipped products and ren- Motor Sich JSC persistently implements professional dered services as per payment currency was as marketing policy that makes it possible not only to follows: keep traditional sales markets of our products, but also develop new ones. The following methods are used by the Company to organize product sales: n marketing research of sales markets for determin- 6,3 2,8 ing priorities and implementing merchantable production projects, as well as sales of aviation and ground equipment; 54,5 n participation in prestigious specialized exhibitions 36,4 related to the products manufactured by the Company;

n US dollars establishment of regional representative offices in different regions of the world: Russia, South-East RUR Asia, China, India, Middle East, Africa, Latin America. By means of the regional representative UAH offices Motor Sich JSC takes part in all tenders for Euro delivery of the Company products and services conducted by the state organizations of different countries, such as: China, India, Thailand, Bangladesh, Sri Lanka, Algeria, the Gulf States, Bulgaria, Hungary, Turkmenistan, Russia etc.; n establishment of the vast network of service centers There were concluded contracts for purchasing high-vacu- all over the world for improving quality and efficiency um furnaces SECO/WARWICK, five-axis machining cen- of assistance to the Customers of our products; ters, special-purpose grinding machines ESSM 500, other equipment and components. n task-oriented advertising campaigns aimed at promotion of our products in new markets, publications in specialized magazines and catalogues.

In 2012, Motor Sich JSC took part in all major international exhibitions related to the Company’s products: n exhibitions of aviation equipment – DefExpoIndia (India), “Heli Russia 2012”, “Hydroaviashow”, “Engines- 2012” (Russia), “Farnborough International Airshow” (Great Britain), “Airshow China” (China), “Dubai Helishow 2012” (UAE), “ILA Berlin Air Show” (Germany), “Africa Aerospase and Defence 2012” (Republic of South Africa), “AVIASVIT –ХХI” (Ukraine). n products of ground application were demonstrated at the following exhibitions: “IRAN OIL SHOW 2012” (Iran), “MIOGE-2012” and “Russia Power 2012” (Russia), “Power Gen India @ Central Asia 2012”

Foreign Economic Activity 41 MOTOR SICH

(India), “OGU 2012” (Uzbekistan), “KIOGE 2012” demonstrated new sphere of Motor Sich activity - (Kazakhstan), “Oil and Gas 2012” (Ukraine). Мi-8МSB and МSB-2 helicopters. Advertising and presentation of advanced products was actively car- Besides, the Company actively participated in different ried out during negotiations, in specialized publica- exhibitions related to consumer goods, in competitions and mass media of the countries holding exhi- tions of loggers. bitions. Participation in exhibitions and concluded Meetings and negotiations with Operators and contracts made it possible to consolidate the results Customers of aircraft engines and ground equip- achieved by the Company in the development of ment manufactured by Motor Sich JSC were held sales markets. Motor Sich JSC holds firm positions in during all events. More than that, at exhibiitons in the markets of Russia, South-East Asia, Middle East, Moscow, Gelendjik, Gostomel and Dubai was countries of Africa and Latin America.

Prospects for 2013 n Strengthening and continuation of cooperation with companies of the Russian Federation (delivery of aircraft engines to the plants of Kazan, Ulan-Ude, Kumertau, St. Petersburg, Beriev Taganrog Aviation Scientific Technical Complex, VASO JSC); n Conclusion of contracts for the delivery of PAES-2500 and EG-6000 power-generating sets to Russia; n Keeping and expansion of sales markets in non-CIS countries; n Execution of contracts for the delivery of engines to India, China, Algeria; n Conclusion of long-term agreements with partners from South-East Asia and Latin America (Bangladesh, Sri Lanka, Peru, Colombia); n Continuation of cooperation with Ukrainian customers. Execution of contracts for the delivery of engines; n Promotion of new kinds of products and services to the market. Remotorization of operating helicopters with new ТV3-117-SBМ1V engines. n Participation in international exhibitions and air shows in order to increase turnover and expand sales markets.

42 ANNUAL REPORT 2012

Foreign Economic Activity 43 Financial and Economic Activity MOTOR SICH

n Credit Policy of the Company n Indices of the Company’s Financial Stability, Business Activity and Credit Worthiness MOTOR SICH

CREDIT POLIC OF THE COMPANY

Financial and economic activity of Motor Sich JSC is funds, payment of salary and other kinds of payments aimed at provision of financial soundness, stable inflow related to production activities of the Company. of financial resources and their efficient usage, rational Credit portfolio of Motor Sich JSC at the end of 2012 balance between internal and borrowed funds. was reduced by 61.7 mln. UAH. During the year, credit funds were used for procure- Credit resources share on the liabilities has reduced ment of equipment, replenishment of circulating from 4.8% to 3.2% during the reporting period.

Dynamics of credit resources share on the liabilities in 2008 – 2012 (%)

20 18,1

16 15,5

12 8,9 8 4,8 3,2 4

2008 2009 2010 2011 2012

46 ANNUAL REPORT 2012

INDICES OF THE COMPANY’S FINANCIAL STABILITY, BUSINESS ACTIVITY AND CREDIT

Profitability of sales (index that shows net profit share financial activity of the Company. in volume of sales) was 29.4% in 2012. Return on equity that is determining productivity of Profitability of current assets (that shows productivity investments into the Company has increased up to of circulating assets, as well as the profit earned by the 33.9% in the accounting period. Return on equity of unit of circulating capital of the Company) has grown Motor Sich JSC is at rather high level. It testifies to its from 27.2% up to 32.4%. It positively characterizes efficient activity.

Financial and Economic Activity 47 Investment Activity of the Company MOTOR SICH

n Capital Investments n The Company’s Investments into Legal Entities n Attraction of Budgetary Funds and Investments for Financing the Development and Preproduction of New Kinds of Products in 2012. MOTOR SICH

CAPITAL INVESTMENTS n Completed construction of Technical Museum; n Reconstruction of gatehouse with addition of the sec- In 2012, the Company performed works on recon- ond floor over the entrance hall (Structure No. 7а); struction and technical reequipment of the operating n Construction of swimming pool at Health Resort “Priboy”. production facilities, construction of social facilities, capital and light repair of buildings and structures. There was performed planned scope of capital con- 764.4 mln. UAH of the Company’s own funds were struction of social facilities. All recreation centers, pre- allocated for these purposes. Thereof, 427.7 mln. ventoriums and children's health camps were timely UAH were spent for procurement of equipment for prepared for summer recreational season. main production facilities. THE COMPANY’S Dynamics of equipment procurement for main production facilities in 2008 – 2012. INVESTMENTS INTO LEGAL ENTITIES 427,7 400 330,0 As of 01.01.2013, there are 37 companies, more than 32 308,9 10% shares of which belong to Motor Sich JSC. 240 The Emitter owns the shares (equities) of the com- 129,7 160 panies located in Ukraine, Russia, Republic of 56,5 Belarus. Investments into aviation industry are prior- 80 ity ones for strategic development of the Emitter and further investments. 2008 2009 2010 2011 2012 The following investments were made in 2012:

193 pieces of equipment were distributed among n founded “HELICOPTERS - MOTOR SICH” Ltd. workshops during the year: n purchased controlling share of “Orsha Aircraft Repair n High-vacuum furnaces; Plant” JSC. n CNC turning machines;

n CNC turning semiautomatic machines;

n Milling machines;

n Electrical discharge machines and other process equipment. The following works were carried out:

n Construction of foundations for installation of new high-technology machining centers;

n Reinforcement of foundation of buiding No.18 by installation of piles and anterides;

n Reconstruction of test benches for AI-222-25, AI- 222K-25, AI-25, AI-25TL, MS-500UBE, AI-450MS engines;

50 ANNUAL REPORT 2012

ATTRACTION OF Development Works “Development and Introduction of the Latest Design Solutions During Creation of BUDGETARY FUNDS Advanced Light Helicopter with Take-off Weight from AND INVESTMENTS FOR 5 to 6 tons” in the budget of 2013. FINANCING, DEVELOPMENT n continued participation in the Project of the European AND PREPRODUCTION OF Commission “Efficient Systems and Power Units for Small Aircraft” (ESPOSA Project). The Company has NEW KINDS OF PRODUCTS performed all scheduled works. Annual reports under IN 2012 the Project were submitted to Coordinators, and were approved by them.

To reduce the Company’s expenses, the Company’s n performed research and development works specialists: “Development and mass production of bypass turbo- n have developed “Concept of the State Special fan engine for advanced versions of aircraft” (Stage 1. Scientific and Technical Programme on the Code “Е1” for 2012 – “Development of conceptual Development of Aviation Industry of Ukraine for the design of bypass turbofan engine with power from Period Untill 2020” and submitted it to Ministries and 6500 to 9000 kgf and performance of design, exper- Administrations for coordination. imental and production research works”) as regards experimental and production research works for devel- n have developed draft Law of Ukraine “About State opment of new production processes and special Support of Aviation Leasing” and submitted it to corre- equipment for mass production of efficient bypass tur- sponding Committees of the Supreme Soviet of Ukraine. bofan engine”. Budgetary funds for the performed n sent enquiries to the Ministry of Finance of Ukraine works should be received in 2013. about inclusion of funds for implementation of the n performed preliminary design for State Kiev Design State Programms on the Development of Aviation Bureau “Luch”. Industry of Ukraine, including Research and

Investment Activity of the Company 51 Securities MOTOR SICH

n Analysis of Changes in Cost of the Company’s Shares n Quantity and Structure of Shareholders n Information about Depositary of the Company’s Shares n Information about Custodier of the Company’s Shares MOTOR SICH

ANALYSIS OF CHANGES IN COST OF THE COMPANY’S SHARES

In 2012, deals with Motor Sich JSC shares were carried out at FSTS Stock Exchange and the Ukrainian Stock Exchange, as well as at off-exchange market. Total amount of deals with the Company shares has made about 2.35 billion UAH in 2012. Year 2012 was one of the most difficult ones for the world and domestic share markets. According to expert analyses, Ukrainian share market has lost more than 35% from the beginning of 2012. There were observed essential fluctuations of share prices of Ukrainian emitters in this period. Securities of Motor Sich JSC did not become an exception. There was registered minimum price of 1750 UAH and maximum price of 2880 UAH per 1 share of Motor Sich JSC. Shares of Motor Sich JSC are among the most liquid securities that are very attractive for investments in Ukraine. They have tangible fundamental growth potential for the near future.

Price and the scope of deals with Motor Sich shares at the Ukrainian Stock Exchange, UAH.

Period Minimum Maximum At the end of period Average daily scope of deals 2010 1,505 3,040 2,977.8 4,332,721 2011 1,609 3,867.9 2,230 13,936,486.8 2012 1,750 2,880 2,210 2,587,958.8 Change 8.76 % -25.54 % - 0.9 % - 81.4 %

Traditionally, in 2012, shares of Motor Sich JSC were leaders of turnover at the Ukrainian stock exchange. The scope of deals has reached 2.3 billion UAH. At the stock market there were concluded deals to the amount of 644 mln. UAH. That is more than 20% of all deals.

Inter-temporal changes of FSTS index and cost of Motor Sich JSC shares 4500 4000 FSTS index 3500 Average price of deals, UAH 3000 2500 2000 1500 1000 500 0 06.01.2006 06.04.2006 06.07.2006 06.10.2006 06.01.2007 06.04.2007 06.07.2007 06.10.2007 06.01.2008 06.04.2008 06.07.2008 06.10.2008 06.01.2009 06.04.2009 06.07.2009 06.10.2009 06.01.2010 06.04.2010 06.07.2010 06.10.2010 06.01.2011 06.04.2011 06.07.2011 06.10.2011 06.01.2012 06.04.2012 06.07.2012 06.10.2012

54 ANNUAL REPORT 2012

Price and scope of deals with Motor Sich shares at FSTS Stock Exchange, UAH.

Year Minimum Maximum At the end of period Average daily scope of deals 2006 275 475 415 246,802 2007 430 1,778.36 1,728.8 2,516,041 2008 166 1,757 365 1,982,324 2009 280 1,810 1,644.52 676,047 2010 1,550 3,070 2,967 600,137 2011 1,602.16 3,850 2,170 471,968.72 2012 1,778.5 2,860 2,206.5 39,053.91 Change (2012/2011) 11% - 25.7 % 1.7 % - 91.7 %

Capitalization (market cost) of Motor Sich JSC as of the end of 2012 has made 5.95 billion UAH. According to forecasts of analysts, Motor Sich shares have significant growth potential in 2013. They are still among the most liquid securities that are attractive for investments in Ukraine.

QUANTITY AND STRUCTURE OF SHAREHOLDERS as of 12.02.2013*

Owners Q-ty of Q-ty of shares, pcs. Share in Statutory Nominal value of of shares Shareholders Capital,% securities, UAH. Legal entities 254 1,642,365 79 221,719,275.00 Natural persons 7,061 435,625 21 58,809,375.00 Total 2,077,990 100 280,528,650.00

* Date of the last Summary Register of Shareholders of Motor Sich JSC for distribution of invitations to General Meeting.

The state is not a shareholder of Motor Sich JSC. DEPOSITARY OF THE COMPANY’S SHARES “All-Ukrainian depositary of securities” Private JSC performs accounting of Motor Sich shares (Enterprise code: 35917889). Licence for depositary activity as a depositary of securities: series АВ No. 498004 issued by the State Committee of Securities and Share Market, dated 19.11.2009. Location: 7-g Tropinina Street, Kiev, 04107, Ukraine Phone: (044) 585 42 40 (41,42). Site: www.ausd.com.ua CUSTODIER OF THE COMPANY’S SHARES Custodier, MOTOR-DEALER Ltd. (Enterprise code: 24513000), performs accounting of Motor Sich shares of shareholders, for whom the Company has opened securities accounts on the basis of the Register of Shareholders received from the registrar in the course of dematerialization. Licence for depositary activity as a custodier of securities: series АВ No. 456918 issued by the State Committee of Securities and Share Market, dated 18.02.2009. Location: 21 Omelchenko Street, Zaporozhye, 69068, Ukraine Phone: (061) 720 49 85. E-mail: [email protected] Site: www.motor-diler.com.ua Securities 55 Main Risk Factors MOTOR SICH

n Industry Risks n Legal Risks n Risks Connected with Production Activity of Emitter n Financial Risks MOTOR SICH

INDUSTRY RISKS RISKS CONNECTED WITH

Industry risks are connected with small demand for PRODUCTION ACTIVITY the Company products at the domestic market of OF EMITTER Ukraine, competition with foreign manufacturers, orientation of sales to the Russian market, partial Risks connected with production activity of emitter consumer loss due to decision of Russian airlines to may include personnel risk (lack and loss of qualified perform aircraft engine overhaul and maintenance personnel), risk of information leakage, risk of pro- at the Russian aircraft repair plants. duction accident. For provision of stable work and increase of profits, In order to reduce personnel risk, Motor Sich JSC the Company pursues consistent marketing policy performs appraisals of engineering and technical aimed at search of new customers and diversification personnel, provides professional development of of sales markets. emplyees, training of future workers of the Company at higher education establishments. Motor Sich JSC constantly increases quality and performance characteristics of its products, develops In order to reduce risk of information leakage, the new aircraft engines and their modifications, Company applied information security system, pro- improves engine in-service support system to hold vided measures to reveal its violations, introduced its positions at the world markets. video surveillance system at the Company territory and security system against unauthorized duplica- LEGAL RISKS tion of information. To prevent risk of partial or complete suspension of Legal risks are connected with adoption of norma- production, Motor Sich JSC carries out activities on tive legal acts that may change legal basis of the provision of labour safety, improval of labour discipline, Company activity. performs preventive actions to reveal breakdown Motor Sich JSC, as an export-oriented company, equipment and develop labour culture. deeply feels drawbacks of current legislation, its inconsistencies and susceptibility to changes that FINANCIAL RISKS hinder effective foreign economic activity. The Company regularly runs into problems during cus- Financial risks play a significant role among the toms clearance of goods (difficult procedure of cus- Company risks. Main and most dangerous types of toms registration, difficulties with timely and com- financial risks are as follows: credit risk, liquidity risk, plete submission of documents), as well as during currency risk and inflation risk. obtainment of permits from the State Export Control Authorities. To reduce impact of legal risks, Motor Credit risk Sich JSC submits proposals regarding introduction of Credit risk is connected with increase of interest rates amendments in current normative acts in the sphere on credit, as well as demand of preschedule repay- of export control and customs clearance of goods, as ment of principal debt and interest charges. well as Laws of Ukraine, normative acts of the Cabinet of Ministers and different ministries and The following factors helped to minimize credit risk: administrations that regulate other spheres of the n thorough selection of banks based on the image and Company activity. stability of financial institution;

58 ANNUAL REPORT 2012

n analysis of credit terms and conditions that allowed Besides, basic part of credit resources for the pur- for reduction of interest rates under credit agreements, chase of new imported equipment is in foreign cur- as well as expenses on credit maintenance; rency for minimization of currency risk. n constant control of the Company’s financial state, its ability and readiness to repay the credit that Liquidity risk allowed for reduction of the Company’s overall cred- Liquidity risk is a probability of losses caused by it indebtedness. impossibility to purchase or sell assets in the required amount within a short period of time due to worsen- Inflation risk ing of market conditions, probability of deficit of Inflation risk is characterized by possibility of financial resources or other highly liquid assets for depreciation of the real cost of capital (in form of fulfilment of contractual liabilities. Management and financial assets of the Company), as well as the minimization of liquidity risk is performed by means expected profits and income of the Company from of complex measures aimed at increase of profits financial transactions in conditions of inflation. The and reduction of expenses. source of this risk is an external environment in The following measures helped to minimize liquid- relation to the Company, id est risk that does not ity risk: depend on its activity. n maintenance of sufficient level of financial resources The following methods were used to minimize neg- for financing of production, administrative and invest- ative influence of inflation risk upon activity of ment needs, as well as provision of stable fulfilment of Motor Sich JSC: financial liabilities; n timely control of profitability level included in the n creation of optimal capital structure; cost of products; n complex program on depreciation of accountable n gaining real income from financial deals and mainte- monetary assets; nance of credit portfolio in stable convertible curren- n planning of the Company budget. cies, such as USA dollar and Euro.

Currency risk Currency risks are connected with adverse changing of currency exchange rate. Foreign economic activity is especially subjected to such risks. Selection of the most reliable currencies with relatively stable exchange rates as the contract currency is a widespread practice in international trade relations. Motor Sich JSC is able to protect itself from currency risks, as it has a large scope of export and import operations carried out in one currency. Basic currencies of the international contracts of the Company are USA dollars and Russian Federation roubles.

Main Risk Factors 59 Personnel and Personnel Policy MOTOR SICH

n Personnel Structure n Personnel Development n Prospects of Personnel Policy for 2013 n Youth Policy of the Company n Social Sphere MOTOR SICH

PERSONNEL STRUCTURE Age structure of personnel, % Labour force at the parent enterprise has increased 8,7 by 1762 persons as compared to January 1, 2012. 9,5 Labour force structure has changed due to the increased quantity of additionally recruited direct 33,8 workers. Production and industrial personnel struc- 10,9 ture is as follows: 41.0% – direct workers, 19.5% – auxiliary workers, 5.1% – quality control personnel, 32.3% – engineers and technicians and 2.1 % – other categories. 17,9 19,2 Structure of personnel by categories as of January 01, 2013, % up to 30 years From 51 to 55 years 2,1 From 31 to 40 years From 56 to 60 years From 41 to 50 years Over 60 years 41,0 32,3

5,1 19,5 PERSONNEL DEVELOPMENT Direct workers Auxiliary workers In 2012, the Company has employed 492 young spe- Quality control personnel cialists, including 214 young specialists with higher Engineers and technicians education, 147 graduates of Zaporozhye Aviation Other categories College, Electrotechnical College and other colleges, and 131 graduates of technical vocational schools. Educational structure of personnel, % 339 specialists of the Company were advanced in 29,1 qualification categories according to the results of extraordinary attestation of engineers and technicians, 29,6 including 116 young specialists that have worked for less than 3 years. 38 specialists of the Company among the newly- appointed department managers and deputy man- 22,1 agers were trained at administrative courses conduct- 19,2 ed by the Academy of National Economy at the gov- ernment of Russian Federation in “Modern Methods of Higher education Joint-Stock Company Management”. Specialized secondary education 27 employees of the Company have passed competi- Secondary technical education tive selection and were sent to Kharkov National Secondary education Aerospace University (KhAI) for eductaion in specialty “Airplanes and Helicopters”. Education will take over There are 32 candidates of science among employees of 1.5 years on full-time basis. the Company. 62 ANNUAL REPORT 2012

Hired/dehired personnel at Motor Sich JSC during 12 months of year 2012:

Personnel category Hired persons Dehired persons Balance, persons Direct workers 2,790 1,698 +1,092 Auxiliary workers 1,133 760 +373 Engineers and technicians, nonproductive personnel 848 575 +273 Non-exempt personnel and other categories 200 176 +24 TOTAL 4,971 3,209 +1,762

56 employees of the Company were sent to corre- industrial practice of 700 pupils of technical voca- spondence department of Zaporozhue National tional schools of Zaporozhye, 400 college students Technical University for education at the expense of and 600 students of higher educational institutions state budget. of Ukraine. It is carried out regular work with young employees of In 2013, the Company will make the following invest- military age. During military service period, the ments into educational sphere: Company staff maintains correspondence with them, n Creation of material and technical basis for training in arranges meetings, reserves workplaces for their specialties “Maintenance of aircraft and engines”, employment after demobilization. In 2012, 62 demo- “Manufacture of aircraft” in Zaporozhye Aviation College; bilized young workers were reemployed by the n Transfer of Mi-2 helicopter, separate assembly units Company of 86 persons that were called to military and modules, maintenance manual, operating manual service in 2011. of helicopter and other visual aids to Zaporozhye Aviation College; 29 workers of the Company have got honorary title n Creation of the unified educational centre of workers “Distinguished engine-builder”. 18 workers have got for machine-building industry of Zaporozhye region on honorary title “Master with golden hands”. the basis of “Motorostroitel” Technical College, attraction of budgetary funds for equipment of workshops PROSPECTS OF PERSONNEL with modern CNC machines, training of teaching staff, POLICY FOR 2013 development of information infrastructure of the educational establishement; In 2013, personnel policy of Motor Sich JSC will be n Probation of teaching staff of educational establish- aimed at development of management system, provi- ments at the Company departments; sion of trained workers and specialists for implementa- n Obligatory coordination of educational programs tion of plan for 2013, increased motivation of workers envisioning particular subjects adapted for current for more efficient labour. production needs; The Company personnel policy is based on the prin- n Training of 150 unemployed persons as turners at ciple of continuity of generations. This principle can “Motorostroitel” Technical College during 3-month be provided only by means of predicted sources of courses; qualified personnel such as technical vocational n Training of students of Zaporozhye Aviation schools and higher educational institutions. Motor College in product quality assurance and control of Sich JSC is the basis for all kinds of practice in work- CNC machines under coordinated programs. shops, process and design departments for prepara- One of the basic directions of work with personnel tion of student's essays and graduation papers. In in 2013 is the development of helicopter engineer- 2013, it is planned to provide working places for ing, namely: Personnel and Personnel Policy 63 MOTOR SICH

n annual retraining and professional development of Center. 165 persons were employed in 2012. Savings 30 workers is specialty “Airplanes and helicopters” at of salary fund made up 1 mln. 672 thous. 242 UAH. Kharkov National Aerospace University (KhAI); Total, 332 persons were employed. It is planned to n training of 5 helicopter pilots at Krivoi Rog flying employ 180 unemployed persons in 2013. colledge in specialty “Flight operation of aircraft” at YOUTH POLICY the Company expense with provision of obligatory flying practice; In 2012, Motor Sich JSC carried out the following n continuous training of graduates of Zaporozhye activities under the Company’s Youth policy: Aviation College, Zaporozhye Electrotechnical Colledge n the V Youth Conference “Youth in aviation: new at Kharkov National Aerospace University (KhAI) in spe- decisions and advanced technologies”; cialties “Airplanes and helicopters”, “Metrology and information-measuring technologies”, “Production of n professional skill competition in 10 specialties; aircraft engines and power units”; n competition of wall newspapers “Corporate culture n internship of specialists related with production of of departments”; helicopters at leading aviation enterprises of Ukraine. n familiarization excursions and sports competitions For improvement of professional skills of department for new young employees of the Company; managers and deputy managers that were appointed n military-and-sports competition for persons of mili- in 2011-2012, it is planned to train them in “Modern tary age; Methods of Joint-Stock Company Management” at Moscow Academy of National Economy. n participation in regional military-and-sports competition “Recruit -2012”. It was decided to certify the Company’s International Technical Center according to Aviation Rules EASA n commendation of young workers and specialists of Part-147 in order to expand the sphere of services in the Company with presentation of Certificates: retraining of the customers’ specialists. l “The best young worker” - 30 persons; l “The best young foreman” - 20 persons; Taking into account complete technical reequipment of l “The best young specialist” - 25 persons. the Company, constant updating of machines, introduction of advanced technologies and processing methods, personnel policy will be aimed at continuous improvement of professional skills of machine-opera- SOCIAL SPHERE tors, programmers, technicians and their training in The Company’s social sphere includes practically all Fanuc, Sinumerik (Siemens), West Labs CNC systems types of social benefits: health care, education, recre- at workshops, as well as at the leading European com- ation, sports, housing. Social facilities are financed panies-producers of advanced CNC machines. from the Company’s assets. Motor Sich JSC actively and fruitfully cooperates with The Company spent 31.9 mln. UAH for capital invest- the State Employment Center regarding training, ments in the objects of social sphere in 2012. The retraining and probation of unemployed persons. In Company is proud of the best local children’s health 2013, it is planned to arrange training and probation and sport camps fully equipped for physical, psychical of 50 unemployed persons in demanded professions and social development of the younger generation. on the contractual basis. Children are provided with opportunities for individual Special attention is paid to employment of unem- improvement, development of artistic skills and activa- ployed persons under grants of the Employment tion of their natural potential. 1535 children of the

64 ANNUAL REPORT 2012

Company’s employees recreated at the camps. inhalations, ozokerite therapy, massage, remedial Vacation hotel “Horizont” in the Crimea, Health gymnastics, physical and therapeutic procedures. Centers “Motor” and “Priboy” at the Azov sea are Tourist camp “Meridian” is the most affordable recre- equipped with comfortable dormitory blocks, spacious ation site for the Company’s youth for many years. It is halls, cosy rooms (suites and semi-suites), canteens situated in one of the most picturesque places, with three daily meals, bars, saunas, billiard-rooms, Sedlasty island, not far from Kakhovka artificial lake. cinema halls, libraries, sports grounds and children’s Holiday-makers are provided with more than 100 cot- playgrounds. tages, sports ground, tennis tables, billiard-room, rental boats and fascinating youth leasure programs. Motor Sich JSC continues to build new objects of social 19352 persons, including 13057 employees of the sphere. In October 2012, there was opened Technical Company and their children, recreated at health cen- Museum in Zaporozhye. It is a unique museum for the ters in 2012. There were popular collective arrivals, city and for Ukraine. There was put into operation mother and child arrivals, arrivals of veterans of the sports-and-recreational base “Rovesnik” and opened Great Patriotic War and veterans of labour. Fame hall in Volochysk (Khmelnitsky region). 1654 persons live at the Company’s dormitories. 519 Sanatorium-preventorium in Volnoandreyevka village children study at the Center of preschool education. at the bank of the Dnieper river and sanatorium “Raduga” located in the town of Volochysk Collectives of Cultural Center named after T.G. Shevchenko (Khmelnitsky region) provide different medical and and “Motor Sich” sports complex are well-known out- preventive services for the resting people: baths, side Zaporozhye and Ukraine.

Personnel and Personnel Policy 65 Financial Statements MOTOR SICH

n Consolidated Balance Sheet n Consolidated Statement of Financial Performance n Consolidated Statement of Changes in Owner's Equity n Consolidation Principles n Main Aspects of Accounting Policy n Notes to Financial Statements MOTOR SICH

FINANCIAL STATEMENTS of Ukraine by means of conversion and introduction of corrections, as well as reclassification of items for Consolidated financial statements about the results of authentic representation of information according to the enterprise activities in 2012 were prepared based the International Financial Reporting Standards. on the International Financial Reporting Standards As the enterprise applies IFRS for the first time, com- (IFRS), the International Accounting Standards (IAS) ponents of consolidated financial statements do not and their interpretation developed by the International contain comparative information for the previous year, Financial Reporting Interpretations Committee (IFRIC) except for financial performance characteristics (bal- in edition published at the site of the Ministry of ance sheet) as of 31.12.2012. Thus, these consolidat- Finance of Ukraine as of 31.12.2012. ed financial statements may not be considered a com- Financial statements are drawn up on the basis of plete set of consolidated financial statements accord- accounting records which were kept according to laws ing to the International Financial Reporting Standards.

68 ANNUAL REPORT 2012

CONSOLIDATED BALANCE SHEET (FINANCIAL PERFORMANCE CHARACTERISTICS) thous. UAH

31.12.2011 31.12.2012 Assets Intangible assets by residual value 441 312 Fixed assets by residual value 3,551,064 4,114,260 Long-term financial investments 296,657 299,551 Fair value of investment property 29,600 32,368 Long-term debit indebtedness 8,246 15,403 Other capital assets 166 Production stock 3,372,050 4,424,839 Commercial debt and other debit indebtedness 1,675,739 1,645,286 Monetary resources and their equivalents 371,430 218,230 Current financial investments 79,657 657,840 Other current assets 46,005 69,298 Capital assets and disposal groups 26,936 1,223 Total assets 9,457,825 11,478,776 Liabilities Cover of deferred charges and payments 877,914 1,070,124 Long-term liabilities 297,815 180,000 Short-term bank credits 300,327 451,769 Current debt against long-term liabilities 29,463 30,266 Commercial debt and other credit indebtedness 2,116,081 2,099,449 Deferred incomes 214 457 Total liabilities 3,621,814 3,832,065 Registered capital 280,529 280,529 Additionally invested capital 172,731 408,078 Other additional capital 45,496 44 ,144 Reserve capital 70,763 73,934 Retained profits 5,267,008 6,833,325 Withdrawn capital 32,151 27,273 Accumulated exchange differences 1,440 1,742 Total owner’s equity 5,805,816 7,614,479 Minority share 30,195 32,232 Total liabilities 9,457,825 11,478,776

Financial Statements 69 MOTOR SICH

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE (thous. UAH)

2012 год Incomes Net incomes (receipts) from sale of products (goods, works, services) 7,928,376 Other operating incomes 5,292,407 Shareholding incomes 24,367 Financial incomes 22,049 Other incomes 27,509 Total incomes 13,294,708 Expenses Cost of sold products (goods, works, services) 4,650,385 Administrative expenses 566,479 Sales expenses 399,498 Other operating expenses 5,321,059 Financial expenses 49,743 Shareholding losses 7,392 Other expenses 46,632 Profit tax 644,993 Total expenses 11,686,181 Minority share 10,942 Net profit 1,619,469 Net profit per one ordinary share (UAH per share) 792.87

70 ANNUAL REPORT 2012

CONSOLIDATED STATEMENT OF CHANGES IN OWNER’S EQUITY (thous. UAH)

Accumu- Additionally Other With- lated Statutory Reserve Retained Item invested additional drawn exchange Total fund capital profits capital capital capital differences Balance as at the 280,529 172,731 45,496 70,763 5,259,767 -32,151 1,440 5,798,575 beginning of year Adjustment: - correction 7,241 7,241 of mistakes Adjusted balance as at the beginning 280,529 172,731 45,496 70,763 5,267,008 -32,151 1,440 5,805,816 of year Net profit for the 1,619,469 1,619,469 accounting period

Distribution of profit:

Payments -49,981 -49,981 of dividends

Deductions 3,171 -3,171 for reserve capital

Withdrawal of capital:

Resale of bought 235,347 4,878 240,225 out shares

Other changes -1,352 302 -1,050

Total changes 235,347 -1,352 3,171 1,566,317 4,878 302 1,808,663 in capital

Balance as at the 280,529 408,078 44,144 73,934 6,833,325 -27,273 1,742 7,614,479 end of year

Financial Statements 71 MOTOR SICH

Consolidation principles. A subsidiary is an undertaking more than 50% of which voting rights (shares) belong directly or indirectly to the Group, or the Group has other oppportunity to control its financial or operating policy, and obtain economic benefits from that. Subsidiaries are consolidated from the date when the Group gets actual control over them (date of purchase). Consolidation terminates after the loss of control over these undertakings. Excess of acquisition cost over fair cost of the Group’s share in the acquired identified net assets is represented as goodwill. If acquisition cost is less than fair cost of net assets of the acquired subsidiary, then corresponding difference is represented directly in the comprehensive income statement. Balance of the debt which has originated as a result of intragroup transactions is excluded in the course of consolidation. Incomes and expenses of intragroup transactions, as well as unrealized profits and unrealized losses, which can be reimbursed, will be excluded during preparation of consolidated financial statements for 2013. Comparative information for 2012 will be adjusted as well. Essential items of financial statements of the subsidiaries which, during preparation of financial statements for 2012, applied accounting policy different from accounting policy of the Group, were adjusted according to accounting policy of the Group. Minority share of subsidiaries in net assets of these enterprises shall be represented as a separate component of the Group’s equity. Translation of foreign currency. Items represented in financial statements of separate enterprises of the Group are evaluated in corresponding functional currency by each enterprise of the Group. Amounts represented in consolidated financial statements are evaluated in national currency of Ukraine, hryvnya, which is a functional currency and representing currency for the Group. Foreign currency transactions are represented by exchange rate of the National Bank of Ukraine (NBU), established at the date of the transaction. Exchange differences arising as a result of foreign currency transaction shall be included in consolidated statement of comprehensive income based on the exchange rate effective at the date of the transaction. Monetary assets and foreign currency liabilities shall be translated in hryvnyas by official rate of the NBU as at the accounting date. Profits or losses arising as a result of translation of assets and liabilities shall be represented in consolidated statement of comprehensive income. Main aspects of accounting policy of Motor Sich JSC The present accounting policy (further referred to as “accounting policy”) describes accounting basis, standards, rules and procedures applied during accounting and financial reporting by all structural units of Motor Sich JSC, as well as its affiliated companies. Accounting policy determines principles of admission and assessment of accounting entities, definition and description of separate items of financial statements of the enterprise, as well as consolidated financial statements of the group of affiliated companies (further referred to as “Group”). Management of the Group determines and adopts the policy so that financial statements represented information: - relevant for decision-making by customers; - fairly representing financial position and performance of the Group (or the enterprise); - reflecting economic sense of events and transactions, and not just their legal form.

72 ANNUAL REPORT 2012

The purpose of financial statements is to provide such information on the Group and the enterprise financial position, performance and cash flows that would be useful for making economic decisions by customers. Application field of accounting policy: The accounting policy is developed for accounting and reporting according to the National Accounting Standards (Regulations), the International Accounting Standards/International Financial Reporting Standards, as well as for tax reporting based on accounting data. Accounting is performed based on the unified chart of accounts approved by Chief Accountant according to Order of the Ministry of Finance of Ukraine No. 291, dated 30.11.1999. Financial reporting under IFRS is drawn up based on information about assets, liabilities, equity, accounting transactions and statements of the enterprise performance according to accounting data by conversion of items according to the International Financial Reporting Standards. The enterprise uses accounting data for accounting according to tax laws of Ukraine. The present accounting policy is obligatory for application by all persons involved in formation of the enterprise assets and liabilities, performance of transactions influencing the enterprise financial state. Учетные аспекты: The first financial statement of the enterprise based on the International Financial Reporting Standards is drawn up for 2013. Representation and disclosure of information complies with IAS1. Comparative information is represented concerning one previous period – 2012. Notes describe basic corrections of items and their evaluation required for conformity with the International Financial Reporting Standards. Financial reporting elements recognition criteria: Assets is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected by the enterprise. Liability is an obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise resources embodying economic benefits. Equity is the residual interest in the enterprise assets after deducting all its liabilities. Income is an increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants (shareholders). The elements of financial statements are subject to recognition if they meet the above-mentioned definitions, if it is probable that any future economic benefit associated with them will flow to or from the enterprise; and if the item's cost or value can be measured with reliability.

Financial Statements 73 MOTOR SICH

Notes to Financial Statements

CAPITAL ASSETS Fixed assets Cost value of fixed assets is subject to recognition as asset only if: n there is a probability that the enterprise will obtain future economic benefit related to the item; n the item's cost value can be measured with reliability. The item of fixed assets which can be recognised as asset is subject to evaluation according to the cost value. All items of fixed assets, which are acquired, obtained or produced by own means, but are not put into operation, are reflected in the accounts of capital construction and fixed assets acquisition (manufacturing). After actual putting into operation, items or their components which are parts of the starting complex are transferred to the corresponding fixed assets accounts. Before putting into operation, items (components) are recognised as qualifying assets provided that the period of their creation exceeds 365 days. In that case, the fixed assets cost value includes financial expenses connected with creation of such qualifying assets according to the National Accounting Standards (Regulations)/the International Financial Reporting Standards. Items of fixed assets which were acquired (built) for the purpose of sale are classified as the goods for resale and are accounted as per section “Inventories” of the Accounting Policy. Subsequent expenses which are referring to the item of fixed assets that is recognised already, increase its balance cost if it is supposed acquisition of the future economic benefits exceeding originally calculated standard parametres of the existing item of fixed assets. Amortisation of fixed assets Amortisation of fixed assets is calculated by straight-line method according to the useful life determined by technicians of the enterprise. Liquidation value of fixed assets is equal to zero for calculation of amortisation. Depreciation of the acquired asset is started from the next month after putting the asset into operation. The land is not depreciated. The capital assets of little value which are used for the needs of items of social sphere are depreciated 100 % at the moment of their putting into operation. The capital assets of little value which are used for the needs of primary production are depreciated by production method. The other capital assets of little value are depreciated 50 % when they are put into operation and 50 % when they are written-off from balance. The enterprise stops recognition of the balance value of fixed assets: n after retirement of the asset; n when no future economic benefits are expected from its operation or retirement.

74 ANNUAL REPORT 2012

STRUCTURE AND FLOW OF FIXED ASSETS (thous. UAH)

Buildings, structures, Machinery and Transport Other fixed Item Total transmitting equipment vehicles assets equipment Cost

Balance as of 31.12.11 1,881,778 1,531,619 177,458 874,949 4,465,804

Received per year 263,905 502,769 52,158 189,481 1,008,313

Increases in value 3,704 2,107 83 101 5,995

Retired per year 75,611 19,377 463 20,647 116,098

Balance as of 31.12.12 2,073,776 2,017,118 229,236 1,043,884 5,364,014

Depreciation

Balance as of 31.12.11 110,238 325,494 70,468 408,540 914,740

Accrued per year 86,221 188,269 16,762 92,266 383,518

Increases in value 32 782 20 15 849

Retired per year 12,245 16,719 346 20,043 49,353

Balance as of 31.12.12 184,246 497,826 86,904 480,778 1,249,754

Net book value 1,771,540 1,206,125 106,990 466,409 3,551,064 as of 31.12.11 Net book value 1,889,530 1,519,292 142,332 563,106 4,114,260 as of 31.12.12

As of December 31, 2012: n amount of fixed assets with respect to which exist limitations stipulated by effective legislation regarding the right of ownership is 88,127 thous. UAH; n cost of fixed assets issued as mortgage is 896,163 thous. UAH; n residual cost of fixed assets which are temporarily not in use is 94,380 thous. UAH; n historical (revaluated) cost of fully depreciated fixed assets is 166,010 thous. UAH; n cost of vendible fixed assets is 75,116 thous. UAH; n cost of fixed assets received under operational lease conditions is 161,567 thous. UAH; n depreciation of fixed assets with respect to which exist limitations regarding the right of ownership is 285,028 thous. UAH.

Financial Statements 75 MOTOR SICH

INTANGIBLE ASSETS

The following groups of intangible assets are specified for financial reporting: n Rights; n Trademarks; n Production licences; n Software and software licences; n Other intangible assets. Item can be recognised as an intangible asset, if such item meets: n definition of intangible asset; n the following recognition criteria: - there is a probability that the enterprise will obtain the future economic benefits related to the asset; - the asset’s cost value can be measured with reliability. An intangible asset should be evaluated initially at the cost value of acquisition. All intangible assets that are acquired, obtained or created, but are not put into operation, shall be reflected at the account of capital investments into acquisition (creation) of intangible assets. After the beginning of their actual use, intangible assets are reflected at the account of intangible assets. The cost of intangible assets created by the enterprise includes all expenses for creation, production and preparation of an asset for usage for its intended purpose. Amortisation of intangible assets is calculated by straight-line method during their useful life. Liquidation value of the intangible assets with restricted useful life is assumed as equal to zero. INVESTMENTS

The Group possesses corporate rights in other enterprises. For the purpose of financial reporting, investment are classified as follows: n trade investments; n investments withheld until settlement; n investments in associated companies; n investments in subsidiary companies. Trade investments are accounted by fair value with reference of its changes to profit or loss of the corresponding reporting period. Investments withheld until settlement and investments with fixed settlement term are accounted by depreciated cost value. Investments which do not have fixed settlement term are accounted by their cost value. Investments in associated companies (the investor has significant influence, but does not control from 20 to 50 % of shares) are accounted by equity method. Results, assets and obligations of associated companies are included in financial statements according to individual share. Balance value of such investments is decreased when it is recognised reduction of benefit during evaluation of separate investments. Investments into subsidiary companies (the investor controls more than 50 % of shares) are completely consolidated.

76 ANNUAL REPORT 2012

FINANCIAL INVESTMENTS (thous. UAH)

At the end of year Item Per year long-term short-term Financial investments by method of shareholding in: Associated enterprises 23,940 286,092 Other financial investments in: shares and interests in statutory capital 676 of other enterprises shares 631,029 873 651,276 bonds 11,910 5,954 other financial investments 610 Total 654,969 299,551 657,840

INVENTORIES

Inventories are classified by the following groups: n Basic raw materials, materials, fuel and power stocks; n Auxiliary raw materials, materials and other stocks; n Work in progress; n Spare parts; n Construction materials; n Finished products, semifinished products and the goods for resale. Recognition of inventories n Inventories are reconized by the enterprise if they belong to it and: - there is a high probability to obtain the future economic profit from their usage; - their cost can be evaluated with reliability. Transfer of risks and profits connected with possession of inventories is the basis for inventory items inclusion (writing-off) in/from inventories. The cost value of inventories includes all expenses for acquisition, processing and other expenses incurred to deliv- er inventories to their current location and state. Method of inventories evaluation during retirement. The enterprise uses the following evaluation methods during retirement of inventories: n Method of weighted average cost; n Method of identified cost. At use of the weighted average method, the cost of each item is determined as the weighted average of the cost of similar interchangeable items at the beginning of the period and the cost of similar items purchased or produced during the period. Method of identified cost provides writing inventories down at the real cost of each unit determined according to the item of Accounting Policy. This method is used for evaluation of the retirement of inventories in case of transactions with accessories, assembly units and parts with nameplate data.

Financial Statements 77 MOTOR SICH

BALANCE VALUE OF INVENTORIES (thous. UAH)

Balance value as of Balance value as of Item 31.12.2011 31.12.2012

Production stocks 974,952 1,394,635

Animals raising and fattening 338 319

Work in progress 2,165,730 3,020,259

Finished products 221,968 185,632

Goods 5,291 6,882

Total 3,368,279 4,607,727

As of December 31, 2012, balance value of inventories is as follows: n delivered for processing – 106 564 thous. UAH; n registered as mortgage – 256 059 thous. UAH; n presented as commission – 107 thous. UAH. DEBIT INDEBTEDNESS. Debit indebtedness are the contractual demands shown to buyers and other persons on reception of money resources, the goods or services. For the purpose of financial reporting, debit indebtedness is classified as current (obtainment is expected within current year or operational cycle) or as long-term (debit indebtedness which can- not be classified as current one). Debit indebtedness is classified as commercial debit indebtedness (originating for the goods and services sold during usual economic activities) and uncommercial (other) debit indebtedness. Initial recognition of debit indebtedness is performed at fair value of the transferred assets. Short-term debit indebtedness is evaluated and reflected at net realisable value in financial reporting. The enterprise accumulates doubtful debts for reflection of doubtful debit indebtedness. Reserve of doubtful debts is accrued based on financial solvency of separate debtors. Debit indebtedness is referred to the doubtful debt according to the following criteria: n limitation period of indebtedness expires earlier, than in 12 months from accounting date; n the debtor is absent at the address specified in documents; n the debtor is declared a bankrupt.

78 ANNUAL REPORT 2012

STRUCTURE OF COMMERCIAL AND OTHER DEBIT INDEBTEDNESS (thous. UAH)

Item As of 31.12.2011 As of 31.12.2012

Debit indebtedness for products, works and services:

net realisable value 412,875 427,563

Debit indebtedness under settlement:

- of budgetary payments 353,908 315,897

- of advances granted 720,169 705,659

Other current debit indebtedness 188,787 196,167

Long-term debit indebtedness 13,246 15,403

Total 1,688,985 1,660,689

MONETARY ASSETS AND THEIR EQUIVALENTS Monetary assets of the Group include cash in banks, cash on hand, monetary instruments and equivalents of monetary assets which are not restricted in use. At the initial recognition, foreign currency transactions are reflected by translation of the amount in foreign currency into the balance-sheet currency at the rate of the National Bank of Ukraine as at the date of transaction. The amounts of paid and received advance payments in the foreign currency are translated into the reporting currency with the use of the currency rate as at the date of payment or receipt of advance payment. Exchange rate differences as per the foreign currency monetary items are determined as at the Balance Sheet date. Exchange rate differences from translation of the Balance Sheet items denominated in the foreign currency are reflected in other operating income and expenses.

Financial Statements 79 MOTOR SICH

MONETARY ASSETS (thous. UAH)

Item As of 31.12.2011 As of 31.12.2012

Cash account 349 204

Current accounts in banks 201,480 183,215

Other accounts in banks (letters of credit, cheque-books) 48,401 25,296

Monetary assets in transit 97

Equivalents of monetary assets 97,646 9,418

Total 347,876 218,230

LEASE Lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership, and meets one of recognition criteria stipulated by IAS 17 "Lease". All other leases are classified as operating leases. Assets held for financial lease are recognized as the enterprise assets at the fair value or the discounted cost of the minimum lease payments at the date of receipt. Corresponding indebtedness should be included in the Balance Sheet as obligations on financial lease with separation into long-term and short-term indebtedness.

80 ANNUAL REPORT 2012

PROVISION OF FUTURE EXPENSES AND PAYMENTS Provisions are recognised, if the enterprise has legal or actual liabilities as a result of certain event in the past, for settlement of which, with the greater degree of probability, outflow of resources will be required, and which can be estimated with sufficient reliability.

PROVISION OF FUTURE EXPENSES AND PAYMENTS (thous. UAH)

Item As of 31.12.2011 As of 31.12.2012

Provision of vacation allowances 8,409 9,803

Provision of future payments 264,138 286,177 for additional pension coverage Provision of future payments 75,634 70,361 for implementation of guarantees

Target financing 529,733 703,783

Total 877,914 1,070,124

The Group recognises provision of vacation allowances as a reserve that is formed monthly based on the salary fund and estimated rating. Rating is calculated based on data of previous reporting periods taking into account adjustment for reporting period data. Provision of future payments for implementation of guarantees is also calculated based on data of previous reporting periods. The Group participates in the state pension plan with determined payments that provides for early retirement of employees working in harmful and dangerous labour conditions. Obligation reflected in consolidated financial statements as regard to the pension plan with determined payments shall be determined based on actuary’s report. “Target financing” item contains funds in the amount of 682,411 thous. UAH that were released as a result of income tax allowance for aircraft-building enterprises, got out of basic activity, as well as out of the enterprise research and development works used for the needs of aircraft-building industry.

Financial Statements 81 MOTOR SICH

USAGE OF STATE SUBSIDIES (thous. UAH)

Item Year 2011 Year 2012

Repayment of bank credits received for purchase of equipment for technical reequipment of production 27,613 28,444 facilities and modernisation of the enterprise.

Payment of interest on credits received for purchase 1,894 4,086 of fixed assets.

Payment of expenses for research 6,092 35,608 and development works.

Payment of expenses connected with increase 140,099 480,897 of production output.

Payment for equipment and works connected with technical reequipment and modernisation 115,114 265,405 of production facilities.

Total 290,812 814,440

EMPLOYEE BENEFITS All employee benefits are accounted as current ones according to IAS 19. The Group shall pay obligatory payments to the State Pension Fund and the Social Insurance Fund for its employees in the amount stipulated by Laws. Contribution is calculated as percentage of the current gross amount of salaries, and is included in expenses during recognition of corresponding liabilities for payment of the contribution.

82 ANNUAL REPORT 2012

PROFIT TAX EXPENSES

Profit tax expenses are measured and accounted in financial statements of the enterprise according to IAS 12.

Profit tax expenses reflected in the Statement of financial performance consist of the amounts of current profit tax and deferred profit tax.

Current profit tax is determined based on taxable profit for the reporting period calculated as per the tax laws of Ukraine.

Deferred tax is recognised in the amount expected to be paid or recovered due to the difference between the Balance Sheet assets and liabilities that are specified in financial statements, and corresponding tax bases of assets and liabilities. Deferred ptofit taxes are calculated based on temporary differences with application of the balance sheet liability method.

Deferred tax assets and liabilities are calculated based on tax rates expected to be applicable in the period when assets are sold or recovered based on the tax rates acting at the reporting date, or about introduction of which in the nearest future it was known reliably at the reporting date.

PROFIT TAX (thous. UAH)

Item Amount

Current profit tax 735,916

Deferred tax liabilities As at the beginning of reporting year 199,186 As at the end of reporting year 108,263 Included in Statement of Financial Performance - Total Including: 644,993 current profit tax 735,916 reduction of deferred tax liabilities -90,923

Financial Statements 83 MOTOR SICH

RECOGNITION OF LOANS AND OBTAINED CREDITS All long-term and short-term loans are recognised in the reporting period in which they were obtained. Expenses on loans are recognised by accrual method – i.e. in the period in which they arised based on contract conditions. Expenses on loans which are directly connected with acquisition, construction or production of qualifying assets are capitalised as a part of such assets if the assets recognition criteria are met. Other expenses on loans are recognised as expenses of the period in which they arised. LIABILITIES

Liabilities are accounted and recognised by the enterprise according to IAS 37.

Liabilities of the Group are classified as long-term ones (term of repayment is over 12 months) and current ones (term of repayment is up to 12 months).

Long-term liabilities (except for deferred income taxes) are accounted depending on their type or either at amor- tised cost or discounted cost.

Current credit indebtedness is accounted and reflected in the Balance Sheet at initial cost which is equal to fair value of obtained assets or services.

LONG-TERM LIABILITIES (thous. UAH)

Long-Term Liabilities As of 31.12.2011 As of 31.12.2012

Long-term bank loans 72,721 44,596

Deferred tax liabilities 199,186 108,263

Other long-term liabilities 25,908 27,141

Total 297,815 180,000

The Group transfers part of long-term liabilities into short-term liabilities, when it remains less than 365 days as of the Balance Sheet date until the return of debt portion under conditions of contract.

84 ANNUAL REPORT 2012

COMMERCIAL AND OTHER CREDIT INDEBTEDNESS (thous. UAH)

Item As of 31.12.2011 As of 31.12.2012

Issued bills 3,829 4,829

Credit indebtedness for goods, works and services 125,999 196,330

Current obligations under settlement:

- of advances received 1,841,895 1,670,594

- of budgetary payments 25,589 11,178

- of insurance 26,846 32,731

- of salary 45,942 56,329

- with participants 10,044 34,465

Other current liabilities 35,937 92,993

Total: 2,116,081 2,099,449

OWNER'S EQUITY Statutory capital includes cost of property which was obtained by the enterprise as a result of privatisation. By the end of 2012, the registered statutory capital of Motor Sich JSC is 280,528,650 thous. UAH. It consists of 2 077 990 ordinary registered shares with nominal value of 135 UAH. Motor Sich JSC accrues dividends on shares and recognises them as liabilities at the reporting date only if they are declared before and including the reporting date. Accumulated profit is distributed according to procedure established by the Meeting of Shareholders.

Financial Statements 85 MOTOR SICH

RECOGNITION OF INCOME AND EXPENSES Income of the enterprise is recognised on the accrual basis when it is probable that economic benefits will increase as a result of transaction, and when the revenue can be measured reliably. Income arising from the sale of goods is recognised when the seller has actually transferred to the buyer significant risks, benefits and control over assets (the goods are shipped and ownership is transferred), and when all recognition criteria of the income have been satisfied according to IAS 18. When the enterprise renders services and performs works under the contract during agreed time, revenue is recognised in the accounting period in which the services are rendered, and is calculated based on total value of the contract or the completed stage. Acceptance Report signed by the both Parties is a documentary evidence that the customer has accepted results of performed works and rendered services. Interest income is recognised in the period which it refers to on the accrual basis. Dividend income is recognised when the shareholder's right to receive payment is established.

SALE INCOME (thous. UAH)

Item Year 2012

Net income from selling products (goods, works, services)

- from production and repairing of aircraft engines 6,437,445 - from production and repairing of ground equipment 435,714 - from production of consumer goods 98,285 - other goods, works, services 956,932 Total sale income 7,928,376

COST OF SALES (thous. UAH)

Item Year 2012

Material costs 2,110,342 Personnel expenses 1,315,594 Depreciation of fixed assets 291,114 Other 933,332 Total cost of sales 4,650,382

86 ANNUAL REPORT 2012

ADMINISTRATION EXPENSES (thous. UAH)

Item Year 2012

Personnel expenses: 210,526 - including salary, social costs 181,192 - business travel expenses 15,547 Maintenance cost of fixed assets 46,569 Depreciation of fixed assets 21,558 Labour safety expenses 3,723 Training expenses 15,262 Fire-fighting and security expenses 22,595 Typographic and postal-telegraph expenses 4,925 Other 241,321 Total administration expenses 566,479

SELLING EXPENSES (thous. UAH)

Item Year 2012

Transportation, insurance expenses 82,316 Personnel expenses: 9,678 - including salary, social costs 4,959 - business travel expenses 4,719 Warranty service and repair 60,663 Marketing and advertising 46,137 Other 200,704 Total selling expenses 399,498

Financial Statements 87 MOTOR SICH

OTHER INCOME AND EXPENSES (thous. UAH)

Item Income Expenses Other operating income and expenses Selling of foreign currency 4,335,795 4,300,293 Expenses for research and development 4,300,293 Operating lease of assets 8,439 331 Operating difference in rates 40,906 27,765 Selling of other circulating assets 165,856 80,176 Penalties, fines and forfeits 531 5,708

Maintenance of housing-and-utilities, 4,362 4,362 social-and-cultural facilities

Other operating income and expenses 736,518 715,666 Total 5,292,407 5,321,059 Incomes from shareholding and investment in: Associated enterprises 24,367 7,392 Other financial income and expenses Dividends 155 Interest on credit 49,743 Other financial income and expenses 21,894 Total 21,894 49,743 Other income and expenses Sale of financial investments 7,868 11,309 Non-operating difference in rates 9,848 12,176 Donated assets 33 Debiting of capital assets 1,521 Other income and expenses 9,760 21,626 Total 27,509 46,632

Structure of income with respect to ordinary types of activity has not changed since the previous reporting period. Income from the ordinary types of activity, the same as in the previous period, for 90% consists of income from production and overhaul of aircraft engines, and ground equipment. Income from selling consumer goods is negligible. The highest figures in items “Other operating income and expenses” belong to the income and expenses related to selling of foreign currency and other negotiable assets, as well as maintenance of social sphere facilities. Absolute values of income/expenses have increased significantly in comparison with the previous year.