annual report 2010 - russian helicopters

market Leader GLobaL PLayer annuaL rePort and accounts 2010

russIan

HeLIcoPters An

nuA

l report An

d Accounts 2010

1%

MI-8/17 MILITARY MI-28 OTHERMI-8/17 CIVIL MI-24/35 KA-52

ASIA EUROPE OTHERRUSSIA & CIS LATIN AMERICA AFRICA

0 10 20 30 40 50 60 70 80 90 100

0 10 20 30 40 50 60 70 80 90 100

2010 market sHareIn russIa / cIs(1)

86.5%

13.5%

86.8%

13.2%

51%

51% 22% 8% 5% 5% 10%

3% 4%

27% 15%

totaL:

$1.5bn

2010 GLobaL marketsHare In VaLue(1,2)

86.5%

13.5%

86.8%

13.2%

totaL:

$18.9bn

2010 saLes by GeoGraPHy(3)

2010 saLes by tyPe(3)

Source: Frost & Sullivan company data(1) Defined by value(2) Company estimates(3) Excluding Rostvertol’s revenues

2010 key Facts & FIGuresrussIan HeLIcoPters Is a LeadInG PLayer In tHe GLobaL HeLIcoPter Industry, tHe soLe russIan desIGner and manuFacturer oF HeLIcoPters and one oF tHe Few comPanIes worLdwIde wItH tHe caPabILIty to desIGn, manuFacture, serVIce and test modern cIVILIan and mILItary HeLIcoPtersour market sHare Russian Helicopters has over 8,500 helicopters registered globally in more than 100 countries around the world, representing 13% of the worldwide installed helicopter fleet. The Group is the leading helicopter manufacturer in Russia and the CIS with more than 85% market share, and one of the leading manufacturers in key emerging markets such as China and India. Russian Helicopters is also actively expanding its presence in Brazil. In 2010, Russian Helicopters was the third largest player in the world in terms of sales of helicopters. The Group has traditionally been the world’s leading producer of multi-role, attack, medium-lift and ultra-heavy lift helicopters.

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 01introductioncompany overviewmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

TOTAL REVENUES & SALES IN UNITS(1) m roubles

20,000 40,000 60,000 80,000 100,000

09

10

08

0

RUSSIA, CIS AND EXPORT REVENUES ROSTVERTOL DELIVERIES

RUSSIA, CIS AND EXPORT REVENUES ROSTVERTOL

47,305

67,202 14,105

31,698

81,307

169

183

214

ADJUSTED EBITDA(1)

m roubles

5,000 10,000

11,781 1,851 13,632

9,260

3,118

15,000

09

10

08

0

ADJUSTED EBITDA MARGINS%

10% 20%

17

20

10

25%15%5%

09

10

08

0

contEntS

Introduction 002010 – Key Facts and Figures 00Financial Highlights 01Key Operational Highlights 02Chief Executive Officer’s Statement 03Strategy Overview 06Industry Overview 10Company Overview 18The History of Russian Helicopters 18Russian Helicopters Today 20– Creation of Russian Helicopters 20– Key Assets 21– Our Portfolio 22– Our Markets 24Management Discussion and Analysis 26Corporate Governance 28Financial Statements 31Statement of Management’s Responsibilities 31Independent Auditor’s Report 32Consolidated IFRS Financial Statements 33Notes to Financial Statements 37Additional Information 88Ownership Structure 88Contact Information 89

financial HigHligHtS

(1) 2010 figures used in the report are proforma, including the consolidated audited IFRs numbers for “Russian Helicopters Jsc” in addition to Rostvertol, and excluding intragroup transactions.

Also available on the Company’s website www.rus-helicopters.ruRAS Financial Statements of Russian Helicopters >Independent Auditor’s Report on RAS Financial Statements >Revision Commission’s Report >Other mandatory disclosure >

Russian HelicopteRs AnnuAl RepoRt And Accounts 201002

KEy opErational HigHligHtS: conSolidatEd controlling StaKES in all HElicoptEr manufacturErS in ruSSia

Mi-38, the new civil MediuM-class passenger/transport ➔helicopter, successfully coMpleted its first test flight

new service centre for russian civilian helicopters was opened ➔in india, further service centres planned for china and other key Markets

presented light Multi-purpose helicopter ansat to african ➔Market

Brazilian coMpany petroBas selected russia’s Mi-171a1 ➔Multi-purpose helicopter in tender

signed new contract to supply ka-32a11Bc Multi-purpose ➔helicopters to Brazil’s helipark taxi aereo

signed contract to supply ka-32a11Bc helicopters to india; ➔helicopter launched in india with 2009 european aviation safety agency (easa) certificate

russia’s light Multi-purpose helicopter ka-226t successfully ➔passed initial tests in indian tender to supply 197 helicopters

agreed joint venture with agustawestland to asseMBle the ➔aw139 in toMilino outside of Moscow

signed contract with french coMpany turBoMeca to provide ➔308 ardiden 3g engines to russia’s ka-62 helicopters

reached cooperation agreeMent with veB leasing to provide ➔leasing services to coMpanies in latin aMerica seeking to purchase new russian civilian helicopters


2010 was a successful year for Russian Helicopters operationally and financially. We delivered 214 helicopters during the year, and over the past two years we managed to double our revenue, reaching a record 81.307 billion roubles in 2010, with an EBITDA of 13.6 billion roubles, and an EBITDA margin of 17%(1)

one of the most important contributors to our strong performance was the successful completion of the consolidation of the Russian helicopter industry, which was undoubtedly the main highlight of 2010 for our company and the sector as a whole. In addition we saw strong growth in key export markets such as china and India, where demand for our helicopters remains high. And the continued replacement of the existing helicopter fleet in Russia and the cIs was also a key driver.

But our success in 2010 came as no surprise to us. For the past several years, Russian Helicopters has been one of the most profitable and fastest growing helicopter manufacturers in the world, and we believe this profitable growth will continue. We have consolidated our positions in most of the world’s fastest growing markets, we have designed and produced helicopters which no other manufacturer in the world has managed to replicate, and we see potential to derive further value and synergies from the consolidation of the Russian helicopter industry.

In order to increase profitability further, we are working to modernise our production process and to increase our efficiency, using new state-of-the-art technology. We have established a unified pricing policy and have managed to eliminate redundancies within the Group post-consolidation. We hope that in 2011, the merger of the two world-renown Mil and Kamov design bureaus will create new opportunities in R&d, a priority direction for us and an area where we continue to invest.

continued, strong governmental support has helped us to expand further and mordernise our product portfolio, enabling us to continue to meet the needs of our customers around the world. In 2010 we focused our efforts on the Mi-38, Ka-226t, Mi-34c1 and Ka-62, and we are proud with what we were able to achieve with all of these models. the Ka-226t light multi-use helicopter was successful in its initial testing in India. the Mi-38 completed its first test flight. the Ka-62, our new medium multi-use helicopter, is currently in the final stages of design. And we believe the Mi-34c1, our ultra-light helicopter which can also be used for training, will become a popular model in private aviation, and should carry out its first public flight in the middle of 2011.

We are confident that we will continue to strengthen our position in our priority home markets in Russia and the cIs, while also maintaining and strengthening our positions in key high-growth markets such as china, India, latin America as well as the Middle east and Africa, and we also see further potential in developed european markets.

We continue to pursue international partnerships that can contribute to our growth. In 2010 we opened an assembly plant in tomilino outside of Moscow, where we expect to produce up to 15 AW139 helicopters per year with our partner AgustaWestland. Another strategic priority for us is after-sales service. today there are more than 8,500 registered Russian helicopters around the world, and we see substantial opportunity to develop our after-sales service network. this year we opened a new service centre in India, and we plan to open new service centres in other priority markets such as china, latin America and the Middle east, in addition to certifying third-party service centres.

of course none of these future opportunities would be possible without the many exceptional people that have worked for us throughout our long and successful history. I believe we have working for us today some of the very best and most talented people in the global helicopter industry, many of whom have spent their entire careers in this industry. Key to our continued success will be to create an effective system of motivation and development to ensure that we continue to attract and retain talented and dedicated people. And moreover, we need to provide for the transfer of experience and knowledge for the next generation of Russian Helicopters professionals – the people who will steer Russian Helicopters forward for many years to come.

Dmitry Petrovchief executive officer

cHiEf ExEcutivE officEr’S StatEmEnt

(1) 2010 figures used in the report are proforma, including the consolidated audited IFRs numbers for “Russian Helicopters Jsc” in addition to Rostvertol, and excluding intragroup transactions.


StratEgyour

a World lEadErOur strategy is focused on growing our market share both in Russia and globally, building on our research, design and development potential, raising our operational efficiency and developing new business areas as additional sources of revenue

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010introductioncompany overviewmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

05


ruSSian HElicoptErS intEndS to rEtain itS lEading poSition in tHE ruSSian HElicoptEr induStry and continuE to StrEngtHEn itS poSitionS in tHE global HElicoptEr marKEt. in ordEr to acHiEvE tHESE aimS and raiSE tHE valuE of tHE group for tHE bEnEfit of our SHarEHoldErS, WE HavE dEvElopEd tHE folloWing StratEgy

StratEgy

ovErviEW

objective tasks acHievementsIncrease Russian Helicopters’ market share both in Russia and globally

take advantage of the rapidly developing Russian market through major contracts with the Ministry of defense and by meeting the rising demand of customers in the civilian sector

Bolster presence in fast-growing international markets

double total sales by 2020, with unit sales reaching 400–450

the Group has been working closely with the Ministry of defense to satisfy state procurement needs (the Mod is expected to purchase more than 1,000 helicopters over the next ten years)

the Group regularly and successfully participates in international tenders (the Mi-171A1 recently won a tender by Brazilian oil major petrobras; Mi and Ka class helicopters are currently participating in significant tenders in India)

Ensure the Group’s sustainable development

Build further on research, design and development capability of Russian Helicopters:

> extensive upgrade of existing helicopter models> development of new helicopter models in our

current key segments> product portfolio diversification – development of

new helicopters in light and heavy segment

establish partnerships with other producers to expand current portfolio

Industrial production is in the works for the Mi-38, medium multi-use Ka-62, light Mi-34c1 and light multi-use Ka-226t helicopters

Modernization of the Mi-171A2 and Mi-26t2 helicopters is underway

Agreement to assemble the AW139 helicopter in Russia through JV with AgustaWestland


HElicoptErS 1,000ruSSian govErnmEnt planS to purcHaSE ovEr

objective tasks acHievementsIncrease operational efficiency

create an effective production platform through extensive modernization, including upgrading existing equipment and improving information and production management systems, as well as technical engineering facilities

the world-renowned Mil and Kamov design bureaus have been merged to create a unified research, design and development centre

lean manufacturing technologies are being implemented, with pilot projects underway at the Mil Moscow Helicopter plant and Kazan Helicopter plant, as well as at the components manufacturer Reductor-pM

Adoption of a unified project management system for the entire Group

Develop additional business areas that can serve as further sources of revenue

create a global system of after-sales service and logistics:

> launch pilot service centres in key markets (including India, china, latin America and Middle east)

> certify and modernize third-party service centres > Agree with third-party service centres to increase

supply of parts directly from Russian Helicopters

service centre opened in India for Russian-made civilian helicopters

service centres will be opened in china and u.A.e. for Russian-made helicopters, and a service centre will be opened in Brazil for the Mi-171A1 and medium multi-use Ka-32A11Bc helicopters


marKEtSour

a lEading poSition in HigH-groWtH marKEtSRussian Helicopters is the third largest producer in the global helicopter industry with a strong position in some of the world’s fastest growing markets including Russia, China, India and Brazil

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010introductioncompany overviewmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

09


approximately 150 companies are engaged in the production oF helicopter equipment worldwide. however, 85% oF all production comes From the six largest companies: russian helicopters, Bell helicopter, sikorsky, eurocopter, Boeing and agustawestland. Based on 2010 results, russian helicopters is the third largest producer in the world and has particularly strong positions in key emerging markets, including russia and the cis, china and india. russian helicopters is also the recognised world leader in medium-heavy and ultra-heavy helicopters as well as attack helicopters.

compEtitivE EnvironmEnt

induStry

ovErviEW

pRoduceR ligHt inteR- mediate

medium-liFt (civil)

medium-liFt (militaRy)

Heavy-liFt

ultRa- Heavy liFt

attack special puRpose

Russian Helicopters

Ansat,Mi-34c1,Ka-226t

Ka-62 Mi-8/17,Ka-32

Mi-8/17,Ka-29

Mi-38 Mi-26 Ka-52,Mi-28n,Mi-35M

Ka-27,Ka-28,Ka-31

Bell 206l-4,429,407

412 - uH-1Y - - AH-1Z oH-58d

eurocopter ec135, ecureuil,ec120,

ec175 ec225 nH90, ec725 - - tiger ec725

sikorsky dauphins-300,s-333,s-434

s-76c++,s-76d

s-92 uH-60,H-92

- cH-53K - MH-60,s-70

AgustaWestland AW109, AW119, AW149

AW139,AW139M

- - AW101 IcF-47F t129,AH MK1

AW159, AW101

source: companies’ own data


global dEmand outlooK

13.514.6

17.118.6

19.420.3

21.220.6

21.321.7

8.18.6

9.510.8

12.013.2

14.014.8

14.815.2

1,9512,012

2,1972,361

2,4702,5572,5932,584

2,5492,524

MILITARY CIVIL UNITS

2011201220132014201520162017201820192020

$bn units

gEograpHic Evolution of tHE global HElicoptEr marKEt

21%

RUSSIAN HELICOPTERS POTENTIAL MARKET SHARE

69%

15%

33%

SHARE OF ADDRESSABLEMARKET

SHARE OF TARGETMARKET

Total Market2011 - 2020: $309bn

Addressable Market2011 - 2020: $102bn

INSTALLED FLEET SHARE MARKET SHAREm (2011)

EMERGING MARKETS

No 1 in India and China No 1 in India and China

GEOGRAPHICAL EVEOLUTION OF TOTAL HELICOPTER MARKET

AFRICA APAC(¹) RUSSIA & CIS EUROPE NORTH AMERICA LAT-AM MIDDLE EASTTHE PINK AREAS REPRESENT THE MAIN TARGET MARKETS FOR RUSSIAN HELICOPTERS

55% 62%

EMERGING TARGET MARKET SHARE*MOVES FROM 55% TO 62%

2020

Total: $36.9bn

5.3% 4.3%

26.0%

18.2%13.7%

24.5%

7.9%

2011

Total: $21.7bn

4.6% 4.3%

23.5%

14.7%

15.4%

29.4%

8.1%

21%


69%

15%

33%






EMERGING MARKETS




55% 62%


2020

Total: $36.9bn

5.3% 4.3%

26.0%

18.2%13.7%

24.5%

7.9%

2011

Total: $21.7bn

4.6% 4.3%

23.5%

14.7%

15.4%

29.4%

8.1%

2011 2020

55% 62%

EMERGING TARGET MARKET SHAREMOVES FROM 55% TO 62% 21%


69%

15%

33%






EMERGING MARKETS




55% 62%


2020

Total: $36.9bn

5.3% 4.3%

26.0%

18.2%13.7%

24.5%

7.9%

2011

Total: $21.7bn

4.6% 4.3%

23.5%

14.7%

15.4%

29.4%

8.1%

ToTal MarkeT CaGr 2011-2020:

6.1%

helicopter production in russia and throughout the world develops in protracted market cycles lasting upward oF 20 years, and the market is currently entering a new stage oF growth. thanks to Both structural growth and the need to replace existing Fleets, the gloBal helicopter market is growing Faster than gloBal gdp. according to the Forecasts oF Frost&sullivan, the helicopter industry in emerging markets will expand at accelerated rates thanks to rapid economic growth and suBstantial expenditure in the military sector. the cumulative market share oF russia and cis, latin america, the middle east, aFrica and asia-paciFic countries will increase From 55% to 62% By 2020.

(1) Includes Japan, Australia, Afghanistan, India and china

source: Frost & sullivan study


civilian HElicoptErSglobal civil HElicoptEr dEmand

ruSSia and ciS civil HElicoptEr dEmand

$bn

2020201920182017201620152014201320122011 8.1 1,220

8.6 1,2349.5 1,340

10.8 1,4581,55212.0

1,62413.21,64814.0

14.8 1,68514.8 1,651

15.2 1,634

Units

2020201920182017201620152014201320122011 0.6 30

0.7 410.9 57

1.2 661.4 76

1.6 891.8 94

1.9 971.9 93

2.0 98

$bn units

2020201920182017201620152014201320122011

units2.6 334

2.8 3383.0 368

3.4 4064.0 454

4.2 4634.5 477

4.7 4814.8 498

5.2 519

$bn

apac civil HElicoptEr dEmand

VALUE UNITS

induStry

ovErviEW ConTinued

helicopters are widely used By governments, particularly law-enForcement and emergency-response agencies, as well as commercial companies, such as those in the oil and gas sector. in the asia-paciFic region growth is expected to Be driven By the need to provide access to isolated regions with limited automoBile and railway transport potential. development oF the tourism industry in this part oF the world should also support higher demand.

total market cAGR 2011 – 2020 7.2%



source: Frost & sullivan study


military HElicoptErSglobal military HElicoptEr dEmand

ruSSia and ciS military HElicoptEr dEmand

$bn

2020201920182017201620152014201320122011 13.5 730

14.6 77817.1 857

18.6 90291819.4

93220.394521.2

20.621.321.7

899898

890

units

$bn

2020201920182017201620152014201320122011 2.6 112

2.8 1193.0 128

3.2 1321363.4

1433.71473.9

4.14.4

4.7

151156

161

units

2020201920182017201620152014201320122011 2.5 164

2.8 1733.8 203

4.0 2074.2 211

4.4 2144.5 218

4.4 2054.6 206

4.4 200

$bn units

apac military HElicoptEr dEmand

VALUE UNITS VALUE UNITS

helicopters are a critical component in the armed Forces oF many countries around the world. growth in the market For military helicopters should Be driven By more active use oF multiFunctional models For transport and comBat purposes as well as From the replacement oF existing helicopter Fleets, particularly in russia, and the increased use oF helicopters in the asia paciFic on the Back oF general geopolitical instaBility in the region.





source: Frost & sullivan(1) calculated as a sum of annual deliveries in value terms in Russia divided by the sum of global market deliveries

source: Frost & sullivan study(1) calculated as a sum of annual deliveries in value terms in china divided by the

sum of global market deliveries

total marKEt cagr 2011-2020: 8.3% total unitS: 1,644 (67% military / 33% civilian)total valuE: $38.2Bntotal civil: $9.5Bntotal military: $28.7Bn

Higher demand in Russia will be generated by acquisitions stipulated in the state Arms procurement programme (more than 1,000 helicopters by 2020), the planned replacement of an aging fleet, an increase in the use of helicopters for commercial purposes (in particular for oil and gas exploration work) and the transportation needs of otherwise isolated regions. Helicopters are also widely used for major infrastructure projects.

ruSSia total marKEt aS % of global marKEt, 2011-2020(1)

88%

12%

ruSSia dEmand

$bn units

2020201920182017201620152014201320122011 2.10

2.200.43

0.540.66

2.50 0.78

3.30 1.323.60 1.25

3.80 1.32

2.70 0.923.00 1.07

3.10 1.23

112129

143151

163178

187

191191

199

2.40

the chinese market has yet to develop fully its own domestic helicopter industry. Analysts predict substantial growth in demand in this market (10% annually).

cHina total marKEt aS % of global marKEt, 2011-2020(1)

93%

7%

cHinESE HElicoptEr marKEt

ruSSian HElicoptEr marKEt

cHina dEmand

$bn units

2020201920182017201620152014201320122011 0.3

0.50.8

0.80.9

0.9 1.0

1.1 1.31.2 1.4

1.2 1.5

1.0 1.11.0 1.2

1.0 1.2

145152

169181

196199

206209

217225

0.9



total marKEt cagr 2011-2020: 10.0% total unitS: 1,901 (34% military / 66% civil)total valuE: $20.2Bntotal civil: $11.1Bntotal military: $9.1Bn

induStry

ovErviEW ConTinued

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 15

source: Frost & sullivan(1) calculated as a sum of annual deliveries in value terms in India divided by the sum of global market deliveries

source: Frost & sullivan(1) calculated as a sum of annual deliveries in value terms in Brazil divided by the sum of global market deliveries

total marKEt cagr 2011-2020: 5.6% total unitS: 1,921 (26% military / 74% civil)total valuE: $27.6bntotal civil: $13.4bntotal military: $14.2bn

total marKEt cagr 2011-2020: 5.8% total unitS: 1,886 (9% military / 31% civil)total valuE: $13.4Bntotal civil: $11.1Bntotal military: $2.3Bn

demand is projected to increase on average by 6% annually in India thanks to demand for medium and heavy helicopters as well as purchases by India’s military, which needs to replace its existing aging helicopter fleet. At present a number of helicopter tenders are being held in India, and Russian Helicopters is an active participant in these tenders.

india total marKEt aS % of global marKEt, 2011-2020(1)

91%

9%

Brazil is one of the world’s largest markets for civilian helicopters. At present the Brazilian market is dominated by the ultra-light segment, but as the oil and gas industry develops, greater demand is expected for medium and heavy-lift helicopters. development of the Amazon basin also fuels demand for helicopters, as the existing transportation infrastructure is limited due in part to strict environmental regulations.

brazil total marKEt aS % of global marKEt, 2011-2020(1)

96%

4%

brazilian HElicoptEr marKEt

indian HElicoptEr marKEt

$bn units

2020201920182017201620152014201320122011 0.2

0.20.20.80.8

0.20.2 0.90.2 1.0

0.2 1.30.2 1.40.2 1.4

0.3 1.10.3 1.20.3 1.2

151157

172183

190205206

212206

204

india dEmand

brazil dEmand

$bn units

2020201920182017201620152014201320122011 1.0

1.11.0

1.11.3 1.1

1.4 1.2

1.6 1.51.6 1.5

1.7 1.6

1.4 1.41.5 1.41.5 1.5

162162

173185

199200

206206

211218



introductioncompany overviewmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation


buSinESSour

World-rEnoWnEd rESEarcH, dESign, production and SErvicE

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 17introductioncompany ovErviEWmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

Formed in 2007 as the helicopter industry in Russia consolidated, Russian Helicopters has a rich history going back 60 years and brings together leading helicopter design bureaus, manufacturers and service organizations

ruSSian HElicoptErS in currEnt opErating flEEt WorldWidE

8,500ovEr

EmployEES38,500


russian helicopters is the producer oF some oF the world’s most iconic, innovative and widely operated models. in 1961 russian helicopters launched the mi-8, the First in the popular mi-8/17 series, which has Become the most widely operated series in the world. the mi-26, the largest and most powerFul helicopter in the world, made its First Flight in 1977.

ovEr 60 yEarS ExpEriEncEi gEnErationpiston-powered mi-1, mi-4, ka-15

post World War ii

1947 ➔ –establishment of Mil design bureau1948 ➔ –establishment of Kamov design bureauproduction ➔ of piston-powered helicopters Мi-1, Мi-4 and Ка-15 (first helicopter with coaxial rotor system in serial production)launcHing ➔ serial production of helicopters

Kazan plant – 1952 –ulan-ude – 1957 –

ii gEnErationturbo-engine mi-8, mi-6, ka-25

1960s – 1970s

turbo ➔ -enGIne helicopters Мi-6, Мi-8 and Ка-25 (first mass-operated turbo-engine coaxial helicopter)piSton ➔ -powered Ка-26 –multi-purpose civil coaxial helicopter with fiberglass blades, certified in Germany, sweden and polandmaSS ➔ replacement of piston-powered helicopters owned by the army and navy with turbo-engine models

iii gEnErationturbo-engine mi-24, mi-26, ka-32/27

1970s – 1990s

turbo ➔ -engine helicopters of III generation Мi-26, Мi-8МТV, Ка-27/28/29/32mi-26 ➔ –largest ultra-heavy lift helicopter in the worldmi-24/35 ➔ family of transport/attack helicoptersmi-28 and Ka-50 ➔ attack helicopters (first attack helicopter with ejection seats)mi-34 ➔ light multi-purpose helicopter

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 19introductioncompany ovErviEWmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

0

200

400

600

800

1000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

HElicoptEr production

iii+ gEnErationturbo-engine mi-171/172, mi-35m

perestroika and post Soviet union

launcH ➔ of new models compliant with the needs of foreign commercial and military customers:

civil helicopters Мi-171, Ка-32А11ВС, Мi-172 –Attack/transport helicopters Мi-17V-5, Мi-171sH –Attack helicopter Мi-24VМ/35М –Radiolocation patrol helicopter Ка-31 –light helicopters Ка-226, Ansat –

iv gEnErationturbo-engine mi-28n, ka-52, mi-38, ka-62

Helicopter industry consolidation

EStabliSHmEnt ➔ of Jsc Russian Helicopters in 2007 to consolidate Russian helicopter industrygroWtH ➔ of helicopter production (more than doubled from 2006 to 2010)launcH ➔ of the serial production of attack helicopters Mi-28n/ne, Ка-52Start ➔ of the development of the deeply modernised Мi-171A2fligHt ➔ tests of Мi-38, Ка-62, Ка-226ТdEvElopmEnt ➔ of modernised Мi-26Т2prEparation ➔ of serial production of Мi-34С1


ruSSian HElicoptErS

company StructurE

In december 2010, Russian Helicopters completed a key stage in the formation of a unified helicopter production manufacturer by consolidating stakes in all of Russia’s helicopter production enterprises.

the Group consolidated individual enterprises within the industry in order to facilitate the further development of the Russian helicopter industry. the consolidation has allowed for the implementation of a single pricing policy by eliminating internal competition between factories within Russia. It also boosts operational efficiencies through synergies and the elimination of redundancies as well as expansion of the Group’s R&d capacity.

the merger of the Mil and Kamov design bureaus is now in its final stages. Its completion will create a unified, cutting-edge research, design and development centre.

the Group also includes the producers of key helicopter components and systems – stupino Machine production plant (sMpp) and Reductor-pM – which equates to lower sourcing risk and provides optimal pricing on these components for the Group. expense optimization and implementation of lean manufacturing have also helped to keep costs down and to boost productivity. In addition, centralised sales have made it possible to align the Group’s pricing and marketing policy and to provide substantial growth in the total number of helicopter orders and deliveries.

Russian Helicopters is currently moving forward to the next phase of integration. By 2020 the Group plans to increase operational efficiency significantly by reducing each helicopter’s production cycle from the current 9 months to 4-8 months, and also by markedly improving cost management.

mil moscow HelicopteR plant

kamov

kazan HelicopteRs

RostveRtol

ulan-ude aviation plant

pRogRess aRsenyev aviation company

kumeRtau aviation pRoduction enteRpRise

stupino macHine pRoduction plant

ReductoR-pm

HelicopteR seRvice company

novosibiRsk aiRcRaFt RepaiRing plant

ruSSian HElicoptErS today: crEation of ruSSian HElicoptErS tHrougH induStry conSolidation

design Bureaus Assembly components services

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 21introductioncompany ovErvi EWmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

Kamov

HEadquartErSStupino macHinE production plant

mil moScoW HElicoptEr plant

novoSibirSK aircraft rEpairing plant

HElicoptEr SErvicE company

ulan-udE aviation plant

progrESS arSEnyEv aviation company

Kazan HElicoptErS

KumErtau aviation production EntErpriSE

roStvErtol

rEductor-pm

KEy aSSEtSrussian helicopters is made up oF Five helicopter Factories, two design Bureaus, two spare parts companies and an aFter-sales service company that works with clients in russia and around the world. in total, the group employs 38,500 people.

mil moScoW HElicoptEr plantFounded in 1947 >located in the Moscow Region >14 helicopters of the Mi family have been >developed Helicopter design, prototype >construction and flight testing

ulan-udE aviation plantlocated in ulan-ude >production of Mi-8/17 helicopters, >including the Mi-171, Mi-171A1 and Mi-171shthe enterprise includes a helicopter blade >production plant

rEductor-pmlocated in perm >production and after-sales servicing for >providers of helicopter gear boxes and transmissions

KamovFounded in 1948 >located in the Moscow Region >12 helicopters of the Ka family have been >developed, including helicopters with the unique coaxial rotor system Helicopter design, prototype >construction and flight testing

KumErtau aviation production EntErpriSE

located in Kumertau, Republic of >Bashkortostan production of Ka-27/Ka-32 and Ka-226 >helicoptersthe only mass production facility for >helicopters with coaxial rotor systems

HElicoptEr SErvicE companylocated in Moscow >delivery of materials and parts >

Kazan HElicoptErSlocated in the city of Kazan >production of the Mi-8/17 and Ansat >helicopters, preparation underway for production of Mi-38 helicoptersHas recently been involved in developing >experimental helicopter equipmentthe enterprise includes a helicopter blade >production plant

progrESS arSEnyEv aviation company

located in Arsenyev >produces the Ka-52 and is preparing to >produce the Mi-34c1

novoSibirSK aircraft rEpairing plant

located in novosibirsk >Maintenance, repairs and overhaul >of Mi-8 (all models), Mi-17 and Mi-26 helicopters as well as their systems and parts

roStvErtollocated in Rostov-on-don >produces the Mi-26(t), Mi-24/35(M) and >the Mi-28n the enterprise includes a helicopter blade >production plant

Stupino macHinE production plantlocated in stupino, Moscow Region >production and after-sales servicing of >core helicopter systems


ruSSian HElicoptErS today: our portfolio

StatuSnamE catEgory dEScription

> World’s most widely operated helicopter> over 12,000 units delivered to over

100 countries

> new generation all-weather attack helicopter

> light multi-purpose helicopter

> Ka-27 – used primarily in anti-submarine warfare

> Ka-31 – the only mass-produced airborne early warning helicopter on the market

> new modern attack helicopter> serial production launch expected in 2011

SErial production

mEdium-lift

attacK

ultra-HEavy lift

attacK

ligHt

SpEcial purpoSE

attacK

SErial production

SErial production

SErial production

SErial production

SErial production

SErial production

ligHt

> eAsA certified helicoptermEdium-liftSErial

production

> only attack helicopter model which can also be used as a transport helicopter

> ultra-heavy helicopter with the largest useful load in the world of 20 tonnes

anSat

Ka-226 > Highly manoeuvrable utility helicopter with interchangeable mission pod

SErial production

mi-8/17

Ka-32a11bc

mi-26

mi-35m

mi-28n

Ka-52

Ka-27/28/31

Russian Helicopters has gained world renown thanks to it highly functional medium-heavy Mi-8/17 helicopter, which is the most widely used helicopter in its class: more than 12,000 Mi-8/17 helicopters have been delivered to more than 100 countries worldwide. However, the Group has strong positions in other highly profitable segments of the market as well. there is sustained demand for such military helicopters as the Mi-35M, Mi-28n and Ka-52. Russian Helicopters also produces unique rotorcraft with the highest lift capacity in the world. the Mi-26(t) is the technological leader in the ultra-heavy segment and is capable of lifting up to 20 metric tonnes (its maximum takeoff weight is 56 tonnes), more than any other helicopter in the world. Russian Helicopters is also the only manufacturer in the world to have launched the serial production of helicopters with coaxial rotor systems.


0

260

520

780

1040

1300

2017

204

Firm Backlog

351

c.1,300

1.6x

6.1x

CURRENT BACKLOGMultiple of 2010 deliveries (214 units)

“Quasi-Firm” Backlog

(incl. SAP)

bacKlogdespite the global economic crisis, the Group’s deliveries have actually substantially increased over the past three years, with 214 deliveries in 2010. our existing portfolio of orders exceeds the number of deliveries in 2010 by 1.6-fold and totals 351 helicopters (20% civilian and 80% military).

the Group’s portfolio of orders includes ‘soft’ orders stipulated in the state Arms procurement programme for 2011-2020 – more than 1,000 helicopters by the year 2020. Including the state procurement programme, the total portfolio of orders exceeds 1,300, which is 6 times more than the total volume of orders in 2010. It is expected that before the end of 2011 contracts will be signed with the Ministry of defense covering the state’s needs up to 2018-2020.

StatuSnamE catEgory dEScription

> Advanced high-speed helicopter

> Modernized avionics, increased takeoff weight, serial production launch expected in 2013

> Multi-purpose helicopter in the intermediate segment

> serial production launch expected in 2014-2015

> light coaxial multi-purpose helicopter> serial production launch expected in 2011

> projects “Roller” and “Albatros”> launch expected in 2015-2017

ScHEdulEd for SErial production




mEdium-lift

intErmEdiatE

ligHt

ligHt

proSpEctivE

proSpEctivE

unmannEd HElicoptEr

HigH-SpEEd HElicoptEr

introductioncompany ovErviEWmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

> ultra-light helicopter capable to perform aerobatics

> serial production launch expected in 2011

mi-34c1

Ka-226t

Ka-62

mi-171a2

> Advanced avionics> Glass cockpit, reduced crew, increased service

life> serial production launch expected in

2013-2014


ultra HEavy-liftmi-26t2

> new multi-purpose transport helicopter in the heavy-lift segment, serial production launch expected in 2014


HEavy-liftmi-38


ruSSian HElicoptErS today: our marKEtS

marKEt SEgmEnt inStallEd flEEt SHarE

gEog

rapH

yW

EigH

t li

fta

ppli

cati

on

no.1in ruSSia & ciS

no.1in india and cHina

no.1globally

no.1globally

no.1globally

onE of tHE lEading producErS

ruSSia & ciS

EmErging marKEtS

mEdium

ultra HEavy

civilian

attacK

84%

21%

36%

26%

9%

27%

there are three main drivers of growth for Russian Helicopters: 1) replacement of Russia’s civilian fleet as a part of a concerted effort to increase transport accessibility in the country’s most isolated regions, 2) a large scale rearmament programme of the Russian military, and 3) growing demand for our helicopters from emerging markets (in particular, china, India and latin America). At the same time, demand from developed markets is expected to remain stable. the Group has a vast product portfolio, with strong representation in both the military and civilian segments.

By 2020 two-thirds of the demand for helicopters will come from emerging markets, which at present are key export markets for Russian Helicopters. the Group accounts for 21% of the helicopter fleets of India and china. Recent contracts include the delivery of 80 Mi-17V-5 helicopters to India starting in 2011 and the delivery of 32 Mi-171e helicopters to a chinese client (these contracts are currently being fulfilled). Brazil remains one of the top priority potential export markets for Russian Helicopters. At present the company has a contract for 12 Mi-35M helicopters (of which 6 have already been delivered) with the Ministry of defense of Brazil, as well as contracts with private corporations in Brazil for one Ka-32A11Bc and two Mi-171 helicopters.


CIVILMILITARY

SALES REVENUE BREAKDOWN BYAPPLICATION, 2010 CATEGORY 2010

71%

29%

poSitioning advantagESmarKEt SHarE (2011E)(3)

> local manufacturer > supplier of choice to the Mod

> Best value for money > Reputation for unparalleled durability and reliability > significant installed base

> Market leader in terms of cost-performance ratio > Mi-8/17 – most widely operated

helicopter in the history

> Mi-26 – the heaviest-lift helicopter in the world with unmatched weight-lift of 20 tonnes

> Best value for money > Reputation for unparalleled durability and reliability

> Mi-28 / Ka-52 – among the world’s most effective attack helicopters > leading self-defence capabilities> Ability to operate in harsh environments

no.1in ruSSia & ciS

no.1in india and cHina

no.1globally

no.1globally

no.1globally

onE of tHE lEading producErS

introductioncompany ovErviEWmanagement discussion and analysiscorporate governanceFinancial statementsadditional inFormation

AFRICAAPAC

EUROPE LAT/AM

MEDIUM (MILITARY)

LIGHT ULTRA HEAVY SPECIAL-PURPOSE

MEDIUM (CIVIL)ATTACKRUSSIA & CIS

SALES BY CATEGORY 2010(1)SALES BY REGION 2010

4% 3%

51%27%

15%

4% 1%

51%

18%

22%

4%

AFRICAAPAC

EUROPE LAT/AM

MEDIUM (MILITARY)

LIGHT ULTRA HEAVY SPECIAL-PURPOSE

MEDIUM (CIVIL)ATTACKRUSSIA & CIS

SALES BY CATEGORY 2010(1)SALES BY REGION 2010

4% 3%

51%27%

15%

4% 1%

51%

18%

22%

4%

87%

total$2.7bn(2)

total214 units

total$2.7bn(1)

15%

31%

19%

19%

35%

(1) light (maximum take-off weight (MtoW) < 5 tonnes: Medium lift (MtoW 8-15 tonnes): ultra- heavy lift (MtoW .> 20 tonnes)

source: company’s data, IFRs Financials(2) Breakdown based on revenues excluding

Rostvertol

(3) By value

Russian HelicopteRs AnnuAl RepoRt And Accounts 201026SALES BY GEOGRAPHY 2010

4% 3%

8%

42%

27%

15%

DOMESTIC

OTHER CIS COUNTRIES

ASIA

AFRICA

EUROPE

AMERICA

COST OF SALES 2010

3% 1%5%

2%

72%

17%

SALES BY SEGMENT 2010

1%

8%

70%21%

HELICOPTERS

SERVICE AND SUPPORT

R&D

OTHER

RAW MATERIALS AND MANUFACTURING SUPPLIES USED

PAYROLL AND RELATED SOCIAL TAXES

PRODUCTION SERVICES

DEPRECIATION AND AMORTISATION

ENERGY AND UTILITIES

OTHER

EXPENSES 2010

12%

3%3%3%3%

3%

34%

28%6%

5%

COMMISSION FEE


PROFESSIONAL SERVICES

REPAIR AND MAINTENANCE EXPENSES

INSURANCE EXPENSES

WARRANTY EXPENSES

BANK CHARGES

TRANSPORT EXPENSES


OTHER

SALES BY GEOGRAPHY 2010

4% 3%

8%

42%

27%

15%

DOMESTIC

OTHER CIS COUNTRIES

ASIA

AFRICA

EUROPE

AMERICA

COST OF SALES 2010

3% 1%5%

2%

72%

17%


1%

8%

70%21%

HELICOPTERS

SERVICE AND SUPPORT

R&D

OTHER



PRODUCTION SERVICES



OTHER

EXPENSES 2010

12%

3%3%3%3%

3%

34%

28%6%

5%

COMMISSION FEE




INSURANCE EXPENSES

WARRANTY EXPENSES

BANK CHARGES

TRANSPORT EXPENSES


OTHER


4% 3%

8%

42%

27%

15%

DOMESTIC

OTHER CIS COUNTRIES

ASIA

AFRICA

EUROPE

AMERICA

COST OF SALES 2010

3% 1%5%

2%

72%

17%


1%

8%

70%21%

HELICOPTERS

SERVICE AND SUPPORT

R&D

OTHER



PRODUCTION SERVICES



OTHER

EXPENSES 2010

12%

3%3%3%3%

3%

34%

28%6%

5%

COMMISSION FEE




INSURANCE EXPENSES

WARRANTY EXPENSES

BANK CHARGES

TRANSPORT EXPENSES


OTHER

Revenue and EBITDARussian Helicopters business proved highly resilient and continued to grow even throughout the global financial crisis. In 2010, the Group’s revenue increased by 42.1% from RuB 47.305 bln to RuB 67.202 bln, or to RuB 81.307 bln if taking into account Rostvertol (based on proforma numbers). this is compared to revenue growth in 2009 of 49.2%. this growth was largely a result of rebounding demand for military helicopters, particularly in Russia; higher demand in key emerging markets in Asia, Africa and latin America; and also higher revenues from the service and components businesses.

In 2008-2010, the Group demonstrated sustainable growth in its gross profit margin. Revenues outpaced the cost of sales in 2010, thanks in part to an increase in helicopter prices. the rise in the Group’s net profit in 2008–2010 also resulted in higher RoIc.

Cost of Sales cost of sales equaled 61.0% of revenue in 2010, down from 64.5% in 2009. In absolute terms, the cost of sales increased by 34.3%, primarily due to increased expenses for helicopter components (e.g. avionics, radio electronics) resulting from the growth in exports, as export customers typically require more expensive components than domestic clients.

expenses on raw materials (such as aluminium and composite materials) grew as a result of increased production in 2010 and a general increase in commodity prices. payroll expenses increased due to growth in workforce as well as salary increases that rose at a rate slightly above inflation in Russia in 2010.

managEmEnt diScuSSion and analySiS of financial rESultS

other sales include pilot training services, engineering support and production of military rocket batteries.

Main Indicators for 2008-2010

mln RuB or %2010 – pro

forma(1) 2010 2009 2008

Revenue 81,307 67,202 47,305 31,698eBItdA(2) 13,632 11,781 9,260 3,118net profit 6,200 5,841 3,884 (1,934)Gross margin 40% 39% 35% 29%Net margin 8% 9% 8% (6%)EBITDA margin 17% 18% 20% 10%ROIC 16% 14% 14% 4%ROE 21% 19% 19% (12%)

(1) Indicators for 2010 calculated according to IFRs including Rostvertol, acquired by Russian Helicopters in december 2010.(2) Russian Helicopters defines corrected eBItdA as earnings from subsidiaries, adjusted for depreciation, asset retirement and amortization, in proportion to its respective

shareholdings in these subsidiaries.

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 27introductioncompany overviewmanagEmEnt diScuSSion and analySiScorporate governanceFinancial statementsadditional inFormation


4% 3%

8%

42%

27%

15%

DOMESTIC

OTHER CIS COUNTRIES

ASIA

AFRICA

EUROPE

AMERICA

COST OF SALES 2010

3% 1%5%

2%

72%

17%


1%

8%

70%21%

HELICOPTERS

SERVICE AND SUPPORT

R&D

OTHER



PRODUCTION SERVICES



OTHER

EXPENSES 2010

12%

3%3%3%3%

3%

34%

28%6%

5%

COMMISSION FEE




INSURANCE EXPENSES

WARRANTY EXPENSES

BANK CHARGES

TRANSPORT EXPENSES


OTHER

Cash FlowRussian Helicopters’ cash flow in 2008-2010 was as follows:

mln RuB

Year ending 31 December

2010

Year ending 31 december

2009

Year ending 31 december

2008

net cash generated from operating activities before interest and taxes 3,407 868 6,048

net cash generated from operating activities after interest and taxes (598) (2,350) 3,987

net cash generated from investment activities (3,947) (6,124) (2,754)

net cash generated from financing activities 13,176 11,498 1,482

net increase in cash and cash equivalents 8,631 3,024 2,715

In 2009 the Group began to ramp up helicopter production, which led to an increase in both reserves and advance payments, and, subsequently, lower cash flows in 2009-2010. even after taking into account the negative impact of working capital movements in 2009 and 2010, cash was generated from operations in 2009 and 2010: RuB 868 million and RuB 3,407 million, respectively. Increases in interest paid, however, resulting mainly from increased loans and borrowings, led to cash outflows from operating activities in 2009 and 2010. net cash generated by financing activities increased in 2010, which was due in part to an increase in the loan portfolio of the Group as well as oboronprom’s contribution of RuB 3.4 billion to the Group’s share capital.

Net Debt, 2008-2010:

31/12/2010 31/12/2009 31/12/2008

net debt 28,401 21,224 11,864net debt/corrected eBItdA(3) 2.08 2.29 3.81net debt/equity 1.38 1.60 1.04net Interest expense(4) 3,744 1,906 1,546Average cost of debt servicing 8.2% 8.0% 8.8%

In 2008-2010 the Group enjoyed a relatively low cost of financing compared to market rates.

Working Capital, 2008-2010:

12/31/2010 12/31/2009 31/12/2008

current assets 79,775 52,647 33,488current liabilities 67,061 44,388 29,756 net current assets 12,714 8,259 3,732Working capital 19,913 11,860 6,176Working capital/revenues 24.5% 25.1% 19.5%Working capital ratio 1.2 1.2 1.1

such a working capital ratio is similar to those of other companies in this industry.

Capital Expensesthe Group’s capital expenses in 2008-2010 were as follows:

Year ending 12/31/2010 Year ending 12/31/2009 Year ending 12/31/2008

mln RuB % of capital

expenses % of capital

expenses % of capital

expenses

Acquisition of fixed assets 5,521 58.1% 2977 61.9% 1205 52.6%Acquisition of intangible assets 1,742 18.3% 1105 23.0% 656 28.6%Acquisition of subsidiaries 2,241 23.6% 724 15.1% 429 18.7%

total 9,504 100.0% 4806 100.0% 2,290 100.0%

expenditures on technical re-equipping in 2009 and 2010 were largely aimed at maintaining equipment to preserve the market value of assets. In 2008 Russian Helicopters began a production modernisation programme. A portion of the development expenses in 2009 and 2010 were directed toward the integration of the Mil and Kamov design bureaus, including the construction of an engineering center in tomilino. the main R&d expenses in 2010 were aimed at the development of the following helicopter models;

Ka-62, Mi-38 and Ka-226t. Approximately 50-80% of the financing for the development of the Ka-62 and Mi-38 came from the Russian government as a part of the state programme in support of the development of civil aviation.

In 2010 Russian Helicopters acquired an additional 52.3% stake in Rostvertol.

(3) corrected eBItdA calculated proforma (4) net interest expense calculated proforma

ExpensesIn 2010 selling, general and administrative expenses increased 73.3% from the previous year. this increase was due largely to the growth of commission fees, primarily those paid to Rosoboronexport, which increased as a percentage of revenue as a result of increased military export sales, more resource-intensive efforts by Rosoboronexport necessary to conclude sales and Rosoboronexport’s ability to achieve military export contracts at favorable prices.

expenses increased on salaries as the management team grew. expenses on financial services and marketing were also up, following the transfer of management functions to Group level as a result of the consolidation process. In this connection, the average salary of management personnel increased during 2010, although only slightly ahead of inflation.

corporate Governance(1)

Board of Directors Although Russian Helicopters is a private company, we are moving towards implementing a system of corporate governance in line with best international practice. The Board of Directors includes nine members, three of which are independent. The Board has three committees (Strategy and Financial Planning, Audit, and Personnel and Remuneration), each of which is chaired by an independent director.

The Board of Directors acts in accordance with the Charter of Russian Helicopters, which can be found on the Company’s website. The Board’s main responsibilities are:

Establishing strategic goals and overseeing the work of management •toward achieving these goalsEnsuring adherence to risk management and mitigation procedures •Formation and analysis of investment policy, including development •proposals for the management

In 2010 the Board of Directors met 11 times. The Board reviewed the strategy for the development of Russia’s helicopter industry through the year 2020, reviewed the results of 2009 and indentified the priorities for 2010. The Board of Directors adopted a number of important corporate decisions. In particular, it withdrew the executive authority of UIC Oboronprom as a management company and appointed a General Director of Russian Helicopters.

Denis Manturov ChairmanNon-executive DirectorDenis Manturov is Deputy Minister of Industry and Trade of the Russian Federation (since May 2008). Earlier Mr. Manturov held the position of Deputy Minister of Industry and Energy. From 2003 to 2007 Denis V. Manturov was General Director of UIC Oboronprom. He has also worked directly in the helicopter industry as Commercial Director of the Mil Moscow Helicopter Plant and earlier as Deputy General Director of the Ulan-Ude Aviation Plant. Mr. Manturov does not own any shares of Russian Helicopters.

Dmitry LelikovNon-executive Director Mr. Lelikov has been the First Deputy General Director of UIC Oboronprom since 2004. He has an extensive background in the banking sector. He does not own any shares of Russian Helicopters.

Alexander Mikheyev Non-executive DirectorMr. Mikheyev has worked at Rosoboronexport since 2001. At present he is Deputy Director at Rosoboronexport responsible for export of special equipment and services by the Air Force. He does not own any shares in Russian Helicopters.

Dmitry PetrovExecutive DirectorMr. Petrov was named General Director of Russian Helicopters in September 2010. Prior to being named to this position, he was Deputy General Director of UIC Oboronprom. Mr. Petrov has extensive experience in both the industrial and financial services sector. He does not own any shares in Russian Helicopters.

Andrei ReusNon-executive Director Mr. Reus has headed UIC Oboronprom since 2007. Prior to this he held the post of Deputy Minister of Industry and Energy starting in 2004. He has held various government positions, including that of head of the secretariat of the First Deputy Premier of the Russian Federation and Advisor to the Deputy Premier of the Russian Federation. Mr. Reus does not own any shares in Russian Helicopters.

Pavel OsinNon-executive DirectorMr. Osin, Deputy General Director of UIC Oboronprom for Legal and Corporate Affairs, became a member of the Board of Directors of Russian Helicopters in 2011. Mr. Osin has held various positions at UIC Oboronprom since 2003. He does not own any shares in Russian Helicopters.

Shiv Vikram KhemkaIndependent non-executive directorShiv Vikram Khemka is the deputy chairman of the Board of Directors and founder of SUN Group, a private equity group that is actively engaged in developing markets throughout the world. Mr. Khemka has more than 20 years’ experience doing business and investing in Russia, Latin America and India. He has lived and worked in Moscow since 1990 managing the business of SUN Group. Mr. Khemka does not own any shares in Russian Helicopters.

Jean-Paul Bechat Independent non-executive directorFor four years Mr. Bechat was the chairman of GIFAS, the French aerospace industries association, and in 2001 he was named the honorary chairman of this organization. Since 2001 Mr. Bechat has been independent director and chair of the audit committee of ALSTOM. From 1996 to 2005, he served as Chairman and General Director of Snecma. Following the transformation of this company into Safran, he was appointed executive board chairman and held this position through 2007. Bechat is a member of the Royal Aeronautical Society, the Association Aéronautique et Astronautique de France and the International Aerospace Academy. He does not own any shares in Russian Helicopters.

(1) As of May 25 2011

Russian HelicopteRs ANNUAL REPORT AND ACCOUNTS 201028

corporate Governance

Jean-Loup Picard Independent non-executive DirectorMr. Picard has more than 25 years’ experience in the aerospace and defense industry and at present is an independent expert in this area. From 1998 to 2010 he served as Senior Vice President for Strategy and Development at Thales. From 1985 to 1998 Mr. Picard served in various positions at Thomson-CSF (later renamed Thales). He does not own any shares in Russian Helicopters.

Committees of the Board of Directors The committees of the Board of Directors provide management oversight within the scope of their competency. While decision-making authority and responsibility lies with the full Board of Directors, the separate committees allow for more assiduous control. The committees analyze information provided by the management, highlight issues to be brought to the attention of the full Board and ensure that proper attention is paid to these issues.

Strategy and Financial Planning Committee Jean-Paul Bechat, Chairman Jean-Loup Picard Andrei ReusThe tasks of this committee include indentifying the Group’s strategy goals, business development priorities, short-term and long-term business plans and corporate budgets. The committee is also responsible for providing recommendations to the full Board with regard to dividend policy as well as commentary on development strategy and investment programmes.

Audit CommitteeShiv Vikram Khemka, Chairman Dmitry LelikovAlexander MikheyevThe committee analyzes (1) the completeness and veracity of financial reports, (2) the qualifications and independence of the Group’s auditor as well as the cost of this service, and (3) the reliability and effectiveness of internal control.

Personnel and Remuneration Committee Jean-Loup Picard, Chairman Dmitry LelikovPavel OsinThis committee assists the Board of Directors in its efforts to employ highly qualified personnel and to develop motivation programmes for the leadership of all structures within the Group. The committee provides recommendations to the Board on remuneration policy for management and determines the individual remuneration for each director (with the exception of independent directors) and provides recommendations on remuneration for senior management.

Independent Directors At present the Board of Directors has three members who fully qualify as independent directors according to international best practice. This means that they are independent of management and, apart from participation in the Board of Directors, have no relation to the company or its affiliates that could affect their objectivity. The independent directors are obliged to inform the Corporate Secretary should their status change, including informing about events that could impact their independent status and about any conflicts of interest that could arise during the process of their participation in the work of the Board of Directors.

Dividends(2)

Decisions on the payment of dividends as well as the size of dividends to be paid are made by the General Shareholders Meeting of Russian Helicopters. The dividends cannot be larger than the amount recommended by the Board of Directors.

In 2010 dividends for 2009 were accrued and paid in the amount of RUB 67,744,000.

The Board of Directors of Russian Helicopters issued a recommendation to the General Shareholders Meeting of 2011 that no dividends be paid for the year 2010.

Remuneration and CompensationDuring the year 2010 the senior management of Russian Helicopters (namely, the General Director, Deputy General Director, heads of key divisions and members of the Board of Directors) received remuneration totaling RUB 68 million.

Sustainable DevelopmentHR policyRussian Helicopters HR policy is aimed at attracting young and talented professionals into the helicopter industry. The Company has taken a systematic approach to developing the pool of potential candidates, and to raising the prestige of the profession in Russia. At the same time the Group is taking steps to improve its employee motivation system through various awards and bonuses.

In 2010 Russian Helicopters had c. 38,500 employees, which is slightly higher (309) than in 2009. At present the average age of workers at Russian Helicopters is 44 years old. Employees regularly attend training programmes to improve their qualifications: in 2010 more than a quarter of all employees within the Group took advantage of such training opportunities.

(2) Information on dividends provided by OJSC Russian helicopters, without consideration of accrued (paid) dividends of the individual enterprises within Russian Helicopters Group.

Russian HelicopteRs ANNUAL REPORT AND ACCOUNTS 2010 29introductioncompany overviewmanagement discussion and analysiscorporate GovernanceFinancial statementsadditional inFormation

corporate Governance

Russian Helicopters works actively with 30 higher education institutions as well as 14 specialised training schools as part of its overall effort to attract new talent. In 2010 companies within the Group hired a total of 2,077 recent graduates, who accounted for 5.3% of the total workforce at Russian Helicopters. A project engineering and design competition called Helicopters of the 21st Century is organised each year to identify young talented specialists among the students at specialised universities as well as young standouts already employed by the Group.

With support from the corporate university of UIC Oboronprom, a programme has been launched to stimulate professional growth and develop our management team. A reserve of qualified personnel has been created for the leadership positions at each enterprise. Participants of the programme are given special training and they are invited to participate in discussions and decision making relating to the Group’s strategic objectives.

A motivation system has been developed for the Group’s senior management based on a system of key performance indicators (KPIs), and KPIs for Managing Directors of each of the companies in the Group were approved in 2010.

Occupational environment, health and safetyThe health and safety of our workers is one of the top priorities of Russian Helicopters. Our occupational health and safety policy is regularly updated in accordance with legislative changes and the demands of business.

As required by regulatory agencies, reports on occupational health and safety are compiled on a monthly, quarterly and annual basis. The company also has an internal policy of collecting and reporting all health and safety incidents on a weekly basis. Each incident is carefully investigated, as required by law, to determine the reasons for the occurrence and preventive measures.

The healthy and safety standards and practices for Russian Helicopters stipulate that the results of investigations be used to take all necessary measures to ensure such instances are not repeated in the future. Instructional lessons on equipment safety are provided on a regular basis and all employees are required to complete such lessons prior to starting work. Russian Helicopters also regularly inspects conditions and carries out safety audits at all of its enterprises.

Russian HelicopteRs ANNUAL REPORT AND ACCOUNTS 201030

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED 31 DECEMBER 2010, 2009 AND 2008

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 31INTRODuCTIONCOMPANY OVERVIEwMANAgEMENT DISCuSSION AND ANALYSISCORPORATE gOVERNANCEFINANcIAL STATEMENTSADDITIONAL INFORMATION

the following statement, which should be read in conjunction with the independent auditor’s report set out on page 32, is made with a view to distinguishing the respective responsibilities of the management and those of the independent auditors in relation to the consolidated financial statements of open Joint stock company Russian Helicopters and its subsidiaries (the “Group”).

Management is responsible for the preparation of the consolidated financial statements that present fairly the financial position of the Group as at 31 december 2010, 2009 and 2008, and the results of its operations, cash flows and changes in equity for the years then ended, in compliance with International Financial Reporting standards (“IFRs”) as issued by the International Accounting standards Board.

In preparing the consolidated financial statements, management is responsible for:properly selecting and applying accounting policies; •presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; •providing additional disclosures when compliance with the specific requirements in IFRs are insufficient to enable users to understand the impact of •particular transactions, other events and conditions on the Group’s financial position and financial performance; andmaking an assessment of the Group’s ability to continue as a going concern. •

Management is also responsible for:designing, implementing and maintaining an effective and sound system of internal controls throughout the Group; •maintaining adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at •any time the financial position of the Group, and which enable them to ensure that the financial statements of the Group comply with IFRs;maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions in which the •Group operates;taking such steps as are reasonably available to them to safeguard the assets of the Group; and •preventing and detecting fraud and other irregularities. •

these consolidated financial statements were approved by management on 21 April 2011:

D. E. Petrov S. V. YarkovoyGeneral Director Deputy General Director on Finance

21 April 2011 Moscow, Russia

INdEPENdENT AudITORS REPORT


To the shareholder of the Open Joint Stock Company Russian Helicopters:We have audited the accompanying consolidated financial statements of the open Joint stock company Russian Helicopters and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at 31 december 2010, 2009 and 2008 and the consolidated statements of comprehensive income/(loss), changes in equity and cash flows for the years then ended and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of the accompanying consolidated financial statements in accordance with International Financial Reporting standards as issued by the International Accounting standards Board. this responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityour responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International standards on Auditing. those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. the procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 december 2010, 2009 and 2008, and the results of its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting standards as issued by the International Accounting standards Board.

Emphasis of matterWithout qualifying our opinion, we draw attention to notes 1 and 37 to the accompanying consolidated financial statements, which indicate that the Government of the Russian Federation is the ultimate controlling party of the Group and the Group has significant transactions with various parties, related by means of common control and ownership by the Government of the Russian Federation. Accordingly, the Government of the Russian Federation exercises direct and indirect influence over the financial position of the Group, the results of its financial performance and its cash flows.

21 April 2011Moscow, RussiaZAo “deloitte & touche cIs”

cONSOLIdATEd STATEMENTS OF cOMPREHENSIvE INcOME/(LOSS)IN MILLIONS OF RuSSIAN ROuBLES

notesYear ended 31/12/2010

Year ended 31/12/2009


Revenue 8 67,202 47,305 31,698cost of sales 9 (40,964) (30,512) (22,376)

Gross profit 26,238 16,793 9,322selling, general and administrative expenses 10 (15,825) (9,134) (7,543)Reversal of impairment of/(impairment of) property, plant and equipment 14 163 (628) (1,608)Government grants 157 68 93other operating expenses, net 11 (913) (435) (363)

Operating profit/(loss) 9,820 6,664 (99)

Finance income 12 350 374 145Finance costs 12 (3,474) (2,280) (1,691)excess of the Group's share in fair value of net assets acquired over the costs of acquisition

7 277 – –7, 18 588 – –

Gain on revaluation of investments in associates due to business combination 18 175 143 (49)share of results of associatesForeign exchange (loss)/gain, net (394) 135 (1,147)

Profit/(loss) before income tax 7,342 5,036 (2,841)Income tax (expense)/benefit 13 (1,501) (1,152) 907

Profit/(loss) and total comprehensive income/(loss) for the year 5,841 3,884 (1,934)

profit/(loss) and total comprehensive income/(loss) for the year attributable to:shareholder of the company 3,965 2,123 (1,644)non-controlling interests 1,876 1,761 (290)

5,841 3,884 (1,934)

Earnings/(losses) per shareWeighted average number of ordinary shares (including effect of split of the company’s ordinary shares) 27, 40 3,318,000 1,000,000 1,000,000Basic and diluted earnings/(losses) per share 0.0012 0.0021 (0.0016)


cONSOLIdATEd STATEMENTS OF FINANcIAL POSITIONIN MILLIONS OF RuSSIAN ROuBLES

notes 31/12/2010 31/12/2009 31/12/2008

ASSETSNon-current assetsproperty, plant and equipment 14 31,532 20,340 20,534Goodwill 16 913 913 138other intangible assets 17 2,509 973 317Investments in associates 18 794 2,092 1,997trade receivables 19 172 63 87prepayments and other receivables 20 5,080 3,414 312other financial assets 21 1,356 1,243 337deferred tax assets 22 201 164 104

42,557 29,202 23,826

Current assetsInventories 23 20,120 11,774 8,672Amounts due from customers under construction contracts 24 6,336 3,015 2,596trade receivables 19 8,397 6,255 5,577prepayments and other receivables 20 19,856 16,244 6,191Income tax receivable 65 117 103other taxes receivable 25 6,631 3,348 2,772other financial assets 21 413 2,482 1,291cash and cash equivalents 26 17,957 9,412 6,286

79,775 52,647 33,488non-current assets classified as held for sale 15 – 971 –

79,775 53,618 33,488

TOTAL ASSETS 122,332 82,820 57,314

EQUITY AND LIABILITIESCapital and reservesshare capital 27 95 1 1Additional paid-in capital 8,414 4,092 4,092oboronprom shares owned by the Group 7, 27 (231) – –Retained earnings 12,315 9,191 7,265

Attributable to the shareholder of the Company 20,593 13,284 11,358non-controlling interests 9,594 6,825 5,114

30,187 20,109 16,472

Non-current liabilitiesloans and borrowings 28 20,514 14,728 7,609obligations under finance leases 29 275 413 520Retirement benefit obligations 30 324 213 186provisions 31 121 73 82deferred tax liabilities 22 3,850 2,896 2,689

25,084 18,323 11,086

Current liabilitiesloans and borrowings 28 25,377 15,261 9,919obligations under finance leases 29 192 234 102trade payables 32 4,806 2,501 4,729Advances received and other payables 33 8,776 10,813 6,052Amounts due to customers under construction contracts 24 24,202 14,476 8,041Income tax payable 888 21 43other taxes payable 25 1,538 570 554provisions 31 1,282 512 316

67,061 44,388 29,756

TOTAL LIABILITIES 92,145 62,711 40,842

TOTAL EQUITY AND LIABILITIES 122,332 82,820 57,314


cONSOLIdATEd STATEMENTS OF cHANGES IN EquITyIN MILLIONS OF RuSSIAN ROuBLES

equity attributable to the shareholder of the company

notesshare

capital

Additional paid-in capital

oboronprom shares owned by the Group

Retained earnings total

non-controlling

interests total

Balance at 1 January 2008 1 3,041 – 9,157 12,199 5,259 17,458loss and total comprehensive loss for the year – – – (1,644) (1,644) (290) (1,934)dividends 27 – – – (79) (79) (31) (110)dividends declared by Rostvertol and paid to oAo opK

oboronprom 18 – – – (26) (26) – (26)Assets contributed to the Group’s subsidiary by

oAo opK oboronprom 1 – 220 – – 220 – 220Acquisition of subsidiaries:oAo Reduktor-pM 7 – 831 – – 831 196 1,027oAo novosibirsk Aircraft Repair plant 7 – – – – – 19 19Increase of ownership in oAo

Arsenyev Aviation company pRoGRess 7 – – – (143) (143) (39) (182)

Balance at 31 December 2008 1 4,092 – 7,265 11,358 5,114 16,472profit and total comprehensive income for the year – – – 2,123 2,123 1,761 3,884dividends 27 – – – (158) (158) (50) (208)dividends declared by Rostvertol and paid to

oAo opK oboronprom 18 (26) (26) – (26)Increase of ownership in oAo

Arsenyev Aviation company pRoGRess 7 – – – (13) (13) – (13)

Balance at 31 December 2009 1 4,092 – 9,191 13,284 6,825 20,109profit and total comprehensive income for the year – – – 3,965 3,965 1,876 5,841Issuance of additional shares in exchange for assets

contributed by oAo opK oboronprom 1 94 2,723 – – 2,817 – 2,817dividends 27 – – – (453) (453) (217)dividends declared by Rostvertol and paid to

oAo opK oboronprom 18 – – – (291) (291) – (291)Assets contributed to the Group’s subsidiaries by

oAo opK oboronprom: 1oAo Helicopter service company – 105 – – 105 – 105oAo Kumertau Aviation production enterprise – 153 – – 153 – 153oAo Kamov – 136 – – 136 – 136Acquisition of oAo Rostvertol 7 – – (231) – (231) 1,927 1,696decrease of ownership in subsidiaries:oAo Kazan Helicopter plant 7 – – – (149) (149) 272 123oAo Arsenyev Aviation company pRoGRess 7 – – – 202 202 14 216Increase of ownership in subsidiaries:oAo Kazan Helicopter plant 7 – 765 – 251 1,016 (1,016) –oAo Arsenyev Aviation company pRoGRess 7 – 440 – (390) 50 (50) –oAo MIl Moscow Helicopter plant 7 – – – (11) (11) (37) (48)

Balance at 31 December 2010 95 8,414 (231) 12,315 20,593 9,594 30,187


cONSOLIdATEd STATEMENTS OF cASH FLOwSIN MILLIONS OF RuSSIAN ROuBLES




Operating activities Profit/(loss) for the year 5,841 3,884 (1,934)Adjustments for:Income tax expense/(benefit) 1,501 1,152 (907)Finance income and costs, net 3,124 1,906 1,546depreciation and amortisation 1,767 1,728 1,538(Reversal of impairment of)/impairment of property, plant and equipment (163) 628 1,608Foreign exchange loss/(gain), net 394 (135) 1,147Impairment of accounts receivable 162 210 212change in allowance for obsolete inventories 607 9 265loss on disposal of property, plant and equipment 182 97 120Gain on revaluation of investments in associates due to business combination (588) – –excess of the Group's share in fair value of net assets acquired over the costs of acquisition (277) – –share of results of associates (175) (143) 49other (6) – –

12,369 9,336 3,644Movements in working capital:Increase in inventories (5,105) (2,680) (1,515)Increase in amounts due from customers under construction contracts (340) (419) (38)Increase in trade receivables (2,444) (65) (3,801)Increase in prepayments and other receivables (3,484) (13,302) (706)Increase in other taxes receivables (2,662) (576) (490)Increase/(decrease) in trade payables 1,704 (2,852) 2,162(decrease)/increase in advances received and other payables (4,188) 4,761 3,544Increase in amounts due to customers under construction contracts 6,063 6,435 2,961Increase in provisions and retirement benefit obligations 624 214 114Increase in other taxes payable 870 16 173

Cash generated from operations 3,407 868 6,048Interest paid (3,934) (2,763) (1,640)Government grants – compensation of finance costs 520 592 21Income tax paid (591) (1,047) (442)

Net cash (used in)/generated by operating activities (598) (2,350) 3,987

Investing activitiespurchases of property, plant and equipment (5,521) (2,977) (1,205)proceeds from disposal of property, plant and equipment 932 88 64purchases of intangible assets (1,742) (1,105) (656)Government grants – compensation of capitalised development costs 391 371 577loans provided (1) (230) (813)loans repaid 43 873 141purchases of other financial assets (347) (3,585) (1,106)proceeds from sale of other financial assets 3,713 782 764Acquisitions of subsidiaries, net of cash acquired (2,241) (724) (429)contribution to share capital of an associate – – (245)proceeds from disposal of an associate 476 – –Interest received 350 374 145other – 9 9

Net cash used in investing activities (3,947) (6,124) (2,754)

Financing activitiesproceeds from loans and borrowings 42,485 35,717 19,384Repayments of loans and borrowings (31,739) (23,851) (17,768)principal repayments of obligations under finance leases (374) (160) (24)contribution to share capitals of the company and Group’s subsidiaries by oAo opK oboronprom 3,444 – –dividends paid by the company and Group’s subsidiaries to oAo opK oboronprom (453) (158) (79)dividends paid to non-controlling shareholders (187) (50) (31)

Net cash generated by financing activities 13,176 11,498 1,482

Net increase in cash and cash equivalents 8,631 3,024 2,715effect of exchange rate changes on balance of cash held in foreign currencies (86) 102 128Cash and cash equivalents at beginning of the year 9,412 6,286 3,443

Cash and cash equivalents at end of the year 17,957 9,412 6,286


NOTES TO THE cONSOLIdATEd FINANcIAL STATEMENTSIN MILLIONS OF RuSSIAN ROuBLES, uNLESS OTHERwISE STATED

1. General informationopen Joint stock company Russian Helicopters (the “company”) was established on 9 January 2007 as a wholly-owned subsidiary of oAo opK oboronprom (“oboronprom”), a Russian state-controlled aerospace holding company. the company was founded with the aim to fully consolidate, manage and commercialise the Russian helicopter industry, which had remained fragmented since the fall of the soviet union. In december 2010, the company became the legal holding company of all entities as detailed below.

on 8 december 2010, oboronprom legally completed the formation of the Russian Helicopters Group (the “Group”) by:contributing a number of ownership interests in the Group’s subsidiaries into the Group as detailed in the table below, in exchange for an additional •issuance of 93,994 of the company’s shares (refer to note 27);assigning rights to the company for advances in the amounts of RuB 153 million and RuB 136 million, which was paid by oboronprom in cash as a •contribution for additional shares to be issued by oAo Kumertau Aviation production enterprise and oAo Kamov. As at 31 december 2010, the additional issuances of shares were not duly authorised and registered. such contributions have been reflected as a contribution of assets within additional paid-in capital; andcash contribution to the company’s share capital in the amount of RuB 2,817 million, net of the amount of RuB 233 million to be paid by the •company for 15.4% of oAo Reduktor-pM’s shares.

the Group is the producer of civil and military helicopters and military missile systems and includes engineering centres and production plants which produce the full spectrum of helicopters under the Mi, Ka and Ansat brands. the Group products are sold in the Russian Federation and internationally. the most significant production, engineering and service operations of the Group are incorporated within the Russian Federation.

the head office of the company is located at: 2a sokolnichesky Val str., Moscow, 107113, Russian Federation.

For the purpose of these consolidated financial statements, all prior period financial information has been presented on a common control basis, as if the Russian Helicopters Group formation was effective from 1 January 2007, the date of transition to International Financial Reporting standards (“IFRs”). Further details in respect of the consolidation process undertaken by the Group are disclosed within note 2 under Basis of consolidation and Group Formation.

effective ownership interest and voting rights, %

31/12/2010 31/12/2009 31/12/2008entity and its location nature of business (1) (2) (1) (2) (1) (2)

Group subsidiaries

oAo Kazan Helicopter plant (Kazan)1,5 producer of helicopters: Mi-8, Mi-17, Ansat 65.9 66.1 57.5 54.7 57.5 54.7oAo Rostvertol (Rostov-on-don)2 producer of helicopters:

Mi-24, Mi-26, Mi-28, Mi-35 75.1 75.1 associate associateoAo ulan-ude Aviation plant (ulan-ude) producer of helicopters: Mi-8, Mi-17 75.1 75.1 75.1 75.1 75.1 75.1oAo Kumertau Aviation production

enterprise (Kumertau)producer of helicopters: Ka-28, Ka-31, Ka-32, Ka-226 100.0 100.0 100.0 100.0 100.0 100.0

oAo Arsenyev Aviation company pRoGRess (Arseniev)3

producer of helicopters: Ka-50, Ka-52, producer of military missile systems 75.0 75.0 57.0 50.1 56.5 50.1

oAo MIl Moscow Helicopter plant (Moscow)6 engineering centre (for helicopters brand Mi) 74.4 80.7 72.4 80.7 72.4 80.7engineering centre (for helicopters brand Ka)oAo KAMoV (Moscow) 98.5 98.5 98.5 98.5 98.5 98.5

oAo stupino Machine production plant (stupino)

producer of helicopter allied products (for helicopter brands Mi and Ka) 61.2 80.5 61.2 80.5 61.2 80.5

oAo Reduktor-pM (perm) producer of helicopter allied products (for helicopter brands Mi and Ansat) 80.8 80.8 80.8 80.8 80.8 80.8

ZAo ulan-ude Blade plant (ulan-ude) producer of helicopter allied products (for helicopter brand Mi) 75.1 75.1 75.1 75.1 – –

oAo Helicopter Innovation Industrial company (ulan-ude)

producer of helicopter allied products (for helicopter brand Mi) 75.1 75.1 75.1 75.1 – –

oAo novosibirsk Aircraft Repair plant (novosibirsk)

Helicopter repair and maintenance services (for helicopter brand Mi) 95.1 95.1 95.1 95.1 95.1 95.1

oAo Helicopter service company (Moscow) supplier of materials and spare parts 100.0 100.0 100.0 100.0 100.0 100.0

Group associatesoAo Rostvertol (Rostov-on-don)2 producer of helicopters:

Mi-24, Mi-26, Mi-28, Mi-35 subsidiary 22.8 22.8 22.8 22.8ZAo Activnye operatsyi (Moscow)3 Holding company 49.0 49.0 49.0 49.0 49.0 49.0oAo AKB donkombank (Rostov-on-don)4 commercial bank 30.3 29.7 – – – – oAo AKB Zarechye (Kazan) commercial bank 25.4 25.5 25.4 25.5 25.4 25.5ooo tFK (Kazan)5 Holding company – – 48.2 48.2 48.2 48.2(1) effective ownership interest (2) Voting rights



1 on 8 september 2010, oAo opK oboronprom acquired an additional 11.4% interest in oAo Kazan Helicopter plant (refer to notes 7 and 18) from ooo tFK, a former associate of the Group (refer to note 18). prior to this acquisition the Group had decreased its effective ownership interest by 3.0% as a result of oAo Kazan Helicopter plant’s disposal of 48.2% interest in ooo tFK, having reciprocal interest in oAo Kazan Helicopter plant. As a result of the transactions the effective ownership in the subsidiary increased to 65.9%.

2 on 10 and 11 december 2010, the company acquired an additional 52.3% interest in oAo Rostvertol and increased ownership to 75.1%. Before that date oAo Rostvertol was an associate of the Group.

3 on 22 March 2010, oAo opK oboronprom acquired an additional 25.0% interest in oAo Arsenyev Aviation company pRoGRess (refer to note 7) from ZAo Activnye operatsyi, an associate of the Group (refer to note 18). As a result of transaction the Group’s effective ownership in oAo Arsenyev Aviation company pRoGRess increased to 75.0%.

4 As a result of acquiring the controlling stake in oAo Rostvertol in december 2010, the Group obtained a significant influence over oAo AKB donkombank, which is an associate of Rostvertol (refer to note 18).

5 on 30 July 2010, oAo Kazan Helicopter plant disposed of its 48.2% interest in ooo tFK (refer to notes 7 and 18).6 on 27 February 2010, oAo Rostvertol, which was an associate of the Group at the time, acquired additional 2.6% shares of oAo MIl Moscow Helicopter plant.

Accordingly, the Group’s effective ownership was initially increased by 0.6%. on 11 december 2010, the Group’s effective ownership increased further to 74.4%, as a result of the Group acquisition of the controlling interest in oAo Rostvertol (refer to note 7).

In 2008, the Russian Federation state agency transferred land with an estimated carrying value of RuB 220 million into the share capital of oAo Kumertau Aviation production enterprise. this contribution has been reflected as a contribution of assets within additional paid-in capital.

In 2010, oboronprom contributed RuB 153 million, RuB 136 million and RuB 105 million in cash as a contribution for additional shares issued by oAo Kumertau Aviation production enterprise, oAo Kamov and oAo Helicopter service company, respectively. As at 31 december 2010, such contributions have been reflected as a contribution of assets within additional paid-in capital.

2. Basis of consolidation and group formationAs detailed in note 1, oboronprom is a corporation controlled by the Government of the Russian Federation. oboronprom in turn, owned 100% of the share capital of the company since the date of incorporation. on 8 december 2010, oboronprom contributed the possession of various entities in which it previously held ownership interests into the Group. the Group accounted for this contribution as a transaction between entities under common control, meaning that all transfers were done at the transferor cost.

For the purpose of these consolidated financial statements, all prior period information has been accounted for as if the reorganisation was effective from the date of incorporation of the company. this reflects the intent of oboronprom to eventually reorganise its own group structure and insert certain of its ownership interests into a new group which specialises in producing of helicopters and related products. In this instance, oboronprom’s ownership interests have been presented as if they have always been held by the Group.

Following the above, the consolidated financial information for the periods up to the formal date of the Group formation has been prepared based on the following assumptions:

the assets, liabilities and the profit or loss of the entities comprising the Group have been aggregated for all periods presented, based on when •oboronprom and the Government of the Russian Federation obtained their ownership interests in the entities;all transactions and balances between Group entities have been eliminated; •transactions and balances with entities controlled by oboronprom or the Government of the Russian Federation that are not within the Group are •classified as related party transactions;the share capital presented represents that of the company. the share capital of each of the remaining Group entities has been combined and is •included within retained earnings of the Group. the Group retained earnings balance therefore represents the historical retained earnings of the entities comprising the Group, and the historical value of the net assets contributed to oboronprom by the Russian Federation state. All other items within equity have been aggregated in a manner consistent with the assets and liabilities;the non-controlling interests share, which has been increased and reduced throughout the periods presented as a result of a number of further •direct and indirect acquisitions and disposals by the Group and oboronprom; andoboronprom made certain acquisitions during the periods presented in these consolidated financial statements, the acquisitions of which have •been pushed down as if they occurred within the Group. these are detailed in note 7 and have been recorded in accordance with the accounting policies provided in note 4.

3. Adoption of new and revised standards and interpretationsstandards and Interpretations effective in the current yearIn the current year, the Group adopted all new standards and Interpretations issued by the International Financial Reporting committee (“IFRIc”) that are mandatory for adoption in the annual periods beginning on of after 1 January 2010.

the principal changes arising from the adoption of these standards and Interpretations are as follows:IFRs 3 Business combinations (revised in 2008 and effective 1 July 2009)IFRs 3 (2008) has been prospectively applied in the current year to business combinations for which the acquisition date is on or after 1 January 2010 in accordance with relevant transitional provision. Its adoption has affected the accounting for business combinations in the current year.

the impact of the application of IFRs 3 (2008) is as follows:IFRs 3 (2008) allows a choice on a transaction-by-transaction basis for the method of measurement of non-controlling interests at the date of •acquisition (previously referred to as Minority Interests), to be done either at fair value or at the non-controlling interests’ share of recognised identifiable net assets of the acquiree. In the current year, in accounting for the acquisition of oAo Rostvertol, the Group has elected to measure the



non-controlling interests at its acquisition date fair value determined by an independent appraiser. consequently, the excess of the Group’s share in fair value of net assets acquired recognised in profit or loss in respect of that acquisition reflects the impact of the difference between the fair value of the non-controlling interests and their share of the recognised amount of the identifiable net assets of the acquiree.IFRs 3 (2008) changes the recognition and subsequent accounting requirements for contingent consideration. previously, contingent consideration •was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; and subsequent adjustments to the contingent consideration were always made against the cost of the acquisition. under revised standard, contingent consideration is measured at fair value at the date of acquisition; subsequent adjustments to the consideration are recognised against the cost of the acquisition only to the extent that they arise from new information obtained within the measurement period (a maximum of twelve months from the acquisition date) about the fair value at the date of acquisition. All other subsequent adjustments to contingent consideration are recognised in profit or loss. this has had no impact on the Group in the reporting period.IFRs 3 (2008) requires the recognition of a settlement gain or loss when the business combination in effect settles a pre-existing relationship •between the Group and the acquiree. this has had no impact on the Group in the reporting period.IFRs 3 (2008) requires acquisition-related costs to be accounted for separately from the business combination, generally leading to those costs •being recognised as an expense in profit or loss as incurred, whereas previously they were accounted for as part of the cost of the acquisition. this has had no impact on the Group in the reporting period.

In the current year, the above changes in accounting policies have affected the accounting for the acquisition of oAo Rostvertol (refer to note 7) as follows:

Consolidated statement of changes in equity 31/12/2010

Gain on revaluation of investment in associate due to business combination (recognised in profit or loss) 588difference between the excess of the Group’s share in the fair value of net assets acquired over the costs of acquisition determined under IFRs 3 (2008) and IFRs 3 (2004) (recognised in profit or loss) (255)Revaluation surplus (which is not recognised under IFRs 3 (2008)) (469)

Decrease in equity attributable to the shareholder of the Company (under IFRS 3 (2008)) (136)difference in non-controlling interests (proportion of net assets acquired under IFRs 3 (2004) vs. fair value under IFRs 3 (2008)) 136

Effect on total capital and reserves (under IFRS 3 (2008)) –

Consolidated statement of comprehensive income/(loss)Year ended 31/12/2010

Gain on revaluation of investment in associate due to business combination (reflected in profit or loss) 588difference between excess of the Group’s share in fair value of net assets acquired over the costs of acquisition determined under IFRs 3 (2008) and IFRs 3 (2004) (255)

Increase in profit or loss for the year as a result of application of IFRS 3 (2008) 333

Amendments to IAS 7 Statement of Cash Flow (effective from 1 January 2010)the amendments to IAs 7 specify that only expenditure that results in a recognised asset in the statement of financial position can be classified as an investing activity in the statement of cash flows. the application of these amendments has resulted in a change of presentation of the cash outflows for the acquisition of non-controlling interests.

during the years ended 31 december 2010, 2009 and 2008 all increases of ownership were done by oboronprom and reflected as contribution in share capital of the company and Group’s subsidiaries from oboronprom within financing activities.

IAS 27 Consolidated and Separate Financial Statements (revised in 2008 and effective 1 July 2009)the application of IAs 27 (2008) has not resulted in any changes in the Group’s accounting policy for changes in ownership interest in subsidiaries without the loss or obtaining of control. under IAs 27 (2008) and Group’s accounting policies, all changes in ownership (increases and decreases without the loss or obtaining of control) are dealt within equity, with no impact on goodwill or profit or loss.

When control over a subsidiary is lost as a result of a transaction, event or other circumstances, the revised standard requires the Group to derecognise all assets, liabilities and non-controlling interests at their carrying amount and to recognise the fair value of the consideration received. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost. the resulting difference is recognised as a gain or loss in profit or loss.

the revision of IAs 27 also affects the accounting for non-controlling interests in the Group’s subsidiaries. under the revised standard total comprehensive income is attributable to the shareholder of the company and to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

these changes in accounting policies have been applied prospectively from 1 January 2010 in accordance with relevant transitional provisions.



the adoption of the revised standard has resulted in the recognition of accumulated deficit of RuB 104 million as at 31 december 2010 within non-controlling interests, which would not have been recognised under the previous version of the standard. the adjustment was calculated as follows:

oAo Arsenyev Aviation company pRoGRess oAo KAMoV

Accumulated deficit as at 31 december 2010 (317) (1,683)non-controlling interests, % 25.0 1.5

Accumulated deficit allocated to non-controlling interests (79) (25)

IAS 28 Investments in Associates (revised in 2008 and effective 1 July 2009)the principle adopted under IFRs 3 (2008) and IAs 27 (2008) (see above) that a loss of control or obtaining control is recognised as a disposal and re-acquisition of respective interest at fair value is extended by consequential amendments to IAs 28. therefore, when the Group obtained control over oAo Rostvertol that was previously accounted for as an associate, the Group measures the investment in its associate at fair value at the date of business combination, with a difference between carrying value and fair value at that date recognised in profit or loss. In the case when a significant influence over an associate is lost, the investor measures any investment retained in the former associate at fair value, with any gain or loss recognised in profit or loss.

these changes in accounting policies have affected the accounting for the acquisition of the controlling interest in oAo Rostvertol (refer to notes 7 and 18) in the current year. In terms of oAo Rostvertol, the difference of RuB 588 million between the carrying amount of the Group’s investment in oAo Rostvertol and its fair value has been presented in the consolidated statement of comprehensive income/(loss) as Gain on revaluation of investment in associate due to business combination.

the adoption of revisions and amendments to the following standards and Interpretations detailed below did not have any impact on the accounting policies, financial position or performance of the Group:

Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standardsthe amendments provide two exemptions when adopting IFRss for the first time regarding to oil and gas assets, and the determination as to whether an arrangement contains a lease.

Amendments to IFRS 2 Share-based Paymentsthe amendments clarify the scope of IFRs 2, as well as the accounting for the group cash-settled payment transactions in the separate (or individual) financial statements of an entity received the goods and services when another group entity or shareholder has the obligation to settle the award.

Amendments to IFRs 5 non-current Assets Held for sale and discontinued operationsthe amendments clarify that the disclosure requirements in IFRss other than IFRs 5 do not apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations unless those IFRss require: (i) specific disclosures in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations, or (ii) disclosures about measurement requirement of IFRs 5 and the disclosures are not already provided in the consolidated financial statements.

the amendments also clarify that all the assets and liabilities of a subsidiary should be classified as held for sale when the Group is committed to a sale plan involving loss of control of that subsidiary, regardless of whether the Group will retain a non-controlling interests in the subsidiary after that sale.

Amendments to IAS 1 Presentation of Financial Statementsthe amendments clarify that the potential settlement of liability by the issue of equity is not relevant to its classification as current and non-current.

Amendments to IAS 39 Financial Instruments: Recognition and Measurementthe amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.

IFRIC 17 Distributions of Non-cash Assets to Ownersthe Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.

IFRIC 18 Transfers of Assets from Customersthe Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from customers and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAs 18 Revenue.



standards and Interpretations in issue but not yet effectiveAt the date of authorisation of these consolidated financial statements, certain new and revised standards and Interpretations have been issued but are not yet effective. the impact of adoption of these standards and Interpretations in the preparation of the Group financial statements in future periods is currently being assessed by the management. Management anticipates that the adoption of certain standards and Interpretation, as presented below, may have significant impact on the consolidated financial statements of the Group in the following periods.

IFRS 9 Financial Instruments (issued in November 2010 and effective 1 January 2013)new standard introduces new requirements for the classification and measurement of financial assets and liabilities and their derecognition. specifically:

IFRs 9 requires all recognised financial assets that are within the scope of IAs 39 Financial Instruments: Recognition and Measurement to be •subsequently measured at amortised cost or fair value. specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. As at 31 december 2010, certain Group equity investments are accounted for at cost, a method that is not allowed under new IFRs 9. Management anticipate that upon adoption of IFRs 9 there will be a significant increase in the volume of financial information used in and valuation technique applied in regard of the fair value analysis of such investments. However, it is not practicable to provide reasonable estimates of that effect until a detailed review has been completed.the most significant effect of IFRs 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair •value of a financial liability designated as at fair value through profit or loss attributable to changes in the credit risk of that liability. specifically, under IFRs 9, for a financial liability that is designated at fair value through profit or loss, the amount of the change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. previously, under IAs 39, the entire amount of change in the fair value of the financial liability designated as at fair value through profit or loss was recognised in profit or loss.

IAS 24 Related Party Disclosures (revised in 2009 and effective 1 January 2011)the revised standard modifies the definition of a related party and simplifies disclosures for Government-related entities. since the Group is ultimately controlled by the Government of the Russian Federation the disclosure exemptions introduced in IAs 24 will be applicable for the Group consolidated financial statements in the year ending 31 december 2011, when the revised standard is effective.

Amendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Assets, Minimum Funding Requirements and Their Interaction (revised in 2009 and effective 1 January 2011)the amendment provides guidance regarding the assessment of the recoverable amount of a net pension asset. the amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.

to date, the Group does not have funded or partially funded defined benefit plans. However, if into the future the Group decided to enter into transactions which fall under the scope of this amendment, then IFRIc 14 will affect the required accounting.

4. Significant accounting policiesstatement of compliancethe consolidated financial statements have been prepared in accordance with International Financial Reporting standards (“IFRs”) as adopted by the International Accounting standards Board.

the entities of the Group maintain their accounting records in Russian Rouble (“RuB”) in accordance with the laws, accounting and reporting regulations of the Russian Federation, where the majority of the Group entities are incorporated.

Basis of presentationthe consolidated financial statements have been prepared on the historical cost basis except for:

mark-to-market valuation of certain classes of financial assets in accordance with IAs 39 Financial Instruments: Recognition and Measurement; •fair value of the Group’s property, plant and equipment determined as at 1 January 2007, the date of transition to IFRs, in accordance with •exemption of IFRs 1 First time Adoption of International Financial Reporting standards. the fair value was based upon a valuation performed by an independent appraiser. the valuation conformed to International Valuation standards. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction. the fair value of marketable assets is normally determined as their market value. However, as most of the Group’s property, plant and equipment are of a specialized nature the valuation was based on replacement cost. that replacement cost was then adjusted for accumulated depreciation, including physical depreciation and functional and economic obsolescence, to arrive at the fair value of the assets.



Basis of consolidationAn entity is consolidated when controlled by the Group. control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income/(loss) from the effective date of acquisition and up to the effective date of disposal, as appropriate. total comprehensive income or loss of subsidiaries is attributed to the owners of the company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Business combinations with third partiesAcquisitions of subsidiaries and businesses from third parties are accounted for using the acquisition method. the consideration transferred in each business combination is measured at aggregate acquisition-date fair value of the assets given, liabilities incurred or assumed and equity instruments issued by the Group, if any, in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

When the consideration transferred by the Group in a business combination includes any assets or liabilities resulting from a contingent consideration arrangement, they are measured at the acquisition-date fair value and included with the consideration transferred in a business combination. subsequent changes in the fair value of the contingent consideration are adjusted against the cost of the acquisition when they are qualify as measurement period adjustments arising from additional information obtained during the measurement period, which cannot exceed twelve months from the acquisition date, about facts and circumstances that existed at the acquisition date. contingent consideration classified as equity is not measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. contingent consideration classified as an asset or liability is measured at subsequent reporting dates in accordance with the relevant IFRss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is measured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from the interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

At the acquisition date, the acquiree’s identifiable assets acquired and the liabilities, meeting the recognition criteria of IFRs 3 (2008), are recognised at their fair value, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with •IAs 12 Income Taxes and IAs 19 Employee Benefits, respectively;liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group •entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRs 2 Share-based Payment at the acquisition date; andassets (or disposal group) that are classified as held for sale in accordance with IFRs 5 • Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with IFRs 5.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

Goodwill is measured as the excess of the sum of consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amount of identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as bargain purchase gain.

non-controlling interests, identified separately from the Group’s equity, may be initially measured either: (i) at fair value; or (ii) at the non-controlling interests’ share of the fair value of the acquiree’s identifiable net assets. the choice of measurement basis is made on a transaction-by-transaction basis. subsequent to acquisition, the non-controlling interests carrying amount is the amount at initial recognition, plus the non-controlling interests’ share of changes in equity. total comprehensive income is attributable to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Business combinations with third parties that took place prior to 1 January 2010 were accounted for in accordance with IFRs 3 (2004) Business Combination.



common control transactionsthe assets (including goodwill, if any) and liabilities of businesses acquired from entities under common control are recorded at the carrying value recognised by the transferor. the difference, if any, between the carrying value of the net assets acquired and the consideration paid by the Group is accounted for as an adjustment to equity. When the transferor contributes a subsidiary to the Group, the original cost paid by the transferor is recorded as additional paid-in capital, less par value of the shares issued in exchange for assets contributed. the net assets of the subsidiary and its results are recognised from the date on which control of the subsidiary was obtained by the transferor.

the investments in associates acquired from the entities under common control are recorded at the carrying value recognised by the transferor. When the transferor contributes investment in associate to the Group, the original cost paid by the transferor is recorded as additional paid-in capital, less par value of the shares issued in exchange for assets contributed. the investment in associate and their results are recognised in the consolidated financial statements from the date on which significant influence of the associate was obtained by the transferor.

changes in the Group’s ownership interests in existing subsidiarieschanges in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. the carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the shareholder of the company.

When the Group loses control over a subsidiary, the profit or loss on disposal is calculated as the difference between: (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest, and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. the fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAs 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

GoodwillGoodwill arising on an acquisition of a business as described in paragraphs Business combinations with third parties and common control transactions above is carried at cost as established at the acquisition date less accumulated impairment loss, if any.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that are expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Impairment losses, if any, for goodwill are recognised directly in profit or loss and are not reversed in subsequent periods.

on disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Investments in associatesAn associate is an entity over which the Group has significant influence, and that is neither a subsidiary nor an interest in a joint venture. significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

the results and assets, and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale and accounted for in accordance with IFRs 5 non-current Assets Held for sale and discontinued operations. under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate at the date of acquisition is recognised as goodwill. the goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

the requirements of IAs 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including attributable goodwill) is tested for impairment in accordance with IAs 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAs 36 to the extent that the recoverable amount of the investment subsequently increased.



Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

non-current assets held for salenon-current assets and disposal groups are classified as current assets held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. this condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. non-current assets (or disposal group) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

Foreign currency transactionseach entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured in that functional currency. the functional currency of the company and its subsidiaries registered and operating on the territory of the Russian Federation is the Russian Rouble (“RuB”). transactions in currencies other than the functional currency (“foreign currencies”) are recorded at the exchange rates prevailing at the dates of the transactions. At each reporting date monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at that date. non-monetary items carried at historical cost are translated at the exchange rate prevailing on the date of transaction. non-monetary items carried at fair value are translated at the exchange rate prevailing on the date on which the most recent fair value was determined. exchange differences arising from changes in exchange rates are recognised in the statement of comprehensive income/(loss).

exchange rates for the currencies in which the Group transacts were as follows:31/12/2010 31/12/2009 31/12/2008

Closing exchange rates at the year end – RUB1 u.s. dollar (“usd”) 30.48 30.24 29.381 euro 40.33 43.39 41.44Average exchange rates for the year ended – RUB1 usd 30.37 31.72 24.861 euro 40.30 44.13 36.43

Revenue recognitionthe Group derives revenue from the sale of manufactured helicopters, helicopter repair and maintenance services, research and development works and manufacturing of other products, such as helicopter spare parts and military missile systems. Revenue is recognised to the extent that it is probable that the economic benefit arising from the ordinary activities of the Group will flow to the Group, it can be measured reliably, and that the recognition criteria as stated below have been met. Revenue is measured at the fair value of the consideration received or receivable after deducting any discounts, rebates and value added tax.

Revenue from helicopter manufacturingthe Group conducts its helicopter manufacturing business under construction contracts with customers.

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. Where the outcome of a construction contract cannot be estimated reliably (for example during the early stages of a construction contract), contract revenue is recognised to the extent of contract costs incurred when it is deemed probable they will be recoverable and contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the total expected loss is recognised as an expense immediately.

construction contract work-in-progress is recorded net of any write-downs, as well as progress billings related to the construction contracts. the Group presents the amount due from customers under the construction contracts as an asset and the amount due to customers under the construction contracts as a liability in the statement of financial position. the amount due from customers is the amount of construction costs incurred plus recognised profits less the sum of recognised losses and progress billings for all construction contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. the amount due to customers is the amount of construction costs incurred plus recognised profits less the sum of recognised losses and progress billings for all construction contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).

the Group is required to sell its military helicopters for export through the state corporation Rosoboronexport (“Rosoboronexport”). Rosoboronexport charges a commission for this service. the Group recognises the commission expense at the time of the sale and records the commission fee within selling, general and administrative expenses. In addition, the Group provides warranties on its helicopters and recognises the estimated warranty liability at the time of sale. the warranty expense is recorded within selling, general and administrative expenses.



Revenue from helicopter repair and maintenance services, and research and development worksRevenue from contracts to provide these services is recognised by reference to the stage of completion of the contract at the end of the reporting period, determined based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs.

Revenue from manufacturing of other productsRevenue from the sale of goods is recognised when all the following conditions are satisfied:

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; •the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods •sold;the amount of revenue can be measured reliably; •it is probable that the economic benefits associated with the transaction will flow to the Group; and •the costs incurred or to be incurred in respect of the transaction can be measured reliably. •

the transfer of risks to the buyer is based on the shipping conditions, and is generally at the time of shipment.

Dividend and interest incomedividend income from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

leasingleases are classified as finance leases whenever the contract terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

leasing – the Group as lessorRental and sub-rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging lease are added to the carrying amount of the leased asset and recognised in profit or loss on a straight-line basis over the lease term.

leasing – the Group as lesseeAssets held under finance leases are recognised as assets of the Group at their fair value at the inception date of the lease or, if lower, at present value of the minimum lease payments. the corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on finance costs (see below).

operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. contingent rentals arising under operating leases are recognised in profit or loss in the period in which they are incurred. Finance costsnet finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until they are substantially ready for their intended use or sale. All other finance costs are recognised as an expense in the year in which they are incurred.

Income taxIncome tax on the profit for the year represents the sum of the income tax currently payable and deferred income tax.

Current income tax current income tax has been computed in accordance with the Russian Federation tax law. Income tax currently payable is based on taxable profit for the year, which differs from profit as reported in the statement of comprehensive income/(loss) as it excludes items of income or expense that are taxable or deductible in other years or excludes items that are not taxable or deductible. the Group’s liability for current tax is calculated using enacted or substantially enacted tax rates by the end of the reporting period.

Deferred tax deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax



bases used in the computation of taxable profit and calculated on an entity basis. deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. such tax assets and liabilities are not recognised if the related temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in foreseeable future.

the carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

deferred tax assets and liabilities are measured at the rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates enacted or substantively enacted by the end of the reporting period. the measurement of deferred tax liabilities and assets reflects tax consequences that would follow from the manner in which the Group expected, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

property, plant and equipmentOwned assetsproperty, plant and equipment of the Group acquired or constructed before 1 January 2007 are recognised at the amounts determined by an independent appraiser. the basis for valuation was fair value. In some instances, when items of property, plant and equipment are of a specialised nature, they were valued at depreciated replacement cost. For each item of property, plant and equipment the new replacement cost was estimated as the current cost to replace the assets with a functionally equivalent asset. the new replacement cost was then adjusted for accrued depreciation, including physical depreciation and functional and economic obsolescence. the result of this valuation comprised deemed cost as at 1 January 2007.

Items of property, plant and equipment acquired or constructed after 1 January 2007 are recorded at purchase or constructed cost. property, plant and equipment is stated at cost (deemed cost), net of accumulated depreciation and any accumulated impairment losses.

construction-in-progress represents capitalised costs directly attributable to the construction of property, plant and equipment, including the cost of materials, direct labour, and other costs directly attributable to bringing the asset to a working condition for its intended use. Finance costs that are directly attributable to the acquisition or construction of assets, that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of that asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the asset, and is recognised within other operating expenses in the consolidated statement of comprehensive income/(loss).

Subsequent coststhe replacement cost for a part of a property, plant and equipment is recognised in the carrying value of the item if it is probable that the future economic benefits of the part will flow to the Group and its cost can be measured reliably. the carrying value of the replaced part is derecognised concurrently. Repair and maintenance costs are expensed as incurred.

Depreciationdepreciation is calculated over the cost of an asset, or other amount substituted for cost (i.e. deemed cost), less its residual value.

depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the entities of the Group will obtain ownership by the end of the lease term. land is not depreciated.

the estimated useful lives of major classes of property, plant and equipment are as follows:Buildings 20 – 60 yearsMachinery and equipment 15 – 40 yearstransport 8 – 40 yearsother assets 1 – 12 years



the estimated useful lives, residual values, and depreciation method are reviewed at each reporting date, with the effect of any changes in estimate accounted for on a prospective basis.

Intangible assetsIntangible assets acquired separatelyseparately acquired intangible assets are recorded at cost less accumulated amortisation and accumulated impairment losses. these intangible assets primarily represent various purchased software costs.

Amortisation is charged on a straight-line basis over their estimated useful lives which are:purchased software 1 – 10 yearsother 1 – 5 years

the estimated useful lives and amortisation method are reviewed at each reporting date, with the effect of any changes in estimate accounted for on a prospective basis.

Internally-generated intangible assetscosts for self-initiated research and development activities are assessed as to whether they qualify for recognition as internally-generated intangible assets. Apart from complying with the general requirements for and initial measurement of an intangible asset, qualification criteria are met only when technical as well as commercial feasibility can be demonstrated and cost can be measured reliably.

It must also be probable that the intangible asset will generate future economic benefits and that it is clearly identifiable and allocable to a specific product. Further to meeting these criteria, only such costs that relate solely to the development phase of a self-initiated project are capitalised. Any costs that are classified as part of the research phase of a self-initiated project are expensed as incurred. If the research phase cannot be clearly distinguished from the development phase, the respective project related costs are treated as if they were incurred in the research phase only.

capitalised development costs are generally amortised over the estimated number of units produced. In case the number of units produced cannot be estimated reliably, capitalised development costs are amortised over the estimated useful life. Amortisation of capitalised development costs is recognised in cost of sales. Internally-generated intangible assets are reviewed for impairment annually when the asset is not yet in use and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Intangible assets acquired in a business combinationIntangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and impairment loss, on the same basis as intangible assets that are acquired separately.

Impairment of tangible and intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the assets do not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the assets belong.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated statement of comprehensive income/(loss).

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of comprehensive income/(loss).



InventoriesInventories are stated at the lower of cost or net realisable value. the cost of inventories is determined on the weighted average basis and includes all costs in bringing the inventory to its present location and condition.

costs of production in process and finished goods include the purchase costs of raw materials and conversion costs such as direct labour and an allocation of fixed and variable production overheads. Raw materials are valued at purchase cost inclusive of freight and other shipping costs.net realisable value represents the estimated selling price for inventories less estimated costs to completion and selling costs. Where appropriate, an allowance for obsolete and slow-moving inventory is recognised. the impairment charged to reduce the carrying amount of inventories to their net realisable value and an allowance for obsolete and slow-moving inventory is included in the consolidated statement of comprehensive income/(loss) as cost of sales.

cash and cash equivalentscash and cash equivalents is comprised of cash balances, cash deposits and highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Financial assetsFinancial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs.

Financial assets of the Group are classified into the following specific categories: (i) available-for-sale (“AFs”), (ii) held-to-maturity, and (iii) loans and receivables.

the classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition.

Effective interest methodthe effective interest method is a method of calculating the amortised cost of a financial instrument and allocating interest income or expense over the relevant period. the effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the instrument, or where appropriate, a shorter period to the net carrying amount on initial recognition.

AFS financial assetslisted shares held by the Group that are traded in an active market are classified as AFs and are stated at fair value. unlisted shares for which there are no available market quotations and whose fair value cannot be reliably measured, are accounted for at cost, net of accumulated impairment losses, if any.

the fair value for AFs financial assets with standard terms and conditions that are traded in active market is determined based on quoted market prices.

Gain and losses arising from changes in fair value are recognised in the consolidated statement of comprehensive income/(loss) and accumulated in the investments revaluation reserve. Where the investment is disposed of or determined to be impaired, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss.

dividends on AFs equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established.

Held-to-maturity investmentspromissory notes with fixed or determinable payments and fixed maturity dates for which the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost less accumulated losses, if any. Interest income is recognised using the effective interest method.

Loans and receivablestrade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. loans and receivables are measured at amortised cost using effective interest method, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assetsFinancial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that the estimated future cash flows of the investment have been affected as a result of one or more events that occurring after initial recognition of the financial asset.

For equity securities classified as AFs, a significant and prolonged decline in the fair value of the security below its costs is considered to be objective evidence of impairment.



For other financial assets objective evidence of impairment could include:significant financial difficulty of the counterparty; •default or delinquency in interest or principle payments; or •it becoming probable that the counterparty will enter bankruptcy or financial re-organisation. •

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

the carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables where the carrying amount is reduced through the use of an allowance account. When trade and other receivables are uncollectible, they are written off against the allowance account. subsequent recoveries of amounts previously written off are credited against the allowance account. changes in the carrying amount of the allowance account are recognised in profit or loss.

When an AFs financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

With the exception of AFs equity securities, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date of impairment does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of AFs equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income.

Derecognition of financial assetsthe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilitiesthe Group’s financial liabilities are classified into the following specified categories: (i) financial guarantee contract liabilities, and (ii) other financial liabilities.

Financial guarantee contract liabilitiesFinancial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

the amount of the obligation under the contract, as determined in accordance with IAs 37 provisions, contingent liabilities and contingent Assets; •andthe amount initially recognised less, where appropriate cumulative amortisation recognised in accordance with the revenue recognition policies set •out above.

Other financial liabilitiesother financial liabilities, including loans and borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Derecognition of financial liabilitiesthe Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

provisions and contingenciesProvisionsprovisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

the amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.



Onerous contractspresent obligations arising under onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under such contract.

Warranty provisionsthe Group provides warranties in connection with the sale of helicopters. the Group generally warrants its new helicopters to be free from defects in materials and workmanship appearing within one to three and a half years from the date of delivery or during the first three hundred to one thousand hours of operation, whichever event occurs first. the warranty provision is recorded at the time of sale of the helicopter based on the best estimate of the expected future costs. the warranty expense is included within selling, general and administrative expenses in the statement of comprehensive income/(loss).

Contingenciescontingent liabilities are not recognised in these consolidated financial statements unless they are arise as a result of a business combination. contingencies attributable to specific events are disclosed unless the probability of an outflow or resources embodying economic benefit is remote. contingent assets are not recognised in these consolidated financial statements but are disclosed when an inflow of economic benefits is probable.

Government grantsdeferred income attributable to the grants obtained from the Government is not recognised until there is a reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be receivable.

the Group receives Government grants for partial compensation of development expenses capitalised within intangible assets and recognised as a deduction from the full amount of development expenses incurred. As part of such supporting programs the Government also compensates for a portion of overhead expenses associated with the execution and monitoring of such projects, which are presented within selling, general and administrative expenses. Government grants that are receivable as compensation for overhead expenses already incurred are recognised in profit or loss in the period in which they become receivable, and are recorded within other operating income.

the Group receives Government grants for compensation of finance costs on borrowings used by the Group for helicopter manufacturing. Government grants that are receivable as compensation for finance costs already incurred are recognised in profit or loss in the period in which they become receivable, and are recorded as an offset of the Finance costs that they are compensating.

employee benefit obligationsRemuneration to employees in respect of services rendered during the reporting period, including accruals for vacation and bonuses and the related social security taxes, is recognised as an expense in the period when it is incurred.

Defined contribution plansthe Group’s entities are legally obliged to make defined contributions to the Russian Federation state pension Fund, a defined contribution plan. the Group’s contributions to the Russian Federation state pension Fund are recorded as an expense over the reporting period based on the related employee service rendered. contributions for each employee to the Russian Federation state pension Fund vary from 0% to 20%, depending on the annual gross remuneration of each employee.

In addition to the Russian Federation state pension Fund during the year ended 31 december 2010, oAo Rostvertol, a Group subsidiary as at 31 december 2010, introduced a defined contribution plan for its employees. contributions to the Rostvertol’s defined contribution plan are recorded and paid on a monthly basis and are limited to RuB 3 million per month.

Defined benefit plansthe Group’s entities operate a number of unfunded defined benefit plans for its employees. under these plans employees are entitled to the following payments:

anniversary payments, which are generally in line with the average salary of the employee; •a one-time payment upon death that equals actual funeral expenses but is limited to twice monthly employee’s monthly salary; •a one-time payment on retirement, which is generally in line with the employee’s base salary at the date of retirement; and •monthly payments and other compensations and benefits (i.e. transport, welfare, etc.) •

For defined benefit retirement plans, the cost of providing benefits is determined using the project unit credit Method, with actuarial valuations being carried out as at 31 december 2010, 2009 and 2008. Actuarial gains and losses that exceed 10 per cent of the present value of the Group’s defined obligations at the end of the prior year are amortised over the expected average remaining working lives of the participating employees. past service cost is recognised immediately to the extent that benefits are already vested, and otherwise amortised on a straight-line basis over the average period until the benefit becomes vested.

the retirement benefit obligations recognised in the statement of financial position represent the present value of the defined benefit obligations as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs.



dividendsdividends and the related taxes are recognised as a liability in the period in which they have been declared and become legally payable. dividends may only be paid out of legally distributable accumulated profits, which are based on the amounts available for distribution in accordance with the applicable legislation and as reflected in the standalone statutory financial statements of the Group entities. these amounts may differ significantly from the amounts calculated on the basis of IFRs. 5. Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. the estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

the key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revenue recognition on construction contractsAs described in the revenue recognition policy, the Group accounts for construction projects using the percentage of completion method. critical to the correct application of this method are the accuracy of estimates of the financial outcome at completion, as well as the determination of the extent of progress towards completion.

In estimating the percentage of completion, the Group compares the estimated total cost of the project to the costs incurred to date. the total estimated cost is based on historical experience for similar projects, the remaining effort to complete the contract, and various other assumptions.

the Group has not historically had significant changes in its estimates of total costs during a project. to the extent there is such a change, the amount of revenue and costs recognised in future periods may vary and if the total estimated costs exceed the total revenue a loss would be recorded at the time such loss is revealed.

Valuation of trade and other receivablestrade receivables, prepayments and other receivables are stated at their net realisable value after deducting the Group’s best estimate of probable credit losses related to these assets.

In estimating the level of probable credit losses, management considers a number of factors, including current overall economic conditions, industry-specific economic conditions and historical and anticipated customer performance. uncertainties regarding changes in the financial condition of customers, either adverse or positive, could impact the amount and timing of any additional allowances for doubtful accounts that may be required. this may have a negative impact on the financial results if additional losses occur that were not anticipated in prior periods.

Inventory valuationInventory consists of finished goods, work-in-progress and raw materials which are stated at lower of cost or net realisable value. In assessing the net realisable value of its inventory, management estimates the net realisable value of finished goods and work-in-progress based on various assumptions including current market prices.

At each reporting date, the Group evaluates its inventory balance for excess quantities and obsolescence and, if necessary, records an allowance to reduce inventory for obsolete and slow-moving raw materials and spare parts. this allowance requires assumptions related to future inventory use. these assumptions are based on inventory ageing, forecasted consumer demands, and technological obsolescence. Any changes in the estimates may impact the amount of the allowances for inventory that may be required.

useful economic life and residual value of property, plant and equipmentthe Group’s property, plant and equipment are depreciated using the straight-line method over their estimated useful lives which are based on management’s business plans and operational estimates.

the factors that could affect the estimation of the life of a non-current asset and its residual value include the following:

changes in asset utilisation rates; •changes in maintenance technology; •changes in regulations and legislation; and •unforeseen operational issues. •

Any of the above could affect prospective depreciation of property, plant and equipment and their carrying and residual values.

Management annually reviews the appropriateness of assets’ useful economic lives. the review is based on the current condition of the assets and the estimated period during which they will continue to bring economic benefit to the Group. Any change in estimated useful life or residual value is recorded on a prospective basis from the date of the change.



Impairment of property, plant and equipmentManagement reviews the carrying amounts of assets to determine whether there is any indication that those assets are impaired. In making the assessment for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating unit.

the assessment of whether there are indicators of a potential impairment are based on various assumptions including market conditions, asset utilisation and the ability to utilise the asset for alternative purposes. If an indication of impairment exists, the Group estimates the recoverable value (greater of fair value less cost to sell and value in use) and compares it to the carrying value, and records impairment to the extent the carrying value is greater.

the value in use is based on estimated future cash flows that are discounted to their present value using a pre-tax discount rate. the estimated future cash flows require management to make a number of assumptions including customer demand and industry capacity, future growth rates and the appropriate discount rate. Any change in these estimates may result in impairment in future periods.

during the years ended 31 december 2009 and 2008, the Group recorded impairment in the amount of RuB 628 million and RuB 1,608 million, respectively, due to the increase of discount rates and decrease of market rents for some properties of the Group located in Moscow and the Moscow region.

during the year ended 31 december 2010, the Group reversed an impairment recognised in the years ended 31 december 2009 and 2008 in the amount of RuB 163 million, due to recovery of the Russian market with corresponding increase in prices for properties of the Group.

employee benefit obligationsthe Group’s recognition of the unfunded retirement benefit obligations for defined benefit plans depends on a number of significant actuarial assumptions relating to:

discount rate; •inflation; •projected salary and pension increase; •mortality rates; and •participants turnover rate. •

these assumptions are determined based on the current market conditions, historical information and through consultation with the Group’s actuaries. changes in the key assumptions can have a significant impact of on the projected benefit obligations, funding requirements and periodic pension costs incurred.

Warranty provisionthe Group provide warranties related to its helicopters sales and record a provision for the future cost at the time of sale. estimated warranty costs represent the contractual warranty, which provides against any defects in materials and workmanship appearing within one to three and a half years from the date of delivery, or during the first three hundred to one thousand hours of operation (whichever event occurs first).

Warranty provisions are estimated based on historical claims statistics, the warranty period, the average time-lag between faults occurring and claims to the Group and anticipated changes in quality indexes. differences between actual warranty claims and the estimated claims will impact the recognised expense and provisions in future periods. Refunds from suppliers, that decrease the Group’s warranty costs, are recognised to the extent these are considered to be certain.If actual results are not consistent with the assumptions and estimates used, the Group may be exposed to additional adjustments that could materially, either positively or negatively, impact the Group’s profit. Adjustments to the Group’s profit have historically not been material.

contingenciesLegal contingencieslegal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. periodically, the status of each significant loss contingency is reviewed to assess the potential financial exposure. the Group records provisions for pending litigation when it determines that an unfavourable outcome is probable and the amount of loss can be reasonably estimated. due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. provisions are based on the best information available at the time. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required, estimates are revised. such revisions in estimates could have a material impact on the future results of the Group.

Tax contingenciesthe Group is subject to income tax and other taxes in accordance with the legislation of the Russian Federation. significant judgement is required in determining the provision for income tax and other taxes due to the complexity of the tax legislation in the Russian Federation. there are a number of transactions and calculations for which the ultimate tax determination is uncertain. the Group recognises liabilities for anticipated tax inspection issues based on management’s estimates of whether it is probable that additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the amount of tax and tax provisions in the period in which such determination is made.



Recognition of deferred tax assetsdeferred tax assets are assessed each period for recoverability and adjusted, as necessary, based on whether it is probable the Group will generate sufficient profits in future periods to utilise the assets. Various factors are considered in assessing the probability of future utilisation including past operating results, operational plans, expiration of tax losses carry-forwards and tax planning strategies. If the actual results differ from these estimates or if these estimates are adjusted in future periods, the result of operations may be impacted in those periods.

As at 31 december 2010, 2009 and 2008, the Group has RuB 752 million, RuB 487 million and RuB 466 million of unrecognised deferred tax assets based on the assumption that it is not probable it will be able to utilise these assets in future periods.

6. Segmental informationthe Group has three reportable segments, the results of which are reported on a quarterly basis and reviewed by the General director of the company (the “chief operating decision maker” or “codM”). these internal reports are prepared on the same basis as the accompanying consolidated financial statements.

the segments are as follows:Helicopters segment includes manufacturing of helicopters; •services and support segment includes manufacturing of spare parts for helicopters and providing of helicopter repair and maintenance services; •Research and development segment includes the provision of research and development works mostly related to helicopter engineering and design. •

In addition, the Group has various other operations that are not reported separately and has certain corporate costs that are not included in the reportable segments. these are included as reconciling item between the total reportable segments and the consolidated results.

6.1 Segment revenuesthe following is the analysis of the Group’s revenue for the years ended 31 december 2010, 2009 and 2008:

Year ended 31 december 2010 Year ended 31 december 2009 Year ended 31 december 2008

Military commercial total Military commercial total Military commercial total

Helicopters 35,048 12,004 47,052 21,587 11,689 33,276 9,905 8,977 18,882services and support 7,744 6,320 14,064 2,822 6,525 9,347 2,007 5,049 7,056Research and

development 469 355 824 571 230 801 2,655 138 2,793other 4,639 623 5,262 3,281 600 3,881 2,317 650 2,967

Total 47,900 19,302 67,202 28,261 19,044 47,305 16,884 14,814 31,698

the segment revenue reported above represents revenue generated from external customers only. during the years ended 31 december 2010, 2009 and 2008 inter-segment sales were RuB 9,313 million, RuB 5,474 million and RuB 3,960 million, respectively. Inter-segment revenue primarily consists of sales of semi-products and research and development services for helicopter production.

6.2 Segment operating resultsthe measure of segment profitability separately reported to the codM for purposes of allocating resources and assessing segment performance is measured based on segment adjusted eBItdA, which the Group defines as segment operating profit adjusted to exclude depreciation and amortisation, loss on disposal of property, plant and equipment and loss on/(reversal of) impairment of property, plant and equipment and to include the segment’s share of results of associates. since adjusted eBItdA is not a standard measure under IFRs, the Group’s definition of adjusted eBItdA may differ from that of other companies.



the following is analysis of operating results measured by adjusted eBItdA and its reconciliation to the operating profit/(loss) and profit/(loss) before tax for the year ended 31 december 2010, 2009 and 2008:

Adjusted EBITDAYear ended 31/12/2010



Helicopters 9,574 7,139 1,553services and support 2,272 1,716 1,706Research and development (1,200) (377) (332)other 1,135 782 191

Total adjusted EBITDA 11,781 9,260 3,118

depreciation and amortisation (1,767) (1,728) (1,538)loss on disposal of property, plant and equipment (182) (97) (120)Reversal of impairment of/(impairment of) property, plant and equipment 163 (628) (1,608)share of results of associates (175) (143) 49

Operating profit/(loss) per IFRS financial statements 9,820 6,664 (99)

Finance income 350 374 145Finance costs (3,474) (2,280) (1,691)excess of the Group’s share in fair value of net assets acquired over the costs of acquisition 277 – –Gain on revaluation of investments in associates due to business combination 588 – –share of results of associates 175 143 (49)Foreign exchange (loss)/gain, net (394) 135 (1,147)

Profit/(loss) before income tax per IFRS financial statements 7,342 5,036 (2,841)

6.3 Major customersduring the years ended 31 december 2010, 2009 and 2008, the Group’s most significant customers are state-controlled bodies, such as the Ministry of defence and the Ministry of emergency situations of the Russian Federation. the Russian Federation state-controlled entities represent significantly more than 10% of the Group’s consolidated revenue for each of the years presented. please also refer to note 8 for further details in regard of other largest customers and countries where they are located.

6.4 Other segment informationsubstantially all assets and production, management and administrative facilities of the Group are located in the Russian Federation. Geographical asset information is not reported to the codM and accordingly is not presented as part of segmental information.

Revenue by geographical regions is disclosed in note 8. 7. Business combinations and changes in ownershipAcquisition of subsidiaries during the years ended 31 december 2010, 2009 and 2008

OAO Rostvertol (“Rostvertol”)Rostvertol operates in the manufacturing of helicopters, with the production facilities located in Rostov-on-don, Russian Federation. on 10 and 11 december 2010, the company acquired an additional 52.3% interest in Rostvertol, formerly an associate of the Group, for cash consideration of RuB 3,230 million, increasing its ownership to 75.1%. Following this acquisition the Group obtained control over Rostvertol. the purpose of this acquisition was to obtain control over the last independent helicopter producer in the Russian Federation and complete full consolidation of the industry in Russia.

this acquisition was accounted for using the acquisition method. the remaining non-controlling interests of 24.9% and the previously held equity interest of 22.8% in Rostvertol were both measured at fair value determined by independent appraiser at the date of acquisition.

the Group has determined the fair value of the identifiable assets and liabilities of Rostvertol at the date of acquisition on a provisional basis. At the date of authorisation of these consolidated financial statements the necessary fair value assessment for property, plant and equipment and certain other assessments had not been finalised.



provisional value

ASSETSproperty, plant and equipment 7,231other intangible assets 278Investments in associates 125other financial assets 1,765Inventories 3,848Amounts due from customers under construction contracts 2,981trade receivables 197prepayments and other receivables 1,752other taxes receivable 621cash and cash equivalents 989

Total assets 19,787

LIABILITIESloans and borrowings 5,126Retirement benefit obligations 76provisions 229deferred tax liabilities 899trade payables 588Advances received and other payables 1,888Amounts due to customers under construction contracts 3,663Income tax payable 27other taxes payable 98Total liabilities 12,594

Net assets at the date of acquisition 7,193less: excess of the Group’s share in fair value of net assets acquired over the costs of acquisition (277)less: non-controlling interests (at fair value) (1,927)Total consideration, satisfied by: 4,989

cash consideration 3,230Fair value of previously held interest in Rostvertol 1,759Total consideration 4,989

less: Fair value of previously held interest in Rostvertol (1,759)less: cash and cash equivalents acquired (989)Net cash outflow on acquisition of subsidiary 2,241

trade and other receivables, acquired as part of the acquisition of controlling interest in Rostvertol, are presented at a provisional fair value of RuB 210 million and are estimated to have a gross contractual amount of RuB 258 million. the best estimate at the acquisition date of the contractual cash flows not expected to be collected is RuB 48 million.

the excess of the Group share in fair value of net assets acquired over the costs of acquisition in the amount of RuB 277 million has been recorded in the consolidated statement of comprehensive income/(loss). this gain arose because the terms in respect of this acquisition were formally agreed a number of months prior to the actual acquisition date. due to improvements in the Helicopter manufacturing industry in second half of 2010, the fair value of net assets acquired had increased by the date of acquisition and a bargain purchase was achieved, since the cost of the acquisition was never renegotiated.

As part of this business combination, which has been accounted for under IFRs 3 (2008), the Group recognised a revaluation gain resulting from the remeasurement of its previously held interest. the difference in the amount of RuB 588 million, between fair value of previously held interest of RuB 1,759 million and carrying value of investment in Rostvertol of RuB 1,171 million has been recorded in the consolidated statement of comprehensive income/(loss) within the line item Gain on revaluation of investments in associates due to business combination.

As part of the assets, which were acquired by the Group through the acquisition of the controlling interest in Rostvertol, the Group obtained a 2.6% interest in oAo MIl Moscow Helicopter plant (refer below). Accordingly, the Group effective interest in oAo MIl Moscow Helicopter plant increased to 74.4% with a corresponding decrease in the non-controlling interests of RuB 37 million and a decrease in retained earnings of RuB 11 million. In addition, the Group obtained a 0.62% interest in oboronprom, the Group’s sole shareholder. Investments in the shares of oboronprom were measured at fair value (at the date of business combination) of RuB 231 million, and presented as oboronprom shares owned by the Group in the consolidated statement of financial position.



due to impracticability of obtaining mid-month information for Rostvertol, the acquisition was accounted for in these consolidated financial statements as if it had taken place on 31 december 2010 with no effect on the consolidated profit or loss for the year ended 31 december 2010.

Pro forma operational results following the acquisition of Rostvertol (unaudited)the pro forma effect of Rostvertol acquisition on the results of the Group’s operations, as if this subsidiary was acquired at 1 January 2010, is presented as follows:


Revenue 81,307profit before income tax 7,980profit for the year 6,200

the pro forma disclosure reflects the elimination of transactions between the Group and Rostvertol, the elimination of the Group’s share of Rostvertol’s results as an associate, and the additional depreciation and finance costs that would have been incurred from 1 January 2010 if Rostvertol had been consolidated from that date.

this unaudited pro forma information is provided for illustrative purposes only and does not present the results of the Group’s operations had the transaction assumed therein occurred on 1 January 2010, nor is it necessarily indicative of the results of operations which may be achieved in the future.

OAO Helicopter Innovation Industrial CompanyIn April 2009, oAo ulan-ude Aviation plant, a Group subsidiary, acquired a 100% interest in oAo Helicopter Innovation Industrial company, which holds a 100% interest in ZAo ulan-ude Blade plant, a producer of helicopter allied products, for a total cash consideration of RuB 744 million.

this acquisition was accounted for using the purchase method. the Group has determined the fair value of identifiable assets, liabilities and contingent liabilities of the acquired company at the date of acquisition. the purchase price allocation for the acquisition is as follows:

Fair value

ASSETSproperty, plant and equipment 78Inventories 431trade receivables 140cash and cash equivalents 20

Total assets 669

Fair value

LIABILITIESloans and borrowings 70trade payables 624deferred tax liabilities 6

Total liabilities 700

net liabilities at the date of acquisition (31)Add: Goodwill 775

Total consideration 744

Total consideration 744less: cash and cash equivalents acquired (20)

Net cash outflow on acquisition of subsidiary 724

the goodwill arising on this acquisition primarily relates to increased security of supplies of key materials for the production process of the Group. this goodwill will not be deductible for tax purposes.

At the date of acquisition, oAo Helicopter Innovation Industrial company and ZAo ulan-ude Blade plant did not prepare financial statements in accordance with IFRs. thus, it was not practicable to determine the carrying values of all of the acquired assets, liabilities and contingent liabilities in accordance with IFRs immediately before the acquisition.

oAo Helicopter Innovation Industrial company and ZAo ulan-ude Blade plant contributed RuB 568 million of revenue and RuB 77 million of loss before tax from the date of acquisition to 31 december 2009. there is no available information under IFRs in order to determine the impact this acquisition would have had if occurred at the beginning of the period.

OAO Novosibirsk Aircraft Repair PlantIn August 2008, oAo Helicopter service company, a Group subsidiary acquired a 95.1% interest in oAo novosibirsk Aircraft Repair plant, a helicopter repair and maintenance service provider, for a total cash consideration of RuB 490 million.



this acquisition was accounted for using the purchase method. the Group has determined the fair value of identifiable assets, liabilities and contingent liabilities of the acquired company at the date of acquisition.

the purchase price allocation for the acquisition is as follows:Fair value

ASSETSproperty, plant and equipment 941Inventories 242trade receivables 330other taxes receivable 47cash and cash equivalents 6

Total assets 1,566

LIABILITIESloans and borrowings 455Retirement benefit obligations 24trade payables 534deferred tax liabilities 177

Total liabilities 1,190

Net assets at the date of acquisition 376Add: Goodwill 133less: non-controlling interests (at proportion of net assets acquired) (19)


Total consideration 490less: cash and cash equivalents acquired (6)

Net cash outflow on acquisition of subsidiary 484

the goodwill arising on this acquisition primarily relates to the workforce of the acquired subsidiary and will not be deductable for tax purposes.

At the date of acquisition, oAo novosibirsk Aircraft Repair plant did not prepare financial statements in accordance with IFRs. thus, it was not practicable to determine the carrying values of all of the acquired assets, liabilities and contingent liabilities in accordance with IFRs immediately before the acquisition.

oAo novosibirsk Aircraft Repair plant contributed RuB 341 million of revenue and RuB 15 million of profit before tax from the date of acquisition to 31 december 2008. there is no available information under IFRs in order to determine the impact this acquisition would have had if occurred at the beginning of the period.

OAO Reduktor-PM – acquisition of controlling interest by OboronpromIn March 2008, oboronprom acquired perm Motors Group from a third party. perm Motors Group included operations related to oboronprom’s engine-Building and Helicopter segments. perm Motors Group held an 80.8% interest in oAo Reduktor-pM, a producer of helicopter allied products. the acquisition cost for perm Motors Group was based on a single valuation of net assets of the perm Motors Group as a whole.

oboronprom’s share ownership in oAo Reduktor-pM was transferred into the Group during the year ended 31 december 2010 in connection with the formation of the helicopter business (refer to note 1) and has been included in these consolidated financial statements from the date of acquisition by oboronprom. the cost of the acquisition is estimated as approximately equal to the fair value of the net assets acquired.



the Group has determined the fair value of identifiable assets and liabilities of oAo Reduktor-pM at the date of acquisition as follows:Fair value

ASSETSproperty, plant and equipment 1,223Inventories 464trade receivables 294cash and cash equivalents 55

Total assets 2,036

LIABILITIESloans and borrowings 344Retirement benefit obligations 6trade payables 461deferred tax liabilities 203

Total liabilities 1,014

Net assets at the date of acquisition 1,022Add: Goodwill 5less: non-controlling interests (at proportion of net assets acquired) (196)


Total consideration 831less: cash and cash equivalents acquired (55)less: consideration paid by oboronprom (831)

Net cash inflow on acquisition of subsidiary (55)

At the date of acquisition, oAo Reduktor-pM did not prepare financial statements in accordance with IFRs. thus, it was not practicable to determine the carrying values of all of the acquired assets, liabilities and contingent liabilities of oAo Reduktor-pM in accordance with IFRs immediately before the acquisition.

oAo Reduktor-pM contributed RuB 1,605 million of revenue and RuB 122 million of loss before tax from the date of acquisition to 31 december 2008. there is no available information under IFRs in order to determine the impact this acquisition would have had if occurred at the beginning of the period.

change of ownership in subsidiaries during the years ended 31 december 2010, 2009 and 2008OAO Kazan Helicopter Plant (“KHP”)on 30 July 2010, KHp, a Group subsidiary, disposed of its 48.2% interest in share capital of ooo tFK, an associate of the Group, for a cash consideration of RuB 476 million. up to the date of disposal ooo tFK held an 11.4% direct interest (which equates to the Group’s effective ownership of 3.0%, taking into account the Group’s share ownership in KHp and ooo tFK) in the share capital of KHp. As a result of the disposal of investment in ooo tFK, the Group’s effective ownership in KHp decreased from 57.5% to 54.5%. disposal of the reciprocal interest was accounted for by increasing the non-controlling interests by RuB 272 million, increasing the carrying value of investment in ooo tFK by RuB 123 million, and decreasing in retained earnings by RuB 149 million.

on 8 september 2010, oboronpom acquired the aforementioned 11.4% interest in the share capital of KHp from ooo tFK, the former associate of KHp, for a cash consideration of RuB 765 million. the consideration paid by oboronprom was presented as additional paid-in capital within the consolidated statement of changes in equity. on the date of the transaction, the carrying value of KHp net assets in the consolidated financial statements of the Group was approximately RuB 8,912 million. As a result of this transaction, the Group recognised a decrease in non-controlling interests in the amount of RuB 1,016 million. the excess of the value of non-controlling interests acquired over the consideration paid was recognised as an increase in retained earnings in the amount of RuB 251 million.

OAO Arsenyev Aviation Company PROGRESS (“Progress”)As at 1 January 2008, oboronprom held 50.0% plus one ordinary shares of progress. during the years ended 31 december 2009 and 2008, ZAo Activnye operatsyi (“Ao”), an associate of progress, acquired an additional 1.7% and 23.3% interest, respectively, in share capital of progress for a cash consideration of RuB 27 million and RuB 370 million, respectively (refer to note 18). As a result of these transactions the Group’s effective interest in progress increased by 0.5% and 6.4%, respectively. the excess attributable to the Group portion of the consideration paid by Ao of RuB 13 million and RuB 182 million, for the years ended 31 december 2009 and 2008, respectively, over the Group’s share in the non-controlling interests acquired of RuB 13 million and RuB 143 million was recorded as a decrease in retained earnings for the years ended 31 december 2009 and 2008, respectively.

on 22 March 2010, oboronprom acquired the entire 25.0% interest in share capital of progress from Ao for a cash consideration of RuB 440 million. At the date of transaction, the carrying value of progress’ net assets in the consolidated financial statements of the Group was RuB 200 million. the results of this transaction were presented as follows:



Decrease of ownership as a result of disposal of reciprocal interest from AOAs a result of the disposal of progress shares, the Group effective ownership in progress decreased from 57.0% to 50.0% plus one share. Accordingly, the Group recognised an increase in non-controlling interests in the amount of RuB 14 million and an increase of carrying value of investments in Ao in the amount of RuB 216 million. the difference in the amount of RuB 202 million was recognised as an increase in retained earnings.

Increase of ownership as a result of acquisition of the additional shares of Progress from ZAO Activnye Operatsyiconsideration in the amount of RuB 440 million paid by oboronprom was presented as additional paid-in capital within the consolidated statement of changes in equity with a corresponding decrease in non-controlling interests in the amount of RuB 50 million. the excess of consideration paid by oboronprom over the Group’s share in non-controlling interests acquired in the amount of RuB 390 million was recognised as a decrease in retained earnings.

OAO MIL Moscow Helicopter Plant (“MIL”)on 27 February 2010, Rostvertol, which at the time was an associate of the Group, acquired an additional 2.6% interest in share capital of MIl for cash consideration of RuB 48 million. As a result of the transaction the Group’s effective interest in MIl (reflecting the Group’s 22.8% ownership interest in Rostvertol) initially increased by 0.6%.

In december 2010, as a result of the acquisition of the controlling interests in Rostvertol (as detailed above) the Group’s effective interest in MIl increased by 1.4%. At the end of financial year, the Group held an effective ownership in MIl of 74.4%. As a result of the transactions non-controlling interests and retained earnings decreased by RuB 37 million and RuB 11 million, respectively. 8. Revenue

By customer destinationYear ended 31/12/2010



Russian Federation 28,557 23,295 16,303Asia 18,437 9,032 6,020Africa 9,957 4,729 191other cIs countries 5,413 3,311 976europe 2,884 985 2,040America 1,813 5,898 5,824other 141 55 344

Total 67,202 47,305 31,698

the following is an analysis of the Group’s largest customers excluding the Government of the Russian Federation (revenue from each customer exceeding 10% of total revenue) mainly represented by Government or state-controlled entities, which are located in the following countries:




china (presented within Asia above) 9,157 less than 10% less than 10%united Arab emirates (presented within Asia above) less than 10% 5,820 less than 10%Venezuela (presented within America above) less than 10% less than 10% 5,546

9. Cost of salesYear ended 31/12/2010



cost of production, including:Raw materials and manufacturing supplies used 29,506 20,057 13,842payroll and related social taxes 7,076 6,317 5,490production services 1,952 2,268 1,428depreciation and amortisation 1,359 1,327 1,157energy and utilities 827 675 504other 1,178 744 565

Total cost of production 41,898 31,388 22,986Increase in work in progress and finished goods (934) (876) (610)

Total cost of sales 40,964 30,512 22,376



10. Selling, general and administrative expensesYear ended 31/12/2010



commission fee 5,389 2,608 1,841payroll and related social taxes 4,381 2,894 2,453professional services 906 711 676Repair and maintenance expenses 751 148 192Insurance expenses 540 109 70Warranty expenses 507 320 284Bank charges 492 179 150transport expenses 468 415 274depreciation and amortisation 408 401 381taxes other than income tax 352 185 212Research and development expenditures 257 222 218Advertising expenses 199 160 88Impairment of accounts receivable 162 210 212other 1,013 572 492

Total 15,825 9,134 7,543

11. Other operating expenses, netYear ended 31/12/2010



change in provision for litigations and claims 483 178 86Maintenance of the local infrastructure 277 234 109loss on disposal of property, plant and equipment 182 97 120other (29) (74) 48

Total 913 435 363

12. Finance income and finance costs

Finance incomeYear ended 31/12/2010



Interest income on financing provided 342 346 121effect of discounting the non-interest bearing long-term trade receivables 8 28 24

Total 350 374 145

Finance costsYear ended 31/12/2010



Interest expense on loans and borrowings 3,941 2,837 1,668Interest expense on obligations under finance leases 92 95 54Interest expense on pension liabilities 23 17 14

Total interest expense 4,056 2,949 1,736 less: amounts included in the cost of qualifying assets (62) (77) (24)less: Government grants ‒ compensation of finance costs (520) (592) (21)

Total finance costs 3,474 2,280 1,691

13. Income tax expense/(benefit)Year ended 31/12/2010



current income tax expense 1,474 1,000 373correction of income tax of prior periods 9 11 9

Total current income tax expense 1,483 1,011 382Impact of change in income tax rate in the Russian Federation – – (425)deferred tax expense/(benefit) 18 141 (864)

Total deferred income tax expense/(benefit) 18 141 (1,289)

Total income tax expense/(benefit) 1,501 1,152 (907)



the corporate income tax rate in the Russian Federation, the primary location of the Group’s production entities, for the years ended 31 december 2010 and 2009 was 20.0% (15.5% in the perm region where Reduktor-pM is located). For the year ended 31 december 2008 it was 24.0% (20.0% in the perm region). during the year ended 31 december 2010, oAo ulan-ude Aviation plant, a subsidiary of the Group, obtained a 4.5% income tax rate reduction from the local tax authorities. Accordingly, for the year ended 31 december 2010, corporate income tax for oAo ulan-ude Aviation plant was at 15.5%. such exemption depends on the volume of overall tax payments made by the entity in a calendar year and its portion in relation to the regional government budget. In the assessment of the applicable tax rate for deferred taxes attributable to oAo ulan-ude Aviation plant, the Group applied a 20.0% rate, as such tax rate is expected to apply in the following periods when the related deferred taxes are realised.

Had the Group applied 15.5% in such calculations, the Group’s deferred tax liabilities would have decreased by RuB 250 million as at 31 december 2010, with a corresponding decrease in deferred tax expenses for the year then ended.

the deferred income tax benefit for the year ended 31 december 2008 includes RuB 425 million resulting from a change in the income tax rate. In november 2008, an amendment to the tax code of the Russian Federation was enacted to reduce the corporate income tax rate from 24% to 20% effective from 1 January 2009. the actual provision for income tax is different from that which would be obtained by applying the Russian Federation statutory income tax rate to the accounting profit before tax.

A reconciliation between the statutory income tax rate and the effective rate was as follows:Year ended 31/12/2010



Profit/(loss) before income tax 7,342 5,036 (2,841)Income tax expense/(benefit) computed at statutory income tax rate of 20% (for the year ended 31 december 2008: 24%) 1,468 1,007 (682)Adjustments due to:

effect on deferred tax balances due to the change in income tax rate (see above) – – (425)effect of different tax rates in different jurisdictions (254) (19) 5effect of previously unrecognised and unutilised tax losses and tax

offsets utilised in current year or recognised as deferred tax assets (4) (97) (10)expenses not deductible for tax purposes 246 250 135Income not taxable for tax purposes (277) (118) (5)effect of unused tax losses not recognised as deferred tax assets and

change in allowance provision for deferred tax assets 313 118 66Adjustments of prior years’ income tax 9 11 9

Total income tax expense/(benefit) 1,501 1,152 (907)



14. Property, plant and equipmentland and buildings

Machinery and equipment transport other

construction- in-progress total

CostAt 1 January 2008 14,037 4,560 1,554 526 267 20,944Additions 95 407 125 235 1,061 1,923transfers 137 337 64 108 (646) –Acquisitions of subsidiaries 1,097 1,017 15 28 7 2,164disposals (41) (179) (85) (6) – (311)

At 31 December 2008 15,325 6,142 1,673 891 689 24,720Additions 434 919 45 494 1,270 3,162transfers 117 103 – 16 (236) –Acquisitions of subsidiaries 16 30 2 30 – 78disposals (71) (83) (23) (59) – (236)transfer to assets held for sale (992) – – – – (992)

At 31 December 2009 14,829 7,111 1,697 1,372 1,723 26,732Additions 455 1,178 113 462 3,507 5,715transfers 287 260 117 78 (742) –Acquisitions of subsidiaries 2,820 2,808 215 584 804 7,231disposals (166) (304) (18) (27) – (515)At 31 December 2010 18,225 11,053 2,124 2,469 5,292 39,163

Accumulated depreciation and impairment

At 1 January 2008 (529) (487) (119) (102) – (1,237)depreciation charge (549) (638) (125) (156) – (1,468)disposals 6 112 7 2 – 127Impairment (1,608) – – – – (1,608)

At 31 December 2008 (2,680) (1,013) (237) (256) – (4,186)depreciation charge (591) (726) (108) (246) – (1,671)disposals 4 17 12 39 – 72transfer to assets held for sale 21 – – – – 21Impairment (628) – – – – (628)

At 31 December 2009 (3,874) (1,722) (333) (463) – (6,392)depreciation charge (597) (668) (114) (295) – (1,674)disposals 69 178 10 15 – 272Reversal of impairment 163 – – – – 163

At 31 December 2010 (4,239) (2,212) (437) (743) – (7,631)

carrying valueAt 31 December 2008 12,645 5,129 1,436 635 689 20,534

At 31 December 2009 10,955 5,389 1,364 909 1,723 20,340

At 31 December 2010 13,986 8,841 1,687 1,726 5,292 31,532

As at 31 december 2010, 2009 and 2008, construction-in-progress included advances paid for acquisition of property, plant and equipment in the amounts of RuB 1,858 million, RuB 319 million and RuB 1 million, respectively.

certain property, plant and equipment have been pledged to secure bank loans and borrowings granted to the Group:31/12/2010 31/12/2009 31/12/2008

carrying value of property, plant and equipment (refer to note 28) 2,177 728 1,179

the Group leases machinery and equipment and transport under a number of finance lease agreements. At the end of the term of the lease the Group takes automatic ownership of the assets or has an option to purchase leased assets at a beneficial price. Finance leases obligations are secured by the lessors’ title to the leased assets.

31/12/2010 31/12/2009 31/12/2008

carrying value of leased property, plant and equipment (refer to note 29) 803 682 590



Impairment testAs at 31 december 2009 and 2008, the Group carried out a review of the carrying value of its property, plant and equipment. the market value of land and certain buildings primarily located in Moscow and Moscow region suffered as a result of significant decline in market prices. the recoverable amounts of these assets were determined on the basis of average prices used in transactions for similar property in Moscow and Moscow region. As a result of valuation performed by independent appraiser the Group recognised impairment losses totalling RuB 628 million and RuB 1,608 million, for the year ended 31 december 2009 and 2008, respectively. these losses are attributable to Research and development segment (refer to note 6).

during the year ended 31 december 2010, due to the recovery of the Russian and worldwide economies, the Group performed a re-assessment of the carrying value of property, plant and equipment previously impaired. As at 31 december 2010, as a result of the re-assessment and new valuation performed by an independent appraiser the Group reversed RuB 163 million of previously recognised impairment losses, in the same segment as in previous years.

15. Non-current assets classified as held for saleAs at 31 december 2009, the Group’s non-current assets held for sale with carrying value of RuB 971 million represented certain office buildings, which the Group’s management planned to dispose of during the following year. during the year ended 31 december 2010, the Group completed the sale of these assets, resulting in a loss on disposal of RuB 108 million, which primary arose on other assets being sold as a combined package with the held for sale assets. the loss from disposal of the assets was presented within other operating expenses within loss from disposal of property, plant and equipment.

16. Goodwill31/12/2010 31/12/2009 31/12/2008

Balance at beginning of the year 913 138 –Acquired on the acquisition of subsidiaries (refer to note 7) – 775 138

Balance at end of the year 913 913 138

Allocation of goodwill to cash-generating unitsthe carrying amount of goodwill was allocated to the following separate cash generating units:

31/12/2010 31/12/2009 31/12/2008

oAo Helicopter Innovation Industrial company 775 775 –oAo novosibirsk Aircraft Repair plant 133 133 133oAo Reduktor-pM 5 5 5

Total 913 913 138

Annual test for impairmentAs at 31 december 2010 and at the end of each reporting period presented, the Group conducted an assessment of the recoverable amount of goodwill. there were no impairments recognised in any of the periods presented.

As at 31 december 2010, the most significant estimates and assumptions used in the determination of the value in use calculations are as follows:cash flows were projected based on the budgeted amounts for the year ending 31 december 2011 and forecasted up to 2020. this period is generally in line with remaining weighted average useful life of property, plant and equipment of the respective cash-generating units.

A post-tax discount rate of 15.0% was determined based on the Weighted Average cost of capital (“WAcc”) that reflects management’s assessment of the risks specific to the respective cash-generating units of the Group.Inflation for the following 10 years was consistent with the external sources of information. thereafter a 3.5% p.a. inflation rate was applied.

production growth rate (“pGR”) is based on management estimates of the growth in the helicopters industry, taking into account the most recent industry statistics and information.

Increase in sales prices will be in line with increase of spare parts price index (“sppI”), which is subject to indexation in line with the expected inflation. Accordingly, gross margin is expected to be relatively stable and varies from 44.3% to 51.9%.

A summary of the most significant assumptions used in the calculation of value in use are presented as follows:

Inflation, % sppI, %pGR

y-o-y %Gross

margin, %

2011 7.7 6.9 18.3 51.92012 6.9 5.3 3.6 50.62013 6.4 5.2 (11.5) 49.12014 6.0 5.0 (6.5) 47.72015 5.8 4.7 ‒ 46.5thereafter (2016 − 2020) 4.4 4.1 3.5 44.3

Average for the period up to 2020 5.5 4.8 2.1 46.7



17. Other intangible assetscapitalised

development costs

purchased software

and other total

CostAt 1 January 2008 643 55 698Additions 578 78 656Government grants received (577) – (577)

At 31 December 2008 644 133 777Additions 1,045 60 1,105Government grants received (371) – (371)disposals (17) (13) (30)

At 31 December 2009 1,301 180 1,481Additions 1,691 51 1,742Government grants received (391) – (391)Acquired on acquisition of Rostvertol (refer to note 7) 240 38 278

At 31 December 2010 2,841 269 3,110

Accumulated amortisationAt 1 January 2008 (377) (13) (390)Amortisation charge (35) (35) (70)

At 31 December 2008 (412) (48) (460)Amortisation charge (31) (26) (57)disposals 9 – 9

At 31 December 2009 (434) (74) (508)Amortisation charge (56) (37) (93)

At 31 December 2010 (490) (111) (601)

Carrying valueAt 31 December 2008 232 85 317

At 31 December 2009 867 106 973

At 31 December 2010 2,351 158 2,509

18. Investments in associates

oAo Rostvertol ooo tFKZAo Activnye

operatsyioAo AKB Zarechye

oAo AKB doncombank total

At 1 January 2008 1,258 327 245 188 – 2,018share of results (27) 6 – (28) – (49)dividends (26) – – (9) – (35)Additional investments – – 245 – – 245Acquisition of reciprocal interest – – (182) – – (182)

At 31 December 2008 1,205 333 308 151 – 1,997share of results 127 – 1 15 – 143dividends (26) (4) – (5) – (35)Acquisition of reciprocal interest – – (13) – – (13)

At 31 December 2009 1,306 329 296 161 – 2,092share of results 156 23 (11) 7 – 175dividends (291) – – – – (291)Acquisition of reciprocal interest (11) – – – – (11)disposal of reciprocal interest 11 123 216 – – 350disposal of investments – (475) – – – (475)Acquired on the business combination – – – – 125 125Reclassified due to business combination (1,171) – – – – (1,171)

At 31 December 2010 – – 501 168 125 794



OAO Rostvertol (“Rostvertol”)Rostvertol is a producer of helicopters, with a production facilities located in Rostov-on-don, the Russian Federation. In september 2007, oboronprom acquired a 17.3% interest in Rostvertol for a total cash consideration of RuB 723 million. As a result of this acquisition, the Group’s ultimate shareholding in Rostvertol increased to 22.8%, which comprises 17.3% held by oboronprom and an additional 5.5% held by Russian Federation state bodies, at which point the Group obtained a significant influence over Rostvertol.

the acquisition cost paid by oboronprom, along with the carrying value of the 5.5% held by the Russian Federation state bodies, was recorded by the Group as a shareholder’s contribution in the amount of RuB 1,298 million. the 5.5% legal interest held by the Russian Federation state bodies was transferred to oboronprom in 2008 and 2009. In december 2010, the entire 22.8% interest was transferred from oboronprom to the company, as a consideration for additional shares issued by the company. this transfer was part of the Group formation (refer to note 1).

the Group has accounted for Rostvertol using the equity method of accounting from september 2007 to december 2010, when the Group obtained control, through the acquisition of an additional 52.3% of Rostvertol’s shares for a total cash consideration of RuB 3,230 million (refer to note 7).

summarised financial information in respect of Rostvertol’s assets and liabilities is set out below:31/12/2009 31/12/2008

total assets 12,934 11,604total liabilities (7,317) (6,303)

Net assets 5,617 5,301Group interest, as % 22.8 22.8

Group’s share of net assets of associate 1,306 1,205

summarised financial information in respect of Rostvertol’s revenue and net income to the date when Rostvertol became a subsidiary of the Group is set out below:

From 01/01/2010 to 10/12/2010



Revenue 15,494 11,286 7,302profit/(loss) 696 567 (126)Group interest, as % 22.8 22.8 22.8

Group’s share of profit/(loss) of associate 156 127 (27)

OOO TFK (“TFK”)Before 1 January 2008, tFK, an associate of KHp, which in turn is a Group subsidiary, acquired an 11.4% interest in KHp from non-controlling shareholders that resulted in a proportional decrease of the carrying amount of the Group’s investment in tFK by RuB 123 million. As at 31 december 2009 and 2008, the carrying amount of shares of KHp, held by tFK and accounted for as a reduction of the Group investment in tFK, was RuB 123 million.

on 30 July 2010, KHp, a Group subsidiary, disposed of its 48.2% interest in share capital of ooo tFK, an associate of the Group, for a cash consideration of RuB 476 million (refer to note 7).

summarised financial information in respect of the tFK’s assets and liabilities is set out below:31/12/2009 31/12/2008

total assets 1,005 1,010total liabilities (65) (63)

Net assets 940 947Group interest, as % 48.2 48.2

Group’s share of net assets of associate 452 456less: reciprocal interest (123) (123)

Carrying value of investment in associate 329 333

summarised financial information in respect of the tFK’s revenue and net income to the date of disposal of investments in associate is set out below:

From 01/01/2010 to 30/07/2010



Revenue 134 284 241profit 48 1 12Group interest, as % 48.2 48.2 48.2

Group’s share of profit of associate 23 – 6



ZAO Activnye Operatsyi (“AO”)In 2007, progress, the Group subsidiary, established Ao by contributing RuB 245 million in exchange for 49% of its share capital. In 2008, progress contributed RuB 245 million into the share capital of Ao as result of its additional share issuance.

In 2009 and 2008, Ao acquired a 1.7% and 23.3% interest, respectively, in progress from non-controlling shareholders that resulted in a proportional decrease of the carrying amount of the Group investment in Ao by RuB 13 million and RuB 182 million, respectively. As at 31 december 2009 and 2008, the carrying amount of shares of progress, held by Ao and accounted for as a reduction of the Group investment in Ao, was RuB 195 million and RuB 182 million, respectively.

on 22 March 2010, oboronprom acquired the entire 25.0% interest in the share capital of progress for a cash consideration of RuB 440 million from Ao. As a result of this transaction, the carrying value of the investment in Ao increased by RuB 216 million and was presented as disposal of reciprocal interest in progress (refer to note 7).summarised financial information in respect of Ao’s assets and liabilities is set out below:

31/12/2010 31/12/2009 31/12/2008

total assets 1,029 999 998total liabilities (9) – –

Net assets 1,020 999 998Group interest, as % 49.0 49.0 49.0

Group’s share of net assets of associate 501 491 490less: reciprocal interest – (195) (182)

Carrying value of investment in associate 501 296 308

summarised financial information in respect of the Ao’s revenue and net income is set out below:Year ended 31/12/2010



Revenue 5 3 –profit/(loss) 21 1 (2)Group interest, as % 49.0 49.0 49.0

Group’s share of profit of associate 10 1 –less: Group’s share in gain from disposal of reciprocal interest (21) – –

Group’s result of (loss)/profit of associate (11) 1 –

OAO AKB Zarechye (“Zarechye”)Zarechye, an associate of KHp, is a regional commercial bank providing financial services to businesses and individuals in tatarstan Republic.

summarised financial information in respect of the Zarechye’s assets and liabilities is set out below:31/12/2010 31/12/2009 31/12/2008

total assets 4,871 3,218 3,129total liabilities (4,209) (2,582) (2,536)

Net assets 662 636 593Group interest, as % 25.4 25.4 25.4

Group’s share of net assets of associates 168 161 151

summarised financial information in respect of the Zarechye’s revenue and net income is set out below:Year ended 31/12/2010



Revenue 239 205 125profit/(loss) 27 61 (117)Group interest, as % 25.4 25.4 25.4

Group’s share of profit/(loss) of associate 7 15 (28)



OAO AKB Donkombank (“Donkombank”)As a result of the acquisition of Rostvertol, which occurred in december 2010, the Group acquired a 30.3% interest in donkombank, an associate of Rostvertol. donkombank is a regional commercial bank providing financial services to businesses and individuals in Rostov-on-don.

As at 31 december 2010, the total assets and liabilities of donkombank were RuB 3,228 million and RuB 2,807 million, respectively. Revenue, profit and the Group’s share of profit of donkombank for the year ended 31 december 2010 was RuB nil.

19. Trade receivables31/12/2010 31/12/2009 31/12/2008

trade receivables 9,062 6,790 6,073less: Allowance for doubtful trade receivables (493) (472) (409)

Total 8,569 6,318 5,664

Total non-current trade receivables 172 63 87

Total current trade receivables 8,397 6,255 5,577

the Group’s ageing of trade receivables is presented as follows:31/12/2010 31/12/2009 31/12/2008

past due, but not impaired:1 month 59 – 31-3 months 110 203 2363 months to 1 year 55 177 325thereafter 49 – 65

Total past due, but not impaired 273 380 629

due in:1 month 263 625 2261-3 months 3,034 4,871 3,8253 months to 1 year 4,827 379 897thereafter 172 63 87

Total 8,569 6,318 5,664

Included in the trade receivables at 31 december 2010, 2009 and 2008 were debtors with amounts of RuB 273 million, RuB 380 million and RuB 629 million, respectively, that were past due but not impaired. the Group does not hold any collateral over these balances. Management of the Group believes that these amounts are recoverable in full.

the following is movement in the allowance for doubtful trade accounts receivable:31/12/2010 31/12/2009 31/12/2008

Balance at beginning of the year 472 409 244Impairment losses recognised 104 63 165Amounts written-off as uncollected (83) – –


At 31 december 2010, 2009 and 2008, long-term trade receivables were measured at amortised cost using the weighted average discount rate of 13%. the Group does not hold any collateral over these balances.



20. Prepayments and other receivables31/12/2010 31/12/2009 31/12/2008

Non-financial assetsAdvances paid to suppliers of inventory and services 21,646 14,353 5,029prepaid commission fee 2,666 4,417 546

Total non-financial assets 24,312 18,770 5,575

Financial assetsother receivables 717 955 972less: Allowance for doubtful other receivables (93) (67) (44)

Total financial assets 624 888 928

Total non-current prepayments 5,080 3,414 312

Total current prepayments and other receivables 19,856 16,244 6,191

Advances paid to suppliers of inventories and servicesAs at 31 december 2010, 2009 and 2008, advances paid to suppliers of inventories and services are presented net of impairment provision of RuB 348 million, RuB 313 million and RuB 189 million, respectively. during the years ended 31 december 2010, 2009 and 2008, the Group recognised impairment losses in regard of advances paid to suppliers of inventories and services in the amounts of RuB 16 million, RuB 124 million and RuB 26 million, respectively.

As at 31 december 2010, 2009 and 2008, the Group five largest balances in advances paid to suppliers of inventories and services (individually exceeding 2% of the total outstanding balance) represented 41%, 51% and 37% of the total balance, respectively, and were presented as follows:

name of counterparty customer location 31/12/2010 31/12/2009 31/12/2008

oAo Radiopribor, Vladivostok Russian Federation 4,796 3,181 778Rosoboronexport Russian Federation 2,666 4,417 546Motor sich ukraine 1,052 657 574oAo Klimov Russian Federation 873 693 163oAo Korporatsiy’a Fazotron nIIR Russian Federation 651 684 –

10,038 9,632 2,061

OAO Radiopribor (“Radiopribor”)Radiopribor is a strategic supplier of homing systems to oAo Arsenyev Aviation company pRoGRess. the Government of the Russian Federation is a holder of “golden share” in Radiopribor that allowed the Group to nominate one representative to the Board of directors of Radiopribor. during the years ended 31 december 2010, 2009 and 2008, Radiopribor supplied approximately RuB 1,176 million, RuB 663 million and RuB 912 million of homing systems. As at 31 december 2010, 2009 and 2008, RuB 3,623 million, RuB 2,005 million and RuB 130 million, respectively, of outstanding advances were presented as part of non-current prepayments.

RosoboronexportRosoboronexport is a monopoly organisation established by the Government of the Russian Federation to control export sales of military and related products and an agent for a majority of the Group military and related product export sales. during the years ended 31 december 2010, 2009 and 2008, 30%, 29% and 26% of the Group sales were made through Rosoboronexport. the commission fee is established in each agreement and varies from 5% to 30% of the selling price.

Motor Sichthe Motor sich, an engine manufacturer in ukraine, is the largest and strategic supplier of the engines. Historically, Motor sich has been responsible for the production of approximately 60% of all engines supplied to the Group.

OAO Klimov (“Klimov”)Klimov is a related party of the Group and the biggest Russian engine manufacturer. It provides approximately 30% of the engines used by the Group. Klimov is also involved in a certain Group research and development projects as a party mainly responsible for the development of new or modification of existing engines.

OAO Korporatsiy’a Fazotron NIIR (“NIIR Fazotron”)nIIR Fazotron, a related party, is one of the key suppliers of radar guidance systems to the Group. As at 31 december 2010 and 2009, RuB 387 million and RuB 363 million of advances were presented as part of non-current prepayments.



other receivablesthe following is movement in the allowance for doubtful other receivables:

31/12/2010 31/12/2009 31/12/2008

Balance at beginning of the year 67 44 23Impairment losses recognised 42 23 21Amounts written-off as uncollected (16) – –


21. Other financial assets

31/12/2010 31/12/2009 31/12/2008

Bank deposits 259 3,217 184Advances paid for acquisition of subsidiaries 748 – –Available-for-sale investments in shares 456 81 48loans issued 198 46 689promissory notes 108 277 557other – 104 150

Total 1,769 3,725 1,628

Total non-current other financial assets 1,356 1,243 337

Total current other financial assets 413 2,482 1,291

Bank deposits

Bank name currency 31/12/2010 31/12/2009 31/12/2008

oAo AKB donkombank, an associate of the Group RuB 150 – –oAo AKB Zarechye, an associate of the Group RuB 20 – 108oAo AKB Bank of Moscow, a related party of the Group usd 18 128 66oAo AKB Bank of Moscow, a related party of the Group euro 26 6 –oAo AKB Bank of Moscow, a related party of the Group RuB – – 10oAo Bank saint petersburg usd – 1,058 –oAo Bank saint petersburg euro – 868 –ZAo AKB Interprombank RuB 45 957 –oAo AKB Rosbank RuB – 200 –

Total 259 3,217 184

OAO AKB Donkombank, an associate of OAO RostvertolAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in oAo AKB donkombank were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – RuB 1.8 n/A n/Adue date (up to) 27/09/2013 n/A n/A

OAO AKB Zarechye, an associate of OAO Kazan Helicopter PlantAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in oAo AKB Zarechye were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – RuB 3.5 n/A 4.0due date (up to) 28/01/2011 n/A 20/01/2010

OAO AKB Bank of Moscow, a related party of the GroupAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in oAo Bank of Moscow were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – usd 4.0 2.5 – 10.0 5.6 – 6.8effective interest rates, as % per annum – euro 2.4 – 3.9 3.9 n/Aeffective interest rates, as % per annum – RuB n/A n/A 7.2 – 10.9due date (up to) 20/10/2011 26/08/2010 16/12/2009



OAO Bank Saint PetersburgAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in oAo Bank saint petersburg were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – usd n/A 4.7 n/Aeffective interest rates, as % per annum – euro n/A 5.5 n/Adue date (up to) n/A 24/02/2010 n/A

ZAO AKB InterprombankAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in ZAo AKB Interprombank were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – RuB 6.5 3.0 – 12.0 n/Adue date (up to) 31/07/2011 30/12/2011 n/A

OAO AKB RosbankAs at 31 december 2010, 2009 and 2008, effective interest rates and maturity profile for the deposits placed in oAo AKB Rosbank were presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum – RuB n/A 7.5 n/Adue date (up to) n/A 30/06/2010 n/A

Advances paid for acquisition of subsidiariesIn december 2010, Rostvertol, the Group’s subsidiary, paid advances in the total amount of RuB 783 million for the acquisition of 100% interest in ZAo Avia company Rostvertol Avia and ZAo sanatory Zor’ka. up to 31 december 2010, Rostvertol obtained legal ownership of 5% and 2% of the shares in ZAo Avia company Rostvertol Avia and ZAo sanatory Zor’ka, respectively, which have been presented as Available-for-sale investments in shares (see below). the remaining shareholding interests in these entities were not transferred as at 31 december 2010 and are therefore presented as Advances paid for acquisition of subsidiaries for the remaining amount of RuB 748 million. After the reporting date, but before the date of authorisation for issuance of these consolidated financial statements, the remaining shares have been received by the Group (refer to note 40).

Available-for-sale (“AFs”) investments in sharesthe Group’s available-for-sale investments represent investments in listed and unlisted equity securities. these shares are not held for trading purposes and are accordingly classified as available-for-sale.

ownership, % 31/12/2010 31/12/2009 31/12/2008

AFS – measured at fair valueoAo tVtz 25.01 359 – –oAo AKB MMB Bank of Moscow 0.03 19 14 13

AFS – measured at costZAo Avia company Rostvertol Avia 5.0 32 – –ZAo sanatory Zor’ka 2.0 3 – –other various 43 67 35

Total 456 81 481 In december 2010, as part of acquisition of 52.3% of Rostvertol’s shares, the Group acquired 100% preferred shares of oAo tVtz or 25% ownership in oAo tVtz. loans issuedname of counterparty currency 31/12/2010 31/12/2009 31/12/2008

oboronprom RuB 96 30 339llc Ametist RuB 57 – –llc Vega-Hotel RuB 30 – –oAo Radiopribor RuB – – 320other RuB 15 16 30

Total 198 46 689



OboronpromAs at 31 december 2010, 2009 and 2008, RuB-denominated unsecured loans issued to oboronprom, the Group controlling shareholder, of which RuB 96 million is outstanding as at 31 december 2010, were assumed as a result of the acquisition of controlling interest in Rostvertol (refer to note 7). the nominal interest rate for the loan that was assumed on the acquisition of Rostvertol and still outstanding as at 31 december 2010 is 0.1% per annum. this loan was not presented at fair value on the date of the business acquisition since the difference between the carrying and fair values is insignificant. the effective interest rates and maturities for these loans are presented as follows:

31/12/2010 31/12/2009 31/12/2008

effective interest rates, as % per annum 0.1 12.0 20.0due date 01/09/2011 31/12/2010 24/09/2010

LLC Ametist and LLC Vega-HotelAs at 31 december 2010, RuB-denominated unsecured loans issued to llc Ametist and llc Vega-Hotel were assumed as a result of the acquisition of controlling interest in oAo Rostvertol (refer to note 7). the nominal interest rates vary from 0.1% to 7.0% per annum and mature from 31 May 2011 to 30 december 2011. these loans were not presented at fair value on the date of the business acquisition since the difference between the carrying and fair values is insignificant.

OAO RadiopriborAs at 31 december 2008, a RuB-denominated interest free unsecured loan was issued to oAo Radiopribor, a supplier of homing systems for progress (refer to note 20), the Group subsidiary. this loan was measured at amortised cost using the effective interest rate of 13.0% per annum. during the year ended 31 december 2009, oAo Radiopribor settled the loan in cash.

promissory notesAs at 31 december 2010, 2009 and 2008, the major types of promissory notes, their currency and effective interest rates were presented as follows:

type of promissory noteeffective

interest rate 31/12/2010 31/12/2009 31/12/2008

RuB-denominated bank promissory notes 11.0 59 73 27usd-denominated bank promissory notes 12.0 34 204 530RuB-denominated promissory note nil 15 – –

Total 108 277 557

the maturity dates for RuB-denominated bank promissory notes vary from 15 January 2011 to 21 december 2011. usd-denominated bank promissory notes were settled on 15 January 2011.

22. Deferred tax assets and liabilities

31/12/2010

Recognised in profit

or loss

Acquisitions (refer to note 7) 31/12/2009


or loss



or loss


Inventories 2,119 (217) 227 2,109 396 – 1,713 332 1 1,380loss carried forward – (583) – 583 583 – – – – –other financial assets 40 24 – 16 (3) – 19 3 11 5Accounts receivable 1,460 1,373 10 77 (98) – 175 (32) 23 184Accounts payable 77 (29) – 106 50 – 56 35 9 12property, plant and equipment 193 105 – 88 2 – 86 (47) 5 128loans and leases payable 48 (83) – 131 (32) – 163 132 9 22less: allowance provision (306) (306) – – – – – – – –

Deferred tax assets 3,631 284 237 3,110 898 – 2,212 423 58 1,731

property, plant and equipment (3,822) 256 (1,006) (3,072) 382 (6) (3,448) 1,129 (428) (4,149)Accounts payable (2,213) (580) (105) (1,528) (827) – (701) (273) (22) (406)commissions fee (772) 14 – (786) (677) – (109) (109) – –Accounts receivable (407) (117) – (290) 59 – (349) 149 (10) (488)Inventories (24) 90 – (114) 16 – (130) (71) 22 (81)other financial assets (42) 35 (25) (52) 8 – (60) 41 – (101)

Deferred tax liabilities (7,280) (302) (1,136) (5,842) (1,039) (6) (4,797) 866 (438) (5,225)

Net deferred tax liabilities (3,649) (18) (899) (2,732) (141) (6) (2,585) 1,289 (380) (3,494)



certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. the following is the analysis of the deferred tax balances (after offset) as they are presented in the consolidated statement of financial position:

31/12/2010 31/12/2009 31/12/2008

deferred tax assets 201 164 104deferred tax liabilities (3,850) (2,896) (2,689)

Net deferred tax liabilities (3,649) (2,732) (2,585)

the aggregated amounts of temporary differences associated with undistributed earnings of subsidiaries and associates were presented as follows:

31/12/2010 31/12/2009 31/12/2008

subsidiaries 3,055 2,996 1,206Associates 338 359 251

Total 3,393 3,355 1,457

As at 31 december 2010, 2009 and 2008, no deferred tax liabilities have been recognised in respect of these differences because management believes that the Group is in the position to control the timing of reversal of such differences and it is probable that such differences will not reverse in the foreseeable future. unrecognised differences relate to subsidiaries and associates registered on the territory of the Russian Federation.

As at 31 december 2010, 2009 and 2008, the Group recognised unused tax losses carried forward in the amount of RuB nil, RuB 583 million and RuB nil, respectively. unutilised tax losses for which deferred tax asset was recognised attributable to oAo Kazan Helicopter plant, a Group subsidiary, and fully utilised during the year ended 31 december 2010.

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

31/12/2010 31/12/2009 31/12/2008

oAo KAMoV 203 102 74oAo Kumertau Aviation production enterprise 336 201 111oAo Arsenyev Aviation company pRoGRess 108 75 161oAo novosibirsk Aircraft Repair plant 105 109 120

Total 752 487 466

deferred tax assets in regard of unused tax losses carried forward were not recognised as it is not probable that future profit will be available against which the unused tax losses can be utilised. the unused tax losses will expire during the period up to 2019.

23. Inventories31/12/2010 31/12/2009 31/12/2008

Raw materials and manufacturing supplies 15,723 8,693 6,370less: Allowance for obsolete raw materials and manufacturing supplies (975) (404) (247)

14,748 8,289 6,123

Work-in-progress 4,902 3,516 2,543Finished goods 1,061 383 568less: Allowance for obsolete work-in-progress and finished goods (591) (414) (562)

5,372 3,485 2,549

Total 20,120 11,774 8,672

certain inventories have been pledged to secure bank loans and borrowings granted to the Group:31/12/2010 31/12/2009 31/12/2008

carrying value of inventories (refer to note 28) 2,669 9,827 4,000

the movement in the allowance for obsolete and slow-moving items was as follows:31/12/2010 31/12/2009 31/12/2008

Balance at the beginning of the year 818 809 544Increase in allowance 683 114 280Acquired within the business combination 141 – –Reversal of allowance (76) (105) (15)

Balance at the end of the year 1,566 818 809



24. Construction contracts31/12/2010 31/12/2009 31/12/2008

construction costs incurred plus recognised profits less recognised losses to date 20,896 11,746 6,914less: progress billings (38,762) (23,207) (12,359)

(17,866) (11,461) (5,445)Recognised and included in the consolidated financial statements as:Amounts due from customers under construction contracts 6,336 3,015 2,596Amounts due to customers under construction contracts (24,202) (14,476) (8,041)

(17,866) (11,461) (5,445)

25. Other taxes receivable and payableother taxes receivable 31/12/2010 31/12/2009 31/12/2008

VAt receivable 6,556 3,285 2,738other 75 63 34

Total 6,631 3,348 2,772

other taxes payable 31/12/2010 31/12/2009 31/12/2008

VAt payable 1,158 376 234personal income tax and social taxes 262 137 226property tax 51 2 33other 67 55 61

Total 1,538 570 554

26. Cash and cash equivalents31/12/2010 31/12/2009 31/12/2008

current bank accounts, including:RuB-denominated 8,238 5,679 2,945usd-denominated 1,701 408 983euro-denominated 922 1,559 1,539

Bank deposits, including:RuB-denominated 6,423 1,747 802euro-denominated 645 – –usd-denominated – 19 17

other cash and cash equivalents 28 – –

17,957 9,412 6,286

Bank deposits31/12/2010 31/12/2009 31/12/2008

Bank name currency Rate, % Balance Rate, % Balance Rate, % Balance

oAo Bank VtB RuB 3.7 – 4.0 3,700 7.7 – 10.0 751 – –oAo sberbank of the Russian Federation RuB 2.3 – 2.8 1,423 4.5 56 5.0 130oAo AKB Zarechye RuB 0.2 – 2.8 1,200 6.0 – 7.2 830 – –oAo Bank saint petersburg euro 2.3 645 – – – –ZAo AKB novikombank RuB 4.5 100 9.0 10 – –oAo AKB International Financial club RuB – – 5.0 – 7.2 100 – –oAo promstroybank usd – – 9.6 19 – –oAo AKB Bank of Moscow RuB – – – – 10.5 400ZAo KB nats Invest prom Bank RuB – – – – 4.0 185oAo AKB Moscow credit Bank RuB – – – – 4.0 – 5.0 87oAo AKB Bank of Moscow usd – – – – 3.9 17

Total 7,068 1,766 819

All bank deposits classified as cash and cash equivalents have an original maturity of less than three months.



27. Share capitalordinary shares

31/12/2010 31/12/2009 31/12/2008

number of shares

share capital

number of shares

share capital

number of shares

share capital

Balance at beginning of the year 1,000 1 1,000 1 1,000 123 december 2010Issuance of additional shares (see below) 93,994 94 – – – –

Balance at end of the year 94,994 95 1,000 1 1,000 1

the company’s ordinary shares have a par value of RuB 1,000 and carry one vote per share on the shareholders meetings and entitle the holder to receive dividends, which are subject for approval at a shareholder’s meeting.

At the general meeting held on 26 April 2010, oboronprom decided to increase the share capital of the company by issuing 93,994 additional ordinary shares. the issuance was completed on 23 december 2010. All shares were acquired by oboronprom. As a consideration for the additional shares that were issued oboronprom transferred various controlling stakes in certain of the Group’s subsidiaries (refer to note 1), a 22.8% interest in Rostvertol and cash contribution of RuB 3,050 million.

oboronprom shares owned by the GroupAs part of the assets, which were acquired by the Group through the acquisition of the controlling interest in Rostvertol, the Group obtained 0.62% interest in oboronprom, the Group sole shareholder. oboronprom shares were measured at fair value of RuB 231 million at the date of the business combination, and have been presented as oboronprom shares owned by the Group in the consolidated statement of changes in equity.

dividends and retained earningsthe statutory financial statements of the company are the basis for profit distribution and other appropriations. As at 31 december 2010, 2009 and 2008, the company’s retained earnings in the financial statements prepared under reporting standards of the Russian Federation, which may be potentially distributed between shareholders in the form of dividends, were RuB 612 million, RuB 323 million and RuB 68 million (all • unaudited), respectively.

during the years ended 31 december 2010, 2009 and 2008, the company and the Group entities declared the following dividends:

Year ended 31/12/2010 Year ended 31/12/2009 Year ended 31/12/2008

entity name

total dividends

declared

Attributable to non-controlling

interests

total dividends

declared


interests

total dividends

declared


interests

oAo Kazan Helicopter plant 385 164 1 – 5 2oAo ulan-ude Aviation plant 115 29 134 33 54 13oAo Russian Helicopters 68 – 17 – – –oAo stupino Machine production plant 35 14 19 8 20 8oAo Reduktor-pM 30 6 17 3 14 3oAo MIl Moscow Helicopter plant 17 4 20 6 17 5oAo KAMoV 12 – – – – –oAo Helicopter service company 8 – – – – –

Total 670 217 208 50 110 31

earnings/(losses) per shareearnings/(losses) per share for the years ended 31 december 2010, 2009 and 2008 were calculated based on the weighted average number of the company’s ordinary shares outstanding during the respective periods. thereafter weighted average number was adjusted taking into consideration split of the company’s ordinary shares completed in 2011 (refer to note 40) but before authorisation of these consolidated financial statements for issuance.




Weighted average number of the company’s ordinary shares 3,318,000 1,000,000 1,000,000



28. Loans and borrowings31/12/2010 31/12/2009 31/12/2008

Interest rate Rate, % Balance Rate, % Balance Rate, % Balance

Secured bank loans, including:RUB-denominatedoAo sberbank, related party Fixed 4 – 11 6,406 4 – 19 6,130 11 – 16 3,937oAo Alfa Bank Fixed 9 3,230 – – 14 100oAo AKB Rosbank Fixed 10 – 15 3,040 12 – 18 3,910 10 – 12 1,468oAo Gazprombank, related party Fixed 9 – 11 1,471 – – – –ZAo AKB novikombank Fixed 10 – 12 807 14 – 20 81 – –oAo Bank VtB, related party Fixed 10 376 18 200 13 – 17 60ZAo KB nats Invest prom Bank Fixed 11 350 – – – –oAo Bank saint petersburg Fixed 10 300 17 300 – –oAo AKB ural Fd Fixed 13 200 18 200 – –oAo AKB Zarechye, related party Fixed 14 100 16 107 – –Vnesheconombank, related party Fixed – – 12 1,539 12 1,049 IFc Bank Fixed – – 18 500 – –ZAo tBK Fixed – – 14 300 – –ZAo surgutneftegazbank Fixed – – – – 10 920oAo AKB Bank of Moscow, related party Fixed – – – – 19 550oAo uRsA Bank Fixed – – – – 12 201oAo promsvyazbank Fixed – – – – 12 – 14 127other Various 9 – 12 228 3 – 18 223 12 –18 102

USD-denominatedoAo sberbank, related party Fixed 9 5,708 7 – 10 5,956 2 – 11 957oAo AKB Bank of Moscow, related party Fixed 9 3,871 9 – 10 3,690 10 – 17 1,471Vnesheconombank, related party Floating libor + 4.5 488 libor + 4.5 484 libor + 4.5 470oAo AKB spurt Fixed 9 427 10 302 14 323oAo promsvyazbank Fixed 10 274 – – 6 101oAo AKB Rosbank Fixed – – 12 – 13 499 6 579ZAo AKB transcapitalBank, related party Fixed – – 14 392 14 173IFc Bank Fixed – – 14 242 – –oAo Bank saint petersburg Fixed – – 10 – 14 45 14 492Vnesheconombank, related party Fixed – – – – 9 269oAo uralsib Fixed – – – – 12 160oAo uRsA Bank Fixed – – – – 12 145ZAo KB nats Invest prom Bank Fixed – – – – 17 103other 6 76 – – 16 41

EURO-denominatedoAo Bank saint-petersburg Fixed 9 3,227 – – – –oAo Gazprombank, related party Fixed 8 403 – – – –oAo sberbank, related party Fixed 8 109 9 393 2 70ZAo AKB transcapitalBank, related party Fixed – – 14 304 – –oAo Khanty-Mansiyskiy bank Fixed – – – – 16 559oAo AKB Zarechye, related party Fixed – – – – 16 56

Unsecured loans and borrowings, including:RUB-denominatedoAo Bank VtB, related party Fixed 12 – 13 3,670 – – – –oAo AKB Rosbank Fixed 8 – 15 2,175 – – – –oAo sberbank, related party Fixed 9 2,149 – – – –Vnesheconombank, related party Fixed 12 1,883 – – – –IFc Bank Fixed 11 – 12 1,180 – – – –Mustoe limited, related party Fixed 13 695 15 835 – –oboronprom, related party Fixed 0 – 9 331 0 – 17 333 0 – 9 107oAo AKB eurofinance Mosnarbank Fixed 8 325 – – – –llc Korsa, related party Fixed 13 175 16 175 16 175oAo Metkombank Fixed 11 150 – – – –damocles limited, related party Fixed – – – – 14 – 16 695lordsburg limited, related party Fixed – – – – 13 – 14 225other Fixed 0 – 10 27 – – – –



31/12/2010 31/12/2009 31/12/2008

Interest rate Rate, % Balance Rate, % Balance Rate, % Balance

USD-denominatedunicredit Bank Fixed 9 914 – – – –Rosoboronexport, related party Fixed 5 485 5 482 0 – 5 1,752BsGV Fixed 4 254 – – – –Mustoe limited, related party Fixed 11 171 10 – 13 169 – –oAo Bank saint petersburg Fixed – – 10 – 14 2,057 – –damocles limited, related party Fixed – – – – 15

EURO-denominatedoAo AKB Zarechye, related party Fixed 11 16 – – – –Accrued interest n/A n/A 200 n/A 141 n/A 32

Total 45,891 29,989 17,528

Long-term portion of loans and borrowings 20,514 14,728 7,609

Current portion repayable in one year and shown under current liabilities 25,377 15,261 9,919

the bank loans are subject to certain covenants. these covenants impose restrictions in respect of certain transactions and financial ratios, including, but not limited to restrictions in respect of indebtedness and profitability. certain loan agreements have minimum revenue quotas that Group entities must meet each year and minimum cash that must pass through the bank current accounts of the respective Group’s subsidiaries each month.

the maturity profile of loans and borrowings is as follows:31/12/2010 31/12/2009 31/12/2008

due in one month 301 297 174due from one to three months 1,044 3,039 3,889due from three to twelve months 24,032 11,925 5,856

Total current portion repayable in one year 25,377 15,261 9,919

due in the second year 9,787 9,449 2,661due in the third year 3,915 3,233 3,415due in the fourth year 485 43 ‒due in the fifth year and further 6,327 2,003 1,533

Total long-term portion of loans and borrowings 20,514 14,728 7,609

Total 45,891 29,989 17,528

the following items of property, plant and equipment and inventories were pledged to secure loans and borrowings:31/12/2010 31/12/2009 31/12/2008

Inventories (refer to note 23) 2,669 9,827 4,000property, plant and equipment (refer to note 14) 2,177 728 1,179

Total 4,846 10,555 5,179

As at 31 december 2010, 2009 and 2008, oboronprom and other related parties provided financial guarantees in the amount of RuB 10,089 million, RuB 7,381 million and RuB 3,502, respectively, for certain Group’s entities’ bank loans. the company is due to receive an additional guarantee from oboronprom in order to secure loan provided by oAo Alfa-bank, the proceeds from which were used to acquire 52.3% interest in Rostvertol. As at the date of authorisation of these consolidated financial statements for issuance, this guarantee had not yet been received.



29. Obligations under finance leasesMinimum lease payments present value of minimum lease payments

31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008

due within one year 250 303 166 192 234 102due in the second year 173 215 215 140 172 160due in the third year 144 133 171 132 111 134due in the fourth year 4 141 116 3 130 102due in the fifth year and further – – 132 – – 124

571 792 800 467 647 622less: future finance charges (104) (145) (178) n/A n/A n/APresent value of lease obligations 467 647 622 467 647 622

Total short-term portion of obligations under financial leases 192 234 102

Total long-term portion of obligations under financial leases 275 413 520

the Group leases property, plant and equipment under a number of finance lease agreements. the average lease term is 42 months. For the years ended 31 december 2010, 2009 and 2008, the weighted average effective interest rate was 19%, 13% and 13%, respectively. All leases are on a fixed repayment basis and mostly denominated in usd and euro. the Group’s obligations under finance leases are secured by the lessors’ title to the leased assets, carrying value of which is presented as follows:

31/12/2010 31/12/2009 31/12/2008

carrying value of leased property, plant and equipment (refer to note 14) 803 682 590

30. Retirement benefit obligationsdefined contribution planduring the years ended 31 december 2010, 2009 and 2008, the entities of the Group made following contributions to the Russian Federation state pension Fund:

31/12/2010 31/12/2009 31/12/2008

contributions to the Russian Federation state pension Fund 1,513 1,000 789

defined benefit plansthe substantially all the Group entities operate unfunded defined benefit pension plans for qualifying employees. the actuarial valuation of the Group’s defined benefit obligations as at 31 december 2010, 2009 and 2008 was performed by an independent actuary.

Amounts recognised in profit or loss in respect of defined benefit plan are presented as follows:Year ended 31/12/2010



current service cost 25 15 9Interest on obligation 23 17 14Actuarial losses recognised in profit or loss 7 12 3

Total 55 44 26

the amount included in the statement of financial position arising from the Group’s obligations in respect to its defined benefit plans are presented as follows:

31/12/2010 31/12/2009 31/12/2008

present value of unfunded defined benefit obligations 377 287 212Actuarial losses not recognised (53) (74) (26)

Total 324 213 186

Movements in the present value of defined benefit obligations are presented as follows:

31/12/2010 31/12/2009 31/12/2008

Defined benefit obligations at beginning of the year 213 186 145current service cost 25 15 9Interest on obligation 23 17 14Actuarial losses recognised in profit and loss 7 12 3Benefits paid (20) (17) (15)Assumed on business combinations (refer to note 7) 76 – 30

Defined benefit obligations at end of the year 324 213 186



during the year ending 31 december 2011, the Group expects to make payments to qualifying employees in the amount of approximately RuB 19 million.

the principle assumptions used for the purpose of the actuarial valuation are as follows:31/12/2010 31/12/2009 31/12/2008

discount rate 8.0% 9.0% 9.0%expected salary increase 10.0% 10.0% 10.0%expected post retirement benefit increase 7.6% 9.0% 9.0%expected state minimum wage increase 16.0% 16.0% 16.0%Inflation 6.5% 8.0% 8.0%Mortality table Russia 1998 Russia 1998 Russia 1998

the history of experience adjustments is presented as follows:31/12/2010 31/12/2009 31/12/2008 31/12/2007 31/12/2006

present value of defined benefit obligations 377 287 212 170 135experience adjustments on plan liabilities (28) 51 27 21 –

31. ProvisionsWarranty provision

contract losses provision

litigations and claims Total

Balance at 1 January 2008 180 41 26 247Increase in provision 284 71 86 441provision utilised (204) – (86) (290)

Balance at 31 December 2008 260 112 26 398Increase in provision 320 – 178 498provision utilised (260) (42) (9) (311)

Balance at 31 December 2009 320 70 195 585Increase in provision 507 – 483 990provision utilised (257) (41) (103) (401)Assumed on business combinations (refer to note 7) 139 – 90 229

Balance at 31 December 2010 709 29 665 1,403

the following is the analysis of the short-term and long-term provisions as they are presented in the consolidated statement of financial position:

31/12/2010 31/12/2009 31/12/2008

long-term provisions 121 73 82short-term provisions 1,282 512 316

1,403 585 398

32. Trade payables31/12/2010 31/12/2009 31/12/2008

trade payables 4,806 2,501 4,729

the maturity profile of the Group’s trade payables is presented as follows:31/12/2010 31/12/2009 31/12/2008

past due 1,578 657 861due in:Within one month 1,403 841 1,887From one to three months 1,227 598 1,303From three to twelve months 598 405 678

4,806 2,501 4,729



33. Advances received and other payables31/12/2010 31/12/2009 31/12/2008

Non-financial liabilitiesAdvances received 4,772 9,312 4,298unused vacation accrual 564 279 224

Total non-financial liabilities 5,336 9,591 4,522

Financial liabilitiesunpaid salary 1,018 562 276dividend payable 919 – –Assumed obligation for 15.4% of Reduktor pM shares (refer to note 1) 233 – –other payables 1,270 660 1,254

Total financial liabilities 3,440 1,222 1,530

Total 8,776 10,813 6,052

34. Non-cash transactionsthe following non-cash transactions were excluded from investing and financing activities presented in the cash flows statement:

31/12/2010 31/12/2009 31/12/2008

non-cash investing activitiesproperty, plant and equipment acquired under finance lease agreements 194 185 478property, plant and equipment contributed to the share capital of the Group’s subsidiary – – 220deferred proceeds from disposed property, plant and equipment (100) – –

Total non-cash investing activities 94 185 698

Non-cash financing activitiesFinance leases (194) (185) (478)property, plant and equipment contributed to the share capital of the Group’s subsidiary – – (220)

Total non-cash financing activities (194) (185) (698)

non-cash transactions also include payments made by oboronprom for acquisition and increase of ownership in certain Group subsidiaries during the years ended 31 december 2010, 2009 and 2008 as presented in notes 1 and 7.

35. Fair value of financial instruments the estimated fair values of certain financial instruments have been determined using available market information or other valuation methodologies that require considerable judgment in interpreting market data and developing estimates. Accordingly, the estimates applied are not necessarily indicative of the amounts that the Group could realise in a current market exchange. the use of different assumptions and estimation methodologies may have a material impact on the estimated fair values. the estimated fair values of short-term financial assets and liabilities, which include cash and cash equivalents, trade receivables, promissory notes, loans receivable, bank deposits, short-term borrowings, trade payables, approximated their carrying values due to the short-term nature of these instruments. the estimated fair values of long-term financial assets, which include promissory notes, loans receivable and bank deposits, approximated their carrying values in the context of the significance of outstanding balances at the reporting date.



detailed in the following table are the carrying and fair values of the Group’s financial assets and liabilities:

31/12/2010 31/12/2009 31/12/2008

carrying amount Fair value



Financial assetscash and cash equivalents 17,957 17,957 9,412 9,412 6,286 6,286trade receivables 8,569 8,569 6,318 6,318 5,664 5,664other receivables 624 624 888 888 928 928Bank deposits 259 259 3,217 3,217 184 184Available-for-sale investments 456 456 81 81 48 48loans issued 198 198 46 46 689 689promissory notes 108 108 277 277 557 557other financial assets – – 104 104 150 150

28,171 28,171 20,343 20,343 14,506 14,506

Financial liabilitiesloans and borrowings 45,891 45,555 29,989 29,393 17,528 16,930obligations under finance leases 467 467 647 647 622 622trade payables 4,806 4,806 2,501 2,501 4,729 4,729other payables 3,440 3,440 1,222 1,222 1,530 1,530

54,604 54,268 34,359 33,763 24,409 23,811

Valuation techniquesthe fair value of financial liabilities for which the carrying value did not approximate fair value was determined in accordance with generally accepted pricing models based on discounted cash flow analysis using interest rates from observable current market conditions. As at 31 december 2010, 2009 and 2008, discount rates used to determine fair value of long-term RuB-denominated loans and borrowings were 11.5%, 15.5% and 15.5%, respectively, and the fair value of long-term usd-denominated borrowings were calculated by using a discount rate of 9%, 13% and 13%, and the fair value of long-term euro-denominated borrowings were calculated by using a discount rate of 8.5%, 11% and 11%, respectively.

Management believes these discount rates represent the interest rates, which would be payable by the Group on similar loan facilities at the end of each reporting period presented.

the following table provides an analysis of financial instruments that are measured at fair value and divided into three valuation level based on the degree to which the fair value is observable.

Level 1 – quoted market price: financial instruments derived from quoted prices (unadjusted) in active markets for identical instruments in active markets.Level 2 – valuation technique using observable inputs: financial instruments with quoted market prices for similar instruments in active markets or quoted market prices for similar instruments in inactive markets or financial instruments valued using models where all significant inputs are observable in the market.Level 3 – valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.

As at 31 december 2010, 2009 and 2008 and during the years then ended, the Group had no financial instruments categorised as level 2, accordingly such information is not presented.

31/12/2010 31/12/2009 31/12/2008

level 1 level 3 level 1 level 3 level 1 level 3

Available-for-sale investments 19 359 14 – 13 –



36. Capital risk managementthe Group has historically been part of the larger oboronprom group, and accordingly did not have a consolidated capital structure prior to 31 december 2010. After the completion of the formation of the Group, the primary objective of the Group is to ensure that it is able to continue as a going concern by optimising its capital ratios in order to support its business and maximise the return to its shareholder. upon completion of the Group formation at the end of the 2010 financial year, management plans to review the capital structure on a regular basis. Based on the results of this review, the Group plans to take steps to balance its overall capital structure through the payment of dividends, new share issuances and share buy-backs as well the issuance of new debt or the redemption of existing debt. the management of the Group is planning to monitor capital on the basis of the gearing ratio, and to ensure that the ratio is not more than 3.0. this ratio is calculated as net debt divided by equity attributable to shareholder. net debt is determined as total loans and borrowings (refer to note 28) and obligations under finance leases (refer to note 29) less cash and cash equivalents (refer to note 26), as shown in the consolidated statement of financial position.

31/12/2010 31/12/2009 31/12/2008

loans and borrowings 45,891 29,989 17,528obligations under finance leases 467 647 622less: cash and cash equivalents (17,957) (9,412) (6,286)

Net debt 28,401 21,224 11,864equity attributable to the shareholder of the company 20,593 13,284 11,358

Gearing ratio 1.38 1.60 1.04

significant fluctuation in the gearing ratio was due to the Group formation and significant movements in the equity as a result of the share capital contributions from oboronprom.

the Group’s policy of capital risk management (that was introduced at the end of the 2010 financial year) is based on a net debt to adjusted eBItdA ratio. the management of the Group is planning to monitor the ratio on a regular basis to ensure that the ratio is not more than 5.0. Adjusted eBItdA is calculated in the same way as defined in the segment note (refer to note 6). the monitoring process is going to be performed based on the results as presented in the consolidated financial statements and for individual Group entities.

31/12/2010 31/12/2009 31/12/2008

Adjusted eBItdA 11,781 9,260 3,118net debt 28,401 21,224 11,864

Net debt/Adjusted EBITDA 2.41 2.29 3.81

37. Related partiesRelated parties include shareholders, affiliates and entities under common ownership and control of the Government of the Russian Federation and key management personnel.

In the ordinary course of their business, the Group entities enter into various sale, purchase and service transactions with related parties. these transactions are primarily with state bodies of the Russian Federation, other Government controlled entities, or in areas the Government is involved in the business. these transactions are on terms that may not be available to third parties. the repayment terms related to these transactions are consistent with those paid by third parties. In addition, the Group has received loans from and made deposits with related parties, the terms of which are disclosed in the related notes in these consolidated financial statements.

transactions between the Group entities, which are related parties, have been eliminated in full in these consolidated financial statements and are not disclosed in this note.

Financial guarantees and secured loansAs at 31 december 2010, 2009 and 2008, oboronprom and other related parties provided guarantees in the amount of RuB 10,089 million, RuB 7,381 million and RuB 3,502 million, respectively, for certain Group’s entities’ bank loans. the company is due to receive an additional guarantee from oboronprom, in order to secure loan provided by oAo Alfa-bank, the proceeds from which were used to acquire 52.3% interest in Rostvertol. As at the date of authorisation of these consolidated financial statements for issuance, this guarantee had not yet been received.



the Group had the following significant transactions and balances with the Government of the Russian Federation, parties under control of the Government of the Russian Federation and other related parties (as defined below).

Accounts receivable Advances paid cash and deposits other investments

31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008

Group 1 4,476 4,324 3,004 11,046 10,656 2,296 12,400 10,467 5,278 140 164 415Group 2 39 32 17 86 440 106 – – – 30 17 18Group 3 11 71 51 1 14 19 3,403 3,058 1,912 964 2,092 2,105

Total 4,526 4,427 3,072 11,133 11,110 2,421 15,803 13,525 7,190 1,134 2,273 2,538

Accounts payable Advances receivedloans and borrowings and

obligations under finance leases

31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008

Group 1 4,316 772 2,474 17,412 9,295 3,175 27,992 19,945 11,334Group 2 84 67 51 54 9 1 1,046 1,185 1,097Group 3 – 46 82 1 243 230 117 108 97

Total 4,400 885 2,607 17,467 9,547 3,406 29,155 21,238 12,528

All balances are unsecured and are expected to be settled in cash. As at 31 december 2010, the Group recognised an impairment provision against accounts receivable from related parties in the amount of RuB 108 million. no impairment provision was recognised as at 31 december 2009 and 2008. during the years ended 31 december 2010, 2009 and 2008, the Group received Government grants as a compensation of finance costs in the amount of RuB 520 million, RuB 592 million and RuB 21 million, respectively.

sales of goods and services purchases of goods and services Finance costs Interest income













Group 1 19,827 12,308 9,754 20,817 11,632 6,952 2,687 1,143 901 144 87 112Group 2 2 27 69 494 999 370 143 158 163 – – –Group 3 1,506 1,063 849 1 22 52 16 16 15 41 19 –

Total 21,335 13,398 10,672 21,312 12,653 7,374 2,846 1,317 1,079 185 106 112

Group 1 consists of the Government of the Russian Federation and other entities under common control of the Government of the Russian Federation.Group 2 consists of entities affiliated with the Group management.Group 3 consists of associates of the Group.

Remuneration of the Group’s key management personnelduring the years ended 31 december 2010, 2009 and 2008, key management personnel of the Group (who are considered to be the General director, deputy General directors, directors of key departments and Members of the Board of directors of the company) received as compensation RuB 68 million, RuB 57 million and RuB 34 million, respectively. Key management personnel received only short-term employment benefits. 38. Risk management activitiesthe main risks inherent to the Group’s operations are those related to liquidity risk, credit risk, currency risk and interest rate risk. A description of the Group’s risks and management policies in relation to these risks follows.

liquidity riskliquidity risk is the risk that the Group will not be able to settle all liabilities as they fall due. the Group’s liquidity position is carefully monitored and managed. the Group manages liquidity risk by maintaining adequate cash reserves, by continuously monitoring forecasted and actual cash flows and matching the maturity profiles of financial assets and liabilities. the Group prepares a twelve months financial plan to determine whether the Group has sufficient cash to meet expected operational expenses, financial obligations and investing activities as they arise.



presented below is the maturity profile of the Group’s loans and borrowings (maturity profiles for obligations under finance leases and trade payables are presented in note 33 and 29) based on contractual undiscounted cash flows, including interest, based on the earliest date on which the Group may be required to pay. to the extent that interest is based on a floating rate, the undiscounted amount is derived from interest rate at the reporting date.

due in

Weighted average annual

interest rate Total one monthone to three

monthsthree to twelve

monthssecond to fifth

years thereafter

At 31 December 2010Fixed rate loans and borrowings 10%principal 45,169 100 1,044 23,522 18,620 1,883Interest 8,091 386 724 2,909 3,869 203

53,260 486 1,768 26,431 22,489 2,086

Floating rate loans and borrowings 5%principal 522 – – 522 – –Interest 26 2 4 20 – –

548 2 4 542 – –

53,808 488 1,772 26,973 22,489 2,086

At 31 December 2009Fixed rate loans and borrowings 13%principal 29,364 655 2,541 11,926 12,721 1,521Interest 5,669 312 552 1,982 2,472 351

35,033 967 3,093 13,908 15,193 1,872

Floating rate loans and borrowings 6%principal 484 – – – 484 –Interest 57 2 5 22 28 –

541 2 5 22 512 –

35,574 969 3,098 13,930 15,705 1,872

At 31 December 2008Fixed rate loans and borrowings 11%principal 17,026 1,793 2,237 5,857 5,621 1,518Interest 3,097 159 284 991 1,271 392

20,123 1,952 2,521 6,848 6,892 1,910

Floating rate loans and borrowings 8%principal 470 1 – – 469 –Interest 113 5 6 28 74 –

583 6 6 28 543 –

20,706 1,958 2,527 6,876 7,435 1,910

At 31 december 2010, 2009 and 2008, the Group did not have any issued financial guarantees.

credit riskcredit risk is the risk that a customer may default or not meet its obligations to the Group on a timely basis, leading to financial losses of the Group. A majority of the Group’s relationships with counterparties have been ongoing for many years and in many cases the counterparties are Government controlled entities of the Russian Federation or other countries. As such, the Group has not historically performed a formal credit rating analysis.

Additionally, a majority of the Group’s export sales are overseen through the Group’s related party, Rosoboronexport, a monopoly agent, controlled by the Government of Russian Federation specifically for the oversight of export sales of military and related products. the Group does not typically establish credit limits as majority of the contracts are entered into by Group companies on a prepayment basis, except for certain of its agreements with Ministry of defence of the Russian Federation.

the average contractual credit period for sales of goods is 50 days. no interest is charged on trade receivables. An allowance for trade receivables is established based on the estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience, but generally the Group has fully provided for all trade receivables over 365 days, unless they relate to a contract whereby the agreement allows payment later than this point. At 31 december 2010, 2009 and 2008, the weighted average age of trade receivables was 65 days, 53 days and 49 days, respectively.



As at 31 december 2010, 2009 and 2008, the Group five largest customers (individually exceeding 2% of the total outstanding balance) represented 55%, 78% and 76% of the total balance of trade receivables, respectively, and is presented as follows:

name of counterparty customer location 31/12/2010 31/12/2009 31/12/2008

Ministry of defence of Russian Federation Russian Federation 2,709 3,667 1,307Ministry of defence of ethiopia Republic of ethiopia 783 – –turkmenhovayllary Republic of turkmenistan 522 – –Ministry of defence of Brazil Republic of Brazil 437 – –Ministry of defence of ecuador Republic of ecuador 274 – –oboronprom Russian Federation – 737 –Rosoboronexport Russian Federation – 222 92Avia company skol Russian Federation – 175 –utair-leasing Russian Federation – 145 –Ministry of defence of Venezuela Republic of Venezuela – – 2,523Government of Indonesia Republic of Indonesia – – 202spetstechno ltd. Russian Federation – – 175

4,725 4,946 4,299

the maximum exposure to credit risk arising from the Group’s financial assets is presented as follows:31/12/2010 31/12/2009 31/12/2008

cash 17,957 9,412 6,286trade and other receivables 9,193 7,206 6,592deposits 259 3,217 184loans issued 198 46 689promissory notes 108 277 557

Total 27,715 20,158 14,308

the Group holds cash and cash equivalents and places deposits mostly in sberbank and VtB, banks related by means of common control and ownership with the Government of the Russian Federation. From time to time the Group holds cash and cash equivalents and places deposits in Zarechye and donkombank, the Group’s associates.

Foreign currency riskForeign currency risk is the risk that the financial results of the Group will be adversely impacted by changes in exchange rates to which the Group is exposed. the Group undertakes transactions denominated in foreign currencies and consequently is exposed to foreign currency risk. Approximately 43% of its sales are denominated in usd and 15% of its sales are denominated in euro, 22% of its purchases are denominated in usd and 2% of its purchases are denominated in euro, 28% of its borrowings are denominated in usd and 8% are denominated in euro. the Group does not have formal arrangements to mitigate foreign currency risk. However, management of the Group believes that the foreign currency risk is partly mitigated for the Group by the situation where approximately 60% of total sales of the Group are denominated in foreign currencies that reduce negative impact of changes in exchange rates for the Group foreign currencies borrowings and purchases, denominated mostly in usd. the Group does not currently use derivative instruments to manage exchange rate exposures. the carrying amounts of the Group’s monetary assets and liabilities denominated in foreign currencies other than its functional currency were as follows:

31/12/2010 31/12/2009 31/12/2008

usd euro usd euro usd euro

Assetscash and cash equivalents 1,701 1,567 427 1,559 1,000 1,539other financial assets 37 26 1,224 874 93 ‒trade and other receivables 8,292 2,105 1,257 2,045 4,132 1,432

Total assets 10,030 3,698 2,908 4,478 5,225 2,971

Liabilitiestrade and other payables (1,599) (343) (44) (117) (408) (2)obligations under finance leases (410) (97) (523) (124) (503) (119)loans and borrowings (12,668) (3,755) (14,318) (697) (7,095) (685)

Total liabilities (14,677) (4,195) (14,885) (938) (8,006) (806)

Total net (liability)/asset position (4,647) (497) (11,977) 3,540 (2,781) 2,165



the table below details the Group’s sensitivity to a devaluation of the RuB against usd and euro by 10%, which management believes is an appropriate measure in the current market conditions and which would impact its operations.

usd-impact euro-impact

31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008

(loss)/profit (465) (1,198) (278) (50) 354 216

In case of an appreciation of RuB against usd and euro, results of the sensitivity analysis will be opposite to those presented above.

Interest rate riskInterest rate risk is the risk that changes in floating interest rates will adversely impact the financial results of the Group.

the Group manages this risk through analysis of current interest rates, performed by the Group’s treasury function. If there are significant changes in market interest rates management may consider refinancing of a particular financial instrument on more favourable terms.

the table below details the Group’s sensitivity to change of floating rates by 1%, which management believes is an appropriate measure of the current market conditions. the analysis was applied to borrowings based on the assumptions that amount of liability outstanding at the reporting date was outstanding for the entire annual period.

MosIBoR-impact lIBoR-impact

31/12/2010 31/12/2009 31/12/2008 31/12/2010 31/12/2009 31/12/2008

profit or loss 3 – – 49 238 157

39. Commitments and contingenciescontractual commitments In the course of carrying out its operations and other activities, the Group enters into various agreements which require the Group to invest in or provide financing to specific projects. In the opinion of the Group’s management, these commitments are entered into under standard terms, which are representative of each project’s feasibility and should not result in unreasonable losses for the Group.

Capital commitmentsthe Group’s capital commitments including both contractual commitments and capital expenditures provided in the annual budget for the year ending 31 december 2011 amount to RuB 7,601 million for property, plant and equipment and RuB 6,034 million for development costs.

operating leases: Group as a lesseethe majority of land plots on which the Group’s production facilities are located are owned by the state. the Group therefore leases the land through operating lease agreements, which expire in various years through 2057. According to the terms of the lease agreements rent fees are revised annually by reference to an order issued by the relevant local authorities. the Group entities have a renewal option at the end of each lease period and an option to buy land at any time, at a price established by the local authorities. the Group also leases other property, plant and equipment. the respective lease agreements have an average life of 1 to 6 years and generally do not have a renewal option at the end of the term. there are no restrictions placed upon the Group by entering into these agreements.

Future minimum rental expenses under non-cancellable operating leases are as follows:

due within one year 95due from second to fifth year 44due thereafter 30

Total 169

social commitmentsthe Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of its employees. this includes making contributions to the development and maintenance of housing, hospitals, transport services, recreation and other social needs in the geographical areas in which the Group operates.

litigationthe Group has a number of claims and litigations relating to sale and purchases of goods and services. Management believes that none of these claims, individually or in aggregate, will have a material adverse impact on the Group.

operating environmentemerging markets such as the Russian Federation are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in the Russian Federation and Russia’s economy in general.



laws and regulations affecting businesses in the Russian Federation continue to change rapidly. tax, currency and customs legislation within the Russian Federation are subject to varying interpretations, and other legal and fiscal impediments contribute to the challenges faced by entities currently operating in the Russian Federation. the future economic direction of the Russian Federation is largely dependent upon economic, fiscal and monetary measures undertaken by the Government, together with legal, regulatory, and political developments.

the global financial turmoil that has negatively affected Russian’s financial and capital markets in 2008 and 2009 has receded and Russia’s economy returned to growth in 2010. However, significant economic uncertainties remain. Adverse changes arising from systemic risks in global financial systems, including any tightening of the credit environment or from decline in the oil and gas prices could slow or disrupt Russia’s economy, adversely affecting the Group’s access to capital and cost of capital for the Group and, more generally, its business, results of operations, financial condition and prospects.

the Russian Federation is facing a relatively high level of inflation and according to the Government’s statistical data consumer price inflation for the years ended 31 december 2010, 2009 and 2008 was 8.8%, 8.8% and 13.3%, respectively.

Because Russia produces and exports large volumes of oil and gas, Russia’s economy is particularly sensitive to the price of oil and gas in the world market that fluctuated significantly during 2008-2010. Although recently years there has been a general improvement in economic conditions in the Russian Federation, it continues to display certain characteristics of an emerging market. these include, but are not limited to, currency controls and convertibility restrictions, relatively high level of inflation and continuing efforts by the Government of the Russian Federation to implement structural reforms.

tax contingencies in the Russian Federationthe tax system in the Russian Federation is at a relatively early stage of development, and is characterised by numerous taxes, frequent changes and inconsistent enforcement at federal, regional and local levels. the Government of the Russian Federation has commenced a revision of the tax system and passed certain laws implementing tax reform. the new laws reduce the number of taxes and overall tax burden on businesses and simplify tax legislation. However, these new tax laws continue to rely heavily on the interpretation of local tax officials and fail to address many existing problems. Many issues associated with practical implication of new legislation are unclear and complicate the Group’s tax planning and related business decisions. In terms of Russian tax legislation, authorities have a period of up to three years to re-open tax declarations for further inspection. changes in the tax system that may be applied retrospectively by authorities could affect the Group’s previously submitted and assessed tax declarations.

While management believes that it has adequately provided for tax liabilities based on its interpretation of current and previous legislation, the risk remains that tax authorities could take differing positions with regard to interpretive issues. this uncertainty may expose the Group to additional taxes, fines and penalties that could be significant.

At 31 december 2010, the Group assessed its tax contingent liabilities to be RuB 317 million.

Insurancethe Group’s entities do not have full coverage for property damage, business interruption and third party liabilities. losses from business interruption and third party liabilities could have a material adverse effect on the Group’s operations and financial position.

40. Events subsequent to the reporting dateAcquisition of subsidiaries, increase of ownership in subsidiaries and mandatory offers for the acquisition of remaining non-controlling interests in certain Group subsidiariesOAO Rostvertol (“Rostvertol”)on 21 February 2011, the company made a mandatory offer of RuB 2.69 per ordinary share to acquire remaining 24.9% non-controlling interests in Rostvertol. the maximum cash outflow that the Group can potentially face under this mandatory offer amounts to RuB 1,515 million. the mandatory offer was made in accordance with the Russian Federal law on Joint stock companies. the non-controlling shareholders have 70 (seventy) days from mandatory offer receipt date to accept or decline such offer. oAo Alfa-bank acts as a guarantor of the transaction for the total amount of RuB 1,543 million.

OAO Kazan Helicopters Plant (“KHP”)on 24 January 2011, the company acquired additional 33.2 million of ordinary shares of KHp for cash consideration of RuB 3,403 million. As a result of the transaction the Group’s effective ownership in KHp increased from 65.9% to 87.4%.

on 11 February 2011, as a consequence of the above mentioned transaction and in accordance with the Russian Federal law on Joint stock companies the company made a mandatory offer of RuB 102.5 per ordinary share to acquire the remaining non-controlling interests in KHp. the maximum amount of obligation which the Group may potentially face under this mandatory offer amounts to RuB 1,944 million. the non-controlling shareholders have 70 (seventy) days from mandatory offer receipt date to accept such offer. oAo Alfa-bank acts as a guarantor of the transaction for the total amount of RuB 1,944 million.



OAO Kumertau Aviation Production Enterprise (“KUMAP”)on 12 January 2011, additional 153,000 ordinary shares of KuMAp were issued and fully acquired by the Group (refer to note 1). the effective ownership in KuMAp did not change as the entity is 100% subsidiary of the Group.

OAO Kamov (“Kamov”)on 27 January 2011, Kamov duly authorised and registered 1,362,899,771 of ordinary shares of which 1,360,000,000 shares were acquired by the Group (refer to note 1). As a result of the transaction the Group’s effective ownership in Kamov increased from 98.5% to 99.8%.

Acquisition of controlling interest in ZAO Avia Company Rostvertol Avia and ZAO Sanatory Zor’kaIn January-March 2011, Rostvertol, a Group subsidiary, acquired remaining 95% interests in ZAo Avia company Rostvertol Avia (“Rostvertol Avia”) and 98% interest in ZAo sanatory Zor’ka (“Zor’ka”) (refer to note 21). upon completion of these transactions, the Group had a 100% interests in Rostvertol Avia and Zor’ka. At the date of the approval of these financial statements, the Group had not initiated valuation of the acquired assets. Additionally, Rostvertol Avia and Zor’ka do not prepare financial statements in accordance with IFRs and as such there is no reliable information on the carrying value of assets and liabilities of Rostvertol Avia and Zor’ka or their fair value on the date of the business combination. Accordingly, the Group is not being able to disclose such information.

establishment of share based stock option plan for top management of the Groupthe company is implementing certain plans to incentivise employees of the Group. this was approved by oboronprom’s Board of directors on 18 March 2011. the intention is that the incentive plan will be implemented through a mutual fund that will be responsible for administering the scheme under the management of ZAo “VtB capital Asset Management”.

decrease of ownership in Group’s associateon 31 March 2011, Zarechye issued an additional 2,003,250 ordinary shares (refer to note 18). the Group has not exercised it’s preemptive right for the proportional acquisition of newly issued shares, which were fully acquired by other independent shareholders. upon completion of the transaction, the Group’s ownership decreased to 15.5%. since that date, the Group lost significant influence over Zarechye and the investment will be accounted for as an available-for-sale investment in shares.

loans issued and repaidup to the date of approval of these consolidated financial statements the Group obtained bank loans in the total amount of RuB 16,164 million and repaid RuB 15,913 million.

split of the company’s ordinary shareson 21 March 2011, the company completed a split of its ordinary shares. upon completion of the split the company has 94,994,000 issued ordinary shares at RuB 1 par value.


Russian Helicopters was established on 9 January 2007 as a 100% subsidiary of united Industrial corporation (uIc) oboronprom.

(1) As of 31 december 2011(2) As of 25 May 2011

OwNERSHIP STRucTuRE

RuSSIAN HELIcOPTERS

OwNERSHIP STRucTuRE(1)

Mil Moscow HelicopteR plant – 72.38%

KaMov – 99.79%

Kazan HelicopteRs – 65.90%

RostveRtol – 75.06%

ulan-ude aviation plant – 75.09%

pRogRess aRsenyev aviation coMpany – 74.97%

KuMeRtau aviation pRoduction enteRpRise – 100%

stupino MacHine pRoduction plant – 59.9987%

ReductoR-pM – 80.84%

HelicopteR seRvice coMpany – 100%

novosibiRsK aiRcRaft RepaiRing plant – 95.06%


RuSSIAN HELIcOPTERS

OwNERSHIP STRucTuRE(2)

Mil Moscow HelicopteR plant – 72.38%

KaMov – 99.79%

Kazan HelicopteRs – 87.36%

RostveRtol – 92.01%

ulan-ude aviation plant – 75.09%

pRogRess aRsenyev aviation coMpany– 88.47%

KuMeRtau aviation pRoduction enteRpRise – 100%

stupino MacHine pRoduction plant – 59.9987%

ReductoR-pM – 80.84%

HelicopteR seRvice coMpany – 100%

novosibiRsK aiRcRaft RepaiRing plant – 95.06%



cONTAcT INFORMATION

Full name: Open Joint-Stock Company Russian HelicoptersAbbreviated name: oAo Russian Helicopterstaxpayer identification number: 7731559044primary state registration number: 1077746003334

Our offices:29 bld. 141, Vereyskaya st., Moscow,121357, Russian Federation (legal address)tel: +7 (495) 645-2530

42/2A, schepkina st., Moscow, 129110, Russian Federation tel: +7 (495) 627-5545

Contacts for investors and analysts Anton Vareha tel: +7 (495) 517-9414 Fax: +7 (495) 982-5983 e-mail: [email protected]

For media inquiries Roman Kirillov tel: +7 (495) 627-5545 ext. 122 Fax: +7 (495) 627-5424 e-mail: [email protected]

For general inquiries tel: +7 (495) 981-6373 Fax: +7 (495) 981-6395 e-mail: [email protected] www.rus-helicopters.ru

RAS auditorООО ntts Audit29 bld. 141, Vereyskaya st., Moscow,121357, Russian Federationtel: +7 (499) 558-0033, +7 (499) 558-0032www.auditvpk.ru

IFRS auditorZAo deloitte &touche cIs5 lesnaya st., Moscow, 125047, Russian Federationtel: +7 (495) 787-0600 Факс: +7 (495) 787-0601 www.deloitte.ru

Shareholder RegistrarZAo Registrar stAtus1st bld 32 novorogojskaya st., Moscow 109544, Russian Federationtel/fax: +7 (495) 974-8350, +7 (495) 974-8345www.rostatus.ru

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 89INTRODuCTIONCOMPANY OVERVIEwMANAgEMENT DISCuSSION AND ANALYSISCORPORATE gOVERNANCEFINANCIAL STATEMENTSAddITIONAL INFORMATION

FORwARd-LOOkING STATEMENTS

this annual report has been prepared by Russian Helicopers (the “Group” or the “company”) for informational purposes, and may include forward-looking statements or projections. these forward-looking statements or projections include matters that are not historical facts or statements and reflect the company’s intentions, beliefs or current expectations concerning, among other things, the company’s results of operations, financial condition, liquidity, performance, prospects, growth, strategies, and the industry in which the company operates. By their nature, forwarding-looking statements and projections involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. the company cautions you that forward-looking statements and projections are not guarantees of future performance and that the actual results of operations, financial condition and liquidity of the company and the development of the industry in which the company operates may differ materially from those made in or suggested by the forward-looking statements or projections contained in this publication. Factors that could cause the actual results to differ materially from those contained in forward-looking statements or projections in this publication may include, among other things, general economic conditions in the markets in which the company operates, the competitive environment in, and risks associated with operating in, such markets, market change in the helicopter and related industries, as well as many other risks affecting the company and its operations. In addition, even if the company’s results of operations, financial condition and liquidity and the development of the industry in which the company operates are consistent with the forward-looking statements or projections contained in this publication, those results or developments may not be indicative of results or developments in future periods. the company does not undertake any obligation to review or confirm expectations or estimates or to update any forward-looking statements or projections to reflect events that occur or circumstances that arise after the date of this publication.

Statements regarding competitive positionstatements referring to Russian Helicopters’s competitive position are based on the company’s belief and, in some cases, rely on a range of sources, including investment analysts’ reports, independent market studies and Russian Helicopters’s internal assessments of market share based on publicly available information about the financial results and performance of market participants.

preliminary approved by the Russian Helicopters’ Board of director on 25 May 2011.protocol # 23 dated 30 May 2011

Approved by the general shareholder meeting of Russian Helicopters on 30 June 2011.protocol # 3 dated 5 July 2011


NOTES

Russian HelicopteRs AnnuAl RepoRt And Accounts 2010 91INTRODuCTIONCOMPANY OVERVIEwMANAgEMENT DISCuSSION AND ANALYSISCORPORATE gOVERNANCEFINANCIAL STATEMENTSAddITIONAL INFORMATION

NOTES


1%

MI-8/17 MILITARY MI-28 OTHERMI-8/17 CIVIL MI-24/35 KA-52

ASIA EUROPE OTHERRUSSIA & CIS LATIN AMERICA AFRICA

0 10 20 30 40 50 60 70 80 90 100

0 10 20 30 40 50 60 70 80 90 100

2010 market sHareIn russIa / cIs(1)

86.5%

13.5%

86.8%

13.2%

51%

51% 22% 8% 5% 5% 10%

3% 4%

27% 15%

totaL:

$1.5bn

2010 GLobaL marketsHare In VaLue(1,2)

86.5%

13.5%

86.8%

13.2%

totaL:

$18.9bn

2010 saLes by GeoGraPHy(3)

2010 saLes by tyPe(3)

Source: Frost & Sullivan company data(1) Defined by value(2) Company estimates(3) Excluding Rostvertol’s revenues

2010 key Facts & FIGuresrussIan HeLIcoPters Is a LeadInG PLayer In tHe GLobaL HeLIcoPter Industry, tHe soLe russIan desIGner and manuFacturer oF HeLIcoPters and one oF tHe Few comPanIes worLdwIde wItH tHe caPabILIty to desIGn, manuFacture, serVIce and test modern cIVILIan and mILItary HeLIcoPtersour market sHare Russian Helicopters has over 8,500 helicopters registered globally in more than 100 countries around the world, representing 13% of the worldwide installed helicopter fleet. The Group is the leading helicopter manufacturer in Russia and the CIS with more than 85% market share, and one of the leading manufacturers in key emerging markets such as China and India. Russian Helicopters is also actively expanding its presence in Brazil. In 2010, Russian Helicopters was the third largest player in the world in terms of sales of helicopters. The Group has traditionally been the world’s leading producer of multi-role, attack, medium-lift and ultra-heavy lift helicopters.

market Leader GLobaL PLayer annuaL rePort and accounts 2010

russIan

HeLIcoPters An

nuA

l report An

d Accounts 2010

annual report 2010 - russian helicopters

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