Closed Joint-Stock Company Sukhoi Civil...

Closed Joint-Stock Company Sukhoi Civil Aircraft

Consolidated financial statements

for the year ended 31 December 2014 with independent auditors’ report


Consolidated financial statements

for the year ended 31 December 2014

Contents Independent auditors’ report ............................................................................................................ 1 Consolidated statement of financial position .................................................................................... 3 Consolidated statement of profit or loss and other comprehensive income...................................... 4 Consolidated statement of cash flows ............................................................................................. 5 Consolidated statement of changes in equity .................................................................................. 6 Notes to the consolidated financial statements ................................................................................ 7

A member firm of Ernst & Young Global Limited

Ernst & Young LLC Sadovnicheskaya Nab., 77, bld. 1 Moscow, 115035, Russia Tel: +7 (495) 705 9700 +7 (495) 755 9700 Fax: +7 (495) 755 9701 www.ey.com/ru

ООО «Эрнст энд Янг» Россия, 115035, Москва Садовническая наб., 77, стр. 1 Тел.: +7 (495) 705 9700 +7 (495) 755 9700 Факс: +7 (495) 755 9701 ОКПО: 59002827

Independent auditors’ report To the Shareholders and Board Directors of Closed Joint-Stock Company “Sukhoi Civil Aircraft” We have audited the accompanying consolidated financial statements of Closed Joint-Stock Company “Sukhoi Civil Aircraft” and its subsidiary (“the Group”), which comprise the statement of financial position as at 31 December 2014, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s responsibility for the financial statements Management of Closed Joint-Stock Company “Sukhoi Civil Aircraft” is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our 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 about 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 auditor’s 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 auditor considers internal control relevant to the entity’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 entity’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.

http://www.ey.com/russia

A member firm of Ernst & Young Global Limited

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Group as at 31 December 2014, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting standards. Other matter The consolidated financial statements of the Group for the year ended 31 December 2013 were audited by another auditor who issued a report on 14 May 2014 with an unmodified opinion on those statements and an emphasis of matter paragraph drawing attention to the change in the Group’s functional currency to US Dollar.

27 April 2015 Moscow, Russia


The accompanying notes are an integral part of these consolidated financial statements. 4

Consolidated statement of profit or loss and other comprehensive income

(In thousands of US Dollars)

Notes

For the year ended

31 December 2014

For the year ended

31 December 2013*

Revenues 18 567,808 513,763 Cost of sales

(640,264) (618,857)

Gross loss

(72,456) (105,094) Government grant related to income 19 3,895 17,569 Selling expenses

(3,759) (6,760)

Administrative expenses 20 (46,896) (51,354) Change in provision for onerous contract 16 15,867 10,317 Write-down of work-in-progress to net realisable value

(58,174) (39,180)

Other operating income and expenses

(14,090) (6,228)

Operating loss

(175,613) (180,730) Interest income

2,913 7,934

Interest and other finance expense 21 (187,372) (158,757) Foreign exchange gain

168,795 33,903

Loss before tax

(191,277) (297,650)

Income tax (expense)/benefit 22 (40,005) 52,712

Net loss being total comprehensive loss for the period, net of tax (231,282) (244,938)

* Certain amounts do not correspond to the consolidated financial statements as at 31 December 2013 and reflect corrections made

as detailed in Note 4.



Consolidated statement of cash flows


For the year ended

31 December 2014

For the year ended

31 December 2013*

Operating activities Loss before tax (191,277) (297,509)

Depreciation and amortization recognized in income 44,825 60,346 Interest income (2,913) (7,934) Foreign exchange gain (200,617) (15,885) (Profit)/loss on assets disposal 296 (2,397) Write-down of value added tax receivable 1,728 766 Write-down of work-in-progress to net realisable value 58,174 39,180 Onerous contract provision (15,867) (10,317) Interest expense and other finance charges 187,372 158,757 Other non-monetary adjustments 3,013 –

Cash flows from operating activities before changes in working capital and income tax

(115,266) (74,993)

Increase in inventories (270,237) (111,845) (Increase)/decrease in trade and other accounts receivable 3,315 (157,273) (Increase)/decrease in value added tax receivable 15,489 (56,284) Decrease in advances from customers (68,243) (91,070) Increase in trade and other accounts payable 154,802 195,423 Decrease in non-income tax payable (1,401) (1,470) Interest paid (110,619) (107,034)

Cash flows used in operating activities (392,160) (404,546)

Investing activities

Acquisition of property, plant and equipment (17,349) (9,776) Acquisition of intangible assets (59,047) (108,648) Increase of non-current value added tax receivable – (15,466) Interest received 1,027 3,809 Government grant related to assets 12,345 35,053

Cash flows used in investing activities (63,024) (95,028)

Financing activities Proceeds from share issues 694,000 79,394

Proceeds from borrowings 1,315,291 912,675 Repayment of borrowings (1,554,246) (640,933) Finance lease payments (3,982) (269)

Cash flows from financing activities 451,063 350,867

Effect of exchange rates changes (3,757) (2,348)

Decrease in cash and cash equivalents (7,878) (151,055)

Cash and cash equivalents at the beginning of period 31,403 182,458

Cash and cash equivalents at the end of period 23,525 31,403

* Certain amounts do not correspond to the consolidated financial statements as at 31 December 2013 and reflect

corrections made as detailed in Note 4.



Consolidated statement of changes in equity


Notes

Share capital

Share premium

Additional paid-in-capital

Reserve for the issue of

shares under registration

process

Foreign currency

translation reserve

Accumulated losses Total equity

Balance as at 1 January 2013 100,856 171,751 55,362 – 31,380 (635,007) (275,658)

Correction of errors 4 – – – – (62) (9,595) (9,657)

Balance as at 1 January 2013* 4 100,856 171,751 55,362 – 31,318 (644,602) (285,315)

Loss for the year* – – – – – (244,939) (244,939) Other comprehensive loss

Change in functional currency – – – – (31,318) 31,318 –

Total comprehensive loss for the year – – – – – – (244,939)

Transactions with owners, recorded directly in

equity Transactions with entities under common control,

net of related income tax effect of USD 4,664 thousand – – – – – 18,654 18,654

Shares issued 1,073 78,321 – – – – 79,394

Balance as at 31 December 2013 101,929 250,072 55,362 – – (839,569) (432,206)

Loss being total comprehensive loss for the period – – – – – (231,282) (231,282) Prepayment for shares under registration process 14 – – – 694,000 – – 694,000

Balance as at 31 December 2014 101,929 250,072 55,362 694,000 – (1,070,851) 30,512

* Certain amounts do not correspond to the consolidated financial statements as at 31 December 2013 and reflect corrections made as detailed in Note 4.


Notes to the consolidated financial statements

for the year ended 31 December 2014

(In thousands of US Dollars, unless otherwise stated)

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1. The Group Closed Joint-Stock Company “Sukhoi Civil Aircraft” (hereafter “the Company”) was established on 25 May 2000 with the purpose of development, testing, production and operation of new types of civil aircraft. On 28 January 2011 the Company received ARMAK Type Certificate for “Sukhoi Super Jet – 100” aircraft (formerly “Russian Regional Jet” or “RRJ”, thereafter “SSJ-100”) – a civil aircraft with a capacity of 95 seats in basic configuration. In February 2012, the Company received EASA Type Certificate for “Sukhoi Super Jet – 100” aircraft. The Company’s registered address is at: Building 2, 23B, Polykarpova Str., 125284 Moscow, Russian Federation. The Company has the following branches:

► Komsomolsk-on-Amur branch located at address: 1, Sovetskaya Str., 681018 Komsomolsk-on-Amur, Khabarobvsk Region, Russian Federation.

► Ulyanovsk branch located at address: 1, Antonova avenue, 432072 Uljyanovsk, Russian Federation.

The Company owns a 100% subsidiary – Air Finance Limited, an entity registered in Hong Kong. The Company’s shareholders are:

► Public Joint-Stock Company “Aviation Holding Company “Sukhoi” (the “Parent Company” or PJSC “Company “Sukhoi”), which owns 94.10% of shares;

► World Wings S.A. (96% subsidiary of Alenia Aermacchi, formerly Alenia Aeronautica, ultimately controlled by Finmeccanica), which owns 5.90% of shares.

Russian business environment The Company’s and its subsidiary (collectively, “the Group”) operations are mainly located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. These financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management’s assessment. 2. Basis of presentation Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”).


Notes to the consolidated financial statements (continued)

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2. Basis of presentation (continued)

Basis of measurement

The financial statements are prepared on the historical cost basis except that the carrying amounts of assets, liabilities and equity items in existence at 31 December 2002 include adjustments for the effects of hyperinflation, which were calculated using conversion factors derived from the Russian Federation Consumer Price Index published by the Russian Statistics Agency, GosKomStat. Russia ceased to be hyperinflationary for IFRSs purposes as at 1 January 2003.

Functional and presentation currency

The Group’s consolidated financial statements are presented in the United States Dollar (“USD”), which has also become the Company’s functional currency from 1 January 2013 because it reflected the economic substance of the underlying events and circumstances of the Company which represented a change from using the russian ruble (thereafter – “RUB”) as the functional currency in prior periods. As part of the process of preparation of the financial statements management constantly monitors and assesses internal and external information relevant for the decision on selection of the most appropriate functional currency. In this assessment, management considers key circumstances and events that have the most impact as well as seeks for the evidence of any variations or expected changes in those events and circumstances that may collectively indicate on a strong case for transition to a different functional currency. As regards to the result of the most recent analysis, the influence of some factors contributing to the decision evolved over time and became more evident only with 2012-2013 perspective. Other factors were generally assumed to be important in the previous reporting periods but only crystallised in 2013 in light of more factual evidence and thus supported the need for transition. The key factors are described below.

► Management thoroughly assessed the impact of the USD on the Company cost base and concluded that USD will be the currency with the largest impact in the foreseeable future – giving regard to an international cooperation status of the SSJ-100 program.

► The pattern of financing of the Company demonstrated a permanent drift from targeted government support in the form of government grants towards direct contributions from shareholders and attracting external debt denominated in USD.

► SSJ-100 program life-cycle phase became solidly operating and the Company demonstrated ability to reach target export markets by selling a substantial number of aircraft where pricing is driven by international market which is commonly based on USD.

As a result of the internal reassessment of the economic effects of transactions, events and conditions relevant for Company’s operations, management concluded that the nature of the operations and transactions were changed so that its functional currency also changed from RUB to USD as of 1 January 2013 with prospective effect. The key impact of the change in the functional currency would be in reduction of foreign currency exposures from USD to RUB, therefore it is generally expected that generally the devaluation fluctuations of RUB against USD would no longer have a significant negative effect impact on the Company’s performance. The RUB is not a readily convertible currency outside the Russian Federation and, accordingly, any conversion of RUB to USD should not be construed as a representation that the RUB amounts have been, could be, or will be in the future, convertible into USD at the exchange rate disclosed, or at any other exchange rate.



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2. Basis of presentation (continued) Going concern

These consolidated financial statements were prepared on a going concern basis, which assumes that the Group will continue operations in the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

► As at 31 December 2014 the Group’s current liabilities exceeded its current assets by USD 795,103 thousand (as at 31 December 2013: USD 502,043 thousand) and its net assets were positive as at 31 December 2014 and negative as at 31 December 2013 (USD 30,512 thousand and USD (432,206) thousand, respectively). Under Russian Corporate legislation the Company is required to maintain certain levels of net assets determined with reference to the statutory financial statements. As at 31 December 2014, at 31 December 2013 and at 31 December 2012 the Company’s net assets were below the Company’s share capital which formally required the Company’s shareholders to either approve a reduction of the Company’s share capital to a level below its net assets (provided that the share capital exceeds minimum requirements), or to liquidate the Company. Management concluded that additional issue of shares in favour of Public Joint-Stock Company “Company “Sukhoi” (refer to p. 4 of this section below) and (or) other companies, including financial organizations controlled by the Government of Russian Federation, shall align net assets of the Company with the Russian legislative requirements described above;

► Net losses of the Group for the year ended 31 December 2014 and for the year ended 31 December were USD 231,282 thousand and USD 244,938 thousand, respectively. As at 31 December 2014 and at 31 December 2013 accumulated losses were USD 1,070,851 thousand and USD 839,569 thousand, respectively. Negative financial results of the Group were primarily driven by below-the-budget sales of aircrafts on the Russian and internationalonal markets and executing onerous contracts;

► As at 31 December 2014 the Group breached of certain financial and non-financial covenants related to credit line facilities of Khabarovsk branch of JSC “VTB”, JSC “Sberbank”, VTB (Austria), VTB (France), JSC “Vnesheconombank”, European Bank of Reconstruction and Development and Eurasian Development bank with the principal amount of USD 632,933 thousand. As at 31 December 2014 the Group did not obtain any waivers (in form of additional agreements or official letters from the banks) from these banks and classified these credit line facilities as current liabilities;

► On 26 March 2015 the President of the Russian Federation decided to increase share capital of PJSC UAC in the amount of USD 1,777,512 (100,000 mln RUR) thousand to restructure Group’s liabilities in 2015. Additionally, in 2015 certain measures will be undertaken under the order of the President of the Russian Federation to stimulate sales of SukhoiSuperJet-100 aircrafts on the domestic market and to improve Group financial performance. Debt restructuring and the Government support measures on aircraft sales stimulation shall allow the Group to continue as a going concern in the foreseeable future;



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2. Basis of presentation (continued) Use of estimates and judgments The preparation of these consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies are described in the following notes:

► Note 2 – Functional and presentation currency;

► Note 2 – Going concern;

► Note 6 – Intangible assets;

► Note 10 – Recoverability of deferred tax assets;

► Note 11 – Inventories;

► Note 16 – Onerous contract provision;

► Note 26 – Put options over the sold aircrafts / residual value guarantee. 3. Summary of significant accounting principles

The accounting policies described below were applied consistently to all reporting periods presented in these consolidated financial statements. (a) Basis of consolidation Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group controls an investee if and only if the investor has all the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of the investor's returns. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income 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.



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3. Summary of significant accounting principles (continued) (a) Basis of consolidation (continued) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments. Transaction eliminated on consolidation Intragroup balances and transactions, and any unrealised gains arising from intragroup transactions, are eliminated in the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment. (b) Intangible assets Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. 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. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Furthermore, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are included in the cost. Amount of government grants provided is deducted from the cost of qualifying assets. Other development expenditure is recognised in the consolidated statement of comprehensive income as an expense as incurred. Upon completion of the development phase capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Other intangible assets Other intangible assets, which are acquired by the Group, are stated at cost less accumulated amortisation and impairment losses and less any related government grants. Expenditure on internally generated goodwill and brands is recognised in profit or loss as incurred.



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3. Summary of significant accounting principles (continued)

(b) Intangible assets (continued) Amortisation Intangible assets with a definite lifetime are amortised on a straight-line basis over their estimated useful lives from the date the asset is available for use. (c) Impairment

Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised, and is recognised in profit or loss in the period when the event occurred.

Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.

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. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). For the assets that cannot be directly allocated to the cash generating unit on a reasonable and consistent basis are testing by allocation to the group of cash-generating and compare the carrying amount of that group of cash-generating units, including the portion of the carrying amount of the corporate asset allocated to that group of units, with the recoverable amount of the group of units.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.



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3. Summary of significant accounting principles (continued) (c) Impairment (continued)

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (d) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation and impairment loss. Initial costs The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of overheads. Furthermore, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are included in the cost. Amount of government grants received for acquisition or construction of qualifying assets is deducted from the cost. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised with the carrying amount of the component being written off. Other subsequent expenditure is capitalised if future economic benefits will arise from the expenditure. All other expenditure, including repairs and maintenance expenditure, is recognised in profit or loss as incurred. Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. Land is not depreciated. The estimated useful lives are as follows:

Buildings and constructions 10-20 years Machinery and equipment 3-10 years Vehicles 5-10 years Aircrafts in operating lease 5-25 years Other 3-10 years

Depreciation methods, estimated useful lives and residual values are re-assessed annually.



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3. Summary of significant accounting principles (continued) (e) Inventories Inventories are stated at the lower of cost and 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. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. In the case of manufactured inventories and work-in-progress cost includes all directly related costs such as labour, material and direct overheads, and an allocation of fixed and variable production overheads. Labour costs include taxes and employee benefit costs associated with labour that is involved directly in the production process. (f) Provisions and contingences A provision is recognised in the consolidated statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Onerous contract provision A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of fulfilling the contract. The estimate of net cost of fulfilling the contract includes expected late delivery penalties, if applicable. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Contingencies Contingencies attributable to specific events are disclosed unless the possibility of an outflow or resources embodying economic benefit is remote. Contingent assets are disclosed in these consolidated financial statements when an inflow of economic benefits is probable. (g) Employee benefits The Group makes contributions for the benefit of employees to Russia’s State pension fund. The contributions are expensed as incurred. The Group has a defined contribution plan obligations for the benefit of the employees. The contributions are expenses as incurred.



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3. Summary of significant accounting principles (continued)

(h) Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred is recognised in profit or loss except for items recognised directly in equity or in other comprehensive income.

Current tax

Current tax expense is the tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Income tax currently payable is based on taxable profit for the year, which differs from profit as reported in the statement of profit and loss and comprehensive income 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 tax rates by the end of the reporting period.

Deferred tax

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(i) Government grants

Government grants (including non-monetary grants at fair value), are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them; and the grants will be received.

The Group receives Government grants for partial compensation of development costs capitalised within intangible assets, aquasition of property, plant and equipment. The Group recognises the amounts of government grants received as a deduction from the full amount of development costs incurred and costs incurred for aquasition and development of property, pland and equipment.

Government grants receive for compensation of expenses are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs which they are intended to compensate.

A government grant, to compensate for expenses or losses already incurred is recognised as income of the period in which it becomes receivable.



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3. Summary of significant accounting principles (continued) (j) Revenues Sale of aircraft Revenue from the sale of goods is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Any cash outflows related to customer penalties for late delivery of aircraft are deducted from gross amount of revenue. Sales of the aircrafts with written put option over the sold aircraft / residual value guarantee Revenue from sales of aircraft that include underlying asset value guarantee commitments are accounted for as lease agreements in accordance with IAS 17 Lease. Classification of lease agreements is based on expectation of future market value of the aircrafts at the date when option to prolong (acquire) aircraft for the next period becomes exercisable in order to determine whether at the inception of the contract it is reasonably certain that the customer will not exercise its put option and therefore lease term will cover substantially all economic life of the aircraft. In such case the revenue is recognised in full contract amount upon delivery of the aircraft providing that at the moment of delivery the aircraft future market value significantly exceeds the guaranteed residual value. For the sales deliveries accounted for as finance lease revenue recognised at fair value of the consideration receivable and finance income recognised based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the finance lease. For sales deliveries accounted for as an operating lease upon the initial sale of these aircraft to the customer, the total cost of the aircraft previously recognised in inventory is transferred to “Property, plant and equipment” and depreciated over the estimated useful economic life of the aircraft, with the proceeds received from the customer being recorded as deferred income and recognised in profit or loss evenly over the period till the expected date of guarantee exercise date. Sales of aircrafts under construction contracts The Group accounts for certain contracts with customers as construction contracts under IAS 11 Construction Contracts. Under these contracts ordered aircraft are heavily customized at development and production stage to meet customer requirements under contracts. As soon as outcome of a contract can be estimated reliably, contract revenue is recognized in profit and loss in proportion to the stage of completion of the contract, measured by the ratio of total costs incurred to the date relative to the total estimated costs on the contracts. When outcome of a contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract cost incurred that are likely to 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. Operating lease Rental 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.



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3. Summary of significant accounting principles (continued) (j) Revenues (continued) Services Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the date of the consolidated statement of financial position. The stage of completion is assessed by reference to surveys of work performed. (k) Finance income and costs Finance income comprises interest income on funds invested. Interest income is recognised when it is highly probable that the Group receive the economic benefits and the amount of income can be measured reliably. Interest income is recognised in profit or loss, using the effective interest method, except for the interest income on the invested funds, which were borrowed specifically for the purposes of obtaining a qualifying asset which reduces the amount of capitalised borrowing costs. Finance costs comprise interest expense on borrowings and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method, except for costs directly attributable to the acquisition, construction or production of qualifying assets which are included in the cost of qualifying assets. (l) Leases A lease is classified as an operating lease if it does not transfer substantially all risks and rewards incidental to ownership. Operating lease – the Group as lessee Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease payments made. Contingent rentals arising under operating leases are recognised in profit or loss in the period in which they are incurred. Finance lease – the Group as lessee Assets 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.



18

3. Summary of significant accounting principles (continued) (m) Determination and presentation of operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, and for which discrete financial information is available. All operating segment’s operating results are reviewed regularly by the Board of Directors to make decisions about resources to be allocated to the segment and assess its performance. As disclosed in Note 1, the Group’s current principal activity is the development of SSJ-100 program which is a start-up operation that earned the first revenues in 2011. Nearly all of the Group’s assets are associated with this program and are located in one geographical region – Russian Federation. The Group expects to receive the majority of its revenues from sales of SSJ-100. Giving regard to these factors, management believes that as of 31 December 2013 and 31 December 2014 all assets and liabilities related to operating activities of the Group are associated with a single operating segment, SSJ-100 program. The reconciliation of segment revenue and segment measure of profit or loss with reported amounts required by IFRS 8 Operating Segments is disclosed in Note 5 (n) Changes in accounting policies and disclosures Sales of the aircrafts with written put option over the sold aircraft / residual value guarantee In a course of preparation of these consolidated financial statements the Group reconsidered that sale contracts with written put option over the sold aircraft or provided residual value guarantee fall under the scope of IAS 18 Revenue or IAS 17 Leases rather than IAS 18 Revenue. The Group believes that terms of the contracts the Group entered to in substance provide customers with right of use of aircraft during the first 10-12 years with subsequent option to prolong (acquire) aircraft for the next period, actually until the end of its economic useful life. Therefore the Group considers that these contracts are in the scope of IAS 17. Classification of leases as operating or finance lease requires judgment. When deciding on classification the Group considers expectations of future market value of the aircrafts at the date when option becomes exercisable in order to determine whether at the inception of the contract it is reasonably certain that the customer will not exercise its put option and therefore lease term will cover substantially all economic life of the aircraft. The reconsideration did not have any impact on timing and amount of revenue recognised prior to 1 January 2014 under those sale contracts. (o) New and amended standards and interpretations Several new standards and amendments are effective as at 1 January 2014. However, they do not impact the consolidated financial statements of the Group. The nature of each new standard and amendment is described below: Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting.



19

3. Summary of significant accounting principles (continued) (o) New and amended standards and interpretations (continued) Recoverable Amount Disclosures for Non-Financial Assets – Amendments to IAS 36 These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. IFRIC 21 Levies IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. Annual Improvements 2010-2012 Cycle In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus, for periods beginning at 1 January 2014, and it clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. (p) Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but no impact on the classification and measurement of the Group’s financial liabilities. IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.



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4. Restatements In a course of preparation of the consolidated statement of financial position as of 31 December 2014, and the related consolidated statement of profit or loss and other comprehensive income for the twelve months ended 31 December 2014 the Group identified errors that relate to the consolidated financial statements for the year ended 31 December 2013. The errors were corrected by restating the comparative information for the year ended 31 December 2013. The cumulative effect of the corrections on the statement of financial position as at 31 December 2013 is summarised below.

Notes As previously

reported Restatement As restated

Assets Non-current assets

Intangible assets [1] 945,851 29,091 974,942 Deferred tax assets [6] 158,559 6,978 165,537

Total non-current assets 1,535,253 36,069 1,571,322

Current assets

Inventories [2, 5] 437,568 (19,589) 417,979 Trade accounts and other receivables [3] 312,689 (2,515) 310,174

Total current assets 975,916 (22,104) 953,812

Total assets 2,511,169 13,965 2,525,134

Equity and liabilities Equity Accumulated losses (805,433) (34,136) (839,569)

Total equity (398,070) (34,136) (432,206)

Non-current liabilities Onerous contract provision [4] 4,935 21,221 26,156

Total non-current liabilities 1,480,264 21,221 1,501,485

Current liabilities Trade accounts and other payables [3, 5] 316,293 26,880 343,173

Total current liabilities 1,428,975 26,880 1,455,855

Total liabilities 2,909,239 48,101 2,957,340

Total equity and liabilities 2,511,169 13,965 2,525,134



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4. Restatements (continued)

The cumulative effect of the corrections on the statement of profit or loss and other comprehensive income for the period ended 31 December 2013 is summarised below.

Notes As previously


Cost of sales [2, 3, 5] (595,933) (22,924) (618,857)

Gross loss

(82,170) (22,924) (105,094)

Selling expenses [3] (3,162) (3,598) (6,760) Change in provision for onerous contract [4] 11,568 (1,251) 10,317 Write-down of work-in-progress to net

realisable value [2] (37,407) (1,773) (39,180) Other operating income and expenses [3] 92 (6,320) (6,228)

Operating loss

(144,864) (35,867) (180,730)

Interest expense and other finance charges

[1, 4] (163,870) 5,113 (158,757)

Foreign exchange gain [5] 33,664 239 3,9036

Loss before tax

(267,136) (30,514) (297,650)

Income tax benefit [6] 46,675 6,037 52,712

Net loss being total comprehensive loss for the period, net of tax (220,461) (24,477) (244,938)

The cumulative effect of the corrections of error on the statement of financial position as at 1 January 2013 summarised below:

Notes As previously


Assets Non-current assets

Intangible assets [1] 868,181 20,875 889,056 Deferred tax assets [6] 116,548 1,415 117,963

Total non-current assets 1,435,776 22,290 1,458,066

Current assets

Inventories [2] 428,936 (9,176) 419,760

Total current assets 950,410 (9,176) 941,234

Total assets 2,386,186 13,114 2,399,300

Equity and liabilities Equity Foreign currency translation reserve 31,380 (62) 31,318

Accumulated losses (635,007) (9,595) (644,602)

Total equity (275,658) (9,657) (285,315)

Non-current liabilities Onerous contract provision [4] 16,503 16,867 33,370

Total non-current liabilities 1,230,454 16,867 1,247,321

Current liabilities Trade accounts and other payables [3] 219,697 5,904 225,601

Total current liabilities 1,431,390 5,904 1,437,294

Total liabilities 2,661,844 22,771 2,684,615

Total equity and liabilities 2,386,186 13,114 2,399,300



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4. Restatements (continued)

Correction of errors

[1] In the course of preparation of the statement of financial position as at 31 December 2014 the Group determined that certain expenditures related to development of intangible assets incurred in 2011-2013 should have been treated as qualified asset and related interest expenses amounted to USD 29,091 thousand should have been capitalised as a cost of intangible asset. The effect on “Intangible assets” in consolidated statement of financial position ended 31 December 2013 and 1 January 2013 amounted to USD 29,091 thousand and USD 20,875 thousand, respectively. The decrease of “Interest expenses and other finance charges” in the consolidated financial statement of profit or loss for the period ended 31 December 2013 amounted to USD 8,216 thousand;

[2] In the course of preparation of the statement of financial position as at 31 December 2014 the Group determined that production overhead costs essential to complete production of an aircraft were not taken into account to calculate write-downs of work-in-progress to net realisable value. The effect on “Inventories” in consolidated statement of financial position ended 31 December 2013 and 1 January 2013 amounted to USD 1,725 thousand and USD 9,176 thousand, respectively. The decrease of “Cost of sales” and the increase of “Write-down of work in progress to net realisable value” in the consolidated financial statement of profit or loss for the period ended 31 December 2013 amounted to USD 9,224 and 1,773 thousand, respectively;

[3] In the course of preparation of the statement of financial position as of 31 December 2014 the Group identified unrecorded expenses (selling commissions and costs of production components and other types of expenses) related to 2012-2013 periods. The increase of “Trade and other receivable” in consolidated statement of financial position ended 31 December 2013 amounted to USD 2,515 thousand. The increase of “Trade accounts and other payables” in consolidated statement of financial position ended 31 December 2013 and 1 January 2013 amounted to USD 19,079 thousand and USD 5,904 thousand, respectively. The decrease of “Trade accounts and other receivable” in consolidated statement of financial position ended 31 December 2013 amounted to USD 2,515 thousand. The increase of “Cost of sales”, “Other operating income and expenses” and “Selling expenses” in the consolidated financial statement of profit or loss for the period ended 31 December 2013 amounted to USD 5,772 thousand, USD 6,320 thousand and USD 3,598 thousand, respectively;

[4] In the course of preparation of the statement of financial position as of 31 December 2014 the Group identified a clerical error in calculation of onerous contract provision as at 31 December 2013 and 1 January 2013. The increase of “Onerous contract provision” in consolidated statement of financial position ended 31 December 2013 and 1 January 2013 amounted to USD 21,221 thousand and USD 16,867 thousand, respectively. The decrease of “Change in onerous contract provision” and “Interest expenses and other finance charges” in the consolidated financial statement of profit or loss for the period ended 31 December 2013 amounted to USD 1,251 thousand and USD 3,103 thousand, respectively.

[5] In the course of preparation of consolidated statement of financial position as of 31 December 2014 the Group identified unrecorded expenses (costs of production components) related to 2013 period. The effect on “Inventories” and “Trade and other payables” in the consolidated statement of financial position ended 31 December 2013 amount to USD 17,864 thousand and USD 7,800 thousand, respectively. The increase of “Cost of sales” and “Net foreign exchange gain” in the consolidated statement of profit and loss fo the period ended 31 December 2013 amounted to USD 26,376 thousand and USD 239 thousand, respectively.



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4. Restatements (continued) Correction of errors (continued)

[6] Corrections made, as described above, resulted in increase of “Deferred tax assets” in consolidated statement of financial position ended 31 December 2013 and 1 January 2013 by USD 6,978 thousand and USD 1,415 thousand, respectively and increase of income tax benefit by USD 6,037 thousand in the consolidated financial statement of profit or loss for the period ended 31 December 2013.

In the course of preparation of interim condensed consolidated financial statements as of 30 June 2014 the Company did not record the correction [5] as those unrecorded expenses were discovered after the interim condensed consolidated financial statements were issued. Consequently, in the interim condensed consolidated statement of financial position as at 30 June 2014 “Deferred tax assets”, “Trade accounts and other payables” and “Accumulated losses” are understated by USD 5,133 thousand, USD 7,800 thousand and USD 20,531 thousand, respectively and “Inventories” is overstated by USD 17,864 thousand. 5. Operating segments

The Group has one reportable segment “Sukhoi Super Jet-100” that includes development and production of civil aircraft. The reportable segment is managed and operates manufacturing facilities in the Russian Federation.

The Board of Directors reviews internal management reports prepared on a quarterly basis based on the statutory accounting records prepared in accordance with the legislation of the Russian Federation.

The major reconciling differences between the information provided to the consolidated financial statements at each reporting date.Board of Director and the related IFRS-based amounts relate to:

► Timing differences related when revenue and costs are recognised;

► Adjustments of net realisable value of inventories and change in onerous contracts;

► Administrative and selling expenses. Information regarding the results of reportable segment is included below. Segment performance is measured based on segment profit before income tax. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.

2014 2013

Reportable segment loss before income tax (145,471) (382,809) Difference in timing of recognition of revenue and cost of sales (7,016) (48,205) Difference in timing of recognition of administrative expenses (7,594) (236) Differences in recognition inventory to net realisable value and depreciation of fixed assets (76,889) (15,305)

Difference in timing recognition of commissions – 6,206 Foreign currency exchange gain 83,455 138,721 Differences in recognition income and expenses relate to onerous contract provision 13,681 (2,346)

Zero-rate debt interest and finance lease interest expense (35,892) (5,718) Difference in timing of recognition of other operating income and expenses (15,551) 12,042

Loss before income tax (191,277) (297,650)



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5. Operating segments (continued) In presenting the following information, segment revenue has been based on the geographic location of customers: 2014 2013

Russian Federation 385,888 186,209 Americas 180,324 180,462 South-East Asia – 133,104 Other locations 1,596 13,988

567,808 513,763

In 2014 and 2013 revenue from four individually significant customers represented 94% and 73% of the Group’s revenues for 2014 and 2013 respectively.

6. Intangible assets

Software

Development of SSJ-100 program

Advances given for

development costs Total

Cost As of 1 January 2013 18,090 932,662 20,550 971,302

Additions 2,219 146,447 1,093 149,759 Disposal (711) – – (711) Transfers – 5,375 (5,375) – Government grant related to

development cost – (35,053) – (35,053)

As of 31 December 2013 19,598 1,049,431 16,268 1,085,297

Additions 5,297 71,469 4,914 81,680 Disposal (378) – – (378) Transfers – 5,876 (5,876) – Government grant related to

development cost – (7,938) – (7,938)

As of 31 December 2014 24,517 1,118,838 15,306 1,158,661

Accumulated amortization As of 1 January 2013 2,432 79,814 – 82,246

Charge for the period 1,270 27,550 – 28,820 Disposal (711) – – (711)

As of 31 December 2013 2,991 107,364 – 110,355

Charge for the period 3,244 25,727 – 28,971 Disposal (378) – – (378)

As of 31 December 2014 5,857 133,091 – 138,948

Net book value As of 1 January 2013 15,658 852,848 20,550 889,056

As of 31 December 2013 16,607 942,067 16,268 974,942

As of 31 December 2014 18,660 985,747 15,306 1,019,713

Capitalisation of development costs

On 28 January 2011 the Group obtained the Type Certificate for serial aircraft production (ARMAK) and subsequently commenced deliveries to the first customers.



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6. Intangible assets (continued) Management concluded that development costs capitalised up to the date of the Type Certificate met the requirement of IAS 38 Intangible Assets as ‘available for use’ which triggered commencement of amortisation of these costs based on straight-line method over the estimated useful life of the asset. Management expects that certain development activities are still required to complete the development of the aircraft to ensure its operating capabilities and required aviation standards in the target markets.

Management monitors whether future development activities result in meeting capitalisation requirements of IAS 38 and, if met, related costs adjust the carrying amount of related intangible asset. In 2014 additions to development costs in amount of USD 71,469 thousand were attributed to expansion of the Type Certificate. 7. Impairment of intangible assets Management constantly monitors the SSJ-100 program for signs of impairment. As at 31 December 2014, management performed an impairment test taking into account the current financial position of the Group as an indicator for potential impairment. Following the requirements of IAS 36 Impairment of Assets and considering that the respective development costs are treated as “available for use”, management calculated the cash flow projections model for the full period of SSJ-100 program till 2051. For the purpose of measuring the recoverable amount of intangible asset the Group evaluated value in use of these assets. Forecasted cash-flow projections for 2015-2017 used for impairment test were based on the mid-term business plan which was revised in January 2015. Forecasted cash-flow projections for 2018-2051 were based on long-term business plan prepared for the whole SSJ-100 program. Below is the analysis of the sensitivity of the cash flow model to changes in the sales volume, EBITDA margin from sales of aircraft and discount rate. Long-term bisness plan have been prepared by independent industry experts.

• Sales volume. Total amount of sales until 2051 amounts to 765 aircrafts. In 2015, 2016, 2017 the Company forecasted sales amounted to 36, 47, 50 aircrafts respectively. A decrease of annual aircraft sales volumes by 45% would result in no impairment loss related to the Group’s Intangible assets. A decrease of annual aircraft sales volumes by 50% would result in impairment loss of USD 40,790 thousand related to the Group’s Intangible assets.

• EBITDA. Average EBITDA margin from aircrafts sales assumed in the model equals to 26%. A decrease of forecasted EBITDA by 10% would result in no impairment loss related to the Group’s Intangible assets. A decrease of forecasted EBITDA by 10% would result in an impairment loss. A decrease of forecasted EBITDA by 11% would result in impairment loss of USD 55,007 thousand related to the Group’s Intangible assets.

• Discount rate. Discount rate before tax of 15.4% was used for discounting of expected cash flows. An increase of discount rate by 8% would result in no impairment loss related to the Group’s Intangible assets. An increase of discount rate by 9% would result in impairment loss of USD 57,115 thousand related to the Group’s Intangible assets.



26

8. Property, plant and equipment

Buildings and

construc-tions

Machinery and

equipment

Aircrafts in operating

leases Vehicles Other

Advances paid for

acquisition of PP&E Total

Cost

At 1 January 2013 83,430 228,950 246,880 3,485 13,461 8,755 584,961

Additions and trasfers 3,992 17,440 20,080 – 268 (4,599) 37,181 Transfer from Inventories – 450 – – – – 450 Transfer to finance lease – (9,124) – – – – (9,124) Disposal – (1,529) (23,859) – (40) – (25,428)

At 31 December 2013 87,422 236,187 243,101 3,485 13,689 4,156 588,040

Additions and trasfers 5,160 141,576 (118,605) 138 1,037 (2,604) 26,702 Government grant related to

Mashinery and equipment – (4,407) – – – – (4,407) Transfer to Inventories – (6,463) (8,113) – – – (14,576) Disposal (9) (1,953) – (62) (602) – (2,626)

At 31 December 2014 92,573 364,940 116,383 3,561 14,124 1,552 593,133

Accumulated depreciation At 1 January 2013 26,233 134,062 52,986 2,749 11,637 – 227,667 Depreciation for the period 7,114 37,507 14,043 505 851 – 60,020 Additions and transfers – 4,011 – – – – 4,011 Disposal – (1,525) (5,663) – (40) – (7,228)

At 31 December 2013 33,347 174,055 61,366 3,254 12,448 – 284,470

Depreciation for the period 6,545 27,248 11,773 123 644 – 46,333 Addition and transfer – 39,487 (39,487) – – – – Disposal (9) (1,664) – (62) (595) – (2,330) Transfer to Inventories – (1,441) (1,363) – – – (2,804) Impairment losses disposal – (1,778) (925) – – – (2,703)

At 31 December 2014 39,883 235,907 31,364 3,315 12,497 – 322,966

Net book value

At 1 January 2013 57,197 94,888 193,894 736 1,824 8,755 357,294

At 31 December 2013 54,075 62,132 181,735 231 1,241 4,156 303,570

At 31 December 2014 52,690 129,033 85,019 246 1,627 1,552 270,167

Aircrafts in operating lease Aircrafts in operating leases as at 31 December 2014 include 5 aircrafts provided to customers under operating lease agreements. As at 31 December 2014 the aircrafts in operating leases were tested for impairment. No impairment has been recognized. Finance lease The Company leases equipment and vehicles under a number of finance lease agreements. At the end of each of the leases the Company has the option to purchase the equipment at a beneficial price. As of 31 December 2014 the net book value of leased assets was USD 2,503 thousand (2013: USD 4,965 thousand). The leased equipment secures lease obligations (refer to Note 15).



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8. Property, plant and equipment (continued) Security As of 31 December 2014 and as of 31 December 2013 the Group did not pledge any equipment as collateral for credit line facilities. 9. Net investment in finance leases

2014 2013

Net investment in finance leases of that:

Current portion 1,908 12,450 Non-current portion 34,051 99,596

35,959 112,046

As of December 31, 2014 the carrying amount of net investment in finance lease was represented by training simulators transferred under finance lease arrangements during 2012-2014 to Superjet International S.A., a joint venture of the Group’s parent and Alenia Aermacchi S.p.A. As at 31 December 2013 the carrying amount of net investment in finance lease was also represented by three aircrafts transferred under finance lease arrangements. As of 31 December 2014 the Group did not pledge the assets related to the net investment in finance lease as collateral for credit line facilities (2013: USD 32,426 thousand). In 2014 the Group terminated finance lease arrangements for delivery of three aircrafts to customer and returned two, out of three, aircrafts which were included into Inventories as of 31 December 2014. Currently the Group was in process of returning the third aircraft under the terminated contract. The total amount of transfer from Net investment in finance leases during 2014 amounted to USD 76,902 thousand.

Future minimum

lease payments

2014 Interest

2014

Present value of minimum

lease payments

2014

Future minimum

lease payments

2013 Interest

2013

Present value of minimum

lease payments

2013

Less than one year 7,665 5,757 1,908 24,158 11,708 12,450 Between one and five years 16,665 7,564 9,100 62,202 25,594 36,608 More than five years 31,404 6,454 24,951 80,027 17,039 62,988

Total 55,734 19,775 35,959 166,387 54,341 112,046



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10. Deferred tax assets and liabilities Deferred tax assets and liabilities are attributed to the following items:

31 December 2014

Recognised in profit or loss

Tax losses written down

1 January 2014

Intangible assets (52,883) (35,766) – (17,117) Property, plant and equipment (67,844) (360) – (67,484) Inventories 21,545 25,535 – (3,990) Trade and other accounts receivable (25,552) (28,931) – 3,379 Trade and other accounts payble 16,977 (8,148) – 25,124 Loans and borrowings 8,373 5,448 – 2,925 Onerous contract provision (728) (654) – (74) Tax losses carried forward 225,644 5,339 (2,469) 222,774

Net deferred tax assets 125,532 (37,536) (2,469) 165,537

31 December 2013

Recognised in profit or loss

Recognised in equity

1 January 2013

Intangible assets (17,117) 37,779 – (54,896) Property, plant and equipment (67,484) 571 802 (68,857) Inventories (3,990) 19,454 – (23,444) Trade and other accounts receivable 3,379 3,594 (9,256) 9,041 Trade and other accounts payable 25,124 (10,956) 336 35,744 Loans and borrowings 2,925 17,301 – (6,704) Onerous contract provision (74) (6,778) – 6,703 Tax losses carried forward 222,774 (8,727) 3,454 228,047

Net deferred tax assets 165,537 52,238 (4,664) 117,963

Management estimates that the Group will have sufficient future taxable profits to utilise the deferred tax asset after completion of “Sukhoi Super Jet – 100” development program and achievement of production and sales targets under the SSJ-100 business plan. The substantial part of tax losses expires in 2015-2024. Management expects that the Group will generate sufficient profits to utilise deferred tax assets recognised for tax losses carried forward prior to their expiry. Tax losses carred forward expire as follows: Years 2014

2015-2016 954 2017-2021 53,681 2022 14,519 2023 4,890 2024 151,602

Total 225,646



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11. Inventories

2014 2013

Components for aircraft serial production

227,639 199,820 Advances given for aircraft components

125,176 105,625

Work-in-progress

338,468 70,792 Finished goods

391 25,415

Other inventories

10,782 16,327

Total

702,456 417,979

Work-in-progress and finished goods are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated incremental costs of completion and selling expenses. At 31 December 2014 the Group wrote down components fo aircraft serial production in the amount of USD 58,174 thousand (2013: USD 39,180 thousand). In 2014 the Group recognised inventories as an expense to the net realisable value in amount of USD 486,147 thousand (2013: USD 426,385 thousand). At 31 December 2014 the Group did not pledge inventories as collateral for secured loans (2013: USD 4,007 thousand). 12. Trade accounts and other receivables

2014 2013

Trade accounts receivable 213,021 271,074 Advances to suppliers 22,179 11,232 Prepaid expenses 17,368 5,157 Prepaid bank commisions related to undrawn borrowing facilities – 763 Other receivables 29,153 21,948

Total 281,721 310,174

13. Cash and cash equivalents

2014 2013

Bank accounts 18,744 1,426

Bank deposits 4,757 29,941 Other cash and cash equivalents 24 36

Total

23,525 31,403



30

14. Equity Share capital and Share premium As at 1 January 2014, the share capital comprise 3,100,000 authorised and fully paid ordinary shares with par value of RUB 1,000 each. The structure of shareholding as per the Company’s Charter is as follows: PJSC “Company “Sukhoi”: 75% less one share and World Wings S.A.: 25% plus one share. On 30 June 2014 the Group decided to increase its share capital by issuing 14,607,200 additional shares with a par value of RUB 1,000 each. The offering price per share is 2,500 rubles. On 28 August 2014 the Group entered into agreement with the Parent Company and sold 10,032,381 shares for the total amount RUB 25,080,953 thousand (USD 694,000 thousand). As at 31 December 2014 the structure of actual shareholding was as follows: PJSC “Company “Sukhoi” 94.10%, World Wings S.A. – 5.90% The registration process of the additional issue and changes in the Company’s charter has not been completed as at 31 December 2014. Additional paid-in capital Additional paid-in capital in the amount of USD 55,362 thousand represents a fair value adjustment relating to loans received from PJSC “United Aircraft Corporation” (in 2010 in amount by USD 3,568 thousand) and “Sukhoi OKB” the Parent Company branch (in 2011 in amount by USD 51,794 thousand). Distributable profit In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of accumulated retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with Russian Accounting Principles. As at 31 December 2014 the Group had cumulative losses and, therefore, no profits available for distribution (2013: nil). Dividends No dividends were declared for the year ended 31 December 2014 and 2013. 15. Loans and borrowings This note provides information about the contractual terms of the Group’s loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, refer to Note 23.



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15. Loans and borrowings (continued)

Terms repayment schedules at 31 December

Current loans and borrowings:

Creditor Currency Interest rate,

% 2014 Interest rate,

% 2013

Secured bank loans JSC “Vnesheconombank” US dollars 8.63-8.92 125,950 – –

JSC “Sberbank” US dollars 7.5 241,619 – – JSC “Sberbank” US dollars 5.2-5.4 80,354 – – JSC “VTB” US dollars 6.22-6.24 69,664 6.21-6.25 160,540 JSC “Alfa Bank” US dollars 4.9-5.01 709 – – JSC “Alfa Bank” US dollars 5.91-5.06 372 – – JSC “Sberbank Leasing” US dollars 6.8 44,388 6.8 58,255 JSC “Sberbank” RUB 10.5-9.91 35,655 – – VTB (Austria) US dollars Libor + 5.5 50,226 – – JSC “Alfa Bank” US dollars 4.5-4.59 50,032 – – JSC “Sberbank” EUR Euribor + 6.5 52,516 Euribor + 6.5 21,956 JSC “Sberbank” US dollars – – 8.62-5.92 40,071 JSC “Alfa Bank” RUB – – – – JSC “Alfa Bank” RUB 10.02-10.46 1 – – EABD US dollars Libor + 4-5.3 58,458 Libor + 4 14,147 JSC “Alfa Bank” RUB 9.99-10.47 1 – – JSC “VTB” EUR – – 7.7 9,986 JSC “Sberbank Leasing” US dollars 7.3 3,167 7.3 2,958 JSC “Vnesheconombank” EUR 7.59-7.59 903 7.6 2,014 JSC “Vnesheconombank” GBP 11.37-8.28 1,751 11.4 1,788 JSC “Vnesheconombank” EUR 8-8.01 1,425 6.51-8.00 1,575 JSC “Vnesheconombank” GBP 11.3 1,027 11.3 420 JSC “Vnesheconombank” GBP Libor + 4.64 214 Libor + 4.64 229 JSC “VTB” RUB – – 9.36-9.54 51,868 JSC “Sberbank” US dollars – – 6.95-6.28 49,092 Portigon AG US dollars – – Libor + 3 24,523 VTB (Deutschland) US dollars – – Libor + 6 7,606 JSC “VTB” EUR – – 8.3 2,058

Unsecured bank loans JSC “VTB” US dollars 6.9-6.94 33,472 – –

MDM Bank US dollars 7.91-6.65 50,086 – – EBRD EUR Euribor + 0.9 66,593 Euribor + 0.9 27,521 VTB (France) US dollars Libor + 6.5 22,871 Libor + 6.5 17,010 VTB (France) EUR Euribor + 7 1,967 Euribor + 7 2,192 JSC “VTB” RUB 15.98 35,520

Secured bond issues

Note A RUB 8.08-14.29 86,546 8.14-8.28 34,263

Unsecured bond issues Note B RUB – – 8.42-9.28 148,081

Note B RUB 26.6 18,321

Finance lease liabilities

EUR 12.87-16.8 2,254 9.08-16.8 5,132

US dollars 17.1 67 17.1 869

Unsecured loans from related parties

PJSC “Aviation Holding Company Sukhoi” US dollars – – Libor + 5.2 100,188

PJSC “Aviation Holding Company Sukhoi” RUB 10.55-10.8 53,647 – – PJSC “Aviation Holding Company Sukhoi” RUB 16.03 96,908 – – PJSC “UAC” RUB 7.08-8.94 50,314 4.78-8.84 81,932 PJSC “Aviation Holding Company Sukhoi” RUB – – 9.95-10.3 40,306 PJSC “UAC” RUB 7.07-9.15 10,635 4.78-8.86 18,069 PJSC “UAC” RUB 7.84-8.51 6,840 8.9 11,631

Total

1,354,473

936,280



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Terms and debt repayment schedule (continued) Non-current loans and borrowings:

Creditor Maturity Currency Interest rate,

% 2014 Interest rate,

% 2013

Secured bank loans JSC “Sberbank Leasing” 2015-2027 US dollars 7.3 54,757 7.3 57,816

EABD 2015 US dollars – – Libor + 4 57,193 JSC “Sberbank” 2015 EUR – – Euribor + 6.5 60,482 JSC “Vnesheconombank” 2015-2020 GBP 11.37-8.28 9,028 11.4 11,433 JSC “Vnesheconombank” 2015-2019 GBP 11.3 4,121 11.3 6,129 JSC “Vnesheconombank” 2015-2018 EUR 8-8.01 3,723 6.51-8.00 5,823 JSC “Vnesheconombank” 2015-2020 GBP Libor + 4.64 977 Libor + 4.64 1,262 JSC “Vnesheconombank” 2015 US dollars – 304,717 8.13%-8.83 827,572 JSC “Alfa Bank” 2015 US dollars – 84,534 4.9-4.92 84,105 JSC “Alfa Bank” 2015 US dollars – 80,728 5.85-5.91 80,065 VTB (Austria) 2015 US dollars – – Libor + 5.5 50,053 JSC “Alfa Bank” 2015 RUB – 10,681 10.02-10.04 18,361 JSC “Alfa Bank” 2015 RUB – 8,901 9.93-10.04 15,301 JSC “Vnesheconombank” 2015 EUR – – 7.6 1,021 Unsecured bank loans

EBRD 2015 EUR – – Euribor + 0.9 68,606 VTB (France) 2015 US dollars – – Libor + 6.5 23,904 VTB (France) 2015 EUR – – Euribor + 7 1,470 JSC “VTB” 2015 RUB – –

Finance lease liabilities

2015-2019 EUR 12.87-16.8 2,246 9.08-16.8 2,717

Unsecured loans from related parties

PJSC “UAC” 2020 RUB 7.9 27,891 7.9 44,471 PJSC “Aviation Holding Company

Sukhoi” 2020 RUB 7.9 16,921 7.9 26,955 PJSC “UAC” 2020 RUB 7.7 2,923 7.7 4,664

Total

612,148

1,449,403

Security All secured bank loans and bonds issues are guaranteed by PJSC “Company “Sukhoi” and PJSC “UAC”. Finance leases repayment schedule

At 31 December 2014 Future minimum lease payments Interest Present value

During the first year 2,646 326 2,320 During the second year 573 230 343 During the third year 573 186 387 During the fourth year 573 137 436 During the fifth year 1,146 66 1,080

Total 5,511 945 4,566



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Finance leases repayment schedule (continued)

At 31 December 2013 Future minimum lease payments Interest Present value

During the first year 6,572 571 6,001 During the second year 715 365 350 During the third year 648 318 330 During the fourth year 655 262 393 During the fifth year 655 197 458 Later 1,282 96 1,186

Total 10,527 1,809 8,718

The finance lease liabilities are secured by the leased assets (refer to Note 7). Secured Bonds (Note A) In 2014 the Group performed the following transactions with GSS-01 series bonds: In February – September 2014 the Group performed secondary offer of 4,815,423 bonds series GSS-01 for total amount USD 136,831 thousand. In September 2014 the Group redeemed 4,995,501 bonds in the total amount of USD 129,490 thousand. In the fourth quarter of 2014 the Group performed secondary offer of 4,019,374 bonds for total amount USD 87,729 thousand and redeemed 220,699 bonds in the total amount of USD 3,801 thousand. In September 2014 the Board of Directors approved the new coupon rate of 12.00% p.a. for the sixteenth coupon period. In March 2015 the Board of Directors approved the new coupon rate of 16.5% p.a. for the seventeenth coupon period. The next offer shall be made in September 2015. Unsecured Bonds (Note B) In accordance with the terms of issue the bonds of series BO-02 and BO-03 were fully redeemed in April 2014. In July 2014 the Group announced an issue of 9,000,000 non-convertible ruble-denominated bonds (series BO-04, BO-5, BO-6: 3,000,000 bonds each), with the face value of RUB 1,000 each. In December 2014 the Group issued 1,030,000 bonds of BO-04 series maturing in December 2019. The coupon rate for the first coupon period was 25% p.a. The first mandatory offer to redeem the bonds of BO-04 series shall be made in June 2015. Loan covenants As of 31 December 2014 the Group was in breach of certain financial and non-financial covenants related to borrowing facilities due to the European Bank for Reconstruction and Development, Khabarovsk branch of JSC “VTB”, VTB (Austria), VTB (France), JSC “Sberbank” and Eurasian Development Bank. Accordingly, the Group classified these borrowings as current liabilities as of 31 December 2014.



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16. Onerous contracts

In accordance with the term of the agreement for aircraft delivery the cost of production and delivery to the customer is less than selling price. In consolidated financial statements as of 31 December 2014 the onerous contract provision measured at the amount of penalty for each undelivered aircraft, which is lower than the cost of fulfilling the contract.

As of 31 December 2014 onerous contract provision balance decreased by USD 15,867 thousand as compared to 31 December 2013 which was attributable to utilisation of provision.

17. Trade accounts and other payables

2014 2013

Trade creditors 392,233 272,286 Wages and salaries payable 3,607 7,553 Other accounts payable 63,154 67,154

Total 458,994 346,993

18. Revenues

2014 2013

Sales of aircrafts SSJ-100 551,141 474,802 Other 16,667 38,961

Total

567,808 513,763

In 2014 the Group delivered twenty seven aircraft SSJ-100 under sales contracts with customers (in 2013: nineteen aircrafts SSJ-100 under sales contracts with customers and three aircraft under finance lease agreement).

Other sales included USD 4,788 thousand (2013: USD 13,988 thousand) related to transfer of a simulator under a finance lease agreement with Superjet International S.A. (refer to Note 9) and various technical services related to supporting of aircraft sales.

Revenue recognised in accordance with IAS 11 Construction Contracts during 2014 amounted to USD 35,417 thousand (2013: nil).

19. Government grants

The Group’s activity on development of the “Sukhoi Super Jet – 100” aircraft is included in the Federal Target Program “Development of the civil aircraft for 2013-2025” approved by the Decision of the Federal Government of the Russian Federation No. 303 dated 15 April 2014. In accordance with this program, the Group receives financing from the Federal Government. Funds were received under the contract with Ministry of Industry and Trade (Minpromtorg) and PJSC “United Aircraft Corporation” (PJSC “UAC”) which is structured as a contract for the development services, and as a contract to cover certain types of expenses. The summary of government grants received by the Group is presented below.

2014 2013

Grants related to property, plant and equipment 4,407 – Grants related to development costs 7,938 35,053

Total government grants related to assets 12,346 35,053

Total grants related to income 3,895 17,569

Total grants related to income received during the year 3,895 17,569

Total 16,241 52,622



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20. Administrative expenses

2014 2013

Wages and social contributions 25,543 27,215 Rent 5,193 6,002 Other expenses 16,160 18,137

Total 46,896 51,354

21. Interest and other finance expenses

2014 2013

Interest expenses on loans and borrowings 190,268 159,438 Interest expenses on obligations under finance leases 771 1,329

Total interest and other finance expenses 191,039 160,767

Less: amounts included in the cost of qualifying assets (3,667) (2,010)

Total interest and other finance expenses 187,372 158,757

The interest rate used to determine the amount of borrowing costs eligible for capitalization was 7.6% (2013: 7.5%), which is effective interest rate of the borrowings. 22. Income tax expense The Group’s applicable tax rate is the Russian Federation corporate income tax rate of 20%.

2014 2013

Deffered tax – origination and reversal of temporary differences (40,005) 52,712

Total income tax (expense)/benefit (40,005) 52,712

Reconciliation of effective tax rate:

2014 2013

000'USD % 000'USD %

Loss before tax (191,277) 100.0 (271,845) 100.0

Theoretical income tax benefit at the

statutory tax rate 38,255 20.0 54,369 20.0 Tax effect of non-deductible expenses (10,842) (5.7) (870) (0.3) Foreign exchange differences (64,950) (34.0) (787) (0.3) Tax losses assets written down (2,468) (1.3) – –

Total income tax (expense)/benefit (40,005) (20.9) 52,712 19.4



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23. Financial instruments

Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. The Group does not hedge its exposure to such risk.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from related parties receivables from customers and investment securities.

The maximum exposure to credit risk is represented by the carrying amount of financial assets. Maximum exposure to credit risk at the reporting date was as follows:

Note 2014 2013

Trade receivables 12 215,949 271,074 Other receivables 12 29,153 21,948 Net investment in finance lease 8 35,959 112,046 Cash and cash equivalents 13 23,525 31,403

Total

304,586 436,471

As at 31 December 2014 contractual amounts of trade and other receivables of USD 2,849 thousand (2013: nil) and contractual amounts of other non-current financial assets of USD 4,435 thousand (2013: nil) were impaired and fully provided for.

As of 31 December 2014 and 2013 share of the two main significant customers of the Group amounted to 100% of the total amount of receivable and investments in finance lease, respectively.

There are no financial assets that are past due as at 31 December 2014 and 2013 but not impaired.

Liquidity risk

The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The table below analyses the Group’s financial liabilities into relevant maturity Group’s based on the remaining period from the reporting date to the contractual maturity date, based on the contractual undiscounted cash flows including estimated interest payments.

2014 Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

More than 5 years

Bank and other loans 1,857,188 2,153,921 948,246 406,012 241,241 208,627 349,795 Bond issue 86,546 87,987 87,987 – – – – Unsecured bond issue 18,321 20,591 20,591 – – – – Finance lease 4,566 5,511 2,646 – 573 2,292 – Trade and other payables 453,688 453,688 453,688 – – – –

Total 2,420,309 2,721,698 1,513,158 406,012 241,814 210,919 349,795

Carrying amount

Contractual cash flows

6 months or less

6- 12 months

1-2 years

2-5 years

More than 5 years 2013

Bank and other loans 2,194,621 2,676,835 270,790 477,483 315,504 795,440 817,618 Bond issue 34,263 36,061 1,331 34,730 – – – Unsecured bond issue 148,081 151,958 151,958 – – – – Finance lease 8,718 10,527 6,144 428 715 1,958 1,282 Trade and other payables 342,293 353,587 177,466 172,066 4,055 – –

Total 2,727,976 3,228,968 607,689 684,707 320,274 797,398 818,900



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23. Financial instruments (continued)

Liquidity risk (continued)

The Group has acess to sufficient sources of financing to cover the current liquidity deficit. For additional information about the Group’s liquidity refer to Note 2 “Going concern”.

Market risk

Foreign currency risk

The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Group. The currencies giving rise to this risk are primarily RUB, EURO and GBP (2013: RUB, EURO and GBP). Management does not hedge the Group’s exposure to foreign currency risk.

The Group has the following assets and liabilities denominated in foreign currency:

2014 2014 2014 2013 2013 2013

000'USD RUB EURO GBP RUB EURO GBP

Cash 7,052 129 – 30,332 8 – Bank and other loans (461,705) (127,128) (17,118) (495,904) (204,703) (21,260) Finance lease – (4,500) – – (7,849) – Trade and other

payables (68,916) (12,096) (668) (96,493) (21,412) (496) Trade and other

receivables 17,212 520 – 7,098 – –

(506,357) (143,075) (17,786) (554,967) (233,956) (21,756)

The following exchange rates were applied at the respective reporting dates: 2014 2013 USD USD

RUB 1 equal 0.0178 0.0306 EUR 1 equals 1.21 1.37 GBP 1 equals 1.55 1.65

The following tables demonstrate the sensitivity to a reasonably possible change in RUB, Euro and GBP exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. Assuming all other variables held constant fluctuations in the foreign currencies has the following impact on the profit before tax of the Group:

Changes in foreign

currency rates

Effect on profit before

tax

2014 RUB +/- 28.74% +/- 213,086 Euro +/- 6.23% +/- 13,052 GBP +/- 5.73% +/- 1,492 2013 RUB +/- 20% +/- 114,065 Euro +/- 9.41% +/- 22,624 GBP +/- 7.5% +/- 1,677



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23. Financial instruments (continued)

Interest rate risk At the reporting date the amount of the Group’s variable interest bearing financial instruments was: 2014 2013

Variable rate instruments Bank loans 253,822 478,338

Total 253,822 478,338

Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Group over the expected period until maturity. Cash flow sensitivity analysis for variable rate instruments The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:

Increase in

interest rates Effect on profit

before tax

2014 Libor +/- 0.02% +/- 39 Euribor +/- 0.07% +/- 124 2013 Libor +/- 0.03% +/- 74 Euribor +/- 0.012% +/- 53

Fair values All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

The Group estimates the fair value of its financial assets and liabilities not to be materially different from their current values. For receivables and payables with a remaining useful life of less than one year their notional amount is deemed to reflect their fair value. For loans and borrowings and all other financial instruments fair value is determined based on discounted future principal and interest cash flows.



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23. Financial instruments (continued) Fair values (continued) The interest rates used to discount estimated cash flows, where applicable, are based on the market rates of instruments with similar market risk exposure are disclosed in Note 14. All assets and liabilities in the reporting period were estimated on the basis of the resources listed in Level 3. During the period the Group did not transfer assets and liabilities between the Levels. Capital risk management The Group’s long-term objectives in managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide return for shareholders and benefits for other stakeholders. In the medium term, the Group’s objectives are to maintain an optimal capital structure to reduce the cost of capital and provide sufficient recourses necessary for successful commencement of a serial production of aircraft under the SSJ-100 program. Management’s target is to achieve a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. As discussed in Note 2, the overall success in achieving Group’s long-term objectives is dependent on certain important external factors, and taking those into account, the Group’s capital structure in the short-term may differ from targeted medium and long-term structure, although management believes that commencement of the production phase of the SSJ-100 program will enable the Group to closer align the short-term capital structure with the desired long-term objectives. As part of its capital management, it is one of the Group’s objectives to maintain a strong credit rating by institutional rating agencies. Apart from certain non-financial parameters, the credit rating is based on the factors such as capital and liquidity ratios. Most recently updated Company’s national long-term rating from Fitch is “BB-”(rus). Under certain loan agreements the Group has to maintain a minimum level of net assets which is considered in managing capital of the Group. As of 31 December 2014 the Group breached certain financial covenants and classified these credit loan facilities in the current liabilities. There were no changes in the Company’s approach to capital management during the year. 24. Operating leases The Group leases property based on short-term lease agreements with its shareholders. The lease agreements are subject to regular renewal. During the current year USD 5,406 thousand (2013: USD 6,450 thousand) was incurred in respect of operating leases, which approximates the annual minimum lease payments. The Group has non-cancellable operating lease agreements.



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25. Commitments The Group has commitments to provide sales financing to customers. These sales financing transactions will generally be collateralised by the underlying aircraft. The Group believes that the estimated fair value of the aircraft securing such commitments will substantially offset any potential losses from the commitments. As of 31 December 2014 the Group has no contractual commitments for the acquisition of property, plant and equipment. 26. Contingencies Operating environment In 2014 economic and political instability in Ukraine increased. Management of the Group is monitoring current developments in the political situation in Ukraine and its impact on economic environment in Russia and the Group’s business including changes in Russia’s sovereign credit rating in local and foreign currency by international rating agencies, the sanctions imposed by the US, EU and other countries in response to situation in Ukraine which restrict access to capital markets for the sanctioned entities and financial institutions in Russia. On 12 September 2014 the EU included PJSC United Aircraft Corporation, the controlling shareholder of the Group’s Parent Company, into the list of sanctioned entities prohibiting EU registered entities and individuals to purchase and sell any financial instruments with a maturity exceeding 30 days issued by PJSC United Aircraft Corporation and its subsidiaries after 12 September 2014. These and any further restrictive measures by the EU and other countries could adversely impact results and the financial position of the Group in a manner not currently quantifiable. Insurance The Group does not have full coverage for its facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group’s operations and financial position. Contingencies Major part of the Group’s business activity is carried out in the Russian Federation. Russian tax legislation as currently in effect is vaguely drafted and is subject to varying interpretations, selective and inconsistent application and changes, which can occur frequently, at short notice and may apply retrospectively. Fiscal periods remain open and subject to review for a period of three calendar years immediately preceding the year in which the decision to conduct a tax review is taken. Under certain circumstances, the tax authorities may review earlier accounting periods. Effective from 1 January 2012, a number of changes were made to the Tax Code of the Russian Federation: new tax control principles for controlled transactions were implemented for income tax purposes: they extend qualification criteria (basis) for related parties; amend the list of controlled transactions; establish a list of price control methods; change requirements to justify selected pricing methods; introduce rules to notify the Federal Tax Service of the Russian Federation (RF FTS) on controlled transactions and obligation to submit to the RF FTS special documents on controlled transactions.



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26. Contingencies (continued) Contingencies (continued) In 2014 the Group measured its tax liabilities under controlled transactions based on actual transaction prices. The Group takes regular measures to comply with the Russian tax legislation on controlled transactions. The Group’s management believes that its interpretation of the relevant legislation is appropriate and is in accordance with the current industry practice and that the Group’s tax, currency and customs positions will be sustained. However, the interpretations of the relevant authorities could differ. As of 31 December 2014, the Group’s management estimated the possible effect of operating taxes, including fines and interest, on these consolidated financial statements, if the authorities were successful in enforcing different interpretations, in the amount of up to approximately USD 1,671 thousand. Litigation The 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. Put options over the sold aircraft/residual value guarantees Certain contracts for aircraft delivery include the put option over the sold aircraft and residual value guarantee. According to these contracts the Group while selling the aircraft assumes an obligation in a 10-12 years after the sale of the aircraft (period usually equal a half of the economic useful life of the aircraft) either to pay the difference between certain guaranteed amount (usually 40% of the sales price) and its market price at that date in case if customer sells aircraft at the market or repurchase used aircraft at that certain guaranteed amount. Management of the Group when selling the aircraft and at the end of each reporting period makes an assessment whether such obligations became onerous, in which case the Group recognises provision for the difference between the future market price of the sold aircraft subject to put option and the guaranteed amount. As at 31 December 2014 the management of the Group believes that none of the put options over the sold aircraft/residual value guarantees are onerous. 27. Related parties Control relationship The Group’s related party comprises the ultimate controlling party of the Group, the Russian Federation, all entities controlled, jointly controlled or significantly influenced by the Russian Federation, and the shareholder with significant influence, over the Group, World Wings S.A., and all its subsidiaries and other entities under common control of Finmeccanica S.p.a., ultimate parent of World Wings S.A., and key management personnel of the Group.



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27. Related parties (continued) Transactions with state-controlled entities The Group is indirectly owned and ultimately controlled by the Federal Government of the Russian Federation. The Group operates in the industry dominated by entities directly or indirectly controlled by the Federal Government of the Russian Federation through its government authorities, agencies, affiliation and other organisations (collectively referred to as “government related entities”). The Group has transactions with other government related entities including but not limited to sales and purchases of goods and ancillary materials, rendering and receiving services, lease of assets, depositing and borrowing money, and use of public utilities. These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not government related. The Group has established procurement policies, pricing strategy and approval process for purchases and sales of products and services, which are independent of whether the counterparties are government-related entities or not. In 2014 the Group received several US dollar denominated tranches amounting to USD 231,224 thousand and repaid the tranche amounting to USD 694,000 thousand under a long-term USD 1,000,000 thousand loan facility provided by VEB with the maturity limited to 2024 and guaranteed by PJSC “Company “Sukhoi” and PJSC “UAC”. For the year ended 31 December 2014, management estimates that the aggregate amount of the Company’s collectively significant transactions with government related entities comprises 65% (2013: up to 35%) of its revenues, at least 38% (2013: at least 33%) of its purchases of materials, equipment and services, and up to 69% of its borrowings (2013: up to 75%). Government grants received are disclosed in Note 19 Transactions with shareholder with significant influence Transactions and balances with World Wings S.A., a shareholder with significant influence over the Company, its ultimate parent Finmeccanica S.p.a. and entities under its control are listed below:

2014 2013

Income 191,069 200,377 Acquisition of development cost, Other assets and services (13,437) (9,359) Trade and other payable (11,248) (7,697) Trade and other receivable 187,463 148,841 Net investment in finance lease 35,959 40,817 Advances received (18,792) (17,451)

Transactions with management Remuneration to key managerial staff for the year ended 31 December 2014 amounted to USD 4,355 thousand (2013: USD 4,548 thousand).



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28. Subsequent events In January 2015 the Group sold to the Parent Company additional 880,000 ordinary shares with a par value of RUB 1,000 each for RUB 2,500 per share (Note 14). As of 17 March 2014 the Group finalised additional share issue of 10,912,381 shares for the total amount of USD 726,428 thousand (ruble: 27,280,952 thousand). Subsequent to 31 December 2014 the Group sold four aircrafts. Subsequent to 31 December 2014 the Group borrowed USD 331,894 thousand and repaid USD 272,715 thousand under the existing credit facilities. Subsequent to 31 December 2014 the Group completed the offer related to bonds “GSS-01” amounted USD 16,784 thousand. In March 2015 the Board of Directors approved the new coupon rate of 16.5% p.a. for the seventeenth coupon period related bonds “GSS-01”. The next offer shall be made in September 2015.

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