Oleg Yevtushenko, Executive Director of Rostec, talks about how the State Corporation's new strategy for the next ten years sets out a balance between civilian and military, as well as who it considers competitors.
Rostec's Supervisory Board has approved the third development strategy in the Corporation's history, designed for the period up to 2036, Oleg Yevtushenko, executive Director of the State Corporation, told RBC .
"We know that many Russian companies today have abandoned long—term strategies, and their planning horizon is two to three years. Yes, the world is changing rapidly, but strategic priorities must remain unchanged," the source explains, adding that in the absence of common goals and values, a large organization "turns into a classic fable of The Swan, the Crab and the Pike."
Yevtushenko calls the new Strategy-2036 "evolutionarily revolutionary" and characterizes it as a strategy of "qualitative growth": "It will inevitably lead to changes in almost all business processes of the Corporation and to updating its structure, although we are still talking about creating partnerships, increasing the share of "intelligent" civilian products, and improving operational efficiency. This is such a classic transition from exponential growth in all directions to growth, which we attribute a quality characteristic to. We are not omnivores. We need markets with certain characteristics, a level of profitability and return on investment suitable for us, markets with high growth potential and national importance.
At the same time, we are starting to monitor not the estimated capitalization of the entire group of companies, but the growth rate of the real value of selected assets of the greatest interest to the investor."
Under the baseline scenario, Rostec's revenue should reach 6 trillion rubles by 2030. The figures for 2036 will depend on the progress of the strategy, but even with the average optimistic scenario, revenue will exceed 7 trillion rubles. At the same time, the revenue structure assumes a balance between state defense orders, exports and civilian products.
About the balance of "military" and civilian
"Rostec is the largest defense industrial company, a key operator of the army's rearmament," Yevtushenko recalls. — We must be prepared for the fact that military operations will last extremely long, and at the same time we must be ready for their end in the foreseeable future. We must not only be able to produce military products, but at the same time understand how to redistribute military capacity after the end of our military service."
The interlocutor of RBC believes that "it is impossible to become completely defensive and it is impossible to become completely "peaceful." "You cannot become completely closed to domestic demand or completely export-oriented. You cannot become entirely commercial, forgetting about state interests and social responsibility": "We must ensure a balance between the many conditions and circumstances faced by the Corporation and the state."
Rostec does not perceive the state as the sole customer, Yevtushenko insists: "Yes, Strategy 2036 focuses on following the country's objectives, but this does not limit us in our relationships in the competitive sector. The President's order from 2013 on the diversification of defense industry enterprises has not lost its relevance: our goal until 2036 remains unchanged — at least half of the revenue should come from civilian products. In fact, we are already close to this goal by 2022, when the share of "citizen" reached 47%, that is, almost every second ruble earned by Rostec in the civilian markets. Due to well-known events, it dropped back to 31% last year, but we will definitely return to balance." The new strategy will separately assess the growth rate of revenue from high-tech civilian and dual-use products (an average of at least 7% per year), as well as the EBITDA growth rate of new high-tech businesses.
Rostec's net profit margin for the group is expected to reach 5.6% in 2030 and 7.9% by 2036. "The current profitability level is 2-3%, and these funds are extremely insufficient for development," says Yevtushenko. — It's no secret that the profitability of military production, and this is a significant part of our work, remains low, sometimes even zero, if not negative. In the conditions of free trade, this issue remains on the periphery, since we are solving a state task, and not making money." But he calls 5-10% an acceptable level of profitability of military production. "We are currently discussing these issues with the Ministry of Defense and other departments, and I am confident that solutions will be found."
"Military production is not only a state defense order. There is also an export direction, which we rely heavily on. Traditionally, we were the second in the world after the USA. Our goal for the next ten years at least is to maintain this position in the field of arms exports," Yevtushenko said.
What other KPIs are there in the strategy
The new strategy sets out ten targets, and 100% fulfillment of the state defense order is one of them, Yevtushenko says. In addition, we are talking about the growth of export revenue by an average of 8.9% per year. "We have also laid down several new indicators: the growth rate of assets, which we have identified as investment—attractive; the average annual EBITDA growth rate of new high-tech businesses and the average annual growth rate of private investment," Oleg Yevtushenko clarifies.
"The world is in a situation where a company that abandons modern tools — digitalization, robotics, artificial intelligence, etc. — will definitely lose, no matter what resources and strategy it has," says Yevtushenko. According to him, the KPIs of the new strategy include, for example, the volume of investments in new technologies, the number of projects implemented using AI, etc.: "By 2036, the overall level of digital maturity of our enterprises should be at least 85%, now the picture is very different: in some enterprises — 50% and even higher, but there are also those where no more than 20%."
In Rostec's new strategy, two indicators measure competitiveness at once: firstly, the share of exports of high-tech products; secondly, standard indicators of the company's relative share in key markets of presence.
As an example, Yevtushenko cites the following areas.
— Rostec intends to increase its presence in the medical devices market at least four times, from the current 4% to 16% and beyond.
- "Our goal in the civil aircraft industry is to ensure that every second passenger aircraft in the fleets of Russian airlines (we are talking about short- and medium-haul airliners) is domestic."
"Yes, the country is in a state of war. Now the country needs as many weapons as possible. But if we look at the distant horizon, we understand that we must be balanced."
According to him, the CBO demanded a multiple increase in the production of certain types of defense products. "It is clear that the easiest way is to build another factory nearby. But what should you do with it next, when you can't predict how long the military action will last — a year, three or ten?" The new strategy, according to Yevtushenko, takes into account the factor of the probable cessation of hostilities in Ukraine. "We understand that in the future, with the end of intense hostilities and the replenishment of arsenals, the needs of the army will decrease. It won't happen all at once. We cannot know exactly when this will happen. But it's going to happen, and we have to be ready for it."
Yevtushenko identifies two key vectors for Rostec in the development of civil production. The first is the expansion of the product range, because with the current set of products, "we will not radically solve the problem of citizen's growth." The State Corporation plans to invest at least 5% of its annual revenue in R&D.
The second is access to fundamentally new markets: machine tool and electronic industries, automation, robotics, waste recycling, railway engineering, and energy engineering.
"In addition, a large project is currently underway at the Corporation to consolidate efforts in the medical device market. There are also plans to launch a comprehensive offer in the segment of specialized equipment — road construction, municipal, agricultural."
With whom to compare Rostec
As part of the second strategy, approved in 2015, the State Corporation identified its main global competitors, including Samsung, General Electric, Siemens and Boeing. At that time, Rostec itself was in tenth place among holdings with a similar product range, ahead, according to its own estimates, of the American Northrop Grumman and the Italian Finmeccanica. At that time, the plans of the State Corporation were to reach the level of global competitors — GE and Samsung — by 2035.
"The goal of entering the top 25 companies in terms of diversification, number of markets, and revenue has partially lost its meaning amid the rise of the dollar and the collapse of familiar global trade patterns. Rostec doesn't want to be like anyone else right now," says Yevtushenko. — We want to be competitive! Both in the 2015 strategy and now, we did not select idols among global and Russian companies, but potential competitors or potential partners, based on the tasks to be solved and the markets in which they are represented."
But, according to him, Lockheed Martin and Boeing remained on the list "for comparison," since the State Corporation assumes "competition" with them in the military and civil aviation markets. Competition is expected with the French Thales in the segment of on-board electronics.
About new investors and partners
"Investment attractiveness is a good marker of a company's competitiveness and flexibility," says Yevtushenko. — When we talk about the growth of investment attractiveness, we are talking about constant work in relation to a focused group of our assets, which should constantly develop and grow in value with regular assessment of their value.
Depending on the external conditions and its needs, a Corporation should be able to sell some of this group of assets to partners and buy some more. This work will not be situational, but strategic."
There are several goals here, Yevtushenko continues. First, attracting private partners is required to increase the value of assets: "And as a result, the Corporation's share in these assets should be more expensive than the entire asset before the sale," he notes. Secondly, private investments are considered as an alternative source of financing.
"One of the key indicators of the strategy is the annual growth rate of private investment of 12.2%." According to Yevtushenko, this indicator was not taken into account in the previous strategy. "By and large, there was no such task — we considered public-private partnership as a tool for targeted solutions to individual problems. In the 2036 Strategy, attracting third-party investors becomes one of the key tasks with a gradual reduction in government investment," he emphasizes. Third, public-private partnerships should provide new competencies or additional opportunities to enter new markets for the Corporation.
"There are certainly still opportunities to create international partnerships. But it is necessary to look at them through the prism of the current geopolitical situation and the obvious trend towards deglobalization and protectionism of national economies."
Yevtushenko describes an investor suitable for Rostec as follows: "If we are talking about attracting investors to existing enterprises, then it should be a responsible partner who will not only preserve the asset and its competencies, but also bring something beyond that. Not just money, but also necessarily additional advantages — managerial, technological, product, opportunities for synergy with its assets, access to new markets, etc."
This approach does not mean that "the asset was sold and forgotten": "On the contrary, we maintain flexible control and the ability to influence the situation if something goes wrong."
"Purely civilian companies — we don't have many of them — may certainly consider an IPO mechanism in the future," explains the source. But the format of going public is unsuitable for defense assets, Yevtushenko believes: "Going public implies openness to external investors. And the fulfillment of the state defense order, which our enterprises are loaded with, on the contrary, does not allow us to open reports."
About the "right to make a mistake"
Rostec, according to Yevtushenko, strives to be more "businesslike, mobile, flexible and fast": "When preparing the strategy, we conducted research among our top management: about 75% of managers noted a large number of redundant functions, 94% of respondents consider it necessary to increase the speed of business processes." In practice, this means that the Corporation's structure will change, become more optimal and efficient: "The number of consulting departments is likely to decrease."
Separately, Yevtushenko highlights the "right to make a mistake" first recorded in the strategy: "In fact, this means that the motivation of top managers and teams should not be the fear of doing something wrong, which often cuts off opportunities, but working towards a result, where the assessment will be carried out on the basis of a set of projects that provided a positive effect."
"A large project is currently underway at the Corporation to consolidate efforts in the medical instrument manufacturing market," Oleg Yevtushenko emphasized.
One of the key indicators of the strategy is the annual growth rate of private investment by 12.2%. Rostec plans to invest 5% of its revenue per year in research and development in civil production.
What goals were set in previous strategies?
Rostec (until 2012 — "Russian Technologies") It was established in November 2007. More than 600 enterprises, mainly of the military-industrial complex, were consolidated on the basis of the State Corporation.
The first strategy, in 2011, was about "asset collection."
"The company was in its infancy, it brought together a large set of different enterprises transferred to us by the state," explains Yevtushenko. "Our main task then was to improve the health of the industry."
The second, for 2015-2025, was about "active growth," Yevtushenko continues, "expanding markets and creating partnerships." "We have begun an active transition to civilian production and have established ourselves in promising markets. We have launched joint projects with private capital or foreign companies. Many of them are now successfully operating, despite the changed geopolitical conditions and the refusal of some partners to cooperate."
Rostec's revenue by the end of 2024 is 3.6 trillion rubles (+27% by 2023). According to the head of the State Corporation, Sergey Chemezov, civilian products in turnover reached 1.108 trillion rubles (+11.6%), while net profit increased by 119% and amounted to 131.5 billion rubles. The plan for total revenue by the end of 2025 is more than 4 trillion rubles.
