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Meeting with Rostec State Corporation CEO Sergei Chemezov

July 22, 2019, The Kremlin, Moscow

Rostec CEO Sergei Chemezov reported to the President on the state corporation’s performance in 2018.

President of Russia Vladimir Putin: Good afternoon. You are here today to deliver your annual report.

Rostec State Corporation CEO Sergei Chemezov: Yes, Mr President. It has already become a tradition. Here you have a brief printed presentation.

During 2018, Rostec enterprises achieved good results in the state defence procurement, military and technical cooperation, and diversification of defence enterprises. The level of the defence procurement fulfilment was 99.6 percent, which is higher than average in Russia: it was between 97 and 98 percent.

In 2018, Rosoboronexport set a record in cross border sales: 13.7 billion rubles. The firm order book for military equipment reached 55 billion. The profit from selling civilian products was almost 30 percent. I hope that we will fulfil the obligations we have assumed: to reach 50 percent by 2025.

In general, revenues have grown and currently stand at over 1.64 trillion rubles, with net profit of 128.1 billion. The net profit return was 7.8 percent. The average salary at all the corporation enterprises was 49,500 rubles, which is relatively high, so our workers are happy and enjoy their jobs.

I would like to note that last year significant efforts were put into improving problem assets we received in 2018. In particular, in 2018 we continued the integration of Uralvagonzavod with the corporation. The losses stood at 4.2 billion when we received this enterprise, but by the end of 2018 they had already decreased by half and stood at 2.1 billion.

Vladimir Putin: And what is the situation like when it comes to your tractor plants?

Sergei Chemezov: Tractor plants posted much higher losses totalling 106 billion rubles. Corporate assets worth 16 billion rubles were spent on the financial restructuring of enterprises. We spent our own assets from the financial reorganisation fund on supporting companies of this tractor holding.

The corporate situation has now been stabilised. The relevant measures allowed tractor plants to fulfil their obligations before state and foreign clients.

Today, we have started merging the United Aircraft Corporation with Rostec.

Vladimir Putin: Do you require capitalisation support?

Sergei Chemezov: Yes, we will need capitalisation increase to complete the financial restructuring of all of the Corporation’s enterprises; this sum exceeds 300 billion. First of all, this sum is needed to implement the MC-21 programmes and other civilian projects. As you rightly noted, the need for capitalisation support on the part of the state still persists. Of course, we are counting on your support here.

We have inherited numerous loans from the 1990s and the early 2000s. Of course, we are servicing these debts and repaying the interest, but we will have trouble repaying the actual loans themselves.

Speaking of civilian goods, the healthcare sector is a high-priority aspect of our work. This segment continues to post higher profits with every passing year, and these profits topped 30 billion rubles in 2018. Last year, we completed 15 perinatal centres that have now started operating successfully and to full capacity.

Much work has been carried out to create new modern vaccines. We have completed the registration of a tetravalent vaccine against seasonal influenza. This vaccine has been produced in Russia for the first time. It was created by our microbiologists. Today we produce this vaccine from scratch, from stage zero: from antigen to the final product. This September we will be able vaccinate the population with it.

Much work was also carried out in product labelling. As of July 1, the labelling of footwear and some pharmaceuticals, luxury goods above all, is mandatory. From January 1, 2020, labelling will be mandatory for all pharmaceutical products. This is important for our citizens to avoid fake medicine and to get high-quality goods. Strangely enough, water is the product that is faked most often; the potable water we buy and drink. The counterfeit rate is between 25 and 30 percent (the average in Russia), but reaches 80 percent in some regions. We must begin labelling this product. I believe we will complete the labelling of dairy foods by the end of this year, as I have already reported. Our work with the Agriculture Ministry is nearing completion, and we will begin labelling by the end of this year, because today we have a lot of products of unknown origin.

In 2018, the corporation successfully completed building telecommunications for the FIFA World Cup. The equipment was mainly produced by our companies. We broadcast with uninterrupted signals to 220 countries. Thanks to Russian engineering and technological solutions, we saved up to half a billion rubles from the budget.

The corporation also has a number of social initiatives, sponsorships and charity projects. At your instruction, we have restored the Trudovye Reservy (Labour Reserves) voluntary sports society. Today all our enterprises take part in this public organisation. In 2018, over 30 events were held, with over 15,000 of our workers attending.

Our punch power championship was held in 20 Russian cities, with over 12,000 participants. Now this is more than just a corporate project. A lot of other enterprises, including banks such as Vneshtorgbank, and companies such as Aeroflot and Uralkali, have joined it. All of them take an active part in the sporting events. In addition to this, we organise summer and winter corporate games, with other organisations that are not part of the corporation taking part in them.

For several years now, we have supported FC Arsenal Tula. Now it is competing in the UEFA Europa League, owing it to the financial support of not only the corporation but also Alisher Usmanov and Rosneft.

In April 2018, a creative industrial cluster was built on the territory of the Oktava plant, also in Tula.

Traditionally, the corporation supports Spasskaya Tower, a music festival for military bands that has been held on Red Square for many years. We also support the international fireworks festival held in late August. We have organised the fireworks festival for four years now. It attracts a great number of spectators and people really love it.

This year we are holding the second Opera in Chersonese international festival. There are also other cultural, sports and educational projects.

Rostec is largely involved in carrying out national projects. The corporation is working on development plans for the 5G wireless connection technology as well as the Industrial Internet of Things, Big Data and blockchain.

We are developing new types of diagnostic and therapeutic equipment, building and equipping clinics in the Russian regions as part of the Healthcare national project. This is in addition to air ambulance service projects. By the way, we established a national air ambulance service operator that signed a contract with our helicopter holding, Russian Helicopters, to supply 150 helicopters equipped with all the necessary medical equipment, also produced by our companies. Many governors are asking us to help them with the construction of hospitals and high-tech clinics. We tell them that we are ready to participate if there is an instruction from you.

Vladimir Putin: Good.


July 22, 2019, The Kremlin, Moscow