INVESTIRE IN AZIONI OMER - ne parliamo con Salvatore Giosuè e Giuseppe Russello

Thank you, thank you to you and to all those who are listening and watching. For those who don't know the company, let me briefly introduce it: what do you do, what does OMER do? OMER is a company operating in the component sector of railway transport vehicles. We produce all the interiors of trains except seats. So everything that comes into contact with the passenger, because a carriage consists of a metal frame, and it must be furnished and completed with a series of components that define the atmosphere, the status of the vehicle. These include side panels, barriers, the ceiling with lighting systems, end walls that separate the carriage from the vehicle. In short, everything inside except seats. So OMER's supply scope has been in this market for about 30 years. Initially, in the early years, we operated in the same type of supply but inside buses. Gradually we started exploring the railway market, and today OMER is one of the most important players at European level. Our clients are the manufacturers of railway vehicles: Alstom, Bombardier, Siemens, Hitachi, the biggest global players that build trains. We collaborate with them in project development, produce the components in our plants, and after final testing and sometimes joint on-board activities on the first trains, they are shipped to plants around the world where these components are assembled. That's really the essence of it.

Well, fortunately, because I am a convinced supporter of the market and competition that makes you grow, we are not alone. But today OMER has a market position within the European market—I mean the market where our builders operate. Our builder builds the train and ships it to Taipei, but the market, for example, is German if the train is assembled in German plants by Bombardier. Having made that necessary clarification, we have some competitors in Europe. Today we are a reference point; our clients define us as the first player in this sector in terms of production capacity. Our plants are truly unique within the segment of interior producers, for two reasons: first, because our plants are large. They were built over the years; today we occupy a total surface area of about 80,000 square meters, of which almost 33,000-35,000 square meters are covered and used for production. We have another plant in Detroit, Sterling Heights, which we set up in 2017 to follow the local market, and it is universally recognized as an important player. I mentioned our competitors, but they generally have slightly different business philosophies. What makes OMER distinctive today is that OMER is a so-called system integrator, a producer capable of integrating the entire furnishing system inside railway vehicles. In addition to developing complete furnishings over the years, we have recently developed, for example, the toilet cabin, which becomes a single unit with the plants and lining systems. Our prerogative is to be a single supplier capable of managing the entire project, unlike the vast majority of our competitors who manage specific supply scopes like luggage racks, lighting systems, ceilings. So our client, who must integrate the whole system, would need six, seven, or eight suppliers of that type. That would increase the complexity of managing the business, but the client is naturally satisfied because they realize the lining with a single supplier that should be OMER. So many competitors, but I believe OMER has a position of absolute privilege in the panorama of interior supply, which remains a niche market, no doubt.

We made this choice because our clients, the market, asked us to follow them to that country, the American market, which is characterized by two features: first, a market in strong growth. Americans, who use vehicles that are extremely voracious in fuel, have begun to understand that the train—not the old train we're used to, but today's technologically evolved and complex object—can adequately replace other transport systems. So several projects have been launched in that country in terms of infrastructure and railway vehicles for high-speed connections of cities on the East Coast, but also in the West, in California, and even in Texas where a series of high-speed projects have started. So there is great ferment. Our clients, all European builders, have built plants there, and due to current regulations, a significant part of the train must be produced and developed on American soil. There is a precise regulation that obliges builders to source an important part within American territory. So we followed them in this adventure, particularly in Detroit, and we are producing all the external linings there—because I didn't mention earlier that OMER also handles the external linings of certain parts of high-speed trains, the so-called fairings, which are doors, elements that protect the vehicle's systems from the outside but also contribute to giving the vehicle an aerodynamic profile. We mainly work on interiors, but over the years we have also developed this type of product, and we are producing these external linings for 28 Alstom trains, using the experience gained on the Italian market with the Frecciarossa 1000, because those are also running gear components. So we have managed to sell our experience on international markets. In practice, we are following our clients wherever there is a business opportunity, which is a typical model for high-level industrial suppliers: strategic suppliers allocate themselves near their clients' plants to reduce the length of the supply chain.

Absolutely yes. It's clear that if you forget the mindset that we are talking to a non-expert public, a clarification is necessary. Certainly for us, the subway sector is interesting and important, especially in recent years it has grown a lot. Alongside high-speed, urban centers need to integrate proximity mobility. So in Milan they are building many subway lines, but also abroad, especially in the United States—we touched on an important point there. All major urban centers, just think of New York, San Francisco, Washington, are extended territories, and the subway to connect that urban fabric becomes a significant tool. For us, producing furnishings for a high-speed train is equally important as taking on the supply of interior furnishings for these subways. To cite the most recent one, the Stockholm subway is an interesting and numerous project in terms of the number of trains being built. We are producing all the interiors entirely in aluminum alloy. This could be a topic we can touch on in a few minutes. We have reduced the interiors to aluminum alloy on a train that has received several appreciations for the innovation that has been poured into this train. In our small way, the interiors represent an innovation in themselves because they are made entirely of aluminum alloy, a highly recyclable material at end of life. This product is completely recycled, so being able to have on a train—whether high-speed, regional, or subway—a few tons that can be recycled at the train's end of life is a plus for the train itself. Today, the operators that compete in the market ask builders to produce a train with a very high percentage of recyclability, and we, in our small way, contribute with our products using a highly recyclable material.

Well, I'd say that the research and development part is a fundamental element. Without having done research, today OMER probably wouldn't be where it is. Over the years, we have developed our own technology, in collaboration with the Polytechnic of Bari. We carried out an important research project that today allows OMER to produce complex shapes and geometries, which are increasingly sought after by designers. Today, design doesn't want an easy train; it wants curved shapes, sometimes inventing forms and geometries that simply have the function of making the train beautiful. And we indulge this because we are strongly convinced that beauty in life helps. So over the years, we have been forced to develop technologies that allow the realization of these complex, articulated shapes without resorting to extremely expensive technologies. So OMER had to invest in R&D in new technologies to develop processing systems all internal to OMER, capable of producing these shapes at acceptable costs that clients could sustain and accept. This is a challenge, a continuous and constant challenge: to keep finding solutions. We started with solid modelers, which were already used in 2004-2005 when we approached solid design systems. Today we use a series of software developed internally that can predict the formability of this prestigious and precious material, aluminum alloy. Naturally, we start from flat sheets that can assume extremely complex shapes and geometries, all at sustainable costs deemed acceptable by the market. So a continuous challenge made of research, innovation, especially process innovation, of technologies capable of mastering the formability of our materials. Not to mention all the problems related to the use of coatings, paints, materials capable of passing a series of extremely sophisticated and stringent tests in terms of fire resistance, durability, impact resistance, and environmental compatibility. So this is a continuous R&D effort. Recently we used adhesives developed together with partners that can withstand very high temperatures during powder coating phases. I give these examples without delving much into detail, to say that behind a lining of a compartment or a carriage, when we board the vehicle, there is a lot of effort, work, and analysis.

This is a smart and relevant question because it shows the capacity that companies in the railway sector must have: to operate in a market that will never be like the car market in numbers. It's obvious. For example, in Italy, just the Italian data, which is easily verifiable: Trenitalia launched a few years ago a big project for new regional trains, 600 trains. That's a number never seen before, and it really changed the management of the railway industry. But we're talking about 600 trains, each on average made of 4-5 carriages, so a few thousand carriages. That's absolutely not comparable to the automotive industry. So the management logic, approaches, and production philosophy are completely different. Initially, this is a niche market, a niche of a product with extremely high technological content. Because remember, a train carrying passengers sometimes goes at 350 km/h. Inside a complex railway network where many trains run, there are issues of safety and comfort. Today, the train is no longer the old train we remember from 40 years ago, whether regional or high-speed. Technology has evolved and made it possible to produce top products for a train traveling at 350 km/h. It's not trivial. Safety is everything: safety of running, but also safety of our products, which must guarantee perfect functionality for 30 years, they must not come off. So there is a technological content that is not negligible, and that some may overlook. But believe me, the homologation procedures are very severe, both for our products (which are just a part) and for the complete vehicle. A train generally takes, temporally, exactly what you said: from when the tender is issued, when it is awarded, and when the first train is put on rails, today 2-3 years pass. Then depending on the size of the project that was tendered, it will last much longer. So cyclically, on average, speaking of 4-5 years for a railway project is not far-fetched.

According to analyses, the railway market is set to grow in the coming years, strongly grow, precisely for the reasons mentioned earlier. High-speed has somehow changed the paradigm of railway transport. High-speed connecting cities up to 500 km apart has been scientifically proven to be convenient by train. It's quite evident that the travel experience on a high-speed train is truly innovative. Today everyone works, everyone calls, everyone is comfortable, we go have breakfast at the bar, all within 2-3 hours, so time passes quickly. So under 500 km, it's not convenient by plane. For example, in France, I think there is a norm that has theorized the ban on planes for routes under 500 km. So those routes are no longer served by air, and many people must travel by train. It's true that France has a morphology that certainly helps compared to Italy, but we have not seen the subway between Milan and Rome? It's truly a revolution. Today there are trains every 20 minutes, costs are lower, more competitors, more operators in competition, and that has done good for the market. But for high-speed to hold, regional trains are needed. They are the complement to high-speed because high-speed connects big cities. The hinterlands, towns, and small cities around Milan, for example, must be connected. Because the passenger must start from the province, get off at the same station, change to a regional train, then to high-speed to stop in Bologna, Florence, and Rome. So the connection of high-speed trains with regional trains is a single entity, part of an important project. Today in Italy, the PNRR alone has allocated about 27 billion euros for railway infrastructure. So it's quite evident that if all this railway infrastructure is realized, as likely by 2025, and it's in an advanced state of design, it follows that trains will need to be built. We are ready to give our contribution, and we are preparing to equip any of these trains that should be built, naturally working with all builders. We root for all our clients and then we propose ourselves to whoever wins the tender.

I'll cite a few projects that OMER is currently working on: all the Italian regional trains. We are present on the Caravaggio platform, which is a double-decker train being built by Hitachi, as well as on the Pop project being built by Alstom. Not least, the additional ETR1000s that Hitachi is building for Trenitalia. There are other tenders emerging in Italy, so we will be there. OMER is also present on the most important French train project in terms of number of regional trains built in France. We have been present since 2014-13 when we signed a multi-year contract that will end in 2027-2028. It involves 850 trains. OMER is present with the supply of interiors within that project. We also have the Stockholm subway: 96 trains plus 80 in option. We have delivered about 30 trains so far, so we still have plenty of activity to develop. Then there is the prestigious RER project: the metropolitan line of Paris, and also the MF19, another subway for the Paris area. Subways in reality have a slightly different logic because they go with a substantially regional service within Île-de-France, so they have a function not only as subway but also to connect the urban fabric in the Paris belt. We are present on the new trains that Hitachi is building for the Anglo-Saxon market, and OMER is producing all the interiors of 33 trains, which are a mix between an intercity and a high-speed train for the English market. There, we are the only interior producer on that platform. Then there is the Coradia Stream project by Alstom for regional trains that will connect Belgium, the Netherlands, and northern France. These are all platforms, so it's clear that as operators order trains, we will be ready to assist and supply our clients. We have an important backlog, but above all a soft backlog, which is the sum of the framework contracts that will eventually become executive contracts. Today OMER has visibility for the next 6-7 years, if production volumes remain at current levels. And we have margins because OMER continues to grow, and to sustain this growing demand we have made important investments in production capacity. We built a plant that started production in 2017, and just last year it came into production. So we still have significant residual capacity: today we are at 40% of the productive area, so with important growth margins. We hope that the market will respond, and that the pandemic will quickly leave us. We are quite confident that we can follow and accommodate the market, which is showing strong growth.

Absolutely yes. You summarized it perfectly. So these are the dynamics. A platform is essentially a vehicle that, aside from small adjustments, can be supplied to different operators, changing small details like color or livery. For example, a train that must serve a mountainous region might have ski racks or bike racks, while a region near coastal areas might have different customization. The structure and project are the same, but then it is organized and characterized to be customized for each case.

On this topic, there is continuous discussion internally. I always say that we must not have a dogmatic vision of things, a priori. We are looking at opportunities on the market. If these become real opportunities that bring value to the company, we have no fear of considering operations of this type. But over the years, we have had satisfaction through organic growth, so we must be certain that the choice made for the company is the best. So we are ready to welcome opportunities that come to market, but they must be real opportunities, capable of generating value. We have experimented with organic growth: we were able to start from scratch in the United States and set up a productive plant where more than thirty people are working. So both models can be replicated. Clearly they have different impacts on growth in terms of time, but they are also complementary to each other. Organic growth is certainly slower but more easily governed. An acquisition raises the issue of sustainability on the economic front, and above all the challenge of integrating a company into an ecosystem that is the OMER ecosystem. So we are absolutely open to any solution, without anxiety, we must truly create value for the company, weighing opportunities with great detachment, without being caught up in trends or easy enthusiasm. We must stay focused.

Well, risk factors: it's useless to hide them. I believe that in January 2020, no operator could have imagined what would happen. We lived through the closure for six weeks of the plant when the government decree told everyone to go home. It was a bit traumatic. So the biggest concern right now is a variant that doesn't spare anyone. That's the first concern. Then it's useless to hide the concern about the exponential growth in raw material costs and their availability. So that is another high risk factor, a concern. However, probably the dynamics will soon realign with normal dynamics. I imagine there is certainly demand exceeding supply, but probably also some speculative elements that I hope will decrease in the coming months. Our company, working on medium- to long-term projects, has equipped itself to manage procurement and also price increases. Certainly this period of turbulence is testing every rationale, so we'll see what happens in 2022. From a strictly internal point of view, I'd say that we, like all suppliers to these large groups, are resources for our clients. Remember that the train is built by suppliers; our clients are integrators of products made by other companies, assembled in their plants. So if a supplier like OMER performs, assists, solves problems, we are a resource for our client. Therefore, truly strange situations would have to occur, on the borderline, for us to be put in the corner or not invited to future tenders. We have invested, they have invested in us continuously and constantly. There is a continuous exchange in technical terms of our products and also, I'd say, in terms of control and monitoring of the company's performance, because it's evident that a company that goes into crisis becomes a big problem for the client. There is continuous attention to performance, financial analysis, on the part of our clients. Every time we sign a contract, we are subjected to audits to verify production capacity, to verify that we don't go into crisis, to verify our ability to financially sustain these multi-year contracts. So there is a continuous exchange, a continuous osmosis between client and supplier. We consider ourselves, and we thank our clients for this, partners of our clients. Because calling us suppliers is really something more: we contribute with our work, our engineering, our products to the realization of a complex object called a train.

I'll tell you how we are facing it, because those are the dynamics. I think it's not easy. In my opinion, behind this crisis there is a geopolitical clash at a global level involving the factory of the world, China. China is probably making its role as global factory weigh. Unfortunately, especially in Italy, industrial policy has been somewhat abandoned, thinking we could live on services. So our production chain has shortened a lot; many commodities and products are no longer made in Italy or Europe. Just think of the masks at the beginning of the pandemic: Europe in crisis for a mask worth a few cents. So there is a problem of industrial policy that hasn't been done. Some thought we could live on something else, moving manufacturing and certain productions to the Far East. Today, fortunately, some thinkers and economists are beginning to reason about bringing productions back to Europe. The cost of labor in China is growing, transport costs are reducing the gap of convenience that was certainly in favor of China. Just think that a container from China used to cost, say, $1,000; today you can't find one for $10,000 for the same 40-foot container in Europe, with the related times. So on one hand, there was the production halt due to the global pandemic, and the recovery in tight times thanks to vaccines—which, I'd like to remember, are giving excellent results—so we probably weren't ready for such a rapid restart. So there is this misalignment. And probably someone is speculating on raw materials, holding them in warehouses and not putting them on the market, waiting for them to worsen. So, as always when there is a storm, several factors contribute to that storm. This is my view; I don't know how correct it is, but it's a vision of a series of factors that come together. For us, so far we have managed to significantly reduce the impact because part of the higher cost we have been able to pass on to our client, since contractually we had a few percentage points on the sales value that helped absorb the cost of raw materials. On procurement, by making purchases in advance, we have not had a significant impact. So until the end of the year, we should have no impact on this year's forecasts. Certainly, looking at 2022, if there is no change, we have some concerns. We have concerns because prices are rising, and because maybe we won't find materials. If it persists, we will have to go talk to our clients, invoke force majeure, and reach an agreement, as has always been done in these cases. So this is certainly a problem, but the problem is global, so I mean, there is no single company that is not impacted.

Thank you for the opportunity. Good work and see you soon.