Comida Coloquio con Javier Martínez Ojinaga, consejero delegado de CAF: 1ª Parte

Agustín, it's that... strategic plan... I greatly appreciate this opportunity that you give me to come to this faculty and these classrooms, also to those over there where 30 years ago I participated in the doctoral program in financial management and accounting. It was two years, and at that time I thought about pursuing an academic career, but I followed this path and until today. In fact, I obtained a qualification of research proficiency, which is what I took from those years along with a travel companion. Well, Javier, friend, collaborator with some history with CAF, and of those collaborators who, as we say in CAF, feel the jersey. Probably some of you have thought that the title of the intervention, 'Trust in Motion,' is actually the motto we have been using in CAF since last September. I know we took it to the transport fair, and I think I chose it because it synthesizes very well what CAF is. The concept behind 'trust' is trust that has a client angle, manifested in customer satisfaction and high customer repeatability. The latest data we have published on this is from 2019 to the third quarter of 2022: in rolling stock, vehicles, trains, 45% were contract extensions and 65% were clients who had not bought before, and the renewal rate of maintenance contracts exceeded 90%. It is trust from clients but also trust in ourselves, and that ties in quite well with the second part of that motto, which is 'in motion,' meaning that we move, we want to improve, we want to grow. There is nonconformity and ambition in CAF, and that is projected.

Let's take the recent history of CAF: the last 30 years, the last 15 years, or the last seven years. Today I have come well accompanied by a luxury representation of our board of directors, with the president at the head, and here Andrés and Luis are witnesses to the history of those 30 years where that 'we move, we are not satisfied' served in the early 90s to start the journey of a company that in the 80s had lost overnight all its market, that in the 80s was in employment regulation at 50% for five years. And I like to remember it because what CAF is today is the result of what was started in those 90s. That spirit of improvement. In the last 15 years, the first 30 or the last 30 had a dimension of going to foreign markets, projects started in Mexico and then led us to more than 40 countries. In the last 15 years, the bet was on technology and diversification, and it is a bet that has brought us again to where we are today. And we take the last seven and a half years, which are the ones I know best because, as Agustín said, I joined the board of directors in 2015. It is a story of growth, we have it in the balance of the previous statistical cycle, which is 2016 to 2021, but a story that has taken us from being a manufacturer of railway material with some integration capabilities to being a provider of comprehensive solutions in railway and bus mobility. In three traits: we were exclusively a railway manufacturer, now we have two business segments: rail and bus. Even in the railway segment, where we fundamentally had vehicle construction, train construction, and services in a 95-5% proportion, at the end of that cycle in 2021 that proportion was 85-15%, having incorporated business in the area of railway project integration, traction, signaling. And also, although we were a global company, we had a very limited presence in the large accessible railway markets of the world, which are the European markets: the United Kingdom, the Nordic countries, France, Germany. At the end of that cycle, we were a global company, yes, but with an important presence in those markets. To take a numerical reference: if our portfolio in 2016 in that market was approximately 1.3 billion, we were able to capture in that period in those markets five times that amount. We were more innovative, more sustainable, and putting numbers to all this: we went from sales of 1.3 billion to sales around 3 billion. We were able to grow the portfolio from 6 billion to 10 billion, able to multiply earnings per share by two and a half times, and generate enough cash flow to, without asking for money from our dear shareholders, make acquisitions relevant to the future of CAF, such as Solaris and the railway services company in Sweden, Euromaint.

All this, as Javier also said well, behind it are people, people. And in that cycle we went from 7,500 people in 2016 to, I give the figure at the end of 2022, 14,300 people. 4,701 in Euskadi, more than 50% of that amount are higher education graduates. We have grown the workforce in line with the evolution of the businesses. At this moment, we have more than 50% of the workforce in international locations, and overall approximately 80% of that workforce is in Europe. And in turn, the qualification of that personnel has grown in line with the evolution of those activities I mentioned before. At this moment, we could be in an environment of 65%? 35%? 135%? Higher education graduates are more than 4,500, many of them engineers. In fact, there may be over 2,000 directly dedicated to innovation, product development, or project development. So this is a reflection of the great transformation that CAF has been able to carry out and bring us to where we are today. If I had to give the main description of what CAF is at this moment, I would say that CAF is above all a global company. In the railway segment, we have developed more than 130 projects in 40 countries. We have eight production plants: in Beasain, Zaragoza, Bagnères in France, Newport in the United Kingdom, Elmira in the United States, Mexico, and Brazil. More than 100 maintenance centers, more than 5,000 trains delivered, and more than 1,000 coaches rehabilitated. In bus, with facilities after the acquisition of Solaris in Poland, more than 23,000 buses in operation, more than 700 cities, clients in more than 32 countries.

We are therefore very global and with a very prominent presence in Europe, as I say, fundamentally after the opening of facilities in the United Kingdom, the acquisition of Solaris in Poland, and the acquisition of Euromaint in the Nordic countries for maintenance, in addition to the acquisition of the second plant in France, that of Reichshoffen, in the context of the remedies that the European Commission required from Alstom in its merger with Bombardier. So today we are a global company, a provider of comprehensive mobility solutions. If we go to the railway segment, approximately 20 companies do 80% of the business. In terms of capabilities and range of solutions, we are in the Champions, that is, we are among the top four. We have a train construction business that is the anchor of our activity. We have been train manufacturers, we are train manufacturers, and we want to be train manufacturers. We have a services business that offers us recurrence and profitability. And we have, as I said before, an area that is integrated within services, integrated systems, and solutions, where we place important growth expectations. An important railway segment and the bus area with the acquisition of Solaris, we have a positioning that I would say is unique in urban electromobility. A company with more than 25 years of history, a company that has been a pioneer in product development in the urban bus sector. Solaris launched its first hybrid in 2006, its first electric bus in 2011, and its first hydrogen bus in 2016. That gives us a range of solutions that is a leader in urban mobility, electric bus. But also this positioning is linked to the fact that we have been able to lead in terms of market share. We do a very interesting exercise: in the world of zero-emission urban buses, where Solaris operates, the number of competitors has grown over time, so it is important to see not only the share of the last year but also the accumulated share of the last 10 years. So systematically in accumulated share we are number one and we continue to be number one. In the last year, 2022, data was published last week: in zero-emission urban buses (when we talk about low emissions, it's hybrid, electric, and hydrogen; when we talk about zero emissions, it's electric and hydrogen), we were first in accumulated share, this year 2022 we are second behind Mercedes with a share of 11.1% when Mercedes has 11.4%. And I consider it good news because the fact that a manufacturer like Mercedes, which still bets a lot on what we call legacy and a lot on diesel buses, now bets definitively on electric bus, a manufacturer that also protects margins, I think it is good news for us. And as I say, in terms of share, product, and real experience of reliability with those more than 23,000 buses in operation, I think we have a unique positioning in the zero-emission urban bus segment.

As an additional fact, we have been able to deliver more than 1,600 urban electric buses and we have more than 1,000 in the pipeline. We have been able to deliver 80 hydrogen buses and we have more than 200 in the pipeline. That means we talk a lot about hydrogen, but the numbers we handle are still those. So, a global company, therefore, a provider of comprehensive mobility solutions, a company at the technological forefront. Because all of the above is accompanied by continuous and systematic investment in key innovation areas for mobility. We have been investing approximately 1.5% of sales in R&D. I speak of certified R&D investments by third parties, because the investment in innovation is greater, that is, we compute everything we invest or all the innovation that is in product or project development. And then I will develop it later: decarbonization, automation and autonomous vehicle, or digitalization. Therefore, a company at the technological forefront and a sustainable company. For us, sustainability at CAF has become a fundamental element of our strategy. And there, basically, we can develop it perhaps in the colloquium. We work on three lines: alignment with best practices, greater commitment, and greater transparency. We have adhered to the great global commitments in this area: to the B Corp and the UN Global Compact. And also something that we like in this house: we measure ourselves and therefore we submit to different ratings, and the truth is that we are coming out above average. Therefore, this, described so succinctly, are the fundamental features of the transformation that CAF has carried out in the last seven years and the solid bases with which we face the next strategic cycle, the cycle we have defined to 2026 with a horizon of 2030.

What is the vision we have in this cycle? Really, we intend to continue growing as a provider of comprehensive mobility solutions, and at the same time maximizing the digital proposition. I will comment a little later or in the colloquium. We have defined four work axes, four strategic axes through which we believe we can carry forward the plan we have prepared. Commercial focus: we want to grow fundamentally in Europe, the United States, and Asia-Pacific, seeking to focus on markets that give us recurrence and scale. Along with that, efficiency in operations. Efficiency in operations goes beyond the classic efficiency programs to gain competitiveness. Of course, we did it, we do it, and we will do it: align our processes, design-to-cost programs. But also we have to seek a design in engineering, production, and supply chain that gives us both proximity to markets and cost efficiency, because the world, at least what happens to us, is fragmenting more and more, and there are barriers to international trade that are not explicit and that we see and suffer more and more. Local content grows, local requirements in the entire engineering, production, and supply chain grow. Therefore, we have to seek to accommodate our commercial footprint and our industrial footprint to best attack these markets. There is an expression I often use: we have to be more global to be locally stronger, and in turn, we have to be locally more efficient to be able to compete globally.

Commercial focus, efficiency in operations, sustainability. I will give some data perhaps in the colloquium. Innovation: innovation has been the lever that has brought us here, and innovation is the lever that can make us grow. Innovation associated with the businesses we currently have, and also the search for new smart mobility solutions with which to reinforce our portfolio, increasing our value proposition, improving our value proposition. Innovation to grow our businesses. As I said before, the axes are clear: decarbonization. When we talk about decarbonization, it is very simple: alternative traction systems to diesel, that is, we talk about batteries and hydrogen, and we also talk about energy efficiency in hardware and software format. Along with decarbonization, the next axis would be automation and autonomous vehicle. We distinguish them although they are related. Automation has to do fundamentally with the development of our signaling business, a great bet of CAF, one of those that I wrote about 15 years ago. It has cost us a lot, we have invested a lot, but finally we are seeing results. We have a signaling business with a strong position in Spain and in some other market. We have an onboard signaling business, which is the part of signaling that goes on trains, which initially was exclusively for internal clients, and now it is beginning to have commercial success with clients who do not have this product because many companies, as I say, do not have the signaling part developed. And as a third leg, which is the great historical bet of CAF, is the development of automatic metro. And well, finally, at one point we thought we could do it via a corporate operation, but the path we have taken is organic development. We will achieve certification in GoA level 2 next year, we will go to level 3 and then level 4 in the next four or five years to develop that element which is the automatic metro, which would complete our offering in the area of automation. And as I say, automation and autonomous vehicle, we are working on all associated technologies: positioning, anti-collision technologies, automatic systems. In this sense, for example, I always give the example, and our president also often cites it, the projects we are doing for NS to manage trains in depots during the night autonomously, that is, without drivers.

Decarbonization, automation and autonomous vehicle, and digitalization. Digitalization is a word that is used a lot. In our case, we have it relatively clear what it means: gaining competitiveness via digital. That has a dimension: the digital train, and a dimension: the digital factory. For the digital train, we do it through our data platform, LeadMine, which is a platform that is currently installed in more than 50 fleets in more than 21 countries, and what it offers is the possibility, via sensorization and data use, to gain competitiveness, which basically means reducing the life cycle cost of the product. And then the area of the digital factory: we continue incorporating tools to improve productivity. As I say, that is the part of innovation related to the development of current businesses. But there is another aspect that we also want to develop in this strategic cycle, which is related to the incorporation of smart mobility solutions into our proposal, into our product portfolio, to enrich our value proposition. That is, operators currently have new needs that are not covered. Our client is the operator. They are not covered because the demands that exist at this moment in the field of transport are new. That is, we have to reconcile the classic ones, which have to do with efficiency in spending, with others such as decarbonization or others related to usability and user experience, even issues like last mile for freight transport that enters cities. Therefore, there is a range of needs that is emerging, that at this moment is not sufficiently covered. And well, it is something that we still don't know how, but we know we want to respond to it and we have to find the formula to grow profitably also in that area.

We just talked about smart security solutions. What automatically comes to mind are systems for modal operation, systems to optimize traffic, systems to manage incidents. But we sincerely believe there is a long way to go there, that we can in some way regrow our proposal, grow our capabilities, which is what has given us and allowed us to reach where we are today. Also in the next decade, it is something we have said: maintain and grow the archetype, that is, we do not want to expand the field of options to face the future of mobility. And well, really, these are the axes from which we start. This is the ambition we have, and we have also put numbers to it. Suppose, well, to grow at a rate above 10% annually, also to grow our margins at a rate somewhat higher than that sales growth. And in terms of sustainability, improvements in different areas, particularly in the environmental area where we have been able to reduce emissions by 10% from 2019 to 2021. We aim to reduce them by 30% in scope 1 and 2 by 2026, and by 40% in scope 3. Well, really, this in big headlines is what CAF is at this moment. And if you like, we leave it here for the colloquium, context to what is raised.