Exel Composites’ Business Review Q1-Q3 2023: Q3 2023 revenue EUR 20.5 million and adjusted operating profit EUR -1.2 million

EXEL COMPOSITES PLC          STOCK EXCHANGE RELEASE          3 November 2023 at 9:00 EET

Q3 2023 in brief

• Order intake decreased by 6.7% to EUR 22.8 million (Q3 2022: 24.5)
• Revenue decreased by 39.2% to EUR 20.5 million (33.8)
• Adjusted operating profit decreased to EUR -1.2 million (1.8) and adjusted operating profit margin to -5.9% (5.4%)
• Operating profit decreased to EUR -0.7 million (1.7) and operating profit margin to -3.2% (5.0%)
• Earnings per share amounted to EUR -0.05 (0.18)

Q1-Q3 2023 in brief

• Order intake decreased by 24.8% to EUR 74.6 million (Q1-Q3 2022: 99.1)
• Revenue decreased by 29.5% to EUR 74.7 million (106.0)
• Adjusted operating profit decreased to EUR -1.1 million (7.1) and adjusted operating profit margin to -1.5% (6.7%)
• Operating profit decreased to EUR -1.2 million (4.7) and operating profit margin to -1.6% (4.4%)
• Earnings per share amounted to EUR -0.30 (0.51)

Guidance for the full year 2023

Exel Composites lowered its full year 2023 guidance for revenue on 19 October 2023. The change in guidance was due to the continuation of a challenging market environment and soft demand for many composites products and solutions in the second half of 2023. Exel Composites expects that revenue and adjusted operating profit will decrease significantly in 2023 compared to 2022. Previously Exel Composites expected that revenue in 2023 will decrease and adjusted operating profit will decrease significantly in 2023 compared to 2022.

President and CEO, Paul Sohlberg

Weak market conditions impacted revenue

During the third quarter, our revenue decreased by 39% to EUR 20.5 million (33.8) compared to same period in 2022. Revenue decline was due to the continued absence of large orders in the wind power market in North America, and the overall slowdown of the global markets affecting many of our customers in general. The same trend was visible in almost all geographical regions and customer industries.

After showing some positive signs during the summer, we expected customers to resume more active ordering of goods. However, the supply side of the global manufacturing sector continued to face headwinds in the third quarter.

While customer activity has increased in the second half, the overall macroeconomic environment has weighed on the timing of order placement and on the schedules of certain large project orders. Consequently, our order intake declined by 6.7% during the third quarter compared to the same period last year and slow order intake is expected to continue until the end of the year.

Positive cash flow despite negative adjusted operating profit

In the third quarter of 2023, our adjusted operating profit decreased to EUR -1.2 million (1.8) due to the lower level of revenue. The implementation of cost management activities continued. Fixed costs decreased from the comparison period due to lower personnel costs following rigorous rightsizing activities during 2023. 

We have successfully continued to reduce our working capital and inventories resulting in a positive quarterly cash flow of EUR 1.2 million from operating activities.

Continued progress with operative actions

Construction of the new facility in India, which we have communicated earlier, progressed well with erection of the building starting in line with schedule. The new facility will be optimized for serving wind power industry customers in India and globally. We continue to work closely with our customers and suppliers to secure timely customer commitments and ensure readiness for initiating production.

We have now shut down most production lines in Runcorn, United Kingdom and the remaining measures related to relocation of pultrusion production will be finalized in the next few weeks. The sale of the production facility is progressing well, and we expect it to be completed during 2024.

Outlook for 2023

As communicated earlier, we have adjusted our guidance for the year 2023. Exel now expects that revenue will decrease significantly and adjusted operating profit will decrease significantly compared to 2022. This change was due to the overall lower order intake across our businesses, as well as the postponement of certain large orders in various segments, including wind power.

Exel’s new strategy received positive feedback and implementation already underway

On 2 October 2023, Exel Composites launched a transformative strategy based on sustainability, customer value and a high ambition in execution. During implementation, Exel will become a more integrated designer and manufacturer of pultruded composite solutions for volume and customer-specific applications. This strategy is ambitious and will enable us to reach over EUR 200 million in annual revenue and double digit adjusted operating profit margin within the next five years.

Our new strategy rests on four central pillars, and on our selected attractive growth areas.

Our first pillar is to capture organic profitable growth from large and fast-growing applications driven by decarbonization and sustainability. We are seeing strong demand for products needed for electrification, the mitigation of climate change effects as well as energy-efficiency in buildings and transportation. To capture these opportunities, we will leverage Exel’s strengths which are in composites know-how, agility, independence and wide pultrusion applications exposure. 

As a second strategic pillar we will focus on increasing our customer value by helping them choose composites for their applications by offering engineering support, productization and post-processing.

Our third pillar is to reorganize Exel for profitability. We will be taking swift and determined steps to transform this company. This is an industry where growth can be coupled with premium margins, and we have examples of that within Exel already today.

The main profitability driver in pultruded composites is ensuring that we have the right skills, focus and rightsized capacity to match customer demand. This ensures we keep feeding raw materials through the machines every hour while applying our unique skills to this whole process.

As part of the third pillar, we will also implement a new operating model that organizes our company into two business units, tailored and volume applications. This will simplify our structure tremendously and provide dedicated resources, focus, and speed within these businesses.

We also announced that we will be revisiting our production philosophy and that three existing sites will be placed under strategic review.

Our fourth strategic pillar is high ambition and rigorous execution. On 19 October, we announced we had already completed the first of such strategic reviews concerning the transformation of our US operations and factory. With this significant restructuring, fixed cost reduction and refocusing, expected to capture more orders in the worlds’ largest composites market, leveraging Exel’s strong capabilities in composites tubes, electrical products as well as applications in the building and infrastructure sectors.

Our new strategy has been well received by employees, customers, and investors. This reinforces our commitment to execute it efficiently.

We look forward to seeing you at our Capital Markets Day on 13 November 2023 to discuss Exel’s new strategy and our exciting future in more detail.

Consolidated key figures

1) Excluding material items affecting comparability, such as restructuring costs, impairment losses and reversals, and costs related to planned or realized business acquisitions or disposals

2) Can include order cancellations during the quarter

Revenue by customer industry

Revenue by region 1)

1) Revenue by customer location

Operating profit

In the third quarter of 2023, the Group’s operating profit decreased to EUR -0.7 million (1.7). Operating profit margin was -3.2% (5.0%). Adjusted operating profit was EUR -1.2 million (1.8) and adjusted operating profit margin was -5.9% (5.4%). Reversal of provisions related to Runcorn improved operating profit compared to adjusted operating profit in the third quarter of 2023.

Financial position

Net cash flow from operating activities for January-September 2023 was EUR 3.7 million (2.4). Net cash flow from investing activities amounted to EUR -2.2 million (-1.9).

On 30 September 2023, the company had unused revolving credit facilities to fully secure the payment of commercial papers.

Changes in the Group Management Team

Johanna Tuomisto, Senior Vice President, People and Culture, was appointed as a member of the Group Management Team as of 1 September 2023.

Events during the reporting period

The majority of the measures to transfer pultrusion production from Runcorn, United Kingdom, were completed by the end of Q3 and the last measures will be finalized in the next few weeks. Efforts to sell the Runcorn production facility continued.  

Events after the reporting period test

New strategy

On 2 October 2023, Exel Composites announced transformative strategy to capture profitability growth. Exel’s aim is to become a more integrated designer and manufacturer of pultruded composite solutions for volume and customer-specific applications. Exel will also organize its operations into two dedicated customer-centric business units, one concentrating on volume and the other on custom solutions. The factory footprint will be organized to support the needs of the new business units. As part of the process to reassess the factory footprint, Exel is planning to start a strategic review in three factories to define their role and necessity in the new operating model. The new operating model with two distinct business units will be implemented from the beginning of 2024.

On 19 October 2023, Exel Composites announced that it has completed the strategic review for the first factory. Exel has decided to refocus its operations and factory in the United States to manufacturing of tailored pull-winding tubes and customized pultruded composite profiles for the North American markets. Reorganization of the operations in the Unites States is expected to result in annual cost savings of approximately EUR 3.0 million. Exel will record EUR 4.3 million asset write-down as an item affecting comparability in the fourth quarter 2023 result.

Shareholders’ Nomination Board

On 3 October 2023, Exel Composites announced that the following persons have been appointed as members of the Shareholders’ Nomination Board: Markus Lindqvist (Aktia Mikro Markka), Kalle Saariaho (OP Fund Management Company), Esko Torsti (Ilmarinen Mutual Pension Insurance Company), Petteri Vaarnanen (Sp-Fund Management Company) and Jouni Heinonen (Chairman of the Board of Directors, Exel Composites Plc) as an expert member.

The largest shareholders entitled to appoint members to the Nomination Board were determined based on the registered holdings in the company’s shareholder register held by Euroclear Finland Oy on 30 September 2023.

The Nomination Board prepares the proposals concerning Board of Directors’ members and their remuneration for the following Annual General Meeting.

Vantaa, 3 November 2023

Exel Composites Plc
Board of Directors

Financial results briefing

Exel Composites will hold a financial results briefing regarding the Q3 2023 results today at 12:30 EET. To participate in the online event, please register in advance by sending an email to investor@exelcomposites.com.

For further information, please contact:

Sanna Ahvenniemi, Head of Investor Relations, tel. +358 40 864 3000, sanna.ahvenniemi@exelcomposites.com

Exel Composites in brief

At Exel Composites, we use over 60 years’ experience to solve challenges and help customers save resources. Our forward-thinking composite solutions made with continuous manufacturing technologies serve customers in a wide range of industries around the world. You can find our products used in applications from wind power and transportation to building and infrastructure.

Our collaborative approach and global footprint set us apart from our competition. We use our expertise to help customers reduce weight, improve performance and energy efficiency and decrease total lifetime costs. We want to be the first choice for sustainable composite solutions globally.

Headquartered in Finland, Exel Composites employs approximately 650 forward-thinking professionals around the world and is listed on Nasdaq Helsinki. To find out more about our offering and company please visit www.exelcomposites.com.

Exel Composites Plc