Exel Composites' Half Year Financial Report Q1-Q2 2020: Operating profit and revenue increased

 EXEL COMPOSITES PLC     HALF YEAR FINANCIAL REPORT    21 JULY 2020 at 10:00 EET

Q2 2020 in brief

• Order intake decreased by 3.8% to EUR 22.9 million (Q2 2019: 23.8).
• Revenue increased by 2.9% to EUR 27.2 million (26.5).
• Adjusted operating profit increased to EUR 2.9 million (2.2), which is 10.6% of revenue (8.5).
• Operating profit increased to EUR 2.8 million (2.1), which is 10.3% of revenue (8.1).
• Earnings per share amounted to EUR 0.21 (0.14).

Q1-Q2 2020 in brief

• Order intake increased by 10.5% to EUR 57.4 million (Q1-Q2 2019: 52.0).
• Revenue increased by 2.7% to EUR 55.0 million (53.6).
• Adjusted operating profit increased to EUR 5.0 million (4.2), which is 9.0% of revenue (7.8).
• Operating profit increased to EUR 4.7 million (2.5), which is 8.5% of revenue (4.8).
• Earnings per share amounted to 0.27 (0.10).

Guidance for the full year 2020

Exel Composites withdrew its guidance on 6 May 2020 as a consequence of increased uncertainty and poor short-term predictability due to the Covid-19 pandemic. The impact of the pandemic on the company depends on the duration and severity of the crisis. The company will specify its guidance for 2020 later during the year when a more reliable estimate can be made.

In the second quarter of 2020, revenue and operating profit increased compared to last year. This outcome was supported by a record high order intake in the first quarter. I am very satisfied with this result considering the current global business environment.

In the second quarter of 2020, the Covid-19 pandemic impacted Exel Composites’ operations in Europe and the United States, while in China our factories operated normally. Our quarterly order intake, however, declined only slightly compared to the previous year. On one hand, our order intake suffered from Covid-19 related uncertainty and cautiousness among our customers. On the other hand, we recorded a sizable order (representing roughly 15% of the quarterly order intake) in the Buildings and infrastructure customer industry, to be delivered mainly in 2021. Our order backlog at the beginning of the third quarter is good.

The impact caused by the pandemic on customer demand has varied greatly depending on location and industry. Several of our customers’ factories that were closed earlier have now reopened and activity level increased towards the end of the quarter as countries have gradually lifted restrictions. Based on this it seems that the business environment is developing favorably. However, there is still a risk that the pandemic continues or expands.

Revenue in the second quarter increased slightly compared to the previous year. The increase of deliveries, especially in Wind power to the Asia-Pacific region, was offset by a volume decline in other customer industries globally, mainly attributable to the Covid-19 pandemic.

Despite the effects of the pandemic, operating profit increased in the second quarter of 2020 compared to the previous year. The improved profitability of the business unit in the USA was the main factor behind the positive development of Group operating profit.

In June 2020, the Board of Directors reconfirmed Exel’s strategy until the end of 2022. Our main strategic focus areas as well as our long-term financial targets remain the same. Our strategic priorities for the remaining of 2020 include stabilizing the profitability of the business unit in the USA, consolidation of the organization in China, operational efficiency improvements in the European manufacturing units as well as focusing on growth initiatives. Sustainability is integrated even more closely into all Exel’s business and operations.

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.

Revenue by customer industry

Revenue by region

Impacts of the Covid-19 pandemic

Operations

In the second quarter of 2020, the Covid-19 pandemic impacted Exel Composites’ operations in Europe and the United States, while in China our factories operated normally. The business unit in Great Britain ran with reduced capacity in April and May. However, the financial impact of this was not significant. The business unit in the United States produced in April and May products only for businesses categorized as essential by authorities, for example components for wind power. However, most of the order backlog in the United States was categorized as products for essential business and was therefore produced normally.

Raw material supply and logistics continued to operate close to normal despite the pandemic during the second quarter. Minor challenges in specific raw material categories or personal protection equipment supplies have been solved through consolidated Group purchases and finding alternative suppliers or technical solutions.

Financial standing

During the second quarter, the impacts of the pandemic on customer demand has varied greatly depending on location and industry. Order intake in the second quarter suffered from Covid-19 related uncertainty and cautiousness among our customers. However, the order intake declined only slightly compared to the previous year, supported by a sizable order in the Buildings and infrastructure customer industry to be delivered mainly in 2021. We received a few customer requests to postpone deliveries of current orders, typically by two to four weeks from the originally planned delivery time, which impacts timings of revenues and profits. However, similarly to quarter one, we did not experience any significant cancellations of orders in the second quarter of 2020. Several of our customers’ factories that were closed earlier have now reopened and activity level increased towards the end of the quarter as countries have gradually lifted restrictions.

The Group’s liquidity and cash situation are currently good and the Covid-19 pandemic has had limited impact, if any, on Group liquidity. In April 2020, the Group agreed to continue the EUR 10 million committed overdraft facility, expiring in June 2020, by two years. The new overdraft facility expires in June 2022. The Group also agreed upon on a new EUR 7 million long-term loan in April 2020 to secure financing of the construction of a new manufacturing facility in Austria. With other existing committed credit limits, these new agreements secure financing of all foreseen investments in 2020 and provide for a comfortable liquidity buffer for any unforeseen negative events.

Based on the company’s assessment, the Covid-19 pandemic does not change the results of the impairment testing and sensitivity analysis conducted for the financial statements of 2019. The main risk identified was related to the expected profitability turnaround of the business unit in the United States. In the first half of 2020, both order intake and profitability of the business unit in the USA have developed above estimates despite the Covid-19 pandemic.

During the second quarter of 2020, Exel Composites received some Covid-19 related financial assistance under local governmental schemes in Great Britain, China and Australia. The amount of these was however not material from a Group perspective.

Our response in relation to the Covid-19 pandemic

The health and safety of our employees, customers and business partners is a priority for Exel Composites. In order to ensure safety and business continuity during the Covid-19 pandemic, the Group Management Team and local management continue to hold regular online meetings to review the latest developments, actions and best practices in all functions and countries of operation. All units have implemented Group level safety and hygiene instructions in accordance with the instructions of local health authorities. Our manufacturing units continue to report zero confirmed Covid-19 cases. Most of our European manufacturing units are in more remote locations where the occurrence of the Covid-19 has been reduced compared to larger urban areas. International travelling is limited and online meetings continue to be preferred when possible. Outsider visits to sites are reduced to minimum. Continuous internal communication at Group level as well as locally on Covid-19 related concerns has been emphasized and implemented through a variety of channels.

Close and continuous interaction is maintained with customers, suppliers and business partners in order to ensure timely reaction to new developments. Given the continued uncertainty related to the Covid-19 pandemic, close monitoring of the situation is a priority for us.

Vantaa, 21 July 2020

Exel Composites Plc
Board of Directors

For further information, please contact:
Riku Kytömäki, President and CEO
tel. +358 50 511 8288
riku.kytomaki@exelcomposites.com

Mikko Kettunen, CFO
tel. +358 50 347 7462
mikko.kettunen@exelcomposites.com

Distribution
Nasdaq Helsinki Ltd
Main news media
www.exelcomposites.com

Exel Composites in brief

Exel Composites, a global technology company headquartered in Finland, is the world’s largest manufacturer of pultruded and pull-wound composite products. Our global manufacturing, R&D, and sales footprint serves customers across a broad range of industries and applications. With 60 years of composites experience and engineering expertise, we work closely with our customers to design and manufacture high quality composite products using carbon fiber, fiberglass, and other high-performance materials. Our composites help reduce weight, improve performance, and decrease total life cycle costs, all while helping increase energy efficiencies and supporting environmental sustainability.

Exel Composites employs approximately 650 innovative and customer-focused employees around the world and is listed on the Nasdaq Helsinki exchange. To find out more about our offering and company please visit www.exelcomposites.com.