Review by the President and CEO
Challenging market environment continued to weigh on our profitability despite counteractions
The fourth quarter of 2023 progressed in line with our expectations. Revenue was 22.1 million (31.0), which represents an increase of 7.5% from the previous quarter, and order intake amounted to 23.6 million (25.6), an increase of 3.3% million compared to Q3. As we had expected, customers in our main markets continued careful management of inventories and new orders. It was pleasing to see that Transportation, one of our identified growth areas, had a strong quarter.
As a result of the continued low revenue our adjusted operating profit was EUR -1.3 million for the quarter (0.9). We continued decisive actions to manage our working capital, and costs, and as a result we achieved a quarterly cash flow of EUR 0.8 million from operating activities.
Our revenue in 2023 decreased from 2022. This was impacted by the challenging overall market environment, customer destocking of inventories accumulated due to Covid-19 pandemic and supply chain disruption, as well as the temporary demand decrease and postponement of business in the wind power equipment market. Exel’s revenue decreased in all main geographies and customer industries, except in the Defense industry.
For these reasons the adjusted operating profit for the year decreased to -2.4 million (8.0). During the year we took multiple successful actions to activate sales and contain costs, but these were not sufficient to offset the decline in revenue. In 2023 costs were lower than in 2022 mainly due to EUR 4.8 million lower personnel costs and EUR 1.4 million savings in operational fixed costs. Our organization did well in securing cash flow from operations, which was positive EUR 4.4 million (6.8) in 2023, and a favorable result in an otherwise challenging year.
Strategy implementation continued and prepared us for the future
Exel launched a new transformative strategy in October 2023 setting us on the course of organic growth and solid profitability. We launched new Group targets including updated long-term financial targets and began immediately implementing our new strategy. In the first days of 2024 we announced adoption of a new operating model simplifying our structure into two global business units. We will align resources fully within these businesses: Engineered Solutions Business Unit concentrating on tailored solutions in multiple industries, and Industrial Solutions Business Unit concentrating on selected applications with significant growth potential. Mr Juha Honkanen and Ms Kathy Wang were promoted from within Exel to take the lead of the new business units, respectively.
We have a clear vision of Exel’s future footprint, and we are working to align with it. In 2023 we completed the downsizing of the pultrusion operations in Runcorn, UK and put the facility up for sale and completed the sale of the real estate related to closed manufacturing facility in Nanjing, China. In addition, we completed the first of our three strategic factory reviews by refocusing our US operations. In January 2024 we announced the second strategic factory review concerning Belgium. Our strategic wind program and factory construction in India, announced in July 2023, are progressing according to plan.
Safety, sustainability and quality are important pillars of our strategy. We intensified our focus on safety, and we are pleased by having reached the lowest lost time incident rate of 6.0 (10.8) in Exel’s history, on our way to Zero Harm. During the year we achieved quality certificates for APQP4Wind in India and China and are readying us for automotive IATF 16949 certification. We continue to adopt solar and sustainable energy sources in our operations and furthering circularity by waste recycling and management.
Outlook for 2024
Exel Composites expects revenue to increase and adjusted operating profit to increase significantly in 2024 compared to 2023. Our opening backlog for 2024 is higher than it was a year ago. However, the visibility to market development is still limited, and considering the overall economic sentiment we expect demand to be somewhat soft in the first half of 2024 while Exel will continue to have free production capacity. We at Exel have a clear execution plan. We look forward to 2024 with confidence.
Exel Composites’ ambition is to distribute a minimum of 40% of net income in dividends when permitted by the financial structure and growth opportunities. Based on this dividend policy, the Board suggests that no dividend to be paid for 2023.
I would like to thank all Exel employees for their hard work and dedication as well as our customers and other stakeholders for the continued cooperation and trust.
President and CEO