Review by the President and CEO

Q1 2023 Revenue EUR 28.8 million and adjusted operating profit EUR 0.0 million

Q1 2023 Business Review, 2 May 2023

Short-term demand impacted, mid- and long-term growth picture remains positive

The year 2023 started in a continued challenging global market environment with strained macroeconomics and increasing geopolitical tensions.

During the first quarter, Exel’s order intake and revenue decreased by 30% and 16% respectively compared to the same period last year. Major reasons for this decline were a lower overall demand from our small- to mid-size customers as they reduced their inventories, and a softer than expected demand for equipment in the wind power industry. Our adjusted operating profit in the first quarter of 2023 stood at break-even level. This was due to lower revenue following also the lower starting order backlog for 2023, as previously noted in our 2022 Financial Statements Release. Our own costs remained generally in line with our expectations through this quarter.

At the same time, sales continued to develop positively in many of our other customer industries. The positive trend continued in the Transportation industry with higher revenue compared to the comparison period. Also Building & Infrastructure, Defense and Machinery & Electrical improved their performance compared to the equivalent period in 2022. Geographically, first quarter’s revenue was slightly up in Europe, which is our largest region, but lower in other regions than in the first quarter of 2022.

I had the pleasure of starting as Exel Composites’ President and CEO on 20 March 2023. Having begun familiarizing with the company, our people, and our operations, I am intrigued by the technical expertise, global reach, and customer intimacy which Exel offers. Our composite solutions solve significant challenges for our customers and contribute to the mitigation of climate change. We are confident that the composites market will benefit from the green energy transition. Similarly, our long-term demand outlook remains positive. The global composites market is estimated to continue to grow at approximately 2-5% per year in the coming years, depending on the customer industry, region, production technology and end-use application.

Recent development was not satisfactory and corrective actions initiated

The development of Exel’s order intake, revenue, and profitability in Q1 2023 was not satisfactory – I am convinced we can do better. I have required our business units and operations to plan and expedite improvement measures. We have immediately begun taking decisions in this respect. In January we announced plans to evaluate the downsizing of our operations in Runcorn, United Kingdom. The decisions about downsizing have now been made. We will continue to serve our U.K. customers locally through a capable service center and sales team. We have also begun transferring the pultrusion production from Runcorn to other Exel factories. We are proceeding according to plan and expect to finalize the transfer during 2023. We expect significant cost savings from these activities, while preserving the capability to serve our local customers well. We have begun efforts to sell the Runcorn manufacturing site and expect the sale of the site to have a one-time positive impact on Group operating profit and cash flow, once finalized.

During the quarter we also completed the sales process of the real estate related to the closed Nanjing China manufacturing facility. Production was, as earlier communicated, transferred to our current site in the Nanjing area, already in the first half of 2022.

Furthermore, we have taken actions to adjust capacity at our US and other factories in line with the overall outlook for 2023. We continue active discussions with customers and are closely following market developments to determine to what extent further cost-reduction measures are needed. On a positive note, raw material costs continued to stabilize during the first quarter thanks to more balanced supply and demand, for example in the chemical industry.

Outlook for 2023 and updated guidance

Looking forward, we reiterate our view that demand for Exel’s products and solutions is expected to improve in the second half of 2023 and later driven by opportunities for equipment in the wind power market. Short-term visibility is currently limited, and uncertainty in short-term demand is expected to continue. Customer de-stocking and question marks associated with global economic development contribute to this picture. The same is reflected in our order backlog, which continues to be lower than a year ago. We expect upward price pressures for certain carbon materials to remain due to continued shortage of materials. Overall, we expect availability of raw materials to improve or remain flat, while the visibility into how raw material costs will develop continues to be limited. In line with the previous observations on short-term demand and raw material cost development, we have adjusted our full year guidance 2023.

Major development program started to capture attractive opportunities in wind power market

We are undertaking major planning and business development actions to prepare Exel for wind power market that is expected to surge. The updated guidance we gave today considers more than 1 million euros of costs in 2023 allocated for these purposes. In line with signals from our customers and suppliers, we believe that demand for equipment in the wind power market will recover and turn to attractive growth in 2024 and 2025, and that the weaker demand we are seeing in 2023 is temporary. In addition, we are also considering further investments to strengthen Exel’s position and capabilities, to be able to better respond to the opportunities the wind power market presents.

In addition to wind, there is attractive long-term growth potential for Exel to address in multiple customer industries driven by the need for more sustainable solutions, for example in Transportation and Building & Infrastructure.

New long-term opportunities to be captured in Exel’s refreshed strategy

Having had opportunity thus far to listen to part of our customers and partners and to many Exel co-workers from all levels of the organization, I am excited about what the future holds for our company and what we can make out of that. We have initiated the process to review and refresh Exel’s strategy and operating model. Looking beyond the short-term picture, we believe there is a good opportunity to further align Exel’s offering and operating model with global trends and direction of the business environment over the longer term, to generate consistent and desired cash flow and profitability.

As part of this strategy work, we will take the opportunity to review with an open mind what existing and prospective options and ways of working we want to pursue. One of the questions I have is what the optimal customer and product mix would look like for Exel. For example, having joined Exel from a company and industry, where serving very large and often global or multilocal customers is the norm, I note that Exel may gain from developing its approach in this area. My impression of the characteristics of our business and the production methods of Exel suggests that developing a good mix of work also from larger customer accounts is likely to benefit us in many ways. In my previous roles I have been well exposed to what working with large and leading companies may entail. Requirements on quality, timeliness and perhaps considerations such as working capital are heightened, while this environment offers the smaller partner opportunities for rapid learning and improvement of its own business.

At the time of writing, we continue to hold active discussions with various large equipment manufacturers in the wind power market. We want to continue and deepen these discussions and seek to do more of the same across our other segments as well.

In the meantime, while our strategy work progresses, we will continue ensuring that we are serving all our current and prospective customers in the most appropriate manner, irrespective of their size.

I look forward to meeting and cooperating with our customers, partners, shareholders, and other stakeholders and wish you a safe and prosperous summer 2023!


Paul Sohlberg

President and CEO