President and CEO Riku Kytömäki
We live in unprecedented times where the Covid-19-pandemic is a serious concern worldwide. In the first quarter of 2020, the main impact from the Covid-19 outbreak was on Exel Composites’ business in China. Production was halted for four weeks in total, including the prolonged Chinese New Year’s break, but was gradually ramped up to full capacity by mid-March. Despite this negative impact, Group revenue and adjusted operating profit improved compared to last year. Order intake reached a quarterly all-time high supported by a large order received by our business unit in the USA. The deliveries of this order will extend all through 2020. The increased business volume provides a solid base for the unit’s profitability development this year. Group order backlog for the coming months looks good. There is nevertheless uncertainty regarding order intake development in the short term and visibility is poor. The extent of the impact of the Covid-19-pandemic depends largely on how long the situation continues.
Revenue in the first quarter of 2020 increased compared to the same period the previous year. Growth was supported by significantly increased volumes in two customer industries in particular, Defense as well as Equipment and other industries. Revenue also increased in Buildings and infrastructure, Machinery and electrical and Wind power customer industries. Business volumes in Telecommunications continued to decline. Geographically, revenue in the regions Asia-Pacific and Europe increased compared to previous year, while in region North America’s revenue declined. To increase transparency and support stakeholder understanding, as of the first quarter 2020, we will report revenue distribution on an increased number of customer industries. From now on, we will report the revenue split on a quarterly basis.
Adjusted operating profit increased in the first quarter of 2020 compared to the previous year. The business unit in the USA was profitable in the first quarter, driven by increased business volume together with a streamlined cost structure and organization. This had a significant positive effect on Group profitability. Lower delivery volumes from the Chinese factories, due to the pandemic related delay in production ramp-up, impaired Group profitability. Despite this, adjusted operating profit at Group level improved compared to last year.
So far the impact of the pandemic on our operations, e.g. issues in the supply chain, postponements in orders or delays in deliveries, has been limited. The Group’s financial position is currently good. Exel Composites has, in line with its strategy, created a global manufacturing footprint, which has diversified the risk and mitigated the impacts of the pandemic. At the same time when the Covid-19 situation in Europe and the United States has been difficult, in China factory operations have been almost back to normal.
Covid-19 pandemic will most likely impact global business for quite some time. Nevertheless, we see that reducing the impact of global warming, requirements for energy efficiency and sustainable values, continue to increase the demand for composites in the long term.