Okay, good afternoon, everyone, and thank you for joining the call today. It is our pleasure to be with you here to discuss our new strategy. We have worked hard on this strategy with a large team, and it will put Exel on a solid path of organic growth and delivering steady profits. My name is Paul Sohlberg, and I'm the CEO of Exel Composites. I'm here with Mikko Rummukainen, our CFO. We will be walking you through the highlights of the strategy we launched earlier today. We'll be pleased to take your question, comments, and feedback at the end of the call. Please also note that this call will be recorded. So if you're ready, let's dive into it.
We are announcing today a transformative strategy that will make Exel more integrated and see us move towards being a designer and manufacturer of pultruded composite solutions for both tailored and volume applications. We will also reorganize Exel's operations to improve performance and support growth. We can see here the four pillars of our new strategy. So starting with growth, this new strategy is based first and foremost on capturing organic, profitable growth from large and fast-growing applications driven by decarbonization and sustainability. We are seeing a strong demand for products needed for electrification, the mitigation of climate change effects, as well as energy efficiency in buildings and transportation. The next pillar is about driving customer value from everything we do. So this industry is in transition with consolidation and large players diversifying into composites and even into pultrusion, and of course, the increasing competition from China and elsewhere.
Exel's strengths are in know-how, agility, independence, and having been exposed to a wide range of pultruded applications. We need to ensure that all of these are offered to the customers in the best possible way. What we will be doing, in particular, is leaning more into the customer's product design process to help them choose composites. In terms of lasting profitability, we will be taking swift and determined steps to transform this company. We are announcing today a new operating model that will organize the company into two distinct business units: one for tailored and one for volume applications. We're also revisiting our production philosophy and will be moving towards larger production units. We will be placing three existing sites under strategic review.
The fourth pillar is high ambition in execution of this strategy, which will enable us to reach over EUR 200 million in annual revenue and good profitability within the next five years. So this is the transformation that will be driven into this company. Let's look at each of these pillars in the coming slides. We'll start by reviewing the global megatrends and the context that we operate in. So the global megatrends, such as climate change, sustainability, the energy transition, urbanization, need for more energy-efficient buildings, they all provide good opportunities for composite solutions. We firmly believe that demand for material properties offered by composites, for example, lightweight, strength, thermal and electrical insulation, weather and corrosion resistance, and longer lifetime, will increase, as a response to these megatrends. So as a consequence, we believe that the general subscription to composites will increase in the future.
Exel operates within the global composites market, which in 2022 was estimated at between $80 billion and $100 billion, depending on the analyst house. We're focused on pultrusion, which is still a small part of this market. However, there is attractive growth on the table. I also want to kindly remind everyone that pultrusion is one of the few continuous manufacturing methods available in composites, and it's often seen as one of the top contenders for the future of composites manufacturing as volumes start to grow. As part of our new strategy, we'll focus research efforts, particularly into sustainable materials and on assessing other adjacent or complementary continuous production methods that could open more of this market to us. Moving over to the right-hand side that describes the current approximately $4 billion pultrusion market.
We will increase our efforts in large and fast-growing energy transition and decarbonization applications driven by the sustainability needs. In addition to continuing to develop our well-performing tailored profiles business, increased focus will also be placed on industries that have strong growth potential with more standardized and higher volume product needs, such as wind power, building and infrastructure, and transportation. Moving over to how we will increase customer value. So as mentioned, Exel's strengths are in know-how, independence, and wide application exposure. I mentioned that we will lean more into the customer's design process to help them choose composites. So what we will do here is to integrate our technology knowledge with a more standardized offering, with options or well-working recipes, combined then with a wider post-processing in selected segments.
This increased visibility to the final composite solution will make it more attractive to choose composites, and the customers are likely to do it with the partner that led them the way. In research, we'll focus in particular on sustainable materials to ensure we are at the forefront of offering customers the most sustainable offering in composites. At the bottom, we can see a simple diagram of the productization process. So traditionally, Exel has been doing pultrusion for hire, which is to the left, where customers have brought us composites designs to pultrude. Now, we intend to go more towards standardizing our offering and even defining product platforms in certain segments with options, such to offer customers a clearer and faster time to market.
We will continue to be a partner to the customer's design and manufacturing process, and we will not go into making and distributing our own final products.
I now discuss the ways Exel will deliver good profits in the future. It will be built on the three themes. Firstly, the more integrated offering will benefit our customers and increase our margins. We will standardize our offering and create the product platforms. Composite solution design allows our customers to choose composites with more ease and speed, and ability to choose standardized or tailored solutions to match exactly the customer's own requirements. Secondly, we will implement a new operating model that will improve efficiency and reduce costs. Exel will be organized into two distinct business units: one for volume application and one for tailored applications. Factories will be organized according to the needs of their respective business unit with global supply capability. Sales operating model will be revamped to match customer needs to achieve an increased responsiveness and a reduced time to market.
Thirdly, we will target economies of scale. We will review our factory network and shift to a global network of larger and focused units. Factories will optimize their operating model and philosophy to achieve the best cost efficiency in both high and low volume manufacturing. Three existing sites, as mentioned, are planned to be placed under strategic review, and sourcing and procurement savings are targeted from consolidation and increased operational focus. Now, how will the business units differ from each other? We will implement the operating model with two business units simplified from current seven business units. This change supports growth by better matching Exel to customer needs, and profitability by optimized model. In custom application business, the current strong business of Exel, we have a wide range of customers and a broad sales pipeline of varying opportunities.
We will continue to serve these customers locally with our strong regional sales network, and to develop solutions for them based on either standardized solutions or tailored applications. In volume application business, we have somewhat different requirements, and we will organize accordingly. Volume application business consists of large, known customers. We serve the customers using a key account model to provide them the best service. The customers usually have higher volume products and fewer product variants, and the high volume products will be manufactured in dedicated factories for efficiency. Wind business is a good spearhead example of projects for the volume business unit. Wind turbine components are the fastest growing pultrusion application, with high volume parts manufactured globally. Customers and products in this space are well known. As you may recall, we started a major business development project to capture attractive opportunities in the wind power market in spring.
Further to our previous update, we're pleased to report that the project is progressing according to plan. Our dedicated factory expansion in India is progressing on schedule, and local test runs are also progressing well. We continue to actively discuss and negotiate with both customers and raw material vendors in the industry. We will provide more update on this opportunity in due time. So what happens next? That is that Exel takes action. We will drive organic growth from both the volume and the tailored applications. We will start implementing our new operating model as of January 1, 2024, and we will move swiftly forward with the strategic review of our factory network. We look forward to provide you with more information as planning progresses. I want to take the opportunity still to talk about the ambition and execution.
So we want to be the customer's first choice for sustainable pultruded composite solutions. As part of the execution, we will build skills and capabilities that enable us to reach over EUR 200 million in annual revenue with double-digit profitability within the five next years. We will ensure that we have rigorous execution and follow-up, while at the same time researching the future of composites to keep us at the head of the competition. We're also kindly inviting you to our Capital Markets Day to share and discuss the new strategy and to interact with management more than we have opportunity to do today. Exel will also announce our revised business, and financial, and sustainability targets at this event. Before that, you're also warmly welcome to our Q3 results announcement on the third of November 2023.
With that, we want to thank you for listening in today and invite you to open your microphones and raise any questions, comments, and feedback, please. Joonas from Evli, please.
Yeah. Hi, it's Joonas from Evli. I have a question related to your profitability potential. I mean, obviously, within this high volume business plans, you will have potential to achieve very nice profitability levels as long as you get the volumes. But could you elaborate on this, you know, custom application side? I mean, because do you have planned any kind of measures? How would you... Because it's obviously it's a lot more harder to do solid profitability there because you will have so much lower volumes. So do you have some sort of measures in mind, like in terms of, I don't know, value-added services or... I mean, basically, this strategy update, it's mostly it seems to me it seems to be about, you know, kind of plant network optimization.
So, could you maybe elaborate on how you will address those lower volume profitability?
Sure, sure. Thanks. Thanks, Joonas. I like the question. So, in the traditional tailored applications business, we have operations and sites and customers that are extremely, let's say, beneficial for both the customers and us. What you rightly say is that, you know, we need to kind of harmonize our offering there, you know, go more into productization so that we can lessen the variability and have, let's more of a common base from where we offer to customers. We also talked briefly about, you know, adding some of the post-processing services to kind of increase the value add. Then the other part is, of course, this leaning into the customer's product design process.
So, that's an area where we see a lot of opportunity by way of getting more also of these tailored applications, where we kind of can, you know, coach and mentor and support the customer in choosing composites and choosing them with us. So there are a lot of activities that we have planned also for increasing, you know, the business potential and the profitability of the tailored business or tailored applications business.
All right. Thanks. Then another question related to possible, you know, capital expenditure requirements. I mean, I mean, you talk about that you place three plants under review that you might shut, maybe all or at least some of them. But what about, like, investments into your, into those plants that you will maintain?
Yes. Good. Thanks, Joonas. And that's right. I mean, we are now starting a strategic review, so the plans will progress in that sense. And, you know, as part of the strategy to potentially move into larger and stronger sites, we are of course looking at, okay, what's the right balance in terms of adding skills and capabilities at these larger units? So it's very much on the agenda.
Okay, so you will come back to that later?
Yeah, we will, we will come back to that as the planning progresses. Yes.
Okay. Thanks. That's all from me now.
Thank you, Joonas. Wants to go next, please? Okay. Unless there are other questions today, you know, please keep a low threshold in contacting, you know, either our Investor Relations, myself or Mikko. You can see the email addresses on the slide. So at any time, please feel free to reach out, and we'll, you know, we'll have a discussion with you, either, you know, can meet you in person or then, or then, exchange emails or, or, or set up a call with you. So, if that's the end of today, thank you very much for listening in. We look forward to coming back and updating you on the next steps and how this new strategy turns into execution. Thank you very much for joining today, and have a good day. Thank you.