Hello and good afternoon, everybody, and Welcome to Exel Composites Q1 Business Review Briefing. We have online here the company's President and CEO, Paul Sohlberg, and CFO Mikko Rummukainen, and they will walk you through the results of the first quarter. Guys, please go ahead.
Thank you, Tiina. As a reminder, the session is being recorded today, so it is available for others later on. Also, we would be happy to take your questions and comments at the end of the call, please. Let's start with the highlights of Q1. What we have here is a good start to the year. We continue the good progress we had in the fourth quarter, moving into the first quarter also with an order intake increase of 21% compared to the previous period, or the same period a year ago. This is, of course, bolstered by the approximate EUR 10 million order for a major wind turbine manufacturer in Southeast Asia, which we already announced earlier in the month of February. At the same time, our revenue also did increase by 8% compared to the period a year ago, came in at EUR 25.3 million.
It was pleasing to see that we had growth in multiple of our strategic focus areas, for example, in transportation and in the building and infrastructure customer industries. Operating profit also increased to EUR 0.1 million, which is still, we're going to improve on that significantly. However, it's already compared to the period a year ago, it's quite a decent improvement there. Of course, the adjusted operating profit also came in at EUR 0.7 million, which also shows an improvement to last year. We were quite busy in the period also with progressing our strategic initiatives, one of them, of course, being completing the closure of the Belgium factory in Oudenaarde, which was completed at the end of March. In line with the requests of our customers, the production of their profiles has been transferred to other sites and factories in our network.
All in all, I think a good start to the year, and we'll keep working on to make this an even better year as we move ahead. Mikko, would you please go into some of the details behind the numbers?
Thanks, Paul. As Paul already highlighted, it was a good start, and order intake, revenue, operating profit, adjusted operating profit, all were increasing from last year, and order intake 21%. It is the best quarter in basically two and a half years' revenue. Also clear improvement from a year ago, 8% increase year- on- year, and a slight increase as well from previous Q4. On operating profit, we had EUR 0.7 million, or 2.7% positive, versus - 2.3%, so a 5 percent point improvement from a year ago. This sets a good start for the year. If we then look at order intake slightly in more detail, how does this 21% improvement compare? We have, as seen here on the graph, since the beginning of 2023, it is the highest order intake quarter. At the same time, we have been gradually seeing our order backlog increase.
is 24% higher now than it was a year ago. This is a positive trend to look at. Overall, our business climate, we saw nice improvement during Q1. We had a number of successes in multiple customer industries, multiple customers developing new business and new products. Quarter's highlight was mentioned, this EUR 10 million order from a major wind turbine manufacturer, where we are progressively increasing our deliveries in the second, third quarter, and this order will extend into 2026. After the quarter's end in April, we saw the impacts, as so many other companies and markets, of increased uncertainty in how global trade, financial markets, and geopolitics may influence, may not influence that much, but it is really uncertain at the moment. What we are seeing is some delay in customers' decision-making, and for the moment, temporary decrease in or slowing down of order intake.
If we look at where the revenue came from, we had two customer industries, which are also our strategic focus areas, where we had good growth. The first one was transportation, where we grew 38%, partly from customers planning their activities ahead of the closure of the Belgian factory, but also growth otherwise, and buildings and infrastructure, where we have gained new customers, and we saw progressively improving market conditions. The other three segments were, in terms of revenue, stable in Q1. On the positive side, what we see is the energy industry. We are expected to see growth once we start recognizing revenue and making deliveries from India, and also some increase in customer activity in the defense sector.
Finally, if we look at profitability, our adjusted operating profit, EUR 0.7 million, positive, which is in line with our guidance of achieving significant increase in adjusted operating profit in 2025. This was supported by, on the one hand, revenue growth, and then profitability further improved thanks to what we took actions to optimize our capacity use. We maintained tight cost control and took some operational saving measures. These would be the highlights from a financial perspective, and then going into our business units, how they're performing. Paul, if you take over.
Okay, thank you. Thank you, Mikko. Starting with the engineered solutions business unit, I think the business unit, they were having a good first quarter, like the company in general. We saw a revenue increase by 10% coming into EUR 21 million and some. This was kind of fueled by a higher demand across multiple customer industries, a generally improved business climate, I would say almost in all of our regions that we operate, going through the three first months, clearly better than positive sentiment, continuing that we saw the continuation of what started already in last year. Mikko already alluded to the growth in the buildings and infrastructure customer industry, where we both seen new customers come in, and also then existing customers returning with additional demands.
Like we spoke last time we met, we saw that the ice had been thawing in the building and infrastructure segment, and that continued through the quarter as well, which is, of course, comforting to see. A major share of revenue generally in the engineered solutions business unit is coming from tubes or tube-based pull-through profiles, as we like to call them, generally in line with the overall market improvement. We saw basically demand pickup in all parts of tube production and tube demand. We did mention earlier in the quarter also about this extension of the strategic collaboration and R&D collaboration we have with FLYING WHALES, one of these major airship manufacturers, where we are actually doing this early works R&D developing the tubes for them.
We also signed this agreement where we will extend and deepen that R&D work, and then also provide or manufacture the tubes for the first pilot airship that they need for their own business purposes and moving them forward. The deliveries of these tubes we expect to be starting later in this year, roughly in the third quarter. We will see some business growth from that also fueling the tubes business. As already mentioned, the team have been very busy, the teams have been very busy together with our customers, closing the Belgian factory, planning a smooth ramp down at the Belgium operation, and transferring the production to our other sites.
I'm pleased to say it's not always without challenges, and of course, there are things that we need to still solve with the customers, but we are happy now to see that almost all of the customers and the revenue we have been able to transfer to our other sites, and we will then continue picking up from there and giving the customers an even better service from the larger sites. We hope that after this transition period, we'll then be able to secure even more business in this space. I think all in all, good improvement in the engineered solution business unit. Moving over to industrial solutions, we mentioned a couple of times already this large order.
It is important from the point of view of a major milestone, as it's the first case for the new factory in India that we delivered by the end of last year. That is kind of where the majority of the efforts have been in the new business development, particularly around India, and then also certain other products in the wind sector for industrial business solutions in general. Revenue for the BU was roughly on the comparison period's level. There are some timing considerations there as well. Like Mikko said, we expect revenue to increase as we start recognizing deliveries in India or from the India factory. The market in general developed favorably, especially in energy, and there we have both wind and then certain products for the energy transmission and energy market.
We see opportunity in both of them, and we see actually some strengthening in both of those areas. Also, to round out on that, a couple of words on India. We are in the production capacity ramp-up phase for India. We have this pilot customer that we already talked about with the order, so we are ramping up production for them, and we are continuing the processes and approval processes for the other customer we have announced, which is Vestas, to achieve then the go-ahead and potentially then orders for production also for Vestas from this factory. Quite busy on that front. For those who have not been following us, just a quick recap.
We decided some time back to build a new factory in India, which is focusing kind of lean and mean, focusing on wind products and certain other products as well in the future, particularly with a strong focus on carbon fiber-based solutions. It is optimized for wind and for other products that may demand the same type of production philosophy. Hopefully we'll be able to tell you a little bit more about that in the future as we add products going forward. We mentioned that the deliveries for the first customer, they are starting now in Q2 and will be ramping up in Q3, and for Vestas then later in the year, hopefully if everything goes well in terms of the qualification and the demand is clear from the market point of view. With that, it's a pleasure and comforting to say that we maintain our guidance.
We expect our revenue to increase and our adjusted operating profit to increase significantly this year compared to the previous year. Mikko spoke about some uncertainties, obviously, that everybody is experiencing now, let's say after the April period. We are still quite confident and pleased with how things are going for us, so we maintain the guidance there. With that, I'd like to round off this little presentation on our side. Just a friendly reminder of the next opportunities to meet us via Teams like this. We have the half-year financial report coming out on the 14th of August, and then the Q3 call on the 6th of November. Hoping to see as many as possible of you there as well. With that, I'd like to thank you for joining today and open the floor for questions and comments and feedback and other talks.
I see already Valteri has his hand up, so Valteri, go ahead please.
Hi, thank you. Thanks for the presentation. I'd like to ask first about the Belgium customer transfers to other locations. Have they been now fully made or completed, those transfers?
Yeah, so yeah, thanks Valteri for the question. Yeah, it's probably good to know that the Belgian factory actually we were able to close the lights on the last day of March as was planned. Hence we are now producing for the customers from our other sites. It's not completely finished yet. I mean, of course, in a transition like this, you have ramp down and start up some issues in that respect. I mean, we are working on them and solving some issues that we have and a little bit of delays that we also spoke to in the report. From that point of view, the production is now coming from the other sites in our factory network and not from Belgium anymore.
All right, fair enough. I guess then that the Belgium closure did not yet support Q1 margins, so that effect will be visible starting from Q2. Is that the case?
Yeah, in terms of the operative business, yes. We will expect to have improvement across the board for ourselves and for our customers with this transfer. In terms of the timing as to when the activities and the cost-bearing activities are completely closed, we'll come back to that in due time since we still have a little bit of things to do on those things. I mean, I'll just give you an example. For example, we have increased scrap levels currently in the other factories, which are totally normal when you do a transfer like this. The answer to your question in the longer term is yes, we will see improvement. It is not significant yet, and we'll come back to that later in the year.
Okay. Then about the India factory. Sorry, I'm sorry, can you hear me?
Yes, we can hear you well.
Yeah, I had some technical issue. Yeah, so about the India factory, have you not, you haven't recognized any revenues from there yet in Q1? Is that a correct assumption?
Yeah, you mean for this new order?
Yes.
Yeah, for the new order, we have not recognized revenue. From other activities that we are doing there, which are of course smaller scale, we have recognized some revenue.
Oh, okay, okay. Yeah, and then kind of following up on that, the energy segment declined slightly in sales in Q1. Is that related to the Indian factory ramp-up, or is there something, for example, some customer losses by that trend or anything else we should know?
No, no, that's a timing thing. The majority of that turnover, obviously, is coming from the China factory, and there were some at this point as we're still ramping up, and there were some timing issues with customers placing some of the orders and how we were able to recognize them into revenue in the quarter. That's why we mentioned that it's roughly at the previous period's level, and roughly if you look a couple of quarters back, give and take a couple of hundred K, it's on that same level.
Okay, still a few demand-related questions. You mentioned that there could be a potential demand coming from the defense industry. Could you talk about that potential and what are your key applications in that space?
Okay, yes, good. We do have an established business already, and for many years we have had, and we've been supplying the defense sector, if you will. The main products there are camouflage net poles, which you might have seen. Then we have some powder tubes for ammunition. We do have certain telescopic products, radio communication masts, these type of things, mostly for communications. We have a longer list of established customers for where we are doing certain sub-assemblies into products, but they're often tube products for us. That is kind of where we've been. I have had a lot of questions about this lately. What's the size of this business roughly? Where are you? I'll say this is slightly below 10% of the total revenue on an annual basis, for example, last year, just to put us on the map.
We don't intend to start reporting this individually, but just because there's been so many questions about where you are. In terms of potential, I mean, obviously with the way the world is going, there's been quite a lot of increased customer activity in that space. Both is, of course, additional demands from existing customers that we are negotiating on, and then new customers coming in asking for sub-assemblies for products that seem to have proven themselves useful in modern warfare. For example, I just mentioned drone and sub-assemblies for drones and things like this. That may be an area of interest that we are looking at. Now, you know that the supply chains and procurement procedures in defense are quite long, and they take time.
I think the timing aspect there is a more relevant thing right now to try and understand, to establish new customers who can give us significant volume there is going to take time, yes. But we are actively working on it, and it's very interesting for obvious reasons to us as well.
Okay, thank you. That's very helpful. I'll ask maybe one more and let others ask then. About the guidance, you kept it unchanged, but it's quite non-specific. Could you comment if your own internal expectations have gone up or down due to these macroeconomic developments this year? Have you seen yet any impacts on your order intake now in Q2?
Okay, I'll hand over the commenting on the guidance to Mikko lately. I don't think we are going to do a lot of more detail on that, but I'll do address, Valteri, the question on the order intake maybe and the impact lately. Mikko already alluded to it. I think in general, the sentiment was quite good in the first three months. Then came the start of April, where, of course, there was this tariff s announcement, and we've been meeting with a lot of customers and, of course, looking at the order intake and how customer behavior is developing. We can see there was quite a lot of confusion in the month of April, which has now turned over to some hesitation or sluggishness in decision-making.
I do foresee, which is well aligned with what our customers are saying and what we see experienced generally, is that most likely there will be a little bit of a cooling off in the flow of orders, at least in the near term. I mean, what can you expect? We are in this 90-day tariffs pause, if you will, and a lot of people are looking at their supply chains and what to do with them and whether you can start doing anything now in these 90- days or better to wait and see. That is why we also guided that it is only natural and expected maybe that a small cooling off will take place.
All right, fair enough. Thanks. That's it from now.
Okay, good. Who wants to go next? Any other questions, comments, thoughts? Just trying to check here on the, if I can see any hands up. Okay.
I can maybe continue then if no one else has questions.
Yeah, go ahead.
A bit of a technical one, but what's included in the EBIT adjustments in Q1? I don't think the report disclosed that.
Yeah, Mikko, you can give the detail on that. Basically, it's Belgium.
Yes, so it is Belgium-related costs, and it relates to how the transfers are being made or how they were made. There are costs involved at the basically receiving sites that cannot be, by accounting standards, accrued, so they could not be included in the December figures. That is something that was expected, but then as your question shows, we could have communicated it more clearly.
All right, all right. That's clear. Maybe still about the potential tariffs from the U.S. Can you elaborate on how you could kind of respond in a scenario where additional tariffs were made public?
Okay, yes. I think we have a couple of benefits here. If you compare it to other pultruders, we do have the global fabrication network. If, in alignment with customers, we see a need to transfer production of a profile to somewhere else or to change the supply chain for it, we can do so. The other part is, of course, that we've analyzed quite thoroughly. We do not have very many products and products that would be caught by tariffs, hence they would be manufactured somewhere else and then exported to the U.S. We have some there, but we are well on top of that.
One example of how we could manage that is that if, for example, the profile has a use which is outside the U.S., we would agree potentially with the customer that they take delivery of the product elsewhere than in the U.S. That one way of dealing with it as well, not only to move the manufacturing. For us, maybe the tariff relevance can be more on the flow of raw materials and the availability of raw materials in the United States. We do see that there will be some price pressure on the products because you will naturally need to use local or you will be financially incentivized to use locally available raw materials.
On the other hand, we also see the other part of the scale, which is that there will also be pressure from the raw material suppliers to offtake the overflow of supply they do have in other parts of the world. We are kind of trying to follow this and balance. If we need to pay more somewhere, then maybe we can get a better price somewhere else. This is kind of part of these operational measures that we take on a regular basis and which Mikko also said that we try to optimize them to best support our result and not vice versa.
I think still to highlight that Exel being one of the only or the very few who have meaningful international footprint. So when it benefits for our customers to have material produced locally, if their other suppliers are caught by the tariffs, it may take some time for the customers to react, but at least Exel is well positioned to gain from it.
All right, that's clear. Thank you. I could still ask about the Q1. How did the strikes, industrial strikes, impact the quarter? Also, could you comment on the fact that the industrial sales came down in Q1? Is that only related to timing or, yeah, if you can address that?
Okay, so the impact of the strikes, so now in hindsight, luckily the duration of the strikes were limited only to one full week in Finland. We had one full week of strikes in, I think it was in February. At the time, it looked like it could be significantly more. We did lose some revenue and incur some additional cost in that time, but they were at the end, now in hindsight, they were not significant because the longer duration was then eventually avoided with the collective bargaining agreement. All in all, yes, there was an impact and it was notable, but it was not as bad as we may or were perhaps expecting when things did not look so great in January, February timeframe. That is basically the thing.
We already spoke a little bit about the industrial, the way that goes, it has to be or it has to do with timing in terms of how certain products. We had earlier in the year some delays in certain orders to be coming in already late last year, which then eventually came, and we did not have time to get them running and recognized exactly in this quarter, for example, in the transport part. There were some timing issues with delivery with receipt of certain orders, which should have come earlier in the quarter, but came in late February, so we did not realize the full amount of the revenue into the quarter from wind as well. It is predominantly timing that is causing this fluctuation.
All right. Thank you.
Okay, very well. And thanks, Valteri, for active questions. Now, last call. I'm just going to check if there are any hands up. If not, I'm going to thank everybody for joining the call today. Hope to see you on the 14th of August and the 6th of November at the latest. With that, thank you very much and have a great afternoon.
Thank you.
Thank you.
Bye.
Thank you. Bye-bye.