Exel Composites Oyj

Annual Financial Report 2023 743700205JAMGM80QD88 2023-01-01 2023-12-31 743700205JAMGM80QD88 2023-12-31 743700205JAMGM80QD88 2022-12-31 743700205JAMGM80QD88 2022-01-01 2022-12-31 743700205JAMGM80QD88 2021-12-31 743700205JAMGM80QD88 2021-12-31 ifrs-full:IssuedCapitalMember 743700205JAMGM80QD88 2022-12-31 ifrs-full:IssuedCapitalMember 743700205JAMGM80QD88 2021-12-31 Exel:OtherRestrictedEquityMember 743700205JAMGM80QD88 2022-01-01 2022-12-31 Exel:OtherRestrictedEquityMember 743700205JAMGM80QD88 2022-12-31 Exel:OtherRestrictedEquityMember 743700205JAMGM80QD88 2021-12-31 Exel:ReserveForInvestedUnrestrictedEquityMember 743700205JAMGM80QD88 2022-12-31 Exel:ReserveForInvestedUnrestrictedEquityMember 743700205JAMGM80QD88 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 743700205JAMGM80QD88 2022-01-01 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 743700205JAMGM80QD88 2022-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 743700205JAMGM80QD88 2021-12-31 ifrs-full:RetainedEarningsMember 743700205JAMGM80QD88 2022-01-01 2022-12-31 ifrs-full:RetainedEarningsMember 743700205JAMGM80QD88 2022-12-31 ifrs-full:RetainedEarningsMember 743700205JAMGM80QD88 2021-12-31 ifrs-full:NoncontrollingInterestsMember 743700205JAMGM80QD88 2022-01-01 2022-12-31 ifrs-full:NoncontrollingInterestsMember 743700205JAMGM80QD88 2022-12-31 ifrs-full:NoncontrollingInterestsMember 743700205JAMGM80QD88 2023-12-31 ifrs-full:IssuedCapitalMember 743700205JAMGM80QD88 2023-12-31 Exel:OtherRestrictedEquityMember 743700205JAMGM80QD88 2023-12-31 Exel:ReserveForInvestedUnrestrictedEquityMember 743700205JAMGM80QD88 2023-01-01 2023-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 743700205JAMGM80QD88 2023-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 743700205JAMGM80QD88 2023-01-01 2023-12-31 ifrs-full:RetainedEarningsMember 743700205JAMGM80QD88 2023-12-31 ifrs-full:RetainedEarningsMember 743700205JAMGM80QD88 2023-01-01 2023-12-31 ifrs-full:NoncontrollingInterestsMember 743700205JAMGM80QD88 2023-12-31 ifrs-full:NoncontrollingInterestsMember iso4217:EUR iso4217:EUR xbrli:shares INFORMATION TO SHAREHOLDERS Financial reporting and Annual General Meeting 2024 Exel Composites publishes the following financial reports in 2024: ● Financial Statements Release 2023: 16 February 2024 ● Business Review January-March: 25 April 2024 ● Half-year Financial Report January-June: 15 August 2024 ● Business Review January-September: 31 October 2024 The Annual Report, Corporate Governance Statement and Remuneration Report for 2023 are available at the company’s website www.exelcomposites.com. The Annual General Meeting will be held on 26 March 2024 at 10:00 EEST at Scandic Marina Congress Center at the address Katajanokanlaituri 6, Helsinki, Finland. Dividend proposal The Board proposes to the Annual General Meeting that no dividend be paid for 2023 (EUR 0.20 per share for 2022) based on the adopted financial statements for the financial year ended on 31 December 2023. CONTENTS YEAR 2023 BOARD OF DIRECTORS’ REPORT 10 AUDITED FINANCIAL STATEMENTS 44 INFORMATION TO SHAREHOLDERS 2 BUSINESS MODEL AND MARKET ENVIRONMENT 10 CONSOLIDATED FINANCIAL STATEMENTS 44 PROPOSAL FOR DISTRIBUTION OF PROFIT 89 EXEL COMPOSITES IN BRIEF 4 STRATEGY 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 48 AUDITOR’S REPORT 91 CEO REVIEW 8 SUSTAINABILITY AND CORPORATE RESPONSIBILITY 17 PARENT COMPANY FINANCIAL STATEMENTS 78 KEY FIGURES 2019-2023 42 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 81 CALCULATION OF KEY FIGURES 43 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 EXEL COMPOSITES IN BRIEF | 4 EXEL COMPOSITES IN BRIEF Exel Composites is one of the largest manufacturers of composite profiles and tubes made with pultrusion and pullwinding technologies and a pultrusion technology forerunner in the global composite market. Our forward-thinking composite solutions made with continuous manufacturing technologies serve customers in a wide range of industries around the world. You can find our products used in applications in diverse industrial sectors such as wind power, transportation and building and infrastructure. Our R&D expertise, collaborative approach and global footprint set us apart from our competition. Our composite solutions help customers save resources, reduce products' weight, improve performance and energy efficiency and decrease total lifetime costs. We want to be the first choice for sustainable composite solutions globally. Headquartered in Finland, Exel Composites employs over 600 forward-thinking professionals around the world and is listed on Nasdaq Helsinki. To find out more about our offering and company please visit www.exelcomposites.com. Exel Composites as an investment Optimally positioned within a growing market Technology leadership creates competitive advantage Global operations enable global customers Focused businesses enable growth Sustainability at the core of our business With our efficient, continuous production technologies, we respond to the growing demand for composite materials. This demand is driven by global megatrends, such as sustainability, energy transition, urbanization and total life cycle cost management. Our leading expertise in a variety of composite production technologies and raw materials allows us to solve our customers’ challenges. We continuously perfect our offering with over 60 years of R&D experience. We are the only company within our industry with manufacturing, R&D and sales presence in all main market areas. This sets us ahead of our competitors. Exel will become a more integrated designer and manufacturer of pultruded composite solutions for volume and customer-specific applications. This transformation will enable Exel to grow by capturing organic profitable growth from large and fast-growing applications driven by decarbonization and sustainability. We provide sustainable composite solutions that help our customers save resources and mitigate climate change. Composites’ unique properties, such as lightness and durability, provide for longer life cycles and improved performance, lowering thus the negative impacts of the end -product on the environment. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 EXEL COMPOSITES IN BRIEF | 5 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 EXEL COMPOSITES IN BRIEF | 6 Long-term Group targets Financial targets Organic growth Over EUR 200 million annual revenue by 2028 Profitability Adjusted operating profit margin >10% by 2028 Financial position Net debt / adjusted EBITDA <3x by 2028 Net gearing ≤ 80% Sustainability targets Zero harm No lost time incidents (LTI) Environmental responsibility Employee engagement GHG (scope 1 & 2) reduction according to UN established targets Employee NPS score year-on-year improvements based on baseline 2024 Zero landfill by 2028 100% of research having positive sustainability impact Last 12 months’ adjusted EBITDA, ** Number of injuries per million hours worked Financial targets are considered over a business cycle. According to the company’s dividend policy, Exel Composites’ ambition is to distribute a minimum of 40% of net income in dividends, when permitted by the financial structure and growth opportunities. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 EXEL COMPOSITES IN BRIEF | 7 Revenue distribution in 2023 Share of revenue by customer industry % Share of revenue by region 1) % Buildings and infrastructure Transportatio n Europe Asia-Pacific Equipment and other industries Defense North America Rest of the world Wind power Telecommunications Machinery and electrical 1) Revenue by customer location CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 CEO REVIEW | 8 CEO REVIEW Challenging market environment weigh ed on our profitability despite counteractions 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. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 CEO REVIEW | 9 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. Paul Sohlberg President and CEO CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 10 BOARD OF DIRECTORS’ REPORT Business model Exel Composites provides forward-thinking composite solutions made with continuous manufacturing technologies to customers in a wide range of industries around the world. Our products are used in applications in several industries from wind power and transportation to building and infrastructure. Our competitive edge and core expertise lies in chemistry, materials science, pultrusion knowledge as well as cost-efficient manufacturing processes. Composites are materials made of two or more component materials that are reinforcing. In Exel Composites’ products this being fiber reinforced composites. We predominantly use glass and carbon fibers as reinforcements of resin, which in more technical terms is called a matrix. Different types of resins can be used as a matrix, and additives, like colorants, UV- stabilizers, or anti-bacterial additives, can be used for additional properties. Combining different types of reinforcements and matrix materials gives the desired chemical, physical or mechanical properties to the resulting composite. The products manufactured by Exel Composites are typically components of a customer’s end-product. The product portfolio includes, for example, profiles, tubes, and laminates. Products are designed in close collaboration with the customers to achieve a lighter, stronger, or stiffer solution. The main manufacturing technology utilized by Exel is pultrusion, where resin-impregnated fibers are pulled through a mold and hardened with heat. The final products are cut to a specified length or wound on a roll at the end of the production line, before undergoing further processing such as machining, surface treatments or painting. Other key methods include pullwinding, which is a combination of pultrusion and filament winding, as well as continuous lamination. Production efficiency is high in all these technologies due to continuous and high-volume production. These manufacturing technologies are applicable to diverse, straight shapes from poles and tubes to profiles with complex geometries. Exel also has further processing capabilities to supply complete composite solutions including machining and coating. Climate-related risks and opportunities impact Exel Composites’ business model on various levels. Exel Composites actively aims to reduce the negative impact of its own operations on climate and the environment. The composites we produce also help reduce the environmental impact of the end-product. For us and for our customers, this is an opportunity to contribute to the mitigation of climate change. Composites’ properties, such as lightness and durability, enable longer life cycles and improved performance of the end- product, thus lowering the negative impacts on the environment. In addition, we aim to make a positive impact through our social responsibility and to reduce the negative impact of our environmental footprint. Market environment The pultruded composites market is fragmented. Exel Composites is a leading company in the field of pultrusion and the only pultrusion company with significant presence on all major markets: Europe, Asia, and North America. Global presence differentiates Exel from its competitors and enables head-to-head competition with global suppliers of traditional materials. According to industry associations, the annual value of composites market of approximately EUR 85 billion is only about 1% of the huge global materials market, which is dominated by steel, plastic, and aluminum. The pultruded composites market represents less than 5% of the total composites market. The global composites market is estimated to grow at an annual average rate of approximately 7% in the coming years. Growth rate varies by region, production technology and end-use application. Exel Composites sees growth potential for composites as a material as well as for pultrusion as a production technology within the composites market. North America is the largest composites market, followed by Asia and Europe. North America and Europe are more mature markets with steady growth prospects, while Asia, especially China and India grow faster. Exel Composites’ customers are typically original equipment manufacturers, system integrators or distributors. Our customer industries are Buildings and Infrastructure, Wind Power, Equipment and Other industries, Machinery and Electrical, Transportation, Telecommunications and Defense. Our business portfolio is diversified across a variety of CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 11 customer industries and regions, reducing the impact of sudden fluctuations in demand within the portfolio. Demand drivers differ between customer industries as well as regions. In the short to mid-term wind power is expected to be the fastest growing and largest customer industry for us given its size and favorable demand outlook. The global wind power market has enjoyed, and is expected to continue to enjoy, tailwind from energy transition given its vital role in accelerating the global energy transition to reach 2050 net zero targets. Net zero targets coupled with growing energy security concerns create a positive outlook for wind energy market and pultrusion products within that market. In 2023, global economic uncertainly driven by the Russian war in Ukraine, cost inflation, and the overall slowdown of the market caused uncertainty in Exel Composites’ business environment. In the long-term, interest towards composite materials is steadily growing, supported by global megatrends such as sustainability, energy transition, longer life cycles and urbanization. The main benefits of composites include lightness, energy efficiency, durability, and the need for less maintenance. For example, increased energy efficiency requirements within the transportation industry and the increased utilization of anti- corrosive materials in the construction industry drive the increased use of composites. Exel Composites’ ambition is to leverage on these trends and mitigate the negative impacts of climate change by offering its customers sustainable composite products that respond to this demand. Exel Composites in the value chain SUPPLY CHAIN ● Raw material producers ● Suppliers of indirect materials ● Service providers MANUFACTURING ● Pultrusion ● Pullwinding ● Filament winding ● Continuous lamination CUSTOMER ● Original equipment manufacturers (OEM) ● System integrators ● Distributors END USER ● User of the final product Example Fiber providers supply Exel with reinforcement fibers necessary for the manufacturing process Further processing: ● Machining ● Painting ● Coating Example Wind OEM that buys composite parts manufactured by Exel, integrates them into wind turbine blades and other wind turbine areas, which is then operated by the energy producers Example Energy producers use wind turbines to harvest green energy CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 12 Order intake and order backlog Order intake for 2023 decreased by 21.3% to EUR 98.1 million (124.7) from 2022. Order backlog on 31 December 2023 was at EUR 29.8 million (29.1). Revenue Revenue for 2023 decreased by 29.3% to EUR 96.8 million (137.0) compared to 2022. The revenue decreased mainly due to the challenging overall market environment, customer destocking of inventories and the temporary demand decrease and postponement of business in the wind power equipment market. In addition to the decline particularly in the Wind power customer industry, revenue declined also for the other customer industries excluding the Defense customer industry where revenue increased. Operating profit Operating profit for 2023 decreased to EUR -4.9 million (3.0). Operating profit margin was - 5.0% (2.2%). Adjusted operating profit decreased to EUR -2.4 million (8.0) and adjusted operating profit margin was -2.5% (5.9%). For the full year the lower revenue decreased the adjusted operating profit. This was partially offset by lower costs in 2023 compared to 2022 mainly due to lower personnel costs and savings actions in operations to improve performance. Items affecting comparability in 2023 amounted to a total of EUR 2.4 million (5.0). The main items were the restructuring costs related to the downsizing of the operations in the United Kingdom and write-down of fixed assets and inventories due to refocusing the operations in the United States partly offset by the sale of the real estate related to closed manufacturing facility located in Nanjing, China. Net financial income/expenses in 2023 were EUR -3.4 million (0.6). The change in net financial income/expenses is mainly due to an increase in interest rates and foreign exchange rate impact on intercompany loans. Profit before taxes was EUR -8.3 million (3.6) and profit after taxes EUR -9.3 million (2.1). Adjusted operating profit EUR thousand 2023 2022 Operating profit -4,863 3,002 Restructuring costs 2,234 1,066 Impairment losses and reversals 0 754 Costs related to planned or realized business acquisition and disposal 0 5 Expenses related to changes in legislation or legal proceedings and other claims 183 3,201 Adjusted operating profit -2,446 8,029 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 13 Financial position Net cash flow from operating activities for 2023 was EUR 4.4 million (6.8). The capital expenditure on fixed assets was EUR 3.5 million (4.6). Net cash flow from investing activities was EUR -3.1 million (2.0) and net cash flow before financing activities was EUR 1.4 million (8.8). At the end of the reporting period, the Group’s liquid assets stood at EUR 11.0 million (17.4). Total depreciation, amortization and impairment of non-current assets during the year amounted to EUR 8.7 million (7.1). On 31 December 2023, the Group’s consolidated total assets were EUR 85.0 million (113.1). Interest-bearing liabilities, including lease liabilities, were EUR 43.8 million (48.5). Net interest-bearing liabilities were EUR 32.8 million (31.1). Current interest-bearing liabilities totaled EUR 39.4. EUR 25.0 million of current interest-bearing liabilities were commercial papers. On 31 December 2023, the company had EUR 36.0 million unused revolving credit facilities to fully secure the payment of commercial papers. In 2023, Exel Composites’ profitability weakened due to lower revenue impacted by general market demand causing indebtedness relative to adjusted EBITDA to rise. Subsequently, the Company has secured agreements with its lenders to adjust its covenants. Based on the assessed cash flow forecasts of the business and given the expected temporary nature of profitability decline, Exel expects to remain within its covenants. Exel Composites is currently engaged in negotiations with its lenders on extending loans that enable Exel to meet its current liabilities as they fall due for a period of several years from the date of approval of the financial statements for the financial year 2023. On 31 December 2023, equity was EUR 17.7 million (30.4) and equity ratio 20.9% (26.9%). Net gearing ratio was 185.7% (102.4%). Fully diluted total earnings per share were EUR -0.77 (0.19). Return on capital employed was -6.8% (3.7%). Return on equity was -38.7% (7.0%). The company paid total dividends of EUR 2.4 million (2.4) in 2023 for the financial year of 2022 calculated for the outstanding number of shares. Dividend per share for the financial year 2022 was EUR 0.20 (0.20), which was 110.5% of net income. Research and development Research and development costs in 2023 totaled EUR 3.7 million (3.4), representing 3.8% (2.5%) of revenue. Exel Composites’ strategy ● Organic growth Capturing growth from large and fast-growing energy transition and decarbonization applications driven by sustainability. ● Customer value Focus on increasing value to customers through responsiveness, product platforms and composites design solutions in selected segments. ● Profitability New operating model with two business units, larger factories with clear roles and efficiency improvements throughout to deliver solid profitability. ● High ambition Skills and capabilities enabling Exel to achieve over EUR 200 million annual revenue and double digit adjusted operating profit margin within the next five years. Business development and strategy implementation In October 2023, Exel Composites announced a new transformative strategy to capture profitable growth with composite solutions driven by sustainability needs. Exel’s aim is to become a more integrated designer and manufacturer of pultruded composite solutions for volume and customer-specific applications. To accelerate this transformation Exel announced a new operating model in January 2024. Exel organized its operations into two dedicated customer-centric business units: Engineered Solutions Business Unit concentrating on tailored solutions in multiple industries and Industrial Solutions Business Unit concentrating on selected applications with significant growth potential. The factory footprint will be organized to support the needs of the new business units. Exel Composites set new long-term Group targets to support the new strategy. Exel Composites’ long-term financial targets are: ● Annual revenue exceeding EUR 200 million by 2028 ● Double digit adjusted operating profit margin by 2028 ● Net debt to adjusted EBITDA less than three times by 2028 To further emphasize the importance of sustainability in Exel Composites’ business and operations, the company also established sustainability targets as part of Group targets. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 14 Sustainability targets relate to safety, environmental responsibility, and employee engagement. Sustainability targets are: ● Zero Harm: no lost time injuries (LTI) ● Environmental responsibility consists of the following three targets: o Zero landfill by 2028 o 100% of research having positive sustainability impact o Greenhouse Gas emissions (scope 1 and scope 2) reduction according to UN established targets ● Employee engagement: Employee NPS score year-on-year improvements from base year of 2024 Exel Composites continued to focus on and develop its operations during the year. Operations in Runcorn, United Kingdom were downsized. Pultrusion production was shut down during the year and transferred to other production units. Exel Composites started an important development program focusing on the attractive wind power market. Together with its partner in joint venture Kineco Exel Composites India, Exel Composites decided to expand manufacturing operations in India and started to construct a new production facility. The new facility will be optimized for serving wind power industry customers in India and globally and is expected to be ready for production in 2024. As part of the process to reassess the factory footprint, Exel announced in October 2023 that it is planning to start a strategic review in three factories to define their role and necessity in the new operating model. During the last quarter of 2023, Exel Composites completed the strategic review for the first factory. Exel decided to refocus its operations and factory in the United States to manufacturing of tailored pullwinding tubes and customized pultruded composite profiles for the North American markets. In January 2024, Exel Composites announced that it has decided to start a strategic review of its operations in Belgium. Near-term risks and uncertainties Exel Composites’ most significant near-term business risks are related to the development of general market demand, and preferences and strategies of its largest customers. Uncertainties remain in the global economy. Factors such as the prolonged or intensified unrests or wars and increased geopolitical uncertainty, market environment impacted by inflation, and the consequences to interest rates may affect the demand for Exel Composites’ products. The risk management and risks related to the operation of Exel Composites are described in detail in the Corporate Governance Statement for 2023 and at the company’s website www.exelcomposites.com . Governance and AGM 2023 Exel Composites Plc’s Annual General Meeting was held on 10 May 2023 in Helsinki, Finland. The AGM adopted the financial statements and consolidated financial statements, approved the Remuneration Report 2022 for the Company’s governing bodies, and discharged the members of the Board of Directors and the company’s Presidents and CEOs in 2022 from liability for the financial year 2022. The AGM approved the Board of Directors’ proposal to distribute a dividend of EUR 0.20 per share for the financial year 2022. The dividend was paid to shareholders registered in the Company's shareholder register maintained by Euroclear Finland Ltd. on the record date for dividend payment, 6 September 2023. The dividend was on 15 September 2023. According to the proposal by the Shareholders’ Nomination Board, the AGM decided that the Board of Directors would consist of five (5) members. The AGM re-elected Jouni Heinonen, Petri Helsky, Helena Nordman-Knutson, Jouko Peussa and Kirsi Sormunen as members of the Board of Directors. The AGM elected Jouni Heinonen as Chairman of the Board of Directors. The AGM confirmed the annual remuneration for the Board members as follows: for the Chairman of the Board of Directors EUR 45,000 (previous year EUR 45,000) and for each other Board member EUR 21,000 (21,000). Additionally, a remuneration to be paid for the Chairman of the Board of Directors of EUR 1,500 (1,500) for attendance at each Board and committee meeting and for each similar all-day Board assignment and for each other Board member EUR 1,000 (1,000) for attendance at each Board and committee meeting and for each similar all-day Board assignment. Additionally, for each committee meeting, the meeting fee for the committee chairman is EUR 1,500 (1,500). Travel expenses and other out-of-pocket expenses arising from the Board work will be compensated in accordance with the Company's established practice and travel rules. Out of the yearly remuneration 60% would be paid in cash and 40% in Company’s shares. Ernst & Young, Authorized Public Accountants, with Johanna Winqvist-Ilkka, APA, as principal auditor, were elected to serve as company auditor in the AGM in 2023. The AGM authorized the Board of Directors to decide on the repurchase and/or on the acceptance as pledge of the Company’s own shares by using unrestricted equity in accordance with the proposal of the Board of Directors. The maximum amount to be CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 15 acquired is 600,000 shares in total. The authorization is effective until the end of the next Annual General Meeting, however no longer than until 30 June 2024. The AGM authorized the Board of Directors to decide the issuance of shares and special rights entitling to shares. The maximum amount of the shares to be issued is 2,379,000 new shares, which corresponds to approximately 20.0 per cent of all shares of the company, and/or a maximum of 600,000 Company’s own shares. The authorization is effective until the end of the next Annual General Meeting, however no longer than until 30 June 2024. In 2023, the Nomination Board comprised persons nominated by the four largest shareholders as of 30 September 2023: Kalle Saariaho (OP Fund Management Company), Markus Lindqvist (Aktia Mikro Markka), Esko Torsti (Ilmarinen Mutual Pension Insurance Company), Petteri Vaarnanen (Sp-Fund Management Company) and Jouni Heinonen, Chairman of the Board of Directors, Exel Composites Plc, as an expert member. The AGM of Exel Composites has elected a permanent Shareholders’ Nomination Board, the purpose of which is to prepare proposals concerning the Board members and their remuneration for the General Meeting. The Shareholders’ Nomination Board proposes to the AGM 2024 that the Company’s Board of Directors shall have five (5) members. The Shareholders’ Nomination Board proposes that Jouni Heinonen, Petri Helsky, Helena Nordman-Knutson, Jouko Peussa and Kirsi Sormunen of the current members of the Board of Directors will be re-elected as members of the Board of Directors and that Jouni Heinonen will be re-elected as Chairman of the Board of Directors. The Shareholders’ Nomination Board proposes that the annual remuneration for the Board members remain unchanged. For more information about the remuneration of the Board of Directors, see the Remuneration Report 2023. Organization and personnel On 31 December 2023, Exel Composites employed 623 (721) people, of whom 254 (279) in Finland and 369 (442) in other countries. The average number of employees during the reporting period was 667 (732). Changes in Exel leadership team Paul Sohlberg started as President and CEO on 20 March 2023. Johanna Tuomisto, Senior Vice President, People and Culture, was appointed as a member of the Group Management Team as of 1 September 2023. Incentive programs Exel Composites’ short-term incentive program covers all employees. President and CEO, Exel Leadership Team and office employees alike are entitled to a short-term incentive in addition to their fixed salary. The performance measures of the short-term incentive are tied to the achievement of annually established goals emphasizing growth and profitability as well as possible individual targets. Production employees are also eligible for short-term incentive compensation. Their short-term incentives are mainly based on factory profitability and production related performance measures. The Group has long-term incentive programs for President and CEO, Exel Leadership Team and selected key employees of the company. The aim of the programs is to align the objectives of the shareholders and the executives, to increase the value of the company, to commit the executives to the company and to offer the executives a competitive reward program. The Board of Directors decides on the program and the performance measures annually. In February 2023, Exel Composites announced the continuation of a share-based long-term incentive program for the top management of the company. The 2023 performance-based plan is a part of the share-based long-term incentive program published on 4 May 2017. The performance target applied to the plan that commenced at the beginning of 2023 is the relative total shareholder return (TSR) of Exel Composites’ share where the TSR of Exel’s share will be compared to the TSR of all shares listed on Nasdaq Helsinki. Share and share performance Exel Composites’ share is listed on Nasdaq Helsinki Ltd in the Industrials sector. On 31 December 2023, Exel Composites’ share capital was EUR 2.1 million and the number of shares was 11,896,843. There were no changes in the share capital during the financial year. During the financial year, Exel Composites held a total of 42,899 of its own shares which are part of the share-based long-term incentive program for the top management. On 31 December 2023, the share price closed at EUR 2.54. During the review period, the average share price was EUR 3.60, the highest share price EUR 5.70 and the lowest share price EUR 2.42. A total of 5,373,123 shares were traded at Nasdaq Helsinki Ltd., which represents 45.3% of the average number of shares. On 31 December 2023, Exel Composites’ market CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 16 capitalization was EUR 30.1 million (64.2). Total shareholder return (TSR) in 2023 was - 50.4% (-30.7%). Shareholders and disclosures Exel Composites had a total of 8,442 (7,766) shareholders on 31 December 2023. During 2023 Exel Composites received one flagging notification in accordance with the Finnish Securities Market Act regarding changes in shareholdings. On 7 June 2023 Exel Composites announced that the shareholding of Handelsbanken Fonder AB in Exel Composites has decreased to 4.85%. According to the company’s shareholder register held by Euroclear Finland Oy, on 31 December 2023 Exel Composites’ two largest shareholders were the nominee register managed by Skandinaviska Enskilda Banken AB (6.45%) and Aktia Mikro Markka (6.41%). On 31 December 2023, 0.43% (0.52) of the shares and votes of the company were owned or controlled, directly or indirectly by the President and CEO and the members of the Board of Directors. Information on the company’s shareholders is available on the corporate website at www.exelcomposites.com. Significant related -party transactions The Group follows the same commercial terms in its transactions with related parties as in transactions with third parties. In 2023, no significant related-party transactions were conducted between the Group and its related parties. Receivables and liabilities from Group companies are presented in notes 52 and 55 of the Parent company’s Financial Statements. Corporate Governance Statement Exel Composites issues a Corporate Governance Statement for the financial year 2023, prepared in accordance with the Finnish Corporate Governance Code issued by the Securities Market Association, effective as of 1 January 2020. The Corporate Governance Statement is issued separately from the Board of Directors’ Report. Further information concerning corporate governance matters is available at Exel Composites’ website at www.exelcomposites.com . Events after the reporting period On 15 January 2024, Exel Composites announced changes to Exel’s leadership team. As of 23 January 2024, members of the Exel leadership team are: Paul Sohlberg, President and CEO Mikko Rummukainen, CFO Juha Honkanen, Executive Vice President, Engineered Solutions Business Unit Kathy Wang, Executive Vice President, Industrial Solutions Business Unit Kim Sjödahl, Senior Vice President, Technology and Sustainability Johanna Tuomisto, Senior Vice President, People and Culture On 15 January 2024, Exel Composites announced it has decided to start a strategic review of its operations in Belgium. Guidance for the full year 2024 Exel Composites expects revenue to increase and adjusted operating profit to increase significantly in 2024 compared to 2023. Board proposal for dividend distribution According to Exel Composites’ financial targets and dividend policy, the company’s ambition is to distribute a minimum of 40% of net income in dividends, when permitted by the financial structure and growth opportunities. At the end of the financial year 2023, Exel Composites Plc’s distributable funds totaled EUR 19.4 million, of which profit for the financial year accounted for EUR -4.2 million. The Board proposes to the Annual General Meeting that no dividend be paid based on the adopted financial statements for the financial year ended on 31 December 2023. As a basis for its proposal, the Board of Directors has assessed the Group’s financial position and ability to meet its commitments, as well as the Group’s outlook and investment requirements. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 17 Sustainability and corporate responsibility Statement on non-financial information Exel Composites’ sustainability focus areas and the company’s most relevant UN Sustainable Development Goals (SDGs) ENABLING SOLUTIONS Develop sustainable, safe, and reliable products that help our customers save resources and mitigate climate change SOCIAL HANDPRINT Provide a safe, fair, and inspiring environment for our employees, and ensure high standards of integrity and business ethics ENVIRONMENTAL FOOTPRINT Reduce the negative impact of our own operations to the environment and climate CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 18 Exel Composites is committed to responsible and sustainable operations, guided by our corporate values and the Code of Conduct. Exel’s purpose is to solve challenges and save resources with composites. Exel provides sustainable composite solutions that help our customers save resources and mitigate climate change. Composites’ properties, such as lightness and durability, enable longer life cycles and improved performance of the end- product, thus lowering the negative impacts on the environment. In addition, we aim to make a positive impact through our social responsibility and to reduce our environmental footprint. Exel Composites’ Board of Directors evaluates company-related risks on a quarterly basis as part of the risk management process. The main sustainability and climate-related risks include operational risks, hazard and environmental risks, and regulatory and reputational risks. A description of the company’s risk management process and main risks is available at the company’s website and in the Corporate Governance Statement 2023 on www.exelcomposites.com. Our approach to sustainability The Board of Directors is Exel Composites’ highest governance body in relation to sustainability issues. The material sustainability topics are validated by the Board of Directors and the sustainability report is reviewed alongside the publication of the company’s Annual Report and signed by the Board. The scope of consolidation of sustainability reporting is the same as for financial statements. In 2023, a sustainability team coordinated sustainability issues at Group level, reporting to the Group Management Team. The operational responsibility lies within each business unit and functional area of the organization. Exel Composites uses the Nasdaq ESG (Environment, Social and Governance) Guide as reference for reporting non-financial information. The non-financial information is not assured by an external party. The company’s auditors have considered the information as part of the review of the other information (Board of Directors report). Exel Composites is also committed to the Responsible Care -program for the chemical industry in Finland. The main themes of the program are the sustainable use of natural resources, sustainable and safe production and products, the work community’s wellbeing, and open interaction and cooperation. The results of the program are evaluated based on annually collected indicator data. Exel Composites has defined the sustainability focus areas to be: ● Enabling solutions: Responsible products and composites at end-of-life ● Social handprint: Health and safety, responsible employer, responsible business ● Environmental footprint: Energy efficiency and reduced emissions, circular economy and waste management, water consumption, responsible supply chain The key United Nations Sustainable Development Goals (SDGs) where Exel can best contribute through its business have been selected to be: ● Goal 8 Decent work and economic growth ● Goal 9 Industry, innovation, and infrastructure ● Goal 12 Responsible consumption and production ● Goal 13 Climate action Exel Composites established its sustainability targets in 2023. Sustainability targets relate to safety, environmental responsibility, and employee engagement. Sustainability targets are: ● Zero Harm: no lost time injuries (LTI) ● Environmental responsibility consists of the following three targets: o Zero landfill by 2028 o 100% of research having positive sustainability impact o Greenhouse Gas emissions (scope 1 and scope 2) reduction according to UN established targets ● Employee engagement: Employee NPS score year-on-year improvements from base year of 2024 In 2023, Exel’s sustainability work focused on further developing the fundaments of the Group sustainability program. A dedicated sustainability team, representing different areas of the organization, coordinated Group sustainability matters in general. To emphasize the importance of sustainability in the new strategy, the responsibility of sustainability function was elevated to the leadership level in early 2024. In autumn 2023 Exel started to carry out the first sustainability double materiality assessment process to identify material impacts as well as financial risks and opportunities. The process follows the requirements of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). The process has continued in early 2024 and results will be available in 2024. Exel will publish its first CSRD report in FY2024 according to schedule. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 19 Exel complements its non-financial reporting by following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to the extent possible. In alignment with the EU Taxonomy Regulation, Exel Composites analyzed the share of taxonomy-eligible economic activities and taxonomy-aligned economic activities contributing to climate mitigation and climate adaptation. Out of Exel’s revenue in 2023, 28.1% was taxonomy-eligible of which 23.9% was also taxonomy-aligned. The taxonomy- eligible activities in revenue were related to the manufacture of renewable energy technologies (applications for wind power), the manufacture of energy efficiency equipment for buildings (composite window and door profiles), the manufacture of aircraft (structural profiles for aerospace applications), the manufacture of rail rolling stock constituents (structural profiles for electric trains and trams), the manufacture of automotive and mobility components constituents (structural profiles for electric busses) and the manufacture of other low carbon technologies (composite applications for electric trolling motors). All the other above listed categories except the manufacture of other low carbon technologies were also taxonomy-aligned activities. The EU Taxonomy disclosure in more detail is available on page 37. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 20 Enabling solutions Our aim in Enabling solutions Develop sustainable, safe and reliable products that help our customers save resources and mitigate climate change Our contribution to the SDGs We provide safe and reliable composite solutions that promote sustainable consumption: composites are durable and require little or no maintenance. Being lightweight yet strong, composites help save resources through energy and material efficiencies. We contribute to mitigating climate change by serving customer industries such as Wind Power, Buildings and Infrastructure, and Transportation. Key policies and standards ● Corporate values ● Code of Conduct ● Group-wide quality management system ● QEHS Policy ● Chemical Policy ● ISO 14001/2015 (environmental management) and ISO 9001/2015 (quality management) ● Memberships in composites associations such as EPTA (European Pultrusion Technology Association), EuCIA (European Composites Industry Association) and ACMA (American Composites Manufactures Association) * United Nations Sustainable Development Goals CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 21 MAIN THEMES OUR PROGRESS IN 2023 (scale 1-3) Responsible products ● Meeting or exceeding customers’ safety and quality specifications, passed customer audits and participation in customer sustainability programs ● Good NPS score in the 2023 customer survey Composites at end- of-life ● Active collaboration in industry initiatives promoting recyclability of composites Customers are at the center of all Exel Composites’ business decisions and not meeting the agreed requirements could have negative impact on our business and reputation. Customer satisfaction is evaluated through regular customer surveys and using for example the Net Promoter Score-method (NPS). In 2023, our NPS score continued in good level following the previous year’s trend. Many of our customers require Exel Composites comply with their Supplier Code of Conducts and audit the company against their sustainability, quality and safety requirements. We also participate in sustainability programs invited by our customers. Saving resources with composites The increased sustainability focus globally also increases the demand for composites. The properties of the composite materials enable more environmentally friendly solutions, where the most significant benefits occurring during the service life of the end-product on the environment and climate. Composites are often lighter than alternative materials, they are durable and non-toxic. A composite product does not leak or emit into the air or the ground. In addition to their long service life and lower installation and maintenance costs, they often result in lower energy consumption over the lifecycle of the product. Composites are also used in sustainability enhancing technologies and solutions that contribute to climate change mitigation or adaptation. For example, longer and stiffer wind turbine blades enable improved performance, window and door profiles with improved insulation properties enable more energy efficient buildings, and lighter wall panels in public transportation enable reduced energy consumption, etc. A reliable life cycle assessment for composites is challenging as they often are only one part of an end-product that consists of several components and materials. The European Composites Industry Association, EuCIA, has developed a tool to help composite companies to calculate the environmental impact of a composite product for the manufacturing phase, i.e. ‘from cradle to gate’. Exel is using a EuCIA-developed environmental impact calculation tool to include CO2 and energy demand data in its cost calculation. Understanding the carbon footprint for the ‘cradle-to-gate’ phase, makes it easier for the customer to evaluate the impact of the composite product across the end-product’s total lifecycle. Composites at end-of-life The same properties that drive the decision to choose composites over alternative materials — durability and strength among others — also set economic and technological limitations to their recyclability. As the demand for composites increases, the technologies available for composite recycling are also expected to develop strongly over the coming years. Exel’s ambition is to be part of this development by participating in industry projects and considering matters impacting recyclability already during product design. According to EuCIA, for the coming ten years at least the main recycling route for composites is recycling into cement. Here, end-of-life composites are used as mineral raw CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 22 material (approximately 2/3) and for energy recovery (approximately 1/3), thus effectively reducing overall CO 2 emissions. In 2023, Exel has recycled most of the composite waste to cement production from the Finnish units through this newly implemented recycling process. Exel Composites was an active member in the KiMuRa project which was finalized in 2022. The KiMuRa project, led by the Finnish Plastics Industries Federation, was a successful project finding a technically and economically viable recycling process for industrial composite waste into cement. During the two-year project phase a considerable amount of composite waste from the Finnish units was delivered for testing. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 23 Exel’s products have the biggest impact on the environment and climate during the service life of the end-product. Lifecycle impact of composites COMPOSITE MANUFACTURING Impact: mostly negative impact in greenhouse gas emissions Owner: composite manufacturers such as Exel The manufacturer produces the composite product according to customer specifications. The process creates greenhouse gas emissions and therefore the impact of the manufacturing phase typically is negative. In this phase, it is the manufacturers and their supply chain, who can influence and reduce the negative impact. SERVICE LIFE Impact: mostly positive impact in greenhouse gas emissions depending on application Owner: customers and their customers in very diverse industries The composite product is a part of an end-product of a customer and can be used in diverse industries in very diverse ways. With the contribution of the composite, the service life of the end-product is usually prolonged from 10 to over 50 years and often considerably longer and maintenance- free compared to alternative materials. During the service life of the end-product, the impact on the environment can be highly positive and emit less greenhouse gases due to increased energy efficiency, better performance, and durability. END-OF-LIFE Owner: composite manufacturing industry together with other industries Currently, there are processes already in place for the recycling and reuse of composites, but there are still several limitations. Available technologies are expected to develop strongly in the coming decades. Source: EuCIA in collaboration with Ernst & Young The production of raw materials in composite industry has the most significant impact on carbon footprint. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 24 Social handprint Our aim in Social handprint Provide a safe, fair, and inspiring environment for our employees, and ensure high standards of integrity and business ethics Our contribution to the SDGs We promote economic productivity by prioritizing health and safety, diversification and non-discrimination, and being an inspiring workplace for our employees. We aim to be a positive contributor in our communities and a responsible corporate citizen. Key policies and standards ● Corporate values ● Code of Conduct, Supplier Code of Conduct ● Quality, Environment, Health & Safety Policy ● Chemical Policy ● HR policies and the people strategy ● Anti-Corruption Policy ● Whistleblowing channel ● ISO 45001/2017 (occupational health and safety), ISO 26000 (social responsibility) * United Nations Sustainable Development Goals CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 25 MAIN THEMES OUR PROGRESS IN 2023 (scale 1-3) Health and safety ● Safety improvement actions in all units ● Regular safety inspections, audits, and safety patrols ● Safety training and communication ● Actions to improve chemical safety and breathing air quality ● Work of local H&S committees at all sites Responsible employer ● Continuous development of Group HR processes such as performance reviews, onboarding, trainings, etc. ● Cooperation with local universities and schools Responsible business ● Enforcement of corporate values, Code of Conduct, and Supplier Code of Conduct ● Actions taken based on the Human Rights assessment findings Injury prevention and safety first The health and safety of our employees, customers and business partners is a priority for Exel Composites. Health and safety issues are an integral part of our responsible management, and all our sites have a safety organization with defined responsibilities. All employees are covered by the health and safety management system based on local laws. A variety of chemicals are used in the production process, and some of our employees are in contact with dangerous or flammable chemicals in their work. Ensuring the safety of all chemicals used in our products is a priority for us. The main occupational health and safety risks relate to the possibility of fire or health problems due to allergies or long-term exposure. Exel Composites has valid ISO 45001 certificate covering its employees in Europe and China. The core of Exel Composites' health and safety efforts lies in preventive measures, including proper safety gear, regular safety trainings and communication, risk assessments as well as internal and external evaluations. The number of injuries per million hours worked (lost time injuries, LTI ) is a key performance indicator. Exel Composites has a target of no LTI. Every LTI is reported to the top management as well as other units to ensure the lessons learned. Near-miss and unsafe condition reporting is used for injury prevention in all factories. In 2023, there were 6.0 LTIs , which is an improvement from the previous year (10.8). The injuries related to working methods have reduced from the previous year following the increased focus on safe operating methods and additional training. In 2023, the injuries were mainly slips and trips. To improve safety, we are focusing on increasing awareness and identifying risks. Exel Composites makes a root cause analysis of each accident and share the results globally to help preventing accidents in the future. The units in the United States and China had no injuries in 2023. No fatal injuries occurred at any of the manufacturing sites in 2023, similarly to earlier years. The use of toxic and carcinogenic chemicals is forbidden. The chemical handling processes and personal protection equipment at Exel Composites are designed and allowed for chemicals that are non-toxic, non-carcinogenic and non-mutagenic. We are continuously vigilant about updates in listings of chemical Substances of Very High Concern, such as in the REACH and RoHS declarations, to ensure staying ahead of regulations. The search for less hazardous substitutes is proactive and continuous. Exel Composites has made investments to replace the cleaning agent in use with a less hazardous detergent . Monitoring air quality and volatile organic compounds (VOC) emissions as well as efficient ventilation on all sites is an important part of health and safety. Employees’ health is also monitored through regular medical checks. Styrene exposure is monitored through mandelic acid tests based on urine samples. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 26 Safety KPIs 2023 2022 2021 2020 2019 Lost time injuries, LTI 1) 6.0 10.8 7.8 8.1 10.8 Recordable work-related injuries 8 19 - - - Reports on unsafe conditions 770 762 808 976 1,175 1) Number of injuries per million hours worked Exel as a responsible employer and corporate citizen Technology leadership is a competitive advantage for Exel Composites. Recruiting skilled employees, as well as maintaining and developing employees’ expertise are critical for our company’s continuous development and success. Exel Composites aims to be an inspiring and fair workplace for its employees where people can grow and use their skills. In 2023, the human resources organization continued to support employee wellbeing and satisfaction at the workplace. Exel Composites conducts employee surveys on a regular basis. In 2023, Exel Composites conducted an employee survey on working practices and processes to support the new strategy and to align the company for the future success. The survey helped to identify potential improvement areas to help Exel Composites grow faster and to achieve its strategic objectives. In 2023, Exel Composites established the employee engagement target to improve employee NPS score year-on-year from base year of 2024. The annual Performance Development Review (PDR) process is an important measure to review individual and team performance and to secure a continuous dialogue between the managers and their teams. The PDR process also enables employees together with their manager to identify areas of their professional development and interest for trainings, in- house learning opportunities and mentoring. Exel Composites continued to further develop and expand the PDR process across the Group in 2023. Exel Composites’ aim is that all its employees are involved in at least one formal PDR meeting with their manager each year. All of Exel Composites’ employees are eligible for annual incentives tied to performance measures such as growth, profitability, and production related indicators as well as possible individual targets. Exel Composites is committed to meeting the expectations of the ISO 26000 standard related to social responsibility. The Group has an important social role as a local employer and supporter of regional vitality as most of our manufacturing units are in small towns. We support local communities, for example through small donations to local associations and non-political activities. Exel Composites also cooperates with local universities and chambers of commerce, which is an important way to raise awareness of Exel Composites as an attractive employer and promote education and research in connection to composites. In Finland, for example, Exel Composites continued to support a local foundation for the disabled in 2023. Exel Composites’ university and school collaborations continued in 2023 in several countries, for example in Belgium and Finland. Exel Composites was also present at various local recruitment fairs and sports events. Exel Composites encourages and respects diversity in the workplace, in all recruiting decisions as well as in the composition of the company’s Board of Directors. Exel Composites follows a zero-tolerance policy for discrimination and the company’s corporate values and Code of Conduct state that everybody shall be treated with fairness, respect, and dignity. All employees are expected to report any inappropriate or discriminant behavior or other Code of Conduct violations using for example the whistleblowing channel available on the intranet and company’s website. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 27 Employee-related KPIs 2023 2022 2021 2020 2019 Number of employees, on average 667 732 715 665 660 Number of employees, end of period 623 721 753 674 648 Employees' age, average 44 43 43 43 43 Employees with permanent contract, total 616 - - - - Employees with permanent contract, female 133 - - - - Employees with permanent contract, male 483 - - - - Employees with permanent contract, % 98.9 98.5 97.3 97.5 98.8 Employees with temporary contract, total 7 - - - - Employees with temporary contract, female 3 - - - - Employees with temporary contract, male 4 - - - - Employees with temporary contract, % 1.1 1.5 2.7 2.5 1.2 Number of years at Exel, average 9.2 8.4 7.8 8.4 8.0 Employee turnover 149 - - - - Employee turnover, % 22.3 19.3 22.1 18.9 25.6 Employees by country 2023 2022 Finland 254 277 China 145 136 Belgium 58 64 Austria 57 58 United States 55 99 India 27 28 United Kingdom 17 50 Other countries 10 9 Employees by region 2023 2022 Europe 391 453 North America 55 99 Asia-Pacific 177 169 Total 623 721 Age and gender diversity 2023 2022 All employees Total 623 - Female 136 - Male 487 - By age group <30 years 71 - 30-50 years 333 - >50 years 219 - Group Management Team Female 1 1 Male 6 6 By age group <30 years 0 0 30-50 years 3 2 >50 years 4 5 Board of Directors Female 2 2 Male 3 4 By age group <30 years 0 0 30-50 years 0 0 >50 years 5 6 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 28 Employees per region, % Age distribution, % Gender diversity, % Gender diversity 1) , % 1) Board of Directors and Group Management Team CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 29 High standards of integrity and responsible business Exel Composites is committed to exercising high standards of integrity and following ethical business principles in line with its Code of Conduct. Exel Composites supports and respects the protection of human rights in all its operations, including its supply chain, and follows global human and labor rights conventions. No form of forced or child labor is tolerated in the Group, nor from any of its business partners or third parties associated with the Group. Exel Composites does not tolerate bribery or corruption in any form. Any violations could constitute serious damage to Exel’s business and reputational loss, and the company follows a zero-tolerance policy concerning corruption in all countries of operation. Employees are expected and encouraged to report any Code of Conduct violations or observations. Employees can contact their manager, business unit manager or HR to raise any concerns or when in doubt about the best course of action in a particular situation. In addition, an anonymous and confidential whistleblowing channel is available for both internal and external stakeholders. New employees sign Exel Composites’ Code of Conduct already during the recruitment process and it is part of the employment contract. In 2023, Exel Composites conducted an internal campaign to raise awareness of the whistleblower channel among our employees, promoting the channel through emails and on the intranet. During the year Exel Composites did not receive any suspected misconduct reports through the company’s whistleblowing channel. There were no pending legal cases regarding corruption brought against the company or its employees. Exel Composites completed a human rights assessment to assess its operations to identify potential adverse human rights impacts in line with its commitment to the United Nations Guiding Principles on Business and Human Rights in early 2023. Assessment covered impacts which Exel Composites may cause or contribute to through its activities and impacts directly linked to Exel Composites’ operations or products through business relationships. Impacts were assessed for the likelihood and severity of the related risk. The assessment was conducted together with an external expert, relevant internal stakeholders and utilizing publicly available information. During the year, Exel Composites took actions to implement the human rights assessment findings across business units and operations and started the work to integrate human rights impact assessment into management systems. Exel Composites currently manages human rights issues mainly through its health and safety management system and through supplier management. Exel Composites has not identified any controversies regarding human rights in 2023. Identified potential salient issues for own operations include occupational health and safety, protection against discrimination at work and freedom of association. Other salient issues in the value chain include labor rights and working conditions in the supply chain, and environmental and health impacts for surrounding communities. Salient issues will be revisited on a regular basis as well as with significant changes in business. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 30 Environmental footprint Our aim in Environmental footprint Reduce the negative impact of our own operations to the environment and climate Our contribution to the SDGs Promote sustainable production and contribute to mitigating climate change through responsible operations based on circular economy, energy and material efficiencies, responsible use of chemicals, waste management and responsible supply chain management. Key policies and standards ● Corporate values ● Code of Conduct, Supplier Code of Conduct ● Quality, Environment, Health & Safety Policy ● Chemical Policy ● ISO 14001/2015 (environmental management) and ISO 9001/2015 (quality management) * United Nations Sustainable Development Goals CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 31 MAIN THEMES OUR PROGRESS IN 2023 (scale 1-3) Energy efficiency and reduced emissions ● Actions to reduce energy consumption and improve energy efficiency Circular economy and waste management ● Remarkable reduction in the amount of landfilled production waste in the Group, other actions initiated within the circular economy initiative ● Collaboration to increase recyclability of composites Sustainable supply chain ● Three on-site supplier audits during the year Energy efficiency and reduced emissions Exel Composites’ greenhouse gas emissions from own operations are mostly carbon dioxide that is formed in own use of fuels, heating, and transportation of materials. In addition to production, heating has a major impact on the total energy consumption as our largest production sites are situated in northern locations. Our long-term target is reduce greenhouse gas emissions (scope 1 and 2) according to UN established targets. The aim is to reduce our total use of energy proportional to production. The primary energy source is electrical energy, out of which approximately a third is estimated to be from renewable energy sources. Exel Composites has solar power plants on the factory roof in Joensuu, Finland and Kapfenberg, Austria. The solar power plants generated approximately 274 MWh/a of renewable energy for the sites to use in their operation in 2023. The Joensuu solar power plant has acted as a pilot project in exploring the opportunities to increase the share of renewable energy. A significantly larger solar power plant in Austria had its first year of operations in 2023. In 2023, Exel Composites’ greenhouse gas emissions from own operations (scope 1 and 2) were 3.3 thousand tons (5.3). The majority of the total is indirect greenhouse gas emissions (scope 2) due to the purchased energy. Exel has ensured the use of carbon-neutral energy by purchasing guarantees of origin in Finland. For scope 3 emissions calculation, Exel made initial investigations on raw material, their transportation and employee commuting. The initial results shows that the weight of raw material is considerable in Exel’s carbon footprint. Circular economy and waste management Recyclability and circular economy principles in our operations is one of the most important topics for Exel. Exel’s long-term target is to reach zero landfill. The main operational efficiency goal for Exel Composites is to reduce operational or composite waste, which is inevitably generated as part of the regular production process. Exel has a waste management process in place and aims to continuously reduce the amount of waste produced. The amount is dependent on the product mix and is therefore volatile. As products are mostly developed on-demand and in close cooperation with customers, the use of raw materials is as efficient as possible. Factors such as product design and complexity, size of production batches and the quality of raw materials also contribute to the amount of surplus. Continuous dialogue with the customer in the early design stages and throughout production is therefore critical from a quality and production point of view as well as from a waste management perspective. Exel is committed to preventing landfilling surplus materials from own production by recycling and/or reusing, for example, surplus resin mixes whenever possible. In 2023, Exel continued to collaborate with several sustainable raw material and recycling companies focus ing on processing surplus fiber into new raw material. Exel has supplied clean surplus fibers for tests and is committed to testing new recycled materials in its own production. In addition, Exel investigated cooperation opportunities with recycling companies processing scrap profiles into new raw materials and started trials with several European companies. Bio-based resins and fibers have been tested and implemented in limited quantities for evaluation purposes, and it is expected that the amount of bio-based raw materials will increase steadily. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 32 To reduce the amount of new materials purchased, in 2023, surplus resin and solvents continued to be recycled in production whenever possible. In 2022, Exel invested in more ecological washing machines in Belgium and the United States. In 2023, Exel continued to investigate options for a more ecological washing for tools in the other factories. Composite waste can be used as derived fuel in energy production. This is widely used in Central Europe. The composite waste that cannot be reused is recycled through combustion where possible. In this process, about a quarter is recycled as energy and the remaining ash is currently landfilled. Other than composite waste is recycled whenever possible. Where logistically, technologically, and economically possible, composite waste goes to recycling for example in the production of cement. This is currently possible in some locations in Europe. In 2023, 35% of Exel Composites’ composite waste was recycled, 56% was utilized in energy production and 7% of composite waste was landfill waste. Manufacturing units in Austria, China and the United states did not have any landfill waste in 2023. Composite waste from these units was recycled or is reused in energy. Most of the composite waste from the Finnish units were recycled to cement production reducing the landfill of composite waste in Finland when compared to the previous year. This development followed the implementation of recycling process after the KiMuRa project finalization. Production KPIs 2023 2022 2021 2020 2019 Energy usage, GWh 19.6 21.7 25.1 21.4 22.1 Energy usage, change from previous year, % -9.7 -13.6 17.1 -2.8 11.0 Greenhouse gas emissions (scope 1), tCO2e 558 649 - - - Greenhouse gas emissions (scope 2), tCO2e 2,747 4,611 - - - Greenhouse gas emissions, (scope 1 and 2), tCO2e, total 3,305 5,260 - - - Energy usage in proportion to production, change from previous year, % 22.6 8.2 4.1 -3.5 -17.0 Energy usage is impacted mainly by the number of manufacturing units and their geographical location (i.e. heating need) as well as production load Recycled waste, tons 804 825 - - - Reused waste in energy production, tons 1,296 1,755 - - - Landfill waste, tons 163 685 - - - Special waste, tons 45 47 - - - Total waste, tons 2,308 3,312 - - - Total waste per ton produced, change from previous year, % -6.1 -5.3 - - - *Comparative figure for 2022 has been corrected due to a unit error in Annual Report 2022 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 33 Water consumption and protection of groundwater There are no material risks of leaking from factories. Producing composites is not a water intensive process. Water is used mainly for sanitary purposes and to a minor extent for cooling, where water is reused in a closed circuit. Except for the manufacturing site in Joensuu, Finland, no Exel factory is in a groundwater area. According to the environmental permit, the company has built an extinguishing water recovery system in Joensuu to protect groundwater in the event of a factory fire. Also, the operations elsewhere in the Group are strictly governed by requirements of the environmental permits. Responsible supply chain Exel Composites sources components and materials for its manufacturing processes from multiple sources and multiple countries. Most of the company’s supply chain is composed of large, international manufacturers or their distributors that often have established processes and high sustainability standards. In addition, these suppliers and manufacturers are systematically audited by Exel and several other stakeholders. All Exel’s suppliers are chosen with care and based on objective factors such as quality, reliability, delivery, and price, in addition to ethical standards and sustainability. All suppliers receive the Supplier Code of Conduct as part of their agreement with Exel and they are required to operate in compliance with it. Exel Composites conducts supplier audits primarily through factory visits where an initial self-assessment is verified. Exel conducts supplier audits also using self-assessment questionnaires. The audit topics include environmental, human rights, employee health and safety, and monitoring of dangerous particles, among others. Suppliers are selected for audit based on purchase volume, the criticality of the supplier as well as its location. In case of violations action is taken either to allow time for corrective action or to terminate the relationship. In 2023, Exel conducted a self-assessment questionnaire audit for suppliers in one customer industry product. In addition, three key suppliers were successfully audited through on-site factory visits. The evaluation of solutions to ensure a more systematic and consistent approach of supplier selection and audit processes is ongoing. As part of our circular economy initiative, Exel researches and evaluates the use of alternative, sustainable raw materials in production. These include bio-based resins and fibers, such as flax, as well as the combinations of virgin and recycled raw materials. Bio- based raw materials are part of our offering already today and they are used for example in some sporting goods. Interest towards them is expected to grow, but volumes are still small as bio-based raw material often comes with a premium price. The use of recycled fibers in pultrusion, on the other hand, is limited by the fact that the technology is precisely based on long, continuous fibers. When recycled, the fibers are usually cut or crushed short and therefore they are best used in other technologies, such as extrusion, where product properties are also different. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 34 Climate-related risks and opportunities RISKS OPPORTUNITIES Policy and legal ● Regulation, which radically reduces consumption in general ● Regulation changes impacting composite production specifically, e.g. regarding chemicals or their risk classification ● Regulation hampering adaptation to composites or delays in the implementation of favorable standards ● Regulatory differences in Europe, America, and Asia Products and services ● Composites are non-toxic, durable, and maintenance-free products, and therefore climate friendly. A composite product does not leak or emit into the air or the ground ● Regulations mitigating climate change increase demand for composites ● Climate friendly product design and use in customer acquisition ● Leveraging and expanding collaboration with research centers and universities Technological ● Favoring other materials and not considering the climate-impact on the full lifecycle of the end-product ● Potential new, climate friendlier production technologies e.g. , solvent-free technologies Resource efficiency ● Increasing energy efficiency ● Innovation in recycling and reuse of composites ● Increasing the use of bio-based raw materials ● Climate-friendly developments in production technology, e.g., closed bath impregnation of fibers Market and reputation ● Reputational risk due to the challenging recycling of pultruded composites ● Reputational risk due to misunderstanding composites as merely “plastics” Markets ● Increasing demand of products that mitigate climate change ● Building awareness about the benefits of composites and production technologies used by Exel ● Expanding into new applications and industries where possibilities of composites are yet to be unveiled Physical risks ● Extreme weather conditions that cause interruptions in production or in the supply chain Climate-related risks and opportunities both could potentially have a significant financial impact on Exel Composites’ business and financial planning in terms of revenue gain or loss, unexpected expenditures, or investment requirements. Climate-related risks could also impact the valuation of Exel’s assets or ability to obtain financing. Strategically, climate- related risks and opportunities may potentially impact the company’s decisions regarding its geographical footprint, expanding into or focusing on certain product applications or customer industries as well as expanding into or focusing on certain production technologies. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 35 Index on Climate-related financial disclosures (TCFD) Exel Composites complements its non-financial reporting by following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to the extent possible. DISCLOSURE FOCUS AREA AND RECOMMENDED DISCLOSURE LOCATION AND COMMENTS Governance a) The board’s oversight of climate-related risks and opportunities b) The management’s role in assessing and managing climate -related risks and opportunities Corporate Governance Statement 2023: ● Page 5 RISK MANAGEMENT Annual Report 2023: ● Page 17 SUSTAINABILITY AND CORPORATE RESPONSIBILITY Climate-related risks and opportunities are considered and evaluated as part of the general duties of the Board and the management connected to strategy, budget and risk management and sustainability matters. Strategy a) The climate-related risks and opportunities the organization has identified over the short, medium, and long term b) The impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning c) The resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario Annual Report 2023: ● Page 34 CLIMATE -RELATED RISKS AND OPPORTUNITIES ● Page 10 BUSINESS MODEL ● Page 10 MARKET ENVIRONMENT ● Page 13 BUSINESS DEVELOPMENT AND STRATEGY IMPLEMENTATION ● Page 20 ENABLING SOLUTIONS A scenario analysis has not yet been conducted. Risk management a) The organization’s processes for identifying and assessing climate-related risks b) The organization’s processes for managing climate-related risks c) How processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management Corporate Governance Statement 2023: ● Page 5 RISK MANAGEMENT Annual Report 2023: ● Page 34 CLIMATE -RELATED RISKS AND OPPORTUNITIES CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 36 Targets and key KPIs a) Metrics used to assess climate -related risks and opportunities in line with its strategy and risk management process b) Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks c) Targets used by the organization to manage climate-related risks and opportunities and performance against targets Annual Report 2023: ● Page 30 ENVIRONMENTAL FOOTPRINT Estimates on scope 3 greenhouse gas emissions have not yet been calculated. Scope 3 emissions reporting will be added according to the Corporate Sustainability Reporting Directive (CSDR) requirements. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 37 EU Taxonomy disclosure The EU Taxonomy in short The EU Taxonomy is a classification system that lists environmentally sustainable economic activities, i.e. those that make a substantial contribution to at least one of the six EU climate and environmental objectives. At the same time, they shall not significantly harm any of these objectives (principle of ‘Do No Significant Harm’, DNSH) and meet the minimum safeguards related to labor and human rights. The environmental objectives are a) climate change mitigation; b) climate change adaptation; c) the sustainable use and protection of water and marine resources; d) the transition to a circular economy; e) pollution prevention and control; and f) the protection and restoration of biodiversity and ecosystems. Definitions The EU Taxonomy consists of precise criteria that define what it means to make a substantial contribution and what it means to do no significant harm. ● An economic activity is considered TAXONOMY -ELIGIBLE when it is described in the EU Taxonomy classifications. ● When the activity is taxonomy-eligible and additionally complies with the DNSH principle, the minimum safeguards, and technical screening criteria established, the activity is considered TAXONOMY -ALIGNED . ● An economic activity may be ENABLING by directly enabling other activities to make a substantial contribution to one or more of those objectives. ● An activity may be TRANSITIONAL where it supports the transition to a climate-neutral economy. Disclosure requirement for the financial year 2023 The EU Taxonomy requires companies to provide disclosures on the following metrics: ● The proportion of turnover derived from products or services associated with economic activities that qualify as environmentally sustainable. ● The proportion of capital expenditure and operating expenditure related to assets or processes associated with economic activities that qualify as environmentally sustainable. In addition, it requires to disclose qualitative information on the reporting methodology. In 2023, companies are required to disclose the proportion of Taxonomy -eligible and Taxonomy -non-eligible economic activities in the total turnover, capital expenditure and operational expenditure for the financial year 2023. For the activities that are eligible, companies are required to also disclose the share of taxonomy-aligned activity. Preparation and accounting policy Exel Composites’ taxonomy-eligible and taxonomy-aligned economic activities have been identified based on an internal assessment conducted with the support of various organizational functions. The company’s products and revenue were analyzed by customer industry and the subsegments within each and compared against the economic activities listed in the EU Taxonomy . The internal assessment has been complemented with an externally produced model, which uses an extensive company and product database as a basis. In 2023 new activities were added in the EU Taxonomy and the company decided to reassess some of its activities. In 2022 the company had included activities under the section 3.3. ‘Manufacture of low carbon technologies for transport’ but found them now more suitable under section 3.19. ‘Manufacture of rail rolling stock constituents’. In addition, the activity for manufacturing airship parts, which was reported under section 3.6. ‘Manufacture of other low carbon technologies’ in 2022, is now reported under the new section 3.21. ‘Manufacturing of aircraft’. The proportion of turnover is calculated as the part of the net turnover derived from products or services, including intangibles, associated with taxonomy-aligned economic activities (numerator), divided by the net turnover (denominator). Proportion of capital expenditure is calculated by dividing sustainable investments (numerator) by gross investments, excluding goodwill, presented in the balance sheet (denominator). Proportion of operational expenditure is calculated by dividing expenses related to assets or processes associated with taxonomy-aligned economic activities (numerator) by total direct expenses presented in the income statement (denominator) including maintenance and repair costs of production facilities, machinery and equipment, short-term leases, and research costs. Total direct expenses do not include labor or travel costs of own personnel. Exel Composites’ EU Taxonomy metrics have not been externally assured. The company’s auditors have considered the EU Taxonomy metrics as part of the review of the other information (Board of Directors report). Minimum Social Safeguards Exel Composites has reviewed the Minimum Safeguards with respect to human rights, anti- corruption, competition and taxation. Based on the review Exel has determined its activities to meet the minimum safeguards. Read more about Exel’s human rights assessment in the Non-financial section under Social handprint of this report. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 38 Exel Composites’ taxonomy-eligible and aligned economic activities Exel Composites’ main economic activity, the manufacture of composites or fiber reinforced plastics, is as such not included in the current EU Taxonomy . This is because Exel’s products are usually components or parts of our customers’ — or our customers’ customers’ — end-product. Therefore, the EU Taxonomy today lists mainly economic activities of our customers. Often , however, it is the composite component produced by Exel that contributes to improving the environmental impact of the end-product. Exel’s taxonomy-eligible and taxonomy-aligned activities are currently found in the energy, transport, and construction sectors. Exel has determined its turnover taxonomy-eligible activities to be included under the sections 3.1. ‘Manufacture of renewable energy technologies’, 3.5. ‘Manufacture of energy efficiency equipment for buildings’, 3.6. ‘Manufacture of other low carbon technologies’, 3.18. ‘Manufacture of automotive and mobility components’, 3.19. ‘Manufacture of rolling stock constituents’ and 3.21. ‘Manufacturing of aircrafts’. Exel has evaluated the DNSH criteria and found activities to meet requirements. Exel has determined that activities under sections 3.1., 3.5., 3.18., 3.19. and 3.21. are taxonomy-aligned. Activities under sections 3.6. are taxonomy-eligible but not taxonomy- aligned as technical screening criteria was not yet fully met. The taxonomy-eligible turnover was lower in 2023 than in 2022 as Exel Composites’ total turnover was lower. The proportion of taxonomy-eligible of total turnover at 28.1% was lower than in 2022 (37.8%) mainly due to lower Wind Power customer segment’s turnover that is included in section 3.1. ‘Manufacture of renewable energy technologies’. Turnover ● Manufacture of renewable energy technologies: Exel manufactures composite applications used in wind turbines such as blade reinforcements, blade laminates, spar caps, blade root joints, and spacers. The high strength and stiffness of the composite combined with low weight improve the wind turbine’s performance, for example, by enabling longer blades. ● Manufacture of energy efficiency equipment for buildings: Exel manufactures structural profiles for windows and doors. Their low thermal transmittance (U- value) and insulation properties improve energy efficiency and provide better performance. ● Manufacture of automotive and mobility components: Exel manufactures structural profiles such as side panels for electric buses. ● Manufacture of rolling stock constituents: Exel manufactures structural profiles such as side panels for electric trains and trams. ● Manufacturing of aircrafts: Exel manufactures structural profiles for aerospace applications. ● Manufacture of other low carbon technologies: Exel manufactures composite applications for electric trolling motors. Capital expenditure ● Manufacture of renewable energy technologies ● Manufacture of energy efficiency equipment for buildings ● Manufacture of automotive and mobility components ● Manufacture of rolling stock constituents ● Energy generation using solar photovoltaic technology: Exel has installed solar power plants on the factory roof of its two factories to generate renewable energy for the sites to use in their operations. ● Installation, maintenance and repair of energy efficiency equipment ● Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings Operational expenditure ● Collection and transport of non-hazardous waste in source segregated fractions: separation and collection of recyclable material such as carboard, plastic packaging, wood, metal, profile waste, chemical waste and energy wastes and transport for recycling in all Group units. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 39 Proportion of turnover from products or services associated with Taxonomy -aligned economic activities — disclosure covering year 2023 Financial year 2023 2023 Substantial contribution criteria DNSH criteria (‘Do No Significant Harm’) Economic activities Code Turnover Proportion of turnover, 2023 Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Minimum safeguards Proportion of Taxonomy - aligned (A.1) or eligible (A.2) turnover, 2022 Category enabling activity Category transitional activity EUR thousand % Y / N Y / N Y / N Y / N Y / N Y / N Y / N % E T A. TAXONOMY -ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (Taxonomy -aligned) Manufacture of renewable energy technologies CCM 3.1 7,535 7.8 Y N N/A N/A N/A N/A Y Y Y Y Y Y Y 19.6 E Manufacture of energy efficiency equipment for buildings CCM 3.5 9,203 9.5 Y N N/A N/A N/A N/A Y Y Y Y Y Y Y 9.6 E Manufacturing of aircraft CCM 3.21 222 0.2 Y N/A N/A N/A N/A N/A Y N Y Y Y Y Y E Manufacture of rail rolling stock constituents CCM 3.19 2,412 2.5 Y N/A N/A N/A N/A N/A Y N Y Y Y Y Y E Manufacture of automotive and mobility components CCM 3.18 3,763 3.9 Y N/A N/A N/A N/A N/A Y N Y Y Y Y Y E Turnover of environmentally sustainable activities (Taxonomy- aligned) (A.1) 23,135 23.9 100.0 21.0 Of which Enabling 23,135 23.9 100.0 Of which Transitional A.2 Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) Manufacture of other low carbon technologies CCM 3.6 4,062 4.2 Turnover of Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) (A.2) 4,062 4.2 16.7 A. Turnover of Taxonomy eligible activities (A.1 + A.2) 27,197 28.1 37.8 B. TAXONOMY -NON-ELIGIBLE ACTIVITIES Turnover of Taxonomy -non-eligible activities (B) 69,618 71.9 Total 96,815 100.0 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 40 Proportion of CapEx from products or services associated with Taxonomy -aligned economic activities — disclosure covering year 2023 Financial year 2023 2023 Substantial contribution criteria DNSH criteria (‘Do No Significant Harm’) Economic activities Code CapEx Proportion of CapEx, 2023 Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Minimum safeguards Proportion of Taxonomy - aligned (A.1) or eligible (A.2) CapEx 2022 Category enabling activity Category transitional activity EUR thousand % Y / N Y / N Y / N Y / N Y / N Y / N Y / N % E T A. TAXONOMY -ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (Taxonomy -aligned) Manufacture of renewable energy technologies CCM 3.1 10 0.3 Y N N/A N/A N/A N/A Y Y Y Y Y Y Y 2.7 E E Manufacture of energy efficiency equipment for buildings CCM 3.5 43 1.1 Y N N/A N/A N/A N/A Y Y Y Y Y Y Y 6.3 E Manufacture of rail rolling stock constituents CCM 3.19 36 0.9 Y N/A N/A N/A N/A N/A Y N Y Y Y Y Y E Manufacture of automotive and mobility components CCM 3.18 12 0.3 Y N/A N/A N/A N/A N/A Y N Y Y Y Y Y E Electricity generation using solar photovoltaic technology CCM 4.1 335 8.4 Y N N/A N/A N/A N/A Y Y N/A N/A Y Y Y Installation, maintenance and repair of energy efficiency equipment CCM 7.3 33 0.8 Y N N/A N/A N/A N/A Y Y N/A Y N/A N/A Y E Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings) CCM 7.4 10 0.2 Y N N/A N/A N/A N/A Y Y N/A N/A N/A N/A Y E CapEx of environmentally sustainable activities (Taxonomy -aligned) (A.1) 481 12.1 100.0 2.7 Of which Enabling 481 12.1 100.0 Of which Transitional A.2 Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) Manufacture of other low carbon technologies CCM 3.6 37 0.9 CapEx of Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) (A.2) 37 0.9 11.0 A. CapEx of Taxonomy eligible activities (A.1+A.2) 518 13.0 13.7 B. TAXONOMY -NON-ELIGIBLE ACTIVITIES CapEx of Taxonomy -non-eligible activities 3,470 87.0 Total 3,987 100.0 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 BOARD OF DIRECTORS’ REPORT | 41 Proportion of OpEx from products or services associated with Taxonomy -aligned economic activities — disclosure covering year 2023 Financial year 2023 2023 Substantial contribution criteria DNSH criteria (‘Do No Significant Harm’) Economic activities Code OpEx Proportion of OpEx, 2023 Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Climate change mitigation Climate change adaptation Water Pollution Circular economy Biodiversity Minimum safeguards Proportion of Taxonomy - aligned (A.1) or eligible (A.2) OpEx, 2022 Category enabling activity Category transitional activity EUR thousand % Y / N Y / N Y / N Y / N Y / N Y / N Y / N % E T A. TAXONOMY -ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (Taxonomy -aligned) Collection and transport of non-hazardous waste in source segregated fractions CCM 5.5 169.6 3.4 Y N N/A N/A N/A N/A Y Y N/A N/A Y N/A Y 4.2 OpEx of environmentally sustainable activities (Taxonomy -aligned) (A.1) 169.6 3.4 100.0 4.2 Of which Enabling 169.6 3.4 100.0 Of which Transitional A.2 Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) OpEx of Taxonomy -eligible but not environmentally sustainable activities (not Taxonomy -aligned activities) (A.2) Opex of Taxonomy eligible activities (A.1+A.2) 169.6 3.4 4.2 B. TAXONOMY -NON-ELIGIBLE ACTIVITIES OpEx of Taxonomy -non-eligible activities 4,809.2 96.6 Total 4,978.7 100.0 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 KEY FIGURES 2019-2023 | 42 KEY FIGURES 2019-2023 Key figures illustrating financial trends 2023 2022 2021 2020 2019 Revenue 96,815 136,988 134,365 108,595 103,784 Operating profit -4,863 3,002 3,744 9,417 5,087 % of revenue -5.0 2.2 2.8 8.7 4.9 Adjusted operating profit -2,446 8,029 6,029 9,708 7,160 % of revenue -2.5 5.9 4.5 8.9 6.9 EBITDA 3,832 10,123 11,946 n/a n/a Adjusted EBITDA 4,059 15,149 12,435 n/a n/a Profit before taxes -8,254 3,600 4,165 7,124 3,885 Total assets 85,028 113,058 117,698 96,800 85,352 Return on equity % -38.7 7.0 5.5 19.5 9.2 Return on capital employed, % -6.8 3.7 4.8 14.1 8.6 Equity ratio, % 20.9 26.9 26.8 30.2 30.9 Net gearing, % 185.7 102.4 119.9 107.9 114.9 Net debt to adjusted EBITDA 1) 8.1 2.1 3.0 n/a n/a Capital expenditure 3,523 4,592 9,989 13,220 6,262 % of revenue 3.6 3.4 7.4 12.2 6.0 Research and development costs 3,711 3,426 3,310 2,884 2,859 % of revenue 3.8 2.5 2.5 2.7 2.7 Average personnel 667 732 715 665 660 Personnel at year end 623 721 753 674 648 Share data 2023 2022 2021 2020 2019 Earnings per share (EPS), EUR -0.77 0.19 0.14 0.45 0.20 Adjusted earnings per share (EPS), EUR 2) -0.77 0.19 0.14 0.45 0.20 Equity per share, EUR 1.47 2.53 2.58 2.44 2.23 Dividend per share, EUR 3) 0 0.20 0.20 0.20 0.18 Payout ratio, % 0 103.4 139.8 44.1 88.8 Effective yield of shares, % 0 3.7 2.5 2.7 2.8 Price/earnings (P/E) -3.23 29.95 57.87 16.26 32.00 Price to book ratio, (P/B) 1.70 2.11 3.07 3.02 2.91 1) Last 12 months’ adjusted EBITDA 2) Adjusted for the dilution of option rights 3) Board proposal for dividend to the AGM 2024 Environmentally sustainable activities 2023 2022 2021 2020 2019 Turnover of taxonomy-eligible economic activities, % 28.1 37.8 32.6 - - Capital expenditure of taxonomy- eligible economic activities, % 13.0 13.7 11.6 - - Operational expenditure of taxonomy-eligible economic activities, % 3.4 4.2 3.1 - - CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 CALCULATION OF KEY FIGURES | 43 CALCULATION OF KEY FIGURES Adjusted operating profit operating profit - material items affecting comparability (restructuring costs, impairment losses and reversals, costs related to planned or realized business acquisitions or disposals, etc.) Adjusted EBITDA operating profit + depreciations, amortization and impairments - material items affecting comparability (restructuring costs, costs related to planned or realized business acquisitions or disposals, etc.) Net debt to adjusted EBITDA total interest-bearing debt - cash and equivalents adjusted EBITDA Return on equity, % net income + provisions x 100 equity + minority interest + voluntary provisions Return on capital employed, % profit before provisions and income taxes + interest and other financial expenses x 100 total assets less non-interest-bearing liabilities (average) Equity ratio, % equity + minority interest + voluntary provisions x 100 total assets less advances received Net gearing, % net interest-bearing liabilities (= interest-bearing liabilities less liquid assets) x 100 equity Earnings per share (EPS), EUR profit before provisions and income taxes less income taxes +/- minority interest average adjusted number of shares in the financial period Equity per share, EUR equity + voluntary provisions adjusted number of shares on closing date Dividend per share, EUR dividend for the financial period adjusted number of shares on closing date Payout ratio, % dividend per share x 100 earnings per share (EPS) Effective yield of shares, % dividend per share x 100 x 100 adjusted average share price at year end Price/earnings (P/E), % adjusted average share price at year end x 100 earnings per share Price to book ratio, (P/B) total number of shares on closing date excluding treasury shares x share price at year end equity without non-controlling interests CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 44 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS For the financial year starting on 1 January and ending on 31 December EUR thousands Notes 2023 2022 Revenue 5 96,815 136,988 Other operating income 7 4,902 957 Increase (+) / Decrease (-) in inventories of finished goods and work in progress -6,837 -799 Materials and services -33,483 -58,526 Employee benefit expenses 9 -34,251 -39,023 Depreciation 11 -6,505 -7,115 Impairment 11 -2,190 -6 Other operating expenses 8, 10 -23,314 -29,474 Operating profit -4,863 3,002 Financial income 17 597 2,549 Financial expenses 16 -3,988 -1,951 Profit before tax -8,254 3,600 Income taxes 15 -1,055 -1,455 Profit/loss for the period -9,309 2,145 EUR thousands Notes 2023 2022 Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences on translating foreign operations 15 -1,092 -715 Items that will not be reclassified to profit or loss: Defined benefit plan actuarial gains (+) / losses (-), net of tax 15 -30 146 Total comprehensive income -10,432 1,577 Profit/loss attributable to: Owners of the parent company -9,130 2,293 Non-controlling interests -179 -148 Comprehensive income attributable to: Owners of the parent company -10,240 1,743 Non-controlling interests -192 -166 Total earnings per share, basic and diluted, EUR 13 -0.77 0.19 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 45 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at the end of the financial year EUR thousands Notes 2023 2022 ASSETS Non-current assets Goodwill 18 12,585 13,015 Other intangible assets 18 1,671 2,160 Tangible assets 19 23,332 28,643 Right-of-use assets 19 1,367 2,213 Other non-current assets 20 48 48 Deferred tax assets 14 643 1,807 Total non-current assets 39,646 47,886 Current assets Held for sale assets 20 545 1,070 Inventories 22 16,867 23,426 Trade and other receivables 23 17,019 23,279 Cash at bank and in hand 24 10,952 17,397 Total current assets 45,383 65,172 Total assets 85,028 113,058 EUR thousands Notes 2023 2022 EQUITY AND LIABILITIES Share capital 32 2,141 2,141 Other restricted equity 1,080 1,080 Invested unrestricted equity fund 2,539 2,539 Translation differences 2,138 3,218 Retained earnings 18,669 18,671 Profit for the period -9,130 2,293 Equity attributable to the equity holders of parent company 17,438 29,944 Non-controlling interests 249 441 Total equity 17,687 30,385 Non-current liabilities Interest-bearing liabilities 25, 30 4,200 12,400 Non-current lease liabilities 25 221 1,136 Non-current interest-free liabilities 26 1,300 1,244 Deferred tax liabilities 14 311 584 Total non-current liabilities 6,032 15,364 Current liabilities Interest-bearing liabilities 25 38,105 33,691 Current lease liabilities 25 1,264 1,271 Trade and other current liabilities 26 21,777 25,903 Income tax payable 163 328 Current liabilities related to Held for sale assets 26 0 6,116 Total current liabilities 61,309 67,309 Total equity and liabilities 85,028 113,058 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 46 CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year starting on 1 January and ending on 31 December EUR thousands Notes 2023 2022 Cash flow from operating activities Profit for the period -9,309 2,145 Non-cash adjustments to reconcile profit to net cash flow 35 9,539 8,732 Change in working capital 6,416 -1,188 Cash flow generated by operations 6,646 9,689 Interest paid -1,746 -571 Interest received -1 -28 Other financial items -702 121 Income taxes paid 247 -2,444 Net cash flow from operating activities 4,445 6,767 Cash flow from investing activities Purchase of non-current assets -3,523 -4,535 Proceeds from sale of non-current assets 447 6,554 Net cash flow from investing activities -3,076 2,018 Cash flow before financing activities 1,369 8,785 EUR thousands Notes 2023 2022 Cash flow from financing activities Change in short-term loans -3,754 -3,176 Installments of lease liabilities -1,332 -1,264 Dividends paid -2,371 -2,371 Net cash flow from financing activities -7,457 -6,811 Change in liquid funds -6,088 1,975 Liquid funds at the beginning of period 17,397 15,593 Exchange rate fluctuations on liquid funds -358 -170 Liquid funds at the end of period 10,952 17,397 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 47 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY As at the end of the financial year EUR thousands Share capital Other restricted equity Invested unrestricted equity fund Translation differences Retained earnings Non-controlling interests Total 2022 Balance at the beginning of the period 2,141 129 2,539 3,914 21,850 608 31,182 Comprehensive result -697 2,293 -166 1,430 Defined benefit plan actuarial gains (+) / loss (-), net of tax 146 146 Other items 3) 951 -951 0 Dividend -2,371 -2,371 Acquisition / transfer of Treasury shares 2) 139 139 Share-based payments reserve 123 123 Postings related to previous financial period 1) -265 -265 Balance at the end of the period 2,141 1,080 2,539 3,218 20,965 441 30,385 2023 Balance at the beginning of the period 2,141 1,080 2,539 3,218 20,965 441 30,385 Comprehensive result -1,080 -9,130 -192 -10,401 Defined benefit plan actuarial gains (+) / loss (-), net of tax -30 -30 Other items 0 0 Dividend -2,371 -2,371 Acquisition / transfer of Treasury shares 2) 0 0 Share-based payments reserve 6 6 Postings related to previous financial period 1) 99 99 Balance at the end of the period 2,141 1,080 2,539 2,138 9,539 249 17,687 1) Corrections related to taxation and other expenses of previous years, and postings related to treasury shares 2) Group's treasury shares are administrated by EAM EXL1V Holding Oy and shares are transferred in accordance to the long-term incentive plan 3) Increase of subsidiary's share capital by transfer from its retained earnings CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All figures in the notes are in EUR thousands unless otherwise stated. Significant accounting principles are described in connection to the relevant note. The consolidated financial statements of Exel Composites Plc for the year ended 31 December were authorized for issue in accordance with a resolution of the Board of Directors on 1 March 2024. Final decision to adopt, change or reject the financial statements is made by shareholders in Annual General Meeting on 26 March 2024. Exel Composites’ official consolidated financial statements is published in accordance with the ESEF-directive in XHTML format including iXBRL tags. The audit firm Ernst & Young Oy issues an independent auditor’s reasonable assurance report on Exel Composites’ ESEF Financial Statements. In addition, a pdf version on the consolidated financial statements is available at the company’s website at www.exelcomposites.com. NOTE 1 CORPORATE INFORMATION Exel Composites provides forward-thinking composite solutions made with continuous manufacturing technologies to customers in a wide range of industries around the world. The company’s products are used in several industries from cleaning equipment to power generation and transmission. The company uses its over 60 year’s expertise to help customers reduce weight, improve performance and decrease the total lifetime costs of the end product. Exel wants to be the first choice for sustainable composite solutions globally. The company’s manufacturing, R&D and sales network covers all main markets i.e. Europe, Asia and North America. The Group’s factories are located in Austria, Belgium, China, Finland, India, the United Kingdom and USA. Exel Composites' share is listed in the Small Cap segment of the Nasdaq Helsinki Ltd. in the Industrials sector. Name of reporting entity or other means of identification from end of preceding reporting period Exel Composites Plc Domicile of entity Mäntyharju, Finland Legal form of entity Plc Country of incorporation Finland Address of registered office of entity Uutelantie 24 B, 52700 Mäntyharju, Finland Principal place of business Europe, Asia and North America Description of nature of entity's operations and principal activities Exel Composites provides forward-thinking composite solutions made with continuous manufacturing technologies to customers in a wide range of industries around the world. Name of parent entity Exel Composites Plc Name of ultimate parent of group Exel Composites Plc CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 49 NOTE 2 BASIS OF PREPARATION The consolidated financial statements have been prepared on a historical cost basis, with the exception of available-for-sale investment securities and certain other financial assets and financial liabilities that have been measured at fair value. The consolidated financial statements are presented in euros and all values are rounded to the nearest thousand except where otherwise indicated. Statement of Compliance The consolidated financial statements of Exel Composites Plc have been prepared in compliance with International Financial Reporting Standards (IFRS), applying IAS and IFRS standards, as well as SIC and IFRIC interpretations, as adopted by the European Union, valid on 31 December 2023. The notes to the consolidated financial statements are also in compliance with the Finnish Accounting and Companies Acts. Basis of Consolidation Exel Composites’ consolidated financial statements include the accounts of the parent company Exel Composites Plc and its subsidiaries as at 31 December. Subsidiaries are viewed as companies in which it owns, directly or indirectly, over 50% of the voting rights or in which it is in a position to govern the financial and operating policies of the entity. The Group has control over an entity when it has a participation in the entity and is exposed to or has right to its variable revenues and can influence the revenues by using its control over the entity. Subsidiaries are fully consolidated from the date that Exel Composites acquired control and are no longer consolidated from the date that control ceases. Where necessary, the accounting principles of subsidiaries have been changed to ensure consistency with the accounting principles of the Group. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Acquisitions of companies are accounted for using the purchase method. The cost of an acquisition is measured at fair value over the assets given up, shares issued or liabilities incurred or assumed at the date of acquisition. The excess acquisition cost over the fair value of net assets acquired is recognized as goodwill. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full. If the Group loses control over a subsidiary, it: ● Derecognizes the assets and liabilities of the subsidiary; ● Derecognizes the carrying amount of non-controlling interest; ● Derecognizes the cumulative translation differences, recorded in equity; ● Recognizes the fair value of the consideration received; ● Recognizes the fair value of any investment retained; ● Recognizes any surplus or deficit in profit or loss, and ● Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss. When compiling the opening IFRS balance sheet, Exel Composites has applied the exemption provided by IFRS 1 related to business combinations. This means that the assets and liabilities of subsidiaries have not been assessed retroactively at their market value. Instead, they have been included in the balance sheet on the transition date in an amount in accordance with earlier financial accounting practice. The Group has no affiliated companies or joint ventures. Non-controlling interest is deducted from shareholders’ equity and presented as a separate item in the balance sheet. Similarly, it is presented as a separate item in the consolidated financial statements. The share of losses attributable to the holders of non-controlling interest was debited to non-controlling interest in the consolidated balance sheet up to the full value of the non-controlling interest prior to 1 January 2010. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 50 NOTE 3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES Standards and standard amendments issued during the 2023 financial period ● IFRS 17 Insurance Contracts ● IAS 1 Disclosure of Accounting policies ● IAS 8 Definition of Accounting estimates ● IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction ● IAS 12 International Tax Reform – Pillar Two Model Rules had no material impact on Group’s financial statements. The standards and standard amendments that are issued, but not effective, up to the date of issuance of the Group’s financial statements are listed below. The Group intends to adopt these standards and amendments, if applicable, when they become effective. Based on preliminary analysis, the standards are not expected to materially impact on the Group’s financial statements. New standards ● No new standards Amendments to standards ● IAS 1 Classification of Liabilities as Current or Non-current ● IAS 1 Non-current Liabilities with Covenants ● IFRS 16 Lease Liability in a Sale and Leaseback ● IAS 7 Disclosures: Supplier Finance Arrangements ● IAS 21 Lack of Exchangeability NOTE 4 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group’s consolidated financial statements may require the use of judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the end of the reported period and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The preparation of impairment tests requires the use of estimates. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of non-financial assets The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When calculations of impairment of non-financial assets are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. Further details, including sensitivity analysis of key assumptions, are given in Note 27. Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits together with the future tax planning strategies. Further details are given in Note 14. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 51 Pension and other post-employment benefits The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Determining the fair value of assets in business combinations In major corporate mergers the Group has employed the services of an outside advisor in assessing the fair value of tangible assets. For tangible assets comparisons have been made with the market prices of similar assets and an estimate made about impairment caused by the acquired asset’s age, wear and other related factors. The determination of the fair value of tangible assets is based on estimates of cash flows related to the asset. NOTE 5 SEGMENT INFORMATION ACCOUNTING PRINCIPLE: Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Sales of products are recognized as income in accordance with IFRS 15 when the performance obligation is satisfied. The performance obligation is satisfied when the goods have been delivered to the customer according to the agreed delivery terms. In most cases this happens when the goods leave the factory. In case according to agreed delivery terms risks and rewards as well as control over the goods are transferred to the customer only when the goods have been delivered to the customer, then revenue is recognized only when the customer has received the goods. Revenue comprises the invoiced value for the sale of goods and services net of indirect taxes, sales adjustment and exchange rate differences. Distribution costs for products to be sold are included in the income statement as other operating expenses. Interest income is recognized using the effective interest rate method and dividend income when the right to the dividend has been created. Capital expenditure Capital expenditure presented in this note includes additions to intangible and tangible assets and related advance payments posted during the financial period excluding additions to right-of-use asset. Additions are presented by asset group in Notes 18 and 19. Operating segments The Group has one operating segment, Exel Composites. Geographical information The Group’s geographical information is given for Europe, North America, Asia-Pacific (APAC) and Rest of World. Revenue of geographical distribution is presented according to the customer’s location, while assets are presented according to the location of the assets. Revenue outside the Group according to location of customers 2023 2022 Europe 64,372 76,651 North America 18,343 37,272 Asia-Pacific 11,638 20,930 Rest of world 2,461 2,135 Total 96,815 136,988 Revenue from the biggest customer amounted to EUR 7,221 (15,318) thousand in 2023. The revenue of the biggest customer was reported under the Wind power customer industry. Total assets according to geographic location 2023 2022 Europe 51,828 59,123 North America 8,289 19,926 Asia-Pacific 24,912 34,008 Total 85,028 113,058 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 52 Capital expenditure according to geographic location 2023 2022 Europe 2,467 2,798 North America 281 881 Asia-Pacific 775 912 Total 3,523 4,592 NOTE 6 EXCHANGE RATES ACCOUNTING PRINCIPLE: Foreign currency translation The Group’s consolidated financial statements are presented in euros, which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The income statements of independent foreign subsidiaries are translated into euros at the average exchange rates for the financial year and the assets and liabilities are translated at the exchange rate of the balance sheet date. The reporting date exchange rates are based on exchange rates published by the European Central Bank for the closing date. The average exchange rate is calculated as an average of each month’s average rates from the European Central Bank. Exchange differences arising on the translation are recognized in other comprehensive income. When a foreign operation is sold, the component of other comprehensive income relating to that particular foreign operation is recognized in the income statement. Foreign currency exchange gains and losses related to business operations and translating monetary items have been entered in the income statement. Foreign exchange differences from business operations are included in other items above the operating profit. Foreign exchange differences from foreign currency loans and cash at bank are included in financial items. 2023 2022 2023 2022 Country Currency Average rate Average rate Closing rate Closing rate Australia AUD 1.62850 1.51730 1.62630 1.56930 UK GBP 0.86990 0.85261 0.86905 0.88693 China RMB 7.65910 7.08020 7.85090 7.35820 India INR 89.32490 82.71540 91.90450 88.17100 USA USD 1.08160 1.05390 1.10500 1.06660 Hong Kong HKD 8.46760 8.25150 8.63140 8.31630 NOTE 7 OTHER OPERATING INCOME ACCOUNTING PRINCIPLE: Government grants Government grants are recognized where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as an income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, it is recognized as deferred income and released to the income statement over the expected useful life of the relevant asset by equal annual installments. 2023 2022 Insurance compensations 10 25 Grants 221 289 Rental income 16 15 Gain on disposal of fixed assets 4,569 15 Other operating incomes 87 612 Total 4,902 957 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 53 NOTE 8 OTHER OPERATING EXPENSES Production variable expenses includes for example molds and dies, energy, water, waste management and packing costs. Other operating expenses includes fixed costs such as maintenance- and repair, travel, insurance premiums and legal and other consulting services. 2023 2022 Audit fees 236 206 Tax consultation provided by the Audit company 26 2 Other services provided by the Audit company 55 16 Rents on leases with short lease period 636 640 Rents on leases for assets with low value 55 9 Losses on disposal of assets 639 440 Production variable expenses 8,821 13,130 Other operating expenses 12,845 15,030 Total 23,314 29,474 NOTE 9 EMPLOYEE BENEFIT EXPENSES 2023 2022 Wages and salaries 28,108 31,318 Pension costs – defined contribution schemes 2,822 3,329 Pension costs – defined benefit schemes 12 4 Other employee benefits 3,308 4,372 Total 34,251 39,023 Average number of personnel 667 732 NOTE 10 RESEARCH AND DEVELOPMENT EXPENDITURE ACCOUNTING PRINCIPLE: Research and development Research costs are expensed as incurred. Costs incurred from development projects, which are often connected with the design and testing of new or advanced products, are recorded in the balance sheet as intangible assets from the time that the product can be technically achieved, it can be utilized commercially, and the product is expected to create a comparable financial benefit. Other development costs are recorded as expenses. Capitalized development costs are amortized on a straight-line basis beginning from the commercial production of the product during the period they are effective, yet no longer than five years. There were no capitalized development costs during 2023 and 2022. The income statement includes research and development costs entered as costs amounting to EUR 3,711 (3,426) thousand in 2023. These costs are included in the income statement under Employee Benefit Expenses and Other Operating Expenses. NOTE 11 DEPRECIATION, AMORTIZATION AND IMPAIRMENT ACCOUNTING PRINCIPLE: Impairment of non-financial assets At each reporting date, the Group evaluates whether there are indications of impairment in any asset item. If impairment is indicated, the recoverable amount of the asset is estimated. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 54 In addition, the recoverable amount is assessed annually for the following items regardless of whether there are indications of impairment: goodwill; intangible assets that have an unlimited economic lifespan; and assets under construction. Depreciation and amortization of assets 2023 2022 Intangible assets 869 884 Tangible assets Buildings 397 396 Buildings, right-of-use assets 1,199 1,198 Machinery and equipment 3,977 4,579 Machinery and equipment, right-of-use assets 63 58 Total 6,505 7,115 Impairment and write-down of assets 2023 2022 Tangible assets Land 0 6 Machinery and equipment 2,190 0 Total 2,190 6 NOTE 12 DIVIDENDS PER SHARE ACCOUNTING PRINCIPLE: Dividends Dividends paid by the Group are recognized for the financial year in which the shareholders have approved payment of the dividend. The Annual General Meeting held on 10 May 2023 approved the Board’s proposal to distribute a dividend of EUR 0.20 per share for the financial year 2022. The Annual General Meeting held on 25 March 2022 approved the Board’s proposal to distribute a dividend of EUR 0.20 per share for the financial year 2021. Following the balance sheet date, the Board of Directors has proposed to the Annual General Meeting that no dividend be paid for 2023 based on the adopted financial statements for the financial year ended 31 December 2023. NOTE 13 EARNINGS PER SHARE ACCOUNTING PRINCIPLE: Earnings per share The undiluted earnings per share is calculated by dividing the profit for the period belonging to the shareholders of the parent company by the weighted average of shares in issue, not including shares purchased by the Company itself and that are presented as own shares. The weighted average number of shares used to calculate the diluted earnings per share includes the diluting effect of outstanding stock options during the period. The result for the financial year is not adjusted since the subscription of dilutive shares does not involve any compensation to be recognized in the income statement. 2023 2022 Profit for the financial year attributable to ordinary equity holders of the parent company, EUR thousands -9,130 2,293 Weighted average number of outstanding shares during the financial year, 1,000 shares 11,854 11,850 Basic and diluted earnings per share, EUR/share -0.77 0.19 NOTE 14 DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES ACCOUNTING PRINCIPLE: Deferred taxes Deferred taxes are calculated for all temporary differences between accounting and taxation using the tax rates valid at the closing date. The largest temporary differences arise from the depreciation of tangible assets, valuations in the fair value in the balance sheets of acquired companies at the time of acquisition, revaluations of certain non- current reserves, reservations for pension schemes and post-retirement benefits, unused tax losses, and differences in net wealth between fair value and taxable value in connection with acquisitions. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 55 Deferred tax assets have been recorded to the extent that it is probable that taxable profit will be available against which the temporary difference can be utilized will materialize in the future. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets in 2023 1 January Recognized in income statement Recognized in shareholders’ equity Exchange rate differences 31 December Intercompany profit in inventory 33 69 0 102 Intercompany profit in fixed assets 83 -42 0 42 Losses 1,650 -1,137 -34 478 Other temporary differences 243 -169 10 3 87 Offset with deferred tax liabilities -240 151 -88 IFRS16 38 -14 -1 23 Net deferred tax assets 1,807 -1,141 10 -33 643 Deferred tax liabilities in 2023 1 January Recognized in income statement Exchange rate differences 31 December Accumulated depreciation 81 35 -6 110 Other temporary differences 742 -461 7 288 Offset with deferred tax assets -240 151 -88 IFRS16 1 0 0 Net deferred tax liabilities 584 -274 1 311 Deferred tax assets in 2022 1 January Recognized in income statement Recognized in shareholders’ equity Exchange rate differences 31 December Intercompany profit in inventory 30 4 0 33 Intercompany profit in fixed assets 112 -28 -1 83 Losses 1,624 -18 44 1,650 Other temporary differences 341 -35 -56 -7 243 Offset with deferred tax liabilities -262 22 -240 IFRS16 46 -9 1 38 Net deferred tax assets 1,891 -65 -56 37 1,807 Deferred tax liabilities in 2022 1 January Recognized in income statement Exchange rate differences 31 December Accumulated depreciation 143 -61 -1 81 Other temporary differences 662 101 -21 742 Offset with deferred tax assets -262 22 -240 IFRS16 1 0 1 Net deferred tax liabilities 545 62 -23 584 The Group had taxable net losses on 31 December 2023 of EUR 28,871 (22,201) thousand, of which the Company has recorded deferred tax assets of EUR 478 (1,650) thousand that are available for offset against future taxable profits of the companies in which the losses arose. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 56 IAS 12 Income Tax, cumulated tax losses Group’s subsidiary in USA has cumulated tax losses from 2018 to 2023. The Group has concluded that it will not be able to utilize all of the taxable losses against future profits in the near future. The Group has therefore decided to write-off the deferred tax assets it has recorded on taxable losses. The old China subsidiary cumulated tax losses from 2016 to 2021. The subsidiary finalized the sale of its factory property and was able to utilize the deferred tax assets against the profit arising from the sale. Group decided to liquidate the subsidiary. The balance sheet of the subsidiary was cleared and the cash transferred to the parent company as return of capital. Group’s subsidiary in Belgium has cumulated tax losses from 2020 to 2022. The Group has estimated that the accumulated tax losses can be utilized in the coming years. At the end of 2023 the Belgium unit had EUR 240 thousand of deferred tax receivables on the losses. Tax losses can be carried forward indefinitely. Group’s subsidiary in UK accumulated taxable losses in 2023 due to restructuring costs. A total of EUR 238 thousand of deferred tax assets were recorded. Tax losses can be carried forward indefinitely. The Group has significant tax losses also in its subsidiaries in Australia and Germany. Both subsidiaries are now profitable, but the profits are rather small. Group has reviewed the possibility to utilize the tax losses and decided that it will not book deferred tax assets on these tax losses at this point. In both countries tax losses can be carried forward indefinitely. NOTE 15 INCOME TAXES ACCOUNTING PRINCIPLE: Taxes Group taxes consist of taxes based on Group companies’ results for the financial year, adjustments to taxes related to previous years and the change in deferred income taxes. The tax expenses on the income statement are formed from the tax based on the taxable income for the financial year and deferred taxes. The tax expenses are recorded in the income statement except for the items recorded directly into shareholders’ equity, when the tax impact is recorded also as an equivalent part of shareholders’ equity. The taxes for the financial year are calculated from the taxable income according to the valid tax rate in each country. Taxes are adjusted by the possible taxes related to previous financial years. Revenues, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority. Receivables and payables are stated with the amount of sales tax included. 2023 2022 Income tax based on taxable income for the financial year 317 1,875 Income taxes from previous financial periods -130 -547 Deferred taxes 867 127 Total income taxes reported in the income statement 1,055 1,455 Income tax recognized in other comprehensive income 2023 Before tax Tax effect After tax Exchange differences on translating foreign operations -1,092 0 -1,092 Defined benefit plan actuarial gains (+) / losses (-) -40 10 -30 Total -1,133 10 -1,123 Income tax recognized in other comprehensive income 2022 Before tax Tax effect After tax Exchange differences on translating foreign operations -715 0 -715 Defined benefit plan actuarial gains (+) / losses (-) 195 -49 146 Total -520 -49 -568 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 57 Income tax reconciliation 2023 2022 Profit before taxes -8,254 3,600 Consolidated income taxes at Group's domestic tax rate (20%) -1,651 720 Impact of different tax rates of foreign subsidiaries -507 -76 Tax -exempt income and non-deductible expenses 9 115 Tax at source booked as cost 216 575 Income taxes for prior years -130 -547 Effect of deferred tax assets not recognized 2,059 356 Revaluation of deferred taxes 900 119 Other items 158 192 Income tax recognized in consolidated income statement 1,055 1,455 Effective tax rate -12.8 40.4 NOTE 16 FINANCIAL EXPENSES ACCOUNTING PRINCIPLE: Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity occurs in connection with the borrowing of funds. For the years ending 31 December 2023 and 2022, the Group had no assets where the borrowing costs would have been capitalized. 2023 2022 Interest expenses on debts and borrowings 1,732 555 Interest expenses on lease liabilities 38 52 Foreign exchange losses 1,687 845 Other finance expenses 531 498 Total finance expenses 3,988 1,951 Exchange differences for sales (exchange rate gain EUR -50 thousand) and purchases (exchange rate loss EUR 4 thousand) are entered in the income statement in the appropriate sales and purchase accounts. NOTE 17 FINANCIAL INCOME 2023 2022 Interest income on loans and receivables 120 43 Foreign exchange gains 476 2,496 Other finance income 1 10 Total finance income 597 2,549 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 58 NOTE 18 INTANGIBLE ASSETS ACCOUNTING PRINCIPLE: Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the income statement in the year in which the expenditure is incurred. The useful life of intangible assets is either finite or indefinite. Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is indication that the intangible asset may be impaired. Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows: ● Development costs 3-5 years ● Other long-term expenses 3-8 years ● Other intangible assets 3-8 years ● Customer relationships 10 years Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually, either individually or at the cash generating unit level. Computer software Costs associated with the development and maintenance of computer software are generally recorded as expenses. Costs that improve or expand the performance of computer software to the extent that the performance is higher than originally is considered as a property item improvement and is added to the original acquisition cost of the software. Capitalized computer software development costs are expensed and amortized on a straight-line basis during the period they are financially effective. Costs in SaaS arrangements IFRIC’s agenda decision on how to account for configuration and customization costs in SaaS arrangements has had no material effect on the consolidated financial statement. Other intangible assets The acquisition costs of patents, trademarks and licenses are capitalized in intangible assets and depreciated on a straight-line basis during their useful lives. The Group has no internally created intangible assets. Goodwill 2023 2022 Acquisition cost at 1 January 20,030 19,777 Exchange rate differences -490 253 Acquisition cost at 31 December 19,540 20,030 Accumulated amortization and impairment at 1 January -7,015 -6,968 Exchange rate differences 60 -47 Accumulated amortization and impairment at 31 December -6,955 -7,015 Book value at 1 January 13,015 12,809 Book value at 31 December 12,585 13,015 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 59 Other intangible assets 2023 2022 Acquisition cost at 1 January 6,053 6,064 Additions 4 48 Disposals 0 -40 Transfers between asset groups 0 18 Exchange rate differences -189 -37 Acquisition cost at 31 December 5,868 6,053 Accumulated amortization at 1 January -5,298 -5,150 Amortization for the period -212 -215 Disposals 0 40 Exchange rate differences 161 28 Accumulated amortization at 31 December -5,349 -5,298 Book value at 1 January 755 914 Book value at 31 December 519 755 Other long-term expenses 2023 2022 Acquisition cost at 1 January 8,459 8,175 Additions 32 13 Transfers between asset groups 384 176 Exchange rate differences -83 95 Acquisition cost at 31 December 8,792 8,459 Accumulated amortization at 1 January -7,053 -6,274 Amortization for the period -657 -669 Exchange rate differences 70 -110 Accumulated amortization at 31 December -7,639 -7,053 Book value at 1 January 1,405 1,899 Book value at 31 December 1,152 1,405 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 60 NOTE 19 PROPERTY, PLANT AND EQUIPMENT ACCOUNTING PRINCIPLE: Property, plant and equipment Property, plant and equipment is stated in the balance sheet at historical cost less accumulated straight-line depreciation according to the expected useful life, benefits received, and any impairment losses. Planned depreciation is calculated on a straight-line basis to write off the acquisition cost of each fixed asset up to its residual value over the asset’s expected useful life. Land areas are not depreciated. For other tangible fixed assets, depreciation is calculated according to the following expected useful lives: ● Buildings 5-20 years ● Machinery 5-15 years ● Equipment 3-5 years If the book value of an asset item exceeds the estimated amount recoverable in the future, its book value is adjusted immediately to correspond with the amount recoverable in the future. Routine maintenance and repair expenditure is recognized as an expense. Expenditure on significant modernization and improvement projects are recognized in the balance sheet if they are likely to increase the future economic benefits embodied in the specific asset to which they relate. Modernization and improvement projects are depreciated on a straight-line basis over their expected useful lives. Depreciation on tangible fixed assets is discontinued when a tangible fixed asset meets the criteria of “held-for-sale” according to IFRS 5 ”Non-current Assets Held for Sale and Discontinued Operations”. Such asset is transferred to Held for sale assets and is presented separately from other assets. Gains or losses on disposal or decommissioning of tangible fixed assets are calculated as the difference of the net proceeds obtained and the balance sheet value. Capital gains and losses are included in the income statement in the item operating profit. Land and water areas 2023 2022 Acquisition cost at 1 January 1,416 1,877 Transfer to Held-for-sale assets -374 -448 Exchange rate differences 7 -13 Acquisition cost at 31 December 1,049 1,416 Accumulated amortization at 1 January -148 -299 Impairment charge and write-downs 0 -6 Transfer to Held-for-sale assets 151 151 Exchange rate differences -3 6 Accumulated amortization at 31 December 0 -148 Book value at 1 January 1,267 1,578 Book value at 31 December 1,049 1,267 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 61 Buildings and structures 2023 2022 Acquisition cost at 1 January 14,361 15,548 Additions 346 124 Disposals 0 -18 Transfer between asset group 216 96 Transfer to Held-for-sale assets -1,028 -1,355 Exchange rate differences 8 -34 Acquisition cost at 31 December 13,902 14,361 Accumulated amortization at 1 January -5,796 -5,970 Amortization for the period -397 -396 Transfer to Held-for-sale assets 706 540 Exchange rate differences -1 30 Accumulated amortization at 31 December -5,488 -5,796 Book value at 1 January 8,565 9,578 Book value at 31 December 8,415 8,565 Buildings and structures, right-of-use assets 2023 2022 Acquisition cost at 1 January 6,555 6,217 Additions 368 236 Exchange rate differences -195 103 Acquisition cost at 31 December 6,729 6,555 Accumulated amortization at 1 January -4,382 -3,152 Amortization for the period -1,199 -1,198 Exchange rate differences 150 -31 Accumulated amortization at 31 December -5,431 -4,382 Book value at 1 January 2,174 3,065 Book value at 31 December 1,298 2,174 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 62 Machinery and equipment 2023 2022 Acquisition cost at 1 January 64,989 66,991 Additions 1,437 2,887 Disposals -5,767 -6,160 Transfers between asset groups 1,114 1,194 Exchange rate differences -494 76 Acquisition cost at 31 December 61,279 64,989 Accumulated amortization at 1 January -46,951 -47,670 Amortization for the period -3,977 -4,684 Impairment charge and write-downs 1) -2,190 0 Disposals 4,696 5,296 Exchange rate differences 255 106 Accumulated amortization at 31 December -48,167 -46,951 Book value at 1 January 18,037 19,321 Book value at 31 December 13,112 18,037 1) More details on write-downs in Note 27 Machinery and equipment, right-of-use assets 2023 2022 Acquisition cost at 1 January 380 380 Additions 96 0 Disposals -67 0 Exchange rate differences -2 0 Acquisition cost at 31 December 408 380 Accumulated amortization at 1 January -341 -284 Amortization for the period -63 -58 Disposals 65 0 Exchange rate differences 1 0 Accumulated amortization at 31 December -338 -341 Book value at 1 January 39 96 Book value at 31 December 69 39 Advance payments and construction in progress 2023 2022 Acquisition cost at 1 January 773 670 Additions 1,704 1,879 Transfers between asset groups -1,714 -1,484 Disposals 0 -298 Exchange rate differences -8 6 Acquisition cost at 31 December 756 773 Book value at 1 January 773 670 Book value at 31 December 756 773 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 63 NOTE 20 OTHER NON-CURRENT ASSETS The other non-current assets consist mainly of connection fees and telephone shares. 2023 2022 Book value at 1 January 48 48 Book value at 31 December 48 48 Held for sale assets, presented in current assets Exel Composites has sold the closed factory real estate in Nanjing, China and the ownership of the sold property has been transferred. Exel Composites has restructured its operations in the UK unit and decided to sell the factory real estate in Runcorn. The sale is estimated to take place during 2024. In the consolidated financial statements the property is presented as Held for sale assets with the book value on the closing date. Land and water areas, held for sale 2023 2022 Acquisition cost at 1 January 380 0 Disposals -414 0 Transfer between asset groups 374 448 Exchange rate differences 34 -68 Acquisition cost at 31 December 374 380 Accumulated amortization at 1 January -125 0 Disposals 140 0 Transfer between asset groups -151 -151 Exchange rate differences -15 26 Accumulated amortization at 31 December -151 -125 Book value at 1 January 255 0 Book value at 31 December 223 255 Buildings and structures, held for sale 2023 2022 Acquisition cost at 1 January 1,355 0 Disposals -1,252 0 Transfer between asset group 1,028 1,355 Exchange rate differences -101 0 Acquisition cost at 31 December 1,029 1,355 Accumulated amortization at 1 January -540 0 Disposals 499 0 Transfer between asset group -706 -540 Exchange rate differences 40 0 Accumulated amortization at 31 December -707 -540 Book value at 1 January 815 0 Book value at 31 December 322 815 NOTE 21 LEASES ACCOUNTING PRINCIPLE: Leases Exel Composites (Group) has applied the IFRS16 Leases –standard since 1 January 2019. Lease liabilities arising from lease and rental agreements along with corresponding right- of-use assets are stated in the balance sheet accordingly. Group has used the recognition exemption where lease contracts are not stated in the balance sheet, if the value of the underlying asset is less than approx. 5,000 euros and/or if the lease period is 12 months or less. For lease contracts with no set end date and with termination or extension options, the Group has determined the lease term by making an assessment using best available information. A significant part of the Group’s lease liability stated in the balance sheet according to IFRS16 comes from lease contracts on factory, warehouse and office buildings in Europe, China and USA. In addition to these, the Group’s balance sheet has lease contracts on small production and office equipment and vehicles. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 64 The discount rate used is the average rate on the Group’s external loans, which was 2.271% at the time of initial adoption and 2.365% from 1 January 2023, or if stated in the lease contract the internal rate of the contract. Income and expenses in the statement of profit or loss arising from leases 2023 2022 Depreciation expense of right-of-use assets (note 11) -1,262 -1,256 Rental expenses relating to short-term leases (note 8) -636 -640 Rental expenses relating to leases of low value assets (note 8) -55 -9 Rental income (note 7) 16 15 Interest expenses on lease liabilities (note 16) -38 -52 Deferred tax assets and liabilities relating to lease contracts (note 14) -14 -9 -1,989 -1,951 Cash outflow for leases 2023 2022 Paid interest expenses on lease liabilities (note 35) -38 -52 Repayment of lease liabilities -1,332 -1,264 Rental expenses -691 -649 -2,061 -1,965 Right of use assets are presented in note 19. Lease liabilities are presented in note 25. NOTE 22 INVENTORIES ACCOUNTING PRINCIPLE: Inventories Inventories are valued in the balance sheet either at the acquisition cost or at the net realizable value, whichever is lower. The acquisition cost is determined using the weighted average price method. The acquisition cost of finished and incomplete products comprises raw materials, direct costs of labor, other direct costs and the appropriate portion of the variable general costs of manufacture and fixed overhead at the ordinary rate of operations, but it does not include borrowing costs. The net realizable value is the estimated selling price in ordinary business operations less the estimated expenditure on product completion and sales. 2023 2022 Raw materials 7,297 11,147 Work in progress 2,725 3,737 Finished products and goods 6,846 8,543 Total inventories 16,867 23,426 During 2023 an expense of EUR 1,207 (1,570) thousand was recognized to reduce the book value of inventories to their net realizable value. NOTE 23 TRADE AND OTHER RECEIVABLES ACCOUNTING PRINCIPLE: Financial assets Financial assets are classified, at initial recognition, within the scope of IFRS 9 as subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss. The Group’s financial assets include cash and short-term deposits, trade receivables and other receivables. The objective is to hold these financial assets to collect contractual cash flows that are payments of principal and interest on the principal amount and therefore they are classified as subsequently measured at amortized cost. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 65 A financial asset is derecognized when: ● The rights to receive cash flows from the asset have expired. ● The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay received cash flows in full without material delay to another party. Trade receivables Trade receivables are recorded in the balance sheet at their original invoice amount. An impairment of trade receivables is recognized in accordance with IFRS 9. The Group applies the simplified approach allowed by IFRS 9 as the accounts receivable does not contain significant financing component. To measure the lifetime expected credit losses trade receivables have been grouped based on credit risk characteristics and aging category. Expected credit losses have been measured based on the payment delays adjusted by forward looking estimates and individual assessment. 2023 2022 Trade receivables 12,252 19,285 Deferred income 1,092 1,328 Other receivables 3,394 1,795 Tax receivables 281 870 Total receivables 17,019 23,279 During the 2023 financial year credit losses of EUR -2 (125) thousand were recorded, consisting of actual credit losses amounting to EUR 96 (177) thousand and change in the bad debt provision amounting to EUR -98 (-52) thousand covering all overdue trade receivables which are over 90 days overdue. Ageing analysis of trade receivables as at 31 December Past due but not impaired Total Neither past due nor impaired <30 days 30-60 days 61-90 days 2023 12,252 9,273 2,397 273 309 2022 19,285 13,059 4,351 1,099 776 All receivables past due over 90 days were impaired and provisions were made in the income statement. NOTE 24 CASH AND CASH EQUIVALENTS ACCOUNTING PRINCIPLE: Cash and short-term deposits Cash and short-term deposits in the statement of financial position comprise cash at banks and in hand and short-term deposits with an original maturity of three months and less. Credit accounts connected with Group accounts are included in current interest- bearing liabilities and are presented as net amounts, as the Group has a legal contractual right of set-off to make payment or otherwise eliminate the amount owed to creditors either in whole or in part. Cash and cash equivalents are recorded at amortized cost in the statement of financial position. Cash assets and short-term deposits consist of cash-in-hand and bank accounts, which amounted to EUR 10,952 (17,397) thousand. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 66 NOTE 25 INTEREST -BEARING LOANS AND BORROWINGS ACCOUNTING PRINCIPLE: Financial liabilities Financial liabilities within the scope of IFRS 9 are classified as subsequently measured at amortized cost or at fair value through profit or loss. The Group’s financial liabilities include trade and other interest-free payables, bank overdrafts and loans. These are classified as subsequently measured at amortized cost. The Group has no derivative liabilities. Non-current interest-bearing loans and borrowings 2023 2022 Loans from financial institutions 4,200 12,400 Lease liabilities 221 1,136 Total 4,421 13,536 Current interest-bearing loans and borrowings 2023 2022 Loans from financial institutions 37,200 33,200 Lease liabilities 1,264 1,271 Cheque account with overdraft facility 731 491 Loans from others 174 0 Total 39,369 34,962 EUR 25.0 million of current interest-bearing liabilities were commercial papers. To secure the payment of commercial papers, the company had at the end of the financial year unused, non-current (over 12 months) revolving credit facilities for EUR 36.0 million. Interest-bearing loans and credit limits include a financial covenant (net debt to EBITDA). In 2023, Exel Composites’ profitability weakened due to lower revenue impacted by general market demand causing indebtedness relative to adjusted EBITDA to rise. Subsequently, the Company has secured agreements with its lenders to adjust its covenants. Based on the assessed cash flow forecasts of the business and given the expected temporary nature of profitability decline, Exel expects to remain within its covenants. Exel Composites is currently engaged in negotiations with its lenders on extending loans that enable Exel to meet its current liabilities as they fall due for a period of several years from the date of approval of the financial statements for the financial year 2023. Maturity of non-current interest-bearing liabilities (other than lease liabilities) 2023 2022 2024 0 0 2025 4,200 8,200 2026 0 4,200 2027 0 0 2028 0 0 Total 4,200 12,400 Maturity of non-current lease liabilities 2023 2022 2024 0 0 2025 221 898 2026 0 159 2027 0 35 2028 0 35 Later 0 9 Total 221 1,136 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 67 NOTE 26 TRADE AND OTHER NON-INTEREST- BEARING LIABILITIES ACCOUNTING PRINCIPLE: Provisions A provision is recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Group recognizes a provision against onerous agreements if the benefits of an agreement are expected to be smaller than the unavoidable costs required to fulfill the obligations of the agreement. A provision for restructuring is recognized when the Group has prepared a detailed and formal restructuring plan and restructuring has either commenced or the plan has been announced publicly. The provisions are valued at their present value of costs required to cover the obligation. Provisions are included in Accrued expenses. The Group had no provisions in the reporting period. 2023 2022 Trade payables 9,827 13,691 Accrued expenses 6,620 12,571 Advance payments 578 182 Other current interest-free liabilities 4,753 5,575 Non-current interest-free liabilities 1,300 1,244 Total 23,077 33,263 NOTE 27 IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLES WITH INDEFINITE LIVES Goodwill acquired through business combinations has been arisen from the following cash generating units (CGU): Distribution of goodwill 2023 2022 Finland 135 135 Belgium 209 209 Austria 688 688 China 4,360 4,525 India 501 522 Exel Composites Group 6,692 6,935 Total 12,585 13,015 Impairment tests are made annually on goodwill and intangible assets with an indefinite economic life. On the closing date the Exel Composites Group had no intangible assets with an unlimited economic li fe. The calculation of value-in use is most sensitive to following assumptions: ● Sales margin -% ● Discount rates ● Growth rate used to extrapolate cash flows beyond the budget period. The Group makes a so-called two-step Goodwill impairment where CGU level goodwill is tested first and thereafter Group level goodwill. The Group has allocated goodwill to group and smaller cash-generating units. The impairment of cash-generating units is tested by comparing the recoverable amounts to the carrying amounts. The recoverable amount of cash-generating units is determined based on calculations of value in use, which are based on discounted future cash flows. Future cash flows are based on the continual use of the item and forecasts made by management for the coming years. Forecasts for periods further ahead in the future have been calculated on the assumption of annual growth of 2.0% on CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 68 the industry in the long term. Sales margin levels used in the forecasts are expected to remain on average at the current level. Discount rate is defined to reflect the effect of the different business risks on the expected return on equity. The cost of liabilities is defined according to the existing credit portfolio. The calculation of the average cost of capital takes into account the Group’s targeted capital structure, as well as the effect of debt on the cost of Group equity. The discount rate after taxes used in the calculations was on average 11.5% (9.4). As announced in October the Group completed the strategic review for the unit in United States. As a result of the review the Group decided to reorganize its operations in the United States and focus on manufacturing tailored pull-winding tubes and customized pultruded composite profiles. In connection to this decision the Group recorded a total of EUR 4.0 million asset write-down, consisting of inventory EUR 0.9 million, fixed assets EUR 2.2 million and deferred tax assets EUR 0.9 million. For all other units the impairment testing was performed according to our normal schedule during the last quarter of the year. On the basis of the impairment test, the recoverable amount of all cash-generating units exceeded the corresponding balance sheet values. In Austria, United Kingdom and Belgium business units the recoverable amounts are most sensitive to future growth rate, sales margin and discount rate assumptions. The sensitivity analysis of goodwill impairment tests indicates that if the group revenue declines more than 5.2% (2.9) there would be a situation where the recoverable value would not exceed the carrying amount. Alternatively, the revenue margin must decline over 1.6 percentage point (1) or average discount rate to increase to over 13.6% (10.9) Testing assumptions used for the Austria, United Kingdom and Belgium business units included 2.0% growth rate for the future years and discount rate varied depending on the business unit between 10.5% and 12.0%. Depending on the business unit a decrease by 0.7– 8.1 percentage points from the current level in annual growth rate or by 1.7–5.8 percentage points in sales margin or alternatively an increase by 1.1–250.0 percentage points in discount rate would result in goodwill or other asset write-down need. NOTE 28 FINANCIAL RISK MANAGEMENT ACCOUNTING PRINCIPLE: Derivative financial instruments and hedging Derivative contracts are recorded initially as an acquisition cost equal to their fair value. Following their acquisition derivative contracts are valued according to their fair value. Profits and losses that are generated from the valuation of fair value are recorded according to the intended use of the derivative contract. The Group does not apply hedge accounting as described by IFRS 9. As a result, all value changes are recognized in profit or loss. The Group has entered into interest rate swap agreements to convert non- current floating rate financial liabilities to fixed interest rates. Derivative financial instruments are presented in Note 30. Derivatives are recorded in the balance sheet as accrued expenses and deferred income. Hedges for net investments in foreign units are recorded in the same way as cash-flow hedges. A hedge on a foreign subsidiary’s equity is recorded in shareholders’ equity in the same way as the exchange rate difference in shareholders’ equity. In Finland the Group has a contract with the electricity supplier on fixed electricity prices (electricity derivative). This contract is intended to hedge about 70-90 % of the forecasted electricity consumption. The economic characteristics and risks of the derivative are closely related to the electricity supply contract (host) and is not treated as a separate derivative but as a part of the electricity procurement. The derivative can be measured at fair value which is presented in the note 30. The Group did not hedge its net foreign investments exposure during 2023 or 2022. The Group is exposed to a number of financial risks in its business operations. The objective of financial risk management is to protect against unfavorable changes in the financial markets and thus secure the Group’s planned profit development. The main financial risks include the foreign exchange risk, interest rate risk, liquidity and refinancing risk, and credit risk. The Group uses forward agreements and currency options, currency loans, interest rate options and interest rate swaps. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 69 Foreign currency risk The Group operates internationally and is thus exposed to various transactions risks caused by currency positions and risks that are generated when investments made in different currencies are converted into the parent company’s operating currency. In addition to the euro (EUR), the main currencies are the Australian dollar (AUD), the British pound (GBP), the US dollar (USD), the Chinese renminbi (RMB), the Hong Kong dollar (HKD) and the Indian rupee (INR). Foreign exchange risks are generated by commercial transactions, from monetary items in the assets and liabilities and from net investments in foreign subsidiaries. The objective of foreign exchange risk management is to protect the operating result and shareholders’ equity against foreign exchange rate fluctuations. The only invoicing currencies used are either the unit’s functional currency or currencies generally used in export sales. The currency flows of subsidiaries are protected on a per company basis against the functional currency of each company. The operating units are responsible for hedging against their own foreign exchange risks. Currency positions are assessed at their net amount in each currency generally for the following 12-month period. Currency flows are protected as needed by forward agreements and currency options. The Group’s translation exposure in main currencies at the end of the financial year was as follows: Net investment 2023 2022 AUD 4,269 4,060 GBP 5,845 7,504 RMB 5,058 8,476 INR 553 980 HKD 2,426 1,779 USD -24,203 -14,464 The Group’s sensitivity to main currencies when all other variables are constant is the following (as at the end of the financial year): 2023 AUD GBP RMB INR HKD USD Increase in currency rate vs. EUR, % 5% 5% 5% 5% 5% 5% Effect on equity, EUR 213 292 253 28 121 -1,210 2022 AUD GBP RMB INR HKD USD Increase in currency rate vs. EUR, % 5% 5% 5% 5% 5% 5% Effect on equity, EUR 203 375 424 49 89 -723 Interest rate risk The Group’s currency-denominated borrowings are in the functional currencies of Group companies. The nominal values of interest-bearing liabilities (lease liabilities excluded) on 31 December were divided to the currencies as follows: Currency Amount, EUR thousands % EUR 41,400 98% INR 905 2% Non-current loans have adjustable rates of interest, but they are partially protected against interest rate risks by converting them to fixed interest rates through interest rate swaps or by agreements on maximum interest rate. At the balance sheet date, the Group had no interest swap contracts. The Group does not use the hedge accounting to the interest swap or option contracts. The Group’s exposure to the risk of changes in the market interest rates relates primarily to the Group’s loans. The effect of one percentage point in the interest rates on 31 December was EUR 423 (461) thousand. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 70 Liquidity and funding risk The Group aims to ensure adequate liquidity under all circumstances and to optimize the use of liquid assets in financing business operations. In addition, the objective is to minimize net interest costs and bank charges. The excess cash is held in liquid instruments. In addition to cash reserves and interest rate investments, the Group had unused, committed credit limits on 31 December 2023 amounting to EUR 36.0 million. Committed credit limits secure the repayment of short-term liabilities, such as commercial papers. The Finance Department sees to it that a sufficient number of different financing sources are available, and that the maturity schedule of foreign loans is managed. The parent company’s Finance Department centrally manages the Group’s refinancing and its management. The Group’s internal debt ratios exist primarily directly between the parent company and its subsidiaries. The tools employed for managing liquidity are credit-bearing Group accounts, credit limits and commercial papers. In 2023, Exel Composites’ profitability weakened due to lower revenue impacted by general market demand causing indebtedness relative to adjusted EBITDA to rise. Subsequently, the Company has secured agreements with its lenders to adjust its covenants. Based on the assessed cash flow forecasts of the business and given the expected temporary nature of profitability decline, Exel expects to remain within its covenants. Exel Composites is currently engaged in negotiations with its lenders on extending loans that enable Exel to meet its current liabilities as they fall due for a period of several years from the date of approval of the financial statements for the financial year 2023. The table below summarizes the maturity profile of the Group’s financial liabilities at the end of the financial year based on contractual undiscounted payments. The content of the table has been changed compared to previous annual reports. Accrued liabilities are no longer included in the Trade and other current payables. This change has also been reflected to the comparison information. 2023 On demand Less than 3 months 3-12 months 1-5 years > 5 years Total Interest-bearing liabilities 26,000 13,369 4,421 0 43,790 Trade and other current payables (excl. accrued liabilities) 15,157 15,157 2022 On demand Less than 3 months 3-12 months 1-5 years > 5 years Total Interest-bearing liabilities 29,500 5,462 13,527 9 48,498 Trade and other current payables (excl. accrued liabilities) 19,448 19,448 Credit and counterparty risk The Group’s business operations are based for the most part on established and reliable customer relationships and the industry’s generally accepted terms of agreement. The payment period for invoices is generally 14 – 60 days. The background of new customers is assessed, for example by obtaining credit information. The Group has no significant credit risk concentrations, as the customer base is broad and distributed geographically between the Group’s operating countries. Credit risks related to trade receivables are monitored by the business units. Approximately half of the Group’s trade receivables are secured with credit insurance. Counterparty risk refers to a situation in which a contracting party is unable to fulfill its contractual obligations. Derivative instruments and cash reserve investments are only employed with counterparties that have a good credit rating. At the end of 2023, the Group’s only counterparties were financial institutions. The Group’s maximum credit risk is the amount of the financial assets in the end of the financial year. The aging of the trade receivables is presented in Note 23. Capital management The objective of the Group’s capital management is to ensure that it maintains strong credit worthiness and healthy capital ratios in order to support its business and maximize shareholder value. The Group monitors capital using a net gearing ratio, which is net interest-bearing debt divided by shareholders’ equity. The Group includes in net interest-bearing debt the loans and borrowings less cash and cash equivalents. The Company pursues a strategy to improve capital employment turnover rates in order to improve profitability and cash flow. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 71 2023 2022 Interest-bearing liabilities 43,790 48,498 Cash and cash equivalents 10,952 17,397 Net interest-bearing liabilities 32,838 31,101 Shareholders’ equity 17,687 30,385 Net gearing, % 185.7 102.4 NOTE 29 CONTINGENT LIABILITIES 2023 2022 Operating leases Not later than one year 81 34 1-5 years 107 14 Other liabilities 3 3 Legal proceedings Exel Composites' Belgian subsidiary was the defendant in a dispute, whose legal proceedings in the Dutch court took place during the autumn of 2023. The main point of the dispute was the disagreement between Exel Composites and the customer as to whether the products delivered to the customer have met the agreed criteria. The court dismissed the customer’s claims in full. The decision is not yet legally binding. NOTE 30 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES ACCOUNTING PRINCIPLE: Valuation of financial assets and liabilities At initial recognition the Group measures a financial asset or liability at its fair value, which basically is the transaction price, and subsequently at amortized cost. A fair value can be measured to some financial liabilities which have been measured at amortized cost. Their fair values are based on the future cash flows that are discounted with market interest rates on the reporting date. Note 23 presents the impairments in respect of trade receivables. Other financial assets are not subject to material impairment. Net fair values and nominal values of financial assets and liabilities 2023 2023 2022 2022 Net fair value Nominal value Net fair value Nominal value Trade and other receivables 17,019 17,019 23,279 23,279 Cash and cash equivalents 10,952 10,952 17,397 17,397 Bank loans 41,412 41,400 45,608 45,600 Current credit facilities 731 731 491 491 Trade and other payables (excl. accrued liabilities) 16,631 16,631 20,692 20,692 Electricity derivatives (note 28) 189 0 843 0 Changes in the fair value of derivative financial instruments are recognized in the income statement in financial gains and losses. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 72 NOTE 31 PENSION AND OTHER POST -EMPLOYMENT OBLIGATIONS ACCOUNTING PRINCIPLE: Pensions and other post-employment benefits The Group’s pension schemes comply with each country’s local regulations and practices. Some of the pension schemes in the Group apply defined benefit pension schemes where the pension benefits, disability benefits and employment termination benefits are defined. Pension benefits are based generally on the period of employment and salary over a fixed period for each employee. Pension contributions are funded through payments to insurance companies. In addition, the Group has defined-contribution plans. In defined benefit pension plans, the present value of future pension payments on the closing date is presented less the fair value of the plan-related assets on the closing date. Pension liabilities are calculated by independent actuaries. The pension liability is determined according to the projected unit credit method: the pension liability is discounted to the present value of estimated future cash flows using the interest rate which is equal to the interest rate of government or corporate bonds with maturities corresponding to the maturity of the pension liability. Pension costs are recorded in the income statement as an expense with costs periodized over the employees’ time of service based on actuarial calculations carried out annually. Actuarial gains and losses are recognized in full as a component of other comprehensive income. In defined-contribution schemes, pension contributions are paid to insurance companies, after which the Group no longer has other payment obligations. The Group’s contributions to defined-contribution schemes are entered in the financial period to which the payments relate. The Group operates a number of defined benefit and contribution pension schemes throughout the world. The most significant pension scheme in Finland is the statutory Finnish employee pension scheme (TyEL) according to which benefits are directly linked to the employee’s earnings. The TyEL pension scheme is arranged with insurance companies. Pension schemes elsewhere than in Finland include both defined benefit and defined contribution pension schemes. Amounts recognized in the income statement 2023 2022 Pension cost for the financial year 3,056 3,329 Differences in benefit schemes -222 4 Total included in personnel expenses 2,834 3,333 Amounts recognized in the balance sheet 2023 2022 At the beginning of financial period 529 720 Pension expenses in the income statement -222 4 Defined benefit plan actuarial gains (+) / losses (-) 40 -195 At the end of financial period 347 529 NOTE 32 SHARE CAPITAL ACCOUNTING PRINCIPLE: Share capital Ordinary shares are included in shareholders’ equity. Expenses incurred directly from new share issues are recorded in shareholders’ equity as a reduction of received payments. Number of shares (1,000) Share capital Invested unrestricted equity fund Total 1.1. 2022 11,897 2,141 2,539 4,681 31.12. 2022 11,897 2,141 2,539 4,681 31.12. 2023 11,897 2,141 2,539 4,681 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 73 Authorizations by the AGM Repurchase and/or the acceptance as pledge of the company’s own shares On 10 May 2023 the Annual General Meeting authorized the Board of Directors to repurchase and/or accept as pledge of the company’s own shares as follows: The amount of own shares to be repurchased and/or accepted as pledge on the basis of the authorization shall not exceed 600,000 shares in total, which corresponds to approximately 5.0 per cent of all the shares in the company. Only the unrestricted equity of the company can be used to repurchase own shares based on the authorization. Own shares can be repurchased at a price formed in public trading on the date of the repurchase or otherwise at a price formed on the market. The Board of Directors decides on how own shares will be repurchased and/or accepted as pledge. Shares can be repurchased using, inter alia, derivatives. Own shares can be repurchased otherwise than in proportion to the shareholdings of the existing shareholders (directed repurchase). The Board of Directors shall decide on other terms of the share repurchase and/or acceptance as pledge. Shares may be repurchased to be used as consideration in possible acquisitions or in other arrangements that are part of the company’s business, to finance investments, as part of the company’s incentive program or to be retained, otherwise conveyed, or cancelled by the company. The authorization cancels the authorization given to the Board of Directors by the General Meeting 2022 to decide on the repurchase and/or acceptance as pledge of the company’s own shares. The authorization is effective until the end of the next Annual General Meeting, however no longer than until 30 June 2024. Exel Composites held 42,899 own shares at the end of 2023, which have been repurchased to be used as part of the company’s incentive program. Issuance of shares and special rights entitling to shares On 10 May 2023 the Annual General Meeting authorized the Board of Directors to decide on the issuance of shares and special rights entitling to shares referred to in Chapter 10, Section 1 of the Companies Act as follows: The amount of shares to be issued on the basis of the authorization may be a maximum of 2,379,000 new shares, which corresponds to approximately 20.0 per cent of all shares in the company, and/or a maximum of 600,000 Company’s own shares. The Board of Directors decides on all the conditions of the issuance of shares and of special rights entitling to shares. The issuance of shares and of special rights entitling to shares may be carried out in deviation from the shareholders’ pre-emptive rights. The shares to be issued based on the authorization can be used as consideration in possible mergers and acquisitions and other business arrangements, to finance investments or as a part of the Company’s incentive program for personnel. The authorization cancels the authorization given to the Board of Directors by the General Meeting on 2022 to decide on the issuance of shares as well as special rights entitling to shares. The authorization is effective until the end of the next Annual General Meeting, however no longer than until 30 June 2024. These authorizations were not exercised in 2023. NOTE 33 LONG-TERM COMPENSATION ACCOUNTING PRINCIPLE: Long-term compensation The Group has long-term incentive programs for the President and CEO, the Group Management Team and selected key employees of the company. The programs aim to combine the objectives of the shareholders and the executives to increase the value of the company, to commit the executives to the company and to offer the executives a competitive reward program based on holding the company’s shares. The Board makes the decision on the program annually. The cost of the programs will be accounted for as operating expenses during the duration of the programs. On 31 December 2023 the Group had three share-based long-term incentive programs and one program had the planned pay out date during 2023: CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 74 The 2020 plan, the earning period of which ended in 2022, was based on a share-based long-term incentive program and was targeted at approximately 20 executives. The President and CEO and the Group Management Team were included in the target group of the 2020 incentive program. 75% of the potential share-based performance reward was based on cumulative adjusted operating profit (EBIT) and 25% on total shareholder return of the company’s share (TSR). The maximum number of shares that could have been paid under this individual plan was 125,000 shares, of which President and CEO’s share is 32,000 shares. The plan resulted in no payable reward. The 2021 plan is part of a share-based long-term incentive program for the earning period 2021-2023 and is targeted at approximately 20 executives. The President and CEO and the Group Management Team are included in the target group of the 2021 incentive program. 75% of the potential share-based performance reward is based on cumulative adjusted operating profit (EBIT) and 25% on total shareholder return of the company’s share (TSR). The potential share reward is payable in 2024. The maximum number of shares to be paid under this individual plan is 100,000 shares, of which President and CEO’s share is 25,600 shares. It is estimated (to be confirmed in March 2024) that there is no payout. The fair value at measurement date is EUR 7.78 / share. The 2022 plan is part of a share-based long-term incentive program for the earning period 2022-2024 and is targeted at approximately 20 executives. The President and CEO and the Group Management Team are included in the target group of the 2022 incentive program. 75% of the potential share-based performance reward is based on cumulative adjusted operating profit (EBIT) and 25% on total shareholder return of the company’s share (TSR). The potential share reward is payable in 2025. The maximum number of shares to be paid under this individual plan is 100,000 shares, of which President and CEO’s share is 25,600 shares. The fair value at measurement date is EUR 6.68 / share. The 2023 plan is part of a share-based long-term incentive program for the earning period 2023-2025 and is targeted at approximately 20 executives. The President and CEO and the Group Management Team are included in the target group of the 2023 incentive program. The performance target to the plan is the relative total shareholder return (TSR) of the Exel Composites’ share where the TSR of Exel’s share will be compared to the TSR of all shares listed on Nasdaq Helsinki. The potential share reward is payable in the spring 2026. The maximum number of shares to be paid under this individual plan is 140,000 shares. The fair value at measurement date is EUR 3.95 / share. The profit and loss of 2023 includes EUR 6 thousand of costs related to these incentive programs. In each program the fair value of a share at the measurement date is the closing price of the share on the date the Board decided on the program, adjusted with the estimated dividends to be paid during the program. The administration of the share-based incentive plan and the acquisition of shares are conducted through an arrangement made with Evli Awards Management Oy (EAM) as per the decision of the Board of Directors on 12 June 2017 and according to the stipulations of the Companies Act for financing the purchase of own shares (the Finnish Companies Act, Chapter 13, Section 10, Subsection 2) relating to incentive plans. As a part of this arrangement EAM founded EAM EXL1V Holding Oy (Holding company) which acquires the shares with Exel’s funding and according to the agreement. These shares will be delivered to the employees according to Exel’s share plan terms and conditions. The Holding company is owned by the EAM in legal terms, but according to the agreement Exel has control over the company and acts as the principal, whereas EAM is an agent through the Holding company. This control arising from contractual terms means, that the Holding company is consolidated into the Group’s IFRS financial statements as a structured entity. No reward will be paid to an executive based on the 2020, 2021 and 2022 programs, if his or her employment or service with the company ends before the reward payment unless the executive is leaving the company due to retirement or unless the Board decides otherwise. The programs also include a one-year lock-up period, and the restriction on leaving the Company is extended to the end of the lock-up. NOTE 34 DISTRIBUTABLE FUNDS The parent company’s distributable funds on 31 December 2023 were EUR 19,362 thousand. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 75 NOTE 35 CASH FLOW FROM BUSINESS OPERATIONS Non-cash adjustments to the result for the financial year 2023 2022 Depreciation, impairment charges and write-offs 8,695 7,121 Profit/loss on sales of tangible and intangible assets -3,929 425 Taxes 1,055 1,455 Financial expenses 3,950 1,899 Interest expenses on lease liabilities 38 52 Financial income -597 -2,549 Other adjustments 328 329 Total 9,539 8,732 NOTE 36 RELATED-PARTY TRANSACTIONS Exel Composites’ related parties include the controlling parent company, all companies belonging to Exel Composites Group as well as Exel Composites’ Board of Directors, President and CEO, Exel Leadership Team and executives of the parent company and subsidiaries. The company evaluates and monitors transactions concluded between the company and its related parties to ensure that any conflicts of interest are appropriately taken into account in the decision-making process. The Group follows the same commercial terms in its transactions with related parties as in transactions with third parties. In 2023, no significant related-party transactions were conducted between the Group and its related parties. Receivables and liabilities from Group companies are presented in notes 52 and 55 of the Parent company’s Financial Statements. The Group’s parent company and subsidiary relationships Name of subsidiary Domicile Group share of holding Group control EAM EXL1V Holding Finland 0 100 Exel GmbH Germany 100 100 Exel Composites N.V. Belgium 100 100 Exel Composites GmbH Austria 100 100 Exel Composites (Nanjing) Co. Ltd. / Liquidated in 2023 China 100 100 Exel Composites (Australia) Pty. Ltd. Australia 100 100 Pacific Composites Ltd. Australia 100 100 Pacific Composites (Europe) Ltd. UK 100 100 Fibreforce Composites Ltd. UK 100 100 Pacific Composites Ltd. New Zealand 100 100 Exel Composites Store Ltd. Finland 100 100 Exel Composites (HK) Holding Limited Hong Kong 100 100 Nanjing Jingheng Composite Material Co. Ltd. China 100 100 Jianhui FRP Trading Co. Limited Hong Kong 100 100 Exel Composites USA Holdings Inc. USA 100 100 Diversified Structural Composites Inc. USA 100 100 Kineco Exel Composites India India 55 55 The ultimate parent company is Exel Composites Plc. Management remuneration Senior management accrued salaries, fees and bonuses 2023 2022 President and CEO 263 328 Members of the Board of Directors 238 247 Total 501 575 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 76 Salaries and fees per person President and CEO and Board of Directors 2023 2022 Paul Sohlberg President and CEO (since 20 March 2023) 226 - Jouni Heinonen Interim President and CEO (1 October 2022-19 March 2023) 38 36 Riku Kytömäki President and CEO (until 30 September 2022) - 292 Jouni Heinonen Chairman (since 10 May 2023, member since 25 March 2022) 69 33 Petri Helsky Member (since 17 March 2016) 47 40 Helena Nordman-Knutson Member (since 4 April 2017) 38 34 Jouko Peussa Member (since 17 March 2016) 37 33 Kirsi Sormunen Member (since 20 March 2020) 38 33 Reima Kerttula Chairman (until 10 May 2023) 9 74 Total 501 575 The accrued pension costs of President and CEO amounted to EUR 38 (61) thousand. The President and CEO's pension plan is pursuant to the employment pension legislation. The holdings of the senior management on 31 December 2023 Number of shares and votes 2023 2022 Paul Sohlberg President and CEO (since 20 March 2023) 0 - Jouni Heinonen Chairman (since 10 May 2023, member since 25 March 2022 and Interim President and CEO 1.10.2022-19.3.2023) 8,804 1,316 Petri Helsky Member (since 17 March 2016) 12,278 10,184 Helena Nordman-Knutson Member (since 4 April 2017) 11,136 9,042 Jouko Peussa Member (since 17 March 2016) 12,278 10,184 Kirsi Sormunen Member (since 20 March 2020) 6,535 4,441 Reima Kerttula Chairman (until 10 May 2023) 26,439 Total 51,031 61,606 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 77 NOTE 37 EVENTS AFTER THE REPORTING PERIOD On 15 January 2024, Exel Composites announced changes to Exel’s leadership team. As of 23 January 2023, members of the Exel leadership team are: Paul Sohlberg, President and CEO Mikko Rummukainen, CFO Juha Honkanen, Executive Vice President, Engineered Solutions Business Unit Kathy Wang, Executive Vice President, Industrial Solutions Business Unit Kim Sjödahl, Senior Vice President, Technology and Sustainability Johanna Tuomisto, Senior Vice President, People and Culture On 15 January 2024, Exel Composites announced it has decided to start a strategic review of its operations in Belgium. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 78 PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY INCOME STATEMENT For the financial year starting on 1 January and ending on 31 December EUR Notes 2023 2022 Revenue 38 43,304,498.50 56,449,983.99 Variation in inventories of finished goods and work in progress -1,255,832.81 -7,524.80 Other operating income 39 3,084,083.37 2,208,771.04 Materials and services 40 -19,535,203.68 -28,289,305.14 Personnel expenses 41 -14,236,350.51 -16,308,455.44 Depreciation, amortization and reduction in value 42 -2,452,518.00 -2,635,366.11 Other operating expenses 43 -8,144,455.96 -8,965,621.63 Operating profit / loss 764,220.91 2,452,481.91 Financial income 45 4,950,909.48 14,630,769.38 Financial expenses 45 -9,954,967.22 -1,331,818.14 Profit/ loss before appropriations and taxes -4,239,836.83 15,751,433.15 Income taxes 46 -1,125.11 -630,724.89 Other direct taxes 0.00 -326.88 Profit/ loss for the period -4,240,961.94 15,120,381.38 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 79 PARENT COMPANY BALANCE SHEET As at the end of the financial year EUR Notes 2023 2022 ASSETS Non-current assets Intangible assets 47 1,080,153.79 1,400,295.82 Tangible assets 48 5,647,297.50 6,320,922.91 Investments 49 17,398,866.91 23,657,278.93 Total non-current assets 24,126,318.20 31,378,497.66 Current assets Inventories 51 6,981,019.65 9,654,407.55 Current receivables 52 42,228,686.10 46,413,985.76 Cash at bank and in hand 3,410,382.61 3,199,274.37 Total current assets 52,620,088.36 59,267,667.68 TOTAL ASSETS 76,746,406.56 90,646,165.34 EUR Notes 2023 2022 EQUITY AND LIABILITIES Capital and reserves Share capital 53 2,141,431.74 2,141,431.74 Other reserves 53 2,539,278.34 2,539,278.34 Retained earnings/loss 53 21,063,836.44 8,286,273.03 Profit/loss for the period 53 -4,240,961.94 15,120,381.38 Total equity 21,503,584.58 28,087,364.49 Liabilities Non-current liabilities 54 4,200,000.00 12,400,000.00 Current liabilities 55 51,042,821.98 50,158,800.85 Total liabilities 55,242,821.98 62,558,800.85 TOTAL EQUITY AND LIABILITIES 76,746,406.56 90,646,165.34 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 80 PARENT COMPANY CASH FLOW STATEMENT For the financial year starting on 1 January and ending on 31 December EUR thousands 2023 2022 Cash flows from operating activities Profit/loss for the period -4,241 15,120 Adjustments to profit/loss for the period 7,184 -9,958 Cash flow before working capital changes 2,943 5,162 Working capital changes -2,182 669 Operating cash flow before financial items and taxes 761 5,831 Interest and other financial expenses paid relating to operating activities -2,296 -1,127 Dividends received 2,351 11,961 Interests received 1,345 703 Income taxes paid 540 -1,829 Net cash flow from operating activities (A) 2,701 15,539 EUR thousands 2023 2022 Cash flows from investing activities Purchase of tangible and intangible assets -1,459 -1,426 Proceeds from sale of tangible and intangible assets 55 0 Subsidiary shares sold 3,665 Net cash flow from investing activities (B) 2,261 -1,426 Cash flow from financing activities Proceeds from short-term borrowings 1,820 0 Repayment of short-term borrowings -4,200 -12,483 Dividends and other distribution of profit paid -2,371 -2,371 Net cash flow from financing activities (C) -4,751 -14,854 Net increase (+) / decrease (-) in cash and cash equivalents (A + B + C) 211 -741 Cash and cash equivalents at beginning of period 3,199 3,940 Cash and cash equivalents at end of period 3,410 3,199 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 81 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS All figures are in EUR thousands unless otherwise stated. NOTE 38 REVENUE BY MARKET AREA 2023 2022 Europe 32,999 40,313 North America 9,622 12,484 Asia-Pacific 605 3,500 Rest of world 79 153 Total 43,304 56,450 NOTE 39 OTHER OPERATING INCOME 2023 2022 Service invoicing from Group companies 2,865 2,164 Other operating income 219 45 Total 3,084 2,209 NOTE 40 MATERIALS AND SERVICES 2023 2022 Purchases during financial period -17,730 -26,979 Change in inventories -1,388 -76 External services -417 -1,235 Total -19,535 -28,289 NOTE 41 PERSONNEL Average number of personnel during the financial year 2023 2022 Office employees 92 94 Production employees 170 180 Total 262 274 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 82 Personnel expenses 2023 2022 Wages and salaries -11,791 -13,544 Pension expenses -1,979 -2,250 Other social security expenses -466 -515 Total -14,236 -16,308 Paid wages, salaries and other remuneration of directors and management 2023 2022 President and CEO -246 -413 Members of the Board of Directors -238 -247 Total -484 -660 The accrued pension costs of President and CEO amounted to EUR 38 (61) thousand. The President and CEO's pension plan is pursuant to the employment pension legislation. NOTE 42 DEPRECIATION, AMORTIZATION AND REDUCTION IN VALUE Tangible and intangible assets are recognized in the balance sheet at cost less depreciation according to plan. Cost includes variable expenditure relating to the acquisition and production of the assets. Grants received are deducted from the cost. Depreciation according to plan is calculated using the straight-line method based on the useful life of the assets. Depreciation is charged from the month when the asset was placed into service, latest from the following month. Planned depreciation periods ● Buildings and structures 5-20 years ● Machinery and equipment 5-15 years ● Other capitalized expenditure 5-8 years ● Goodwill 10 years ● Other intangible assets 5 years Planned depreciation, amortization and reduction in value 2023 2022 Depreciation according to plan -2,453 -2,635 Total -2,453 -2,635 NOTE 43 OTHER OPERATING EXPENSES 2023 2022 Real estate, machinery and equipment expenses -1,551 -1,570 External services, insurances and IT expenses -4,711 -5,462 Other operating expenses -1,882 -1,933 Total -8,144 -8,966 NOTE 44 AUDITOR’S FEES Authorized Public Accountants, Ernst & Young 2023 2022 Audit of financial statements -137 -91 Other fees -16 -16 Total -153 -106 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 83 NOTE 45 FINANCIAL INCOME AND EXPENSES 2023 2022 Income from Group companies 2,757 12,834 Other interest income and other financial income From Group companies 2,148 1,158 From others 46 638 2,194 1,796 Total financial income 4,951 14,631 Interest and other financial expenses To Group companies -6,770 -147 To others -3,185 -1,185 -9,955 -1,332 Total financial expenses -9,955 -1,332 Total financial income and expenses -5,004 13,299 In 2023, income from Group companies include EUR 407 thousand as dissolution profit related to closing of subsidiary. NOTE 46 INCOME TAXES 2023 2022 Income taxes from ordinary activities -22 -623 Income tax relating to previous financial years 20 -8 Total -1 -631 NOTE 47 INTANGIBLE ASSETS Intangible assets Other long- term expenses Advance payments Total Acquisition cost at 1 January 1,065 5,087 132 6,284 Additions 4 0 356 360 Disposals 0 0 0 0 Transfer between items 0 384 -384 0 Acquisition cost at 31 December 1,069 5,471 104 6,643 Accumulated amortization and impairment at 1 January -853 -4,030 0 -4,883 Amortization for the period -71 -609 0 -680 Accumulated amortization and impairment at 31 December -924 -4,639 0 -5,563 Book value at 1 January 212 1,057 132 1,400 Book value at 31 December 145 831 104 1,080 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 84 NOTE 48 TANGIBLE ASSETS Land and waters Buildings Machinery and equipment Advance payments and construction in progress Total Acquisition cost at 1 January 90 4,083 21,075 579 25,827 Additions 0 0 22 1,077 1,099 Disposals 0 0 0 0 0 Transfer between items 0 216 1,072 -1,287 0 Acquisition cost at 31 December 90 4,299 22,168 368 26,925 Accumulated depreciation and impairment at 1 January 0 -2,787 -16,719 0 -19,506 Depreciation for the period 0 -156 -1,617 0 -1,772 Accumulated depreciation and impairment at 31 December 0 -2,943 -18,335 0 -21,278 Book value at 1 January 90 1,296 4,356 579 6,321 Book value at 31 December 90 1,356 3,833 368 5,647 NOTE 49 INVESTMENTS Group companies Other shares and holdings Total Acquisition cost at 1 January 23,609 48 23,657 Additions 0 0 0 Disposals -6,258 0 -6,258 Transfer between items 0 0 0 Acquisition cost at 31 December 17,351 48 17,399 Book value at 1 January 23,609 48 23,657 Book value at 31 December 17,351 48 17,399 NOTE 50 COMPANIES OWNED BY PARENT COMPANY Shares in subsidiaries Name of company Registration country Owned by the parent company Parent company control EAM EXL1V Holding Finland 0 100 Exel GmbH Germany 100 100 Exel Composites N.V. Belgium 100 100 Exel Composites GmbH Austria 100 100 Exel Composites (Nanjing) Co. Ltd. Liquidated during 2023 China 0 0 Exel Composites (Australia) Pty. Ltd. Australia 100 100 Pacific Composites (Europe) Ltd. UK 100 100 Exel Composites Store Oy Finland 100 100 Exel Composites (HK) Holding Limited Hong Kong 100 100 Jianhui FRP Trading Co. Limited Hong Kong 100 100 Exel Composites USA Holdings Inc. USA 100 100 Kineco Exel Composites India Private Limited India 55 55 All Group companies are consolidated in the parent company's consolidated financial statements. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 85 NOTE 51 INVENTORIES 2023 2022 Raw materials and consumables 3,109 4,496 Work in progress 1,631 2,530 Finished products/ goods 1,646 1,935 Other inventories 595 693 Total 6,981 9,654 NOTE 52 CURRENT RECEIVABLES Receivables from Group companies 2023 2022 Trade receivables 10,746 7,136 Loan receivables 25,051 31,241 Other receivables 873 873 Total 36,670 39,250 Receivables from others 2023 2022 Trade receivables 4,020 5,657 Other receivables 1,096 610 Prepayments and accrued income 443 897 Total 5,559 7,164 Total current receivables 42,229 46,414 Deferred tax assets amounting to EUR 24 (22) thousand have not been booked from cumulative depreciation exceeding the maximum tax depreciations by EUR 121 (112) thousand. Material items included in prepayments and accrued income 2023 2022 Tax receivables 227 800 Other receivables 216 97 Total 443 897 NOTE 53 EQUITY 2023 2022 Restricted equity Share capital 1 January 2,141 2,141 Share capital 31 December 2,141 2,141 Total restricted equity 2,141 2,141 Unrestricted equity Reserve for invested unrestricted equity fund 1 January 2,539 2,539 Reserve for invested unrestricted equity fund 31 December 2,539 2,539 Retained earnings 1 January 23,407 10,716 Distribution of dividends -2,371 -2,371 Purchase/redemption of treasure shares 0 139 Correction of a previous financial year error 28 -198 Retained earnings 31 December 21,064 8,286 Profit/loss for the financial year -4,241 15,120 Total unrestricted equity 19,362 25,946 Total equity 21,504 28,087 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 86 Calculation of distributable unrestricted equity 31 December 2023 2022 Profit from previous financial years 21,064 8,286 Profit /loss for the financial year -4,241 15,120 Reserve for invested unrestricted equity fund 2,539 2,539 Total 19,362 25,946 NOTE 54 NON-CURRENT LIABILITIES Liabilities to others 2023 2022 Loans from financial institutions 4,200 12,400 Total 4,200 12,400 Total non-current liabilities 4,200 12,400 NOTE 55 CURRENT LIABILITIES Liabilities to Group companies 2023 2022 Loan from Group companies 2,216 2,171 Trade payables 1,993 2,092 Total 4,208 4,263 Liabilities to others 2023 2022 Loans from financial institutions 37,200 33,200 Advances received 337 166 Trade payables 4,526 5,637 Other liabilities 2,062 3,606 Accruals and deferred income 2,710 3,287 Total 46,835 45,896 Total current liabilities 51,043 50,159 Material items included in accruals and deferred income 2023 2022 Accrued personnel expenses 2,298 2,981 Other accruals and deferred income 412 305 Total 2,710 3,287 NOTE 56 COMMITMENTS AND CONTINGENT LIABILITIES Credit facilities 2023 2022 Total amount of credit granted 40,300 42,300 In use 4,003 4,003 Pension liabilities The pension liabilities are covered via the insurance company as prescribed by legislation. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 87 Leasing liabilities 2023 2022 Payable during the following financial year 66 9 Payable in later years 106 11 Total 173 20 Commitments on behalf of Group companies 2023 2022 Other guarantees 8,803 8,652 Guaranteed debt 531 1,525 NOTE 57 SHARE OWNERSHIP Distribution of share ownership on 31 December 2023 % Private companies 17.55 Financial and insurance institutions 25.54 Public sector entities 5.91 Non-profit making entities 0.10 Private households 50.11 Foreign countries 0.79 Total 100.00 Nominee registered 6.87 Distribution of share ownership on 31 December 2023 Number of shares Number of shareholders Percentage of shareholders Total number of shares Percentage of total number of shares 1 - 1,000 7,228 85.62 1,837,644 15.45 1,001 – 10,000 1,105 13.09 3,036,737 25.53 10,001 – 50,000 87 1.03 1,623,406 13.65 over 50,000 22 0.26 5,399,056 45.38 Total 8,442 100.00 11,896,843 100.00 CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 AUDITED FINANCIAL STATEMENTS | 88 NOTE 58 SHAREHOLDERS Major shareholders on 31 December 2023 Shareholder Number of shares Percentage of shares and votes Erikoissijoitusrahasto Aktia Mikro Markka 762,984 6.41 OP-Finland Small Firms Fund 755,119 6.35 Ilmarinen Mutual Pension Insurance Company 496,547 4.17 Phoebus Fund 420,000 3.53 Säästöpankki Pienyhtiöt 288,710 2.43 Sumato Oy 231,821 1.95 Nelimarkka Heikki Antero 213,545 1.79 Veritas Pension Insurance Company Ltd 203,877 1.71 Suutarinen Timo 160,000 1.34 Renkkeli Oy 150,000 1.26 Nominee registered Skandinaviska Enskilda Banken AB 767,066 6.45 Citibank Europe PLC 13,161 0.11 Danske Bank AS Helsinki Branch 12,796 0.11 Other nominee registered 24,304 0.20 Others 7,396,913 62.18 Total 11,896,843 100.00 NOTE 59 SHARE PRICE AND TRADING Share price EUR 2023 2022 2021 2020 2019 Average price 3.60 6.30 8.58 5.55 4.54 Lowest price 2.42 5.02 6.58 3.40 3.92 Highest price 5.70 8.20 11.60 7.38 6.76 Share price at the end of financial year 2.54 5.42 8.10 7.38 6.48 Market capitalization, EUR million 30.1 64.2 95.9 87.3 76.6 Share trading 2023 2022 2021 2020 2019 Number of shares traded 5,373,123 3,103,680 3,356,992 4,820,621 6,048,492 % of the average number of shares 45.2 26.2 28.4 40.8 50.8 Number of shares 2023 2022 2021 2020 2019 Average number 11,853,944 11,850,080 11,832,712 11,827,648 11,819,843 Number at end of financial year 11,853,944 11,853,944 11,833,506 11,829,693 11,819,843 Exel Composites Plc’s share was quoted on Helsinki Stock Exchange I List from 19 October 1998 to 1 May 2000. As from 2 May 2000, Exel Composites Plc’s share has been quoted on Helsinki Exchange Main List. Exel Composites Plc’s share was split on 21 April 2005. Exel Composites Plc’s share is listed on Nasdaq Helsinki. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 PROPOSAL FOR DISTRIBUTION OF PROFIT | 89 PROPOSAL FOR DISTRIBUTION OF PROFIT Exel Composites Plc’s distributable funds amount to EUR 19,362,152.84, of which the loss for the financial year is EUR -4,240,961.94. The Board proposes to the Annual General Meeting that no dividend will be paid. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 PROPOSAL FOR DISTRIBUTION OF PROFIT | 90 Signatures of the Financial Statements and the Report of the Board of Directors Vantaa, 1 March 2024 Jouni Heinonen Chairman of the Board of Directors Petri Helsky Member of the Board of Directors Helena Nordman-Knutson Member of the Board of Directors Jouko Peussa Member of the Board of Directors Kirsi Sormunen Member of the Board of Directors Paul Sohlberg President and CEO Auditors' note An auditor's report based on the audit performed has been issued today. Vantaa , 4 March 2024 Ernst & Young Authorized Public Accountants Johanna Winqvist-Ilkka Authorized Public Accountant CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 AUDITOR’S REPORT | 91 AUDITOR’S REPORT (Translation of the Finnish original) To the Annual General Meeting of Exel Composites Plc REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Exel Composites Plc (business identity code 1067292-7) for the year ended 31 December 2023. The financial statements comprise the statement of comprehensive income, consolidated balance sheet, statement of cash flows, statement of changes in equity and notes, including material accounting policy information, as well as the parent company’s income statement, balance sheet, statement of cash flows and notes. In our opinion ● the consolidated financial statements give a true and fair view of the group’s financial position as well as its financial performance and its cash flows in accordance with IFRS Accounting Standards as adopted by the EU. ● the financial statements give a true and fair view of the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. Our opinion is consistent with the additional report submitted to the Board of Directors. Basis for Opinion We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements. In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 8 to the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 AUDITOR’S REPORT | 92 KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER Valuation of Goodwill We refer to notes 4, 18 and 27 of the consolidated financial statements. Goodwill amounted to 12.6 million euros as of 31 December 2023 comprising 14.8% of total assets and 71.2% of equity (2022: 13.0 million euros, 11.5% of total assets and 42.8% of equity). Valuation of goodwill was a key audit matter because ● the assessment process related to the annual impairment test is complex and judgmental; ● the process contains significant estimates and assumptions relating to market or economic conditions extending to the future; and ● because of the significance of the goodwill to the financial statements. There are a number of assumptions used to determine the value-in-use, including revenue growth, operating margin before depreciation and amortization and discount rate applied on cash-flows. Estimated values-in-use may vary significantly when the underlying assumptions are changed and the changes in above-mentioned individual assumptions may result in an impairment of goodwill. Our audit procedures in connection with the valuation of goodwill included involving valuation specialists to assist us in evaluating the assumptions and methodologies used by the management. Audit procedures included comparing the management’s assumptions to externally derived data and to our own expectations. In particular those relating to the weighted average cost of capital used to discount the cash-flows. In addition, we tested the accuracy of the impairment calculations prepared by the management, compared the historical forecasting of the group with actual outcome and compared projections to the latest budgets approved by the board. We also compared the sum of discounted cash flows to the market capitalization of Exel Composites and evaluated the adequacy of the disclosures in note 27 such as information given with regards to the sensitivity analysis as well as whether a reasonably probable change in key assumptions could result in an impairment. Revenue Recognition We refer to note 5 of the consolidated financial statements. Revenue is recognized when the control of the underlying products has been transferred to the customer. Revenue is a key performance measure which could create an incentive for revenue to be recognized before the risks and rewards as well as control over the goods have been transferred. Revenue recognition was determined to be a key audit matter and a significant risk of material misstatement referred to in EU Regulation No 537/2014, point (c) of Article 10(2). Our audit procedures to address the risk of material misstatement relating to timing of revenue recognition included among others: ● Analysis of the accounting principles applied as well as comparing them to the IFRS standards; ● Testing of internal controls addressing the timing of the revenue recognition, including general IT controls over the most significant IT applications; ● Substantive analytical procedures and test of details, and ● Evaluation of the disclosures provided on revenues. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 AUDITOR’S REPORT | 93 Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company’s and the group’s ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company’s or the group’s internal control. ● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ● Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern. ● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair vie w. ● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 2023 AUDITOR’S REPORT | 94 Other Reporting Requirements Information on our audit engagement We were first appointed as auditors by the Annual General Meeting on April 6, 2007 and our appointment represents a total period of uninterrupted engagement of 17 years. Other information The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Opinions based on assignment of the Board of Directors We support that the financial statements should be adopted. The proposal by the Board of Directors regarding the use of the profit shown in the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the President and CEO of the parent company should be discharged from liability for the financial period audited by us. Vantaa 4 March 2024 Ernst & Young Oy Authorized Public Accountant Firm Johanna Winqvist-Ilkka Authorized Public Accountant CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 | 95 INDEPENDENT AUDITOR’S REPORT ON EXEL COMPOSITES OYJ’S ESEF CONSOLIDATED FINANCIAL STATEMENTS (Translation of the Finnish original) To the Board of Directors of Exel Composites Oyj We have performed a reasonable assurance engagement on the iXBRL tagging of the consolidated financial statements included in the digital files 743700205JAMGM80QD88- 2023-12-31-fi.zip of Exel Composites Oyj (business identity code: 1067292-7) for the financial year 1.1.-31.12.2023 to ensure that the financial statements are marked/tagged with iXBRL in accordance with the requirements of Article 4 of EU Commission Delegated Regulation (EU) 2018/815 (ESEF RTS). Responsibilities of the Board of Directors and Managing Director The Board of Directors and Managing Director are responsible for the preparation of the Report of Board of Directors and financial statements (ESEF financial statements) that comply with the ESEF RTS. This responsibility includes: ● preparation of ESEF financial statements in accordance with Article 3 of ESEF RTS ● Tagging the primary financial statements, notes to the financial statements and the entity identifier information in the consolidated financial statements included within the ESEF-financial statements by using the iXBRL mark ups in accordance with Article 4 of ESEF RTS ● Ensuring consistency between ESEF financial statements and audited financial statements The Board of Directors and Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of ESEF financial statements in accordance the requirements of ESEF RTS. Auditor’s Independence and Quality Management We are independent of the company in accordance with the ethical requirements that are applicable in Finland and are relevant to the engagement we have performed, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The firm applies International Standard on Quality Management (ISQM) 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Auditor’s Responsibilities In accordance with the Engagement Letter we will express an opinion on whether the electronic tagging of the consolidated financial statements complies in all material respects with the Article 4 of ESEF RTS. We have conducted a reasonable assurance engagement in accordance with International Standard on Assurance Engagements ISAE 3000. The engagement includes procedures to obtain evidence on: ● whether the tagging of the primary financial statements in the consolidated financial statements complies in all material respects with Article 4 of the ESEF RTS ● whether the tagging of the notes to the financial statements and the entity identifier information in the consolidated financial statements complies in all material respects with Article 4 of the ESEF RTS ● whether the ESEF financial statements are consistent with the audited financial statements The nature, timing and extent of the procedures selected depend on the auditor’s judgement including the assessment of risk of material departures from requirements sets out in the ESEF RTS, whether due to fraud or error. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our statement. Opinion In our opinion the tagging of the primary financial statements, notes to the financial statements and the entity identifier information in the consolidated financial statements included in the ESEF financial statements 743700205JAMGM80QD88-2023-12-31-fi.zip of Exel CONTENTS | YEAR 2023 | BOARD OF DIRECTORS’ REPORT | SUSTAINABILITY | CONSOLIDATED FINANCIAL STATEMENTS ANNUAL FINANCIAL REPORT 2023 | 96 Composites Oyj for the year ended 1.1.-31.12.2023 complies in all material respects with the requirements of ESEF RTS. Our audit opinion on the consolidated financial statements of Exel Composites Oyj for the year ended 1.1.-31.12.2023 is included in our Independent Auditor’s Report dated 4.3.2024. In this report, we do not express an audit opinion any other assurance on the consolidated financial statements. Helsinki 4.3.2024 Ernst & Young Oy Authorized Public Accountant Firm Johanna Winqvist-Ilkka Authorized Public Accountant Exel Composites is one of the largest manufacturers of composite profiles and tubes made with pultrusion and pullwinding technologies and a pultrusion technology forerunner in the global composite market. Our forward-thinking composite solutions made with continuous manufacturing technologies serve customers in a wide range of industries around the world. You can find our products used in applications in diverse industrial sectors such as wind power, transportation and building and infrastructure. Our R&D expertise, collaborative approach and global footprint set us apart from our competition. Our composite solutions help customers save resources, reduce products' weight, improve performance and energy efficiency and decrease total lifetime costs. We want to be the first choice for sustainable composite solutions globally. Headquartered in Finland, Exel Composites employs over 600 forward-thinking professionals around the world and is listed on Nasdaq Helsinki. To find out more about our offering and company please visit www.exelcomposites.com .

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