There are no negotiations in place, but the Finnish group began to discuss possible financial or distribution partnerships for what it now calls the Exel Sports Brands business with a few companies even before eliminating the costly domestic production apparatus of its sports operations, a process that is almost completed. The idea is to find a strategic partner or a new owner who would be interested in a long-term engagement in the Exel sports brand in order to reach more critical mass in international distribution for the sports division, which accounted for only 23 percent of Exel Oy’s consolidated sales in the 4th quarter of last year.
The group posted a net loss of €0.7 million in 2006, compared with a profit of €8.9 million the year before, due entirely to the poor performance of its sports division and to heavy charges for its reorganization. Its total net revenues had a remarkable increase of 23 percent to €112.4 million, but most of the growth was due to acquisitions in Exel’s industrial branch, including Faserprofil in 2005 and Pacific Composites in March 2006.
The sports division, which mainly markets poles and floorball sticks, could not deliver any particular good news. Organized since last year as a stand-alone subsidiary, Exel Sports Oy, it a reported a drop of 18.3 percent in sales to €28.2 million, and it switched to a negative operating margin of 35.8 percent, compared with a positive margin of 4.6 percent in 2005. The operating loss of €10.1 million was due only in part to extraordinary charges of €4.9 million, related to the shift in manufacturing to the Far East. All finishing, assembly and packaging operations for pole and floorball products were moved to China last year while components such as tubes for poles and floorball sticks continue to be made at the Mäntyharju facility in Finland. On top of this, Exel has been investing heavily in opening up new markets, particularly in North America, Japan, and China. These investments have not yet led to significant sales to offset declines in traditional markets.
In Germany and Austria, where Exel had installed a costly subsidiary to capitalize on a boom in Nordic Walking, the company had to face excessive inventories at retail and massive competition from price-driven competitors. Sales were so weak there that the company cut cost by reducing the Central European staff by a half. Marketing and distribution costs in Finland and the USA had to be adjusted to the actual performance of the brand in the respective countries, too. Warehousing and dispatching operations were outsourced last August. In all, the average number of people employed in the division was cut by 15.6 percent to 195 persons.
These moves are expected to improve the segment’s profitability in 2007 and to reach an operating profit sooner or later, but the timing is unclear. The warm weather has dimmed prospects for sales of cross-country ski poles. On the other hand Exel says its floorball operations have developed strongly, thanks to new products and bigger marketing efforts, including the sponsorship of the 2006 World Floorball Championships.
In the 4th quarter, while sales of sporting goods stabilized, inching up by 0.7 percent to €6.9 million, the results showed a negative operating margin of 43.1 percent, compared with a negative margin of 15.4 percent in the year-ago period.
Noting that the sports division has now become a separate entity that is entirely marketing-driven, the group freely admits that it is no longer considering it as a primary business sector, and it is now putting its focus on its industrial branch.
