2007 will be a transition year for Hexcel as it implements its strategy of focusing on opportunities for advanced composites.
Mr. David Berges summarizing Hexcel’s prospects said, “”While the A380 delay and Ballistics decline were short-term disappointments in 2006, Hexcel is well underway in taking the necessary actions to capitalize on the strong long-term outlook for advanced composites. 2007 will be a transformative year for Hexcel. We are making progress with our portfolio review, including the potential divestiture of non-core assets, and the realignment of our organization into a single business unit focused on advanced composites. Carbon fibre is the essential building block of this focus and the first phase of our carbon capacity expansion is expected to be available for production early in the new-year. The subsequent commissioning our second new line by the end of 2007 will keep us well positioned for the premium fibre demand to come.””
“”We are now feeling the impact of the A380 delays and expect this to continue through next year. In Ballistics, we have recently received some significant new orders and are beginning to ramp-up production to support this growth, but the year-over-year comparisons in this market will be tough until the second quarter of 2007. Otherwise, our core markets are all expected to have double digit growth next year. As we look beyond 2007, we expect that commercial aerospace growth will accelerate as production builds for the Boeing 787 and Airbus A380 followed by the introduction of the Boeing 747-8 and Airbus A350; each having significantly more composite content than the planes they replace. With the globalization of demand for renewable energy, we also anticipate that wind turbine installations will continue their trend of strong growth.””
“”The lower revenues resulting from the A380 push-out will negatively affect performance comparisons this quarter and the first half of 2007. In addition, we will incur restructuring costs related to the reshaping of our organization and addressing stranded costs from our portfolio review. Nevertheless, assuming the completion of our planned actions, we would expect a combination of improved mix, restructuring savings and additional carbon fibre sales to contribute to another year of margin expansion in 2007.””
“”More importantly, our long-term positioning should be greatly improved. With Airbus having announced that the A350 will have a composite fuselage and wing, and Boeing enjoying strong orders for the 787, we expect demand for intermediate modulus (IM) carbon fibre to grow dramatically in the years to come. Hexcel has been the leader in IM carbon fibre since its introduction in 1986 and should be one of the primary beneficiaries of this trend. Our financial condition and access to capital, especially after the divestitures, will be more than adequate to support continued capacity expansion required for the long-term growth we see in aerospace markets. Increasing capacity to meet that demand will also provide the scale and flexibility necessary to pursue additional opportunities for premium fibres in industrial markets requiring high performance carbon fibre composite materials, such as deep water oil drilling, high speed centrifuges, pressure vessels and other emerging applications. These are opportunities that represent the potential for significant medium and long-term growth for Hexcel in markets beyond aerospace and wind turbines.””
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