Vaisala Oyj

Hello, and welcome to the Vaisala Q4 Report 2020. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a Q&A section. Today, I'm pleased to present President and CEO, Kyle Onstemo. Please go ahead with your meeting.

Thank you, and welcome to Vaisala call from my side as well. With me here are Karina Mourinen, our CFO, Raimo Voipio, our Chairman of the Board, Paula Leimatta, our head of IR, and myself, Kai Östermeyer. So, when we look at the year 2020, and start with the fourth quarter highlights, it feels like it was a rollercoaster year, where the rollercoaster ended up with a high note. The orders received increased significantly. during the fourth quarter, both in industrial measurements as well as in weather and environment. In industrial measurements business area, the demand growth was led by pharmaceutical customer segment, including the COVID-19 vaccine suppliers, as well as then orders received overall by 11% compared to previous year. In weather and environment business area, orders received increase by 7%, following a very good demand in meteorological segment. When we look at the order book, the overall order book for Vaisala decreased slightly by 1%, and in weather and environment business area, the order book decreased decreased by 2%, mainly as a result of weak orders during the earlier part of the year. In industrial measurement side, the order book increased by 7% compared to previous year, following a strong orders received during the fourth quarter. When we look at net sales, fourth quarter net sales decreased by 10% year-on-year following week orders received in weather and environment business area during the first nine months of the year. On the other hand, in industrial measurement business area side, we returned to growth path with 10% net sales growth compared to previous year, same time previous year. Net sales grew in all regions and strongest in APAC. When we look at then the operating result, the fourth quarter operating results fell short of previous year, following the decrease in net sales. On cash flow side, cash flow remained strong, slightly ahead of the previous year. And the dividend proposal by the board of directors to the shareholder meeting is to keep the dividend at 65 euro cents. 61. Sorry, 61 euro cents. Excuse me. Sorry. When we go into the orders received during fourth quarter, the orders received increased by 8%. The demand in both industrial measurements and weather and environment picked up considerably compared to the earlier three quarters of the year. In industrial measurement business area, demand growth was led by pharmaceutical customer segment, as well as then the power and industrial instrument side. The orders received increased by 11% compared to previous year. In weather and environment side, our orders received increase by 7% following good demand in meteorological customer segment. When we look at the fourth quarter order book, it decreased slightly by 1% when compared year on year. In weather and environment business area side, decrease was 2% mainly as a result of week orders in Middle East and Africa through the year, as well as then we have to take into account also the reduced scope and value of the Argentinian contract that we renegotiated in the earlier part of the year. In industrial measurement business area, the order book increased, as said, by 7% compared to previous year, following strong orders received during the fourth quarter. And the increase, when we look at area split, the increase was strongest in America's region. In fourth quarter net sales, net sales decreased by 10%. If we look at the comparable rate, the decrease was 7%. In weather and environment side, the net sales decreased by 18%. mainly in project and product businesses. The decrease of the net sales followed weak orders received during the year and delays in some of the project implementations due to the restrictions of the COVID-19 situation. If we look at the service business, the main reason for the decrease of that business or the net sales in services business was the discontinuation of the assessment business services provided to renewable energy segment that we did earlier in 2020. In the industrial measurement business area, net sales increased by 10%. Net sales increased in all regions, as said, strongest in APAC, and net sales growth was very wide range, came from industrial instruments, continuous monitoring systems, and power industry applications. In terms of operating results, the Weissel Act Q4 operating results decreased following the decrease in net sales, while operating expenses decreased compared to the previous year due to the restrictions caused by the virus situation, reduction, for example, in travel and so on. On the other hand, it's worthwhile to remind that we continue our investments to research and development, sales and marketing, as well as process development throughout the year. Then if we move on to take a deeper dive into the different Business areas, first on weather and environment. The Q4, as said, we had a strong order intake. The orders received increased by 7%. If we look at constant currencies, the increase would be 9%. And the orders received increased mainly in Latin America as well as in Europe. In terms of the order book, it decreased slightly by 2% compared year on year. mainly as said caused by the weaker order intake during earlier part of the year. The net sales decreased by 18%. Again, the decrease comes from the weaker order intake during the earlier part of the year in 2020. The cross margin and operating result decreased compared to previous year as a result of lower production and delivery volumes. The operating expenses decreased, as said, the same way as for the entire company. And the operating result in the end ended up being, in percentage terms, 7.8%. In industrial measurement, we had a very strong order intake. We were back into the growth path. Orders received increased by 11% in constant currencies. That will be 14%. It came from all regions, especially from America's end in China. And that led also the order book increase by 7%. And when we look at the size of the order book for 2021, it stood at 16.6 million euros scheduled to be delivered during 2021. The net sales increased by 10%. The net sales growth was wide ranging and came from industrial instruments, continuous monitoring systems and power industry applications. The net sales growth increased operating results. The operating expenses decreased similarly as in weather and environment due to the restrictions caused by COVID-19 pandemic. If we then take a look at the entire year 2020 from Vaisala side, it showed good resilience in a very difficult market environment. Orders received in total declined while the order book was almost similar as when we exited the year 2019. Operating expenses decreased due to the virus situation and the operating result for Vaisala increased slightly compared to 2019. If we look at the business areas, whether an environment decreased in terms of net sales due to the very challenging market environment. The decline was especially in aviation as well as in emerging markets. The order book was down slightly compared to 2019 and that despite the clear pickup in the fourth quarter of the year. Net sales was down due to the weak order intake during the first three quarters of the year. And in terms of operating result, it was down due to the lower net sales, despite the higher gross margin in weather and environment. In industrial measurement, we had a strong performance. It was, as said, a rollercoaster year with a strong finish of the year in terms of order book, orders received, as well as in net sales. The operating result was improved due to the higher sales volumes, better gross margin, and lower OPEX. Again, due to the virus situation. When we look at the 2020 cash flow, the operating cash flow was on the same level as in 2019, but the mix was different. The net working capital compensated the negative effect of the decreasing results. The cash, when we look at the ending cash balance, it was $8 million down compared to the previous year. The financial situation of the company remained strong. On this slide, I would highlight the capital expenditure, which remained on a high level during 2020 due to the investment into the The R&D buildings, we finished the building in Boulder, Colorado, already middle of the year, and then the R&D building here in Vantaa at the end of the year. We expect the capital expenditure level to normalize going forward. On dividend, I would like to remind just the dividend policy. We aim to pay a stable dividend, which will increase in line with the net profit development. And our target is to maintain high solvency and take into account the future investment plans. And in line with our policy, our board of directors proposes the dividend to stay at Then let's take a look at how the market and business outlook is for 2021. We foresee, first of all, that the pandemic situation will continue to cause significant uncertainty during 2021. As we have noticed around the world, the lockdowns continue, new waves continue to emerge around the world. That being said, we expect that the global economy is expected to continue to recover during the year. Market for the high-end industrial instrument is expected to recover after week 2020. especially in life sciences and power industry, is expected to continue to grow. On the weather and environment side, the meteorology market in developing countries is expected to continue to suffer due to the lack of funding and delayed decision-making, while in developed countries we expect the demand to remain stable. When we look at the aviation market, it declined significantly during 2020 as a result of the pandemic and cut down on the travel globally, and the market outlook remains weak, although some recovery is expected. On the ground transportation side, the market is expected to continue to be stable. Renewable energy, we expect, along with the mega trend, is continue to grow. And when we look at how that translates into our business outlook for 2020, we estimate that our full year 2020 net sales will be in the range of 370 to 400 million euros, and our operating result will be in the range of 30 to 45 million euro. This concludes our prepared remarks, and now we are very, very happy to answer any questions you may have.

Operator, please, could you please open the lines for the questions? Cool. Thank you. If you do wish to ask a question, please press 01 on the telephone keypad. If you do wish to withdraw your question, you can do so by pressing 02 on the telephone keypad. Our first question comes from the line of Yoni Gomes. Gorky West from Indurus. Please go ahead. The line is open.

Hi, it's only for Indurus. Can you hear me? Yes, very well. Good, good, good. Congratulations for a good year in difficult circumstances. I have three questions for I'd like to start on the order book. It's on a good level here considering the difficult circumstances. But how is sales pipeline looking now in terms of small and larger orders? And maybe especially for weather and environment.

I will answer that question in terms of the way we gave guidance to the overall market outlook, the uncertainty we expect the emerging, the meteorological segment in the emerging market to stay uncertain and due to the virus situation and the financial impacts of the virus situation as well as in the aviation market for obvious reasons to stay uncertain. stay weak and end the recovery to be relatively slow on that side. Whereas in the road side, we expect the market to stay stable. In terms of a, yes, sorry.

Yeah, okay. You clearly say from the order book how much is delivered this year, but I'd like to maybe understand a bit the order book, how it's composed. And if I ask you in this way, you mentioned in the report that the big projects in VEA contribute three-fourths of the project deliveries. So is some of these big projects in VEA ending now this year, or do they all continue over this year?

Some of them we concluded during this year. For example, the Vietnam project is a good example of such, and then there's a bunch that will continue during this year as well. Many of these projects you have to remember that they are multi-year projects.

Exactly. Okay. Then last maybe on the profit guidance. Considering your good delivery in 2020 despite the difficult circumstances and looking at your order book going into 2021, So where is the profit drop, or where do you expect the profit drop to come from, or is it increased investments? Can you give some cover on this, please?

Yeah. So first of all, as I said in my prepared remarks, we continue to invest through the year, as we have been continuing to say, into R&D, into the development project. during 2020 and we intend to continue to do so that is all to build competitiveness in the future and then the other part I would highlight also the uncertainty during this year that the pandemic will cause very unpredictable and difficulties in terms of a delivering some of the project travel restrictions we foresee to continue at least the first half of the year and then gradually maybe opening up during the second half of the year.

Okay. Still maybe on the investment side, I'm not sure if I understood correctly. So are you If you look at the profit drops in guidance, so is there a component of increased investment in it, or is the investments going to be on the same level as in 2020?

So there is no plan to increase the level of investments, but obviously During 2020, we continued to invest into R&D and into other development projects. And obviously, that increase that was not fully visible in earlier parts of the 2020 is obviously then visible now. And then maybe the other kind of just to remind you also what I maybe said on the capital expenses. invested during the past two years into the building projects both in in us and in finland and the amortization out of all of those buildings now as they are complete will then now increase yes okay thank you thank you once again if you do wish to ask a question please press zero one now

Our next question comes from the line of Jonas Forslund from Evely Bank. Please go ahead. Your line is open.

Hello, everybody. I hope you can hear me very well. I also had a question regarding the outlook a little bit, but I guess you covered that topic in the last question. Then I will ask about the a little bit about industrial measurements now that last year was flattish for industrial measurements and so picking up a little bit here in the end of the year and then you're expecting that market to recover. Could you give some color on how is that recovery perhaps going to look like? Do you expect it to accelerate during the year or How is that recovery going to look like? And would you expect that industrial measurements could resume to sort of the normal historical growth, or given that last year was a sort of flat year, that it could even be higher and accelerated so that we perhaps could even see a double-digit growth in industrial measurements this year ahead?

So I'll answer your question in two parts. I just remind you on the fourth quarter where we actually had a record, so highest order intake so far and highest net sales so far in industrial measurements. So the market did pick up already during the fourth quarter. Now, going forward, obviously, the COVID-19 situation puts a little bit of a question mark on how this year will continue. And as we have noted now, only during the past few weeks, the situation has changed very rapidly. So that casts a little bit of uncertainty on how this year market overall will develop.

The pharma part of industrial measurements, could you give some color on that a little bit? I would imagine there's a lot of money being poured into that at the moment. What kind of significance does it have for industrial measurements? How big is the effect of this? And what could you perhaps see is contributing this year into industrial measurements?

Yeah, so you're quite right that if you look at the overall market in the life sciences-related investments across the world, they significantly increased, the market increased during last year, and we expect that that will continue to increase during this year. The overall size of our exposure or our exposure of that market into the the industrial measurement business is meaningful, but we have not given the exact percentages on different sales of different products into different markets.

Very well. Thank you. That's all from me.

Thank you. We have no more questions from the line. I will hand it back to our speakers.

So if no more questions, then I would like to thank you for everybody on the line and wish you a good continuation of the day.

Thank you. Thank you.