Vaisala Oyj

Welcome to the Vassala Q1 2021 interim report. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Kai Osterman, President and CEO, CFO Karina Marinen, Head of IR Paula Lunata, and Chair and Board Directors, Vila Vopio. Please go ahead to your meeting.

Thank you, and welcome from my side as well. This is Kai Osterman. So good afternoon or good morning, depending on which part of the world you may be. So if we look at how did the first quarter come together, I would summarize it that we had a strong start of the year. The market environment turned out to be more favorable. The economic recovery visible then through multiple of our projects. segments was very visible, except for aviation and emerging markets. The economic recovery was especially strong in China and in U.S., but it was clearly visible in other parts of the world as well. And based on the increased visibility and the strong first quarter that we have, we have now narrowed our business outlook for the year, and I'll come back to that a little bit later in the presentation. The renewal of our product portfolio continued very well, and we proceeded well despite the COVID-19 situation, which especially our personnel have had to fight through. We launched several new products. such as Sailometer, which is in the picture here, which is a LIDAR-based measurement device, which enables us or the user to measure the heights of clouds, the contents of a cloud, and overall gives a very, very accurate and good visibility into the atmosphere above us, very important for the meteorological customers of ours. Also, our new R&D building is now fully open, and it's already partly populated and now waiting for the pandemic situation to ease up for it to be fully having everybody on site. Our work and our products are closely linked to several of the megatrends and contribute to several of the United Nations sustainable development goals. And when we look at the first quarter, we saw an especially strong performance in life sciences and wind lidar business, which are very closely connected to the health and well-being SDG, as well as the renewable energy SDG, respectively. On renewable energy and talking about renewable energy and renewable electricity. Several companies aim to move fully to renewable electricity within the upcoming years, typically within the five to 15 years. We are very proud to be a forerunner in this space. We are very happy to report that we are now 100% renewable energy. We reached the target now during the first or validated the results now during the first quarter and reached the actual target already in the last year. We were the first technology company here in Finland to reach such a goal, and overall the second company in Finland out of all companies. We have now reduced our scope emissions, that means our own emissions by 97% from 2014 baseline and continue this work going forward. But even more importantly, I would bring up that our work in sustainability is really where we contribute to through our handprint, i.e., the products and services to our customers, which enable them to reduce their footprint and thus creating a very positive impact to the world. The other very, very exciting during the first quarter was obviously the landing of Perseverance in Mars, carrying relative humidity and pressure sensors. So not only did they land subtly on Mars, but now are being used on Mars, and now we are actually being, what is being built is the first ever meteorological observation network on another planet. We think that this is a great, great showcase on how reliable, stable, and accurate our products really can be in a very difficult environment. If this is not a very good proof point how well that when it works in Mars, it really will work in any environment also here in planet Earth. Moving on to the numbers on first quarter. Orders received increased by 18% year-on-year. The increase was in both business areas, and when we look at the different market segments, it was increasing in renewable energy, ground transportation, life sciences, and industrial instruments, whereas in aviation markets due to the COVID-19 situation and slowdown in travel, the weakness continued. And if we looked at in terms of the constant currencies, it would have been 23% growth in constant currencies. When we look at the order book in first quarter, that increased 10% year-on-year. Again, the increase came in both business areas. The increase was in all market segments in industrial instruments. And in weather environment, it was in renewable energy transportation and meteorological market segments. There was a decline in large orders in weather environment for the products, the projects where there would be a delivery. into next year and the year after, and that is visible also in our numbers. If you look at the order book beyond 2021, it really mainly consists now long-term service contracts in industrial measurement side. Moving on to net sales. They grew by 9% year-on-year. If we take the constant currency, it would be 9% growth year-on-year. The growth came from industrial measurements, whereas weather environment was flat year-on-year. And from a market segment side, the growth came from life sciences, renewable energy, industrial instruments, and . The aviation and liquid measurements declined year on year. And noteworthy also is that net sales of large projects year on year declined, reflecting again on weaker order intake during last year on the larger projects. Then if we look at into the business areas, first industrial measurements I would say we had an excellent performance during the first quarter in industrial measurements. The orders received increased in all market segments. It's worthwhile also noting that I talked about the economic recovery around the world. The economic recovery, especially in China, boosted the growth of the sales and the orders received in China for us. when we look at the also in terms of the order book length. There was a worth noting also is the strength in China was seen also that there were some longer and bigger orders. some annual orders in China, which now, which were received during the first quarter. And then, obviously, the longer and larger orders come from the bigger success in power industry and monitoring systems side. When we look at the net sales, net sales grew by 12% year on year, and that then led into an increase operating profit as well. The result was 9.4% compared to 7.6, I'm sorry, 9.4 million euros compared to 7.6 million corresponding time last year. being now 23.8% of net sales. Net sales growth was strongest in life sciences and industrial instruments in absolute terms, and in relative terms power industry offering grew very well as well, whereas liquid measurements declined reflecting the disappointing water intake during the past few quarters. Then if we move on to weather and environment side, also a strong growth in orders received. The quarter growth was strongest in renewable energy and ground transportation, both in absolute terms and in relative terms. The order growth in the meteorological segment was flat. In developed countries, we saw some increase in orders received during the first quarter, However, the level of orders was still very low, and the market really hasn't started to recover. You should look at this as a quarterly change in volatility in terms of how the orders come in. And as I said earlier, the weakness in aviation continued due to the lack of travel due to the COVID-19 situation. The operating result in weather environment increased as a result of lower operating expenses. The operating result was minus 800,000 in first quarter, which was compared to 2.4 million loss in the corresponding time previous year. And when we look at the net sales, the net sales grow strongest in renewable energy and aviation, sorry, renewable energy, whereas, again, the aviation declined year on year, again, due to the lack of travel and due to the COVID-19 situation. The OPEX was slower compared to the previous year due to the more efficient ways of working and lack of travel triggered by the COVID-19 situation. And worth noting also that the R&D activities continued according to the plan and the new, as I said, new R&D facility was taken into use step by step during the first quarter. Now, if we move on. Financials, the first quarter operating result was 8%, 8.8% of net sales. The drivers for increased operating results were net sales growth and lower operating expenses. As mentioned, the gross margin decreased due to the product mix on one hand and the appreciated euro on the other hand. The OPEX decrease was due to more efficient ways of working triggered by the COVID-19 situation, as I explained. And maybe it's also worth noting that the comparison period last year included a one-time credit loss allowance booked for by 1.1 million euros. related to our one customer project, and which was then later reversed during the last year. In terms of EPS, we grew to 17 cents, and the financial position overall remained. If we look at the networking capital, we had a very good cash flow during the quarter. mainly contributed by increase in trade account payables and advance payments from customers increase, and thus leading into input cash flow. And it's also worthwhile that, as we indicated earlier, the CapEx level now during the first quarter after the building project that we had during last year were completed. Now, moving on into the market development and business outlook, how does the world look for the rest of the year? We see the COVID-19 pandemics will still cause us a significant uncertainty for this year. While the situation has improved in developed world, it's still in alarming levels in many of the emerging markets. We just look at the terrible news we hear day by day from India, for example. We do, despite all of the COVID-19 situation, that the global economy is going to continue to recover during 2021, and we will see a growth in high-end instruments, in life sciences, in power industry, and in renewable energy, whereas the meteorological segment in developed countries, we expect to stay stable, whereas in developed countries, we stay on a weaker level due to the COVID-19 situation and the financial challenges caused by COVID-19 into the emerging markets. And the aviation markets, we expect to remain weak, although we expect some early recovery towards the end year. Now, based on the strong performance during the first quarter and increased visibility into the year, we have narrowed our business guidance for this year. From a net sales perspective, we have raised our bottom end of our estimate by 10 million. So, our estimate now for the full year net sales is from 380 million to 400 million euros. And correspondingly, we raised our operating, the bottom end of our operating result guidance so that it now reads 35 to 40 million euros expected for this year. So, if I summarize the first quarter, we had a very strong start for the year. The market environment was more favorable that we expected, resulting from stronger, strong recovery, especially in China and U.S. And then we felt that strong order intake across multiple market segments. And now, given the strong first quarter and increased visibility, we narrowed the business guidance for the year. That's the end of the prepared remarks. I would like now hand over to any questions that you may have. Operator, please. Operator, can you hear us? Just a minute. We will try to reach the operator. Thank you. Sorry.

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