Vaisala Oyj

Hello and welcome to the Vercela Q2 2021 interim report. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present President and CEO Kai Ostomoff, CFO Karina Marinen, Head of IR Perla Dimata, and Chair of the Board of Directors Perla Vojko. Please go ahead with your meetings.

Thank you, and welcome also from my part to Vaitola's second quarter earnings call. I am Kai Ersmann, the CEO of the company, and I'll walk you through the prepared remarks before opening up for questions. We had a great second quarter, excellent growth in orders and net sales and operating result margin at 10%. The recovery that started already during the first quarter of the year has continued stronger and faster than we early anticipated, and the recovery had a positive effect on our second quarter demand, particularly in Asia Pacific and in Europe. The recovery was visible in all segments except aviation and in emerging markets. If we look at the geographies in China and in U.S., economic recovery started earliest, and that was clearly also visible in the orders received, especially on the industrial measurement side. And thanks to the strong growth in order intake, our order book now is all-time high at 165 million euros. The shortage of components, which is very prevalent on the marketplace today, did not affect Isola's delivery capability during the second quarter. And I'll come back to this a little bit later in the presentation. The EBIT margin was at 10% in compared to the previous year. Second quarter was 8.7% of net sales. And the operating result, it increased to 10.9 million euros. Now, before diving into the financial figures, let's look at some of the key events during the second quarter. And I'll start with talking about the operational excellence. We were very successful at the pace of the increased demand, scaling up our delivery capability in a very challenging supply environment. And we were very successful in matching demand without any hiccups on our delivery side. And I am extremely proud of our, especially on our sourcing and operations personnel and teams on making that happen in reality. The environment in terms of the component shortage is something where the established suppliers of electronics components, not only IECs, but broader also in other electronics components, have had to inform us, like other customers, that they are unable to deliver their earlier committees. forcing us to deal with that then evident shortage of components through acting on secondary markets, through other suppliers, through redesigning our designs to match other corresponding components and being successful in terms of delivering against the demand from our customers. especially in the increasing market like we have experienced, is really, I think, a great proof of the excellent operational capabilities that we have in our high-mix, low-volume environment. The second key point I would like to take up is the fact that financial times listed the 300 European planet leaders of 2021. And it includes European companies that achieved the greatest reduction of their greenhouse gas emissions reduction between 2014 and 2019. And we are very, very proud to be on the top 20 list in Europe. Our total greenhouse gas reduction during that timeframe was 94%. And we have even improved, obviously, after 2000, sorry, during the, actually during that timeframe, it was 86.9%. And we have seen in 2019, increased that number to 94%. So I'm very proud of all of our responsible investments and behavior and happy to be among the leaders in terms of companies on fighting the climate change. Speaking of climate change, the weather and systems in the face of ever increasing extreme weather conditions, especially facing the most vulnerable nations, namely the markets, I'm very happy to see that we were able to close the Ethiopia project and now have a goal ahead to implement this in the coming three years together with the local authorities. I think this is an extremely important piece of infrastructure and even more important in the future in all nations around the world, but like I said, especially in emerging markets. We focus on culture and leadership practices, our ways of working and our future work to retain and recruit the best possible talent in the world. And to lead these activities, I'm very happy to note that we will have Timo Leskinen to join us to lead these activities. quote-unquote, quote. Vital is creating new innovations for a sustainable planet. When we look at the recent events like 3455, like I said, the very unfortunate extreme weather incidents in, for example, in Germany, in Central Europe, but also around the world, It's ever more important that we carry our responsibility of fighting climate change and really building a more sustainable. In the second quarter, I'll give you a couple of examples where we are not just talking about this, but we are actually doing this, putting our money where the mouth is in terms of launching new solutions and products to our customers to help them to create their operations to be more sustainable. And in second quarter, we launched several new products, all of which linked into one or more UN Sustainable Development Goals. These highlight really the vital purpose and drive to create products and solutions with an impact to a better world. We are closely linked to many key megatrends today, and we can play a very important role in helping, as I said, helping our customers to drive their operations and decisions to be more sustainable. Examples of products and solutions. In renewable energy side, we introduced a new dual LIDAR scanning LIDAR to the market, which is very important for building, especially for renewable solutions in wind parks. In the continuous monitoring system side, we launched a new combination of carbon dioxide probe and a wireless data logger, which is an example of use of this product is in vaccine research. And in air quality, the new sensor advances our offering to improve air quality monitoring and decision-making capability for urban communities around the world. Now, let's look at more closely into the financials during the second quarter. We had a, in terms of an order receipt, very strong quarter, but the order receipt increased by 25% compared to the previous quarter a year earlier. The increase was in both business areas. And in industrial instruments, life sciences, the market segments that led the orders received increase were industrial instruments, life sciences, meteorology, and renewable energy. Order growth continued also positively in power industry and liquid measurements and in aviation market segments. It's worth noting, obviously, that in meteorology, this includes the early announced 13 million Ethiopia contract as well. When we look at the order book, thanks to the excellent growth in orders received, I'm very happy to note that that order book is now at the all-time high of 165.3 million euros. This represents also, when we look at the quarter-on-quarter, represent the 6% growth compared to the first quarter of this year. The increase was in both business areas, and in industrial measurements, the order book grew in all market segments, and in weather and environment, the order book increased in renewable energy and meteorology market segments, whereas aviation and ground transportation experienced a decrease. We had an excellent quarter also in terms of the net sales. Net sales increased by 20%. If we look at the constant currencies, the net sales increase was 23%. The net sales increased most in industrial instruments, life sciences, meteorology, and renewable energy market segments. the net sales decreased in ground transportation and in aviation market segments. And then when we dive into the business areas, excellent performance continued in the industrial measurement side. The orders received for life sciences as well as industrial instruments were very strong. And power industry and liquid measurements were growing as well. It's worthwhile noting, while we had an excellent quarter, it's still worth noting that the second quarter comparison to previous year's second quarter, obviously the previous year's second quarter was impacted by the COVID-19 pandemic. And LEMIC, which makes the percentage growth when compared year on year a bit higher. But nevertheless, I would conclude that we had an excellent performance continuity in industry measurements. When we look at the net sales, the net sales growth increased by 31%. with increased operating result and increased EBIT percentage to an excellent 23.7% of net sales, despite somewhat lower gross margin compared to the comparison quarter last year due to the slightly different mix. The gross margin was very good at 63.7%. Again, slightly down compared to the previous year due to the same reason of sales mix. Net sales growth was strong in instruments, life science market segments, and good in power industry. And we continue to invest in the future competitiveness in terms of R&D with 12.2% of the net sales. In weather and environment business area, the strong growth in terms of our order intake continued as well. The increase in orders received was very strong in meteorology market segment. And this included, as said earlier, announced 13 million weather infrastructure projects in Ethiopia. The orders received increased also in renewable energy and aviation market segments. And in ground transportation, the market segment decreased to this very strong comparison period in last year's second quarter. We do not see any changes in terms of outlook in ground transportation. The market expectation for ground transportation is expected to be stable. In the weather and environment side, the net sales growth was 14%, and net sales grew in meteorology and renewable energy market segments especially. The net sales in ground transportation and aviation market segments at the same time decreased. The growth margin improved by one percentage point thanks to improved sales mix and increased volumes and the operating result uh improved to one million euro or one percent one and a half percentage points of net sales then uh let's look at how this adds up when looking at the looking at the first half of 2021 uh The first half net sales in Vaisala grew by 13%, and if we were to look at in constant currencies, the growth were 16%. The operating result increased following the growth in net sales. The gross margin was at previous year's level, and the operating result was 9.5 percentage points of net sales. The EPS grew significantly to 43 euro cents. And it's worth noting that the effective tax rate was low at 13%. And we estimate the effective tax rate to decline due to the ability to utilize the carry loss forwards from previously announced acquired In terms of a cash flow, we had also a strong first half driven by excellent result positive changes in networking capital as well as lower capital expenditures. Our financial position remains strong in all aspects. The capital expenses were down as investments to the very large building code they have finished, the building project, the R&D building here in Vantaa, as well as the office building in Boulder, Colorado. The 2021 capex is still slightly higher than a normal year prior to these investments, due to the fact that we are still investing and furnishing the laboratories here in the R&D building here in Vantaa. Then looking at how does the rest of the year look like? We do expect that the market for high-end industrial instruments to continue the growth at the strong start of the year in 2021. Life sciences and power industry markets are also expected to continue to grow as well as renewable energy in 2021. weather environment side. Liquid measurements market is expected to continue to recover. And in meteorology markets, developing market demand is expected to continue to suffer and recover is expected to take longer than in developed markets where we expect the market to be to be stable and in aviation market, you may recall the market declined significantly during 2020, the year 2020. And the market outlook remains weak, although some market is expected, market recovery is expected to gradually to happen. This is really a tale of two cities where where the domestic flying, if you look at underlying factors, the domestic flying has picked up in the US and in China, whereas in Europe, as well as in the continental or international travel, remains on a very depressed or decreased levels at the moment. The ground transportation market, as I said earlier, is expected to be stable. When we look at the business outlook for this year, we raised the outlook in about 10 days ago, exactly 10 days ago, based on the strong first half. And despite the risks that I spoke about in terms of the component shortage, we saw a increase in it to sort of the net sales range. We estimate now to be 400 to 420 million. and the operating results to be in the range of 40 to 50 million. The limited availability of components we see as expanding, and we do not see the end of this during this year, at least. We are actively mitigating this. And as I said, we were very successful doing this during the first half. We are facing the same issue now during the second half. We are working with our suppliers, the secondary and tertiary sources, as well as then redesigning some of our products when needed. But especially when we have to utilize spot markets to compensate for the the lack of delivery capabilities from our regular suppliers. Now, we see that the component prices on the sport market can be manifold when compared to established supplier prices that we have. So, different components, therefore, has increased the material costs and the transportation costs have increased as well. And we do estimate that these will have a negative impact on the operating results during the second half of this year. Now, just to summarize what I just said, we had an excellent growth continued in the second quarter with very strong profitability, and we ended up with an all-time high order book of 165 million euros. This is the end of the prepared remarks, and now I'll open the floor for any questions that you may have. So, operator, please.

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 to cancel. There will be a brief pause while questions are being registered. It seems like we have no questions from the line. Okay, we have one question from Marty Recknam from Carnegie. Please go ahead, Eli, it's open.