Vaisala Oyj

Hello, and welcome to the Vaisala Q4 results call. Throughout the call, all participants will be in listen-only mode, so there's no need to mute your own individual lines. And afterwards, there'll be a question-and-answer session. I'll now hand the floor to President and CEO, Kai Ustamo. Please begin your meeting.

So, this is Kai Ustamo. I'm the President and CEO of Vaisala, and I'm joined here with our chairperson, Ville Boipio, CFO Karina Muurinen and our head of IR Paula Liimatta. I also want to welcome you all for our fourth quarter earnings call. So fourth quarter 2021 completed a year of growth and excellent performance. We had a strong net sales growth in both business areas The orders increased by 6%, but varying performance in the two business areas. In industrial measurements, the orders were very strong, again, in all market segments. And whereas in weather environment, the orders decreased compared to fourth quarter 2020. partly due to the strong comparison period, partly due to missing the large project orders in fourth quarter 2021, whereas in fourth quarter 2020, we did have quite a bit of them there. The operating result was at comparison period level, despite the additional material costs related to component spot purchases. We did make a very conscious choice to respond to the very strong demand that we experienced during the second half, especially the second half of the year, and took, therefore, actions to ensure the materials availability, component availability to match that demand. And with this approach, we did first of all we were able to meet the strong demand we won market share and with that taking the market share we created even stronger foundation for the years years to come the cost of this was a three percentage point negative impact on the fourth quarter cross margin the good results also were followed by higher incentive costs when compared to the previous year, which is also visible in the higher operating expenses in 2022. If I look at the highlights for the Q4 2021, first notion is the strong growth in both business areas. Net sales grew mostly in industrial instruments like science, renewable energy on the industrial measurement side. And it's good to know that it actually grew very much in all the other segments as well. But the ones I mentioned were especially strong. And in weather environment side, renewable energy and meteorology market segments grew as well. We continue to invest, as our strategy is, into our offering portfolio, and we proceeded very well during the fourth quarter on continuing renewal of our portfolio with multiple launches, both hardware products, software products, and system products. And then it's also worth noting, even if it actually happened in January 2022, we acquired Aeris Weather, which is a subscription-based software company providing weather and environmental information. This acquisition supports very much our weather environment, business areas strategy to drive growth in data as a service and software as a service. And when we combine areas, weather, industry leading, data services and developer tools, we believe that we can offer the best insights and forecasts for very very important weather environmental data parameters with in the easy to use industry leading developer-centric approach and the this acquisition was was closed uh and published and closed uh in uh end of january 2022. Now, taking a deeper look into what happened in fourth quarter, as said, the orders received increased by 6% when compared to year-on-year on Paisala level. And then when we look into the two business areas, in industrial measurement, we grew actually 42% compared to year-on-year, whereas in weather environment, the decline was 14%. And as said, There's kind of a seasonality and no large orders during this quarter. So we did not see any market change. It really was more of a seasonality and lack of the big project orders happening to close in the fourth quarter. When we look at the order book in fourth quarter, the order book increased by 16% when compared to year on year. The increase was in all market segments in industrial measurements. And in weather environment, it's specifically ground size transportation and meteorology market segments. When we look at the ending order book or The other way of saying is the starting order book for this year, it actually increased 25% compared to the previous year with a very healthy level. Then looking at the net sales, strong growth, 17% year-on-year. The strong growth happened in both business areas. It was growth in all market segments again, in industrial measurement side, and in weather environment, the net sales grew in renewable energy and meteorology segments. And when we look at the aviation and ground transportation, they were on the same level as the previous year. Now, looking at deeper into the industrial measurement, I have the same headline as I had in the last quarterly results when talking about industrial measurement. Excellent performance continued. And I think that very well described how industrial measurements fared in fourth quarter. The orders received increased strongly in all market segments, as I said. And the order book, when we compare it to the year before, increased by 83%. The order book actually stood at the end of the year at 33 million euros. And it's very important to note also that when we look at this orders received It was not only that the underlying markets were growing, but we did clearly take market share and customers from our competitors' accounts that we have been trying to get for sometimes even years. years and and here very much our capable excellent products our capability to deliver and strong marketing actions clearly contributed to that success when we look at the net sales growth uh 20 26 percent uh the operating result uh was uh 9.8 million compared to 8.3 million previous year that means 19.6 percent of the net sales the when we look at the the costs from the spot purchases inside of industrial measurements they actually had a four percentage point negative impact on on the gross margin the also when we continue to invest according to our strategy of strong investments into R&D for example 11.9 percent of net sales then when we go into weather and environment As I said, the orders received decreased by 14% when compared to previous years, same time previous year. When we look into different market segments, in ground transportations, the orders actually increased, and in aviation and renewable energy were at the same level as the comparison period year before. Actual order intake was more – kind of decline in the order intake was, as I said, more or less due to the seasonality, and we do not see any significant changes in the market situation per se. And it's also worth noting that when we look at the – despite the – The decline in orders received compared to the year before, actually the order book, starting order book for this year or the ending order book for last year was on a very healthy level, also in weather environment. the operating result in weather environment where burned by both the additional material cost caused by the spot purchases as well as then exceptional costs caused by the the the that was a related to acquisitions in in previous year the operating result actually included 0.9 million exceptional costs related to that. The gross margin decreased by a little bit over two percentage points, and the component spot purchases had about two percentage points negative impact on the gross margin. And as in industrial measurement side, we continue to invest according to our strategy and renew our offering. And moving on to the full-year financials. The first notion to make is that if I look at the full year, 2021, the order intake was excellent, 19% increase compared to the previous year. There was a strong demand in the industrial business area across all market segments, led to the exceptional increase of orders received by 33% compared to previous year. When we look at the weather environment, also strong growth in order intake by 10%, exceptional increase in renewable energy and positive development also in aviation market segment. In net sales, we grew by 15% and this came from both business areas. The operating result increased by 12% from previous year despite The challenging environment, especially due to the component availability and still COVID-19 environment. The operating result when we look at the full year, 6.9 million exceptional costs related to the, as said, earlier acquisitions. And this is the last time we are going to see this related to these acquisitions, the exceptional costs, just as a reminder. The gross margin decreased slightly due to the additional material costs related to component purchases, which has had a one percentage point negative impact on gross margin. And with the confidence on company's financial position and future cash flow generation, the Board of Directors proposes now to the AGM a dividend 68 euro cents per share for 2021. And when we look at our dividend policy, this 68 euro cents is very much aligned to our dividend policy, which is that we aim to pay stable dividend, which will increase in line with net profit development. And our target, obviously, is to maintain high solvency and take all the future investments into account when deciding on the dividend. On cash flow, a very good year. Operating cash flow doubled compared to 2020, year 2020, from 41 million euros to 80 million euros. It really shows that our asset-like business model, which generates a stable and good cash flow through its operations. It's also worth – I would take two points maybe when talking about the cash flow. It's when we started or when the COVID-19 situation hit and all the difficulties – Related to this, there was a little bit of a concern on credit loss allowance, and it's very happy to report that the credit loss allowance has not materially changed at all by this. And the other point may be worth noting is the aging of receivables has actually improved in 2021 despite the market situation. Overall financial position I would summarize as strong in all aspects. The capex was down as indicated earlier. due to the fact that we finished the two R&D buildings both here in Vantaa as well as in Boulder, Colorado, earlier in the end of previous year. It was still slightly elevated from the normal year, as we've indicated, due to the fact that we continued during 2021 to furnish and invest into the laboratories in the R&D building itself here in Vantaa. Now, moving on to the market development and then outlook for this year. When we look at the market development overall, it's worth noting that we believe that the component availability will remain weak. Visibility is challenging, and the component supply constraints are expected to continue throughout this year. And that means also that the additional material costs related to spot purchases are expected to remain on a high level during the year of 2022. That being said, we believe that the underlying market to a large extent, especially on the industrial measurement side, is going to be growing and offering us quite a bit of opportunities. The market for high-end industrial instruments, life science, power industry, and liquid measurements is expected to grow. Market for meteorology and ground transportation is expected to be stable, and aviation market, we believe that is continue to recover towards the pre-pandemic levels. And I forgot to mention actually renewable energy, which we also believe that as a market is going to continue to grow during the season. And that leads into our business outlook for year 2022, where we expect that our net sales will be in the range of between 465 to 495 million euros. And our operating result EBIT, that is, will be in the range of between 55 to 70 million euros. So, if I just summarize what I said. 2021 was an excellent year for Vaisala. Year of growth, an excellent performance. Ended with a strong net sales growth in fourth quarter. Good net sales growth in both business areas. And the order intake, or let's say this way, a strong order book in both business areas as a starting order book for this year is maybe the

last point i would like to make so that conclude my concluding concludes my uh prepared remarks and uh now let's open up for any questions you may have thank you if you wish to ask a question please dial zero one on your telephone keypads now to enter the queue once your name has been announced you can ask a question if you find it's answered before it's returned to speak you can dial zero two to cancel Our first question comes from the line of Pauli Lohi of Inderes. Please go ahead, your line is open.