Vaisala Oyj

Hello and welcome to Vaisala Q3 2022 Interim Report Conference. My name is Priscilla and I'll be your coordinator for today's event. I'll now hand over to your host to begin today's conference. Please go ahead.

Thank you. And here I'm joined with our chairman of the board, Ville Voipio, our CFO, Karina Murinen, our head of IR, Paolo Liimatta, and myself, Kai Östömö. I'm the CEO, President and CEO of Vaisala. We had an excellent performance during the third quarter. Whether we look at orders received or net sales, both grew strongly, and I'm very happy to report also in both business areas. Our order book ended at the record level of 188 million at the end of the quarter, and the operating result increased when we look at year on year, i.e. third quarter to third quarter. The orders received grew by 25% and net sales by 20% when we compare to the same time previous year. When we look at more detail into the orders received, I said 25% compared to third quarter 2021. If we look at on constant currencies, that corresponds to 17% growth in constant currencies. As said, from both business areas and when we look deeper into the market segments that we serve in industrial instruments, life sciences, power industry, meteorology, renewable energy would be the market segments that I would mention where the demand was the strongest. The order book, as said, reached new record level again. And the increase compared to the same time last year, 14%. Same market segments where the growth came from. And then if I take weather environment also mentioned that, Renewable energy, ground transportation, aviation would be the market segments that I would highlight. Then when we look at net sales, as said, 20% growth in constant currencies that corresponds to 12% growth compared to same time last year. Very strong growth in both business areas, which is worth mentioning. And when we look into the different market segments, industrial instruments, life sciences, meteorology, aviation and renewable energy be the ones which again are merit highlighting. In terms of an operating result, as said, increased when we compared to the same time last year. This is despite the fact that the gross margin decreased to 54.7 percent compared to three percentage points higher same time last year this came due to the negative impact on component on spot purchases if you look at the entire spot purchases that had a 4.2 percentage point negative impact on the gross margin And this 4.2 percentage points then was partially offset by a higher share of more profitable product business pricing and economies of scale generated then by the higher volumes that we experienced. As we have indicated before, we continued to invest and that led into increase in operating expenses compared to the same time last year. So we continue to invest according to our growth strategy. And the other contributor, as we have mentioned in the previous quarterly calls, was the IT system renewal that we are investing in during this year. Going into the two business areas that we have, first starting from industrial measurements, excellent performance continued as it has been throughout this year. The orders received increased strongly in industrial instruments, life sciences and power industry market segments. The order book itself reached all-time high, 60% up from last year, and that corresponds to But in terms of that, if we look at it in the constant currency side, that would be 21% . When we look at industry measurements, net sales side, again, strong net sales growth, 22% corresponds to 40% in constant currencies. Industrial instruments like science in this market segment were especially strong, albeit that the growth came from all market segments. Gross margin decreased here as well in industrial measurements. Three and a half percentage points decrease in gross margin And this is really related back to the earlier comment into the component spot purchases, which in industrial measurement context had a 6.3 percentage point negative impact, which then we were able to partially offset by economies of scale through the higher volumes and other actions that we took, like pricing actions we took during the year. And the operating result ended up being 14.2%, which is up from 14.6 million, which is up from 14.2 million, same as last year, corresponding to 25.3 percentage points of net sales during the third quarter of 2022. Moving on to the weather and environment business area, As said, excellent quarters there as well. The order book ended up at the all-time high. Orders received increased strongly in meteorology and renewable energy market segments. And order book reached at the end of the quarter nearly 150 million euros. And when we look at the percentage-wise, the orders received, they grew by 21% compared to the same time last year. In terms of a net sales in weather environment, strong growth in meteorology, aviation, renewable energy market segments, same kind of a decrease in gross margin as in industrial measurements. In weather environment, the decrease was three percentage points due to the component spot purchases. which had a 2.5 percentage point negative impact on the gross margin when compared to the same time last year. And the operating result, 7.5 million euros or 9.9% of net sales. Moving on to the year-to-date financials. The operating, when we look at the year-to-date numbers, the operating profit margin improved year-on-year to 13.4 percentage points of net sales. Net sales grew by 19%, and when you turn that into constant currencies, that will be the corresponding 13% growth year-on-year. gross margin close to the previous year, which shows our capability to mitigate the increase in both in the inflationary costs on our component costs as well as the spot purchases, which now when we turn it into a year-to-date number had a this would correspond to one euro as a earning per share. Cash flow from operating activities decreased, and then this is really kind of came through mainly through the increased activities in terms of increased net sales. It's a change in the net working capital the biggest contributor to this. And our financial position continues to be strong, and it may be worth noting on the capital expenditure side that when we look at the year-to-date number, as we have indicated before, we have now returned to the normal, that's what we call a normal level, i.e. the level before that the building project that we experienced during the few past years. Then, looking at the market development and business outlook, we updated this and we see growth in the same segments as before, i.e. high-end market instruments, life sciences, power industry, liquid measurements and renewable energy. Aviation continues to recover and then meteorology and ground transportation continue to be stable. And then on the back of very strong third quarter, we raised our business outlook now October 14th. And now we see our new guidances that We estimate our full year net sales to be in the range between 500 to 520 million euros and our operating result for 2020 be in the range between 62 to 72 million euros. So if I just summarize before I open up for questions, we had an excellent very very strong third quarter very happy to report that it came from both business areas orders received net sales both grew strongly during the and the order book ended up at the record high level at 188 million and so very very happy on our performance during the third quarter and gives us a good given the strong order book gives us a good basis for continuing the performance in the fourth quarter. I'll end up with my prepared remarks here and I'll now open up the line for any questions you may have. Operator, please.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. We'll pause for a moment to allow everyone an opportunity to signal for questions. All right, we will first take our first question from Paul D. Terry from ARC Advisors. Please go ahead. Your line is open.