Vaisala Oyj

Good day and welcome to today's Vaisala First Quarter 2023 conference call. At this time, I'd like to hand the call over to Kai Oystamo. CEO, please go ahead, sir. Thank you.

This is Kai Esmer. I'm the CEO and President and CEO of Vaisala. I'm joined here with our CFO, Karina Muurinen, our Chairman of the Board, Ville Voipio, and our Head of IR, Paula Liimatta. I would like to welcome everybody on this call on Vaisala's first quarter. By far, the first start of the year was characterized by strong demand, and this all despite the market activity remaining high despite all the uncertainties in the marketplace and in the business environment overall. I would like to remind you all on the reported numbers, now on orders received and in order book, that as we announced earlier, as of beginning of 2023, we changed our reporting so that weather environment business areas subscription sales are excluded from orders received as well as from order book. and now we are separately reporting in this aggregation of net sales as subscription sales. Now, looking at really the numbers, orders received, as said, grew nicely by 11%, and order book ended in 164 million. The operating result decreased due to the investments that we did during last year in sales and marketing and into R&D, focusing on the long-term competitiveness of the company. And I'll come back to this in a few slides. The cash flow returned to what I would characterize as normal first quarter for Vaisala. Last year was burdened by a few things. First of all, the shortage of components, which led in more capital tied into component inventory than typical, as well as then the acquisition of or the closing of the acquisition of areas where there Now we are back on a good track on cash flow as well. Looking a little bit deeper into the numbers, first quarter orders received, as said, grew by 11%. The orders received grew in both business areas. And if I look at the different markets, product segments or market segments that the orders received increased strongly in meteorology, roads and automotive, as well as industrial instruments. As said, order book reached almost 164 million at the end of the quarter. That represents 14% increase to first quarter 2020 to 2022. So, nice increase on that well. And again, the increase in industrial instruments as well as power and energy markets in industrial measurement market segments and in weather environment side in all market segments contributed to this. In terms of a net sales, similarly, growth by 11% compared to the same time previous year. This time, there was no significant impact on currencies. So we are only actually noting on, it would be saying constant currencies or real currencies, 11% on both. The net sales grew in both business areas, very strongly in industrial measurements business area, and very strongly in industrial instruments, life sciences, and power and energy market segments. As said, the operating result was burdened by the investments in sales and marketing and R&D that we did during the year of 2022. these investments for long-term competitiveness both in terms of our offering as well as our reach and building that. On top of that, it's worth noting that the gross margin was at previous year's level at 61% despite the fact that component spot purchases had a minus 1.3 percentage points negative impact on the gross margin and whereas the year before the first quarter it was only 0.4 percentage points negative impact. The other thing worth noting on the operating expenses is the continued renewal of our IT systems as we've previously indicated. this continued during the first quarter, as it will continue throughout this year. Then moving into the two business areas that we have, starting with industrial measurements, Good demand during first quarter. The orders received increased by 9% and order book by 10% compared to the same time previous year. And orders received grew in industrial instruments, liquid measurements, as well as in power and energy market segments. And if we look at the net sales, very strong market net sales growth, 19% year on year. Driven really by all market segments, very strong growth in industrial instruments, life science, as well as power and energy market segments. Looking at the gross margin, it decreased from previous year and now being 62.6%. And here the spot purchases, the additional market material costs related to the spot purchases had a 1.7 percentage point negative impact on the gross margin as compared to the 0.6 the year before. The operating result was slightly above last year being 15 million euros in terms of a relative operating result being 23.8% of net sales. Then moving on to weather and environment, again, strong growth in orders received, being 13% year-on-year. This is driven by meteorology as well as roads and automotive market segments. The order book ended at the end of first quarter at $125 million. million euros that represents 13% increase to year before. And here, just again reminding you that when you look at the years 2020 and 2019, this accounting change and reporting change that I was alluding to where the subscription sales are now separately reported, they are excluded from the orders received for year 2021 and 2022, but not the years before. Net sales-wise, the year-on-year growth was 5% for weather environment, driven by automotive and renewable energy market segments. Gross margin improved from previous year, now being at 50.2 percentage points, despite the fact that, again, the component support purchases had a negative 0.9% impact on gross margin compared to the 0.2 the year before. And the improvement really came from improved mix in weather environment. The operating result being on the negative side, 1.77 million euros, again, driven by the investments that we did really throughout last year into building the competitiveness, especially in weather environment case, especially the growth areas being, as we've described earlier, renewable energy market segments as well as the subscription sales-related activities. Then if we take a look at the first quarter financials and a bit of a look into cash flow, the cash flow from operating activities increased. as a result of decrease in trade receivables. So as I said in my opening, we returned to kind of a normal first quarter behavior in Vaisala, the clear improvement from first quarter last year. And overall, the strong financial position that Weisler enjoys continued throughout the first quarter. Then looking at the market development and business outlook, This remains unchanged. So we expect the growth from most of the market segments that we serve. And the only exceptions as a market segments being meteorology and aviation, which we expect to be stable throughout the year. So there are no changes in the market development we anticipate for this year. And similarly, no change in the business outlook for 2023. So net sales-wise, our expectation is that it will be in the range between 530 to 570 million euros. And in terms of operating result, in the range between 70 and 85 million euros. So, as a summary, before opening up for Q&A, strong demand continued in the first quarter. The orders received and net sales grew both by 11%. Order book ended up in a good result. Operating result somewhat burdened by the investment, long-term investments that we have been doing throughout last year. And then... The cash flow from operating activity is clearly improved from previous year. With that, operator, I would like to open up for Q&A.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll now take our first question from Matti Riikkonen from Carnegie. Please go ahead.