Vaisala Oyj

Good day and welcome to today's Vaisala second quarter 2023 conference call. This meeting is being recorded. At this time, I'd like to hand the call over to Vaisala president and CEO, Mr. Kai Oistamo. Please go ahead, sir.

Thank you and welcome for the second quarter, Vaisala second quarter call from my side as well. My name is Kai Oistamo. I'm the president and CEO of the company and I'm joined here with the Our CFO, Eli Lindfors, Päivi Liimatta, our head of IR, and our chairman of the board, Ville Voipio. I think I have lost the presentation machine. Sorry. Sorry. Yep. So, if I... Characterized the second quarter really was about uncertain market and actually pretty good performance in an uncertain market. So if we look at the numbers... Here we go. If you look at the numbers, actually our net sales grew by 9% and We had a higher EBIT than year before same time. That being said, the growth came from a different place than it has been for a while now. So growth and orders received, net sales was really driven by weather and environment, a great performance on that side. And at the same time, more muted performance on industrial measurement side. That also led into us giving a revised outlook on July the 17th, and I'll repeat that at the end of my prepared notes. So if we start with orders received, really on a company level grew by 5%. If we take in a constant currency, that would translate into 7% growth year on year. orders received really grew from, as said, weather, environment, business area having a great quarter, at the same time, decrease in industrial measurement, business area side. If we look at the market segment, the orders received grew strongly in roads and automotive having a great quarter, as well as in renewable energy, as well as then in power and energy market. That translated into order book being 167 million at the end of the quarter, order book being flat year-on-year on industrial measurement side, and the increase to the order book came from the above-mentioned market segments, automotive, meteorology, renewable energy, and weather environment, business area overall. Turning into net sales, a nice 9% growth year-on-year in terms of net sales growth in constant currency that would translate into 11% growth year-on-year on a company level. The driver behind was weather, environment, business area, while industrial measurements decreased in terms of net sales compared to the same time previous year. In terms of, again, market segments, same market segments, renewable energy, roads and automotive market segments, as well as the subscription sales grew as well nicely over the same time previous year. Then if we look at the operating result, year-on-year comparison on a company level, I'll start with the gross margin. Gross margin was on the same level as the year before. The component purchases continued to have a negative impact this time, a little bit less than a percentage point, so 0.8 percentage points. The operating expenses continued to increase. This is on the back of both the investments that we did already last year in terms of sales and marketing in R&D and the renewal of our IT systems. We are in the middle of renewing our ERP and the related systems, and that continued into this year, and that was then visible, of course, on the operating result line as well. Then taking a little bit of a deep dive into the business areas and starting with industrial measurements, the second quarter orders received in industrial measurements decreased by 6% year on year. If I, again, take the constant currency, this would translate into 3% decline in orders received. And if I look at where in terms of market areas, And then industrial instruments, life sciences are the ones which really contributed to the negativity this time around. The order book stayed flat when we compared to last year's, same time last year in terms of the ending order book that we had after second quarter. Net sales-wise, industrial measurement had a 3% decrease year-on-year. The constant currency, that would have been a flat zero. And where did it come from? Life sciences market segment was the one which this time around was the weak one. And the gross margin side, a significant decline to 59.7 percentage points. The issues that contributed to this were obviously the, as I mentioned earlier, component spot purchases continued to have an impact on when we look at it at this time, like said, less than before, but still 1.2 percentage points negative impact on gross margin. But then specifically, maybe to this quarter, the price pressure and unfavorable mix burden to cross-margin. If I open that up a bit, what we saw in the marketplace was that due to the uncertain market environment, economic environment, the higher interest rates, our customers postponed re-evaluated, mainly really postponed their industrial investments. And that then translated into softer demand into our products. We did not see really cancellations of the projects. They really moved forward in time. That would be one. And then geographically as well, if I look at kind of specifics, China, was clearly softer than we anticipated during the second quarter. There was some softness anticipated already. Typically, after the party congress, there's a little bit of a regrouping time in the investments in China. This time, that and the uncertainty and maybe the the slowness on picking up post-COVID in the economy contributed to China being clearly a slower and softer market that we anticipated. The softness in the marketplace also then led into more of a price competition, especially in China, which then is visible in the gross margin as well. did not see any new competition per se, we did not lose market share or anything of that nature. So in a summary, price pressure, unfavorable product mix was the cause of this due to the uncertain, really an uncertain economic environment around the world. So all this resulted in decrease in operating result as well to 6.8 million euros during the quarter. Very different story on weather environment side. A great quarter, I would characterize. Strong growth in orders received. Biggest contributors being roads and automotive, renewable energy, subscription sales, Order book grew by 8 percentage points compared to that same time previous year. And growth in terms of operating and cost appliances would have been actually even 16%. So, as I said, a great quarter in orders received. Similarly, in net sales, a very strong quarter for weather environment. 18% year-on-year growth, constant currency, that would have been even 20%. Then where we come from, I've already mentioned renewable energy, excuse me, roads and automotive, meteorology, as well as then the subscription sales. The gross margin improved also from previous year. over three percentage points and here the low clearly lower components for purchases compared to previous year contributed that to that but also I'm very happy to report the good execution of our strategy where we see that growth of our newer market segments newer businesses where inherently there's a higher gross margin now taking bigger share of the business in in weather environment also being visible in the cross-margin during the second quarter, i.e. stronger share of the sales from renewable energy, stronger share of the sales through subscription sales as well. And that all led into an increase in operating result compared to the same time previous year as well. Then if I take a look at the first half overall, first on the cash flow side, we had a good cash flow from operating activities increased as we had been indicating before. That being said, the somewhat softer quarter than anticipated uh related that the uh the uh our component inventories uh did somewhat increase and uh and tie up a little bit of a capital uh but despite this said operating operating uh cash flow actually did increase during during the first half our financial position continues to be strong no material changes in that during the first half compared to the previous years. Then into market development and business outlook. Longer term, we believe that the market trends and the market position that we have has not really changed. The underlying themes in terms of Investments in the world into life sciences, pharma, biopharma, investments in the world to renewable energy, as an example, have not gone anywhere, and we continue to be longer term. We are situated very well in terms of a growing market. Now, in terms of a Outlook for the second half of this year, we continue to believe that the majority of the market segments that we serve continue to be growth markets, and the exceptions being meteorology and aviation. As before, the outlook is that they are stable as both of them are mature markets, as we have indicated before. And all of this then led into us revising our business outlook for 23, July 17th, in such a way that we now estimate, we narrowed the net sales range, and now we estimate net sales for this year to be in the range between 530 to 550. 60 million euros and our operating result being in the range between 65 to 75 million euros. So a mixed quarter. Uncertain underlying market led into softer market in industrial measurements and weaker numbers on that side. On the other hand, very good performance on weather environment side and a good execution on the strategy as well. Overall, really just a Recapping the net sales, we did grow net sales close to 10% year-on-year and expansion on EBIT side as well. And I just went through the outlook as well. So I'll stop my prepared remarks here and I'll open up the line for any questions you may have.

Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you wish to cancel your request, please press star 2. I will pause for just a moment to allow you to signal. The first question comes from Pauli Lohi from Inderes. Please go ahead.