Vaisala Oyj

Hello and welcome to the Vaisala third quarter earnings call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand you over to your host, Kai Hoistamä, to begin today's conference. Thank you.

Thank you, and welcome also from my part to Vaisala's third quarter earnings call. I'm accompanied here with Pille Voipio, our chairman of the board, Heli Lindfors, our CFO, and Paula Liimatta, our head of IR. My name is Kai Hoistamä, I'm the president and CEO. So our third quarter really was characterized by increasing profitability following improvement in gross margin. If we look at our net sales, Slight decrease of 2% compared to the year before. If we take constant currency, that would have been actually 2% increase. Order book ended at 166 million. And as said, operating result improved year on year. EB ending up at a little bit over 25 million euros. and the cash flow from operating activities returned to what I would characterize as a normal level as we were predicting. So, if we take a little bit closer look into the numbers, the orders received wise, there was a decrease by 8% that came from both business areas. especially on industrial measurements, but I'll get to them in more detail when I go through the business areas. And if we look at the market segments, there are multiple different market segments which contributed to this. And again, I'll give you more color when we go into the different business areas. As said earlier, the order book ended up at 166 million. on roughly on the same level as last year, which I would characterize as a good level for given the market environment at the moment. I already mentioned in terms of a net sales, we experienced a decrease by 2%, which would have been a growth of 2% in constant currencies. when we look at what business areas contributed, how, so industrial measurement decreased and weather environment was in previous years level in terms of market areas, growth from renewable energy, roads and automotive, as well as then power and energy market segments. Moving on to operating result, as said, the operating result increased, and when we look at the contributors to this, the gross margin improved to 58%, and here we got a The benefit of significantly reduced component spot purchases now, which had now on this year only 0.7 percentage point negative impact compared to 4.2 percentage point negative impact same time last year. so improved gross margin and then on the other hand on operating expenses we were on at the previous year's level and there obviously when we look at that between the quarters within the year we typically have a seasonality in the operating expenses whereby the third quarter is the lowest within a year in operating expenses driven by holidays, lower activity and so on in the third quarter and same thing happened this year as in the previous years. That all being said, we continued our IT investments into the new ERP system, which we are planning to go live early next year, as well as we continued the key investments on sales and marketing, as well as in R&D to ensure the long-term competitiveness of the company. Then if I move on to a little bit deeper look into the two business areas, starting with industrial measurements, In industrial measurements, the orders received decreased by 14% when compared to the same time previous year. The decrease was in industrial instruments, life sciences, as well as in the power and energy market segments. The foreign exchange rates were also impacting here. The decrease would have been only 8% in constant currencies. And if we look at that, where specifically did it come from? The Chinese Yuan, Japanese Yen and Dollar contributed mostly to this FX impact. In terms of a market share, we believe that we did not lose any market share. We did not gain market share either, but the market share was stable, just like it has been during this year in the previous quarters. Then in terms of an operating result, we did improve the operating result despite the decrease in net sales. The net sales decreased in life sciences and industry instruments. market segments at the same time the gross margin improved to 64 percent and here the again the same thing as on buy seller level the positive impact on significantly reduced component spot purchases compared to the same time last year did contribute quite a bit positively to this and then the continued market environment where unfavorable market makes meaning that focus on older products as well as then some price pressure continued then burdened on the other hand on the gross margin. In operating expenses we were on the same level as the previous year and this all then resulted that the operating result was at previous year's level at almost exactly 14.7 million euros, 100,000 euros more than the year before, being then 27.3% of net sales. Moving to weather environment. When we look at orders received, we were roughly on the same level as the previous year. Then variations in the different market segments, meteorology somewhat decreased, very strong on aviation. I would characterize this as normal kind of variance. between the different quarters in these markets. This is what we typically experience as well. The order book increased by 7% to 131.5 million euros. And maybe it's worthwhile here as well that if we look at the orders received, actually slight increase if we again look at in the constant currencies. In terms of an operating result, the margin again improved. First of all, the net sales grew strongly in renewable energy roads. an automotive but then straight decreased in aviation in this quarter again driven by various different projects in aviation you know that you notice the discrepancy on strong in orders receive weakness in net sales and this is again the normal variation between the quarters in this more traditional market segments that we have. In terms of gross margin, similar increases in industry measurement. There's clearly a tailwind from clearly lower spot purchases or costs related to spot purchases now only being 0.6 percentage point negative now compared to the 2.5 percentage points negative. year before and then the other positive contributor to the gross margin was higher share of more profitable products and as well as then higher share and growth in the subscription sales which have a high gross margin and thus created the overall gross margin. Overall, the result of this was that the operating result increased to 13.7 percentage points of net sales. So good quarter in weather environment. Then if I move on to where are we faring within the year, so what was the situation after the first nine months of 2023? I would characterize it as the headline here says, resilience in net sales and operating result, slight increase to the same time previous year, a growth of 5%, constant currency-wise actually would have been 8%, gross margin on a similar level as previous year. And then operating margin, slight decrease, and again driven by the incremental investments that we have been doing on what I would characterize in a normal course of business in terms of R&D and sales and marketing, as well as then the significant investments that we have been doing into the IT system renewals. This all resulting into roughly flat on earnings per share if we take that metric. Cash flow-wise, as I said in the opening slide, we are back on a normal level in terms of cash flow. no nothing dramatic on this and as we've indicated before it's we've been able to deliver on the promises on getting kind of more normal levels in terms of a cash flow and this leading into if we look at the financial position again the same headline I've been showing for the past three years strong financial position so no news on this We essentially, if we look at our net cash position, we are essentially debt-free, and all the financial metrics show a very, very healthy company. Then maybe two interesting parts of the call for you. On the market development for the remaining part of the year, The only change in this would be that we see now a slowdown not only in life science, but also in high-end industrial instruments, driven by the uncertainty and uncertainty lack of new investments by our customers. So we are not seeing kind of big new factory investments, big new renewals of production systems or investments into warehouses and laboratories and things of that nature, which would be driving really the high-end instrumentation growth. Partly also at least in part of our customer base in their own business and this is not a reference to our sales channel but our customers change the sales channel that the sales channel has been relatively full and given the uncertainty in the marketplace it has been they have been digesting the higher than usual sales channel leading into again slower investment decisions than usual. Then if we look at the business output for 2023, no changes on this. So we continue to see net sales being between 530 to 560 million euros and operating result being between 65 and 75 million euros. So if I just summarize the third quarter, the profitability increased following the improvement on gross margin, net sales essentially flat compared to previous year, order book on a healthy level, operating result actually increasing to the same time previous year, and cash flow on a normalized healthy level. With that, I would like to conclude and open up for any questions that you may have.

Thank you. 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. If you change your mind and want to withdraw your question, it's star 2. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question. Our first question comes from a line of Pauli Aioi from Inderes. Please go ahead.