Vaisala Oyj

Welcome to Vaisala's bi-annual January, June and second quarter report. I am Kai Österman, president and CEO. I'm joined here with Heli Lindfors, our CFO, and Paula Liimatta, our head of IR. The second quarter was characterized by strong growth in terms of orders received and net sales and good profitability. If we look more into the numbers, first notion is that both business areas performed well after the slow start that we had in the year, especially on the industrial measurement side. We grew net sales by 13% year on year. The order book grew by 14% when we compared to the order book that we had in the beginning of the year. And then orders received grew likewise by 14%. This all resulted in operating margin being 15.9%. on a very good level, especially given it is second quarter for our somewhat cyclical business. More qualitatively, I would say that the industrial measurement, it was great to be seeing that back on growth. I'll go more into the details in a little while on both business areas. On weather environment, I would say it was a strong quarter in all aspects. The two things that I would like to kind of raise at this point in terms of specific things in the quarter, in terms of a business, the high growth in subscription sales, 16%, was very pleasing to see. And likewise, the services sale growing, especially in the industrial measurement side. It really was great to see the good work that we have been doing building that business, building the capabilities and the channels and productizing the offering as well, getting it under control together with the increased embedded base that we have been building over the past few years really kind of came to fruition in the way that it did in the second quarter was extremely pleasing. In terms of the market view on the year, the year 2024, remains unchanged. I'll go more into details on that at the end of the presentation. And then the business outlook, as you may have noticed, we narrowed the outlook as we are in the middle of the year. And we have a little bit more grounds, better grounds on making the estimates for what the annual performance is. I'll get more into the numbers later on. But I'll start with the strategy implementation. And this may now start to look familiar. This is a strategy one pager on what we are, who we are, and what are the key strategies, strategic priorities, what's our purpose as a company. and what the megatrends we are living. Reminding that we are, it really is the canvas that we are looking at is climate change. We think that that's by far the biggest challenge. And therefore, for us, as we are on the right side of the climate change, we are part of the solution provider for our customers to be more sustainable, be more be able to improve their performance vis-a-vis climate change, we think that that's a huge opportunity leading into the purpose of the company taking every measure for the planet. A couple of things on the quarter, highlighting on the strategy execution. The bubbles on the right, the one you see on the bottom row, drive profitability as a leader of weather systems. This is something that I have been talking about over the couple of quarters already. I am extremely pleased to see how, when we changed the strategy some two and a half, three years ago, on really driving this for profitability. Now that really has been coming to fruition in a systematic way. We have been able to improve. I think this is now a seventh or eighth quarter in a row, which is a big contributor, especially on the weather environment side. in the improved profitability. And I think it's a great example of how clarity on the strategy and then clear execution can lead into good results. The other thing on a key competence side and capability in terms of, for example, taking full use of digitalization and AI, we continue to invest into our own capabilities. And I would like to also take the opportunity to welcome Girish Agarwal to join the company and the leadership team being the chief digital and information officer. I think he brings along kind of capabilities and experience to help us to be even more nimble, effective and really be able to take the capabilities to the next level. Then a couple of examples of how this strategy is kind of realized in practice in different parts of the company, different parts of the offering that we do. First on the left, we have the the continuous monitoring deal with the warehousing and distribution facilities of PostNUD in Sweden, whereby PostNUD is capable now, through our equipment, make sure that their warehouses and distribution facilities stay in the desired parameters, verify that the medical products, the pharma products distributed stay good and they are safe to use for the consumers and the society. Extremely important part and I think all of us can relate to that. In the middle, the example on the weather environment, more of a traditional side, is the new weather radar and wind shear products in the airport in the Dominican Republic that we built. And here is, again, a a place in the Caribbean where the harsh weather can be really harsh and it's extremely important to have the right information to really ensure the safe takeoffs and landings and the capacity of the airport and it's a great example of how we contribute to this. This may be also a good moment to comment on the on the sizeable weather radar deal that we received from Spain, Spanish authorities. As you have heard, it takes time from the award to actually signing of the contract, but we are at the final stages of this, and I would expect that coming weeks, if not coming days, actually, we get this finalized, but it is not yet in the order book order numbers that I am presenting today. The last one is the real-time air quality data now visible on BMW group cars, so minis and BMWs. And this is a great example, kind of building on the weather data that we have been providing to the same cars, not only BMW, but other brands, many other brands as well. But here it's building on the capabilities we are building, kind of bringing more to the customers and not only showing the weather data, but also the air quality data that then helps the drivers to adjust the indoor airflow in polluted areas and then decide which way, where do they want to park, where do they want to maybe then kind of exit the car and so on to avoid health risks. But now moving on into the financials and taking a little bit more deep dive into them. First, on Vaisala level, as said, the orders received and net sales grew strongly. The order book ended up at the record high, almost 200 million, up 14% when compared to the beginning of the year or end of last year. and net sales increased by 13%. Here, as I will go through and when I look at the business areas, two things maybe to note on the net sales side, especially on the industrial measurement side, we have to take into account when we look at the year-on-year comparisons, it's good to note that the second quarter last year was difficult for us, so the comparison period when I may have said it in the first quarter call that it was difficult this time around, it's fair to say that it's this little bit easier comparison period, taking nothing away from our performance. And on the other hand, on the weather environment side, the net sales on weather environment side, as usual, it's between the quarters, there's movement in terms of where the project sales are realized. And in this quarter, we are a little bit benefiting from a relatively lower first quarter where We had less project sales realized in the first quarter. Now we got more in the second quarter. So this kind of shifts between the quarters are normal in the weather and environment side. As said, the services sales increase was a big contributor, especially on the industrial measurement side for the growth. And it's also good for the health of the business. The gross margin improved to 57%, almost two percentage points up compared to the previous year. The business mix contributes to this, and then also the higher net sales increases the scale. And then, as we have noticed earlier as well, that the business is highly scalable. Higher net sales easily then converts to a higher gross margin often in our business. In terms of industrial measurements, it really is satisfying to see back on green numbers. Orders received increased 8% when we compare year on year. The order book up 3% when we compared to the end of last year. And remembering that the end of last year, we did take some orders in anticipation for the ERP change that we had during the first quarter and anticipating some difficulties on short-term delivering at that point or taking orders actually at that point. Then net sales-wise increase 7% year-on-year. As I said earlier, yes, the comparison period was a little bit soft last year. And a big contributor to the net sales growth was the services sales, which actually, when we look at industry measurements alone, it's 43% year-on-year growth, which is really satisfying to see. Gross margin improved likewise. Again, same explanations, economies of scale through to the volume increase as well as the favorable sales mix. And it's great also to see the EBIT being back on the 20s, so 21.7% EBIT margin for the quarter. Then on weather and environment side, As the headline says, strong quarter in all aspects. Orders received grew 18% year on year. Order book, 17% compared to the end of last year. Net sales, the same, 18% year on year. As I said, what you have to note in the quarter, though, is that growth was mainly driven by large orders received during the past quarters, and there's a higher percentage of realized project sales in second quarter, for example, when you compare to the first quarter. So these kind of quarterly shifts, as you can see from the graph as well, are typical in this type of a business. Nevertheless, very satisfying quarter. Subscription sales, as I said, 16% growth year on year, good progress on that strategy. And then due to the economic scale, high net sales, high volumes, the gross margin improved as well, leading into EBIT margin of 12.2%, almost doubling from the comparison period year before. From a cash flow perspective, we continued on a good level. Cash flow from operating activities decreased a little bit despite the increase in net result, and this is due to the increase on the net working capital, mainly driven by actually the growth and the the example would be that both the increased net sales will will require more net working networking capital as well as then the order book that we have does require uh especially in the project business uh does it kind of when it grows it dies more and more networking capital so that's actually explanation for this we did have a dividend payment of of the 27.2 million in the quarter as well. Likewise, it's worth to note that we prepaid our bank loan by 15 million during the quarter as well. Free cash flow in the quarter was around 18 million euros. Then when we look at the The half a year, as we are an engineering company, the headline is equation. So weak first quarter plus strong second quarter equates to solid first half. And I think actually that equation is spot on. And we kind of came back from the weak quarter, both in terms of our weather environment, like I said, timings of some of the project revenue, as well as then especially on the BIM side, on the difficulties that we had due to the ERP change and simultaneous industrial actions during the first quarter. And now in the second quarter, we did not experience any of those disturbances in the quarter as such. And then when we look at the half a year EBIT margin 11% up from previous year, two percentage points, a little bit over two percentage points, and likewise EPS nicely up compared to the previous year. Maybe on the operating expenses side, Worth to note the two things. We obviously launched the ERP already in the first quarter and now we are gradually seeing decline on the investments into the IT, basically the ERP side. We are still... increased level still in the second quarter and continues to be in the third quarter, but gradually it is declining. And then the R&D costs, as the bullet point says, minus five percentage points year on year. Here it's more on being prudent on where do we spend the money partly also insourcing kind of some of our external R&D that happened already last year now we are getting the benefit of it and then the part of it is also the the reduction in force and the rescoping of the R&D that we did at the end of last year in the weather environment in the traditional side of the business, which kind of all contributed to the small decline on R&D costs. Financial position remains strong, low leverage on the balance sheet as usual. And just as a reminder, we have a very asset light business model on it. I don't think there's really anything to highlight maybe on this slide other than really the points that I made, strong financial position and through the asset-light business model and low leverage in the balance sheet. Then into the market and business outlook. The outlook remains unchanged. So this is unchanged from the start of the year. Exactly as we said from the beginning of the year, the markets remain unchanged. uncertain and predictable. There's lots of uncertainty in terms of the timings of investments and so on. The overall economic outlook in the world remains uncertain. Timings of, for example, interest rates cuts and so on, as we all know, are very difficult to predict, leading into a host of uncertainty in customer behavior and end-user behavior. That all being said, we see the market as we said earlier, we are seeing this year the market size being roughly on the same level as what it was in the second quarter last year in the industrial measurement side. That all being said, we are seeing early signs of of recovery happening in North America, not really anywhere else at the moment. It's still very early, and we do expect that this early recovery will kind of continue towards the second half of this year and the end of the year, so being kind of more visible at the end of the year. But then sort of uncertainties, how I would characterize still at the marketplace today. And with all that, we then specified the business outlook for 2024. We narrowed the range on net sales from 550,000 530 million to 570 million to 540 to 570 million. And then likewise in the operating result, we narrowed correspondingly. Earlier we had from 63 to 78 million euros operating result anticipated. Now we are saying we would be in the range of 68 to 78 million euros. With that, I would like to conclude my prepared remarks, and I would like to open for any questions you may have.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Pauli Lohi from Indias. Please go ahead.

Hello guys and thank you for the presentation. I would like to first ask about the order intake in the weather and environment business area. It was very strong with Spain order not included in the book. So what were the main drivers there?