Vaisala Oyj

Welcome to Vaisala's third quarter results call. I am here with our CFO Heli Liimatta, our head of IAR... Now I'm confused. Let's restart. I'm joined here with our CFO Heli Lindfors, our head of IAR, Paula Liimatta, and our chair, Ville Voipio. When we look at the third quarter numbers, as the headline said, it was a solid quarter with very strong orders received. If you dive into the headline numbers, the net sales grew by 5% year on year. I'll go into more detail, obviously, in where that came from and how it was split between the different business areas. Orders received grew strongly, 26%, resulting in record high order book. And if you compare the order book to the same time previous year, it's actually up 28%. On the back of the Spanish big radar order, but also contributed by other things and very happy to see also the development on industrial measurement side. The operating margin result was on a very good level as well, 17.7%. Somewhat down from the previous year, but I think that, I'll go into the why that was, but that there are, if you remember the last year's third quarter, it was the extraordinary situation where we did, profit warning and that resulted in release of many of the bonuses which actually contributed to in-quarter operating expenses which to a large extent actually explains the difference between the two years. Then on other notable things happening in the quarter was the acquisition of Speedwell Climate, which we acquired to expand our subscription-based business. Speedwell Climate actually is in a business of providing high quality weather related data to especially insurance needs. It's a company who is specialized on it. We have been ourselves been moving into providing also our excellent world's leading weather data to insurance companies. But these acquisitions will obviously speed our access and give us also assets that we did not have before. And we see this as a great step forward in the strategy of expanding the subscription-based business overall. You have seen this slide before. This is our strategy, mission, vision, and strategy on one slide. This time around, I'll talk to you kind of the progress that we made on the products and technology leadership side. So we launched three very important products, which I think have also short, medium-term impact, but also a strategic longer-term impact. The ViewLink Cloud is a first product a continuous monitoring product that is fully in cloud, and it really will help our life sciences customers to monitor alarm report on facility conditions and so on. The notable thing is now having all this functionality, not only on-premise solutions as we have had before and continue to have, but also in a fully cloud environment, which obviously the world is moving towards. And it both complements our offering, but also it's a really important step for kind of having a... continue to have a leading offering also in the future. The Vaisala Compass is a weather-based decision-making platform for renewable energy. What it actually does, in plain English, is that for our renewable energy customers, especially the customers that are buying, for example, our LiDAR products, This platform now enables the ingestion of the data that our LiDARs produce. It also enables post-processing and manipulation of that data, so the customers see what is valuable for them and also how to integrate that data into their own platforms. And so really it's a very important move for increasing value added to our LIDARs, to our renewable energy customers. very important product and increasing our already leading offering in this space and furthering our lead on it and it's something that our competitors would not have in it. So it's both a short and medium-term impact but also a long-term impact as I was saying. MGP-231, which measures humidity and CO2, and is specifically designed for applications like carbon capture utilization and storage. And while you may say that right now the CCUS projects are relatively small, they are more of a pilot type exercises at the moment, even if some of them are in an industrial size, but it's a small industry at the moment. That being said, if we look at the climate change and what kind of solutions are must to reverse the trend and start to capture the carbon from the atmosphere that humanity has been releasing, especially in the industrial age, carbon capture is a must. It really is kind of a key part of the solution. And while the real industrial size and scale of CCUS projects and solutions may be in some time in the future, It's crucial to be actually part of the pilot and the specification of how that industrial scale solutions are going to be made. The MGP-231 is a good example of how It's not only the business that we can make today, but how do you position yourself in a way that you are actually part of how the actual designs and the solutions that are going to be a large scale are going to be in the future. In this specific case, CCUS. which will be bearing fruit in the years to come. And I think it's, if you are in this phase, then you know what your competition would not know. You are actually, you understand the dynamic, what is really important in the process itself and so on. So really, really important strategically, not only short, medium-term business, but strategically for our competitiveness for years to come. Talking about the future, in the quarter, we announced the changes in the leadership team. And I want to use the opportunity to thank our long-term leader in industrial measurement, who has been instrumental in actually turning it from a relatively small, when he joined the company, it was about 70 million business. And we ended last year in 230 million business. So an instrumental in increasing the value for the shareholders, transforming the company. and creating together with his team, creating a completely new and different position for the entire company, not only in the industrial measurements and leaving a very, very solid foundation for his successor. And so then Jarkko Sairanen will assume the role of head of industrial measurements. And then on weather environment side, Anne Jalkala will take the core part of it, which is weather, energy and environment, which consists both the traditional side of the meteorology as well as the renewable energy side. And then Samuli Hanninen continues to lead the ex-weather side of it. And Samuli will also be part of the Part of the leadership team as of January 2025, all the changes are happening in January 2025. And I think we have a great team to lead and continue to execute the strategy and execute the strategy for growth. Now let's look at the deeper dive into financials. Starting with the operating margin, as I said earlier, 17.7% on a good level. The orders received very strong, as I said, and the order broke, as I said, on a record high level, 28% up compared to the year before. Net sales increased by 5% year on year and what was driving that was large orders received during the past quarters and then it was very good to see also the growth of subscription sales which now in quarter was 18%. Resulting in gross margin of roughly on last year's level 57.3% And cash conversion continued on a very good level as well. Now, if we look at a little bit more deeper into the business areas, starting with industrial measurements, it was very satisfying to see that the net sales growth continued. starting maybe from orders received, which increased 12% year on year. And that resulted in order book being up by 5% when we compared to the year before. Net sales growth increased to 6% year-on-year, and the gross margin slight decrease compared to previous year, and this is really explained by mixed changes and normal shifts between the quarters, nothing specific on it. And EBIT being back on a very good level, so if you look at the EBIT percentage of being almost 27%, I'm very glad to see that we are back on those levels. On weather environment, I would say very solid performance, excellent result on orders received, up by 36% year on year, resulting in order book being 34% up compared to the end of 23. so the order book that we started the year with. And then net sales increased by 4% when we compared to the year before. If we look at where did the growth come from, mainly from large orders received during the past quarters, and then as I said before, the good result and good growth on subscription sales. Some decrease on gross margin, again, product mix, and on this quarter, now higher share of project business compared to the comparison period a year before. And this resulted in EBIT margin of 11.1%, slightly down from the year before, but on a very good level. Cash flow side, as said before, continued on a very good level. The cash flow operating activities, some decrease, but this is really increase of, coming back from an increase in net working capital on a back of, kind of being back on growth overall from a sales side. We also did, it's worth noting that we did an early prepayment regarding our term loan in April. Cash conversion stayed on a very good level as well. Then if we look at our track record from year to date, the net sales and gross margin are flat compared to year before. It's worth noting that this is on the back of very challenging first quarter. So if you look at where we were on kind of end of first quarter and where we are now at the end of third quarter, I'm actually quite happy with the progress that we are now slightly ahead in terms of net sales compared to the year before, and likewise slightly ahead in gross profit compared to the year before. And clearly, if we take the result for the period, then ahead of where we were compared to the same time previous year, obviously seen in the EPS as well. I said before, this headline stays the same, has been staying the same for a long time in our presentations, strong financial position, and there's not really anything specific to highlight on our balance sheet side. Maybe the one thing to note is that the automated logistics center investment that we announced earlier is progressing according to the plan and the building is right outside of the window that I'm looking at is actually, the cranes are building it and the roof is coming together as we speak. So we are progressing well on that project and obviously will be giving us a good advantage on various different ways when it's done middle to third quarter of next year. Then into market and business outlook, no changes in market, major changes in market outlook. Maybe one thing worth noting is we've moved renewable energy to be stable and this is on the back of as we can read in the papers as well that a little bit of a slower period of especially wind energy investments around the world on a back of high interest rates and so on has no impact on our view on renewable energy longer term that we still are seeing that as a major opportunity and we are The investments into renewable energy are just in the beginning phase and the lead on investments on this going forward will remain very, very high in the coming years. And no changes in the business outlook, the net sales range that we estimate between 540 to 570 million, and the operating margin range between 68 and 78 million, no changes on those. And I want to finish this with just an advertisement on our Capital Markets Day, which is going to be held on November 11th. at 2 p.m. here in Helsinki. So I would warmly welcome everybody to participate either in person or online. We will be streaming the event as well. Obviously, being present here, we would very much welcome you and want to see you here. And we will be organizing the following day for the participants an opportunity to see our production and our R&D facilities as well. So with that, I want to close this session and open up for questions.

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 Indears. Please go ahead.

Hello, Kai, and thank you for your presentation. First, I would like to ask about the industrial segment outlook. If you look to the global manufacturing PMI indicators, there was some recovery in the spring, but the last few months have seen negative development in there. So I would like to ask how comfortable you are about your market guidance given some setbacks in general industrial activity indicators?