Vaisala Oyj

So more than half of this decrease is explained by changes in the currency exchange rates. Strong growth, but more interestingly, what's happening underlying on the top-level numbers is the strong growth in industrial measurements and in subscription sales, and at the same time, weak demand in renewable energy, which then impacted the net sales significantly on that side of the business as well. The gross margin on a good level, albeit a slight decline compared to kind of second quarter last year, and the gas conversion continued strong, and I'll show you a slide on that as well. Industrial measurements, a very good quarter. Growth continued in all geographic areas and all market segments. It's great to see. It has not been the case for quite some time in industrial measurements that I can actually say say that the growth really comes from all geographic areas and all market segments. In terms of orders received, increased compared to a very strong comparable year-on-year by 10%, and net sales correspondingly increased by the same 10%. The growth in America has continued strong, but it's clear growth also in Europe and in Asia, as well as in all market segments that we serve. slight decline in gross margin compared to exceptionally high level kind of same time last year, but well in the range that I can say that it was – I can be very happy about the gross margin as well as on the EBITDA level on industrial measurement side. Mixed inside of weather environment, weak market demand in renewable energy. So orders received decreased, as said, significantly when compared to strong comparison point, albeit a strong comparison point last year, 32%. and the order broke, consequently, 7% down compared to the end of last year. And then net sales decreased by 10% compared to the same time last year, which, again, was a strong note not only in orders received, but also in net sales, as you can see from the graph on the right on the slide. And where did it come from? It came from slowdown in the renewable energy market. Maybe you can have a worthwhile little bit opening up what this means is the Investments into especially wind, as we've said before in previous calls, have slowed down around the world. There are kind of specific markets also that where we operate in. This has now kind of gone into the early phases also in terms of a new potential wind park explorations, which is really where we have the biggest exposure in renewable energy business. And many of the markets or some of the markets where we are kind of being specifically strong, like Central Europe or Japan, have kind of slowed down significantly. So the impact on the market kind of comes through fully in our numbers. But also the complete slowdown in the U.S. as the – The administration changed and the regulations are in flux in the U.S. This has caused a complete kind of slowdown in the U.S., which obviously is seen also in our demand and in our numbers. In subscription sales, I said this earlier as well, very strong growth, 53% growth in subscription sales. And this is obviously coming from the acquired businesses and also very happy on the organic growth of 11% year on year. on underlying business on subscription sales. So continue to progress very, very well on the subscription sales business driven by the ex-weather business that we have. In weather environment, it's worthwhile also in the order intake side, maybe a few words on the traditional side of the business. And I referred back to the cyclicality of nature of that business, kind of a couple of maybe opening up a couple of pointers to that, like if we compare to the last slide. Last year or the second quarter last year or last year and partly the year before, the cycle was driven up in... in a couple of things, one thing being, as an example, the use of COVID-19 recovery fund for renewing meteorology infrastructure, especially in Southern Europe. We benefited quite a bit from that during the past two years. Kind of a prime example of that was the investment in the complete new radar system radar network in Spain, but also in Greece and many other smaller deals in other countries in Southern Europe. The use of that fund, obviously, now finally is over, and at the same time, many of those investments now are on the way. Second thing, albeit much smaller impact, but kind of a typicality of this business is China, where We are now in the fifth year of the five-year plan, and as we anticipated, the investments in meteorology are lower in the last year, as it's typical in these five-year plan executions that China has done. The investment got quite a bit of a boost in the investments. in China last year, and the orders came in last year and this year, clearly in a low level in China. But like I said, these are the nature of the traditional side of the business, the meteorology and aviation side of the business, and that's seen especially in the order intake in that business inside a weather environment. And gross margin kind of decline kind of two things impacting that. It's lower net sales, scalability working the other way. And then on the other hand, unfavorable sales makes meaning that there's a little bit more project revenue in the mix compared to some other quarters, leading also lower profitability compared to the previous year same time. You mentioned the cash flow continuing on a good level. Here you can see kind of changes in the cash flow. Nothing really kind of major here. Cash conversion continuing on a very good level, 1.0 and free cash flow consequently being 22 million in the quarter. Excuse me. And I spoke about the seasonality in kind of comparisons to last year, and here I promised to kind of talk about BIT, kind of the year-on-year comparisons also from a kind of a first-half perspective, which kind of give you a slightly different picture compared to just looking at the second quarter, given the cyclical nature of our business. So cyclical in terms of between the quarters, right? And now when we look at first half compared to previous year, orders received decline was somewhat milder. But at the same time, the company's net sales, strong growth, and same drivers, industrial measurements, subscriber sales, as well as then to some extent also the traditional meteorology business. Gross margin actually ahead of last year and EBITDA ahead of last year, EBIT being ahead of last year. And the operating expenses were in control, kind of some increase, but that really was driven by the acquisitions that we did in the second half of last year, which we are very happy and actually contribute to the net sales and net profitability as well already, and then earnings per share being on the same level as last year. Financial position continued to be on a strong level, comparing to kind of our first half last year, obviously gearing a bit higher since we did the acquisitions last year, but we stayed stay very low levered and we continue to have the asset light business model. And here it's good to remind also that that end report, the investment in the automated logistics center here in Vantaa, continue as planned. So we actually have completed the building. I'm watching out of the window and seeing corner of it. We received the building and inspected, and it's already completed. already completely done and as we speak we are installing the automation machinery into the building and we expect that to be taken into full use during the second half of this year as we have planned. Now maybe changing the focus into future and a few words on the market and business outlook. And so business outlook for this year, we continue to see growth, expect growth in the markets underlying industrial measurements, i.e. industrial life sciences and power. Roads continue to be stable. I talked about the meteorology and aviation in terms of that. The traditional business having a bit of a cyclicality and the cyclicality compared to last year in a lower cycle. And then the challenges in the renewable energy I spoke about as well and thus those markets we see declining this year. If I were to look at long term, then I would say no changes in the outlooks on meteorology and aviation roads. The traditional markets continue to be stable long term. And long term, we continue to believe, obviously, in the energy transitions and so on, as I spoke about in the strategy of the company. Now, Consequently, we are now in the middle of the year, and it's time to look at the business outlook as well. And when we specified the range is a little bit narrower than what we started the year with, and we see the net sales being now between 590 to 605 million euros, and then operating result in terms of EBITDA being between 90 and 100 million euros. So this concludes my prepared remarks, and now we would be very happy to answer any questions you may have.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.

This is Niko Ruokangas from SEB. Thank you for the presentation. I have a couple of questions and I'll go one by one. Starting with weather and environment. So you mentioned that the cuts in public spending affected demand in weather and environment. And also there have been made proposals for weather services. Budget cuts in the US, both from presidential office and then from Senate and Congress. So could you discuss what do you think about this? And then... as you discussed about the impact of public spending cuts. So do you think that the biggest risks of that relates to 2025 or then 2026?

So on my prepared remarks, I actually spoke about really, yes, it's a public spending, but it was more a stimulus fund post-COVID. That was what I was mentioning. So really, we can argue whether that's a cut or not. It's just kind of on the back of previous stimulus funds. Similarly in China, it really is not a cut in public spending. It's just a cyclicality of the public spending. But you're quite right, back to the U.S. and National Weather Service, NOAA. There has been cuts both in the personnel as well as in the budget in terms of the NOAA and underlying National Weather Service. at least for this year. This has consequently postponed some of the projects that we anticipated that would be coming to a closure during this year. So far, we have not seen a... dismissal or stopping of any of the projects that have been ongoing. Everything has just moved forward in time rather than being cancelled entirely or even re-scoped. It really has been moving forward in time and that's the visibility that we have today so we have no reason to say that this would be like a permanent level in longer term, we'll see, and still relatively early days. We are talking about right sitting here, it's about four months since the kind of a doging started regarding National Weather Service and NOAA. and we'll see ongoing negotiations, I think, within the administration on how to spend the money and where the cuts are too deep and where not, and so on, and how will the future years look like. So I would say too early to really speculate the longer term, and on the other hand, I think it's a positive sign that no project has been cut so far.

All right. I understand. Thanks. So the biggest impact from at least public spending in Q2, you mentioned, so it is not US, but other countries.

Yeah, yeah, yeah, yeah. And this was, we anticipated this. We all knew that the COVID-19 recovery fund in Europe I mean, we are living in the year 2025, and that's like three years ago when, in my books, COVID ended. So it's about time to stop using my tax money on recovery on COVID.

Yeah, I understand. But then you still kind of caught the outlook in traditional weather conditions, and environment side to decline from stable. So which part of this was kind of a surprise to you compared to expectation in Q1?

A bit like the only kind of really a new thing is compared to Q1 is what you actually were asking in terms of U.S. And it comes on top of the other cyclicality that I was talking about, whether it's the Europe or whether it's the China or just the normal cyclicality between the quarters in that market being relatively small market all in all and single kind of decisions kind of move it. move it one way or the other, kind of between the quarters and a half a year. So the only real kind of material change is the impact in the U.S. for the rest of this year.

All right. Thanks. Then cross-margin development, if we continue with weather and environment. So cross-margin, they're declined year on year quite much. So was this kind of a Q2 specific or were there kind of specific explanations for this and was this affected by tariffs there and were you able to kind of transfer the tariffs to prices also in weather and environment?

So, good question. So, there was nothing kind of really specific to any meaningful extent in the second quarter numbers. Really, the biggest weakness is in renewable energy and really a significant decline in the marketplace itself. And remember, the renewable energy business has been a higher gross margin business and a higher profitability business than the average weather environment as a reported segment. So that has an impact directly into the reported segment numbers. So that really is where it is coming from. In the first half, regarding the tariffs and everything else, all practical purposes, we were able to mitigate that a little bit from price increases, but mainly actually pre-shipments in the U.S. Again, it's a longer cycle business, so we would actually be able to actually ship much of what we shipped and closed sales in the U.S. So this moved into our warehouse and factory in the U.S. and then turned into sales during the second quarter. So that was part of the mitigation in weather environment on the traditional business side regarding the tariffs.

Okay. And then if you think about H2, so will you then also be benefiting from pre-shipments or will you try to... When we did this, we not only looked at the quota, we looked at obviously kind of whatever we...

could kind of anticipate for the year. And remember, pricing changes in public, when we talk about the public business and longer-term commitments, it happens much slower than in a fast-moving business like industrial measurements.

Yes, I understand. Then I have still many questions, but I think that I'll ask one and then... let others ask about fixed cost development and you also mentioned that you are doing actions to kind of improve cost efficiency in renewable energy so so basically your fixed costs did not increase even though you had made acquisitions in weather and environment side. And then on the other hand, you showed increase in fixed costs in industrial measurement side. So can you kind of explain a bit background for that development and was it already impacted by the cost actions you are taking?

Part of this is, like we've been saying, and many other people are agreeing with me, that the visibility into the year has been very challenging. You know, the trade war, like what kind of tariffs, when will the tariffs hit, what categories will the tariffs hit, how will that – what is the – how will it impact the market demand and so on, which has kind of led that we have been prudent in deploying our investments since the start of the year. And that's mainly what you see in the numbers. And the specific cost actions into renewable energy, some of it is visible now in the second quarter, but most of it – as you can imagine, this takes some time to actually kind of reduce when you kind of change the focus of the investments and so on and reduce investments and reduce costs. It takes some time before they become visible in the numbers. And that's not yet really in the second quarter numbers at all.

Yeah, I understand. How much do you think that there is kind of room to...

It's a bit too early to say I would not like to comment yet on the number. I'm happy to report in a third quarter, but it's a bit early since much of this still is under planning.

Yeah, I understand. Thank you. I'll let others ask now and go back to the Q&A.

The next question comes from Pauli Lohi from Indears. Please go ahead.

Good afternoon. It's Pauli Lohi from Inderes. First, I would like to ask, have you seen any changes in the competitive landscape or your market share in the renewable energy business?

No, no, no. So the decline is entirely coming from the changes in the marketplace. We actually... Many of our competition is privately held, so kind of getting quarterly numbers is impossible. But having seen now kind of one of the biggest competition that we have, their annual numbers from last year, they actually saw kind of a significant decline already. already last year. Them having an even bigger kind of exposure to U.S., maybe even exaggerated, like compared to, or exaggerated, but made it even stronger than what, kind of like, and faster why we did not see it last year yet the same way in our net sales.

And then I have understood that China, the competitive landscape in China is a bit different from Western markets, but Is that a significant share of your revenue?

No, nothing at all in renewable energy.

Then my second question is regarding the currencies. So do you think that the current weakening of US dollar to euro would affect your EBITDA margin? I mean, the relative profitability materially? We consider that most of your expenses are paid in euro and many of your suppliers are European.

That's correct. And now that remains to be seen. It's all speculative what the currency exchange rates will be kind of going forward. I think the... Part of this kind of obviously we can mitigate depending on what the exchange rates are. I think the impact on top line would be probably more challenging. I'll give you just an example. If I talk about our VIM business in U.S., and not only in U.S., but also in China is a good example. So if you look at renminbi, it's actually followed exactly the rate conditions or maintain its rate to USD, and thus weakening the same way vis-à-vis euro, now being 10% lower level compared to, say, beginning of this year or even February this year. That means, just mathematically, means that if we compare to last year and it would stay, say, in this 10% depreciation, that would mean that we would effectively need to sell... 10% more in terms of a USD and renminbi just to stay in the same place in industrial measurements, say, in the U.S. or in China. I'm just not saying that that's the case, but I'm just visualizing you what is really the impact on the currency exchange rates on the top line.

but you don't see a squeeze if you produce in Europe and you have a cost in Europe and then sell to other currencies. So you don't see the squeeze in profitability.

Of course, like any squeeze on top line kind of has an impact on profitability, but that's all reflected in our guidance already.

Okay. Then finally, you already gave some explanation for the about the impact from tariffs and you have mostly mitigated them through pre-delivered products. But how about looking forward, if we assume that there will be some 10 or 15% tariffs permanently, can you offset them in both? I mean, can you give some color for both divisions? How you can offset them?

Industrial measurements, we have been able to offset them completely by pricing actions. And I feel confident that we have now enough evidence that we can do that. All obviously depends on what now we speculate. If it stays on the current level, we have now evidence that we can offset them without really impacting the demand picture or the competitive picture. Then on – and there, as I said earlier, it's obviously much easier to pass on the prices to customers when it's more of a transactional nature and book-to-bill turnaround is three weeks. So, you know – You don't have the same way long-term commitments and long-term deals as you have in the weather environment, where it does have some shorter-term business also, but it takes a longer time to pass the costs to our customers. We certainly are going to be doing pricing actions on it, but then we need to do other actions on it to mitigate them. We will collect... We will see what will be the levels of tariffs and what will be the levels of the currency exchange rates, kind of a longer term. But I think we have, on one hand, different levers between the different units, but we have levers in both units.

Okay. Thank you very much. That was all from me.

The next question comes from Atjotika from Evli. Please go ahead.

Good afternoon. This is Atjotika from Evli Research. Thank you for taking my questions. Firstly, more of a general comment slash question. Looking at the specified outlook range, at least for my eyes, it looks rather narrow in terms of top line, especially given that we're only halfway through the rather uncertain year. What are your thoughts on this overall, this kind of narrowness on the guidance and how you take into account, for example, currency movements here? I think you already commented that.

We don't. So I don't think it's for us to speculate what the USD versus euro rate is going to be at the end of the year. So it's impossible for businesses like like us to take a view and stance on that. And similarly, taking a view on what will be the tariff regimes towards the end of the year. It's anybody's guess. We are not taking really a stance on either one of those.

Okay, thank you. Then a couple on the renewable energy. If I remember correctly, I think you started seeing some kind of weakening there during the second half of last year. If we compare it to that market situation, how is it? Is it substantially weaker now than last year?

Yes, it is. Yes, it is. So it continued. So like you said, early signs were in the second half of last year and clearly kind of much more prevalent during the first quarter and now going into the second quarter. I'm not expecting any kind of material improvement on that market. Not this year, and we'll see a little bit then how it behaves longer term.

Okay. Then lastly, from my side, you commented on that you expect the renewable energy business sales to be down 15 million this year. You already gave us some color, but could you comment on how this spreads across the operating regions for that business?

Can you repeat the question? I'm not sure if I really got... Yeah, so just...

asking if you expect the energy business to be down this year, how you expect that to spread across your operating regions?

Yeah, it's across all geographies. I don't think there's really a material difference in terms of whether the market is down, whether we talk about North America, Europe, or Asia, and those are the geographies where we are selling.

Okay, thank you. That was all for me.

The next question comes from Matti Rikkonen from DNB Carnegie Investment Bank. Please go ahead.

Good afternoon. It's Matti at DNB Carnegie. A couple of questions. Firstly, you mentioned the Chinese public sector investments being softer and I was just thinking that when you explain that the five-year plan in China is now having the last year, does that mean that or could you discuss that what is your experience from those five-year plans that when we go to the next one, do you think that it will kind of start strongly if you say that the last year of the five-year plan is slower than normal years? Or what kind of pattern do you see there?

Yeah, the pattern has been such that the last year for some reason, I don't have details on kind of what's the logic behind, but it has been kind of for previous five-year plans as well that the last year seems to be a kind of a softer public spending, especially on kind of industries that are related to us. And then kind of it starts again, the cycle starts again when the next five-year plan starts. So there seems to be a pattern.

All right. In your view, does it seem like China would be buying more from local manufacturers? Do you see that kind of trend?

Yeah, so this is kind of a general question, obviously, that if I put it in pieces a bit on the weather environment side, That change already has happened, and we've changed the business model in terms of we are partnering with local partners. Remember, that serves maybe sectors that have national interest, and that change already happened many, many years ago. So we've adapted into that, and I don't really see a change yet. happening, we have not seen anything that would mark that change. So it already is where it is. And then on industrial measurement side, there is local competition, but again, I'm not seeing any changes like the competitive environment really hasn't really materially changed at all compared to last year or the year before.

Okay. Then The U.S. situation with the public spending, do you think that you now have a slightly better visibility that you already kind of took your market estimates down for the U.S.? So in Q1, I think you discussed that you had not seen yet any major changes in the so-called inventory orders so that they had come a bit softer. but you expected that they would kind of return to normal towards the end of the year. But you had seen slowness in the new business. So is this still the picture that you are looking at?

That is still the picture. We are looking at the running business and honoring the old contracts. That has continued. So the softening of the market is less visible in net sales, much less visible in net sales. It really is on new orders and new orders moving right into the future.

Right. And roughly what kind of net sales exposure we are talking about with the U.S. public sector? So is it more than 10 million of your sales annually or what kind of numbers are we talking about?

Yes, it's more than that. I would say this way, and this is no scientific number, this is my own back of the envelope calculation and estimation and all disclaimers to it, that the impact by the doging into the related markets to us, the market probably order magnitude would be down in terms of new orders this year, maybe 20 million the entire market. Like I said, this is based on no scientific, this is just my kind of expectation on the market.

So, and... Were you talking about kind of the total buying?

Yeah, yeah, total buying. Related to the... Would be whatever our market share would be.

Okay. Fair enough. Thank you. And then moving to kind of nitty-gritty things in financials, the industrial measurement Q2 was very good. Was there any particularly good trends or some relief rally, maybe kind of companies returning to normal after? I mean, the situation is not very clear yet on U.S. tariff policies, but at least... most people have to or most businesses have to go forward. And then was there some kind of relief after the April events?

It's widespread. So nothing that I could kind of point out to. As I said in my remarks, all geographies performed well. All my underlying market segments performed well. So it was widespread. Like nothing I could point out to.

All right. Then one technicality that with that kind of top-line growth, one would have expected slightly better gross margin, but that didn't scale much higher. Does it mean that you have increased your resources in the delivery organization, or was there just... weaker sales mix.

It's about the sales mix. So in terms of if you look at the profitability, so EBITDA, even the tariffs had no impact. If you think about how the tariffs, when you compensate it by increasing prices, then actually the tariffs go into the bill of material, so that actually technically lowers the percentage a little bit, but I can't go behind that. That's just a kind of a small piece of the decline. It really was a mix.

All right. Now it seems that you have pretty much taken into account the U.S. administration's decision regarding these doge cuts on your customers, but is the biggest risk now going forward still that the tariff policies in general would be changed and there would be some additional tariffs and maybe some additional disturbances towards the rest of the year affecting your business, not only in the U.S., but also then having repercussions outside the U.S., meaning global?

Yeah, thank you for the question, and I think it's a great question, and I maybe should have emphasized this, that that's absolutely the biggest risk, that the tariffs are, tariff changes compared to whatever it is today, obviously, you know, and they have a direct impact to us. I would be even more worried about the impact to our customers, and therefore the entire market and the demand across, like, and the longer the uncertainty continues, it's not good for our customers. And similarly, you know, the currency exchange rates, that's another kind of a big uncertainty, not only directly to us, but also to our customers. And again, kind of like the compounding impact of all of these uncertainties and how do you plan investments, how do you plan your spending in this kind of environment. And I'm talking about our customers. That, I think, is by far the biggest risk.

All right. Thank you for this clarity. That's all from me.

Thank you. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Nico Ruakangas from SEB. Please go ahead.

Well, this is Nicolás from SEB again. I have one additional question. And going back to the US public spending topic, but from a bit different angle. So do you think that possible additional spending cuts in the US could affect your subscription business in North America. So how dependent are you on the public data there?

No, no, I don't see any of that.

All right, that's clear answer. That's all for me. Thanks. Yep.

Thank you for the question.

The next question comes from Walt Terry Rossi from Danske Bank. Please go ahead.

Hi, Valter Rossi from Danske Bank. Firstly, on the renewable energy, have you disclosed the geographical footprint in there? How much is the U.S. sales from renewable energy?

It's small compared to Europe and Asia. We have not really disclosed it, but that will be the answer.

All right. Fair enough. Then about the public sector exposure in X weather. Have you said anything on that?

There's a bit, but remember, all public sector spending that X weather has, for example, would be the lightning data. That will be an ongoing spending. That's not an investment. That requires no new gear. That requires no new projects. That's an ongoing spending, and we don't see any, like I said, also in the traditional business, we don't see any kind of really impact on the ongoing business itself.

Okay, clear. Then about the weather and environment profitability, you said that you will lower costs because of the lower sales volumes. How efficiently do you think you can mitigate the negative profitability impact through these actions this year?

I think we have, first of all, we have multiple levers to pull from and we can And we are kind of definitely doing that, quantifying exactly all of this. As I said earlier, I answered to somebody else earlier that I would rather talk about it in a third quarter call. It's still under planning and it would be premature to really comment too much about it yet.

Okay. All right. All right. Then two small questions still. About the budget reductions in China. Could you open up what is actually driving those there?

Like clarifying comment, it's not a budget. Don't think about it as a budget cut. It's a cyclicality of the kind of a public spending. It's a cyclicality of how the public spending is done in China. There's no cut per se. It's kind of where they allocate the public spending in a given year. And it's just a cyclicality thing, nothing else.

Okay, fair enough. And lastly, about the competition in the public sector in the U.S., would you say that the U.S. government has any meaningful local options?

I don't think that's the question here at all. like they have multiple vendors and everything else, but this is not about U.S. or not U.S. We are very close to the governmental actors and the customers and everything else. We are not seeing this being at all a question on U.S. or not U.S.

Okay, so...

No, no, no. So you were asking about the tariff impact?

Yeah, I mean, because if the tariff don't impact the local players, then they would have a competitive... Well, my comment only would be it depends on their supply chain.

The local people, maybe the manufacturing, it doesn't impact, but the manufacturing itself is a small piece of... Depending on where the supply chain is, if you use Chinese components, if you have Mexican sub-assemblies, the direct impacts may be higher than what it is for us.

All right, fair enough. That's a good answer. That's all from me.

There are no more questions at this time, so I hand the conference back to the speakers.

Okay, thank you very much for joining the call today. We will publish our interim report January-September on October 23rd, and we will have our next quarterly audio cast and conference call then. But now, thank you very much, and have a nice weekend.