Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Hello, and welcome to the Vaisala Q4 Report 2020. [Operator Instructions] Today, I'm pleased to present President and CEO, Kai Öistämö. Please go ahead with your meeting.

Thank you, and welcome to Vaisala call from my side as well. With me here are Kaarina Muurinen, our CFO; Raimo Voipio, our Chairman of the Board; Paula Liimatta, our Head of IR; and myself, Kai Öistämö. So when we look at the year 2020 and start with the fourth quarter highlights, it feels like it was a roller-coaster year where the roller coaster ended up with a high note. The orders received increased significantly during the fourth quarter, both in Industrial Measurements as well as in Weather and Environment. In Industrial Measurements business area, the demand growth was led by pharmaceutical customer segment, including COVID-19 vaccine suppliers as well as then orders received overall by 11% compared to previous year. In Weather and Environment business area, orders received increased by 7%, following a very good demand in meteorological segment. When we look at the order book, the overall order book for Vaisala decreased slightly by 1%. And in Weather and Environment business area, the order book decreased by 2%, mainly as a result of weak orders during the year -- earlier part of the year. In Industrial Measurements side, the order book increased by 7% compared to previous year, following strong orders received during the fourth quarter. When we look at net sales, fourth quarter net sales decreased by 10% year-on-year following weak orders received in Weather and Environment business area during the first 9 months of the year. On the other hand, in Industrial Measurements business area side, we returned to growth path with 10% net sales growth compared to previous year -- same time previous year. Net sales grew in all regions and strongest in APAC. When we look at then the operating result, the fourth quarter operating results fell short of previous year, following the decrease in net sales. On cash flow side, cash flow remained strong, slightly ahead of the previous year and the dividend proposal by the Board of Directors to the shareholder meeting is to keep the dividend at EUR 0.65.

EUR 0.61.

Sorry, EUR 0.61, excuse me, sorry. When we go into the orders received during fourth quarter, the orders received increased by 8%. The demand in both Industrial Measurements and Weather and Environment picked up considerably compared to the earlier 3 quarters of the year. In Industrial Measurements business area, demand growth was led by pharmaceutical customer segment as well as then the power and industrial measurement -- industrial instruments side. The orders received increased by 11% compared to previous year. In Weather and Environment side, orders received increased by 7%, following good demand in meteorological customer segment. When we look at the fourth quarter order book, it decreased slightly by 1% when compared year-on-year. In Weather and Environment business area side, decrease was 2%, mainly as a result of weak orders in Middle East and Africa through the year, as well as then we have to take into account also the reduced scope and value of the Argentinian contract that we renegotiated in earlier part of the year. In Industrial Measurements business area, the order book increased, as said, by 7% compared to previous year, following strong orders received during the fourth quarter. And the increase -- when we look at area split, the increase was strongest in Americas region. In fourth quarter net sales, net sales decreased by 10%. If we look at the comparable rates, the decrease was 7%. In Weather and Environment side, the net sales decreased by 18%, mainly in project and product businesses. The decrease of the net sales followed weak orders received during the year and delays in some of the project implementations during -- due to the restrictions of the COVID-19 situation. If we look at the service business, the main reason for the decrease of that business -- of net sales in services business was the discontinuation of the assessment business services provided to renewable energy segment that we did earlier in 2020. In the Industrial Measurement business area, net sales increased by 10%. Net sales increased in all regions, as said, strongest in APAC. And net sales growth was very wide range, came from industrial instruments, continuous monitoring systems and power industry applications. In terms of operating result, the Vaisala Q4 operating result decreased following the decrease in net sales. While operating expenses decreased compared to the previous year due to the restrictions caused by the virus situation, reduction, for example, in travel and so on. On the other hand, it's worthwhile to remind that we continued our investments to research and development, sales and marketing as well as process development throughout the year. Then if we move on to the -- take a deeper dive into the different business areas, first on Weather and Environment. The Q4, as said, we had a strong order intake. The orders received increased by 7%. If we look at constant currencies, the increase would be 9% and the orders received increased mainly in Latin America as well as in Europe. In terms of order book, it decreased slightly by 2% compared year-on-year, mainly, as said, caused by the weaker order intake during earlier part of the year. The net sales decreased by 18%. Again, the decrease comes from the weaker order intake during the earlier part of the year in 2020. The gross margin and operating result decreased compared to previous year as a result of lower production and delivery volumes. The operating expenses decreased, as said, for the entire -- same way as for the entire company. And the operating result in the end ended up being in percentage terms 7.8%. In Industrial Measurement, we had a very strong order intake. We were back into the growth path. Orders received increased by 11%. In constant currencies, that will be 14%. It came from all regions, especially from Americas and in China that led also the order book increase by 7%. And when we look at the size of the order book for 2021, it stood at EUR 16.6 million scheduled to be delivered during 2021. The net sales increased by 10%. The net sales growth was wide-ranging and came from industrial instruments, continuous monitoring systems and power industry applications. The net sales growth increased operating result. The operating expenses decreased similarly as in Weather and Environment due to the restrictions caused by COVID-19 pandemic. If we then take a look at the entire year 2020 from Vaisala side, it showed good resilience in a very difficult market environment. Orders received in total declined, while the order book was almost similar as when we exited the year in 2019. Operating expenses decreased due to the virus situation. And the operating result for Vaisala increased slightly compared to 2019. If we look at the business areas, Weather and Environment decreased in terms of net sales due to the very challenging market environment. The decline was especially in aviation as well as in emerging markets. The order book was down slightly compared to 2019 and -- despite the clear pickup in the fourth quarter of the year. Net sales was down due to the weak order intake during the first 3 quarters of the year. And in terms of operating result, it was down due to the lower net sales despite the higher gross margin in Weather and Environment. In Industrial Measurement, we had a strong performance. It was, as said, a roller-coaster year with a strong finish of the year in terms of order book, orders received as well as in net sales. The operating result was improved due to the higher sales volumes, better gross margin and lower OpEx, again, due to the virus situation. When we look at the 2020 cash flow, the operating cash flow was on the same level as in 2019, but the mix was different. The net working capital compensated the negative effect of the decreasing result. The cash -- when we look at the ending cash balance, it was EUR 8 million down compared to the previous year. The financial situation of the company remained strong. On this slide, I would highlight the capital expenditure, which remained on a high level during 2020 due to the investments into the R&D buildings. We finished the building in Boulder, Colorado already middle of the year and then the R&D building here in Vantaa at the end of the year. We expect the capital expenditure level to normalize going forward. On dividend, I would like to remind just the dividend -- our dividend policy. We aim to pay a stable dividend, which will increase in line with the net profit development and our target is to maintain high solvency and take into account the future investment plans. And in line with the policy, the Board -- our Board of Directors proposes the dividend to stay at EUR 0.61. Then let's take a look at how the market and business outlook is for 2021. We foresee, first of all, that the pandemic situation will continue to cause significant uncertainty during 2021. The -- as we have noticed around the world, the lockdowns continue, new waves continue to emerge around the world. That being said, we expect that the global economy is expected to continue to recover during the year. Market for the high-end industrial instruments is expected to recover after weak 2020, especially in life sciences and power industry is expected to continue to grow. On Weather and Environment side, the meteorology market in developing countries is expected to continue to suffer due to the lack of funding and delayed decision-making, while in developed countries we expect the demand to remain stable. When we look at the aviation market, it declined significantly during 2020 as a result of the pandemic and cut down on the travel globally, and the market outlook remains weak, although some recovery is expected. On ground transportation side, the market is expected to continue to be stable. And renewable energy, we expect along with the mega trend is continue to grow. And when we look at how that translates into our business outlook for 2020, we estimate that our full year 2020 net sales will be in the range of EUR 370 million to EUR 400 million, and our operating result will be in the range of EUR 30 million to EUR 45 million. This concludes our prepared remarks, and now we are very, very happy to answer any questions you may have.

Operator, please, could you -- would you please open the lines for the questions.

[Operator Instructions] Our first question comes from the line of Joni Grönqvist from Inderes.

Joni from Inderes. Can you hear me?

Yes, very well.

Good, good, good. Congratulations for a good year in difficult circumstances. I have 3 questions. I'd like to start on the order book. It's on a good lever at year-end, considering the difficult circumstances. But how is the sales pipeline looking now in terms of small and larger orders, and maybe especially for Weather and Environment?

I would answer that question in terms of the way we gave guidance to the overall market outlook. The uncertainty, we expect the emerging -- the metrological segment in the emerging markets to stay uncertain and -- due to the virus situation and the financial impacts of the virus situation as well as in the aviation market for obvious reasons to stay weak and the recovery to be relatively slow on that side. Whereas in the road side, we expect the market to stay stable. In terms of -- yes, go ahead.

Yes. Okay. You clearly say from the order book how much is delivered this year, but I'd like to maybe understand a bit the order book, how it's composed. And if I ask you in this way, that you mentioned in the report that there -- the big projects in [indiscernible] contribute 3/4 of the project deliveries. So is some of these big projects in [indiscernible] ending now this year or do they all continue over this year?

There are -- some of them we concluded during this year, for example, the Vietnam project is a good example of such. And then there's a bunch that will continue during this year as well. Many of these projects, you have to remember that they are multiyear projects.

Exactly. Yes. Okay. Then last, maybe on the profit guidance. Considering your good delivery in 2020 despite the difficult circumstances and looking at your order book going into '21, so where is the profit drop or where do you expect the profit drop to come from? Or is it increased investments? Or can you give some color on this, please?