Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Good afternoon, everyone, and warmly welcome to Vaisala's Capital Markets Day 2021. My name is Paula Liimatta, and I'm Head of Investor Relations. Our agenda today includes 4 presentations with 2 short breaks and wrap up. We have also reserved some time for Q&A. I would like to highlight those participants online, that after the breaks, we continue at quarter to 3 sharp and after the second break at 4:00 sharp. Speakers today are Kai Öistämö, President and CEO, Head of Industrial Measurements business area, Sampsa Lahtinen; Head of Weather and Environment business area; Jarkko Sairanen; and CFO, Kaarina Muurinen. Before we start, I would like to remind you about the disclaimer that covers all the presentations and the whole event. With these words, we can start. Kai, please, it's your turn.

Thank you, Paula. And let me introduce myself first. My name is Kai Öistämö. And I'll be your host today together with my colleagues from Vaisala management team. During the following couple of hours, we will actually walk you through the Vaisala's strategy for growth and market leadership. As you all know, Vaisala provides products for weather, environmental and industrial measurements. This puts us in a smack in the middle of many mega trends, climate change being the most important one. Sustainability has been a key value for Vaisala for a very, very long time. And now, obviously, with the IPCC climate report recently published woke everybody up on the importance of climate change. We are fully committed to sustainable business operations, but I would claim that our biggest impact is not our footprint. It is actually our handprint. And if you look at our handprint, I would characterize it in 3 different dimensions. Firstly, we create products and solutions to understand climate change. If you think about how the measurement is done, what is happening within the climate, I would claim that you will have to use -- pretty much have to use our equipment and solutions. Secondly, we provide solutions and products to mitigate climate change. That means creating our cost of making products and solutions for our customers to make them more resource-efficient, thus reducing their environmental footprint. And thirdly, we create production solutions to create more resilience and adaptation for companies and societies for -- against more and more prevalent extreme weather events. And a good example are the emerging markets, the weather systems that we provide. We are fully committed on this approach at Vaisala. And this is really a big source of inspiration for all of us, for all of our employees and for myself as well. What we do is, we enable our customers to run business-critical operations and make business critical decisions based on accurate and reliable data. We are in the middle of many megatrends and some of them are listed here on the slide, and I would like to give you an example of the few on what we actually do in each one of them. If I take the climate change as the first one, I already little bit touched upon the big infrastructure projects where we create a weather infrastructure for -- together with our partners to emerging markets. During the past few years, we've done so in Bahamas and in Vietnam, now we are in a process of doing that in Ethiopia, making the society more prepared for extreme weather events, saving infrastructure and saving, most importantly, actually saving human lives. Renewable energy is a big trend. What do we do there? One thing is the remote sensing through the wind lidars that we have. We can actually measure from more than 10 kilometers distance accurate wind profile. And that what that means for a wind power operator can actually place their wind park in a best possible location. Doing that from a remote location, very important, for example, in offshore context. The other example is the biogas where we measure in a biogas operators process methane, CO2 and humidity and actually help the biogas operator turn waste into energy. Resource efficiency as circular economy is a big trend as well. Here, we are increasing efficiency for and productivity to our industrial customers. Example here would be data centers and data center energy efficiency. And then last, but not least, is the well-being and health where we are providing for our pharma customers' capabilities to monitor their environment both on the R&D side as well as on production side so that they stay in the desired -- within the desired parameters. So the results of the R&D and the production of the vaccine production, for example, is as desired. I have been now with the company for about a year. And it really has made me really confident that Vaisala is a solid company with a great opportunities in scalable, growth and scalability also in the high-mix low-volume business. The great proof of the scalability is how we have actually fared and cope with COVID-19 and consequent shortage of different kinds of component components. Our production has not stopped for a single day during the pandemic. And I'll talk about a little bit more on that side later in my presentation. We have a very strong foundation as a technology leader. We have unique expertise and we make a unique impact by providing the world's most reliable and accurate data and measurements where it really truly matters for our customers. We are, as I said earlier, committed for sustainability, both in our own operations and through the production solutions, i.e., the handprint that we make. We are extremely -- for the footprint side example would be with the recently -- recent recognition from financial times where we were selected as one of the European climate leaders as a result of a consistent reduction of our own carbon footprint during the years between 2014 and 2019, we have actually selected within the top 20 companies in Europe by reducing the most of our carbon footprint during that period of time. During this year, we have evaluated our strategy and focus across Vaisala as well as across our business areas. We have been on a solid path for a long time. And there is no need for a fundamental change in our strategy. It has worked us very well -- worked well for us for quite some time. However, at the same time, what we have done is, we have sharpened our ambition and focus around 3 topics. First, we have raised our ambition. And I will come back to the financial targets as a result a little bit later. Second, we have looked at our offering and concluded that what we provide is production solutions which play business-critical role for our customers. And thirdly, the ambition on the market, we always aim to be #1 on the markets that we operate on, either sustaining and building on the already achieved #1 position or having a line of sight, how do we become #1, if we are not yet there. If I sum up the strategy, we aim to create sustainable growth by solving business-critical challenges and to be #1 in selected markets. How do we do this? We've identified 4 different business drivers. Sampsa and Jarkko will go through in their respective presentations, the product leadership as well as the customer and application know-how parts. So I'll highlight the 2 other ones. First thing being the scalability in high-mix low-volume side. And let me just describe what this means in the Vaisala context. We have more than 7,000 products -- sorry, 6,000 products, 700 product families. We sell them across the world and through various different channels to various different businesses. So it's very, very complex. But we are mastering this and we -- at the same time, we are seeking -- how do we achieve scale in this very complex environment. By using products, platforms, activities, looking at different activities, different capabilities, business models, processes and tools. And I'll open up a little bit more exactly what we do on the -- to achieve the scalability in our operations and within this business model. And then extremely importantly, is to engage talented people. That actually is what makes Vaisala wiser. That's the heart on what makes our competitiveness. We are consistently trying to hire the best people, keep the best people in our own employee base and fit them into the right jobs, and training them very actively as well. And here, I'll take an example of the very recent artificially intelligent training, intelligence training that we did for the entire employee base, customized for different audiences more for experts and less for somebody else, but so that everybody understands where this is going. When we look at our businesses that we manage, I would divide up them into 3 different types. We have flagship businesses, growth businesses and emerging opportunities. Flagships are the core strengths that we build upon. They have been at the center of Vaisala's portfolio for a long time, and their importance remains very high for Vaisala going forward as well. Markets are typically much mature. We typically are already #1 in those markets. And so what we do is, we focus on sustaining and strengthening our market leadership and driving these businesses with a solid profitability in mind. A good example of this kind of a market is the products and systems that we do for the meteorological customers. Then we have growth businesses. Growth markets are attractive, rapid growth and typically with a high profitability as well. We are driving this growth for long-term organic development as well as then complementing the organic development with a selected M&A. And I'll open up the M&A -- our M&A strategy a bit later in the presentation as well. A great example of this kind of a business is the products that we do for our life sciences customers, for example, the continuous monitoring systems. And then we have emerging opportunities. These are new areas where the growth has not yet materialized. There are typically also areas where we can draw from all the learnings and competencies and technologies that we have created for flagship markets or for growth markets. And examples of this kind of opportunities are for example, the hyperlocal weather opportunity where the hyperlocal weather forecast, i.e., what does the weather look like exactly here for the next 2 hours. The importance of that is continuing to -- going to grow, especially with the climate change and more extreme weather events and different businesses being more prone to these kind of challenges. This opens up also new recurring revenue opportunities and digital monetization opportunities. And Jarkko will talk about that a bit later more. Then on the Industrial Measurement side, these emerging opportunities are areas where we can apply our measurement capability either in completely new area or we use our basic technology to apply into new kinds of parameters. A good example here is the biogas that I already mentioned. As part of the strategy process, we have also evaluated our -- obviously, our long-term financial targets and concluded that there is a need to update both the net sales target as well as the operating result target. You may remember that our earlier targets were to exceed average annual growth of 5% and the operating margin result exceeding 12%. Kaarina will actually go through in her presentation how have we fared against those targets over the past few years. Now from today onwards, our new long-term financial targets are as written on the slide. Our target is to achieve an average annual growth rate of 7% and an operating margin, EBIT margin of 15% during the strategic period, which is between now 2021 and 2024. As I've now gone through the targets that we have set to ourselves, I would like to go into 3 important areas in our business model, namely R&D, scalability and a high-mix low-volume environment and then also few words on M&A. If I start with R&D, this is how we build our -- have been building and continue to build our competitiveness. We have a very much of a systematic and active approach managing R&D as an investment, both short term and long term. And this has served us, as I said, really well. And the fact that we look at this as an investment is highlighted by, if we look at our R&D spend during 2020 during the pandemic crisis, we decided to actually continue investing instead of making a short-term hasty decisions of cutting that investment. We have grown our investment during the past years and especially done on that inside of the Industrial Measurement side, where R&D investments have tripled over the past 10 years and yielded into a very good return, as Sampsa will talk about later in his presentation. If we look at how our R&D investments are split between the different types of businesses that I talked about, slightly over half of our R&D investment is going into the emerging and into growth businesses while the flagships remain very much of an important part of our portfolio. That being said, now when we focus more on growth, our intent is to change our R&D and tune our R&D investments more into the emerging and in the growth side. Then into mastering the high-mix low-volume business, scalability in it. We have an excellent track record on driving this high-mix low-volume business. I talked about how complicated the business really is from an operational side. And it means also that it's really, really difficult to copy our business model. It's not every day that you can build these kind of capabilities. We have acquired this over the years and really mastered it. That being said, we continue to actively look for scalability opportunities across the company within this business model. Examples of this would be using common modules. For example, in software, we have one single embedded software platform across both whether environment and industrial measurement. We are using software -- clear software architectures, components of software, for example, in UI, where we are applying the same user interface into various different products of ours and so on and so on. On the hardware side, similarly, we are using modules and platforms A great example of this is the Indigo family inside of Industrial Measurement side, where we are using the same platform for measuring various different parameters into various different price points into various different industries and applications. We are continuously further developing our Vaisala production system, which is actually the handbook. It's the secret sauce, how we run our operations. And the things that we are looking, how we are driving this. We are looking at improving our processes. We are looking at using more data and analytics in driving our processes, sharing the tools and competencies across the company. Then into M&A. What's our M&A strategy? As I said earlier, our organic investments into R&D is really the heart of our competitiveness. But at the same time, we are looking at M&A as a tool in the toolbox to make clearly -- clear make-or-buy decisions when we look at access to new technologies, access to new markets and sometimes also acquiring new competencies. If I take an example of a market access, the acquisition of K-Patents that we did in 2018 is a great example of this. This opened up a completely new market for us, which is liquid measurements. We did not have that capability in the company. Now we have fully integrated, we are well positioned into the liquid measurements as well as measuring gases in the Industrial Measurement context. Good example on the technology side or actually competence higher as well is the same time we did the acquisition of Leosphere, which is -- or was the world's leader in wind lidar technology and win lidar products. Vaisala is now -- we're the world leader in wind lidar products. And we have the unique capabilities of developing that business further. So we have this -- I've taken up these examples and this is exactly kind of lenses that we are looking through when thinking about the M&A. We are actively making make-or-buy decisions. We are looking at -- actively looking at M&A opportunities that fill our criteria. They need to be enabling us to do what I said on the strategy side, access to being #1 in the selected markets that we have. And building a new competencies or opening up new markets or then bringing new technologies into the company. If I summarize my presentation, I would like to highlight 3 things. Firstly, Vaisala is extremely well positioned at the core of key mega trends. We enable, mitigate and adapt -- help to adapt our customers to climate change. We -- our key role is to make our customers and simultaneously, the entire planet more sustainable. Secondly, we aim to drive further growth as the premium product provider for customers' business-critical operations and decision-making by providing the accurate and reliable data where needed. And then in any market that we operate in, we always aim to be #1 in those. Ladies and gentlemen, if I were to conclude with one sentence, Vaisala is a growth company with a purpose. Now next on our agenda, we will have a short break, and after which, Sampsa and Jarkko will go through the business area strategies. But before we do that -- before we go for the break, I would like to open up for a brief set of questions and answers. So anybody in the room or anybody online, please?

Our colleague, Elida, will hold the microphone. So please state your name and ask your question.

Okay. Joni Grönqvist from Inderes. Actually, I have 4 questions, but if we can schedule I'll start with 2 and get back to the technical questions regarding the long-term targets, if no one else did ask. Starting the big picture. Vaisala has been traditionally really cautious in giving outlook and guidance and long-term targets. So now there's a big shift, I think, in level. We see more ambitious long-term targets. So my question is, okay, we see business lines presenting soon, but is there also a change in mindset now that you're driving more and pushing more also from the management side.

I would answer it this way, that absolutely, there is -- we are trying to a little bit change the mindset in terms of driving for new growth and finding new areas where we can really apply the great technologies, the great knowledge that we have built inside of the company, while at the same time, maintaining the strength in the areas where we are, have been traditionally strong and continue to be strong. The flagship markets are extremely important for us, I believe, for a very, very long time in the future. That being said, on being consistent, I think, it's very important for our customers and as a value for us as a company as well. We do not kind of a pivot every day. It's going to be -- they're well shown on how we manage our R&D, for example. We look at long-term investments. We are -- if you look at the value that we provide to our customers in terms of reliable, accurate measurements, it is about consistency. It is about reliability as well. So it's a balance of the 2 things. .

Then secondly, you mentioned tuning R&D here. So my question is a bit like in terms or -- relative or absolute terms, are you happy in which way with the current level? Or are you changing your investment philosophy going forward? Previously, it's been on -- relatively on the same level for long term.

Yes. So if I -- so I'll try to summarize what I tried to convey in my presentation that the R&D is really at the heart of our competitiveness. And if I look at the investments that we have been doing, for example, in the Industrial Measurements where we have tripled the R&D over the past 10 years. Sampsa will give you the exact numbers, but we have -- it has been really a good investment. And we continue to look at this. Obviously, we have to look at where does the future lie, where can we find the same kind of returns going forward? But I don't see a change in the attitude or how we look at R&D in terms of an investment as a core competitive, core creation for the competitiveness and the IP that we can create through it.

Paul de Thierry, Arke Advisers. Just wanted to ask, you came in last year inheriting a sort of a team of senior leaders who have been here for very many years. Could I just ask what have you bought, what did you feel you could bring to the business from what you've done in the past? And how did you approach it all?

Yes. So first of all, I'll answer. This is the first this way that many of my colleagues, CEOs asked when I joined that, okay, have you find the skeletons in the cupboard yet? And I honestly can say that no, I knew everything was out in the open and which is really, really seldom. So it also speaks highly of the team that I inherited, so to say. And at the same time, we have renewed our team. We have bought somebody who is actually focused exactly on the scalability topics on operational excellence. And then we are in a process of actually bringing just kind of back to our strategy and the 3 key drivers to the strategy of being the people, shy of being in the center, a new Head of HR. So renewing where needed, but I'm very happy with the team and the competencies of the team.

It's Matti Riikonen, Carnegie. When you talk about the R&D and the different areas like flagships and growth and emerging parts of your business, is there a big difference in the ROE that you use to basically measure the success in those investment projects?

Of course, the mix in the return on investment is different in terms of, if you look at the flagship markets, which tend to be more mature in nature, they did tend to be slower growth or mature by definition. There, the profitability plays relatively speaking, a bigger role as a percentage, if you look as I say so in the ROI. If you look at the growth markets, it is about both the profitability, but it's also building for the future position as well. It is -- as you have your model, discounting also thinking about the kind of mentally discounting the future returns as well when we think about the investments into those. And the same way in the emerging opportunities, looking at those that where can we find the next growth like the continuous monitoring system as an example.

My name is Frans Jurgens. Given the acceleration in growth that you're anticipating, to what extent is that a result of the environment being more open to your sort of solutions given the climate change that we're seeing? And to what extent is it the ability for you to accelerate the business as you found it?

So I would say that the way the company is positioned within the different megatrends and what the value we can provide as a company as well as the core competitive advantages that we have, the core strength that we have as a company. That's a -- great ingredients to speed up the growth. The importance of accurately measuring different, whether we talk about weather, whether we talk about the industrial setting, is increasing. And if you just look at -- I could talk about other megatrends, but if I just take the climate change, now being more resource-efficient, who would not be interested in that, predicting and adapting to climate change events who would not be interested in that. And if we continue to do things in a consistent and value-adding manner, I think there's a great ingredients for growth.

And given that environment, do you also see new competitors emerging that before weren't there are using more technology that is available now that maybe wasn't available a few years ago?

So our competitive landscape, and I'll let my colleagues to answer this in depth -- more in-depth in case of weather environment in Industrial Measurement setting. I tend to be more fragmented. There is no other company like Vaisala. There's no other company who would have the breadth and the depth of the technologies that we have. So I would say we are completely unique. That being said, we need to be continuously paranoid on the phenomenon that I would describe bits eating atoms, which means that more and more software content is important. The interaction with us, measuring the actual physical world as well as then, how do you analyze, how do you use AI, how do you use machine learning to augment all those, and what's the right mix between the 2 in terms of the technologies continues to evolve.

Matti, please, we have time for one more.

Matti Riikonen, Carnegie. So when we talk about the high-mix and low-volume mastery strategy, what is really new in the strategy or in the toolbox of getting to the targets compared to 2019 when you had the CMD at the previous time? So many of the themes that you discussed sound pretty familiar. So what is the kind of pinpoint new thing?

I think it really is, as I again said, for the entire strategy as well that it's not really a fundamentally new strategy. It's more being more ambitious and more focused on reaching for example, the scalability. So how do we actually make the right decisions? And where do we use different kinds of tools so that we can actually scale in this extremely complex environment that we are working in. Not a trivial task, but I think we have the right price. And we have -- as I said, I brought in a new Head of Operational Excellence, and we already are seeing new activities and new vectors where we are looking for this.

Thank you for the good questions. Thank you, Kai. We now have a 17-minute break, and we will continue quarter to 3 sharp. [Break]

Welcome back. We are ready to continue. We now move on to business area presentations. And first, we hear about Industrial Measurements, Sampsa, please.

Thank you, Paula. So my name is Sampsa Lahtinen, and I've been 8 years with Vaisala, helding the same position. So far I am really pleased to be here to tell you about Industrial Measurements. Industrial Measurements is designing, manufacturing and delivering instruments, systems and related services to tens of different markets and applications and to more than 10,000 different customers a year. We have been experiencing quite nice growth through many, many years so far. Actually, out of the last 30 quarters, 28 have been year-on-year growth quarters. The only blip we had in our growth was the second and third quarter last year when COVID actually slowed down the economy quite significantly. However, if you followed the quarterly releases that we've shown, we have been catching up this year. We have been catching up the lost growth during this year. So I will go to now then basically, why we are here and then our strategy and then we have the question and answer. So let's start with the mission of Industrial Measurements. Industrial Measurements is driving growth in selected niche markets, where we can solve customers' problems better than anybody else. Our task is to be the opticians for our customers, industrial customers, pharmaceutical customers, et cetera, and give them the best possible visibility into their own processes so that they can then optimize their processes, to improve quality, to save energy, to use less natural resources and also then manage their maintenance activities, whether you need to maintain something or not as well as then comply with regulatory requirements that many of our customers really have. I would say that everything we do in industrial measurements is directly impacting the -- basically the climate change. So we are physically helping our customers to save the earth. And I would say that our handprint is much, much, bigger than our footprint. Where do we excel in Industrial Measurements is actually hard conditions. So we at top of the pyramid, we are competing in these selected niche markets where customers have really difficult things to sort out. And when we say that we are solving customers' problems better than anybody else, it is not necessarily always obvious what the customer's problem is. Often, new customers come to us and say that, could you do exactly what we've been doing and do it cheaper. And then we sit down and see that, is this really what is the best for you. And I'll give you a really good example. We all have in our pockets, in our bags, we have devices in our cars, we have devices which use batteries, lithium-ion batteries, et cetera. And this production has boomed during the past year significantly. The process itself, it is really, really difficult process because it needs to be super dry. So we are helping the customer to measure dewpoint, which is really low humidity. Humidity is bad for the process. But the process is very corrosive. So what happens is that you start measuring the process and the process is eating up your instrumentation. So our task has been obviously to allow the customers to measure what they need to measure, but also to allow them to run the processes longer. We last longer in this type of process than our competition. And hence, we end up in a situation that we are comparing the instruments price to price of running down the whole industrial process more often. And basically, we are distancing ourselves from the game of competing only with price. So the customer's problem is that they want to run the process as long as they can and produce the batteries and not to stop it to change the instrumentation, and we are solving that problem. And now then I will take you through the strategy what we have in Industrial Measurements. And it is actually pure product leadership strategy. We have high-mix low-volume business. So we are not specializing in producing hundreds of millions of pieces of something the cheapest possible way. We have fantastic production, but it's high-mix low-volume production. We are not the service business like a hotel or airline. So we don't know all our customers. Some of them we know really well. Many of them, we don't know at all. So basically, what we have is a pure product leadership strategy where our products and products means then services and systems as well have to be basically the best. So the parts of the product leadership strategy, and this is something which we have had now for several years as a base strategy that we have had. And that is discovering customer needs, achieving #1 position in selected markets and continuously creating winning products. And I will take you now through all these different elements in our strategy. Firstly, if we take the discovering customer needs. So we have 2 different types of strategies that Kai was also basically flagging. So we have our flagship markets, which is high-end humidity and high-end carbon dioxide. We have been in these markets, measuring these parameters for tens of years. Maybe 45, 50 years in the humidity and more than 35 years in the carbon dioxide. And this is the biggest portion of our business still. Maybe 3/4 of our business is in this field. And here, we have a huge base of different types of customers. And we have a really, really good position here. Then we have our growth markets, which are life science, power and liquid measurements. And these are really a bit newer businesses, 2 of them actually have started or have been kick-started by acquisitions. So life science market, mainly with an acquisition in Canada with Continuous Monitoring system and then Liquid Measurement, the latest acquisition that we have done. In all of these markets, our task is to be the top of the pyramid. So we are solving the most challenging problems. And hence, when we talk about the market sizes there, it is defined ourselves so that we are taking our direct competition. So we don't go into the low-end market, not even the mid-range market. We are in the top of the pyramid market, what we are saying. And all these markets we are definitely investing in. Our position in our flagship market is good. We are well known in the businesses. And as I said, so we've been there for tens of years. And as the customer base is so heterogeneous, so basically, it has taken tens of years to get to that customer base. What is really important is that we are solving the issues in business-critical high-end applications. So we very rarely are the main products. We have the product which basically is really necessary in a bigger system, but it is really essential. That part cannot fail. So that's really important for our business. And what we have then is, for example, an example of our position in this market. Data centers are being built around the world. All over the world, we have big data centers being built by all the major players, whether it's Google, Facebook, Microsoft, et cetera. So data centers are being built. It's a big investment, have the building, have the computers, et cetera. And what is interesting is that in these cases, when data centers are being built, many of these really mega players, they want to protect their really valuable computer equipment in these data centers and the invaluable information that they have in these centers with Vaisala. We don't need to compete in the building automation set of that. Many of these companies have specified that when we build the data center, whoever is going to build it, they will put Vaisala in the data center to protect that the humidity and the temperature are correct for the equipment that we have in there. So that is just one example of the flagship markets that we have. And then if we go on the side of the growth markets. So growth markets, life science, power liquid measurements. We have both on the flagship, but also especially in the growth markets, actually, we have a lot of megatrends behind us. As Kai went through the megatrends, whether it's resource efficiency, circular economy, whether it's well-being or health, they are all supporting. So we have not entered these markets lightheartedly. It is a conscious decision that these are the markets where we can play a role and these markets are going to be there. And what's the difference between flagship market and a growth market for us is that, we do invest more heavily into the growth markets compared to the turnover that they are bringing than in the flagship market. But at the same time, we are also expecting faster growth. So in that sense, investment bringing us then growth. And as I said earlier, so we are playing a small part in big picture in big companies. But for example, our success in life science, I'm really happy that we closed now the last one of these. But out of the 50 largest pharmaceutical companies in the world, all of them, 50 are Vaisala's customers. Small business critical parts of the systems. So you take any of the vaccine makers, they are using Vaisala, somewhere in their system. So this is something where we really need to keep our focus very clear that let's play in that role where we need to play. Then because of the second element of the strategy, which is achieving #1 in selected markets -- achieving #1 position in selected markets. We have 3 elements here, which are really important, and we have changed this a bit. So those of you who have seen the strategy presentation before, there are certain adaptations to today's situation. We have now raised here customer experience as part of our growth strategy. And this is really important because when we think about our customers, we can divide them in 3 different groups: account management customers who we know -- big customers, we know they're buying directly from us, then we have customers, transactional customers who are buying from us once in a while, and then we have customers that we don't even know the name because they are behind our distributors. And we have to understand all these customer bases and starting from the awareness of what Vaisala is to majorly buying and then using and renewing the contracts that we need to understand what is happening in this customer field. And this is really important for us because, if we can't be the masters of this, we can't keep our position as it is. And part of that, obviously, is then superior channel enabling global reach. So we are a global company. And -- but we do not have offices in all the industrial countries in the world. So hence, we basically need to facilitate that every single customer who is interested and who wants to buy from Vaisala can buy from Vaisala whatever way is suitable for them. And hence, we are selling directly to some of our customers. We are selling via distributors to some of our customers. Customers can buy from our online store, especially services do, et cetera. So we have to facilitate all the possible channels to the customers. Sometimes they need local language support that we can't manage. We don't have any presence in that country. We have partners there. So we have been investing in this very heavily during the last past years. And then the last part of this is that we have to have world-class application expertise. And actually, you are sitting in the midst here is the world-class application expertise in this building. I would claim that it is very difficult to find anywhere in the world a place that people would know more about humidity than this building. And one part of that is also that taking the customers' perspective, we obviously knew that, that COVID is happening, but we never lost the faith. So we kept on investing and we kept basically delivering. We never closed the factory, never closed the factory last year. We have been delivering every single order that we have received during the COVID. And that is actually paying quite handsomely dividend later because we have our competitors' customers also being having -- or having their problems solved by Vaisala today. So let's go then to the third part of our strategy, which is then continuously creating winning products. As Kai was mentioning, obviously, then everything boils down to the R&D. And we are fine engineering house, and we have a really good position in our markets. But if we don't invest, we might lose that position. What we have been doing during the last years is we have been investing more than our competitors in R&D. So it was mentioned that our R&D has more than tripled. At the same time, this investment has not been in vain. We have actually -- in Industrial Measurement side, we have actually quadrupled our EBIT, and we have also invested very heavily in our channels. So that is really, really, really key and essential part of our business. What we need to though understand is that we are the physical measurment company. So basically, we are the masters of the physical measurement world. And then we are building on top of that what is necessary. And hence, we have here a few parts, which are really important to mention. So first of all, R&D goes to industry-leading sensor and technology development, which we are doing continuously. Here in the laboratories, we're doing continuously. And we have some examples from past years that we can talk about, for example, hydrogen -- vaporized hydrogen peroxide is used for disinfecting anything practically from buildings, from airplanes, et cetera, that business has been extremely good business for us during the past years, even though it's a small portion of our win, but it has been a very good business and really big because of the COVID, purely Vaisala's own sensor development. What is really important then is also our life cycle services. Basically, we have created many products for the customers to support their measurement needs. And actually, I'm really happy to say that when we started to sell these type of care agreements, 3-year care agreements, don't worry, we are calibrating or repairing your equipment if you need them. So we have very, very high rate of renewal now when the first contracts have started to expire. We have 4 product areas that you can see here, and I have plenty of examples of them, but I will not go into them right now. But what I would like to say is that our strategy -- product leadership strategy, it is based on discovering customer needs, achieving #1 position in selected markets and continuously creating winning products. And when thinking then that we've been relatively successful during the years, it is not based on -- it is actually -- it is based on very solid ground. So we do have superior technology. We have competitors trying to copy us, but we are investing faster, and we are developing faster than they are. We have fantastic application knowledge in the company. We are building this capability of being the best in the world with the customer experience in our business. We have global presence and reach earlier in the strategy. We set the global reach, but I believe that we have done a really good work on that side now during the past years. We have fantastic delivery and support capability. So we are the best in delivering products. We don't do anything in the inventory because all these products are per need. We don't do anything in the inventory. But in standard case, if you order something Monday, it leaves the factory Wednesday. So we -- that -- hence our cycle is actually really, really, really fast what we are doing. And then last, but definitely not least, is that we have really dedicated and highly skilled, really motivated people in the company. And I would like to say this still that when the pandemic started, we decided to keep on investing, believing that this will be over. And as we have, we increased our investment in R&D and in sales and marketing organization last year. We have continued this year. And basically, when this is over, we will be stronger than we have ever been and stronger than the rest. And with that, let's take some questions.

[indiscernible]. You mentioned that the -- you produced every day during the pandemic unlike some of your competitors. Could you just put a little bit meat on the bones on what that meant with, let's say, turnover or sales or number of new customers won? Can you give us any visibility.

Yes. So the second quarter of this year when we started to come out of that was the best quarter for -- in the business sense for Industrial Measurements ever. So we broke all the records in the second quarter this year. And that is not tested that the market has exploded. It is because we have taken market share. And we know this for sure. We know the customers we've been after. And now when they say that, okay, your competitor cannot deliver, would you please work with me? We know them.

Matti Riikonen, Carnegie. Could you please give an update on your growth markets, particularly the Power and Liquid Measurements segments because it seems that -- or do you feel that the chances of getting and growing them into significantly bigger than what they are today, how is that developing?

Yes. And thank you. That's a great question because I actually forgot something that I wanted to say. Let's take Liquid Measurements first. So we have flagged that Liquid Measurements has been a bit slow. And that is because in this business, you have to visit the customers, but also you have to take samples of the liquid that we are measuring. And many of our customers have closed everything. No upgrades, nothing. So basically, now we need the world to open to basically get the ball really rolling. And we will definitely -- we are seeing that is happening. On the Power side, I'm actually pretty happy. So we had a big uphill battle basically get into the business that existed already. But the point how we decided to solve customers' problems, which was easy installation, no maintenance, it is working. It is working, and we are actually quite happy with that business.

Then maybe an add-on. When you talk about handprint versus footprint, like Kai was mentioning in the opening speech, what actually do you mean by that? And excuse me for my ignorance in English, but just in layman's terms, what does it mean?

All right. So obviously, footprint is that what is the carbon footprint that we are creating when we are manufacturing our products and systems. Handprint is that how much we can save from today's position using Vaisala technology, how much we can reduce the energy consumption, how much we can reduce the waste on the resources side, et cetera. We have tried, but it is very difficult to measure accurately. But knowing what we do, I'm still standing behind my words, everything we do is somehow improving the handprint.

I understand that laymen are allowed to ask questions, so I might as well try 1 also. Looking forward, longer term, will there be a point when measuring the things that you measure become a commodity and others can do similar measurements, how unique is it what you do? And looking forward, maybe 5 years, how close can the competitors come? Can you give maybe 1 or 2 examples on the uniqueness of what you do?

That's a fantastic question. Thank you. It's one of my -- no, this is something which I didn't have time to go through. So basically, what happens is that the measurement -- the requirements for reliable and accurate measurement are just getting harder all the time. When you are getting your 16K TV, the manufacturing process, it's more and more and more difficult. So basically, the top of the pyramid is moving upwards. And yes, we do have pressure from below, but that is obviously then very much depending that if something gets completely commoditized and the price is the only thing that in that segment is -- matters anymore, then basically, we have to take a walk. Good enough is our worst competitor. But I would say that the requirements for reliable measurements are just growing.

Joni Grönqvist from Inderes. I know this is a part of a tricky question to answer, M&A and potential targets. You probably won't say, but I'm asking can you -- or can you give some picture on how many? Because as we know, it's such a niche market in many segments where you are and geographical areas as well as product areas so -- like so we can get an understanding of if there could be any or how many companies you see could be a potential target for you?

Well, we continue to go through companies. So every week, we are going through some company that we have. But we have certain requirements which are really important. First of all, we don't see too much point in buying any of our competitors, even though we've seen and we known of them being purchased or being on sale because why do we -- we don't want to go below from the top of the pyramid. That's where we are. And we don't want to go lower end. So that doesn't make any sense. So what we are looking for is companies who have adjacent complementary technologies that we could really use. So it could be tested technology, but preferably company, which has already an existence, et cetera, and we can build on like we did with K-Patents so that -- mainly that was our entry to the liquid measurement markets. But we are going through companies all the time, but it is not easy. So I've personally gone through tens and tens and tens of different companies. We are picky.

Matti Riikonen, Carnegie. When you talked about the channel, and channels that you have developed and improved over the years, there used to be a time when the channel was still a challenge for you. A lot of things that you needed to do. So it feels like that you are very happy with your channel partners at the moment and your channel strategy. What can you still do to improve?

Well, first of all, in my position, it's very stupid to be happy with anything. So it's never ready. It is never ready. And also what happens is that it's not just the number of the partners that we have, we have to make sure that we have the right partners. And what has happened is that we -- in practically all major countries where we have distributed business, we have several distributors because if somebody is a master in the Power industry, this company has nothing to do with the life cycle -- Life Science industry, et cetera. So we have to have several partners. We have more than 200 partners in the world today.

I as well use the opportunity. On production, you spoke briefly about production. Can you share with us, looking at production, how many elements of the measuring equipment that you have is self-produced versus sourced in? And to what extent is that a key element in the scalability that was mentioned earlier on, specifically maybe for industrial components? Is it important for you to move up vertically and integrate maybe chip manufacturing, for instance, in sensors? Or are you happy just to keep on buying it in?

Fine. So first of all, the chips are manufactured here. We have our own cleanrooms. So we are doing majority of the key technologies, our technologies that we are manufacturing here. Then, there -- really some parameters like temperature, there are a lot of supply of that. We don't need to do the temperature sensors ourselves, so we're buying them. But the manufacturing of our equipment on the Industrial Measurement side, everything happens on this side.

Thank you, Sampsa, and thank you for the questions. It's time to move on to Weather and Environment. Jarkko, please.

So good afternoon. So after the exciting success story of the Industrial Measurement, let's move to the in world of Weather and Environment, which is literally touching all of us every day. So let me highlight you a bit about the direction of the journey where we are also in to expand into new markets as well as master really the end-to-end offering, which is a bit bigger in our business versus what Sampsa just went through. So let me start just by saying a few sort of words with the number and 85, and why 85 is that Vaisala is today 85 years old. So we were established in 1936 and invented the modern business of radio sounding that day. So that is where we started. And today, our market share in radio sounding is 85% in the high-end station so-called [indiscernible] stations, which are the essential stations to measure climate change and also power, the most important parts that are needed as measurement for the weather forecast. So that I think tells a lot what we have been achieving during these years. And today, we are really the undisputable leader globally in the weather observation business. Thanks to a very, very broad portfolio that is second to none and also the global role that we play. So we are every year selling our equipment in more than 150 countries. And also outside of this planet already in another planet that you have certainly heard about and also in the space stations. And it's not only the measurement devices where we are so strong. It's also the software, the network, how you integrate these measurment systems and bring them alive for our customers. So if we think of this world where we are in, in the weather and environment, I think this is also a very, very strong space where we enjoy the mega trends that both Kai and Sampsa have been touching here. So obviously, the climate change is essential for us. And needless to say, the severe weather events that we sort of experience every day more and more violently across the planet, it implies that you want to do more accurate observations across the planet. So that need is increasing. Renewable energy. I will talk a bit more about that also in the future in this presentation, but weather is really the fuel there. And we know that the price competitiveness of both wind and solar energy has been developing tremendously. So not only is the climate change mitigation powering the renewable energy, but it's also the business case that is associated to those. But there are many others like future of mobility when we think of autonomous vehicles or some of you may have seen today in our field, there were drones operated. So what is the environmental information that drones will need in the future when they are delivering the parcels to you. And then we have the technology migration that is going around. So sensors are getting IoT sensors in our space. There is much more data analytics that are coming in. There is migration of the systems into the cloud from on-premises, and there is new business models emerging that are more subscription-based, all in all. And these trends are also impacting how we think that we play and what is our strategy. So in a similar way, what Sampsa had, let me also highlight a bit the market where we are in. So on the left-hand side, you see really the core markets. So I don't think there is a country in this planet who in the meteorological space would not have our equipment today. Aviation, we are powering more than half of the globally significant airports, to do safe flight operations, more than 2,000 airports. So this is really where our core is. On the left-hand side is about 80% of our business today. And then over the recent past, we have been really working systematically to grow the right-hand side. And this is also where we have been doing our acquisitions, to build new capabilities, to access new type of technologies. And some of these markets are already growth markets today, like renewable energy. Some of these are more emerging ones, like the autonomous vehicles or drones in smart cities that I just mentioned. And all in all, the right-hand side has been about 20% of our business today, but this is where we see much more of these growth opportunities to come for us. So if we then take a deeper look in these flagship markets where we have the high market shares, broadest portfolio, what is also similar to here, as Sampsa was saying in the strategy of the Industrial Measurements is this reference grade measurements, as we call them here, they do really matter. And the customers that we have, where these are really business-critical operations, they need the highest reliability. Reliability is accuracy. You have to know that this measurement is accurate. And then it's also availability. You have to be able to trust that I keep on getting the information continuously. And here, we are really the trusted partner of a -- sort of, of the airports of the met agencies, as mentioned here, and we have very long-term relationships, dating this 85 years back in the history. These markets are, as such, are not kind of main growth markets. So we have more or less all the countries, I guess, in the world that are needed and they have all their met agency. So the number of met agencies is not growing. We have roughly all the airports that we need, perhaps with the exception of China, more or less all the winter roads in the Northern Hemisphere have been built. So there is not like that type of growth. However, this climate change is setting higher demand also in these pockets. We saw the unfortunate events in Central Europe with flooding, so causing new capabilities that have to be built, not to mention what is the need in the developing countries in general. And there is obviously, renewals happening. You have to keep your systems up and running. There is new innovations coming. So there is no signs visible that these markets would be fading away, even though the growth will not be that fast. We continue to invest here. We love these markets. They are very sort of the core and backbone of our business, but we want to invest smart. So it implies that we look at the overall portfolio of investments, what is sort of reasonable to do in this business. We are assessing carefully the business impact that we get from the R&D, but also think what is the right timing to go into the various ideas that we had. These are already nicely profitable businesses for us, but we believe that we have ingredients and capabilities to enhance it further. So we are putting increasing profitability focus also in these businesses. Actually, the overall portfolio that we have here was a relatively pandemic resistance or COVID resistance. However, in 2 pockets, we experienced the slowdown during the past 18 months. One is very natural, it's the aviation. I think that it comes without any further explanation. The other one has been really in the developing countries, where a lot of the countries have been in a lockdown for quite a long period, implying that it's difficult for them to incubate new significant efforts. And then also some of these countries like the Caribbean Islands, I think is a good example, which have been quite dependent on tourism, have had sort of issues that what is my budget, how I can drive this type of business. But I think we are now seeing the signs of recovery and also our short-term progress with orders received. I think it's a pretty good indication that eventually, these markets do recover and get back to where they were before the pandemic times. This, as an example, I think that's a good example to share because this is which tells the unique capabilities that we have in the weather domain as Vaisala. So conventionally, when you think in the developing countries, how they are building these capabilities, is that they are buying a weather station or a rain bucket, which is perhaps funded by World Bank or something alike. But they actually failed to build a true system to observe the weather, not to mention to build the capabilities to actually do something with the measurements. And what we have been building here over the recent years is something that we are calling MICD that acronym stands for Meteorological Infrastructure & Capability Development. And this is what you see in the bottom of this picture. So we actually have a concept where thanks to our portfolio, we have all these observation devices in-house that you need when you want to enhance your capabilities. We have the software that you need to manage the network, and we have the capabilities to deliver the customers the whole forecasting center. That is needed to run the weather forecast, and then we train the met agency people, how do you do the forecasting, and how do you issue the warnings to the people, to protect life and property. So this is whole chain. And they are typically for us, multi-year projects, where really this training is an essential part, so really enhancing the capabilities. And we have so far completed 2 of these, 1 in Bahamas, obviously, driven by the hurricanes; 1 in Vietnam, driven by the typhoons; and we just announced that we started a third 1 now in Ethiopia. They are typically, say, EUR 15 million to EUR 25 million in size. And while you could argue that, okay, hey, the gross margin is a bit lower than you would have if you would be selling pure products. But these are actually pretty attractive for us since they scale from the gross profit perspective, simply due to the size of this. So the absolute gross profit is quite attractive for us. They are pretty complex to build. And as I said, we are the only company in this space who can do something like this, thanks to our portfolio. It takes a long time to do the government interactions, see how they arrange the funding, et cetera, but we have today quite exciting funnel of these type of comparable projects cooking, and we are really seeing that in the foreseeable future, we will see more of these going forward. And it's a very important element of our business here. Then moving to this expanding market. So here, we have been really looking at what are those pockets where with our capabilities, where we could systematically focus and invest in, in building new growth buckets for us besides the flagship business that we want to really take good care of. And I think the most notable of this where today, really, the growth is realizing in significant size for us is the renewable energy. And with the acquisition of Leosphere, we acquired a strong global position in the wind power, being the clear leader in the so-called remote sensing technologies. So it's basically laser-based products, which is sending a laser beam out to the distance and how it reflects back from the aerosol. The light wave is a bit twisted and we can analyze, therefore, that based on how much is changed, how fast was the aerosol traveling, and therefore, we understand what is the wind, and we can do it in different heights. And with this product that you see here on the picture, which is a scanning LiDAR, it can measure the wind speed and direction from a distance of 10 to 15 kilometers. So right now, we have been experiencing, for example, a boom in Japan, where a lot of offshore wind is being built. And in Japan, wind LiDAR is the device to do it, and Vaisala is the acronym for wind LIDAR. So we have a very strong position. It's driving growth. And obviously, for offshore type of things, this is extremely convenient, given the fact that you don't have to build expensive infrastructure offshore. And we believe that this growth will continue because renewable energy is growing due to the competitiveness, but then also the technologies that we can offer, i.e., this type of remote sensing will be growing in penetration. So today, the penetration globally is only about 10%. And otherwise, they are installing sort of fixed infrastructure with masts and putting in masts sort of different wind measurement devices, which is getting very expensive when your turbine heights are starting to be 250 meters, and the terrains are starting to be more complex than they used to be. So we see both this business growth as well as the penetration driving. On the emerging side, let me mention air quality, where we are driving a totally new disruptive paradigm as environmental measurement. So basically, we have professional-level air quality sensors, which you can populate a smart city sort of fully instead of having a couple of expensive containers that the EPAs, Environmental Protection Agencies, usually run. And with populating with these type of supplementary sensors, we can model the air quality in any urban area to a road corridor level. Opposed to having a single number for Beijing, we can tell that what is the number in different roads. And then you can start your imagination, what does it imply for the new type of capabilities? How you could handle with people who are risk groups to the air quality issue? It's about 7 million people that are dying every year by inhaling particles in their lungs. Or how you can do smart traffic management in the future in urban areas? So we are -- for example, Siemens is reactively working with us for the traffic management solutions that how to use the environmental insights differently when they are bringing the intelligence into the cities. And there is several exciting opportunities here. And here, our aim is to really, as Kai was saying, find these segments where we can be #1. Renewable energy is already found. We believe that there is many others to come. So here, I also say in the last line that we are sort of powering these type of capabilities from professional measurements to digital insights, which was also my air quality example that I mentioned here. Let me show one picture when we take a look under the hood a bit what is there. So now there is a new Vaisala sort of slang world that I'm teaching you, and that is this full stack. I don't think it's official technology, but actually for layman's language, it may function relatively well. So full stack means that we control this whole technology from buying silicon wafers into our cleanroom and manufacturing the sensors. All the way on the top, which is here delivering a hosted decision support system for a customer that is running in the cloud. So this is the full stack that we have here. In the sensor, we have certainly the reference grade measurement devices that we have been doing a long time. Now we are really investing a lot in more professional level instruments that are also IoT based, so directly transmitting the information into the cloud. We have the system capability. Our systems can today run both on-premises as they typically in the history have done, but also equally well on the cloud. So we have been working a lot to bring that cloud migration. And then we have this advanced analytics layer. And here, the acquisition of Foreca, B2B business was very essential. And combining that with certain existing capabilities that we have, today, we can provide through APIs. So this application protocol interfaces. So basically a socket where you can plug in and get data, word-leading weather forecasts, air quality forecasts, road weather insights, i.e., what is the state of any road surface today as well as, for example, lightning information. And then top of analytics, we can be building these applications. So it can be a closed application for an airport that typically wants to run on-premises for security reasons today, or it can pay a hosted application for a road authority who will be designing that how do I treat my road next night because we are telling them the insights what is happening next night for your road surface at what time. So mastering this stack is not totally easy. And this has been our focus in the recent past. I would dare to say that here, we are significantly ahead of any competitor, mastering that fully. What comes to the security of the data, security of the software also doing remote updates at the different layers of the stack. Perhaps still one example to share you to make it still more concrete is here from Finland actually with Fortum what we did. So it's one of our leading utilities, and they are running here in Helsinki, greater Helsinki area, district heating network. And obviously, in the winter time, to run this type of district heating network, you have to have the insight what is happening from the environment, i.e., weather at the different critical points, where you are impacting, how you are steering that network, i.e., how you're operationally running it. And in the history, they used to trust information that was based from a public weather station, perhaps 10 kilometers away and sort of from a public weather forecast. And now what we have done is that we have installed our sensors into that precise spot, which is critical for them to make the decisions. And we are making that visible for them to optimize better. But not only are we doing that, we are using the information from that sensor at that very specific location to deliver them even a better forecast than the public forecast would be because we know precisely what is happening there. And then we are building the AI capabilities, machine learning, that over the time, the algorithms can only better and better all the time. So this slide tells you how we bring value to, let me say, B2B type of players and how to optimize and use these environmental insights for their benefit. And this full stack is ready to scale to several verticals and customer segments as we start exploring. This transitions then also to the business model change that I said in the beginning. So we are looking to increase the share of recurring revenue in our revenue mix. So software-as-a-service, data-as-a-service, SaaS and DaaS businesses. This Fortum case was a good case where Fortum is not interested in using CapEx to buy weather stations and maintaining and managing those. They are more interested in buying from us those insights with OpEx, going into a recurring model. And in some of our cases, really this model implies that we are also including the hardware, i.e., the measurement station there, but still selling that through data and with analytics as a subscribed service. And obviously, this is pretty interesting for all. It's interesting for us as Vaisala, interesting for our customers. And I think also for U.S. investors, it's a quite exciting value proposal. We are also running some own proprietary networks. The most notable one is the lightning detection network. We are detecting over 2 billion lightning strikes every year. You can calculate how many that is every day. And the accuracy in detection is 1 kilometer, and it's proving all the time. And even when we merge satellite data from camera into our precision detection of the location, we can calculate what was the electric charge that was actually dispatched to the ground at that moment to understand that how risky that lightning strike, that single strike was for some damages. Why these visualizations? I don't know how many of you recognize them, but they are actually from automotive infotainment head units, i.e., the main display that you have in the car. And why I love this is that there is the Vaisala brand visible. So today, every day, I jump into my car, I turn it on, I see Vaisala brand visible. So we are powering today the weather forecasts insight for such company, like Mercedes Benz, BMW, Hyundai, Kia, for the infotainment weather. Some of them, we are also working already with air quality information. And then we are working with companies like Bosch, globally leading Tier 1 vendor, to understand the road surface state, which they could use in the future as information, how the intelligent driver assistance systems in a car function or how the autonomous vehicles will, in the future, get information about the infrastructure where they are maneuvering it. So a bit sort of emerging today, but I think there is a compelling value proposal that we have cooking. And this type of business is about 10% of our turnover already today, what we are doing in DaaS and SaaS, and the aim is to grow. So let me summarize with this. So really driving growth from new segments and from this platform business. We love the flagship markets. It's the backbone. We continue to invest there smartly. However, it's not the major driver of growth. Therefore, we are expanding to these new growth markets with novel type of value proposition. And we also aim to find these pockets where we can again become the global #1. Recurring revenue as a business model transition that we want to bring in here, and then really all that is brought into the live by having this full stack architecture and platforms that are then scaling into this B2B domain. So with this, I hope you were able to crisp the main ideas of the journey that we are in and also get some feeling of the excitement that we have as the team now in building this. So we are extremely excited both for the substance as well as the purpose why we are doing it, also for the short-term opportunities, but also the long-term opportunities at hand that are emerging, and would be happy to entertain any questions that you may have.

Joni Grönqvist, Inderes. I'm a bit interested in the digital services in your part. How many developers do you have in-house? And -- or are you -- how much are you buying like from outside?

The maturity of the people that we have is inside the company, so in-house. And we are obviously growing and expanding on that side. For those purposes, we also started our second site here in Helsinki [indiscernible]. So we have a satellite office there enabled to be able to attract new software talent really tuned for that type of business even better from the location perspective. So also growing there.

Can you say how many amount is working [indiscernible].

That we are not going in the details, but obviously, you can understand when you look at that stack, it's actually a large number of our people. And if you -- if I just give you a generic number that how many people are really working on the hardware versus software in the R&D that we have, so we have more people working on software than hardware.

Matti Riikonen, Carnegie. Could you give an update on the weather and air quality measurement solutions that you talked about? Where do you -- where are you in the commercialization of that business? And I think earlier when you talked about the topic, it was a bit uncertain who is going to pay for it. So everybody realizes that there's a need, but of course, someone has to have the money. So how have you developed with that?

Yes. A great question. And -- so we are now in the second generation of products here. So we acquired a company, Envitems, 5 years ago, which brought us the main seed of the capability. So it was a technology acquisition. At the same time with that product, we went out, you could say, even in a lean start-up type of philosophy, fast to the market. You know to start learning and testing without perfecting everything in-house. Now we have launched the second generation device, which is actually Vaisala made with the capabilities that we have. So obviously, it took some time, but it's now out. It was just launched in the second quarter this year, and we have the next 1 already in the funnel coming, which has disruptive ideas in there. So that's where we are. In the -- sort of in the modeling side, we are currently, as I said, delivering already data to some customers. As I indicated here, I cannot go there in the details and we are further really discussing today on working to bring these forecasting elements in place so that we have really this full stack more or less emerging right now as we speak. We have been selling these sensors mainly to cities. So different integrators who are working in smart cities. One of the big examples is in the U.K., an operator called Vivacity, which is making this especially for traffic -- smart traffic management purposes. So they are building a network in different cities and exploring how do I optimize my traffic flows in these congested areas where pollution is a problem. So I think this is a very typical use case. This Ethiopia large project that I mentioned here earlier, part of that will be also installing in Addis Ababa, an air quality sensing network. I think it's a brilliant example on these developing countries which would not have affordability to build this conventional large containers, but which will get sort of in a sort of agile way, in a more nimble way a network up and running.

Coming back to your example of the heating business, heating client. Two questions on that. The recurring revenue business, as you rightfully say, something investors like. But what we don't necessarily like is that you take the equipment on to your balance sheet and then seel it as a service, whereas the client only has operating expenses. Can you share with us a little bit how you view this business going forward? And to what extent this might be -- maybe this is a more finance question, and we should wait for the CFO to present. But maybe, obviously, you priced the business. And so you have thoughts about what the capital intensity is that you're taking on your balance sheet by selling this as a service. And a related question, you mentioned in the context of this example that you bring value to B2B customers. Are these contracts ever shaped in a way that as the client can show the benefit he gets from more accurate data, you get a better compensation for the services that you provide?

Okay. Thank you. So first of all, I say exactly to the previous last point that you asked, not yet. So we are not in any sort of revenue share or value share model. It could be 1 day interesting, but not that far today. Sort of -- I cannot disclose the details of our business model. But let me say this way that on average, we usually have relatively good margins on the hardware that we are selling, which you can certainly see in our P&L as well. Our approach here is that we are pricing these systems so that we recover any hardware cost quite fast. And there is a minimum duration as a customer that you subscribe to the service. And so therefore, the payback is actually fast for us. And then we start earning money soon within that contract period. And we are not looking to explore the Vaisala balance sheet by starting to run with the radars as a network or something like that. So these are relatively nimble gadgets for us that we are thinking here like a fast weather station somewhere. So we are not worried about the balance sheet exposure right now.

Thank you for very good questions. We now need to take a break, and that we can be back at 4:00. Please enjoy coffee and after 12 minutes, we'll continue. [Break]

[Presentation] Now that we have heard about Vaisala's strategy and business area strategies, it's time to look at the business in figures in more detail. Kaarina, please, it's your turn.

Thank you, and welcome to this Capital Markets Day also on my behalf and my name is Kaarina Muurinen. So in my presentation, I will go through Vaisala's financial performance. And then I will speak about the strategic drivers for higher growth and increased profitability. So when looking at Vaisala's financial performance, we have been well on our way to exceeding our earlier targets, namely exceeding the growth of 5% and then exceeding the 12% operating result. Over the past years, Vaisala's net sales has grown on average 4%. And being a technology leader, it is natural that more than 70% of this growth has come from product sales. Industrial Measurements has had a significant impact on the achieved growth results. Vaisala's net sales is well balanced by regions and this gives us resilience when economic cycles are fluctuating or in exceptional circumstances. Another dimension of resilience is sales spread across currencies. Close to half of Vaisala's net sales is coming from euros last year and 1/3 in U.S. dollars. Last year, there was no other currency exceeding 10% share, which means that Vaisala's exposure to foreign exchange risk is limited. [indiscernible] provides comprehensive natural hedge as material purchases and operating expenses are mainly born in the same currencies as our net sales is coming in, namely 75% of the expenditure is in euros and about 20% in U.S. dollars. Vaisala mitigates foreign exchange risk by hedging all material foreign exchange transaction risks. And hedging is covering order book, trade receivables, accounts payable and financial items. We are not hedging forecasted cash flows other than our order book. Vaisala's superior products have been the driver for sales growth, while our project deliveries and services have brought stability year-from-year. In Weather and Environment, the sales growth has been on average 2 percentages over the past 2 years. Renewable energy market segment has brought a big part of the growth in recent years. In 2020, Weather and Environment net sales declined by 10% due to COVID-19 and its impact, especially in the aviation market segment and also in developing markets for the metrology customer segment. We have three different business models, product sales, project deliveries and services. And around 60% of net sales in Weather and Environment is coming from the broad product portfolio. Around 1/4 is coming from project deliveries and less than 20% from services. So this is including both field services and digital services. Then in Industrial Measurements, growth over the past years has been excellent 8%. And clearly exceeding the Vaisala average target level. The growth in Industrial Measurement has been led by the high-end instruments as they are utilized by multiple solutions and by a wide customer base. In recent years, both life science and power industry applications have grown strongly. The growth in Industrial Measurements has been well balanced geographically. And in Industrial Measurements, product sales is dominating business model and product sales is about 90% of the sales and services which include calibration and repair, bringing 10% of the net sales. Our sales growth has enabled improvement of financial results. And Vaisala's operating result has tripled since 2011, and the profitability has improved by 6 percentage points. The main driver for the profitability improvement has been our gross margin improvement, increasing from [ 48 ] to [ 56 ], which means that the increase has been an average 1 percentage point per year. There are 3 main sources for the gross margin improvement which come from the 3 different business models. The first one is the increased share of product sales. As our products have the highest gross margin over the business models, it has been very important to maintain or to improve the gross margin of our products. And our operations, developing the production system has had a very important part in ensuring the gross margin development. And thus, they have been developing scalable production capabilities, ensuring that the volume growth will be produced with less investments in production capacity. Also taking lean methods into use and ensuring reliability and quality in our products. The second source for improvement in the service business has been optimization of our production of digital services. And an example of this optimization is, for example, the relocation and centralization of our data centers. Then harmonization and process improvement in our calibration and repair services that we are running in 4 sites in U.S., Finland, China and Japan. And then also the exit from certain low-margin field services has been contributing to the improved gross margin in our service business. The third source has been the project business model in our Weather and Environment business. There, the efforts in developing our project management capabilities have resulted in project margin predictability. And today, we can say that our project management office is delivering and implementing projects according to plans. And they are either achieving or exceeding the projected gross margins. Our profitability has improved, though we have almost doubled our R&D investment from EUR 28 million to EUR 53 million. And the EBIT in 2020, when we'll exclude amortization expenses was excellent, 13.8%. And this KPI is fully comparable with the EBIT percent prior to year 2018 when we did the 2 main acquisitions. On the right-hand side, you see our EBIT guidance for this year being EUR 40 million to EUR 50 million. Vaisala has an asset-light business model. The increase of assets has followed the business growth and acquisitions. And the total of assets have increased by EUR 100 million since 2011. The main drivers for the increase were the 2 acquisitions we did in 2018. And well invested in these 2 acquisitions, about EUR 70 million. The other one being the acquisition of Leosphere and the remote intending technology and the second one being the acquisition of K-Patents and acquiring liquid measurements technologies. Vaisala's annual capital investments are now expected to be back on the level we had in 2017, 2018 after we have finalized the building projects. We have invested totally over EUR 40 million in these 2 building projects, the other one being an office building in Louisville, Colorado and the other one is R&D and innovation center here in Vantaa. Our net working capital rotation has improved. And we have clearly grown our net working capital slower than net sales over the past 5 years. And the growth of net working capital has been on average 10 percentage points slower than the net sales growth. In addition to Vaisala's strong financial position, we have a strong cash position. Our business model delivers performance, but it also delivers robust cash flow, even in challenging times as during the COVID-19 pandemic period. Over the past 5 years, we have generated annually an average of EUR 45 million operative cash flow. This cash flow is then enabling us to have a strong and stable cash position. And our average quarterly cash balance over the same 5-year period has been EUR 60 million. The strong cash balance has enabled us to maintain a relatively high investment in R&D and acquisitions, but also we have done investments in our sales and marketing capabilities. We have been investing in modern and efficient workspaces. And thirdly, it has enabled us to increase the dividend payments. So we have really brought value to our shareholders with the efficient cash flow generation. In addition to the cash flow, we have increased our flexibility to fund the investment opportunities. We have currently a EUR 40 million term loan. And we have committed credit facilities totaling to EUR 200 million. And these facilities include commercial paper program and then revolving credit facility. Earlier today, Vaisala announced its increased long-term financial targets. And during today's Capital Markets Day, Kai, Sampsa and Jarkko have shared with you how Vaisala's strategic objectives will demonstrate a raised growth ambition and focus on operational excellence. Vaisala's strategy drives ambitious long-term financial targets. Our goal is to achieve an average annual sales growth of 7% and an EBIT margin of 15%. This revised strategy includes major potential for growth and commitment for operational excellence. So how will the strategy execution and implementation result in improving our financial performance. Growth is having an important role in achieving also the profitability target. We have 3 business types, and they have different profiles for financial performance. Our flagship business will sustain and strengthen our leading position and it is going to have a strong role in delivering solid financial performance and profitability. Our growth business will ensure rapid growth, but also generate good profitability. And the emerging businesses, which are -- in the beginning of the life cycle will require investments, not only R&D, but also in sales and delivery channel development. And most likely, we will consume cash flow before they are ready to enter the growth business phase. The strongest growth is expected to come from our product business. In Industrial Measurements, from the flagship products, which are utilized in multiple solutions by a wide customer base, but also from Industrial Measurements growth business, which is monetizing the innovations in R&D and will contribute to our strategy and achieving the profitability targets. In Weather and Environment, the majority of the growth is expected to be generated by our renewable energy market segment. But also the new software and digital services are in their initial phases and will be adding to the growth. The strong sales growth in these businesses would increase the share of higher-margin sales and continue to generate good gross margin and contribute to the profitability target achievement. We are going to continue to develop our business model and ensure that operations across all functions are scalable. The objective with scalability is to enhance the efficiency and agility. And this will contribute to the profitability improvement. We have to ensure that the growth that we'll generate in net sales is not requiring the same amount of resources in our functions in sales, marketing, admin functions. Our operations are also in an important role in scalability because they will continue developing their production system and improve -- further improve the utilization of production capacity. You ask that what is going to change and I'll see one big change in the production, which is the complexity of the new products and building the capabilities of the production for those complex products and ensuring that we maintain the same cost of goods sold level as we have had for the other products. It's also continuity of the use of LEAN methods in the management, in the issue resolution and in then teaching the organization how to develop processes, how to do everyday improvements in the process. And nurturing quality and reliability because our customers value quality and reliability, and we have demonstrated even during the COVID that they can rely on our deliveries working and they can rely on the high quality level. In order to achieve scalability and meet evolving business requirements, continuously developing processes and related applications is important. We have done good progress in renewing processes and applications in our customer interface. And we have already renewed our customer relationship management and configure price court applications. This summer we'll kick off a big program where we are going to review our ERP reporting and analytics applications within the next 1.5 years. These all which are investments and require us to focus on these developments will create further capabilities and further opportunities for scalability and also improving our process quality and harmonization. Achieving our long-term financial targets would bring continuity to shareholder value creation. And continuity is very key when we look at the past where we have been able, since the end of 2010, to create total shareholder return of 360%, which is corresponding to an average annual increase of 15%. Clearly overperforming the benchmark index, which at the same time has increased by 10% annually. The total shareholder return has been achieved by quadrupling our share price and ensuring capability to pay 2,000 -- EUR 230 million dividends since 2011. So in summary, Vaisala's revised strategy demonstrates higher growth ambition targeting to achieve an average 7% annual growth. We are really committed to strive for the 15% EBIT margin. And Vaisala wants to ensure continuity to shareholder value creation. Now we have time for Q&A.

Any questions to Kaarina? Who would like to start? Matti?

Matti Riikonen, Carnegie. Regarding your growth target of 7%, I was just wondering, does it assume a higher than 2% growth in the Weather and Environment business?

We haven't broken it down by business area. Our goal is to ensure that we are successful in the high-growth areas, which we have said that they are the product sales, both in the flagship and the growth business in Industrial Measurements, but also the renewable energy and in Weather and Environment. And of course, we start from small in the software services, but that is important, especially from the profitability perspective because the SAS and DAS businesses have a pretty high gross margin.

Joni Gronqvist, Inderes. Continuing on the same theme as Matti there. Just to double check, when we see the presentations today and market growth in the different segments, so it seems like you're still or aiming to grow faster than the market. Or just to double check, is there any inorganic growth in this growth target?

No. No, there is no inorganic growth.

And then on the profitability, just to double check. So you expect, on average, 15% during the whole strategy term between 2022 and '24 and not at the end of '24?

We expect to achieve 15% EBIT level during the strategy period. So achieving 15%. We are on the way there.

Okay. That's a good clarification. I think I understood it other way in the text.

Thank you, Kaarina. I think it's time for President and CEOs to wrap up. Kai, please.

Let me try to get rid of. I'm stuck. Sorry about that. So here we go, COVID times. So let me try to summarize very briefly before opening up for Q&A for the entire management team. So I hope you've heard that Vaisala is a company with a clear purpose. We saw business-critical problems, challenges to our customers. And while doing this, we make them more sustainable. We have unique competitive advantages very hard to copy. That is the expertise in high mix, low volume environment and a very, very deep mastering -- technology mastering of our measurement technologies, the entire stack, as Jarkko put it. If I were to just kind of on one sentence, conclude what we try to convey today. Vaisala is a growth company with clear targets, and we always aim to be #1 in the markets we operate. So now I would like to invite my colleagues up here. And if you have any other questions on any topic, we would be more than happy to answer.

Now anything you would like to hear more about or get some clarification.

Here's a chance.

Just a clarification, we actually discussed this a little bit already on previous Capital Markets Days. You -- your production unit has been presenting here. I just wanted to double check that the good improvement we've seen in recent years from the production that it's not ending here. It's still continuing, even though he's not presenting here today.

No, absolutely. So great question. And there was no hidden message whatsoever, not having [indiscernible] here. I hope that we conveyed both Jarrko, myself and Sampsa the great capabilities and achievements by our operations, and it definitely is not ending here. We are striving forward. As Kaarina said, some of our new products are even more complex to produce -- even more complex to make. I am extremely proud of our operations, by the way, on the capabilities that we have demonstrated now during the COVID times and especially now with the [indiscernible] of various different kinds of components that the entire world is experiencing and the fact that we have been able to deliver against every single order that has come in. It really speaks louder than any words.

Then we have one online question here. This is about R&D investments. And the question comes from [ Marcus Rolanda ]. "You spend more R&D than most companies. Have you considered capitalizing it? And how do you evaluate the productivity on R&D?" Maybe you, Kai, start and Kaarina can complement.

I'll start, and I'll let Kaarina to comment on the accounting of the R&D. So as we said, the investments on R&D has paid us well. I mean the Industrial Measurement is a case in point. We tripled our R&D investments over the past 10 years, and we quadrupled our result on it. So it really has been paying off really well. We look at it -- as I said in my presentation, it as an investment. It is not a cost. It's an investment for us, and we try to optimize it both short term and long term. Then in terms of how do we account for it, whether we -- currently, we have decided that we are not capitalizing R&D. And we have -- and I would say what speaks for it is also how fast it has been paying back. So I believe that the way we have been accounting is absolutely a correct one, but I'll let Kaarina to give her view on this.

Yes. We have a couple of times come through the interpretation of the capitalization rules. And every time we have concluded that we better when we are booking our R&D expenditure in operating expenses, there would be only so small share that we could somehow argue that could be worth capitalizing. And typically, investors like when you are not capitalizing R&D.

Yes. And if, for example, the share of kind of software platform revenues would someday be significant, then I think we should kind of reconsider. But as they are still relatively small in the portfolio, I -- this is where we are today.

A cultural question, if I may. Looking at the numbers, how to develop the 2 divisions, there will -- at the growth rate that they're growing, will be a point when industrial is bigger than meteoro. And given the historical roots of meteoro in the business, I'm sure that there will be some sour faces and some happy phases in the business. Can you share with us a little bit how these 2 divisions operate among each other? And also maybe from a finance point of view, how do you allocate the capital between the 2? Because growth is one thing and the return is another thing. Do you look at that -- maybe you can share with us how you look at that in general terms.

Yes. Thank you. Great question. We run the businesses. So Sampsa -- Jarkko and Sampsa are responsible for their respective businesses. That being said, one of the secret sauces for the company is the community inside of R&D. As I said, we have multiple of the -- for example, the embedded software platform that we use across the company, across the 2 units. There is a culture where we bottom-up create, which is really -- culturally really hard to replicate. We create these synergies. If somebody asked, can I help -- can you help me irrespective of which business unit you belong or business area you belong, that help will be given. And the sense of belonging into a common community is real strong, especially in this building. So I don't think about -- I don't see the sour faces. I think it's more having a clarity what is expected of me, what is expected of the business I am contributing to. And then people are also rotating from one area to another one. So it's not like you are stuck your entire career in one place. We try to grow our people as well. Then on the capital allocation side, I think that's a great question. And that's something we are trying to do together inside of the Vaisala management team. We are trying to look at the entire business and allocate the capital to where it pays off the best. It's not like there are quotas for the individual businesses, but we are trying to look at it as one team to look at where do we allocate the capital, both for shorter term when we do annual plans as well as then longer term when we look at, for example, the things that we communicated today.

Just at the briefly a flavor being potentially a sour face here. If I understood your question appropriately. So I think the 2 businesses that we run are sort of adequately different that there is a different outset. There is a different market. There is a difference sort of play which we play. So I don't at least personally feel among the teams that there would be somehow sort of unhealthy competition or being [indiscernible] or something like that. So that I think helps for it. And as Kai was saying, there is a lot of collaboration happening deep in the organization, which I think is enforcing it. And then obviously, we also -- we are extremely happy in whether for the financial performance, what Industrial Measurements have. So it has certain benefits also on that side. So there is no reason to see it differently.

Anything you would, Sampsa, like to add?

Well, I think, as far as the synergies are concerned, obviously, one of the major ones is R&D and the platform -- technology platforms. But on top of that, obviously, our operations. So Vaisala production system basically is serving both of us really fantastically well. So I think there is a lot of -- and we have actually a lot of exchange of people between our units.

If I can follow up. Would you mind sharing with us which elements of the 2 businesses are measured are managed as one? So finance administration and the like, which are separate looking also at sales, for instance, where you have offices, do you always have the 2 divisions in that office? Or maybe just a little bit of a -- share a little bit of light on what is shared and what is unique?

Yes, I'll give you a high level, and then I'll let my colleagues to actually then correct the mistakes that I may make. So we have -- G&A is shared. It's a shared service. So finance, communications, HR, IT, legal, even if they are named people inside of those, which are supporting the respective businesses. And then operations, as Sampsa said, is a shared entity where the expertise is grown inside of the shared operations instead of dividing it up into 2 sides, even if we have a name like here in the next building that way, to separate locations or it's one big call, but there's the weather factory and there's the instrument factory. So they are as they have a little bit of a different cycle times and so on. But again, there's a shared learnings between the 2 units. And then on the locations geographically, where it makes sense, they are -- is a shared location in a way if it doesn't make sense, it's not. We are -- again, we are looking very pragmatically at this that what makes sense with share locations. So we -- and sometimes we -- for competence acquisition reasons, it might be only a Weather and Environment side or only Industrial Measurements side.

Maybe I continue to hear that what is separate is because of practical reasons. Our customer bases are separate. They are completely separate. We don't have overlapping customers, practically at all. So we have some channel partners which might serve both parties. But the customer base are separate. So completely separate sales organizations, the marketing is separate. And then Jarkko started his projects. I don't have projects. So here as service organization, BCS for the projects. And then calibrating repair services serving both sides as well.

And then R&D teams are different.

Obviously.

Creating the products.

And in addition, the production, we get synergies from our systems and processes because what is generic is product sales and services. Those can be built on Vaisala level. And then what is unique is the project business and building the project delivery capabilities in the systems is Weather and Environment specific. But otherwise, the processes are commonly shared.

And obviously, when we are in the different countries, I think, about 30 countries where we have physical presence, so the people sit in the same offices if they happen to be in an office location. So for obvious reasons.

Something else on your minds? If not, I would like to thank Kaarina, Kai, Jarkko and Sampsa for very interesting presentations.

And thank you for very good questions, and I look forward with the interactions with the entire team and yourselves in the future. Thank you.

Thank you.