Vaisala Oyj (VAIAS) Earnings Call Transcript & Summary

Nevertheless, let's go try to dive into the third quarter of Vaisala. We had an excellent performance during the third quarter. The order intake was continued and continued extremely strong, and the profitability continued strong as well. The EBIT margin was on an excellent level at 17.3%. The recovery that we started to experience during the first quarter of the year, that continued. And we even saw signs now starting recovery on the aviation market, which was depressed during the COVID times, very pleased to see that. And our order intake on aviation market segment more than doubled during the third quarter compared to the same time in previous year. The order book itself remained at the all-time high, EUR 165 million. Shortage of components characterized much of the business environment for us as other people, but it did not impact our capability to deliver our production solutions to our customers during the third quarter, which was very pleasing to see. But it did create some additional material costs during the quarter, and the visibility to the component market and component availability has continued to deteriorate. And the availability on -- and access to the components via spot market also is getting more and more difficult. That all being said, we did have, as I said, strong profitability. And the operating result decreased to EUR 19.2 million compared to the EUR 19.5 million at the comparable time previous year due to the -- except some exceptional costs during the quarter, which I'll go through a little bit later in the presentation. Now if I go a little bit deeper on what happened during the third quarter at Vaisala, obviously, as I said, the strong performance across different segments highlighted, especially on the Industrial Instruments, Life Sciences, Aviation and Renewable Energy was, of course, the backdrop for the quarter. As I said, the component situation was difficult, but we managed to -- or managed the situation extremely well, I would say. And I'm extremely proud of how our organization has been able to cope with it. We found solutions to most availability issues together with our suppliers, together with our [ perching ] organization as well as our R&D as well as then being active on the spot market, as said. We expect that the global shortage of components is going to continue during the fourth quarter and then into first half of next year. Finding solutions, as I said, through the spot market is getting increasingly difficult as the component availability is getting more scarce also through that. And we do estimate that the component shortages continue to generate additional material costs during the fourth quarter of this. Then as a very positive note, as you know, sustainability is at the heart of our strategy and heart of everything that we do. And it was very pleasing to see that in 2 external assessment evaluations, we performed extremely well on this front. First, we were found as most responsible company among Finnish -- public companies by Finnish private investors in a survey by T-Media. And second, in an international study by Sustainalytics. Our ESG scoring, we actually were among 63 Finnish stock-listed companies. Our scores were among very -- were at the very top. We were actually selected as #1 on the list. According to Sustainalytics' study, our ESG risk score is categorized as negligible, which is very, very pleasing to note. And also during the third quarter, we did present our new strategy and update our long-term targets in our Capital Markets Day. And I'll give you -- but just a brief update and reminder on our strategy. We are extremely well positioned as a company, and we are at the core of multiple different mega trends such as climate change, renewable energy, resource efficiency and so on. Our -- the heart of our strategy is that we provide world's most reliable measurements where it really truly matters. We have 3 distinct goals and means how to do this. We actively seek sustainable growth by solving customers' business-critical challenges. And in any market, we act on -- we always seek to be #1 on that market. We have identified 4 success drivers, which are helping us to implement the strategy. At the heart, again, is the - better product and technology leadership, which also is then coupled with a very deep customer understanding and application knowhow. So we know to whom and to which environment we are developing our products intimately. And then we are -- we seek to be the masters in scalability in the high mix, low volume business that we are and the talented and engaged people are really what makes Vaisala special. We presented the renewed shopping strategy at the Capital Markets Day, as I said. And those who have not yet watched, I encourage you to go to our website under the Investors tab and you can find the webcast or the recordings of the webcast there. And you can take a look more deeply into our strategy. Then going into the numbers during the third quarter. As I said, orders received increased by 29% year-on-year. The increase came from both business areas. In Industrial Instruments -- in Industrial Measurements, Industrial Instruments and Life Sciences were big drivers on the increase on orders received. And as I already mentioned, very pleasing to see that Aviation starting to recover on the Weather and Environment side, and the Renewable Energy continued very strong performance during the third quarter. The strong order intake led into a strong order book, which increased if we compare it to the same time previous years -- year by 22%. And it remained on an all-time high level of EUR 165 million. The increase again came as per the order intake from both business areas and from the same market segments, as I already mentioned. And if we look at how that turned into net sales, net sales grew by 19% year-on-year, again, growth coming from both business areas. The biggest drivers on the increased net sales were in Industrial Measurement side, Industrial Instruments and Life Sciences, and then on Weather and Environment, the Renewable Energy and Aviation. If we dive deeper into the Industrial Measurement, the quarter really was characterized by excellent performance in which we already had during the first and second quarters of this year. The orders received increased in all market segments, not only the Industrial Instruments and Life Sciences, even though those were the strongest ones. And it really was pleasing to see that, here, our capability to deliver against orders from our customers despite the component shortage really made a difference in the Industrial Measurement side. The net sales grew by 35% to EUR 14.2 million, which is 30.2% -- over 30% of net sales. And if we look at the operating result, it actually did include additional material costs from spot purchases that happened during the third quarter, about 2 percentage points negative impact through the increased component costs from the spot purchases. Same time, this was compensated by improvement of gross margin by saying 2 percentage points due to the economic scale, the higher sales and higher deliveries that we had in Industrial Measurement. So you can think about it even if there are 2 different courses, they kind of compensate each other, which meant that the gross margin then was on the previous year level on 64.4%. We continue to invest as our strategy has been into our operations and into R&D during the quarter as well. Similarly, when we look at Weather and Environment, the strong order intake characterized the quarter, and as said, later by Aviation and Renewable Energy market segments. And then maybe the other thing I would like to highlight is the strong increase in project orders, large project orders. An example of a project order that we have talked in public was our project in Poland, where we helped to improve the methodological observations and mitigate impacts of our potential flooding in throughout Poland, where we are in consortium with our local partner. We are delivering over 1,600 well automatic weather measurement stations throughout Poland. And we are delivering this system during this end next year. And when we look at the Weather and Environment's operating result, the exceptional costs are something that I would highlight. Here, it did include 2.3% -- EUR 2.3 million worth of exceptional costs, which were then related to our -- the contingent considerations on the M&A that we did during the earlier years. Okay. Here is [ financials ] again. And we have, again, experienced technical -- troubles a few minutes ago. So I'll continue from just recapping the financials for the first 3 quarters of this year. So when we look at the figures for the first quarter -- first 3 quarters, they are excellent. And we have had an excellent year in all key figures. And thus, we did increase our business outlook on October 19. The -- worth noting maybe on the numbers is that the operating result included EUR 9.9 million expenses arising from valuation increase on contingent considerations of acquired businesses based on the updated financial plans for 2021 as well as then a settlement payment to a business partner and related legal fees in the U.S. The other highlight on this slide I would take is the effective tax rate, which was below 14%, and this comes from our ability or expectation to be able to utilize the tax loss carryforwards from acquired -- previously acquired companies. From a cash flow perspective, the first 3 quarters of the year also were very good. The cash flow was very strong, EUR 48.9 million compared to EUR 16 million -- EUR 16.9 million same time last year. I mean, the biggest contributor here is that the improved financial performance on our operations. Our financial position remained strong in all aspects. Here, it may be worth noting the CapEx number, which is down from last year as the 2 building projects that we had are now finished, but it still is somewhat higher than the normal year. And where we expect it to come down to over the course of time, it's still elevated to the fact that we are continuing some of the installments and investments into some of the laboratories in our R&D building here in Vantaa. Then going into market development and business outlook. On market side, we are expecting the growth to continue on high-end industrial instruments, on life sciences and power industry and renewable energy. The recovery, we expect to continue on liquid measurements and methodology in developing countries and, as I said earlier in the presentation, in the Aviation side as well. Whereas the metrology in developing countries and from transportation, we expect to be -- remain stable. And then recapping our business outlook that we gave out October 19, we expect our net sales for the full year 2021 to be in the range of EUR 425 million to EUR 440 million and our operating results to be -- for the same period to be in the range between EUR 48 million and EUR 58 million. So if I summarize the fourth -- third quarter of this year, it was characterized by strong demand and we did have -- experience very strong performance throughout the company for as we see strong growth in orders received and tax and performance also on the net sales. So I'll stop my prepared remarks here, and I'll open up the floor for questions. So operator, please.

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

Congratulations again for a good quarter and maybe we can already say for a strong year as well. I actually don't have any questions on this quarter or the end of the year. So if I may, I would like to change focus already to next year. And I have 2 questions that are related to each other. So if I could ask what kind of plans and/or focus areas do you have for next year? And secondly, what kind of drivers and risks do you see there for next year?

So we have not given any guidance, obviously, for next year. And we see -- so we have a long-term strategy and the investments into much of the -- where we have seen the strong performance actually throughout our portfolio. We feel that we are well positioned, obviously, going into next year. We will give you an update on -- an updated guidance together then with our fourth quarter results in February. So I'm not going to go into any more detail in that. Maybe the one thing I can say, as I said in my prepared remarks, obviously, the component situation will require quite a bit of attention from us, like with everybody else, I believe, in the industry. And this is something which will be, obviously, from an operational perspective, one of the themes for next year.

Yes. I was not asking or referring to any guidance or expecting any guidance, just like drivers like the component market and if the aviation industry is -- if you expect it more like you commented here that it's picked up in orders, like these kind of drivers that give you a tailwind. And if you see any other possible risks if we look at components, that -- is there only some components now that you -- where there is problems to get? And do you see risk for further other components as well getting like hard to get?

Yes. Let me give you a little bit more color on the component situation. So the visibility into the market, so if I look at just what has happened over the end of the third quarter and the visibility into the market has deteriorated, which kind of -- if I try to put it in plain English, it means that the visibility into the supply for any or just about any electronic component, it's extremely short and very hazy as well. So we have experienced, during the third quarter, the commitments from multiple big, well-known suppliers, and just like, I would say, the entire industry. And then when you ask from this certain big name electronic suppliers, they -- depending on the company, they give you a slightly different answers. So if I just recap what has been said or some of the well-known publicly stated numbers or outlooks on the component situation, some of the companies like, if I recall right, Intel said that they would expect difficulties to meet the complete demand during the entire next year. Some of the other ones may see a little bit different outlook. But it gives you maybe an idea that this is a -- the situation in the marketplace, which requires quick feeds, quick reaction and a lot of activities to mitigate rapidly changing supply situation and supply picture.

[Operator Instructions] We currently have no further registered questions. I'll hand back to the speakers for any final remarks.

Thank you, and thank you for your patience. I do apologize all the technical difficulties we experienced during the call. And I wish to engage all of you in further discussions, and you can book them through our IR. Thank you.