Good day, and welcome to today's Vaisala Q2 2023 Conference Call. This meeting is being recorded. At this time, I'd like to hand the call over to Vaisala President and CEO, Mr. Kai Öistämö. Please go ahead, sir. Thank you, and welcome for the Q2, Vaisala Q2 call from my side as well. My name is Kai Öistämö, I'm the President and CEO of the company, and I'm joined here with our CFO, Heli Lindfors, Päivi Liimatta, our Head of IR, and our Chairman of the Board, Ville Voipio. Okay. I think I have lost the presentation again. Sorry. Sorry. Yep, if I characterize the Q2, it really was about uncertain market and actually pretty good performance in an uncertain market. If we look at the numbers... Oh, my! Here we go. If we look at the numbers, actually, our net sales grew by 9%, and we had a higher EBIT than year before same time. That being said, the growth came from a different place than it has been for a while now. Growth and orders received, net sales was really driven by, by Weather and Environment, a great performance on that side, and at the same time, more muted performance on Industrial Measurements side. That also led into us giving a revised outlook on July the 17th, and I'll repeat that at the end of my prepared notes. If we start with orders received, really on a company level, grew by 5%. If we take in a constant currencies, that would translate into 7% growth year-over-year. Orders received really grew from, I said, Weather and Environment, business area, having a great quarter, at the same time, decrease in Industrial Measurements business area side. If we look at the market segments, the orders received grew strongly in roads and automotive, having a great quarter, as well as in renewable energy, as well as then in power and energy market. That translated into order book being €167 million at the end of the quarter, order book being flat year-on-year on Industrial Measurements side, and the increase to the order book came from the above mentioned market segments, automotive, meteorology, renewable energy, and Weather and Environment business area overall. Turning into net sales, nice 9% growth year-on-year in terms of net sales growth, in constant currency, that would translate into 11% growth year-on-year on a company level. Really the driver behind was Weather and Environment business area, while Industrial Measurements decreased in terms of net sales compared to the same time previous year. In terms of, again, market segments, same market segments, renewable energy, roads and automotive market segments, as well as the refrigeration sales grew as well nicely over the same time previous year. If we look at the operating result, year on comparison, year on year on, on a company level, I'll start with the gross margin. Gross margin was on the same level as the year before. The component purchases continued to have a negative impact, this time, little bit less than a percentage point, so 0.8 percentage points. The operating expenses continued to increase. This is on the back of both the investments that we did already last year in terms of sales and marketing in R&D, and the renewal of our IT, IT systems. We are in the middle of renewing our ERP and the related systems, and that, that continued into, into this year, and that was then, then visible, of course, on, on, on the operating result line as well. Taking a little bit of a deep dive into, into the business areas and starting with Industrial Measurements. The Q2 orders received in Industrial Measurements decreased by 6% year-on-year. If I again take the constant currency, this would translate into 3% decline in orders received. If I look at where in, in terms of market areas, then industrial instruments, life science are the ones which, which really contributed to, to the negativity this time around. The order book stayed flat when we compare to, to last year's same time last year in, in terms of the ending order book that, that we had after Q2. Net sales wise, Industrial Measurements had a 3% decrease year on year. The constant currency, that would have been a flat zero. Where did it come from? Life science market segment was the, was the, the one which this time around was the, the, the, the weak one. The gross margin side, a significant decline to 59.7 percentage points. The issues that contributed to this were obviously as I mentioned earlier, component spot purchases continued to have an impact on when we look at it at this time, like I said, less than before, but still 1.2 percentage points negative impact on gross margin. Specifically, maybe to this, this quarter, the price pressure and unfavorable mix during the gross margin. If I open that up a bit, with what we saw in the marketplace was that due to the uncertain market environment, economic environment, the higher interest rates, our customers postponed, reevaluated, mainly, really postponed their industrial investments, that then translated into softer demand into our products. We did not see really cancellations of the projects. They really moved forward in time, and that, that would be one. Then, geographically as well, if I look at kind of specifics, China was clearly softer than we anticipated during the Q2. There was some softness anticipated already. Typically after the party congress, there's a little bit of a regrouping time in the investments in China. This time, that and the uncertainty and maybe the slowness on picking up post-COVID in the economy contributed to China being clearly a slower and softer market than we anticipated. The softness in the marketplace also then led into more of a price competition, especially in China, which then is visible in the gross margin as well. Did not see any new competition per se. We did not lose market share or, or, or anything of that nature. In a summary, it really, price pressure, unfavorable product mix was, was the, was the cause of this due to the, due to the uncertain, really an uncertain economic environment around the world. All this resulted in a decrease in operating result as well to € 6.8 million during the quarter. Very different story on Weather and Environment side. A great quarter, I would, I would characterize, strong growth in orders received. Biggest contributors being roads and automotive, renewable energy, subscription sales. Order book grew by 8 percentage points compared to that same time previous year. Growth in terms of our operating and constant currencies would have been actually even 16%. As I said, a great quarter in orders received. Similarly, in net sales, a very strong quarter for Weather and Environment, 18% year-on-year growth, constant currency, that would have been even 20%. Where did it come from? I've already mentioned renewable energy, excuse me, roads and automotive, meteorology, as well as then the subscription sales. The gross margin improved also from previous year, over 3 percentage points. Here, the clearly lower component spot purchases compared to previous year, contributed that, to that. Also, I'm very happy to report the good execution of our strategy, where we see the growth of our newer market segments, newer businesses, where inherently there's a higher gross margin now taking bigger share of the business in Weather and Environment, also being visible in the gross margin during the Q2, i.e., stronger sales, stronger share of the sales from renewable energy, stronger, stronger, stronger share of the sales through subscription sales as well. That all led into increase in operating result compared to the same time previous year as well. If I take a look at the first half overall, first on the cash flow side, we had a good cash flow from operating activities increased as we had been indicating before. The somewhat softer quarter than anticipated led that the, our component inventories did somewhat increase and tie up a little bit of a capital, despite this, operating cash flow actually did increase during the first half. Our financial position continues to be strong. No material changes in that during the first half compared to the previous years. Into market development and business outlook. Longer term, we believe that the market, market trends and the market position that we have has not really changed. The underlying themes in terms of investments in the world into life sciences, pharma, biopharma, investments in the world to renewable energy, as an example, have not gone anywhere, and we continue to be longer term. We are situated very well in terms of in a growing market. Now, in terms of our outlook for the second half of this year, we continue to believe that majority of the market segments that we serve, continue to be growth markets. The exceptions being Meteorology and Aviation. As before, the outlook is that they are stable as, as both of them are mature markets, as we have indicated before. All of this then, then led into us revising our business outlook for 2023, July 17th, in such a way that we now estimate, we narrowed, narrowed the net sales range, and now we estimate the net sales for this year to be in the range between €530 million-€ 560 million, and our operating result being in, in, in the range between €65 million-€ 75 million. A mixed quarter, uncertain underlying market led into, into a softer market, in Industrial Measurements and, and, and weaker numbers on that side. On the other hand, very good performance on, on Weather and Environment side, and a good execution on, on the strategy as well. Quite overall, really just recapping the net sales, we did grow net sales close to 10% year-on-year, and expansion on, on EBIT side as well. I just went through the outlook, outlook as well. I'll stop my prepared remarks here, and I'll open up the line for any questions you may have. Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. If you wish to cancel your request, please press star two. I will pause for just a moment to allow you to signal. The first question comes from Pauli Lohi from Inderes. Please go ahead. Hi, this is Pauli Lohi from Inderes. First of all, I would like to ask about, how, how have you responded to the increased price competition in China? Hey, Pauli, good to hear you. It has been... As it's a market price, and it has meant that we always have to be competitive in a marketplace. We have been meaning to be, yeah, like I said, competitive in the marketplace, which means that we have had to, not be as aggressive in price increases as we anticipated before. Okay. You changed the verbal communication about component availability or, or their impact on your margins. Has anything changed in that area since Q1? Should I read that the component availability has normalized completely, but the impact comes with a lag due to the inventory cycle? Yes. Thanks for the question. I maybe should have, even in the prepared remarks, been even clearer on that. We see the component availability to continue to improve. It's, our previous outlook was that by end of the year, we see that the impact of, of the component shortage-related spot costs is going to kind of disappear to or not be material. We continue to believe that. It's exactly like you say, characterize that the new commitments are largely gone. There's some lag on, on through the inventory that we already have in place. Thank you. I would like to ask about whether in Weather and Environment business area, there was a strong cross-margin and very strong product sales. Do you see any temporary factors here, or do you find this cross-margin level- Yeah ... sustainable? I, I'll, I'll divide up the, the Weather and Environment into three pieces. The, the traditional side of the business, our flagship business, that tends to be a little bit of a changing from quarter to quarter. There, there are changes in terms of the projects, there's changes in terms of the mix, has not gone anywhere from a historical, historical side. That being said, then the growth, as I said in my prepared remarks, we have been strategically investing into B2B-led growth, underlying inherently growth markets, renewable energy being example, subscription sales being another one, where the, the gross margin in the marketplace is, is clearly higher than the traditional, traditional side of the business. As we execute this strategy over time, there should be, if we are successful with the execution of the strategy, we should be able to increase the gross margins in, in, in this side of the business. Thank you. Makes sense. Finally, I would like to ask about fixed costs. Do you expect to hire more people in the remainder of this year and other ways investing into fixed costs despite market cycle cooling down in the industrial segments? Yeah. Yeah, we have obviously taken measures on this already in terms of slowing down the hiring and being extremely prudent in even replacing people. There are obviously roles which, you know, you should use common sense and hire, but for our business-critical roles, but we really are very mindful in spending additional additional operating expenses. Okay. Thank you very much. That was all from me. Arttu Heikko- Thank you. from Evli. Please go ahead. Hello, this is Arttu Heikko from Evli. Hi, Arttu. You downgraded the life science and high-end industrial measurements guidance from growth to moderate growth. Could you elaborate what this in actual means, and would it be possible that there has been some kind of boom or overinvestments within these industries? Yeah. So it, so first of all, it just reflects what the market now has been during the Q2. That's basically... For life science, somewhat also in, during the first quarter. That's basically what the, what that downgrade was. In terms of industrial instruments, it's harder to say whether there was like a impact on investment boom during the post-COVID, COVID years or not, as the end markets for industrial instruments is so broad and very, very hard to make a, make a statement on that. In life science, there probably was a little bit of a investment boom, you know, during the past two years for obvious or three years, for obvious reasons. That being said, we do see orders coming in life science side as well, so it's just slower for the time being. Okay. About the Industrial Measurements, gross margin, and price competition, especially, especially in China. Do you see it continuing, and was there any price competition in other markets? I'll take the last one first. But it was kind of specifically hard in China. I think this is related also, if you look at the economic activity, the GDP, GDP growth, growth rates around the different regions as well, if you clean it up from services related to GDP, GDP, kind of contributions. I think it's kind of a good part of the explanation there, why specifically in China. In terms of a continuing, you know, our visibility, as you, as you well know, into our sales channel is relatively short or quite short. It's very hard to make kind of a longer term comments on it, than where we are today. We certainly believe that this is kind of a well, again, I repeat what I said in the end of my, my remark, prepared remarks, that if you look at the underlying trends that we are serving, I, I don't think they are going anywhere. You know, the electrification of the vehicles, the renewable energy, investments into more efficiency, lower carbon dioxide, carbon dioxide emissions, alternative energy sources, has not gone anywhere. Yeah. About the Weather and Environments, strong quarter. Have you seen there in any market segments, some kind of uncertainty or even demand slowing down? How do you expect the demand continuing in Weather and Environment? So not, not the same way at all in, in weather environment. That's, if you look at even the history, I, I would say that's quite normal as well, that, that, if you think about the cyclicality of the weather environment business, especially the traditional side of the business, which is largely public money, and that's not sensitive to the cycles the same way as private or kind of private enterprises are. So, so the planning cycles and investment cycles are, are very different. So I'm not expecting, you know, the underlying dynamic really to change on the, on the flagship side of the market in renewable energy. Hard to believe that there would be a slowdown in kind of investments into, into renewable energy, new wind parks, and, and so on around the world. I think the dynamics are somewhat different when we look at the weather environment. In terms of predictability between the quarters, as I responded to Pauli, you know, the, the flagship market, you know, if you look at the history, there's been a little bit of a volatility between the depending, between the quarters, depending on what projects come in and what projects don't. If you look at then a little bit of an aggregate number, tends to be that side of the business tends to be quite stable, and then we do have the growth, and the kind of increasing portion of the sales gets from these growth markets, as I, as I said. Okay. Well, that's all from my side. Thank you. Thank you. As a reminder to ask a question, please signal by pressing star one. Next question from Matti Riikonen from Carnegie. Please go ahead. Hi, it's Matti Riikonen, Carnegie. I have a couple of questions. I'll take them one by one. First of all, regarding the competition that you mentioned, have you lost business volume to competitors? No. No, we, we have not lost market share, if that's the question. We, we, we believe that we have not lost market share, nor have we seen new competition arise. Right. Secondly, how are the customers that you won during 2021 and 2022 treating you at the moment? Have they stayed with you, or is there kind of... Do you see that there would be a return to earlier suppliers based on maybe pricing questions? Are, are they still with you, or have you seen kind of departures? We have seen, not seen any departures. As we spoke during when we won those customers, once the customer changes, they tend to be quite loyal, and making the changes happen in this business is quite hard. Answer, simple answer, no. All right. Thirdly, there's quite a lot of movement in inventories at the moment in the channel and with the, with the end customers. Do you, do you have a good visibility into that, first of all, and then do you think that there would be some inventory correction taking place, if not at the end customers, then maybe in the channel? Is that something that would cause the sudden drop? Have you seen any indication of that? Yeah. First on the visibility on the channel, excuse me. Obviously, just a reminder for everybody, 50% of our, roughly, 50% of our sales in Asia measurements is direct, and 50% is indirect through value-added partners. Obviously, the channel visibility, when we talk about the direct channel, is much better than through partner channel. That being said, our products, just a reminder, our products need to be calibrated, typically, depending on the application, sometimes it's even regulated, the time interval that it needs to be recalibrated, so it kind of ages in an inventory. Carrying a lot of inventory and also the, the huge amount of mix that we have, it would be hard to kind of like bet kind of big volumes in, in, into the kind of a longer-term inventory by, by the channel. So that's just a kind of a reminder on, on what the environment is. All, all being said, there may have been some inventory in. It goes back to the China comment, that, that in China, we do have, like, vast majority of our sales, close to 100%, goes through a, to, through partner channel. The channel is longer for, for us in, in China, so there, there may, may have been in some of the channel inventory correction there during the quarter. All right. Regarding your lower guidance for this year, does it basically assume that the softness in Industrial business will continue as soft as it was in Q2, and then Weather would basically at least offset some of that? With better than expected performance? I would say this way, that we don't see... First of all, the weather environment, as, you know, you know well, there's some changes between the quarters, from, as I said now in the call multiple times. Overall, I think weather environment, underlying trends, the strength in the growth businesses, I am pretty confident about. Then the kind of a mix between the quarters, when do certain orders come in between the quarters are hard to predict on that side. On whether on the Industrial Measurements side, we, I would put it this way, you know, we don't expect a sudden complete recovery of the market back to, I don't know, last, last year or kind of, historical growth levels. That being said, there's an uncertainty as well, as I said earlier in the call as well, that our visibility into the channel, from orders to sales, so order to cash conversion for us is extremely fast. The visibility into the channel is relatively short or quite short. We are, you know, looking at also the macro environment, and I don't think the macro environment is much going to change during this year. High interest rates are going to continue. All right. now that the top line growth trend has clearly turned to a softer one for you. Mm-hmm. Do you expect that it, that you can continue with the current cost base in the Industrial business? Do you think that it would be appropriate to consider that you would try to look at the cost, costs more intensively, maybe introduce some cost savings or not increase some of the costs that you planned for this year? Have you- Yeah, first of all- Look at that. Yeah, for first... Yeah, first of all, in terms of a slowdown in, in, in cost increases and, and, and being mindful, very mindful in terms of increasing resources and so on, of course, I mean, that's, that's any sensible management would do. That all being said, I just want to repeat what I said earlier, I think the underlying trends in the, in, in, in that business have not gone anywhere. Hard to believe that the investment into efficiency, into low carbon dioxide footprint, investments into renewable energy type of solutions, investments into new pharma, biopharma solutions, where all of a sudden the trends would, would, would change. Nothing indicates long, long term, long term, long term that, that, that would be the case. We also need to be mindful that we don't do anything destructive, which would be destructive to our competitiveness as well, given that the, the belief that we have, have that the underlying market trends continue to be there longer term. Right. Good. Finally, just regarding the price, price competition that has been kind of mentioned oftentimes now... Mm-hmm ... should we kind of, think that the industrial business weakness in Q2 was kind of coming from 2 sources? It's the lower volume altogether, and then your ability not to put through the price increases that you planned to do for this year because of the competition. Being the 2nd element, is there an additional 3rd element that the prices would be actually cut from your earlier price levels? Not just you not being able to raise the prices as you planned, but also that there would be a lower price compared to your plans. Would that be the 3rd element in the top line decline pattern? Regarding the third, the third piece, we have a kind of a very clear process in terms of giving, giving discounts and everything else, and we have not changed any of, any of those policies during the, during the first half. All right. Very good. Thank you. That's all from me. Thank you, Matti. Thank you. It seems there are currently no further questions in the queue, but they said I'd like to hand the call back over to Kai Öistämö for any additional or closing remarks. To you, sir. Thank you. Thanks, everybody, for, for listening in, and, in case of any further questions and inquiries, you know where to reach us. Pauli is, is the right source, and, and we would happy, I'd be happy to jump on another call and, and clarify any further questions you may have. I wish you a good weekend, and, happy continuation of the, of the summer. Thank you. Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.