Earnings Call: Q4 2020

Feb 19, 2021

Hello, and welcome to the Vasella Q4 Report 2020. Today, I'm pleased to present President and CEO, Kai Ostamo. Please go ahead with your meeting. Thank you, and welcome to Vizola call from my side as well. With me here are Carina Morinen, our CFO Raimo Voipio, our Chairman of the Board Paola Li Mata, our Head of IR and myself, Kai Usdermet. So when we look at the year 2020 and start with the fourth quarter highlights, it feels like it was a rollercoaster year where the rollercoaster ended up with a high note. The orders received increased significantly during the fourth quarter, both in Industrial Measurements as well as in weather and environment. In Industrial Measurements business area, the demand growth was led by pharmaceutical customer segments, including the COVID-nineteen vaccine suppliers, as well as then orders received overall by 11% compared to previous year. In weather and environment business area, orders received increased by 7% following a very good demand in Meteorological segment. When we look at the order book, weather and the overall order book for Vitalar decreased slightly by 1%. And in weather and environment business area, the order book decreased by 2%, mainly as a result of weak orders during the year earlier part of the year. In Industrial Measurement side, the order book increased by 7% compared to previous year following strong orders received during the fourth quarter. When we look at net sales, fourth quarter net sales decreased by 10% year on year following weak orders received in weather and environment business area during the first nine months of the year. On the other hand, in Industrial Measurements business area side, we returned to growth path with 10% net sales growth compared to previous year same time previous year. Net sales grew in all regions and strongest in APAC. When we look at then the operating result, the fourth quarter operating result fell short of previous year following decrease in net sales. On cash flow side, cash flow remained strong, slightly ahead of the previous year. And the dividend proposal by the by the board of directors to to to the shareholder meeting is to keep the the dividend at €65 cent. 61. Sorry. €61 cents. Excuse me. Sorry. When we go into into the orders received during fourth quarter, the orders received increased by 8%. The demand in both Industrial Measurements and weather and environment picked up considerably compared to the earlier three quarters of the year. In Industrial Measurement business area, demand growth was led by pharmaceutical customer segment as well as then the power and industrial measurement Industrial Instruments side. The orders received increased by 11% compared to previous year. In weather and environment side, orders received increased by 7% following good demand in the meteorological customer segment. When we look at the fourth quarter order book, it decreased slightly by one percent when compared to year on year. In weather and environment business area side, decrease was 2%, mainly as a result of weak orders in Middle East and Africa through the year as well as the then we have to take into account also the reduced scope and value of the Argentinian contract that renegotiate in earlier part of the year. In Industrial Measurement business area, the order book increased, as said, by 7% compared to previous year following strong orders received during the fourth quarter. And the increase when we look at area split, it's increase was strongest in Americas region. In fourth quarter net sales, net sales decreased by 10%. If we look at the comparable rates, the decrease was 7%. In weather and environment side, the net sales decreased by 18%, mainly in project and product businesses. The decrease of the net sales followed weak orders received during the year and delays in some of the project implementations due to the restrictions of the COVID-nineteen situation. If we look at the Service business, the main reason for the decrease of that business the net sales in Services business was the discontinuation of the assessment business services provided to Renewable Energy segment that we did earlier in 2020. In the Industrial Measurement business area, net sales increased by 10%. Net sales increased in all regions, as said strongest in APAC. And net sales growth was very wide range, came from industrial instruments, continuous monitoring systems and power industry applications. In terms of operating result, Weiselag Q4 operating result decreased following the decrease in net sales, while operating expenses decreased compared to the previous year due to the restrictions caused by the virus situation, reduction, for example, in travel and so on. On the other hand, it's worthwhile to remind that we continued our investments to research and development, sales and marketing as well as process development throughout the year. Then if we move on to the take a deeper dive into the different business areas, first on weather and environment. Q4, as said, we had a strong order intake. The orders received increased by 7%. If we look at constant currencies, the increase would be 9%. And the orders received increased mainly in Latin America as well as in Europe. In terms of our order book, it decreased slightly by 2% compared year on year, mainly as set forth by the weaker order intake during earlier part of the year. The net sales decreased by 18%. Again, the decrease comes from the weaker order intake during the earlier part of the year in 2020. The gross margin and operating result decreased compared to previous year as a result of lower production and delivery volumes. The operating expenses decreased as for the entire company, same way as as for the entire company. And the operating result in in the end ended up being in in percentage terms 77.8%. In Industrial Measurement, we had a very strong order intake. We are back we were back into the growth path. Orders received increased by 11% in constant currencies that will be 14%. It came from all regions, especially from Americas and in China. And that led also the order book increased by 7%. And when we look at the size of the order book for 2021, it stood at €16,600,000 scheduled to be delivered during 2021. The net sales increased by 10%. The net sales growth was wide ranging and came from industrial instruments, continuous monitoring systems and power industry applications. The net sales growth increased operating results. The operating expenses decreased similarly as in weather and environment due to the restrictions caused by COVID-nineteen pandemic. If we then take a look at the entire year 2020 from Vaisala side, it showed good resilience in a very difficult market environment. Orders received in total declined, while the order book was almost similar as when we exited the year 2019. Operating operating expenses decreased due to the to the virus situation, and the operating result for for the for for Vaisala increased slightly compared to 02/2019. If we look at the the the business areas, weather and environment decreased in terms of net sales due to the very challenging market environment. The decline was especially in aviation as well as in emerging markets. The order book was down slightly compared to 2019 and that despite the clear pickup in the fourth quarter of the year. Net sales was down to the weak order intake during the first March of the year. And in terms of operating result, it was down due to the lower net sales despite the higher gross margin in weather and environment. In industrial measurement, we had a strong performance. It was, as I said, a rollercoaster year with a strong finish of the year in terms of order book, orders received as well as in net sales. The operating result was improved due to the higher sales volumes, better gross margin and lower OpEx, again, due to the virus situation. When we look at the 2020 cash flow, the operating cash flow was on the same level as in 2019, but the mix was different. The net working capital compensated the negative effect of the decreasing result. The cash when we look at the ending cash balance, it was $8,000,000 down compared to the previous year. The financial situation of the company remained strong. On this slide, I would highlight the capital expenditure, which remained on a high level during 2020 due to the investments into the R And D Buildings. We finished the building in Boulder, Colorado already middle of the year and then the R And D Building here in Vanta at the end of the year. We expect the capital expenditure level to normalize going forward. On dividend, I would like to remind just dividend our dividend policy, we aim to pay a stable dividend, which will increase in line with the net profit development. And our target is to maintain high solvency and take into account the future investments investment plans. And in in line with with the policy, the board of our board of directors proposes the dividend to stay at €61 cents. Then let's take a look at how the market and business outlook is 2021. We foresee, first of all, that the pandemic situation will continue to cause significant uncertainty during 2021. The lock as we have noticed around the world, the lockdowns continue, new waves continue to emerge around the world. That being said, we expect that the global economy is expected to continue to recover during the year. Market for the high end industrial instrument is expected to recover after weak 2020, especially in life sciences and power industry is expected to continue to grow. On whether on environment side, the meteorology market in developing countries is expected to continue to suffer due to the lack of funding and delayed decision making, while in developed countries, we expect the demand to remain stable. When we look at the aviation market, it declined significantly during 2020 as a result of the of the pandemic and cut down on the travel globally, and the market outlook remains weak, although some recovery is expected. On the ground transportation side, the market is expected to continue to be stable. Renewable energy, we expect along with the megatrend is continue to grow. And when we look at how that translates into our business outlook for 2020, we estimate that our full year 2020 net sales will be in the range of $370,000,000 to €400,000,000 and our operating result will be in the range of 30,000,000 to €45,000,000 This concludes our prepared remarks. And now we are very, very happy to answer any questions you may have. Operator, please, could you please open the lines for the questions? Our first question comes from the line of Yoni Gorkhofest from Inderes. Please go ahead. Your line is open. Hi. It's Yoni from Inderes. Can you hear me? Yes. Very well. Good. Good. Good. Congratulations for a good year in difficult circum circumstances. I have three questions. I'd like to start on on the order book. It's it's on good lever at year end considering the difficult circumstances. But how how is the sales pipeline looking now in in terms of small small and and larger orders? Maybe especially for better environment? I will answer that question in in terms of the way we give gave guidance to the overall market outlook, the uncertainty, we expect the the emerging or the meteorological segment in the emerging market to to stay uncertain and and due to the virus situation and the financial impacts of the virus situation as well as in the aviation market for obvious reasons to to stay stay weak and and the recovery to be relatively slow on that side. Whereas in the in the road side, we expect the market to stay stay stay stable. In in terms of a yes. Sorry. Go ahead. Yeah. Okay. You clearly say for the order book how much is delivered this year, but I'd like to maybe understand a bit the order, how it's composed. And if I ask you in this way that you mentioned in the report that there the big projects in in via contribute three fourth of the project deliveries. So if some of these big projects in VEA ending now this year, or do they all continue over this year? They are both if some of them, we concluded during this year. For example, the the the Vietnam project is a is a good example of such. And then there's a there's a bunch that will continue during this year as well. Many of these projects, you have to remember that they are multiyear projects. Exactly. Yes. Okay. Then last maybe on on on on the profit guidance. Considering your good delivery in in 2020 despite the difficult circumstances and looking at your order book going into '21, so where is the the the the profit drop or where do you expect the profit drop to come from? Or is it increased investments? Or can you give some color on this, please? Yes. So first of all, as I said in my prepared remarks, we continue to invest through the year as we have been continuing to say into R and D, into the development projects during 2020, and we intend to continue to do so. That is all to build the competitiveness in the future. And then the other part, would highlight also the uncertainty during this year that the pandemic will cause very unpredictable and difficulties in terms of delivering some of the project travel restrictions we foresee to continue at least the first half of the year and then gradually maybe opening up during the second half of the year. Okay. Still It still maybe on on the investment side. I I'm I'm not sure if I understood correctly. So are you if you look at the profit drops in in in guidance, So is it is there a component of increased in investment in it, or is it the investment's gonna be on the same level as in 2020? So so there is no no plan to significant increase of the level of investments. But, obviously, during 2020, we continue to invest, like, into into R and D and into other development projects. And obviously, that increase that was not fully visible in earlier part of the 2020 is obviously then visible now. And then maybe the other kind of just to remind you also what I maybe said on the capital expenses, we invested during the past two years into the building projects both in U. S. And in Finland. And the amortization out of those buildings now as they are complete will then now increase. Yes. Okay. Thank you. Thank you. Our next question comes from the line of I also had a question regarding this the outlook a little bit, but I guess you covered that topic in the last question. Then I will ask about the little bit about Industrial Measurements. Now that last year was flattish for Industrial Measurements and started picking up a little bit here in the end of the year. Then you're expecting that market to recover. Could you give some color on what how is that recovery perhaps going to look like? Do you expect it to accelerate during the year? Or how would it how is that recovery going to look like? And would would you expect that industrial measurements could could resume to sort of the normal historical growth or given that last year was a sort of flat year that it could even be higher accelerated so that we perhaps could even see double digit growth in Industrial Measurements this year? Yes. So I'll answer this your question in two parts. I just remind you on the fourth quarter where we actually had a record so highest order intake so far and our highest net sales so far Industrial Measurement. So the market did pick up already during the fourth quarter. Now going forward, obviously, the COVID-nineteen situation puts a little bit of a question mark on how this year will continue. And as we have noted now, only during the past few weeks, the situation has changed very rapidly. So it's that casts a little bit of uncertainty on how this year market overall will develop. The pharma part of industrial measurements, could you could you give some color on that a little bit? That's would imagine there's a lot of money import into into that at the moment. Is what how what what kind of significance does it have for industrial measurements? How how big is the effect of this? And what could you perhaps see is contributing this year into industrial measurements? Yeah. So you're quite right that if you look at the overall market in the life sciences related investments across the world, they significantly increased the market increase during last year, and we expect that that will continue to increase during this year. The overall size of our exposure or our exposure of that market into the Industrial Measurement business is meaningful, but we have not given the exact percentages on different sales of different products into different markets. Very well. Thank you. That's all for me. Thank you. We have no more questions from the line. I will hand it back to our speakers. So if no more questions, then I would like to thank you for everybody on the line and wish you a good continuation of the day. Thank you. Thank you.