Right. Warmly welcome all of you to have a closer look at Vaisala's 2019 Last Quarter and Full Year Results. We have a group of Vaisala people in the room. First of all, our Chairman of the Board, Mr. Raimo Voipio.
Hello, good afternoon.
Our CFO, Mrs Kaarina Muurinen.
Good afternoon.
Our Investor Relations Manager, Paula Liimatta.
Hello.
Yours truly, Kjell Forsén. It will be me and Kaarina who do the presenting here today. I have to say that I, and we, are really happy to present the outcome of last year because, as you can see from the heading here, it was a truly excellent year, including the last quarter. I really have to point out that there are no quick wins in last year. What we have achieved in terms of net sales amounting to EUR 403 million with good profitability, that is the result of long-term systematic renewal and improvement. A result of that hard work is the very well-working foundation in Vaisala, a foundation for our business.
With that, I refer to our capability to create a winning product portfolio, our R&D machine, the benchmark level Vaisala production system, our market reach and channel, Vaisala's ability to do business in all corners of the world, and also implement complex projects all over the world. We do all of this in a sustainable and responsive way. Now, that may, of course, sound very good, but perhaps not overly exciting, really. Consider what business Vaisala is doing. What is the business where Vaisala is?
In this era of climate change, with all its consequences, such as extreme weather, consequences of that, the ambition to get rid of fossil fuel, renewable energy, and the other global mega trends such as urbanization, deforestation, rise of mega cities, technology-wise, big data, artificial intelligence, Vaisala is really in the crossing point of all these strong mega trends in the world. What we do and what we stand for is extremely relevant and meaningful for mankind and for the good future for this planet. We got several good demonstrations of that last year. Some of them unfortunate, you could say. The main one being the Hurricane Dorian that hit the Bahamas half year ago with devastating consequences.
However, the Bahama Islands had prepared for that by ordering and installing a nationwide weather infrastructure network from Vaisala that gave Bahamas the capability to issue warnings and for the authorities to take the necessary actions, thereby saving lots of human lives and property. That is sort of everyday business in Vaisala. That is what we do and stand for. With that introduction, let's have a look at the results, what did we achieve, and we'll start from the fourth quarter of last year. I won't read through the slides here. I will pick some main points here. A year ago, we went into the new year with what we thought was a thin order book, or it was a thin order book on the weather side of our business.
We felt that it's a bit uncertain what we will achieve on the weather and environment side during the year. We didn't see really any big things coming our way in the sales funnel. We have had very good orders received all through the year, and we end the year and go into the current year with a 15% higher order book than we did a year ago. We have had a very good net sales, so our delivery capacity has been very good. Net sales up 9%, and most significantly really is the development you see in the gross margin, which is up from 54% to 56%, contributing significantly to the profitability in Vaisala. Operating result in the fourth quarter being 15% of net sales, really on a good level, especially considering the amortizations we do as a result of our acquisitions.
Consequently, our earnings per share is up to 41%. Cash flow we get back to later. Last quarter was a bit slower in the growth of orders received. It was up with 2% in comparable rates. Last year, currency rate development was positive from Vaisala's point of view, contributing to our net sales some EUR 8.5 Million or so. Organically in the last quarter, we actually went down with 3% in orders received here. I just mentioned the higher order book. Of course it came significantly down as compared to the third quarter due to our very high delivery volumes. Basically all units in Vaisala are having high delivery volumes in the fourth quarter. Nevertheless, up 15% year-on-year. Talking about climate change and consequences.
That one contract directly resulting from that is the Ethiopian nationwide infrastructure contract from last year, which is not in our order book as it's still expecting and waiting for the Ethiopian Parliament ratification before we enter it into our order book. We expect that to take place during this year. Still on the fourth quarter of last year, net sales, as I said, up 9%, I think quarter-over-quarter. We had a very beautiful development during last year. On this slide, we have our business separated into products, projects and services. You can see the good development we have here. We also have the geographical distribution here, where you can see how it developed, and you can see Asia-Pacific being slightly down here net sales-wise, and the Americas being flat here. Net sales increased 9%, in comparable rates 7% and 2% organically.
Acquisitions really added a lot to Vaisala business last year. This might be a bit busy slide here, but you can see an improving operating result here, and actually being on a very good level, following net sales growth and then the aforementioned gross margin improvement. Amortizations in fourth quarter, EUR 2.4 million as a result of the acquisitions, and then the 2% better gross margin contributing here. Kaarina, perhaps you say a few words about the cash flow.
Yeah. We had, during the fourth quarter, a very good operating cash flow, and it was generated by the excellent operating result as we didn't have any changes in our net working capital level. Only the good result was generating the cash flow.
Okay, thank you. Let's have a bit more detailed look. How did the business areas respectively do in the fourth quarter? We start with Weather and Environment. Here we actually have orders received going down with 3%, and that is because no large projects hit came our way in the last quarter. However, orders received is in a good level. We are in no way disappointed with the order intake in the fourth quarter here. Order book is up with 17%, and it was the Weather and Environment order book, which was a bit on the thin side a year ago. Now it's up with 17%. Net sales was up with 5% or organically 4% in last quarter. Operating result, of course, improving as a consequence of net sales growth and better gross margin.
Perhaps that was some main point from this slide, but really significant the gross margin improvement we have here despite complex and difficult projects to fulfill. Industrial Measurement in the fourth quarter, very strong quarter, both in orders received and net sales. Orders received actually up with 19%. Here we have the K-Patents acquisition. Organically, growth of orders received was 8%, also good. Order book up with 7%. Net sales up a whopping 18% here. Even in constant currencies, it would be a very good 15% here. Also here, K-Patents, the acquired company, contributed very well as organically growth on net sales is 5%. Gross margin is really high here, almost 64%. I think that's the highest level we have seen so far. Over to the full year 2019. Here you have for the three last years orders received and net sales development.
You can see that mainly due to the weather order intake fluctuating quite a lot because of the big orders for projects we occasionally get. It's not a linear curve in orders received, but it's a very solid development then on the net sales side. Comparing to last year, on full year level, we do have a very good growth in net sales here. I think it is this 15%. Of course, we do have a significant growth in operating expenses as well. Here we have to keep in mind that not only do we ourselves invest all the time more and more into R&D and sales and marketing to go for growth, we also now have added the OpEx from the acquired companies from both of them. That is important to keep in mind, really.
CapEx is up here significantly. That is mainly because of the building projects. We have two of them, one in Finland, one in the U.S. going on. Parts of these we get back to later. Full year for weather and environment, really excellent sales performance here. Of course, also order received is really good development here. Order book we talked about. If you look at the gross margin development over the last three years, 47%, 48%, almost 50% gross margin. Really solid development here. The machine is working better and better with higher productivity. This is the solid foundation I was talking about. Operating result on a very good level. Industrial Measurement, excellent performance also in financial terms here, with good growth and good profitability. The high gross margin I mentioned, also here we see the jump from 62 to almost 64. OpEx are up here significantly.
In relative terms, we do invest more, or we grow the investments more on the Industrial Measurement side, the organic investments we do. That is because the leverage, in a way, is better on the Industrial Measurement due to the higher growth rate and the high profitability on this side of our business. Kaarina, perhaps you walk us through our financial position.
I picked up a couple of the KPIs that are describing last fiscal year. Return on equity has been improving year by year, and in 2019 it achieved 17.7%. Our capital expenditure has been increasing from previous year by EUR 12 million, that's mainly due to the two building projects. The other one ongoing in Finland, Vantaa, the R&D building, the other one in U.S.A., the office building in Louisville. Our gearing percent is now -2.4%, the change is mainly due to decline in cash, with about EUR 12 million-EUR 13 million and some increase in interest-bearing liabilities mainly coming from the change in the lease accounting. We have the lease liabilities included in here.
Okay, what's the plan then when it comes to dividend?
The board is now proposing a dividend of EUR 0.61, which is an increase of EUR 0.03 per share to be paid for fiscal year 2019.
That's the proposal to the AGM. Okay. What about the outlook for the current year, for 2020? In broad terms, on weather and environment, you could say that the markets are either stable or slightly growing, basically all of them here. We have basic drivers in place. I mentioned at the introduction a couple of them, such as climate change and increasing amount of extreme weather. We have the renewable energy, we have the development in transportation, and so on, that drive the markets there. Still, they are either flat, stable, or slightly growing. Whereas on the Industrial Measurement side, we do see basically all markets continuing to grow, including then continuous monitoring systems, where we do have a new offering in place, as well as power industry, where we have made good advances during last year. This leads to the following business outlook.
Net sales in 2020 will be in the range of EUR 400 million-EUR 425 million, and the operating result will be in the range of EUR 38 million-EUR 48 million. That concludes the presentation. Now over to your questions, please.
Thank you, Kaarina and Kjell. Let's start with the questions from the live audience here in Helsinki.
Joni Grönqvist from Inderes. Firstly, congratulations for the nice quarter and excellent full year.
Thank you.
A couple of smaller questions. Maybe to start with orders received, you mentioned here in the report that the weather and environment area, there was no larger orders received in Q4. Can you comment on this? Is the pipeline as normal still, and you just didn't close any bigger deals now in Q4, or is there anything you can comment on this?
Yeah, I would say that your conclusion is right. There's nothing special. Large orders fluctuate quite a lot. There may be even several quarters in a row with no large project orders. However, in the fourth quarter, we had a nice volume of mid-sized orders.
We could interpret that the sales mix is quite good in the order book?
I would say it's normal.
On the R&D investments that you increased already last year, could you maybe a bit elaborate on how you feel about increasing? Are you increasing in the same pace as sales growth or below, or what's your thoughts regarding the investment levels?
Well, we don't really compare it that way like you just stated, but we just go for the projects where we feel that there is a good business case for them. We reviewed each of them individually, and if we think there is a good reason for going for it, then we go for it. Some of the projects may take quite some time from start till finish, as we have the sort of unique capability to develop new technology as well. Sometimes in our R&D undertakings, there is a portion of R, really the research part, before we get into the development part. Those take longer time to hit the market. If you do just the development part, then it's a fairly quick turnaround time, actually.
To continue on this a little bit still, because you emphasized it quite much in recent year. You made your R&D process more efficient as well. How much do you feel like is there some special areas that you still try to be more efficient? Is there improvement potential in this sense?
I think there is definitely improvement potential. One thing we have done for a couple of years, but we really intensified the efforts last year, is to implement the lean methodology also in R&D. We made advances there last year, and I think there's a lot of potential in there, and I think also that we have buy-in in the R&D organization to go for this. Also, there are other ways to increase efficiency, such as really carefully going through what should we do ourselves and what could we let other parties do for us.
Hi, it's Matti Riikonen, Carnegie. Related to your guidance for 2020, it seems that the market estimates are already at fairly high level, basically at the high end of your guidance. I was just wondering, what are you thinking when you put the range in? Is it mainly the kind of neutral look at the sales mix or some perhaps additional fixed costs that you are thinking that would land at the midpoint of your guidance? Is it purely just a function of top-line growth, and then the resulting margin can be really at the high end of the range, and of course, vice versa?
Well, when it comes to the net sales guidance, it really comes from what we see ahead of us, what is in the order book for this year, and what do we see in the sales funnel. As we all learned from last year, it's a bit hard to really estimate and predict the weather and environment side of our business. I think we can see a fairly linear development in industrial measurement side. Weather and environment does fluctuate a lot and is hard. The figure we have now, the range we have now, is purely based on order book plus sales funnel outlook. Maybe you, Kaarina, can comment on the EBIT range.
We have currently much better order book entering 2020 than what we had a year ago. When we look at the large orders in weather and environment side, we have been recognizing revenue quite a lot for all of the big orders we have had in the order book for now for a couple of years. We did not get in any new large orders during the last quarter, so that, of course, is then making us a bit more cautious about the guidance.
All right. Thank you. If I continue, you have had quite a sizable order bonanza, if you could say, in many large weather deals in recent years. How would you say is that the normal state of affairs, or has there been something unusual so that many projects perhaps cooking in the sidelines suddenly turned out to be materializing in the past couple of years? Has the customer behavior changed, or customer needs, have they changed in a more kind of nontraditional way so that there would be, actually, you could see that also in the future the orders would be improving?
I think there are several aspects in your question there, really. What we have stated publicly is that we very actively go for these capacity-building projects, like the one we had in Vietnam, and like the one we will have in Ethiopia, where we deliver a nationwide weather infrastructure to a developing country. That is something that we are really focusing on and going for, and we have unique capability to do that with our portfolio and with our project skills. I think the world has come to realize that this is due to climate change, really. There is an accelerating need for this. The problem is that these countries typically can't really do the financing themselves, so we need that element as well. I think there might be a growing readiness in the developed part of the world to cater for this financing.
Hence, we should be able to take roughly on average one capacity-building project per year, which is then really big. We have had large orders, and I guess you refer mainly to this, like Argentina, the airports there, or then the road weather systems to Sweden. Of course, we very actively go for these as well, and not many others can do large projects like this. However, those are more an opportunistic nature. It's not every day, it's not even every year when projects like that are up for grabs. Weather and environment remains a bit fluctuating, hence.
All right. Thank you.
Thanks for the questions so far.
Hi, Jonas Forslund from Evli Bank. Question relating to Leosphere and K-Patents, which now, according to your report, are fully integrated, and you have close to a year maybe experience with them now.
more or less. Would you say that you are happy with their performance, if you would consider them as a standalones? I know they're integrated now, but they did have a big contribution to your growth. They would've anyway, when you add a new business onto your top line. If you would consider them more standalone, could you see already some acceleration in their growth based on what kind of figures they were posting before they were part of the Vaisala platform?
Yeah. I think Kaarina looks like she wants to answer.
Okay. Concerning both acquisitions, their sales performance has been meeting our expectations last year. Definitely performing according to the expectations. Due to the successful integration of our ERP, our processes they have been both performing in profitability-wise even better than what our expectation for the first year was. Definitely the integration has already shown us that we can achieve synergies by doing good integration with our systems and processes.
That is definitely the case. As you know, we have made loads of acquisitions over the years, and I would personally strongly feel that the two acquisitions you just referred to are the ones we have been able to integrate better than any others.
Continuing on this acquisition path, then you have quite a lot of capital expenditure this year relating to your building out the buildings. How do you view the M&A option, or how does the M&A pipeline look at this moment, given you have a lot of CapEx already in place? What would you say are the likelihoods of increased more M&A this year, and in which case would it be then in the weather and environment to try to change the profile a little bit on that business area or in the more faster-growing industrial measurements?
Well, there's not that much we can say about M&A, of course. We are always looking for acquisition objects. We always have a couple of them sort of in the pipeline that we study further actively. I think we have gotten fairly skilled even at evaluating possible acquisition objects. When it comes to what part of our business is especially looking for that, I would say it is on the industrial measurement side of things, and to be more specific, the liquid measurement side of our business is really interesting. Time-wise, there are no predictions I can make.
Thank you for the good questions. Operator, please, we are now ready for the questions from the people on the phone lines. Thank you.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Just as a reminder, that was zero one on your telephone keypad now. As there are no questions on the phones, I'll hand it back to the speakers.
Thank you. We still have questions from the live audience.
A short follow-up on the acquisitions you did in 2018. When you had them on board for a year or so, have you discovered any new synergy potential that hasn't been realized yet that you expect to realize in this year or coming years?
Well, I think we have had Leosphere on board now for one year and a quarter. K-Patents we have had for one year. I think during the current year, there are still some synergies that we can gain.
Do you want to add something to that?
No.
Thank you.
I think we have heard all the questions today. I would like to thank everyone and wish good rest of the Wednesday. Thank you.
Thank you.