Hello, everyone, welcome to have a look at Vaisala's second quarter results. With me at this side of the line, we have our Chairman of the Board, Mr. Raimo Voipio.
Good afternoon.
As well as our CFO, Mrs. Kaarina Muurinen.
Good afternoon.
Our Head of Investor Relations, Ms. Paula Liimatta.
Good afternoon, everybody.
Yours truly, Kjell Forsén, President and CEO of the Vaisala Group. I have to say that, in a nutshell, Vaisala had a great second quarter, and it's really a joy to tell you about it. We had a great order intake and, of course, the two acquisitions we recently made contributed a lot. Which is a good thing, and it shows that the acquired companies do well and they are on a growth track. Also the organic growth, the growth without the acquisitions, was on a high level, meaning that basically all of Vaisala is doing well and growing. In the second quarter, we had some important product launches and some products we have launched earlier, really as well, was on a growth track, like our continuous monitoring system as well as our power monitoring related equipment. That was the introduction.
Now let's see what we have on the agenda here. This is a summary of the key figures, and you see that orders received is up 38%, of course, order book as well. Net sales up 20% and gross margin, most importantly up 4%. We'll get back to the reasons why that is the case a bit later. You also see a very good development in the EBIT, in the operating results, going up actually 53% from EUR 4.7 to EUR 7.2. Naturally, our EPS is developing favorably as well. Cash flow, however, is negative and that is a result of the growth we do see in the second quarter and a result of the fact that invoicing or the growth really was towards the end of the quarters. We have invoiced but not yet received all the related cash.
Let's go forward and look a bit more in detail at orders received, up to 38%. This time around, we were also helped by favorable currency rates, mainly U.S. dollar. Even if you exclude that effect, orders received would be up with 34%. As I just said, acquisitions did well and the organic growth was good, being 18% in orders received. Quite a figure. Order book, naturally up as well, 20% actually year-on-year, and effect of acquisitions here is EUR 11 million. Out of this order book, some EUR 94 million is going to be delivered during the current year. The corresponding figure last year was EUR 80 million. You have to keep in mind that at that point in time, we didn't have the acquired companies, so figure's not really comparable in that sense. What about net sales?
That is up with 20% and positive currency effect here, but without that, 17% in comparable rates net sales growth. Organic growth is nicely or roughly on the level that we state in our long-term targets. It's 5%. Operating result, as I said, improved very nicely as a consequence of net sales growth. We do have this scale effect traditionally in Vaisala that we have a growing margin with growing sales, and we certainly see it this time around. We do have a good margin in the products we delivered and good margin in the projects we deliver as well. I think this is quite an impressive achievement, actually, this operating result, taking into account that we didn't really have this amount of amortizations last time around a year ago.
Now we have EUR 2.2 million coming from amortizations relating to the acquisitions, and we also did terminate a product line in the second quarter. There's almost EUR 1 million provisions for that. Despite these negative factors, 53% growth in operating results. Cash flow being negative, I mentioned the main reasons for that, and Kaarina's going to get back to that in a minute. Let's have a bit closer look at business areas. We start with Weather and Environment, and I think this is quite an orders received growth you see here, 49% up. It's impressive, even if you exclude Leosphere, the acquired company, it is up 26% in organic figures. Some positive currency effect here.
There's also one pretty notable thing here that we didn't have any of this sort of big, huge orders that we had in the first quarter, and historically we had every once in a while, but we have a flood of mid-sized orders, basically all below and well below EUR 5 million. I believe the largest one we had was EUR 4.6 or so. Good news is also that the growth orders really came from all over the world. On Weather and Environment, order book is up 50% year-on-year, and it's quite an increase in what to deliver during this year as compared to one year ago. Keep in mind that we didn't have the acquisitions last year.
Net sales is up with 17%, in flat currency rates, 15%, and a good development in operating result despite the amortizations and the R&D expenditure, which at this point in time is at 15%. Quite a high level of R&D spending here. Looking at Industrial Measurements, basically it's strong result all over the place here. Orders received up 21%, 17% in flat rates, and organic growth is 5%. Order book up 22%, net sales up 26%. Here, the organic growth of net sales is 12%, so nicely double-digit organic net sales growth here. Operating result on a high level as well, although R&D expenditure is around 40% of the sales here. Gross margin up with 4%, and I maybe forgot to mention that gross margin improvement was 4% in Weather and Environment as well.
We have a table of financial figures here, would you, Kaarina, say a few words around this?
Yes. The first half order intake was very strong, EUR 211 million, it was equally strong in all geographic areas. In Weather and Environment, the order intake during the first quarter included large project orders, whereas the second quarter order growth was generated by medium-sized orders. In Industrial Measurements, the first half order intake was very strong, it was strong in all regions. During our first half, the order book increased by EUR 31 million, including acquisitions, the growth was 20%. The growth of acquired companies of this EUR 31 million was EUR 3 million. The traditional Vaisala was generating still majority of the order book growth. Net sales was increasing 15%, and with the currency impact, which was about EUR 4 million, the increase was a couple of percentage points lower.
Our operating expenses were growing by 26%, the reason for the increase in operating expenses is mainly expenses coming from the acquired businesses. Operating results for the first half fell short from the comparison period, this was due to the weak first quarter. Actually, the operating result for the first half was made during the second quarter. The shortfalls of the operating result, main reason being the amortization of intangible assets totaling EUR 5 million, from EUR 2 million-EUR 3 million expenses coming from the one-off expense related to a lease contract termination. That was already booked during the first quarter. During the second quarter, we booked a provision which is related to a decision to terminate one product line in the U.S.A. Our cash flow from operating activities was EUR 2 million compared to EUR 8 million previous year.
The main reason for this one is the increase in net working capital, it was coming, the difference is EUR 9 million, EUR 4 million of that is coming from increase in inventories, and EUR 6 million is coming from the decrease in liabilities. Receivables did not change so much during the first half. This is the reason why our operating cash flow was much lower than what it was a year ago. Our capital expense is almost doubled from previous year's first half, and this is mainly recent to the building projects we are having in Finland, Vantaa, and the other one in Louisville in the U.S., Colorado.
Okay. Thank you, Kaarina. That was highly informative. The market outlook, there is some slight adjustment here. What we state is that the market for traditional weather observation solutions remains flat, and we have some improvement in Europe, and Europe did very well now in the second quarter. Possibly also in China and Americas, China being a bit more volatile, and a flat situation in Asia-Pacific, Middle East, and Africa. Digital solutions demand should develop favorably. When it comes to Industrial Measurements, we expect the market to grow basically in all regions and continuous monitoring systems, that market we see to be very healthy, but positive as well. Liquid measurements, which we entered now with the acquisition of K-Patents, that market is also developing positively. While still on Industrial Measurements, we continue to work on channel development and market entry.
We are not really as pretty global in this side of our business as we are in Weather and Environment. The business outlook for the current year is not changed, meaning that net sales will be in the range of EUR 380 million-EUR 400 million, and the operating EBIT in the range of EUR 25 million-EUR 35 million. The amount of acquisition-related amortizations has a big influence on the EBIT for the full year here. That's what we had in mind to summarize the second quarter. Over to your questions and the operator, please.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from the line of Joni Grönqvist of Inderes. Please go ahead. Your line is now open.
Hello, it is Joni. First of all, congratulations for the good result. I have a couple of questions. First, I would like to start with maybe just a comment on we have seen in the beginning of the year that or if you compare Q1, you had an organic sales decline of 4% and now you had an organic growth of 5%. Could you maybe just short comment a bit if there anything in the market that has changed?
Well, we came into this year with a lower order book, and we had a good order intake last quarter, last year, but did not really see the effect of that yet in the first quarter. Now we are sort of delivering from the growing order book, and I would say that is the main effect really on Vaisala level that we see.
Okay. Thank you. You said that it is coming from all regions. A follow-up a bit on this, do you see any reason now why it should slow down? You had a good order intake also in Q2, I assume that you expect the good trend to continue.
Well, we expect to stay within the guidance level that we have there. Do not see any reasons to change that.
Maybe a final question on this. Do you see that if some part of this pick up in order intake, is it due to synergies from the acquisitions, or is it just that or from the projects that you are selling, that you acquired additionally, or is this just a pure, so to say, old portfolio growth?
Well, it's both, actually. As you have been following Vaisala for some time now, you know that Weather and Environment has this sort of periodic swinging with a weak year every once in a while, and this should not be one of the weak years. That is one part of the answer to your question. I would say that personally, I'm most happy that some of the new product areas that have been on the market for quite some time, and I'm mainly thinking of the power monitoring, really had a very strong development there with a doubled sales figure in the second quarter. Of course, also the continuous monitoring system that I've mentioned where we had business growing to the, well, 30% and above. That is, I think, very promising going forward.
Okay, thank you for your answers.
Thank you, Joni.
Thank you. I remind everyone that if you want to ask a question, please press 01 on your telephone keypad. Our next question comes from the line of Matti Riikonen of Carnegie. Please go ahead, your line is now open.
Hi, good afternoon. It's Matti. Related to the power transmission products which you just described, that it doubled from last year, would you say that this is a kind of real improvement and indication of orders finally starting to come on? I'm just thinking that was the comparable quarter perfectly normal a year ago so that doubling from that clearly indicates that there would finally be some demand for this product?
Well, that is a bit of a hard question to answer. Like the famous Finnish philosopher says, it's a bit 50/60 situation, and that since we did get these orders from several customers, not just one, I have to say that I'm getting more and more optimistic that we are reaching the point where we do see a real growth for power monitoring. This is actually, if you look back on products we have introduced in the Industrial Measurements segment, unfortunately, market uptake tends to be slow and take many years. Maybe it is so that we tend to forget that and get a bit too optimistic. Basically, power monitoring follows a perfectly normal curve when it comes to market update in industrial measurements products. Takes years.
All right. Thank you. A second one related to the gross margin in industrial business. I think you now recorded a gross margin of 64.9%. I think it was the highest quarter ever. Were there any kind of abnormal reasons why it was so good, or was it just a kind of combination of good sales mix and basically volumes also improving and then the kind of cost increase that you have had was kind of mitigated by these more positive things, and then therefore the gross margin was good? Was there any exceptional items behind the good gross margin in industrial?
Thank you, Matti, for that comment. It would be nice to hear you repeating that a couple of times going forward. The short answer is no. If I expand on that a bit, there really was nothing abnormal. It was just business as usual, really. Just to make sure, we can ask Kaarina to give her point of view as well.
The second quarter volumes in the instrument factory were high, and that's bringing the higher gross margin that we saw in the second quarter report. We didn't have any special cases during the second quarter, this is kind of a normal performance from our operations.
All right. Thank you.
Thank you. Our next question comes from the line of Jonas Forslund of Evli Bank. Please go ahead. Your line is open.
Good afternoon, everybody. A really good result. Congratulations on that. Could you remind me a little bit again about the sales synergies you see with K-Patents and Leosphere? Looking at Leosphere this quarter, it contributed around EUR 8 million in sales. Now that it's part of the Vaisala system and the sales channel, if not only looking at this year but maybe next year, what sort of a growth figure you're aiming for now that it's part of the whole system? If you could give us some color on that and the same question also about K-Patents in a way that we can understand a little bit what you're aiming to achieve with these acquisitions from a sales synergy point of view. Thank you.
Okay. So far we haven't really had any major effect of the synergies, but we definitely expect to see them going forward. In the Leosphere side of our business, one effect will be that the traditional Vaisala is very strong in airports, Leosphere is not. However, in lidars, the Leosphere product is very applicable on airports, so there we expect to see a sales growth for Leosphere through Vaisala existing sales channel worldwide. That is a very important effect. Another thing is that, like Kaarina mentioned, we have ended a product line in the U.S. That was a wind instrument product area we terminated. Actually, we see that sort of part of our business is being taken over by wind lidars, by the Leosphere products. Here are two examples of synergies and cross-pollination going forward, really.
When it comes to K-Patents, same was here, no effects really yet, but we do have common customers, and we do have possibilities to combine K-Patents and Vaisala sensors into sort of a more value-adding instruments. Also the fully global Vaisala sales channel will be an added strength for K-Patents. They are not as global as we are. Those are some synergy effects. We expect both companies to continue nicely on the growth path that they have had.
Thank you.
There are no further questions at this time. Please go ahead, speakers.
If there are no more questions, I have to say thank you to everyone for listening to us on this very sunny, beautiful Friday afternoon. For those of you who go for vacation or maybe are on vacations, just enjoy the summer and have a good time. Thank you.
Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.