Good afternoon and welcome to Vaisala's virtual investor event. I am Niina Ala-Luopa and I am from Vaisala's investor relations. We have four speakers and presentations today. First, President and CEO Kai Öistämö will give an overview of Vaisala's strategy and how the company is driving growth in a changing market. After that, Jarkko Sairanen will talk about industrial measurements, business, and strategic priorities that we have in that business. Our third speaker is Samuli Hänninen, who will provide an overview of Vaisala's X-Weather subscription business. Fourth speaker today, Anne Jalkala, will give an overview of the weather, energy, and environment business. You can ask questions through the webcast chat function during the presentations, and we try to take as many questions as possible after each presentation. We have also reserved some time for questions at the end of this webcast before the wrap-up.
Now, without further ado, let's start. The first presentation is by President and CEO Kai Öistämö.
Thank you, Niina. Welcome from my behalf as well. As you remember, we held our Capital Markets Day about a year ago. A lot has changed since that day. The world, the global business environment, geopolitics have fundamentally changed. We have worked almost a full year with our renewed leadership team, and I wanted also to give you an overview on our business as we continue to execute our strategy. I will now first give you an overview on the business environment and our strategy, and then give space for Jarkko, Samuli, and Anne to go in depth into our various different sides of our business. Let's start with who we are. What is Vaisala? We are a leading technology company, an industrial technology company, where we provide measurement instruments and data to optimize industrial processes, drive energy transition, and decarbonization.
We care for the safety and well-being of people and societies worldwide. Our success is deeply rooted in product and technology leadership. We are a leading player in a very large EUR 3.7 billion market with the ability to accelerate even further growth. We have an increasingly attractive business mix with over half of our business now, industrial measurements and X-Weather subscription business operating in growing marketplaces. We also have a balanced portfolio of complementary businesses, creating resilience with different business models and different industry cycles. When we go deeper into our businesses, even the individual businesses serve multiple different industries, multiple different end customers who also have different cycles, giving even further resilience to industry cycles.
In addition to all of this, we have shown agility and effective scenario work with turbulence and rapid shifts in the marketplace and geoenvironment, such as COVID-19 and the component shortage, the geographic tensions, and lately the U.S. tariffs. We also have had a very strong track record of growth. If you look at the past decade, we've grown about 7% points during that time while delivering growing profits and improving our profitability. I mentioned the business landscape fundamentally changing over the past 12 months since we had the last time the CMD. Maybe a few words are appropriate about that. The trade policy shifts, the economic nationalism, the regionalization are here to stay, offering both challenges and opportunities. At Vaisala, we have built really a resilience to perform and grow constantly in this changing environment. A few examples of this.
In 2020, we, as everybody else, were first faced with COVID-19 and following a big component shortage that impacted really every manufacturing industry worldwide. We had very much of a clear playbook during that time. We immediately, when the component shortage period started, decided that we are going to go for securing every single shipment to our customers and procuring all the necessary components from the open market. We did. During that time, we never missed a single shipment to our customers. We managed to actually grow our business, especially on the industrial measurement side, significantly, taking also market share from our competitors. Another example is 2020, when Russia attacked Ukraine, creating havoc for global logistics chains. We manufacture most of our products here in Finland, and all the shipments in practice to Asia are over air freight. All of that actually went over Russia.
When the airspace was closed very rapidly, we were able to reroute all our shipments around Russia, again, never missing any customer commitments during that period of time. Now, if I take the last 12 months, obviously the big topic has been the U.S. tariffs. We played different scenarios prior to the actual decision on the size of the tariffs, prepared our business in multiple different ways, actually. In the weather side, we have long-term customer commitments in the U.S., as in the rest of the world as well. We shipped prior to actual tariffs, a big part of that demand for the rest of the year into our own warehouses in the U.S., mitigating the tariff impacts.
In the industrial measurement side, where we can rapidly change our prices, we did so actually the next day after the realization of the tariffs. We raised prices, mitigating the tariff impact fully. Having clarity on what the playbook is, having the right people in kind of playing that playbook and making clear decisions, that's the secret sauce. If I take how does the world look forward from here, the regionalization will continue and will continue to challenge operating models for any company. We continue to monitor, obviously, all the changes in geopolitics and around the world. We are prepared for different scenarios to mitigate the possible impacts to our business and to our customers. With this changing world, we continue to have a very, very robust strategy that we build upon.
Our strategy has delivered very strong results if we look at the past years. If I take the past 10 years, our combined growth in the company has been about 7%. If I take industrial measurement over that same time period, we have grown 11% with breakthrough technologies, market growth, and access to new markets as well. Simultaneously, we have been able to transform weather and environment business, fundamentally improving profitability in the traditional business side, and simultaneously creating a new subscription business, which we now call X-Weather. Samuli will talk about that a little bit later. All this with a business model which ties very little capital and returns strongly cash. If you look at our cash conversion, just since beginning of this year, it actually has returned the cash. The cash return on the first nine months during this year is one.
When I look at the business portfolio that the company has, it's fair to say that it's a balanced portfolio of complementary businesses and thus creating this resilience in this turbulent marketplace with different business models, different industry cycles. Simultaneously, we have very, very clear mandates for our businesses to deliver upon our strategy. If I start from industrial measurements, it has returned to growth now after two more difficult years post-COVID-19 and the rapid growth phase following it, and now continues to be a key player in our growth agenda. We grow industrial measurements by focusing on key industries, deepening customer relationships, and accelerating service growth. I mentioned X-Weather. X-Weather is the anchor on recurring revenue business for Vaisala. We operate in a very large growing marketplace where we have consistently achieved double-digit growth organically, and we have boosted that growth with acquisitions.
We continue to grow that business going forward. In weather, energy, and environment, our focus clearly has been on profitability and maintaining our leading place in meteorology, aviation, and renewable energy markets as we build service business as well. Anne, Jarkko, and Samuli will go a bit deeper in their respective presentations into the three businesses that we operate in. Time to look at our strategy. The slide really summarizes it, and many of you have seen this slide before. I'll take a couple of points and recap them now. Our strategy focuses on driving sustainable growth with global leadership in measurement instruments and intelligence for climate action. Through our products and technologies, we enable business-critical decisions and operations at our customers. Our purpose, taking every measure for the planet, emphasizes our active role enabling data-driven climate action. At the heart of our strategy are four success drivers.
It all starts with deep customer understanding and commercial excellence. Really understand deeply what are the challenges that our customers are facing, anticipating them going forward, as well as really understanding the application where we can help them in their potential challenges. This, combined with product and technology leadership from our sensors to digital solutions, really is what describes the key competitive advantage that we have at Vaisala. Excellence in supply chain partly demonstrated when I talked about the rerouting the air freight to Asia, partly kind of described also when I talked about the time when we had component shortages. This is really kind of one of the secret sources that the company has. It is all built on purpose-driven culture and talent. To complement our success drivers, we have identified four key strategic priorities. We continue to drive industrial measurements through breakthrough technologies and product leadership.
We grow share of our services and software revenues. We drive profitability as the global leader in weather, energy, and environment. While doing all of this, we need to constantly challenge ourselves how we operate, how do we simplify our ways of working, how do we scale our operations so that we achieve greater impact and greater efficiency. Let's take a short look at our capital allocation. We continue our investments in growth that really is at the core. We are a growth company. While doing that, we are aiming to improve our shareholder returns. The first part of the capital allocation is to invest into ourselves, invest into R&D, and to some extent also our sales to secure technology and market leadership. If I take only the R&D investment that has been during the past years, on average, 12% of our net sales.
If you look at the slide on return on capital employed, it actually is on a very good level. The example is from 2024, but even the earlier years are on a similar level. In addition to the organic growth and investments into our own operations, we do programmatic M&A, which is a critical tool to drive growth even further. We are looking to find established synergetic businesses that can scale faster as part of Vaisala, as what they could do independently. We aim for acquisitions and assets that open up new markets for us. They bring new competencies or capabilities to us. We target growth through small and mid-size acquisitions. We are not looking at transformative M&A or market consolidation.
Great examples of types of M&A that we have been doing and we continue to look at going forward are for example, the WeatherDesk and Speedwell Climate that we executed last year. We are also a solid dividend player. We aim to distribute a stable dividend, which will increase in line with the increasing net profit development. If I look at the net dividend earnings ratio for 2024, it was 48%, which is on a good level. Just confirming our long-term financial targets. We published our financial targets about a year ago at our CMD, and I'm happy to reconfirm these targets. First, starting with average net sales growth being 7% on average. This really is driven by three things. We are operating on growth markets in industrial measurements and in X-Weather. That drives further growth.
We are also simultaneously expanding in new markets and new customer segments. Thirdly, the growth through breakthrough technologies allows us to create even more value to our existing customers and new customers through our own products, services, and capabilities. On the profitability side, while growing the company, we are aiming to improve EBITDA % in a systematic way. Again, three drivers for this. We are changing the business mix, for the more growing parts of the company are more profitable. That is a change in profitable business mix. We are also benefiting as we are a growth company. The scaling impact from growing the company is another profitability driver. Thirdly, very importantly, we are very diligent in our capital allocation towards more growth and profitable opportunities. All that we are doing with strong cash conversion over time.
We are operating a business which ties very little capital in its operations, and it also returns rapidly the cash back. It is something that we aim to continue also in the future. If I try to conclude what I wanted to say, three things I would like you to remember. The world has changed quite a bit over the past 12 months, but we continue to have a very robust strategy to drive resilient, profitable growth even in this changing marketplace. Secondly, we have increasingly attractive business mix and very balanced portfolio of businesses creating resilience with different business models, different industry cycles underneath. Thirdly, we are seeking for growth through breakthrough technologies while at the same time increasing recurring revenue from both services and software. This growth is supported also by programmatic M&A.
I would say we have all the keys for profitable growth and strong cash flow and very proud to reconfirm our long-term financial targets as such. That concludes my prepared remarks, and I am very, very happy to answer any questions online. Niina, any questions yet?
Yes, we do have a couple of questions here. First, a question from Nikko Ruokangas. You talked about your ability to adapt to different market situations. What kind of actions have you been doing recently due to U.S. government shutdown? How much did it affect your market?
Yeah, it is, first of all, a great question. Part of it I actually went through already. As we all know, the tariffs came in force in the middle of this year.
We did the scenario planning for various different tariff levels in advance, knowing exactly kind of what to do when the final number on what the tariffs between Europe and the U.S. would be. As said, for the contracts or the customers that we have longer-term contracts where it takes a little bit of time to renegotiate the financial contracts that we have with them, we pre-shipped into the U.S. and bought us time. We have now used that time on renegotiating and passing the cost with the aim of passing the cost to our customer on the tariffs. On the side of the business where we have more freedom on changing the prices, we did so immediately. That was the way we compensated.
We also looked at alternatives, but this is the path we saw that most attractive from financial and operational perspective.
Okay, thank you. Next question comes from Matti Riikonen. In the short term, for example, in 2026, next year, can you meet your long-term financial target of 7% top-line growth?
Great question, Matti. Unfortunately, we are not giving guidance to next year here. We are talking about the longer-term targets and longer-term strategy. I can only repeat what I said. We are completely committed to delivering average 7% growth target for the long term.
Thank you. Next question comes from Waltteri Rossi. What kind of plans do you have to potentially combine the subscription-based business to the hardware business? Is there potential to combining these two offerings?
Yeah, so again, very good question.
I'll let Samuli talk about it a little bit more, but I'll answer that kind of briefly. First, synergy has to be kind of recognized that the roots of X-Weather and the knowledge on deep understanding of the weather actually come from the same place. The fact that we have been building weather solutions, products, capabilities over almost 90 years has been creating the foundation for deep understanding what weather and the opportunities are. We have built the business that Samuli runs. Part of that business is allowing, when applicable, to bring hardware elements and our own kind of measurement capabilities to it as well. A great example of this is the world's leading lightning detection network, which we run.
It includes the hardware, and then we monetize through a sale of data and services, as well as then we can combine also with the hardware that we might sell to our customers.
We have actually two questions related to data centers, and perhaps I'll save at least one of them for Jarkko. Perhaps, so Pauli Lohi has a question. How big importance do you give the data center industry as a source of growth for industrial measurements in the next years? Mikko Louhisto has a similar. How do you see the data center opportunity?
Yeah, I'll actually let Jarkko answer the more detailed question on this, but I'll stay on a bigger picture and just say that the data center has been a sizable market in industrial measurements for some time already.
While we don't break it out in terms of exactly what the size of it is, we've just said, and we continue to say that it's one of the bigger industries that we serve. Obviously, we all know that there's a huge investment that has been happening into the data centers. We have been beneficiaries of it. I continue to believe that investments into AI and consequently also the data centers will continue going forward. It has been a lucrative market for us, and I believe it continues to be also in the future.
I will save these questions also so that Jarkko can talk about the data center business in more detail after his presentation. There is another question from Nikko Ruokangas. You said that the market has fundamentally changed during the last 12 months following our capital markets day a year ago.
Could you describe the process for reviewing the strategy and whether something needs to be changed following these fundamental changes? What were the key parts you were reviewing?
Yeah, a couple of things. Again, I think it's a very good question, and I'll say two things. First of all, while reviewing our strategy and the core basis of our strategy, we feel that our strategy, as we communicated a year ago, remains very, very valid, and it's a very solid ground for us to build further growth. That being said, obviously, the changes, for example, the geopolitics and the tariffs in the U.S. require us to kind of look at how do we tackle this environment, how do we continue to serve our customers, how do we continue to grow, and how do we drive our profitability. Here we looked at the various different scenarios.
We looked at the different capabilities that we may or may not need to build and looked at the various different scenarios, as I said, decided on, as I described, partly early shipments and then negotiating kind of a later price increases or immediate price increases. At the same time, we need to continue to review these. The tariff changes were just one incidence, but I believe it's a good sign of the future as well. It is about looking at the supply chains. It's about how do we, again, serve our customers in the best possible way, keep our promises to the customer, whilst then growing and creating an even more profitable company.
Thank you very much, Kai.
Thank you.
I do have some other questions here, but we have reserved some time at the end of the webcast for those questions, so I will take those into the Q&A session a bit later. Now let's move on with our program. I'd like to welcome here on stage Executive Vice President of Industrial Measurements, Jarkko Sairanen, who will provide an overview of the industrial measurements business.
Thank you, Niina, and good afternoon for all of you on the webcast. My name is Jarkko Sairanen. Some of you may remember me wearing a different hat in these events earlier, leading the weather and business environment area, but now since January 1st, I have had the pleasure of leading the industrial measurements business, and it has been a great new business area advisor to learn to know, and our fundamentals are extremely strong.
There has been zero needs to modify anything in them. We have really the globally leading products. We have a tremendously strong position in the marketplace, and the performance of the business has been excellent. The thing that we have been really focusing on is that during the last two years, as you will see also soon, and many of you know, our growth has been flat. Therefore, what we have been working with the leadership team is really to identify the key levers. How do we ensure that we continue to drive the growth in the same way as over the last decade we have seen in this business? Therefore also the name of this 20-minute summary that I will share with you entering the next growth phase.
I will briefly update you what we are really doing, which markets we serve, and how do we believe that the growth will realize for us going forward. Perhaps building still a bridge to what Kai was showing here earlier, that Vaisala is a company taking every measure for the planet. How do we think about that in the industrial measurements? For us, the core is really the energy transition and decarbonization. If we simplify those into two words, energy transition implies that we have to care in a lot of our customers about resource use, which is then also often energy consumption, energy efficiency.
I would say in the decarbonization, we are really building sort of the future measurement seeds for the next era in the industrialization, which will be around decarbonized industries, around CO2 management, around capturing CO2 in different phases and measuring that. I think there is a couple of other keywords that you see in this text. One is this real-time insights into critical processes. Real-time means for us that we are really measuring in line in the customer processes. We are not making analyzers where somebody is taking a sample and bringing it into a laboratory. Our measurement devices work sort of directly in line and provide the reliable insights into our customers in very demanding and difficult measurement environments.
The second one is this value proposal is really extremely valid when our customers are working with critical processes, which were really the optimization phase of. Sustainability is also core for us. Obviously, there is a lot how we develop the instruments, how we think about their footprint going forward, their energy consumption, etc., but also how our customers see them because of the accuracy that they bring, the reliability they have, i.e., they are not drifting as some of the other options would do, and also how long they last. They are really long-lasting decisions our customers take. They are also contributing to the sustainability of the solutions that we bring to our customers. This is what the business development looks like from the financial side. Kai was sort of showing the similar thing at the Vaisala level.
I think the achievement, what the team has done over the last 10 years has been really impressive. You see 11% compounded annual growth rate for revenue as the business has been growing. During this whole period, there has been only one M&A move that has been done. It is not material enough to impact this compounded annual growth rate number, which you see here. Also, the EBITDA has been here high. Consistently for the last 10 years or so, about 20%, as you see from the financial performance. Great story. The challenge that we have had is that we got a strong boost 2021-2022 after the pandemic. Obviously, part of that boost was coming from the life science, and I will tell you later a couple of examples there. After that, the last two years have been flat.
Many companies who have been serving life science industries in an as-focused manner as we have have actually seen the top line decline. Therefore, having been able to maintain it flat has not been a totally bad achievement. The good news is that if we look at this year, the three quarters that we have reported out, compared to the three quarters last year, our growth has been here 13% for these nine-month periods. It is also worthwhile to remember that there have been certain headwinds that we have been facing through the currency exchange rates, especially in the third quarter, impacting our revenue on comparable currencies about EUR 3 million. So 1%-1.5% of revenue, relatively significant from that perspective, but still delivering these numbers as you see here. Kai was already talking about the resilience navigating the tariff environment successfully.
I do not mention more about it than really saying that we have been quite agile and successful in sort of compensating that impact into our performance as such. A big portion of the recent growth has been coming from these questions that Niina was already alluding to. Data centers, I will go also a bit deeper into those segments here in brief. These are the core markets and then the drivers behind what we have. And these numbers that you see on the top line are spot on the same one that we used a year ago in the capital markets day. Let's start with these industrial markets. As you see, there is a number of different segments that we serve. However, a few of those that we have raised to the upper line are really, I would say, the most important ones for us also strategically.
All in all, this segment is growing in a healthy space. The digitalization of industrial manufacturing, I think that is pretty understandable to all of us as such. Also alluding to your question, what is happening with AI, what is happening with data, what is happening with the build-up with the computing capabilities broadly, which is obviously positively impacting our business in the data centers. This electrification, also decarbonization long-term, is a position that we are really building. If I mention here a couple of examples for you, and perhaps starting with the data center, now I'm talking of a global average. There are obviously differences in the different geographies, also in the sizes of the data centers.
If we take the today understood average, so a quarter, so 75% of the energy consumption that we have in data centers is actually going into running the processor, the chips, the GPUs from NVIDIA. A quarter, so 25%, is going into maintaining the environmental conditions as they should be. Obviously, the processors are leading into a lot of energy generation, the biggest ones that are being built today, several hundreds of megawatts that is the power or capacity there. Think about your sauna where you may have 8 kW. What is the temperature that you get there? I think it's pretty understandable that some cooling will be needed, or otherwise it gets very hot very fast. Too hot environment would lead into SLA problems, so service level problems with these data centers. The processors won't not be running as needed.
Cooling too much is a heavy energy cost, as we understood when this 25% is going into the energy. Therefore, these data centers have hundreds of measurement points. We are thankful that many of those are delivered by us to actually optimize this energy consumption. There is right now happening also transition to liquid cooling. We are also positioned there. Our measurement devices are today also to measure the temperatures of these liquid coolants. This is a specific area where I think we are well positioned. We have really the devices that are needed by the highly qualified data center players and also positioned for the future when the technology is evolving. The second example here, the batteries, just to give you an indication of what we do there.
The battery manufacturing, when you are producing the cells, so the battery cells, lithium-ion cells, it implies that your production environment has to be extremely clean. If we think of the lithium, if it would be in contact with water, i.e., humidity, it's a contaminant that may lead into not only big quality problems, but even to explosions. Therefore, they have to really dry the air very specifically in order to meet the production quality that they need to have. This humidity, I think it's pretty sort of descriptive what they have to do. Imagine yourself being in a meeting room where you have a meeting room which can contain, say, 15-20 people, so relatively large meeting room.
If you have a normal humidity of any environment in that room, there is about 1 L water in the air, so 1 L water in the air. Now, when we go to the battery manufacturing for lithium-ion batteries in that same space, there can be only one drop of water, so one tiny droplet when you think about it. This is your, if your dew point is -70, what we are measuring there continuously from the airflow with a very, very fast reaction speed. Again, equally important for the quality, but then also for the energy consumption, making the air unnecessarily dry will be tremendous energy constraint. About 1/3 of the energy consumption related to the battery manufacturing is related to this dehumidification that you do for the production. Impacts a lot.
Perhaps of these forward-looking things, I want to mention the latest or the last one there in the row is decarbonization. I think we are very attractively positioned for the years to come. We are developing the measurement portfolio for hydrogen economy, for decarbonization already today. The early innovators who are capturing carbon dioxide directly from air, so this is called DAC, direct air capture, are using our instruments to measure their process and to optimize it. A broad spectrum of equipment. The second one is life sciences. As said, there was a tremendous boost, obviously, during the era of the pandemic. Now we feel that it's starting to pick up again. Here we have also very strong mega drivers, obviously the aging population that needs more sort of pharmaceuticals, life science-related innovations.
There is also the regulatory compliance-related requirements this industry is facing, but also new innovation, especially in the area of biotechnology. We have cell and gene therapy and you name it, and there is a lot of things happening. It is the biggest single segment that we serve in industrial measurements, about 30% of our revenue. We are very proud to say that 50 of the globally largest pharmaceutical companies, life science companies, so 50 out of 50 logos use us. It does not imply that they are only buying from us, but they are also customers to us, obviously to a lot of our peers and competition. We have a strong business here. An example here was March 2020. Kai was referring to the pandemic time. At that day, we got orders from Wuhan to supply our CO2 sensors for the incubators.
They were studying and trying to understand what is this virus all about, but obviously starting to develop the vaccines. That also then triggered the tremendous growth that we saw 2021-2022 in our business when the world was fighting to get these vaccines developed. Third segment, power. Here I want to start from Heathrow Airport. Many of you remember a few months ago, Heathrow Airport was closed for a full day, 24 hours. The reason was that a transformer got fire, burned, exploded, whatever word you want to use, in a substation that was the critical station of powering the airport. The interesting thing here is that later it was discovered in the investigations that that transformer, there was measured humidity already 2018, so six, seven years earlier, but nobody did anything.
There is one million of such transformers that we have globally, and only a fraction of those are even being measured, not to mention that somebody would do something when a measurement device is showing you. This is a tremendous new market opportunity for companies like us who can actually measure the conditions of the transformer. Basically, we are measuring if there are some gases in the transformer oil, and from these gases, we can deduct that is there potentially a fault that is emerging. We can measure nine different gases in the transformer oil. Naturally, the key customers are transmission grid companies, utilities, and with the electrification, needs are only expanding. We need to invest a lot in new transmission lines as such. Interestingly, we have also a new customer segment here where we are scoring today first businesses, data centers.
They have to ensure that their electricity is sort of in good hands, good shape. They are also installing own transformers, steel manufacturing sites, which are also making the transition with electrification, are doing the same. We see this expanding also to industrial sites. As you see, really leading-edge products that we bring to these industries where we also see fundamentals of the growth to continue. If I mention a few words about what are these solid foundational elements that I started with, which I think are in excellent shape in the business. We were talking about the performance, our market leadership position in these segments. We have an excellent global channel. We have more than 250 partners globally working with us every day and covering our sort of footprint in 150 plus countries as we do the business.
What I was alluding to here, what Kai was already mentioning, we are really working. We have the luxury of working and serving these types of growth industries that we covered. Here you see the five examples listed, and actually 2/3 of our business is coming today from these segments. Obviously, that gives us great confidence that the growth will continue. We are investing for the future. What you see here at the bottom, this technology leadership, the deep science work that we do to build these leading sort of instruments, continues to be a foundation for our business. Then is the question, what else can we do? Here you see the priorities that we have now identified, some perhaps a bit more short-term operational that we can start to do immediately, some more sort of strategic.
The core is that we want to strengthen our relationship with the end customers. I was talking about the channel that we have. Now we want to move further and closer to our end customers, understand the needs better. How can we serve them better? What are the difficulties that we face? Actually, the objective is to build these decades-long lasting business relationships with the leading end users in these industries that we are serving. This is also linking to this commercial excellence. Right now, we are very actively putting in sort of next level of account management practices, which obviously is very tightly related into the customer intimacy.
We are investigating that could there be new ways how we could bring a bit more dynamic way how we work with our pricing, adding intelligence, agility in there in order to sort of really get full value from the value which we deliver to our customers. These services, as was also mentioned as a Vaisala priority, it's a potential hidden gem in our portfolio because we have a very large installed base out there. Decades long that we have been working with our customers. The challenge that we have conventionally had is that the products are too good. Nobody needs to service them.
We have a lot of segments where the customers still, due to the criticality of their processes, sometimes even by the regulation, want to and need to calibrate the sensors in order to make sure that the preciseness is really there, spot on what it should be. Here we are now building offering, making it really productized. We just launched here a few weeks ago a new offering called Vaisala Circular, which is sort of industry-first innovation. There is more to come, and we are really looking forward to start building this type of recurring revenue as part of the business.
Finally, we have here the aspiration that while over the last decade we have not done any substantial M&A, now we are really looking for opportunities that could boost this organic growth, most likely tied into these core growth segments that we are serving in order to accelerate the growth even beyond what we are able to do organically. In summary, strong customer segments with underlying growth is the focus where we also want to work, this customer intimacy, be closer, try to make sure that these are really now decades-long partnerships that continue to grow with them, working with very exciting roadmap in our R&D. There is every year sort of for the foreseeable future with what we can see, new breakthroughs coming, new exciting offering, which is extending our play that we have.
Now going systematically after the opportunities, untapped opportunity that we have in services to really also put their next gear on and develop there also and support our systematic growth. This concludes my overview, and I'm happy to take Niina here with me and see if you have any questions on the line.
We have lots of questions.
okay.
Let's start a question related to life science. A question from Mikko Louhisto. With all the pharma investment activity in the U.S. right now, how do you see the life science market outlook, and when do you expect this to start showing up in your orders?
As was in my graph, which was showing the financials, there was a statement that this year we have been really enjoying the strong demand from the data centers, but also we have seen that the life science industry started to activate. You can read that as orders have been visible already this year. We are expecting the, and this is obviously not only our expecting, but generic sort of industry expectation that the growth in the life sciences, pharma industry is probably somewhere between 5%-10%. If we look at that biotech and biotech development, there we are talking of high double-digit sort of teens or teens growth numbers, and obviously that's also something where we are focusing in.
We are pretty optimistic of the future, and North America is actually the market where we have our biggest life science business today, so it fits well with those investments that are happening.
Thank you. Next question is about power market. Nikko Ruokangas has a question. You estimate your addressable power market to be worth EUR 250 million, which is up 25% from our estimate from a year ago, which was EUR 200 million. Has the power market been this strong in this year, or have you changed the definition included in the addressable market?
Excellent question. Honestly, if I think about it, I think the only fair way to say is that this is the market that we have been obviously developing the offering for some time, but really starting to play quite recently in significant manner. This implies that we are learning all the time because right now we are talking with customers, we are understanding their situations. As I mentioned, we see that there are even new segments like these industrial customers emerging. This is not only for grid companies, there is also many things, anything else. I would even say that most likely in the foreseeable future, our view how large this market opportunity actually is may even get bigger. I think we are learning and therefore understanding that the opportunity is likely even larger than what we thought a year or two years ago.
Thank you. A question from Joonas Ilvonen related to M&A. What kinds of acquisitions might you do within industrial measurements as it has not been that active in this sense as weather and environment? Might such acquisitions also help you build further customer intimacy in key industries? Another question, are you also working closely with AI data center thermal management technology providers like Vertiv?
Yes, obviously what happens with M&A is very difficult to predict because it's not even in our control as we all know that so well. Naturally we are looking at M&A opportunities that would be synergistic. That would, and then in this question that, okay, could it help our business in the core sort of segments which we serve? Certainly an objective. I think what we can say is that we are not looking for huge transformative M&A, but more like small, medium-sized companies. Obviously there has to be synergies. Usually those synergies are either related somehow to technologies or really to this go-to-market, which also refers to, I guess that is all I can speculate right now.
Thank you. A question from Simon Jonsson. How has sales to the battery and battery end market developed over the past few years? One would think that demand has been soft given the industry headwinds.
Yeah, we are not disclosing the specific euro numbers on the different segments, but I think the question is totally spot on. The battery market has been a bit soft globally due to the fact that there was, I would say, overcapacity in the investments. The utilizations have been weak. However, what the industry is talking about is that there is now a clear increase, again, driven also not by EVs only, but really by the energy storage systems. Right now, when you look at the industry insights, there are a lot of comments that most likely the demand will be picking up again in the years to come.
One last question before we move on. Could you repeat which were those specific industries that account for 2/3 of the industrial measurements?
Yeah, happy to do it. As we have been saying, life science is about 30% of our business, so that was even mentioned. The rest we do not disclose by size. The second one, there were five of those listed. The second one is really the data centers, critical buildings. We are calling HVAC critical buildings, obviously driven by data centers. The third one is then this battery manufacturing. The fourth one is semiconductors, and the fifth one is this power. These five, which were also listed there separately, are the ones that I was alluding to about two-thirds of the business.
Yes. Thank you very much, Jarkko.
Thank you. My pleasure.
Moving on with our agenda today, our next presentation is about X-Weather subscription business. Please welcome Samuli Hänninen, Executive Vice President of X-Weather.
Thank you, Niina. Also, warm welcome virtually to our session today. During the next 30 minutes, I will tell you a bit more about us, about X-Weather, also on our numbers, and the plan is also to show some additional demos as well. Let's get going. Every company has a why. Kai was talking about that in the beginning of the session about Vaisala mission. Of course, we with Vaisala X-Weather are a part of it. Vaisala is all about intelligence and instruments for climate action. What we do with X-Weather is that we help other companies with when. For our customers, weather is super critical. It's not small talk. It can be a huge risk or a giant opportunity. It is about protecting lives and properties, or it's about losing them. It's about making money or losing money.
For our customers, weather is critical. What really ultimately drives the outcome? What do we do? We make our customers know first. That is what we do. We help them to understand what is going to happen, not only providing the insights, but also the foresights. That is why 40% of Fortune 100s are our customers. What one would remember about X-Weather is that when you use X-Weather, you are the first to know. What do we do? We sell DaaS and SaaS, so data as a service and software slash solution as a service. We operate on a growing EUR 2 billion global market. We basically have two horizontal offerings, one being our data products where we have the highest quality of global weather and environmental data available. That data is really of the highest quality, i.e.
It can be used for insurances, for finances, for trading. On top of the data layer, we have something what we called Protect, i.e. our customers can protect their people and assets from different kinds of weather risks. There are three areas where we go deeper into the value chain. Those are our three verticals. Our three verticals are transportation and logistics, where we, for example, serve car manufacturers, winter maintenance organizations, and road asset managers. What we are able to do is that we bring together those ones who use the roads with the ones who maintain the roads. On an energy side, our most important sort of subsegment is renewable energy. As we all know, weather is the fuel of renewable energy.
As the amount of renewable energy assets in basically any country's portfolio are rather large as of today, renewable energy matters also to all energy producers, not only to those energy producers who are producing renewable, but for all. The biggest external attribute influencing, for example, the pricing of natural gas is wind. That sounds quite funny, doesn't it? That the biggest thing impacting the pricing of a natural gas is wind. That is because wind is the part in the value chain which is, of course, volatile as that is generated by weather. In addition to energy, we are also in the finance and insurance market. I was already touching one area of them, which is the commodity trading. In addition to that, we are also serving a lot of commodity traders. For those folks, first to know is of essential importance, naturally.
On the right-hand side of the slide, you see some of our customers. Naturally, we feel at the same time very proud and humbled on having those kinds of customers, which also provide us room to grow. Altogether, we have roughly 2,000 customers as subscription customers in X-Weather. There are a couple of areas where Vaisala X-Weather is clearly the leader. Road weather for automotive is one of those. We have global automotive OEMs using our data, ranging from European and U.S. car makers to all the main global ones. We started the road weather data as an infotainment play, i.e. seeing what is the destination weather or things like that. As ADAS and AD are getting more common, that is, of course, becoming also a safety feature, which is further elevating our position in the value chain.
When it comes to the global real-time lightning data, we are clearly the leader. We are the only ones having a global lightning detection network, and we are also operating the U.S. national lightning detection network. We detect a lot of lightning, but what I think is even cooler than detecting the lightning is how fast we can do it. It is not only about the accuracy of the network, but it is also about the latency. If the thunderstorm or if the lightning strike hits you and you are more than 5 km, or let's say it is between 4 km and 5 km away from the location, you actually receive our warning before you hear the thunder. That is how much we have optimized the performance of our lightning detection network. I would love to demo that, but I would really need to have good luck to be able to do it.
I already talked about weather and energy trading, and as a fourth area, which is really also our stronghold, is the weather forecast quality in Europe and North America. Those also being the areas where we focus most. Roughly 50% of X-Weather business is DaaS, so data as a service, the other 51% software slash solution as a service. A bit more than 60% of our customers come from North America, + 30% from Europe. The remaining roughly 5% are then global and different parts of the world from Latin America to Australia. During the last three to six months, we have also started to extend our coverage outside of Europe and North America. As mentioned earlier, our growth has been double-digit now for four consecutive years. As you see from the figures, the growth has been strong.
As earlier also mentioned by Kai, we've been also utilizing acquisitions as part of our growth strategy. The three biggest ones being there are WeatherDesk and Speedwell Climate. Those all together present roughly 1/3 of the total revenue. Always when we have been able to acquire a company, we've been able to make the company grow and to further accelerate our own growth. Our net revenue retention is + 100%, and our business is very clean when it comes to ARR. Over 95% of our revenue is recurring. I am sure I will get the question, so I will answer it in advance. Yes, we are profitable, EBITDA being our most important KPI, and we are not currently reporting further details except for the subscription net sales. Let's move on. This is also a slide that we referred to a bit already earlier.
How do the software and hardware play together? In addition to our business being recurring, it also has a network effect, i.e. the more you use it, the better it gets. When we are selling our SaaS solution, being it, I mentioned a product called Protect. When we are selling that product, that product quite often comes with a piece of hardware. The reason why it comes with a bit of hardware is that that improves the forecasting accuracy. No matter whether you use deterministic modeling or AI, you cannot invent data from a place where there is no data, i.e. you need a measurement. Those Vaisala X-Cast sensors are the devices that we ship together with our solutions. As now we install that device onto our customer premises, Vaisala also has access to that data. i.e. from that onwards, that device further improves our capabilities to forecast.
That device's data becomes part of our data asset. Naturally, that improves the data quality and the forecast quality, so we are able to sell an improved data as a service offering and improved solution as a service offering. The same logic can apply to different kinds of measurement attributes. Lightning network behaves in that way, but so does a temperature sensor. The more we have people using it, the better it also gets. Moving forward, what is it that is differentiating us? When we established X-Weather roughly four years ago, we were big believers in AI and ML. It was already by that time visible in the industry that those things will change the ways how we are doing weather forecasting. We started applying AI and ML basically everywhere where we can, everywhere where it adds a benefit.
When somebody asks us, okay, so where do you exactly use AI or ML, the answer more or less is everywhere. We combine, like discussed earlier, that data science and ML knowledge together with the 89 years of Vaisala's history of understanding both meteorology and metrology. That's the unique combo that we can do. Understand both the deterministic and probabilistic side of the things. That's also where the hardware comes to the picture. How we differentiate AI and ML and hardware. Those are the two things. What is our team like? We are only software people, so we don't really that much build hardware. We are builders, explainers, and translators of weather intelligence. Roughly half of our team is basically in the Helsinki capital area, the other part in the U.S., in Boulder, Maryland, where we just opened an office, and in Minneapolis.
The blue dots are where also our sales guys are. We are a really global team with more than 20 nationalities, and we are currently in 10 countries. We are roughly 250 people, and actually our headcount hasn't changed as our business really scales with cloud and computers, not only with people. That's us in a nutshell. I was thinking that a good way to show our products and explain a bit more about those would be to have some demos. I was thinking of running us through, let's see, three or four demos. One thing which we are really excited about is MCPs. I'm sure everyone has heard those. As part of LLMs, what MCPs are, they are like APIs for large language models. MCPs help the large language models to receive the real-time information.
MCP itself stands for Model Context Protocol. I will be here showing an example. Now you can play the video of us playing around with Claude AI. This was done a couple of weeks ago. We are asking the Claude AI that is connected to our weather backends what is the likely correlation of weather and lap times on the Singapore Grand Prix? That question is a pretty complex one. How much does weather impact lap times in Singapore Grand Prix? We are feeding that question here to our Claude-based LLM that is connected to our backends. As you can soon see, it is actually able to make a graph. Okay, now it is building the HTML page. It is able to build the graph without asking any further questions.
I have to check the numbers, but it's roughly so that one degree Celsius or two degrees Celsius seem to equal something like half a second. Now, if you think about what this means and why I think this example is a super good one, just think about the role of a meteorologist. In the past, you actually had to have people explaining the foresights and insights of everything, and you needed to have all the domain-specific skills of various industries. Now I can give that intelligence to a machine. That machine can tell me what does it mean. That is pretty amazing. You can do that more or less for any industry. I am feeling super excited about that, of course, when it comes to trading or insurance, we have also our own meteorologists that are checking and verifying the reports.
We are a weather unit of an AI age. We didn't start by having 100 or 200 meteorologists, but we actually did start with the AI and ML. Moving on, I was talking about this lightning and telling that how short the latency is. Hearing the thunder or getting a text message before hearing the thunder. I did this demo this morning. Just showing an example that there we have that lightning with less than 10 seconds of latency. Now I'm also adding there the threat zones. Here you can see that where we are forecasting the lightning to go. In addition, I took the other layer, which is hail. This is also pretty unique as we were the first ones in the industry to release hail forecasts.
Hail as a phenomenon is also something which is almost impossible to measure using traditional means. In practice, you would need to have a radiosonde in every cloud. That is not possible even for Anne and Veera to have them in every cloud. How did we come up with this? We were actually able to utilize machine learning algorithms where we use the intra-cloud lightning, the lightning that happens within the cloud, as a proxy for hail detection. Now we can roughly say with the 80% likelihood, 30 minutes in advance, the risk of lightning on this area where I was showing the demo. It is very important because there are a lot of solar farms. If a hail hits a solar farm, we are not talking about tens of millions in damage. We can talk about hundreds of millions of damage.
When you have the warnings in place, you can turn the panels upside down so that the hail is not hitting the panel flat. Moving on, this is another example if we play the video. Showing how our customers use these capabilities in practice. This is from, I think, from Panama Airspace. You are actually seeing how people can build their own polygons. This is now a grid line in Central South America. Our users can customize and build their warnings. If lightning is close by, give me a warning. Here is another example, not now with the lightning, but actually with the road weather. This is in the upper somewhere close to, no, it is Denver, so close to between the border of the U.S. and Canada. No, it was Detroit, sorry.
In the Great Lakes, this is another example where you can issue those warnings that, okay, slippery roads, risk of having black ice, etc. Using the same portal, you can configure the alerts for whatever is critical for your business. Our last example, if we play the video, is then a bit more about the energy and the trading part of it. This is our portal called X-Weather Power Up, where we aim to help the industry to improve the liquidity. As PPAs, so Power Purchase Agreements, help with volume risk, they help with the volatility. In this tool, you can see both the forecasted wind and the historical values, both the price curves and all the data. Now having an index and data you can trust helps you, for example, to make a trade or do a swap.
I'm showing an example here because this is just like this very interesting that talking about the big changes lately. As you see from this slide, something really happened on the German energy market in 2022. That was basically natural gas not flowing in anymore. All of a sudden, you got negative prices, especially during the summer months because of solar. As the only part which is now flexible is solar and wind, and something that cannot be managed without having the highest quality of weather data. But hey, that's all the demos. I think we had some time for Q&A in your.
Yes.
Did we get any?
We have several questions, so let's aim to take as many as possible. First question from Matti Riikonen. You mentioned net revenue retention being over 100%. Has that number changed during the past two years?
Yeah, as with any of our core KPIs, so our core KPIs being ARR, then of course the EBITDA and also the NRR. As with any business, naturally we aim to improve. Yes, NRR is one of our key measurements, and yes, it has improved.
Okay. The next question is from Pauli Lohi. Do you see the development of AI-based weather modeling systems driving up the competition in the data service market?
That's a good question. I think there are many things which are changing in the market. Of course, the fact that private enterprises can build their own weather model using AI and ML in itself is a change.
If we look at the changes in the marketplace or with the actors, yes, there are a lot of startups because development is fast, but we haven't really seen that kind of completely new picker entrants or new forces. It is more of this traditional that you have incumbents and you have newcomers, but we haven't seen any change in balance. Maybe the only thing is that the amount of startups is still quite high. The industry hasn't in that sense consolidated.
Thank you. A question from Waltteri Rossi. To what extent does X-Weather currently utilize Vaisala's hardware in its offering? Is there potential to bundle the offering more in the future?
Yeah, when it comes to those networks that we operate by ourselves, for example, the lightning networks, that is of course like Vaisala's own hardware 100%.
We also bundle our hardware with our, like I was showing the product called Protect. This far we have bundled more than 1,000 sensors. And those are mostly in our key markets like North America and Western Europe. Yes, we are doing it and our intent is to continue doing it.
Thank you. Then a question from Mikko Louhisto. How long do you think X-Weather can sustain double-digit growth before the comparison base becomes too high?
Yeah, that's of course a fact always that when numbers get bigger, making the growth numbers the same might be trickier. We were showing the total market size of being EUR 2 billion. Like said, North America and Western Europe also have been our focus areas. We firmly believe that there is in this market, there is a lot of room to grow.
Okay. The next one comes from Nikko Ruokangas.
You seem to be well positioned in the X-Weather market and the drivers are strong. What is the biggest barrier in accelerating the growth even further as the market opportunities peak?
Yeah, one of the things what we did in the very beginning with X-Weather, and that was also partially like driving our acquisition strategy, was that we wanted to really build the backends which enables us to scale cost-efficiently. As a subscription business, it's a bit different than some of the other businesses. We truly need to automate everything. During the last three years, we've been able to build those backends. We also did the conscious decision of focusing on Europe and North America first, as you cannot be best everywhere at the same time. I feel confident of us having the needed enablers in place to continue to grow and also capture market share from new geographies.
Okay, thank you. A question from Simon Jonsson. Could you elaborate on what makes up X-Weather's competitive advantage?
Yeah, so yeah, maybe let's start with that. Like I tried to explain this, that we really started with AI and machine learning. That was how we got started. We did not have a legacy of 50 or 100 or 150 meteorologists providing services manually. We were able to apply machine learning and AI from the beginning. In that sense, we do not have history on that side. At the same time, though, we are part of Vaisala. Vaisala, having 89 years of experience on meteorology and metrology, of course helps us to understand also the science and really the weather business. I think it is really these two things that we put together.
AI and ML with the probabilistic thinking, with everything what we as a company know about measurements and weather.
Thank you. We still have a couple of minutes for questions, and I do have many here. Next question is from Joonas Ilvonen. Have you redefined the X-Weather addressable market too, like you did for power that Jarkko mentioned, so that now it's EUR 2 billion instead of EUR 1.2 billion or EUR 1.5 billion? Do you think you can grow your annual revenue per given customer account, or is it growth mostly driven by new subscription?
Yeah, on the first question, naturally there are some areas in X-Weather that we don't have a product for. Like we don't have every possible product in every possible country. There is sort of both the geographical and vertical thinking.
As we come bigger, we feel also more confident on saying that we can address more of the market. Yes, the number we have in the past said that it's EUR 1.2 million, but we have excluded certain geographies. Now we are not excluding those geographies anymore. When it comes to the growth, I believe with those kind of customers what we have, like 40% of the Fortune 100, is that we can still grow the size of the customers. Basically ARPU can be further grown. Of course we can also get, and we should get, new customers. The way we are thinking of it is that DaaS, so data as a service, and especially our API offering works as a funnel. As we market and have developer customers, we can then nurture those accounts to grow in value over time.
Maybe time for one more question. I have a couple of questions here about acquisitions. Is there still a, this question is from Matti Riikonen. Is there still a possibility to acquire larger companies such as Maxar, WeatherDesk, or do you think acquiring smaller companies is a more realistic scenario? I also have a question from Frank Vicaruso, that please discuss how you plan on addressing acquisition activity. Do you expect your focus to be on revenue growth or science acquisition? Overall, maybe on the M&A side, what can you say about that?
Yeah, I think I really loved the way that how Jarkko was answering on the industrial measurement sides. I think in a very similar matter, there can be acquisitions that help us to grow, for example, in the geography where we haven't been strong before or as strong before.
There can be also verticals that we are not yet that active. Then often these come like that you have some assets. I think all in all, our asset portfolio is in a good shape, but I think one should always seek both like innovation and new things, both internally and externally. We keep actively looking at and reviewing opportunities as they come. As my colleague was saying, that is a really difficult area to forecast compared even to weather.
Thank you very much, Samuli.
Yeah, thank you.
Moving on to our fourth presentation today that focuses on weather, energy, and environment. Please welcome Anne Jalkala.
Thank you, Ninni. Happy to be here. Good afternoon also from my behalf.
My name is Anne Jalkala, and I plan to share with you the key developments in the markets where we operate in the weather, energy, and environment business and open up the business models that we have and how do we plan to drive profitability and service business on top of our strong installed base. Starting a little bit about who we are and what we do as a business. We are truly a global weather instrumentation leader in the markets where we operate. This is reflected in our market share. We truly are an undisputable player in the markets. We do play also a vital role in helping societies to understand, mitigate, and adapt to climate change and extreme weather. In essence, what we do is we provide weather sensors, systems, and services across the globe for meteorological agencies, airports, defense forces, road authorities, and renewable energy.
This is really the business where the Vaisala journey started from. We have almost 90 years of innovation and expertise and a strong installed base of our 1.5 million weather sensors and strong customer relationships. This gives us a very solid foundation for our profitability and services strategy that I will elaborate further. Here are the key market segments in the weather, energy, and environment business. On the left side, you can see the core markets: meteorology, aviation, defense, and roads, which consist of about 4/5 of the net sales of the business. This is, as a whole, really a mature and stable about EUR 700 million market, which is characterized by governmental spend with natural fluctuations and variability in the project and system business.
In the meteorology and aviation markets, we have had exceptional two years driven by the European weather observation modernization projects, which we are now delivering and now coming to end the modernization peak. In the defense market, where we see some growth potential, especially now European countries are increasing their defense spending. However, good to note that defense, while it's a long-time market for Vaisala, it's a relatively small part of our business. We talk about mid-single-digit % of the weather and environment sales. On the right-hand side, you see about 1/5 of the sales coming from the renewable energy market, where we have had significant slowdown this year. We have witnessed the saturation in our core geographies in the wind resource assessment market, where we are strong. Now we have really sharpened the focus for the serviceable addressable market.
Therefore you see here the market size, EUR 150 million, being smaller than what we indicated last year in the capital markets day. We do continue to see the wind operations as a potential market starting to emerge in the end of the strategy period. At the moment, we estimate the growth opportunities are there starting to emerge in 2027 and onwards, and 2028 and onwards. Even though the renewable energy market is currently facing slowdown, we do see that the energy transition fundamentals remain solid as the global wind capacity is expected to grow and the weather dependency of electricity generation is growing. To summarize, the mature market segments in meteorology and aviation are expected to return to flat levels compared to the exceptionally high levels in the previous years.
The market in the renewable energy has declined, and we do not expect growth in the coming few years. Moving on to open up a little bit about the business model dynamics in the weather, energy, and environment business. Here you can see the three types of business models that we operate. We sell sensors, services, and projects. In the bottom of the right-hand side illustrative image, you see our fairly stable base of sensor sales. This is roughly EUR 200 million business and fairly stable by nature. On the top of the picture, you see the project business, which is to a large extent driven by modernization projects. There are natural fluctuations in the projects. This is about a EUR 100 million business depending on a year, EUR 80 million last year.
This year we have a record number of project sales and really a strong delivery of the orders we received last year. In the middle, you see the orange part, the services part. This is about EUR 20 million business today. Here we really see potential to grow the share of services by increasing the attachment rate and monetizing our large installed base and strong customer relationships. I will elaborate this more a bit later. Overall, in this mature market environment, our priority is to sustain Vaisala's global leadership by focusing on profitability and expanding our service offering. Moving forward to how we are planning to do this, we are committed to sustain the profitability across the market cycles, also in the current downward market. In practice, this means about double-digit profitability, measured as EBITDA % even in a low market cycle.
The way we do is through three key profitability enablers. The first one is really our maintaining our competitive product portfolio and also simplifying and optimizing our offering and making very selective and prudent investments in new R&D projects. We do aim for high R&D effectiveness, and the research and development expenditure of net sales was 10% in 2022, and it's roughly 8.5% of net sales this year. At the same time, we do aim to do the maintenance and modernization parts of the R&D work as effective as possible. The second key profitability enabler is the lean organization and operating model. As you may recall, this year we adjusted the cost base of our renewable energy business to the current market reality and executed the related and needed restructuring.
Third key enabler is to drive continuously the efficiency throughout our processes and ensure that we have high operational efficiency with automation and AI. Lately, we've been increasing the AI adoption, especially in our customer frontline operations, for example, in tech support, enabling in practice faster resolution times and better customer satisfaction. This is what we now plan to do across our functions and processes. I will tell about the opportunities that we see in the service business side. We have, as said, almost 90 years of expertise in the weather and climate observations and a very large global installed base of more than 1.5 million weather sensors, and we continue to add thousands of devices annually. We do have a very solid opportunity to grow the share of high-margin services through this installed base. The way we are doing this is twofold.
First is point of sales services, and second is installed base attachment rate. In practice, what this means is that whenever we sell a sensor, we also sell a service contract. The second point means that to those customers who have a large fleet of Vaisala sensors and systems, we also upsell service contracts and offer them better customer value through our high-margin services. This year, I've been meeting many of our customers globally, and what is the most important for them is to have their critical weather observation data available without interruptions. Like Samuli mentioned, the critical weather data availability is important. It is also very important for the customers of the weather, energy, and environment business, for the meteorological agencies that we serve, for the airports that we serve, road authorities, and so forth.
We do believe that we can address this customer demand of critical interrupted weather data availability with connectivity-enabled services and remote monitoring. Our vision is that weather sensors will be connected to Vaisala platform to enable 24/7 remote monitoring, diagnostics, and to enable this critical weather data uptime for our customers. Over the past years, we have been improving our service delivery capability. We are clarifying our service offering and ready to expand our footprint in selected areas. We are starting from the aviation and weather radar customers. In practice, this means services like extended warranties, repairs, calibrations, and remote monitoring. A very exciting opportunity to build an improving share of predictable recurring revenue streams from services.
To summarize the key message from the weather, energy, and environment business perspective, the first one is to note that Vaisala is a true global leader in weather and climate observations, and we plan to continue as a global leader in this space by driving market leadership and our high societal impact. For the strategy period, our key focus is to hold the profitability across market cycles through competitive product portfolio, prioritized R&D, lean organization, and process efficiency. In addition, we do see opportunity in our service business by increasing the attachment rate and monetizing our large installed base to drive recurring revenue. With that, I conclude my presentation and happy to take questions you may have.
Thank you, Anne. Let's start with the questions here. There is one question from Pauli Lohi about the renewable energy market.
Which markets have you excluded from the renewable energy addressable market and why?
Good question. As said, we have sharpened the definition of the addressable market to the serviceable addressable market, meaning the markets that we can serve today. And the EUR 150 million that covers the wind resource assessment as well as our offshore maritime opportunities. Basically sharpening the focus, focusing on the serviceable addressable market.
Thank you. I have two questions from Waltteri Rossi. First, do you expect any growth in meteorology, aviation, and roads in the coming years as the product and investment cycle is getting weaker? A follow-up, what are the key elements in driving profitability up in the meteorology, aviation, and roads business?
As I indicated, for these core markets, we see a stable flat, no significant growth in the coming years.
The key is really to now hold profitability even in a downward market. As I elaborated, it is all about being very selective in R&D investments, having a lean organization, and continuous process efficiency improvements.
Thank you. A question from Nikko Ruokangas about the renewable energy market. Your renewable energy market estimate is down about EUR 400 million-EUR 500 million a year ago to now EUR 150 million. This is a big change. Your sales for the segment have not declined more than 50% like your market estimate. Does this indicate that you have not yet seen the worst in renewable energy? Do you think that your group sales growth—maybe this is a question for Kai to answer about the group sales growth target and how realistic that is. I will save that actually for Kai now to think about it.
Let's continue here. Nikko Ruokangas has a question. Do you see needs for new efficiency actions in addition to the actions taken in the renewable energy to re ach the profitability target?
Like said, we did adjust the cost base of our renewable energy business to match the current market reality and did the needed cost adjustment and completed that during this year.
Thank you. Next question is from Joonas Ilvonen. Weather and environment, weather energy environment is a relatively mature business, and you talk about the prioritization of R&D, but might the defense sector be one area where you could do more product development even if it's a relatively small part of the weather, energy, and environment?
It's a good question.
Like said, we do see opportunities in the defense market, and this is a long-time customer segment for Vaisala, but at the moment we see opportunities in our funnel. At the same time, none of our products are classified as defense products or even dual-use products. What is really critical is that we offer our strong civilian sensor and system offering also to the defense customers. As said, today it's a fairly small part of the business, and we do see at the moment that there is an uptick in demand.
Okay, question from Matti Riikonen. The addressable market sizes that you presented are clearly lower than a year ago. What is the timeframe for this market size estimate? Is three years a good proxy? What can you say about that?
As said, we have really now in the market estimate sharpened the focus to the serviceable addressable market for the upcoming few years. As said, we do continue to see long-term market opportunities emerging, for example, in the wind operations market towards the end of the strategy period. Really the way to think about this is to think that for the upcoming few years we do not see growth in the renewable energy market, and at the same time we do believe that in the long term there are more opportunities. We have a very strong portfolio and a very competitive product, both the LiDAR and sensor offerings in the renewable market.
Thank you very much, Anne.
Thank you.
We have about 15 minutes time, and we are soon about to wrap up, but I still have some questions here that I would like to take into discussion.
Maybe I now start with the one that I almost asked earlier. A question from Nikko Ruokangas. Your renewable energy market estimate is down from EUR 500 million a year ago now to EUR 150 million, which is a big change. Your sales for this segment has not been declined more than 50% like your market estimate. Does this indicate that you have not yet seen the worst in the renewable energy, and do you think that your group sales growth target is realistic to reach before the renewable energy returns to growth?
If I start from the end, if I would not believe that the guidance that we have been giving and restating today of 7% average growth rate, I should not be holding my job either. It really will continue to believe in the long-term growth of the company.
As I said earlier, the attractive mix, there is a mix and underlying robustness that we have so many different drivers under the different businesses that we have. If now we have a little bit of a challenging time in renewable energy, we have other businesses which are seeing the contrary trend.
I will take some questions from earlier that we did not have time to discuss. About the tariffs, a question from Matti Riikonen. When you raised prices for products targeted for the U.S. markets, it covered the increased cost due to tariffs, but it lowered your gross margin. Can you raise prices again, say next year, to return to the previous gross margins?
Yes, and mathematically, Matti, you are exactly right as we discussed earlier in the quarterly call.
There is a slight dilution when we say we compensated entirely the tariffs through pricing activities. That means that we compensated in the bottom line, and if you do the math, there is a slight dilution across margin percentage short term. Now, long term, of course, I mean there are opportunities to move prices as the market, depending on how the market allows and how competitiveness allows. We work obviously in multiple different ways, not only through pricing but also through the attractiveness of the portfolio that we offer to increase the profitability of the company as we scale up also the net sales.
Thank you. A couple of questions about X-Weather. This one is from Nikko Ruokangas. Has the renewable energy market turbulence in the U.S. recently been visible in your X-Weather business?
Not really. Not really.
I think again it shows the, as I guess the theory should say, that when you have a subscription business, that should be much more continuous over cycles than a product or project business. That is what we have seen also in X-Weather. We have not really seen kind of any adverse impacts in kind of short-term cycles in the marketplace.
About X-Weather growth, a question from Matti Riikonen. Can you still accelerate organic growth in the next three years?
I think Samuli answered that question, that we have a big market that we are serving. We have been looking at it in a very focused way.
There's lots of opportunities both in terms of upselling to our customers and increasing revenues that we can get from our customers, finding new customers, kind of getting into new geographies, as Samuli was explaining, let alone kind of venturing into adjacent markets. There's plenty of room to grow, and then it's up to us how well do we execute on that opportunity.
A question from Pauli Lohi. I think this came during Samuli's presentation, but maybe you could think about Vaisala overall and the M&A. Is there interesting M&A opportunities left in the hardware field, or are your aspirations more targeted towards enablers of service growth?
There's always opportunities on the—
Sorry, I think Jarkko's presentation might be—
There's opportunities on both sides, and we continue to look at, as Jarkko was saying, we continue to look at on the hardware side, and we continue to look at on a service on subscription or data side as well. As discussed, predicting on M&A is nearly impossible. It requires two willing parties, and we actively look at the marketplace at the same time. As explained earlier also, we are very focused on what type of an M&A we want to do. It really needs to be accretive to us. It needs to be something that we feel that we are a better home for an asset or a company. Now, what it is as a standalone, we can help it to grow faster than it can be as a standalone.
There needs to be the synergies of one kind or another. That being said, I think there are opportunities, but kind of timing on executability of any of them is something that, as Samuli elegantly put it, it's more difficult to forecast than the weather.
Yes. Mikko Louhisto has a couple of questions about data centers and industrial measurements markets overall. Perhaps I will try to ask those things that haven't been answered just yet. About the data centers, how competitive is our product offering in the data center?
Our products are for data center, the promise is exactly the same as for any other segments. We promise that our products are the most—we provide the most accurate and the most reliable measurement capabilities, be it on a data, be it on a service, or be it in a product.
That's what we hold very much true in the data center side. As Jarkko went through, it's a quarter of the entire spend on energy is coming from the heat dissipation or managing the heat dissipation in a data center. It's a big amount of money, especially when the data centers are getting bigger and bigger. The accuracy, reliability really, really do matter, and I think I feel very confident on the competitiveness of our offering.
Continuing, Jarkko talked about Vaisala's current sales exposure today and how the life science batteries, data centers, what the size is. Looking at this question, it is from Mikko Louhisto as well. Looking three years out, how would you rank them by growth potential?
I would hesitate to give you kind of a ranking of what I would say all of them actually quite lucrative markets.
If you look at even like not our word, but the third party's word on how will data centers grow, how will life sciences, be it pharma or biopharma, grow, how much investments will there be on the data grids. We all know semiconductors, power, among other things, all the ventures and investments into AI and so on. I think the bigger picture here is that it's very interesting to look at the markets that we serve that are actually growth markets and full of opportunities for the next generation technologies that these markets actually require. Jarkko didn't talk about the next generation of batteries, which will require even more accurate and more reliable measurements. Similarly, on semiconductors, similarly on pharma or biopharma. There is lots of innovation room, not only growth, where we can add even more value.
Thank you.
A question from Nikko Ruokangas about the weather, energy, and environment. You indicated that the demand is now normalizing in the meteorology and aviation following a bigger modernization wave. Have you seen the demand continuing declining sequentially now in the second half from the high levels of 2023-2024, or do you think your orders in Q2 and Q3 this year already reflect fully the lower cycle bottom?
Again, especially when we look at the meteorology, aviation, roads side of the business, when comparing kind of a year-on-year or even historical ways, I would argue that even a quarter is a short period of time, that the business actually goes in quite long cycles. I feel actually kind of share very much the view that Anne was saying, that we are prepared kind of first of all for profitability even in a low cycle.
At the same time, if I look at where we are today, if you look at our order book at the end of third quarter, for example, that we had for kind of coming year, we do not have to go that far in the past where we had in a kind of a we were in a similar kind of a size of an order book for the sequential year, and the sequential year was not all that bad. I think you can look at this glass half full, half empty as well, but I think here things are moving, we have a good pipeline, and it is not at all kind of a kind of the market would be falling off or anything like that. It is a robust market that has its cycles, as Anne was explaining.
Perhaps time for one more question before wrapping up.
This is from Waltteri Rossi about weather, energy, and environment. With practically no growth expected in weather, energy, and environment in the coming few years, do you expect the business area, excluding X-Weather, so weather, energy, environment, to still contribute positively on improving the EBITDA percentage of the company?
Yeah, we are not giving guidance on individual kind of a business or business segment level at that. We will talk about our guidance first of all for next year when that time comes. I feel confident about the kind of the guidance that we are giving in terms of as a company, that as a company we are committing to 7% average growth rates with improving EBITDA percentage kind of going forward as a long-term guidance.
Thank you.
Thank you.
Thank you very much for sending the questions.
If there's anything that was left unanswered or you would like to further discuss about any topic, please do not hesitate to reach out to our investor relations, and we will then try to provide some more answers to you. Now time to wrap up this webcast. Kai, maybe a few closing words.
Yeah. Back to kind of what I would like you to remember out of all of this is that Vaisala has a very, very robust strategy in a changing world. We have an interesting business mix which, on one hand, gives us a robustness on the changes that everybody is facing in this kind of a market environment in the world we are living in. At the same time, when we look at our business mix from a growth perspective, it's actually quite interesting.
There is over half of our business is actually growing, and the underlying businesses under whether we talk about X-Weather or whether we talk about the industrial measurements are kind of quite interesting and possibly with a positive dynamic. I would just summarize it in such a way that we really have keys for profitable growth with strong profitability going forward. Thank you very much.
Thank you very much and have a nice week.