Hello, welcome to Vaisala second quarter and January to June 2026 results call. I'm Niina Ala-Luopa from Investor Relations, and today with me in this call are President and CEO, Kai Öistämö, and CFO, Heli Lindfors. Like always, first Kai and Heli present the results, we proceed to Q&A. Kai, you may start now.
Thank you, Niina. Welcome everybody from my side as well. We had a very good quarter as a second quarter. We continued to perform well on all fronts. Industrial Measurements being really the highlight of the day, having an extraordinary quarter, with a record high demand and order intake, which drove also the company's order intake to increase 11% in Q2 compared to the year before. Xweather continued on a very good track, having a good double digit growth, 15% in constant currency to be exact. Of course, a key event that I'll talk about a bit, in the quarter.
It seems that, Niina, there is some voice that is circulating there. I have got a message from online.
Oh, okay. Sorry about this. I heard that there have been some audio problems, maybe I'll restart so that everybody can hear what I say, and hopefully the technical challenges are overcome in a second. As I was saying, a very strong orders received in the quarter. We continued to perform across the company very well. Really, the order intake was really driven by extraordinary demand in terms of Industrial Measurements. That drove the company's order intake to increase 11% compared to the year before. Xweather continued on a good track on double digit growth, 15% year-on-year growth in constant currency. A key event in the quarter for Xweather and for the company itself was the acquisition of the AI weather company, Atmo Inc., that we announced in the second quarter. I'll talk about that in a little while.
In terms of Weather, Energy, and Environment, the quarter was more muted as we expected going into the quarter. Even in this environment, I think the team performed really well and delivered strong profitability results. Are we still having the problems now? Okay. We are reconfirming the business outlook, as I'll conclude in the end. Before going into the numbers themselves, I'll talk about the two key events during the quarter. I'll start with the product launch, which I rarely do, but I think this PRECICAP product that we launched in the second quarter, I think merits very much of taking it as a key highlight in the quarter. The state-of-the-art way of measuring rain is what we would know ourselves if you have your own rain bucket somewhere in your summer place, at your house, at your place.
It's a bucket which then catches all the drops, and then you just read how much water is in the cup. But if you own one, you also know that in the fall it's full of leaves. It will have insects. The accuracies are whatever they are. It requires maintenance. And remote operation really is not possible at all without maintenance on site. And this has been the state-of-the-art way of operating rain measurement since almost past 100 years. We took on a challenge that with modern technologies, this probably is not the best way of doing things, given all the challenges related to the rain buckets. What we did is take a miniaturized version of a radar, point upwards so that we can actually measure with it, with PRECICAP sensor now, every single droplet that it sees.
Not only can we measure all the rain, but we can actually see the size of the droplets. We can distinguish the different sizes of what kind of a rain or hail it may be. And we can actually see even the direction that the rain comes, i.e. we can see the wind impact on the rain as well. And oh, by the way, it is also more accurate. It requires no maintenance to speak of. It's very easy to save on the maintenance cost and use especially on the remote sites. It's a great example of taking something which everybody works on and nobody thinks about it, even the challenges that it has. That can be reimagined with right kind of insight, right kind of a team, right kind of capabilities, and it really is what defines really an innovation.
And I think it really kudos to the capabilities that the company and the team involved really has had. It also highlights how well we understand the phenomena in order to do these kind of reinventions, such as in this case, Rain. This very much actually combines to the AI topic that I'll talk next. In terms of an AI world, there are two things that are super important. It is all about the data. What kind of a data, who owns the data, who understands the data that feeds AI. I think the PRECICAP is a fantastic example of how we, as a company, we actually understand and can measure weather-related data better than anybody else.
That in combination on what we have been building in Xweather in terms of capabilities on forecasting and big capabilities in machine learning and AI, building the entire asset on machine learning and AI. Now together with Atmo, which we find really the world's leading by far in terms of a company, an asset, and a team in terms of weather-related AI capabilities. Weather forecasting is going to change based on AI. That's already happening. There's lots of attempts by different companies, different teams around the world. What sets Atmo apart is that they really have a unique, scalable model where you can take based on local data, that can be the weather data that I was talking about. It can be customer data as well, and you can create a local AI-based weather forecasting model in a very scalable way. You can do very local.
Just imagine we could do on our site here at our headquarters, or it could be regional, it could be global. Anything where Atmo's model is not based on a single AI model, but it actually takes as an input. It can utilize anything that anybody else may innovate, and it can ingest those into its own world's leading model. It's also run by a team which we find really a best AI-capable team that we've seen within our industry, and proven by a very interesting customer set who are paying for the service already today. Couple of examples of this would be from a civilian side, met agencies. Philippines Meteorological Agency has been relying on Atmo's model now for more than a year in their weather forecasting. Other great example is on the defense side.
There's multiple branches of the U.S. military, but most notably U.S. Air Force, who is also relying some of their operations in Atmo's AI-based model. What we together now with what we know in a traditional side of the weather, what we've been building in Xweather, now in combination with Atmo, I think we have world's leading assets, teams, capabilities in all parts what weather business will look like in the future. From providing and understanding the data to building that into a modern platform, customer-focused offering based on AI. Very exciting news. With that, I'll hand over to Heli to talk about the financials more in depth.
Thank you, Kai. Good afternoon from my part as well. Kai already mentioned the financials, but if we dig in a little bit deeper. The growth in orders received 11%, really driven by the Industrial Measurements with 28% with constant currencies, while the weather side had a little bit muted and saw a slight decline on the orders received side. These orders increased growth, also boosted the order book close to EUR 200 million, 7% above the level at the end of 2025, also the ARR similarly rose by 7%. If you look at the net sales, it increased by 4% or 6% in constant currency. Also here, the main driver is coming from the Industrial Measurements with 10% growth and Xweather with 13% growth. Also here, the net sales had on the weather side a slight decrease.
The net sales growth as well as the favorable sales mix improved the gross margin. It also had a positive impact from the lower tariff level of 10% we have seen since February. Going further, we do expect that this has been a temporary level of 10%, and once the U.S. and E.U. trade agreement comes to force, it may be again 15%, but we will, of course, see then what it will be later on now in Q3. The gross margin improvement and the increase in sales also improved the EBITA to 14.6 percentage points. Of course, here we do see that we also increase our spend in our OpEx by 8 percentage points, and that is investments in the sales and marketing activities as well as the R&D in our growth areas of Industrial Measurements and Xweather.
The return on capital employed improved from last year to 18.2 percentage points, driven by the higher EBITA, as well as the strong cash flow and releasing our capital employed. We move on to the Industrial Measurements and a record high quarter in all means. The orders received, as said, increased by 28% in constant currencies coming from a very wide base. All market segments and regions were growing, but particularly the Americas, and it was further boosted by the large orders from data center and power customers. This one also boosted the order book to 33% above the level of the end of last year. This is due to the increase in the larger data center and power-related orders.
If you consider a year back and before, most of our orders were delivered within weeks, whereas now these larger orders on top of these deliveries within weeks, we have now orders that also span across a few months going further, and this is visible in the order book. We are delivering EUR 44 million out of this order book still within this year, so it is still a fairly short order book overall. Net sales increased by 10%. Here you see that the increase was less than in the orders received due to this change in the mix of orders. This was still 13% in constant currencies. Here the driver was the APAC region. The gross margin improved following the net sales increase and also the positive impact on the tariff side. This also boosted our EBITA to 24.5%.
We also gave you some further granularity on our largest market segments in the Industrial Measurements side. This is now, you can see the new split here. The life science continues to be the 30%, as we have said before. Now the new information is the quantification of data centers and power segments, both being at around 10% of sales. We do have the other key kind of our focus industries, as we have been saying, semiconductors and battery manufacturing, and then of course, a wide range of other industries as well. If we then look at the Xweather side, the annual recurring revenue increased from the 7% from a year ago. Here we can remember the seasonality we have in our ARR, as well as this is then including the FX.
In the beginning of the year, we still had a larger FX impact compared to last year, whereas now at the end of Q2, we have now seen a full year of the depreciated U.S. dollar and related currencies. Now the impact starts to be smaller. This you can also see that the net sales increased by 13% and 15% in constant currency. Now the reported currency as well as the constant currency, they are much closer to each other again. Here you can also see that the net sales growth came from many areas, not only one, insurance industry as well as transportation and logistics, and then also the developers and API customers that buy more of the DaaS side of business.
The increase in net sales also boosted our gross margin, the same as in other businesses, and this also boosted our EBITA percentage. Of course, if you see the kind of EBITA improvement, it is material, but as the Xweather figures are still fairly small, this is of course only EUR 800,000 difference to last year. Moving on to the Weather, Energy, and Environment side. It was a slower quarter as expected, the orders decreased by 5% mainly coming from the project orders. The order book as such remains on the same level as it was at the year-end. The Indonesian weather project order that we have announced already a while back, it did move ahead, and the customer's financing arrangements were clarified.
We are still missing the last steps of this order before we book it to our order book, that we do expect to happen now within the third quarter. Net sales as such, they were close to previous year's level. We did see an increase in the project and product deliveries on the weather side, whereas the decline in the renewable energy sales continued on that side. The favorable sales mix then also improved the gross margin and also the EBITA side. Here you can see that also the operating expenses were maintained following the development on the sales side as well. Moving on to the cash flow side. The cash flow from operating activities increased to EUR 48.9 million, not percentages.
It is really boosted by the increased net result as well as timing of tax payments compared to last year, as well as lower level of project receivables. The cash conversion was strong, 1.3 in January to June. If we look at the half year results as such, net sales increased by 7% in constant currencies, as is our strategic target. The operating expenses increased by four percentage points, this is investments in the Industrial Measurements and Xweather side, so in the areas where we grow. The corporate and non-operative items, they were EUR 4.5 million, up from EUR 2.7 million last year. These are one-off items among other M&A expenses. As such, the solid profitability continued and improved to 14.8%, one item to highlight is also the financial income and expenses that is fairly different from last year.
There you can see that the kind of volatility of the currencies have been less, and as we are also less leveraged, the core financial expenses were more than half less than last year. This, of course, then boosted also our earnings per share in total to be EUR 0.78. The strong profitability as well as cash flow does bring us to strong financial position that continued, has been strong for us also for a long time. We continue to be low leveraged in our balance sheet. One thing to highlight here is the CapEx that is on a lower level than last year. Last year, we were building our automated logistics center, and we don't have that this year, so that is why we are on a lower level of CapEx year- to- date. We move on to the market and business outlook.
Yes. When we look at the market outlook for the rest of the year, no changes in this. We expect all markets underlying Industrial Measurements as well as Xweather to continue to grow. Industrial life sciences, power, and the markets for Xweather and subscription sales. The markets for the Weather, Energy, and Environment is focusing on meteorology, aviation, and renewable energy continuing to be stable for the rest of the year. This leads then to reconfirming the business outlook. In terms of our net sales, we continue to estimate that our net sales will be in the range between EUR 600 million-EUR 630 million, and our EBITA result will be in the range between EUR 95 million and EUR 110 million. This brings to the end of the prepared remarks, and we would be happy to answer any questions that you may have.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.
Hello, this is Niko Ruokangas from SEB. Thank you for the presentation. I have couple of questions, I'll go one by one. First one, you highlighted large orders in data center and power segments in Industrial Measurements, and I guess individual orders have typically been relatively small in the area earlier. How big were the individual large orders now in Q2, and how much of the order growth in Industrial Measurements was extraordinary, as you phrased in your presentation?
The larger orders are a few millions of euros, the largest ones. As Kai actually mentioned, the order intake came from a very wide range of different industries. As such, we say that it's extraordinarily good, but it was not solely driven by these larger orders.
Extraordinary orders per se.
Yes, exactly.
Okay, good, thanks. That clarifies. On Xweather side, the ARR did not grow Qo Q despite the year-on-year growth. You highlight the seasonality there, but how much was this seasonality impact, and can you give a bit more color on that?
I think that the best proxy for this is the seasonality impact of last year. If you look at the ARR development within last year, you can see that it is the winter maintenance as well as the lightning that is there kind of causing this seasonality. The winter maintenance contracts, some of them still end in the spring.
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