Overview
Year 2005 was the best in Vaisala's history, both by net sales and profit after tax. Reasons for the good result include strategic changes, the effects of which started showing in 2005, as well as events occurred during the review period. Strategic changes include the shift to business model based management as well as measures taken to improve cost-efficiency. Demand grew during the review period, and sales recognition took place in more projects than anticipated. The volatility of the currency exchange markets resulted to considerable gains. Additionally, the effective tax rate remained low because of an increase in deferred tax receivables.
In November, Vaisala announced its intention to enter the weather radar business. The weather radar compliments Vaisala's remote sensing product offering, which currently includes lightning detection systems and networks as well as wind profilers.
Vaisala Oyj adopted the International Financial Reporting Standards (IFRS) in its Group reporting from the beginning of 2005. Before this, Vaisala's reporting was carried out according to the Finnish Accounting Standards (FAS). The notes to the balance sheet include reconciliations describing the effects of transition to IFRS for 2004 as well as for the Opening Balance Sheet (January 1, 2004).
The main effects of adopting IFRS
The adoption of IFRS reporting has changed the reported balance sheet calculations, the notes to the balance sheet as well as the accounting principles in comparison with previous balance sheets. Vaisala Oyj's figures are most affected by the IFRS standards relating to business combinations, employee benefits and leases as well as the cancellation of value increases made in connection with the adoption of IFRS and a tax asset recognized from the accumulated losses of the French subsidiary.
Market situation
Demand grew during the second half of the year. Net sales grew in almost all geographical areas. The strongest growth took place in the U.S., which counted for half of the growth in net sales in EUR. Despite of the large number of orders received in the third quarter, the amount of orders received remained on a satisfactory level also during the last quarter in all divisions.
The sustained maintenance and development of competitiveness has enabled Vaisala to retain its market share, and the company's market position is still strong.
Net sales and order book
The Vaisala Group's net sales for the review period were EUR 197.9 million (2004: EUR 178.1 million). Operations outside Finland accounted for 96% (97%) of net sales. The Group received new orders worth EUR 196.5 (172.8) million during the review period. The order book at the end of the review period was EUR 55.3 (52.7) million.
Vaisala Measurement Systems
The Vaisala Measurement Systems division generated net sales of EUR 84.3 (72.9) million.
The number of orders received during the last quarter remained on a satisfactory level, despite of the large number of orders received in the second and third quarters. The large number of deliveries in the last quarter increased the net sales and decreased the order book from the previous quarter. The increased net sales and cost-efficiency improved profitability, which is clearly better than that of 2004. Compared to 2004, the greatest improvement in profitability in EUR has been achieved in the thunderstorm and soundings business units.
Vaisala Measurement Systems invests in a new and improved product offering, in order to be able to strengthen its position as a premium-class product provider and market leader in the upper-air measurement applications. In 2005, major efforts were also made to improve efficiency by streamlining logistics, products and operations. Improving operational efficiency remains on the agenda in 2006.
Vaisala Instruments
The Vaisala Instruments division generated net sales of EUR 58.2 (52.9) million.
Demand remained strong also during the last quarter, which led to higher net sales than in 2004. Thanks to cost-effective operations, profitability has remained good.
Vaisala Instruments division received a significant order in July when the U.S. National Weather Service selected Vaisala's precipitation sensors for its surface weather observation network. The contract is delivered in phases, and its estimated sales value is more than EUR 6 million. The main part of the deliveries is expected to take place in 2006-2007.
Competition in all product areas remains intensive. Vaisala's global operating model, combined with significant investments in research and development, form the basis to retain market leadership and increase market share.
Vaisala Solutions
The Vaisala Solutions division generated net sales of EUR 55.5 (52.3) million.
The high net sales in the last quarter helped to turn the operating profit for the full year positive. Order intake was good also during the last quarter, but order book decreased due to large number of deliveries.
Vaisala Solutions division invested in its aviation weather systems know-how by acquiring the CLH Inc. in the U.S. in July.
Vaisala Solutions received a significant order in August, when the U.S. Federal Aviation Administration (FAA) selected Vaisala's runway visual range systems for U.S. airports. The three-year base contract includes the deliveries of 21 systems and is valued at USD 4.3 million. The contract contains options for delivery of up to 77 similar systems within the next five years.
In 2006 net sales and operating profit are expected to remain on previous years level. Vaisala Solutions' goal is to increase the share of service sales in the net sales. The main ongoing development projects concentrate on customer-focus, increased service offering, and improved project business.
Performance and balance sheet
Operating profit for the review period was EUR 30.1 (29.4) million. Profit before tax was 17.2% of net sales, or EUR 34.1 (29.1) million. Profit after tax for the review period was EUR 24.9 (21.0) million.
When assessing the profit after tax of the review period, it should also be remembered that: the positive exchange rate differences recorded in the financial income were EUR 3.9 million. Additionally, the effective tax rate was 26.9%, while the long-term estimate is approximately 30%.
The Vaisala Group's solvency and liquidity remained strong. On December 31, 2005, the balance sheet total was EUR 196.9 (163.7) million. The Group's solvency ratio at the end of the review period was 81% (82%).
The total of the Group's liquid assets was EUR 81.4 million.
Research and development
Expenditure on research and development in the review period totaled EUR 19.8 (21.3) million, representing 10.0% of the Group's net sales.
Capital expenditure
Gross capital expenditure totaled EUR 8.0 million (4.8 million). The total for the review period includes the cost incurred from the acquisition of CLH, Inc.
Events after the period under review
In January 2006, Vaisala acquired 100% of the Sigmet Corporation stock of
Westford, Massachusetts. Sigmet is the world's leading independent weather radar signal processor and application software manufacturer. The purchase price was approximately USD 20 million. Sigmet will be consolidated into Vaisala's books from the beginning of 2006.
In January 2006, Vaisala announced its plans to partly outsource some of Vaisala Measurement Systems division's production functions. The goal is to improve the division's efficiency and flexibility, and to concentrate efforts on its core competencies, such as sensor technology. The financial impact is estimated to be some EUR 1.5 million annual improvement in the division's result, starting from fiscal year 2007.
Vaisala Oyj 2000 warrant program ended on January 31, 2006.
Vaisala's share
The acquisition and conveyance of own shares
The Board of Directors has been authorized by the Annual General Meeting of March 22, 2005, to acquire and convey the company's own shares to launch a share-based incentive program. The program applies to approximately 50 Vaisala key personnel. Some of them are in the group of permanent insiders, as defined by the Securities Market Act. The number of A-shares conveyed within the share-based incentive program is max. 35 000 shares. The authorization is valid until March 22, 2006. No shares have been acquired based on the authorization during the review period.
By December 31, 2005, a total of 446 200 new Vaisala A-shares were subscribed for with the warrants granted in 2000 to the key personnel of Vaisala. Of these 186 450 shares was registered in the Finnish Trade Register in two slots on November 8, 2005, and December 23, 2005. As a result of the subscriptions the share capital of Vaisala was increased by 186 450 new A-shares, i.e., by EUR 78 402.08. On December 31, 2005, the share capital of Vaisala therefore was EUR 7 428 307.96 and the total number of shares was 17 665 450. The new shares were admitted for trading on the Helsinki Exchanges on the day following the registration on the Finnish Trade Register. The remaining 259 750 shares will be registered in the Finnish Trade Register on February 8, 2006. The first dividend on shares subscribed in 2005 is payable for the year 2005.
The price of Vaisala's A share on the Helsinki Exchanges was EUR 18.20 on December 31, 2004, and EUR 24.00 at the end of the review period. The highest share price quoted during the review period was EUR 24.74 and the lowest EUR 18.48.
Vaisala's share capital at the end of the review period was EUR 7 428 307.96 and the total number of shares was 17 665 450.
A total of 2 442 168 Vaisala shares were traded during the review period, and 1 500 850 option rights.
Own and parent company's shares
The company or its subsidiaries do not own their own or the parent company's shares.
Personnel
The total number of employees in the Vaisala Group at the end of the review period was 1 042 compared with 1 063 at the end of the corresponding period in 2004.
Some 19% (22%) of the personnel worked in research and development. Approximately 38% (37%) of the Group's personnel worked outside Finland.
Outlook
As in the previous years, the first quarter will be modest, due to seasonality of the business. The market situation is not expected to change significantly in 2006. In 2006 the net sales and profit after tax are expected to remain on the previous year's level.
Vaisala aims to be the global market leader in its selected business areas also in the future. Therefore investments in product development and competitiveness will continue to be substantial.
Proposals to the Annual General Meeting
The Board of Directors proposes to the Annual General Meeting held on March 23, 2006, that a dividend of EUR 0.75 per share be paid for the financial year 2005,and the remaining part of the review period's profit be held on the account for profit funds. According to the balance sheet of December 31, 2005, the Group's distributable funds are EUR 134.5 million, and the parent company's EUR 114 513 388.55. According to the proposal, a total of EUR 13 443 900.00 will be used to dividend payments, representing 54% of the profit after tax. The record date for dividend payment is March, 28, 2006, and it is proposed that the dividend will be paid on April, 4, 2006.
Two members of the Board of Directors, Mr Pekka Hautojärvi and Mr Mikko Voipio are to retire by rotation. Shareholders representing more than 10 percent of all the votes in the company have informed that they will propose to the Annual General Meeting held on 23 March 2006 that the number of Board members should be five. The Board proposes the re-election of Mr Mikko Voipio, and Mr Stig Gustavson to replace Mr Pekka Hautojärvi. Mr Gerhard Wendt is retiring from the Board for personal reasons. The Board is not proposing any replacement for Mr Wendt.
The Board proposes PriceWaterhouseCoopers Oy and Mr Hannu Pellinen APA, to be selected as Vaisala Oyj's Authorized Public Accountants.
The proposed members of the Board of Directors and the Authorized Public Accountants have given their consent for the election.
Vantaa, Finland, February 14, 2006.
Vaisala Oyj
Board of Directors
The full report including tables can be downloaded from the following link.
