/Annual report 2008
Financial report
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Board of Directors' report 2008
Overview of 2008
Net sales in 2008 were at a good level. Growth was highest in the Asia-Pacific region. Cost-intensive development projects continued and this shows in the overall group results. The development of exchange rates also had a negative impact, especially the weakening of the US dollar by approximately 7 percent. In the fourth quarter, Vaisala announced a new market-segment based strategy and redesigned its organization to support strategy execution.
Outlook
Instability in the world economy and shifts in currency exchange rates are expected to continue to affect Vaisala's business. Due to the structure of Vaisala's customer base, the company's market situation is expected to remain mostly unchanged in 2009. Vaisala's growth is expected to continue in 2009, but uncertainty towards the end of the year has increased.
Seasonal variations are typical of Vaisala’s business, and therefore the first quarter will probably be weaker than subsequent ones.
Market situation, net sales and order book
The highest growth in Vaisala Group’s net sales in 2008 was in Asia-Pacific, increasing by 27.8 percent on the previous year to EUR 76.9 (60.2) million. Net sales in Europe increased by 5.0 percent to EUR 84.8 million (80.7) and in Africa, South and Central America by 39.0 percent to EUR 13.9 (10.0) million. Sales in North America declined by 8.6 percent to EUR 66.8 (73.2) million. In comparable currencies, the North American segment would have declined by 2.1 percent.
Thanks to focused development work and maintained competitiveness, the company was able to retain its strong market shares.
The value of orders received grew by 8.5 percent from the comparison year and totaled EUR 247.9 million (EUR 228.5 million in 2007, 243.6 million in 2006). The end-of-year order book stood at EUR 90.3 million (82.3), of which some EUR 20 million can be recognized as sales in 2010 or later.
Vaisala Group’s net sales increased by 8.2 percent on the comparison year and totaled EUR 242.5 million (EUR 224.1 million in 2007, EUR 220.8 million in 2006). Net sales of all the business areas apart from Vaisala Services grew: Vaisala Solutions by 24.4 percent, Vaisala Instruments by 12.1 percent and Vaisala Measurement Systems by 9.4 percent. Net sales of Vaisala Services fell by 16.8 percent. The deterioration in exchange rates had a negative impact on the growth of net sales. If the most significant currencies with respect to Vaisala had remained at the previous year’s level, Vaisala’s consolidated net sales would have been up by 11.9 percent. Operations outside Finland accounted for 94 (96) percent of net sales.
Performance and balance sheet
Operating profit for the financial year was EUR 38.0 million (35.3), or 15.7 percent of net sales. Profit before taxes was 16.0 percent of net sales and totaled EUR 38.9 (37.0) million, up by 5.1 percent. Net profit for the financial year was EUR 28.4 million (25.8), up by 10.0 percent from the previous year.
Vaisala Group’s solvency ratio and liquidity remained strong. On December 31, 2008, the balance sheet total was EUR 241.7 million (EUR 225.6 million in 2007, EUR 219.2 million in 2006). The Group's solvency ratio at the end of the financial year was 82 percent (83% in 2007, 81% in 2006).
Vaisala's consolidated liquid assets totaled EUR 103.4 million (EUR, 99.2 in 2007, EUR 87.3 million in 2006).
Research and development
Investment in research and development in the financial year totaled EUR 24.6 million (EUR, 23.5 million in 2007, EUR 20.6 million in 2006), representing 10.1 percent of the Group’s net sales.
Vaisala launched a new dewpoint transmitter for extremely dry conditions and a moisture in oil transmitter for the measurement of humidity in lubrication and hydraulic oil. Additionally, LAN and WLAN capabilities were added to the humidity, dewpoint, moisture in oil and pressure transmitters, improving Vaisala's ability to cater for our industrial customers.
Vaisala also launched a redesigned and improved humidity probe, weather transmitter, and wind sensor for weather measurement. Additionally, several customer-specific R&D projects either continued or were completed.
Capital expenditure
Gross capital expenditure totaled EUR 12.2 million (7.3 million in 2007; 20.4 million in 2006).
A new enterprise resource planning (ERP) system for the entire organization is being implemented. The new system supports the company strategy and business processes, replacing several systems that are used currently. The system will be taken into use gradually and the objective is to have it in use globally by the end of 2010.
Changes in financial reporting
From the first Interim Report for 2008, Vaisala Group's business has been reported in four segments, which are Vaisala Instruments, Vaisala Measurement Systems, Vaisala Solutions and Vaisala Services.
All figures for 2007 have been changed to correspond to the new reporting model, and are therefore comparable. These figures were published in a stock exchange release on April 30, 2008.
Vaisala Measurement Systems
Vaisala Measurement Systems consists of sounding, surface weather system, thunderstorm system, wind profiler, and weather radar business segments. In 2008, the range of products and services offered was added to by the transfer of individual products and systems from Vaisala Solutions. Correspondingly, the lightning detection services were moved to the Vaisala Services business area.
Vaisala Measurement Systems' net sales to customers outside the Group showed a year-on-year increase of 10.7 percent, growing to EUR 99.9 (90.2) million. In comparable currencies, the net sales to customers outside the Group would have grown by 13.9 percent. Operating profit was EUR 17.4 (12.3) million.
The growth of net sales was accelerated by several coinciding customer projects in the sounding and surface weather system businesses. Despite new projects, the net sales of wind profilers and lightning detection systems fell short of expectations. However, the market shares of these businesses remained unchanged. Vaisala has several weather radar orders on the books, with revenue expected mostly in 2009.
Annual fluctuation is typical of this business.
The delay caused by a temporary disruption in production in the first quarter was caught up during the third quarter, and the net sales of the soundings business in 2008 was approximately at the same level as in the previous year.
Vaisala and the Australian Bureau of Meteorology signed a three-year agreement to supply radiosondes for the upper air observation network of the Bureau.
Vaisala signed a USD 6.9 million contract with the US Federal Aviation Administration (FAA) for the delivery of weather radar signal processors and software for the FAA Terminal Doppler Weather Radar (TDWR) network, operating at major airports in the USA. The deliveries will take place in 2009.
Vaisala will provide the Russian Federal Service for Hydrometeorology and Environmental Monitoring (Roshydromet) with state-of-the-art surface weather monitoring technology. The value of the contract is EUR 4.7 million, and deliveries started in 2008.
The value of orders received was EUR 109.3 million and the order book stood at EUR 41.7 million at the end of the financial year.
Vaisala Instruments
Vaisala Instruments consists of humidity, barometric pressure, carbon dioxide, dewpoint, oxygen, wind and optical measurement business segments.
The instruments business has developed well despite of the weakened US dollar. The business area’s net sales to customers outside the Group increased by 8.8 percent to EUR 72.0 (66.2) million compared to the review period. In comparable currencies, the increase in net sales would have been 11.7 percent. Operating profit of the review period was EUR 24.3 (20.5) million.
The growth in the Instruments business came particularly from weather instruments and from sales to important industrial customers.
The value of orders received from external customers was EUR 71.5 million and the order book stood at EUR 7.8 million at the end of the financial year.
Vaisala Solutions
The focus of this business area is in comprehensive weather observation solutions within aviation, traffic, meteorology and hydrology. Therefore single products and systems were transferred to the Vaisala Measurement Systems business area. Additionally, road weather services were moved to the Vaisala Services business area.
Vaisala Solutions' net sales to customers outside the Group showed a year-on-year increase of 24.4 percent, growing to EUR 43.1 (34.6) million. In comparable currencies, the net sales would have been up by 27.3 percent. Operating profit for the year was EUR -0.5 (-0.6) million. Vaisala Solutions has purchased products worth approximately EUR 10 million from Vaisala Instruments and Vaisala Measurement Systems, which shows in the results of these units.
Growth was especially favorable in the aviation and road weather businesses. In terms of meteorological and hydrological systems (MHS), several projects are ongoing with revenue in the books later.
The total value of orders received was EUR 41.8 million and the order book stood at EUR 27.9 million at the end of the financial year.
Vaisala Services
Vaisala's services have been centralized under the Vaisala Services business area, which became operative at the beginning of 2008. Vaisala Services consists of two business segments, Product Services and Observation Services.
Net sales to customers outside the Group showed a year-on-year decrease of 16.8 percent year, to EUR 27.5 (33.0) million. In comparable currencies, the net sales would have been down by 11.0 percent. Operating profit for the year was EUR -0.2 (5.7) million.
Vaisala Services is a new business area and in a strong development phase. Competition in both observation and product services tightened during the year. Additionally the business area's global development initiatives for improving efficiency and enable growth increased the amount of fixed costs. These, together with the weakening of exchange rates, had a negative impact on the net sales and profitability of the services business. Over 70% of the net sales of Vaisala Services are in US dollars or British pounds.
The total value of orders received was EUR 25.3 million and the order book stood at EUR 12.9 million at the end of the financial year.
Personnel
The average number of people employed in the Vaisala Group during the financial year was 1,177 (1,113 in 2007; 1,069 in 2006). Some 39 percent of the personnel was based outside Finland (39% in 2007, 40% in 2006). About 20 percent of the personnel worked in research and development (21% in 2007, 19% in 2006).
Salaries paid by the company are based on local collective and individual agreements, individual performance and the demand level of each job. The base salaries are supplemented by results-based bonus systems, which cover all Vaisala personnel. The total sum of salaries and bonuses paid in 2008 was EUR 59.7 million (57.2 million in 2007, 57.3 million in 2006).
Vaisala has two incentive plans; one based on the development of sales and profitability and covering all employees, and the other, three-year plan, based on the development of profitability and covering key personnel.
Changes in Vaisala Corporation’s management
Martti Husu was appointed Executive Vice President of the Meteorology Business Area and a member of the Business Management Group starting January 1, 2009. Jouni Rantanen was appointed Executive Vice President of the Products and Technology unit and a member of the Business Management Group starting January 1, 2009. Kimmo Korpela was appointed Senior Vice President, Group Business Development and a member of the Strategic Management Group starting January 7, 2009.
Matti Ervasti, Director, Marketing and Sales and Tapio Engström, Director, Business Development resigned from Vaisala.
Risk management
See Risk management page.
Vaisala’s shares
As at the end of 2008, the company’s Board of Directors had no valid authorizations for increasing the share capital, granting special rights, or issuing stock option rights.
On December 31, 2007, the average price of Vaisala’s A share in the OMX Nordic Exchange Helsinki was EUR 35.60, and on December 31, 2008 the share price was EUR 22.11. The highest quotation during the financial year was EUR 36.49 and the lowest EUR 19.50.
A total of 2,277,884 (5,595,292) Vaisala shares were traded in the stock exchange during the financial year.
Vaisala has 18,218,364 shares, of which 3,405,584 are series K shares and 14,812,780 are series A shares. The shares have a counter book value of EUR 0.42. The K shares and A shares are differentiated by the fact that each K shares entitles its owner to 20 votes at a General Meeting of Shareholders while each A share entitles its owner to 1 vote. The A shares represent 81.3 percent of the total number of shares and 17.9 percent of the total votes. The K shares represent 18.7 percent of the total number of shares and 82.1 percent of the total votes.
The market value of Vaisala’s A shares on 31.12.2008 was EUR 327.3 million, excluding the Company’s own shares. Valuing the K shares – which are not traded on the stock market – at the rate of the A share’s closing price on the final day of the financial year, the total year-end market value of all the A and K shares together was EUR 402.6 million, excluding the company’s own shares.
Vaisala’s main shareholders are listed on the company’s website and in the Notes to the Financial Statements.
The shares give equal rights to dividends. According to the company's Articles of Association, the maximum number of shares is 68,490,017 and Vaisala’s maximum share capital is EUR 28.8 million. All issued shares have been fully paid for. The shares have no consent or redemption clauses attached to them.
According to the Articles of Association, a K share can be converted into an A share in the manner specified in the Articles.
The number of shares held and controlled by Vaisala Corporation's Board of Directors on 31 December 2008 was 1,353,425, accounting for 15.6 percent of the total votes (2007: 1,394,601 shares and 16.6 percent of the total votes). The company's President and CEO did not own shares or options on December 31, 2007.
Conversion of unlisted shares series K into series A
Vaisala Corporations's 500 unlisted shares (series K) were converted into listed shares (series A). The conversion was registered in the Finnish Trade Register on June 25, 2008. Listing of the new series A shares was applied for as of June 26, 2008.
Vaisala Corporations's 500 unlisted shares (series K) were converted into listed shares (series A). The conversion was registered in the Finnish Trade Register on September 3, 2008. Listing of the new series A shares was applied for as of September 4, 2008.
Vaisala Corporations's 801 unlisted shares (series K) were converted into listed shares (series A). The conversion was registered in the Finnish Trade Register on December 12, 2008. Listing of the new series A shares was applied for as of December 15, 2008.
Treasury shares and parent company shares
At the end of the financial year, the Company held a total of 9,150 Vaisala A shares, which represented 0.05 percent of the share capital and 0.01 percent of the votes. The consideration paid for these shares was EUR 251,898.31.
Board of Directors
Members of the Board
In accordance with Vaisala Corporation’s Articles of Association, the company’s Board of Directors comprises at least three (3) and at most six (6) members. According to current practice, the Board comprises six members. All Board members are appointed by a General Meeting of Shareholders. The Board elects a Chairman and a Vice Chairman from among its members.
Term of office of members of the Board
In deviation from recommendation no. 10 of the Finnish Corporate Governance Code, the term of office of members of the Board is not one year. Instead, the term of office is 3 years, as stipulated in the Articles of Association. The term of office begins after the General Meeting of Shareholders at which the member is elected, and ends at the close of the third Annual General Meeting that follows the member’s election.
Independence of the Board members
Evaluated against the criteria given in Recommendation 15, all six members of the Board of Directors are independent of the company. Evaluated against the criteria given in Recommendation 15, Yrjö Neuvo, Stig Gustavson, Mikko Niinivaara and Maija Torkko are independent of both the company and the shareholders. Evaluated against the criteria given in Recommendation 15 Raimo Voipio and Mikko Voipio are dependent of significant shareholders. The current composition of the Board of Directors fulfills the independence requirements stated in the Recommendation 14.
President and CEO
Vaisala’s President and CEO is appointed by the Board. The President and CEO manages the company in accordance with the instructions and orders given by the Board, and informs the Board of the development of the company’s business and financial situation. The President and CEO is also responsible for arranging the company’s management.
Events relating to the permanent group of insiders
No loans were granted to any of the persons belonging to the permanent group of insiders, and no contingent liabilities were made on their behalf.
Group structure
The company has regional offices in India, Canada, China, Malaysia and the United Arab Emirates. The addresses and contact details of the regional offices are available on Vaisala’s website.
Environment
Vaisala entered a voluntary energy efficiency agreement of the Federation of Finnish Technology Industries as a signatory. The agreement aims at improving energy efficiency, generating cost savings, and countering climate change. An energy consumption analysis of the production facilities was carried out. This provides a basis for the allocation of energy efficiency investments and cost saving measures.
Vaisala announced that it will start a construction project to build more modern office space for approximately 200 employees. In line with the energy efficiency agreement, the new building will be more energy efficient and ecologically advanced. The project will start in the second quarter of 2009 and the new building is estimated to be in place by the end of 2010. The investment is expected to improve energy efficiency by 15 percent compared to the old facilities.
Vaisala initiated Corporate Responsibility reporting processes in 2008. The reporting is based on Global Reporting Initiative Guidelines (GRI G3). Vaisala also became signatory of UN Global Compact, an initiative endorsing human and labor rights, protection of the environment, and anti-corruption. Vaisala is committed to applying these values in practice and has embedded them in its Code of Conduct.
The first GRI-based Corporate Responsibility report will be published in March 2009.
Active involvement in the scientific community
Vaisala is involved in active discussion with different stakeholders, promoting advancement in science, particularly the development of environmental measurement. Vaisala collaborates in several projects with leading research institutes in the field, such as NOAA (the National Oceanic and Atmospheric Administration, USA), Colorado State University, VTT (Technical Research Centre of Finland) and the Helsinki University of Technology, Finland.
Vaisala’s representatives participate in the Board of the Federation of Finnish Technology Industries and in its various committees, such as the Environmental Committee. Vaisala also closely collaborates with a number of meteorological authorities around the world and takes part in the activity of the UN World Meteorological Organization (WMO). During the year, Vaisala granted research scholarships to universities, students and researchers in both the United States and Finland. Vaisala is a partner of Cleen Oy, a strategic competence cluster for energy and environmental competencies, established in 2008.
Proposals to the Annual General Meeting
The Board of Directors’ proposal for the distribution of profit
According to the financial statements for the year to December 31, 2008, the parent company's distributable funds amount to EUR 140,308,928.32, of which the profit for the financial year is EUR 24,794,249.46.
The Board proposes to the Annual General Meeting that the distributable funds be used as follows:
|
- A dividend of EUR 0.90 per share be paid, totaling |
EUR 16,388,292.60 |
No material changes have occurred in the company’s financial situation since the end of the financial year. The company’s liquidity remains good and, in the view of the Board, is not threatened by the proposed profit distribution.
The record date for dividend payment has been set at March 31, 2009, and it is proposed that the dividend be paid on April 7, 2009.
The terms of office of Board members Stig Gustavson and Mikko Voipio will end at the Annual General Meeting. Shareholders representing more than 10 percent of all the votes in the company have announced their intention to propose to Vaisala’s Annual General Meeting, to be held on March 26, 2008, that the number of Board members will be six. The Board proposes that Stig Gustavson and Mikko Voipio be re-elected.
The Board proposes that PricewaterhouseCoopers Oy, Authorized Public Accountants, and Hannu Pellinen, APA, be re-elected as Vaisala’s auditor.
The proposed persons and auditor have given their consent to their re-election.
Events after the financial year
Vaisala's US subsidiary Vaisala Inc. acquired Aviation Systems Maintenance, Inc (ASMI), a Kansas, U.S. based airport service company. The acquisition closed on January 1, 2009, and the value of the deal was 3.2 million USD.
Vantaa, Finland February 12, 2009
Vaisala Corporation
Board of Directors
