Harvia Oyj

Hello everyone and welcome to Harvia's fourth quarter 24 earnings webcast. My name is Mattias Järenfelt. I am the CEO of Harvia and with me I have Ari Vesterinen, our chief financial officer. Hello. Today we will cover first the highlights of the quarter four in terms of business performance and financial performance. And I will also give you an update on our strategy implementation. After my part, Ari will be covering the financial numbers in more detail. After this introduction, we would be more than happy to answer any of your questions. And as usual, you can submit your questions via the chat box in this webcast. So let's first summarize the quarter four and also year 2024. In terms of the last quarter, we delivered strong growth. And in fact, it was our all-time high quarter in terms of top line. Revenue increased by 29% and amounted to 51 million euros. Organic revenue growth was 21%. In terms of geographies, we delivered very strong growth in North America and Asia Pacific and Middle East. And in Europe, we did grow, but the growth was on a modest level. Fueled by the overall strong growth of the group, we grew across all product groups. In particular, we had very high growth percentages in steam product category as we had acquired Thermosol, a US-based steam company, in the summer of 24. In terms of cash flow and profitability, cash flow was strong, and profitability during the quarter was somewhat below our long-term target level of 20%. Adjusted operating profit this quarter was 8.7 million euros, and that's 17.1% of revenue. The profitability margin was impacted by a few factors. Very importantly, a higher share of lower margin campaign sales in the United States. And I will be coming back to this point when I cover United States or North America more in detail as I go through the regions. We also had partially one-off sales and marketing actions, as well as we have been keeping investing in building Harvia for the future through strengthening our R&D and commercial organizations. Cash conversion was at excellent level at 140%, and that was driven especially by favorable development in accounts receivables and accounts payables. If we sum up then year 24, it is a strong year for Harvia. The group achieved all of the updated long-term financial targets during the year. We delivered double-digit growth, both total growth and also organic growth, strong profitability, and we have a very solid balance sheet. We also worked to sharpen our strategy and the North Star for Harvia's coming years. We launched our updated strategy in our first ever Capital Markets Day in May, and the execution of the new strategy has started very well. We also strengthened our portfolio by acquiring Thermasol that helps us strengthen our position in STEAM, digital solutions for sauna and spa, and strengthens our position in the United States. We have also been launching exciting new products and the innovation pipeline looks strong. So all in all, Harvia is very well positioned for future success as we continue to implement our market leadership strategy. So quarter four, 24 key figures. Revenue, 51 million euros. That's a bit over 11 million euros more than quarter four last year. That's 29% growth. And in comparable exchange rates, that's 28% growth. Organic revenue growth was around 22%. Adjusted operating profit for the quarter was 8.7 million euros. That's down around 9% from the year before. The relative profitability or operating profit margin was at 17% during the quarter. Operating free cash flow was 15 million euros, and that's an excellent cash conversion of 140%. Full-year key figures are here. Revenue, 175 million euros, and that's growth of 16.4% from last year. At comparable exchange rates, we grew by 16.2%, and organic revenue growth was around 13%. Adjusted operating profit for the full year was 37.1 million euros, and that's a growth of 10% from the year before. The full year adjusted operating profit margin was 21%. Operating free cash flow for the year was 35 million euros, and that's a very healthy around 80% cash flow for the full year. The regional overview for quarter four is here. And as you can see in the figures, we grew very fast outside Europe, while European growth was much more modest. North America grew over 60%, and APEC and Middle East grew by over 90%. Northern Europe and continental Europe grew by single digits. I will then go through each of the regions a bit more in detail, starting with Northern Europe. So Northern Europe covers Finland, Scandinavian countries and the Baltic countries. And in the quarter four, it represented 21% of our group revenue. And revenue increased by 4% to around 11 million euros. It was a bit mixed in terms of market conditions. Market in Finland has been continuing to be weak due to weak construction and property market. But we have seen improvement in our momentum in Baltic countries and Scandinavia. And in Scandinavia, particularly in Sweden, we have been successfully strengthening our distribution during the year. Continental Europe has seen a gradual recovery now for over a year. And the share of revenue in terms of total group revenue is 29%. The revenue grew by 6.6% to around 50 million euros. And as this gradual sales recovery continued, we've observed that in particular, we have been performing strong in the high price point categories and with our high-end brand EOS that is based in Germany. Then very interesting regions, so North America. North America now represents 40% of Harvia's group revenue, and revenue grew by over 60% to around 20 million euros in quarter four. Organic revenue growth of the region was around 30%, so the 60% growth is pretty much 50-50 split between inorganic growth coming from Thermasol and organic growth delivered by the rest of the organization. And overall, the market conditions remained strong and there was strong demand for our products. And this was also visible in a very high volume performance of our key high season campaigns, such as Black Friday. And now we need to put American market in the strategic context for Harvia. It is already the largest market region for us today. In addition to that, we see massive growth potential for many, many years to come for Harvia in this region. And thus, we deem it very important that we strive for market leadership and significant growth and also market share gains in this region. Now, important part of success in Northern American market is participation in the key sort of consumer sales season throughout the year. And maybe the most important of them is the Black Friday, Cyber Monday campaigns. Now, these campaigns are agreed with retail partners many months in advance where we agree on the product portfolio, pricing and other key commercial terms. Now, what happened to us during the quarter four this year is that actually key material prices, which is wood in our case, as a large portion of our sales is sauna cabins and kind of do-it-yourself sauna kits, kind of wood price, as you can see from the public sources, grew quite significantly throughout the second half. And that impacted somewhat the margins, and there was a bit of a deviation from what we had planned originally. And then the other thing is that we were super successful in terms of actually getting orders in. So sales volumes during these campaigns were very high. And these two things in combination resulted into a situation where we had a higher portion of lower gross margin sales in Harvia's group sales in this quarter than we would normally see. At the same time, we take this as a very positive sign of continued high interest to sauna and spa and the kind of wellness and sort of enjoyable experiences that we can provide to American consumers through our portfolio. APEC and Middle East also grew fast, now representing 10% of our total revenue. And when you look at the bars here on the left-hand side chart, you can see that we are nearly at the same levels as during the peak season during the COVID times in 2021. And during 2021, big portion of the sales was sales in Russia, which we decided to exit during the financial year 22. And we are very happy to see that in a relatively short period of time, we've been able to bridge the gap that the exiting Russian market left to us through fast growth in key markets in Asia, which is countries like Japan, China, Australia, and also project business in the Middle East region. So here is then the full year picture of the regions. Essentially, Northern Europe declined by around 5%, continental Europe up by around 5%, so Europe as a whole flat, North America growing over 40%, and APEC Middle East and Africa growing over 50%. Then I will briefly take you through our business performance by sauna type and product category. So essentially Harvia wants to be the global leader for all sauna types, which is the traditional sauna, infrared sauna and steam. And also we're keenly looking at other temperature related wellness products, such as our cold bathing products. Where we are today, heating equipment represented a bit over 50% of our total business. Saunas and Scandinavian hot tubs was around 30%. And of this part, significant majority is the sauna cabins and sauna do-it-yourself kits. Steam product category grew from three percentage points to nine percentage points of our total sales, fueled by our acquisition of Thermosol. And it has been consolidated as part of Harvia Group financials since August last year. Accessories and heater stones represented seven percent and spare parts and services six percent of our total sales. And when we look at the growth across product categories, we can see that percentage-wise, clearly fastest growth was in steam products, which grew nearly 300% fueled by thermosol. But we see also a very healthy, nice double-legged growth across the other key product categories as well. The full year picture is here, heating equipment growing by around 15%, saunas and Scandinavian hot tubs growing around 9%, where sauna kits have been performing better than the hot tub part of it. Steam products growing by over 100%, accessories and heaterstone business by around 40%, and spare parts and services flat around. So then let's briefly cover Harvia's strategic role that we see for ourselves in this very exciting market that is supported by strong growth drivers. We strive to be the company that shapes this very interesting global sauna market so that everyone has a reason to experience sauna and hence also this, you know, we fuel the growth of the whole market as the market leader. So we have four strategic focus areas. First is related to what we offer, and that's about delivering the full sauna experience to the market. Where do we focus on? We focus on winning in strategically most important markets like the United States, like the big markets in Europe, Germany, United Kingdom, Spain, France, etc. And also in Asia, China, Japan and Australia. to whom relates to our channel strategy, where, for example, direct-to-consumer plays an important role in many regions, and how relates to kind of the solid platform that we want to have to keep scaling up this business in a profitable manner. So that's best-in-class operations and great people. We've taken systematic steps in executing this new strategy, and these are steps that we've taken during quarter four. Delivering full sauna experience, which relates to offering products across the sauna types, traditional on steam, infrared, and also about design innovation, digital innovation. We've taken steps to strengthen our position in the traditional sauna category, both in equipment business and sauna cabin business. We acquired Thermosol during the summer, and we have successfully been leveraging that to strengthen our position in steam. Also, we have been strengthening our innovation and differentiation, and I will cover that in the next slide. We also have been definitely winning in the key markets where we need to win. North America growing very strong, as we discussed, and it is already our largest sales region, and we see plenty of future potential there for many, many years to come. APAC in Middle East and Africa, very strong growth throughout the year, and it's now representing 10% of Harvias Group sales. And in continental Europe, despite the tough macroeconomic situation in many of our key markets like Germany, we've been able to drive growth, and we've been especially leveraging our premium and professional brand EOS there. And in Northern Europe, the market as well has been challenging, especially in Finland, and we have had also some headwind in other countries, but we've done excellent work in expanding and strengthening our distribution network, in particular in Scandinavia. Leading the key channels, our progress is strong across the channels, and the progress is particularly strong in our direct-to-consumer online business in North America, which we are very happy about. And essentially, we've been working a lot on our so-called right product to right channel strategy so that we have exactly right products that help us maximize the chances for growth and profitable growth across channels and also provide the right business incentive and profit opportunity for our channel partners. We've also been working to strengthen the foundations of our business. So we continually are upgrading and kind of doing maintenance investments in several of our locations. We are also increasing the level of integration across a group to drive more synergies and leverage best practices across our business. And we have also been working a lot to integrate Thermosol in the most successful way into our group. And that work is progressing according to the plan. We also made a key nomination announcement during the quarter, which is that Ivan Sabato will be starting as the head of Continental Europe and member of the group management team starting 1st of April in his role. And then a bit of a glimpse of some of the innovation that we've launched during the latter part of last year. So first wood burning version of a cylinder heater. This is very important for us because cylinder heater family is very, very successful. It's a product where the form factor really excites the market. And so far it has been only available in electric heater versions. And for the first time, it's now available also as a wood-burning version, and the demand that we see for this product is very solid. Another one relates to market leadership and innovation leadership and making a statement. So we launched a sauna cabin called Kirami Tile, which is the world's first fully solar-powered outdoor electric sauna. And this means that you can have the convenience of electric sauna really anywhere, regardless of whether you have the electric grid or not. And of course, it's a statement of our commitment to sustainability. Harvia Phoenix is a full touch control panel for our mid price points volume range. And this is following on a very successful Harvia Xenio product family. And we also have been working on to make sure that there's backwards compatibility so that customers who currently have a Harvia Xenio control panel actually can very easily upgrade to this more exciting full touch version of the control unit. And then on the right hand side, you can see one of the examples of our ongoing work to excite the market in the United States. So that's Blackwater Cube Sauna by Almost Heaven Saunas. So with that, I will hand over to Ari, who will be covering the numbers in more detail.

Okay. Here we see first the comparison of the different quarters. And actually, the quarter four in 24 was the highest sales quarter ever. But there were certainly some cost effects in that quarter too, which reduced its adjusted EBIT level to 17%. And those extra... reasons were, first of all, we had quite a concentration of trade shows in Q4. In three, four years, we haven't had so many international trade shows in the fall as we now had. We had altogether in H2 four international trade shows, and three of them were in the costs of Q4. And we had also other marketing initiatives during Q4 and that reduced also the relative profitability. But of course, we will reap the benefits of these marketing investments in the future too. Mattias mentioned there were also some reasons in the sales mix and campaign products and small reasons also in the US lumber price increases, which are not so substantial, but they affected also this profitability of the quarter. I see already a lot of questions about the EBIT levels and the reasons behind them. I have to say that the marketing expenses in Q4, they were at least 1.2 million higher than in the earlier quarters in that year. So we invested heavily in marketing during that quarter. And since those expenses can't be capitalized, we will reap really the advantage of that in future. Here we see again the comparison of the P&L figures and some other key performance indicators. I have to say that the full year figures for 2024, they have already been audited. So they are audited figures. We don't audit, no company actually does it separately, the quarters, but the full year is now done through the audit. And it has been discussed also with the board of directors. But here, You see on the two left columns, Q4, and the increase of the sales that was really heavy. And as Mattias already mentioned, over 21% was organic. And in the whole year, actually, the organic part of the sales increase was almost 13%. So we have been actually ahead of our financial targets in that respect for the whole year. The same happened also with adjusted operating profit for the whole year, 21.2%, having the extraordinary Q4 there, and it's about 1% less than a year ago. The operating free cash flow, we were able to turn it really back into very positive during Q4 since we were able to reduce the inventories, collect the money from customers and increase also the trade payables. So we turned to the, let's say, normal Harvia levels, the operative free cash flow. Harvia is very strong in cash generation traditionally, but there are changes, fluctuations between the quarters. The leverage went slightly down compared to end of Q4. And networking capital was about 9 million higher than a year ago, even if we had a strong cash conversion. And I remind you that Q4 and Q1 are usually internationally, especially the strongest sauna sales companies. So we have still munition on our inventory to serve also Q1 well. And we got about 90 new colleagues in our group in 24 compared to the end of 23. But as you notice, the increase of the headcount is far lower than the increase in the net sales and production output. So we are taking care of the effectiveness of the production and all the functions all the time, even if we have been also now investing in more, let's say, higher quality people in sales and marketing and R&D. Here we see the excellent free cash flow and cash conversion development. The pattern is actually quite similar to last year, but now the Q3 was lower this year than last year, and then the bounce back until the end of the year was even stronger. So we had a very strong cash conversion for the whole year. The net debt went down during Q4 slightly. It went up in Q3 because of the Thermosol acquisition. And as we go on, if we don't make any acquisition and so forth, the net debt will go down further during the quarters to come. We had end of 24, about 46 million euros on our accounts. That's 6 million more than a year ago. So Harvia is a cash flow strong and cash rich company. It was already discussed that the thermosol increased the net financial items and of course the interest burden, but we had also some good decisions made in exchange rate gains. We have had some deposits in in US dollars not converted to euros, we've been able to catch some exchange rate gains there, and we have been more active in demanding interest income from our banks for the deposits we have the money. We have had several investments during the year, mainly in production facilities in Finland, central Finland, Muurame, Sastamala, that's the place where the kirami products are produced, and in Germany. We will have additional production facility investments during the couple of next years to come. And for that, we already acquired space around our Louisburg sauna factory, about eight hectares. So we will invest in production there also in future. The Harvia's long-term financial targets, they were updated in the Capital Markets Day in last May. Now in the target, we have the growth rate, annual average growth rate of 10%. profitability over 20% adjusted operating profit and net debt divided by adjusted EBITDA, so-called leverage, under 2.5. We reached those figures nicely for the whole year 24, but Q4, as explained earlier, was a bit lower in profitability. We usually don't publish a short-term outlook. The simple reason is that our order stock is always quite short and we also have fluctuations in campaign and so forth. So that has been our practice in the past years and we continue with that practice. Harvia is paying regularly increasing dividend twice a year. So that's our dividend policy. If we look back a little at the years, what we have experienced after the IPO in 2018, here you see in this picture how it has developed. We had really the peak year of 21 during the COVID years and total growth was was 64% and organic growth 43% during that time. It was a very, very special situation. And I haven't, for instance, I've been in this business quite a long time. I haven't experienced such a peak in the industry demand earlier. Then we went down a couple of years, and now in 24, we are almost on the same level as in the COVID time peak. The profitability is now on a lower level, but it's partly because we invest in future growth, develop the business models and new products. The average growth rate over the time has been 19%, so we've been quite nicely over the long-term targets during the whole time. And the acquisitions, of course, they bring part of the growth, but the organic growth has been also over 10%. The shareholder structure during 24 changed quite a bit. Actually, we got a lot of new international shareholders. The share of the international shareholders went up over 5% units from 44 to 49, 9%. So about half of our shareholding is now outside of Finland. And at the same time, the Finnish households, they reduced their shareholding in Harvia. Finnish institutions and corporations, they increased. So because of the decrease in the household shareholding, the number of shareholders went down. During 24, we had about 20... 31,700 shareholders in our lists at the end of 24. Dividend proposal has also been discussed also by the Harvia's board of directors. And Harvia board of directors propose to the annual general meeting, which will be held, by the way, April 8th in Helsinki. The dividend for the last year of 75 euro cents, about 14 million in total. And that is planned to be paid in two installments, one in April after the AGM and a second one in October. And I just would like to remind you that the company Harvia is actually turning to 70 years old in 25. So the 70 years old company is now paying 75 euro cents of tax. dividends and there will be a lot of happenings and activities related to this three quarters of age for a family-owned company and during the year and we express our gratitude really to our employees and loyal shareholders and want to continue with you also multiple years to come. So now it's time for questions and answers. I have here in my my tablet a lot of questions and probably Matias will answer most of them, but I will add probably something also. So let's start from the oldest part. By the way, the word EBIT is now visible quite many times here in these questions, so it's understandable. Can you quantify how big the effect on EBIT was from growth initiatives this quarter and how big from campaigns?

Well, there's some things that you can actually find out when you analyze the numbers in our financial statements. So, for example, one of the things that you can look at is the development of material costs as percentage of our sales. And if we take an example from a quarter four year before, so quarter four twenty three, our so-called materials margin was around 63.5 percent, whereas now it was just a tiny bit below 50 percent. And essentially that's a 3.8 percentage points impact. So if you would take like a simulation where you would calculate what's the difference, if we would have maintained the same level of sort of materials cost to sales as we did a year before. So that's around basically 3.8%. As Ari mentioned, we had also quite significant investments in marketing, and that's more than one percentage point. So practically, you could potentially, if you do a simulation, take a bit of a working assumption that the combined effect of the campaigns plus the enhanced activities in marketing As we have very exciting innovation that we launched and really want to share that with the key trade partners was in total around five percentage points.