Harvia Oyj

Hello, everyone, and welcome to Harvia's first quarter 2025 earnings webcast. My name is Mattias Järenfelt. I'm the CEO of Harvia. And with me, I have Ari Vesterinen, our chief financial officer. Hello. As usual, we have this flow for the session today. I will start by covering the highlights of the quarter one in terms of business results and also key activities. I will also shed light on the recent developments and progress in terms of strategy implementation. After that, Ari will cover the financial performance more in detail. After that, we're again welcoming questions that you can submit via the chat box in this webcast. So let's summarize the quarter one first, starting with the top line. Revenue was 52 million euros, and that's up 22.7% from last year. Organic growth was at 14%. We were pleased to see that all of the regions contributed positively to the growth, but clearly North America had a dominant role in driving growth for Harvia Group. With these strong topline results, we also saw broad-based growth across product groups, except spare parts and services, but all the main product categories contributed very nicely to this growth. Steam products is a real standout there with strong triple digit growth, and that's because of the boost from our Thermosol acquisition that we completed in the summer of 24. Then let's move to profitability and cash flow. Adjusted operating profit was 11.9 million euros, and that's 22.9% of our revenue. And this was a result of strong operational performance across regions and functions such as supply chain operations, manufacturing, logistics, and very much also related to our pricing management. In particular in North America, which continued to grow very strongly, we had a smaller share of campaign driven sales during quarter one this year versus the end of last year. And that did contribute positively to our gross margin and overall profitability of the group. Also, we saw very positive development in driving thermosol integration and driving growth and profitability with that acquisition, and that was also contributing positively to our performance. Gas conversion was solid at 73.7%. Of course, we all know that the beginning of the year has been marked by quite a lot of volatility and uncertainty in the global market conditions, such as trade policies and changes in, for example, consumer confidence in certain key countries. However, we are very glad to report that that didn't have a real impact in the global sauna market and our performance during the beginning of this year. Of course, it's true that in an environment that changes fast and is quite volatile, that might pose occasional challenges. But on the other hand, Harvia, we feel that we are very well positioned to handle essentially anything that is thrown at us. And we have a good ability to react to changes, for example, in the tariff environment. All in all, long-term sauna market outlook remains very strong. It's supported by strong long-term trends, and we are well-placed to drive growth, both organic and inorganic, in the coming years. Here are the quarter one 25 key figures. So revenue 52 million euros. That's up almost 10 million euros compared to our figures from last year and essentially 22.7% growth. Organic revenue growth 14% as mentioned and growth at comparable exchange rate was 21%. Adjusted operating profit grew to nearly 12 million euros, and that was 22.9% of our revenue. And adjusted operating profit growth compared to quarter one last year was 18%. Very solid operating free cash flow at 10 million euros, and that's cash conversion of 74%. When we look at the geographical split where the revenue growth came from, this, of course, picture is very pleasing in a sense that there is positive contributions from each of the regions. But it's also very clear that during the quarter one, the clear standout was North America, which grew by nearly 60%. And if you look at the growth euros that we can see in this figure, 80% of the growth euros came from North America. Northern Europe, continental Europe saw modest growth. APEC and Middle Eastern Africa saw double-digit growth, but still on a bit more modest level than we saw generally during last year. And I will be commenting that in a moment. So Northern Europe first. Slight growth achieved despite subdued market conditions. 23% share of Harvia's global revenues and a revenue increase of 1.6% to around 12 million euros. The market conditions and our performance was a bit mixed across countries. The largest country for us is Finland, and in particular in Finland, the market continued to remain challenging, essentially due to weakness in the construction and property market. On the other hand, we saw positive development in Scandinavia and Baltic countries, and we launched here a cylindrical wood-burning heater, which we can see here in this picture, and actually saw particularly good figures in our wood-burning heater product category in North Europe. Continental Europe continued to deliver a gradual positive development. When we look at the chart on the left hand side, we can see that the growth momentum since the kind of market change, since the end of the pandemic and start of the war in Ukraine and steep decline in 23, we are now in our second year of growth. The growth obviously is rather modest, but still this recovery progresses. On the other hand, we can see that if we look at the kind of long-term figures and trends in continental Europe, that we are clearly below the market potential and essentially from our point of view, both North Europe and continental Europe are regions that provide growth opportunities for us in the coming years. North America clearly stands out, as mentioned. It has already experienced very strong growth for many, many years, actually since 2014. Every year we have been delivering very strong double-edged scrolls. And again, we did it this time at around 60% level. And now North America represents 42% of our global revenues, and it's clearly the biggest market region for us. A bit of a change in the dynamics for us from quarter four to this quarter. We had a very strong growth also end of last year, but there we had quite significant impact from campaigns during the Black Friday and Cyber Mondays. This quarter, it was really driven majority of basic, basically normal day to day sales. We also executed certain pricing changes to reflect changes in the material cost and cost of doing business in the US. And that also impacted positively our margin here. Thermosol integration progressed really well, as mentioned earlier. And then Asia-Pacific and Middle Eastern Africa continue to grow. We grow on average last year around 50 percent. The beginning of the year now has been a bit more modest at around 14 percent. But it's also the smallest geographical region for us, which is also prone to large project deliveries. For example, when we look at the Middle East and sub-region, we have quite a lot of project business in that region. On one hand, it contributed to really strong growth, over 90% growth in quarter four end of last year, but then again, a little bit slower growth during this quarter. Our efforts continue to build systematic growth platforms in a number of key countries in this region, including Japan, China and Australia. Then let's look at the products. And as you know, Harvea is the global leader in providing products and solutions for the sauna market, including all product and sauna categories, traditional sauna, infrared and steam. And in terms of product categories, still heating equipment continues to be the largest product group representing a bit over half of our global revenues. Steam products grew significantly from low levels of 2% prior to thermosol acquisition to nearly 10%. And the other figures you can see here on the chart. We delivered growth very broadly across the portfolio, heating equipment growing by around 16%, saunas and Scandinavian hot tubs growing also at around 16%, steam products clear standout due to a thermosol acquisition at over 300% growth compared to year before, accessories and heater stoves growing at 17% and slight decline in the the smaller spare parts and services category. But all in all, a very, very solid picture that we are extremely pleased with. Now let's talk a bit about our strategy. Harvey is operating in a really interesting market that is supported by strong long-term growth trends like health and wellness, increasing awareness and people wanting to spend money on a good life. And we have a great opportunity to drive our leadership strategy where we shape the market and continue to lead the market. We do that by our four strategic focus areas that answer to questions what, where, to whom and how. So what reflects to our portfolio, where reflects geographical focus, where we place our biggest bets and focus, to whom reflects to our challenge strategy and marketing and how to our operational capability and people. We did execute our strategy systematically also during this quarter in terms of portfolio, strong performance in our traditional stronghold of Nordic and traditional saunas across equipment and also the solution side of the business, and that means sauna cabins and sauna kits. STEAM, very, very strong performance with our Thermosol acquisition, also strong performance in the premium price points in the US supported with Thermosol and also strong performance by our high end brand in Europe called EOS. We also have been working now already some time on strengthening our innovation pipeline, and I will be talking about our new product launches in the next slide, but they are already delivering positive impact to our top line, and that's very good to see. In terms of our geographical progress, North America obviously is a pivotal market for us. And we are very pleased to see that our systematic efforts to build the business there across price points, across product categories, across sales channels is paying off. And we saw really strong performance there, as you can see from the figures. APEC and Middle Eastern Africa, they're also very systematic working in the biggest markets that can have the biggest opportunities for the long term. China, Japan, Australia, the work progress is very well there as well. In Europe, we're working to change the trends. Now, a couple of years, the market has been quite subdued. We consider that Europe is turning more into an opportunity for us over time. And we want to make sure that when that happens, we are best positioned to capture the growth opportunities as they emerge. In terms of leading in the key channels and branding, again, strong steps forward there. When we look at our channel split, we can see, again, nice broad-based progress in our main channels in the main countries. We have been working with our new Thermosol team on the product side and also branding side. And Thermosol has now recently launched a new brand identity with visual side of the brand also. refreshed and the response from the market and our key customers is really solid there. We also have been working to update a very important part of our channel portfolio, which is our own direct-to-consumer channels in the United States. So we have recently updated the almostheaven.com website, which is the main channel for us to sell our entry-level sauna kits under the Almost Heaven sauna brand. In terms of supporting our excellence in operations and competence development, we've been also taking the company forward. There's been a number of investment across our production units, including layout improvements, new machinery, et cetera. We are also working to simplify and modernize our group IT and to allow for new business models for us in the future and as well to support our continued growth globally. Thermosol integration has also been one of the key topics on our operations side, and integration has progressed really well, and in fact even somewhat ahead of our plans. And I'm very pleased to say that our Harvia US Northern American team and Thermosol team are really working very well together. It's almost like a seamless one team already now, less than one year after the acquisition. I said that I would be briefly covering some of the novelties and here are a selection of them. On the left hand side, you can see a wood burning version of the Cylindro heater. This has been a very important launch from a short term business perspective for us because Cylindro is one of our top selling heater product lines, but it was never available in a wood burning version. And for the first time it is now available and the response in the market has been really good and that has been contributing already now very nicely to our performance. The next example is the world's first solar power electric sauna. So this is a really nice example of market leader rethinking and driving sustainability forward. It's essentially a sauna with very intelligent structure that is very lightweight, absorbs only very little heat when the sauna is being heated up. It's well insulated. And because of that, you can run it very well with a more low powered sauna heater, which can then be driven by solar power. And that's really exciting novelty that we've introduced. Now, in our mid-range of control panels, we have introduced Harvia Phoenix to succeed Harvia Xenio line. Phoenix is not yet available in the market. The sales start will be a bit later this year, but again, a really, really strong response from our key channel partners. And also in the US, which is a very important part of our business, we've been continuing to develop our portfolio with the launch of Blackwater Cube sauna, a little bit new form factor for almost seven saunas, and that also has been received really well. Now with that, I would hand over to Ari, who can comment a bit more detail the financials.

Okay, thank you. So here we can see the development of two years of the quarters, the net sales and the relative profitability in terms of adjusted EBIT. And frankly speaking, Q1 2025 was all time highest sales quarter for us. And we are also happy to see that the relative profitability improved tremendously compared to Q4 based on certain actions we have taken. Here we can see for the first quarter the main financials compared. The adjusted operating profit went down a little compared to last year in terms of percentage, but money-wise it improved and the percentage is going down a little in this quarter because of the growth investments we have had. On the other hand, we were able to improve our material marching, marching after material and service costs quite much, and that improved then the relative profitability of the quarter. The basic earnings per share, they went 12% up and the operating free cash flow was also rather strong in money, a little lower than a year ago, but there are certain reasons. We have been investing about 2 million. Last year we had a total year of 6 million. I think that the investments will get a little higher in coming quarters too. And the net debt, we had end of Q4, 57 million, and we've been able to go down to 51 million in three months. It's still quite much higher than a year ago, end of Q1, and that's because of the thermosol acquisition and increase in networking capital. The leverage is 1.1. Our long-term target is to stay below 2.5, so we are still really clearly below that target. There is a lot of, let's say, headroom to take, for instance, more financing for interesting acquisitions or whatever. The net working capital is actually one third higher than a year ago and also a couple of millions higher than end of last year. The main reasons for the increase of the net working capital are the fact that we have actually one new company in Texas, Thermasol, which we didn't have end of Q1 year ago, and we have also increased our inventories in certain spots in Asia and in Finland, and the trade receivables due to the higher sales have increased also somewhat. The equity ratio is very healthy, 48%, and we have got also a lot of new colleagues in the group. Now, end of the period, we had almost 730 people. A year ago, we had 625. 40, actually exactly 36% of the growth comes now from Thermasol and the rest from the organic growth of the staff. We are growing, we have been also investing in white-collar product development, business development people and in the production facilities. Yeah, we have the strong cash conversion and that's typical for Harvia. We generate a lot of cash and the operations themselves, they don't need a lot of investments. So there is always internal cash source for dividends or acquisitions or other development needs. The net debt is also going down due to the good cash conversion and cash flow. And yeah, we'll see how low it will go. But it creates also the possibility to make further moves in future. The net finance items in our IFRS P&L, they have certain calculatory items, always interest to swap valuation, now also some internal currency rate, exchange rate things for internal loans and so forth. But in terms of cash outflow for financing costs, we are actually going now slightly down. Here we see the growth of the investments. We invested in production facilities, some IT systems, and we will also invest in future, especially in North America, for the future growth. The Harvia's long-term financial targets, just to repeat, growth, two-digit growth, profitability adjusted, operating profit margin over 20% and leverage under 2.5% clearly. We pay regularly increasing dividends with b-annual payout and actually the first payout for this year 25 occurred already in April and the next one will happen at the end of October 25. And just to remark that Harvia has long tradition. The company is already turning to 75 years and we have certain parties and special activities, events also for our customers and partners during the year. So now it's time for questions. I have actually got already plenty of questions here in the chat, and I start from the oldest, and we will answer as long as we have questions here. The first one, and what was the organic sales growth in North America? I can probably answer that. We don't disclose separately the areas or the numbers of newly acquired companies. Of course, we can comment them But I have to say that about half of the growth in value what we had in Q1 came from Thermasol and the half from our old operations. By the way, if you compare the Q1 growth in North America with Q4 growth, actually in value, the Q1 growth was even stronger than Q4 growth. The percentage went a little bit smaller, but since the base is already higher, the growth continues very strongly in value. A couple of other questions concerning Thermasol. Probably you could take them. How has Thermasol's performance been in Q1 compared to Q24 in terms of sales and margin compared to the 23 Thermasol numbers you gave at the time of the acquisition announced?

All in all, we are very pleased with Thermosol acquisition. And actually, Thermosol is contributing in many ways to the current, and we believe also in the future, success of Harvia Group in the United States, and over time also, particularly in the steam category, also internationally. Thermasol has helped us to actually build and open new sales channels. Thermasol had some really interesting customers for the high-end home spa solutions, and we have been able to grow the sales of Thermasol's core portfolio, but also actually we're increasingly introducing additional products from Harvia's existing high-end portfolio to Thermasol customers. So that's just kind of one example. And Thermosol is also providing a great digital platform for our high-end solutions. You can go to thermosol.com and see some of the control panels that are really beautiful, large Android-based screens where you can basically control fully the sauna environment with the lights, the audio system, the steam, the water. And actually, for example, if you want, watch Netflix or listen to your favorite tracks on Spotify. Now, in terms of the numbers, Progress is strong both in terms of top line and also in terms of bottom line when we look at the comparison figures from last year.