Harvia Oyj

Hello everyone and welcome to Harvija's second quarter 25 earnings webcast. My name is Mattias Järnenfeld, I'm the CEO of Harvija and with me I have Ari Vesterinen, our Chief Financial Officer. Hello. Today our presentation outline is here. So I will start by covering the highlights of the second quarter in terms of the business events and financial performance. And I will also update you on our strategy implementation. After my part, Ari will then cover more in detail the financial side of our earnings release. So let's start. First of all, the highlights of the second quarter. Starting with the top line. Harvija's top line growth continued, but on a more modest level than we have seen in the past quarters. So revenue increased by .4% to 47.3 million euros. In terms of organic growth, that's 2.4%. When you look at our numbers, you can clearly see that the biggest change from the past quarters comes from the fact that our sales growth in North America was quite substantially slower than we've used to seeing in the past. And basically there's three main explaining factors to this. Market environment, timing of deliveries and weaker US dollar. And let me open these a little bit here. So in terms of timing of deliveries, when we look at the situation we had a year ago, so the comparison period, we had first of all a year ago in the winter season, we actually were in the end of the quarter one in sold our situation with some of our high selling sauna models in the United States. And that meant that part of our order intake from the winter last year then was moved to the quarter two in twenty four. The other factor affecting timing of deliveries a year ago was that we had political strikes in Finland during that time. And our largest heater equipment manufacturing facility in Murame had some challenges in delivering because of those. And that also meant that deliveries towards to significant part US were postponed a year ago from quarter one to quarter two. This year we were very successful in inventory management and having good availability for our products in the US. And there was no disruption like we experienced a year ago with the political strikes. And it's actually visible when we look at the quarter four and quarter one numbers for the US. So quarter four last year we grew by 60 percent in the United States or North America. And we also grew by 60 percent during the quarter one this year. So that shows how successful we were in capturing the high selling season during the past half a year. But then that left no support from the winter season to the quarter two this year. So that's one factor. And actually it's multimillion impact on kind of baseline. And then the second thing is the weaker US dollar. And as you know, US dollar has significantly depreciated since the beginning of the year by over 10 percent versus euro. And in fact, it's actually quite historic. So I was actually looking at the history books. And the previous time US dollar had such a poor first half a year was actually in 1973. So 52 years ago when there was the oil crisis of the 70s. So this weaker US dollar had also quite significant impact over a million euro impact on our reported revenue for North America in this quarter. And of course, then there was, I would say, quite substantial volatility in the market environment generally, in particular in the United States, the tariff discussions. And also we saw, in particular, in the beginning of the quarter, the consumer confidence in the United States plummeted significantly. So when we look at, for example, the consumer board consumer confidence indexes, it was on the lowest level since the beginning of the pandemic in April this year. Then we saw gradual recovery as the quarter progressed. But indeed, there has been significant factors affecting the business during quarter to impacting on the United States. When we look at the other regions, APAC and Middle Eastern Africa continent strong sales growth. And then when we look at Europe, it was rather modest. But this is also something that we've seen in our figures in the previous quarter. So the big difference, of course, now comes from North America for the reasons I just explained. Now, profitability operating profit adjusted was eight point two million euros. And that's 17.3 percent of our revenue. And that is below our 20 percent target level. And essentially, there's two key reasons to this. One is that, of course, sales growth was more subdued than than than anticipated. And how do we a growth model is that we need to grow rather at high speed and at high gross margin to finance our sort of activities to build stronger foundations for our future growth. And that means, for example, we are increasing our operating expenses in the areas of marketing, research and development, et cetera. And now in quarter two, there was a mismatch between the sales growth and the rate that our operating expenses have been growing. The other factor was one off in nature. And we are systematically modernizing our IT landscape in the company. And during the second quarter, we went live in beginning of June with a new ERP system in in hardware US. And as part of that transition, there was a full inventory recount, including also inventory valuation. And as a result of that activity, we decided to make a correction of around 800000 euros to the inventory value in the US. That was then impacting our materials cost in the PNL. On the positive side, as you can see in our release, our so-called materials margins or margin we make after deducting materials and services costs from our sales remained on a very good level at around 66 percent. So essentially, the gross margin of the business is at a very high level. Now, if we put this kind of full first half in context, first half actually was pretty strong. We delivered 16 percent revenue growth in total and an over 20 percent adjusted operating profit margin. And even when we look at North America region specifically, North America grew by 35 percent during the first half this year versus first half last year. And that's roughly 10 million euros additional business that we delivered in North America during the first half. Out of that 10 million, roughly half is coming from the acquisition of thermosol. So inorganic and roughly half is actually driven by organic growth. So not too bad. While we've been navigating rather volatile operating environment and kind of macro environment, we've also taken significant and meaningful steps in advancing our strategic initiatives to make Harvia stronger for the future. I already mentioned that we are in the process of stepwise transitioning the whole group to a more modern and simplified IT infrastructure where a significant milestone was hit in the US when we went live in the beginning of June. We also investing in marketing, brand building, making our D2C sales channel stronger and of course our innovation pipeline to strengthen our portfolio of products. And in all of these fronts, we've seen good development. And looking ahead, it's very important we realize in which kind of business and which kind of moment in time we are. Sauna business globally is a growth business that is driven by significant long term growth drivers such as health and wellness, experience, increasing awareness, for example, due to visibility in internet and social media. And we are in the pole position to be the absolute leader of this business in the years to come. So we are systematically continuing to invest in making the company stronger for the future. Having said that, of course, at the same time, we want to deliver strong, solid results all the time. And key parts of that equation are continued sales growth and also operational efficiency to get the most out of our expenses as we develop our business. But in the big picture, we are strong believers of the long term attractiveness and growth potential of this business and of Harvia. So then let's look at the summary of quarter two figures. So revenue at forty seven point three million euros, and that's nine point four percent growth year on year. And you can actually see here that the US dollar had quite significant impact on the numbers because at comparable exchange rates, our revenue would have grown twelve point two percent this year. And the whole difference really comes from the dollar and euro. So in particular, this is relates to our numbers in North America. Organic revenue growth, as said, at two point four percent adjusted operating profit at eight point two percent. I said a little bit below our target level of 20 percent for the reasons I explained in the previous slide. Operating free cash flow was around four million euros, and that's around 40 percent cash conversion. The biggest item affecting cash conversion in this quarter is the increase in our inventory. And I'd like to also give some context to what's happening there. On one hand, we are in high gross margin business, so it's very important for business success that we have good availability of products to deliver when the customers and consumers want them. The other thing is that we want to tap into the market potential in countries like the United States even more than we've been doing so far. So we are launching new products and head of new product launches. We also building inventory. So we have availability of those new products as they hit the market. And then actually quite importantly, importantly, during the quarter to there's also tactical moves because of the tariff environment volatility. So we actually took tactical decisions to ship products from Europe to US when there was periods of low tariff in also anticipation that the tariffs, while we now also know that there is a tariff agreement in place between the United States and European Union, would likely see the tariffs go up. So we have been taking anticipatory steps to build inventory when the import duties are on low level. So this is the explanation for these figures. And then when you look at the first six months in total, a revenue nearly 100 million at 99 million euros, and that's 16 percent growth and organic revenue growth of close to 10 percent at eight percent and growth at comparable exchange rates, nearly 17 percent. Adjusted operating profit in euros 20 million and in percentage 20 percent. Operating free cash flow at 14 million euros and cash conversion at 60 percent. So then we look at the kind of regional growth in more detail. You can see here that we have two regions that really delivered the growth this quarter. It's North America at 13 percent, but this is all growth coming from thermos all acquisition. In fact, organically, we saw slight decline in the business during the quarter, too. But I said there was significant reasons such as the shifting of timing of deliveries this year versus last year between quarter one and quarter two. And then APAC and MEA, which delivered 50 percent growth last year for the full year, continued strong path at 54 percent this year, adding 2.2 million to our top line. Northern Europe and continental Europe, where slug is pretty much flat looking at year to year. Now, first few words about North Europe as I cover all of our four geographical regions. North Europe represents now 24 percent of our revenue and has been pretty much flat for the last three years. And the main explaining reason is the kind of lackluster performance in our home markets in Finland, where both new built construction and basically housing market, property market have been very slow. And there hasn't been a significant uptick even today, while there seems to be some encouraging signs going forward. Also, one factor we believe affecting quarter two this year in particular in Finland and Sweden was actually weather, because in both Finland and Sweden, summer houses or summer cottage holiday houses represent a significant opportunity in particular for the wood burning heaters. And as you might remember, those who are based in this geographical part of the world, we had actually quite poor weather during the spring and early summer. Then, of course, July has been much hotter and nicer, but the beginning of the kind of the summer was not so not so great. And basically, when the weather is great, people go to their summer cottages and renovate when weather is not so good, they stay home. In continental Europe, we've seen gradual growth now for three years, but this quarter was rather modest, flat year on year. It's very clear that we see significant opportunities here and are systematically working to turn this region to a more substantial growth. And one important step in our journey is that we've appointed a new region head for continental Europe, Ivan Sabato, who joined us from Techno Gym. And he started in his position in the beginning of the quarter, so first of April. And we're very much looking forward to having him in the in the team and seeing the results that he and the team will be delivering in the in the coming years. Then let's look at North America. And of course, you can see that we have had a rather strong track record of multiple years. And even if we go further back in history, this time the growth rate was somewhat more subdued at 13 percent as discussed than the history. But we need to also put it in the context of that we have two 60 percent growth quarters behind us. And when we look at the first half in total this year, I said it's 35 percent growth and half of it is organic. And I think it's actually pretty good achievement given everything that has been happening around us in terms of currencies and kind of micro macro environment, including consumer confidence. Now, maybe a word about the consumer confidence. We are very glad to see that the kind of dip happened in the beginning of the quarter. And since then, the consumer confidence has gradually been being picking up. And we also feel it in the business and felt it in the business that that in the beginning of the quarter, there was a visible slowdown in the activity. But at the same time, then we have seen that as time progressed, things have been getting better. APEC and Middle Eastern Africa, strong growth continued. And when you look at this figure and in particular the figures from 22 significant portion, roughly half of it was Harvey's business in Russia, which we closed down all of it during the year of 22. And then we had to start to rebuild the business in the region from rather low levels. And I'm actually very happy to see that in rather short period of time, we've been able to bridge the gap that Russia and exiting Russia left in our books. And while we comment here that this is the smallest region, it's already 14 percent of our top line. We also comment that that they're unlike the other regions, project deliveries in Patrick in Middle East play a rather significant role. But I'm also happy to say that we had strong double digit growth figures also in other focus markets like Japan and China in this region. Then let's look at the product dimension. As we've communicated, Harveya wants to be the absolute leader in the sauna products and solutions worldwide, including products across the sauna types of traditional Finnish sauna, infrared and steam, and also different price points and different applications in terms of private and professional customers. Now, if we look at the share of revenue from different product categories, we're still quite heavily a sauna technical equipment for sauna. So heating equipment over 50 percent of our revenue and similarly technical equipment like steam generators. That's 10 percent of our revenue significant growth from last year driven by thermosol acquisition. Saunas and Scandinavian hot tubs, the share declined somewhat. And basically the reason is the shipments of sauna cabins in the United States and also kind of slowing kind of business with with the Kirami branded hot tubs. Accessories and heater stones and spare parts and service is very stable compared to the comparison period. So then when we look at which product categories contributed to the growth, positively and negatively, we can see that the star was the steam products, adding three point four million euros to our top line. And that's around 250 percent growth, most of it from thermosol acquisition in the United States, but not entirely since we had some good steam deliveries in Middle East also during this period. Heating equipment up by around eight percent and accessories and spare parts up by 10 percentage points roughly. Saunas and Scandinavian hot tubs declined by 15 percent versus the comparison period. Now in this very interesting market where we believe that there are significant growth opportunities for many years to come and there's an opportunity to make Harvey a significantly larger business than we are today. The cornerstones of our strategy, how to get there are here. So they center around four questions. What do we sell in terms of portfolio? Where do we focus geographically? To whom we sell in terms of channels and customers and how we do it in terms of operations and great people. And I'm happy to report that again during the quarter two, we made significant process progress in each of these areas. So in terms of the portfolio, we've been complementing and making our offering for the traditional sauna category stronger, for example, launching a new wood burning version of the cylinder heater, which is a very high selling product model for us, launching new kind of mid range touch based control panel called Harvey Phoenix. And I will in the next slide talk about something that's quite unique and really novel in the business partnership with Toyota. But let me get to that in a short while. Also in terms of steam, based on our acquisition of thermosol, we have been continuing to make the thermosol core business stronger. And also we have been taking steps to leverage thermosol as a cross selling platform for the remaining parts of Harvey's portfolio. And also good progress with our premium brand EOS in Europe. In terms of winning in the strategic important markets, the core question here is that we are still relatively small company playing in fully global business. So roughly 50 percent of our revenue is coming from Europe and roughly 50 percent outside Europe. And with the company our size, we need to focus on. So the most important market for us, obvious, is the United States, where we continue systematic work to strengthen our portfolio, open new channels and making our own DTC even stronger. And as said, during first half, you know, 35 percent growth, half of which is organic. I think it's a testament to the work we are doing there. APAC and Middle Eastern Africa, we have focused systematically on China, Japan and Australia in terms of our continuing business. And then Middle East and Middle East area for our project business. And all of these are yielding great results, as I just explained that APAC numbers are not dependent on any single country or any single project delivery. It is now more wide, wide, broad based. Continental Europe and Northern Europe clearly need more work. And there are signs of kind of encouraging progress in a number of markets, but the totality is still too slow to our liking. And here the work clearly continues. And one step for us is the appointment of Ivan Sabato to be the new head of Continental Europe. Leading key channels, we are expanding our channel with new partners, for example, in Sweden. We have some significant new partners in the US. We have been expanding our distribution to higher end price points than we have been kind of focusing in the past. But at the same time, we also deepen in partnerships with our important existing customers and their situation is solid. We also accelerating our progress in making direct to consumer channel and even bigger part of Harvey's business. And this project business in APAC and Middle East is one of the highlights of the past quarter. We are building a company for the long term success. And a few things I mentioned is the IT landscape, which used to be quite old fashioned and very diverse and fragmented as a result of growing through acquisitions. And now we are stepwise moving the whole group to a unified, more modern and simplified architecture, where a significant milestone for us was the biggest geographical region, United States, moving and go live in the being of June. And I'm happy to say that operationally it was a smooth, good transition. We also have made significant investments in increasing our efficiency and capacity, for example, in our most important factories in Murome and Lewisburg. And there was some change in the management team, Ivan Sabato joining the team and then Jennifer Thayer, the head of Northern America, resigning during the quarter. But the recruitment of the successor is ongoing and we have a good backup solution in place at the moment. And then my final slide before handing over to Ari is just brief kind of highlighting a recent announcement that actually Toyota, which is a leading player, not only in the car business, automobile business, but they are also leading player in hydrogen based energy transition. And we are very happy that they approached us and made a proposal to partner with hydrogen based energy technology in the saunas. I think it's a really testament of also visibility of saunas, a category, you know, growing and huge players, you know, taking a notice. And actually hydrogen and sauna go really hand in hand. If we think about hydrogen energy, it's hydrogen H2 plus O, oxygen, it's H2O. So hydrogen plus oxygen is water and energy and sauna is steam, water steam and heat. So almost like they are kind of a perfect, perfect couple. And it's actually pretty exciting to see that we can do it also, you know, sauna with hydrogen and in actually very pleasant experience. We don't anticipate this to be commercially significant for us in many years to come. But still, it's a testament of innovation opportunity in this business. So then I would hand over to Ari.

Thank you. So here we see first the last couple of years, the quarters, the development of the quarters. And I want to first remind you about the seasonality, what Harvia's business has. Typically, our peak sales seasons are Q4 and Q1. And then Q2 and Q3, they are a bit lower. And the Q4, Q1 sales are typically a bit more campaign driven than the lower season sales. And in this picture, you also see that we have been continuously being over 20 percent adjusted EBIT, except last quarter four and now quarter two. Mattias already explained some reasons for the lower relative profitability in Q2 this year. But there were plenty of them. Shift in the comparison figures of 1.8 million alone in northern America. And this one of inventory correction this year. Also, the IT landscape renewal took a couple of delivery days. And there were multiple reasons. But I'm really happy to say that we succeeded quite well with all these happenings during the Q2. And we are looking very positively towards the future. Here we see the most important financial figures of the group. OK, probably some figures which need a little more explanation is the decline of the basic earnings per share. It doesn't just come from the lower adjusted operating profit, but it comes also from rather high financial items, which I saw a little later. And they are related to weakening US dollar during the quarter. So the dollar had multiple effects during the quarter. But on the other hand, we have been working with dollar for many years and we will also work with dollar in future. And this is the normal fluctuation what we face with dollars. The number of employees has been increased slightly over the number of steam, thermosol steam bath LLC of some 38 persons there. Networking capital has been rather on a high level now at the end of Q2. But that's really good to have, for instance, a lot of inventory now in the US, since the effective tariffs import duties are increasing slightly compared to what we had paid effectively during Q2. During Q1, they didn't have an effect at all yet. We are confident that we can handle really the tariff situation in the US. We have quite good pricing power and we are flexible in many terms. And also the production what we have in the US, we make over 70 percent of the total sales in Northern America produced in the US. So the import duties don't affect so much the business. And there are also customers, rather large customers actually in US, which import directly from our factory in Finland, for instance, the heaters and pay their duties by themselves. So we have rather well have the tariff situation going forward under control. The free operating cash flow and cash conversion vary quite much from quarter to quarter, but there is certain pattern. We have typically the queue for the highest cash inflow. And during the summer quarters Q2 and Q4, we invest in inventory and also in capital expenses like machines, IT making our production more effective for the peak season. This was also the case in this year. Typically, Harvia has had a strong cash conversion in the past and I believe it will be the case also in future. The net debt, OK, that's bank debt, interest bearing debts minus the cash situation. Since we have been investing in machinery, in systems and also increasing the networking capital, the cash position didn't grow so much. So actually then the equation gives that the net debt went up slightly about six point eight million compared to end of Q1. Towards the end of the year, typically in the history, we have been able to produce more cash and reduce the net debt. The leverage, the equation of the interest bearing debt to the EBITDA is one point three, which is remarkably lower than our long term financial target of two point five. So we have really capacity also with our internal targets, but also with our bankers to take much more interest bearing debt if there is a need or opportunity for that, for instance, in the area of MTA or whatever. Here we see the dotted line. It's actually the interest costs as we pay them to interest costs and bank duties out of our cash balance. And the rest of the box, they are the columns, they are then the calculatory financial costs. And unfortunately, in 25 Q2, we had a rather high USD position in our hands. And when US dollar went down, we had to book some financial costs on these calculatory positions in our P&L. We have also covered ourselves against the interest rate fluctuations and these interest rate swaps derivatives. They cause also some changes to the interest costs, but they were not so big in Q2 now. Here we see the level of investments in Q2. It really went up and this is actually a very good time to invest in our group. It's quite a peaceful time of the year compared to the peak season, Q4, Q1. And I'm happy that we did, for instance, the Go Live in the US during that quarter. The Go Live of the new IT system went very well and now we are ahead of the situation where we were in the past many years. Harvias long-term financial targets, they haven't changed. We target an annual revenue growth of over 10%. The profitability of adjusted operating profit margin, our target is to be over 20% and the leverage under 2.5. We could certainly get also with higher leverage with our cash flow financing if needed, but this is the leverage level what our board of directors has set for us quite a long time ago. We don't publish short-term outlook, we play the long game and our dividend policy is to pay regularly increasing dividends with two payouts in a year. This year, the HGM in April decided based on the board of directors proposal that 75 euros will be distributed to the shareholders, out of which 38 euros were already paid in the middle of April and the rest will be paid at the end of October. We have had different kind of seminars and celebrations in different units for the 75 years anniversary and this will continue also to motivate our stakeholders, suppliers, customers, also own employees and this has been a nice year. So, questions. We have got a list of different questions over the chat and I just start from the beginning. Can you talk more about growth in AIPAC? Relatively new market but not so small anymore for the group. What types of saunas are popular there? Do you need M&A to grow food or can you grow organically?

A great question and you are indeed right that AIPAC Middle East representing now 15% of our top line and the growth rates that we are seeing, it's no longer insignificant region for sure. As I explained in my presentation, what I am very pleased with is that as the region keeps growing and as we continue to systematically work to develop the region, I don't feel that we are any more dependent on any single country or sub region per se. For example, during the second quarter we had strong double digit growth figures from Japan, strong double digit growth figures from China and also strong actually triple digit growth figures from the Middle East sub region but in the Middle East there is also this project delivered dynamics. But the point is that we are having rather broad based growth in AIPAC. Now we are still a rather small company for the global market and also AIPAC and Middle East geographically is just absolutely vast and if we think about geographical differences and cultural differences, we made the choice that we focus on four or three countries plus one sub region. So it's Japan, China and Australia. Australia for the reason that it dynamics wise and product wise kind of resembles a lot the US. So kind of the same recipe for success can be multiplied in Australia and then Middle East for the pro-trade business. There's also quite significant differences in terms of what sauna types are popular. So for example when we go to Japan, actually it's the kind of the traditional Finnish style sauna that really is picking up and increasingly part of many of the onsen experiences, the spa experiences. When we go to Middle East it's traditionally more steam based and really high end kind of home spas and commercial spas being built. In Australia we see that traditional kind of easy to assemble and rather affordable like almost heaven sauna type products are very popular but so are also infrared saunas. So there is certainly a variation between countries and sub regions in AIPAC and Middle East but as said we feel that it presents a significant potential for us. In most countries we still are not actually present ourselves kind of no feet on the ground. Instead we work through distributive partners and the idea is that as we keep growing there we might take one step at a time to add our own sales organizations in the most potential countries as we move forward.

North America you mentioned improvement of the situation towards the end of Q2. Do you see any tangible signs of improvement, signals from retailers or do you refer to the political agreement when you mentioned the better situation? Can you say anything about how Q3 has started? What organic growth is reasonable to expect in North America rest of the year? Sure.

So when I'm talking about seeing gradual signs of improvement during the quarter actually it's many many things and one kind of post quarter thing is achieving a trade deal between the EU and the United States. But they also like for example consumer confidence really took a big hit in April and then started to gradually come up. It's actually still on the lower level than during kind of last year when the consumer confidence was really on a very high level. But clearly the trend since April has been pretty positive. One of the key indicators of the health of the market that we follow very closely is we analyze the search word activity in the internet. So Google search, search is an example and we can actually see that there is actually really positive development in the search word development in the United States which we also believe it's a nice sign of continued interest to our category. It's more like there's just more short term for example shipment and kind of currency related things that are really now visible in the results rather than kind of more fundamental shift in the kind of the market potential. And as I've discussed earlier, we take an assumption that there's easily space for 10 million more new saunas in the United States. And if we take an average kind of cost of sauna, let's say on the low end, $5,000 per sauna, we talk about 50 billion USD opportunity for the coming year. So we are strong believers that despite this, I would say a blip on the road that we kind of experience in quarter two, you know, the big picture remains very favorable for us. Of course, there might be some variation between months and quarters, but the big picture remains solid in our view.

Okay, then couple of short questions before we go back to North America. Higher personal expenses. Are you addressing the cost situation?

Well, it's a kind of now if we look at the again, we don't manage personal cost by the quarter. And there's first of all, there's a reason why there's a change in personal cost. Basically, new products don't just come from Norway. Engineers and product managers need to develop them. Also, kind of efficiencies in our operations. Now, there's also needs for process development. As we keep growing, we need to, for example, add resources in the safe finance team in the United States, et cetera, to make sure that, you know, the books are in good order and we can manage the business based on good visibility, the data. So these are just examples of what has caused us to actually systematically kind of make conscious decisions to add resources in the critical areas. And if we look at the whole first half and not just in the quarter to first half, actually, it's in OK balance, maybe not entirely where we want it to be, but it's not too bad. And that's kind of the estimate is that, you know, 16 percent top line growth and 20 percent plus EBIT adjusted margin. So in the big scheme of things, it's not far off. But of course, in a quarter to know the balance was not quite quite right. But of course, we stay vigilant. And if necessary, you know, we are you know, we have great track record of showing that we can react even strongly when that's necessary. But at the same time, we we want to manage personal situation with a steady hand and not like overreact to short term events.

OK, then a question. When will we see CEO on insider stock purchase list?

I cannot comment on that, but basically there's many reasons that I've actually sometimes even explained. And one of the key things is that you have to understand in what kind of strategic or business situation Harvia is. We're actually going through a significant business transformation in many ways in terms of how we sell in terms of the partners we work with, in terms of the important DTC channel, in terms of acquisitions. You know, there must always made public around a year ago. But it's also important to understand that we work on on M&A pipeline continuously. Now, sometimes it's a bit of a line drawn to the water, whether they would be open window for me personally to make moves or not. But in this environment, it's actually really it also poses challenges to kind of the trading kind of window being open for me personally. So it's not related to only our earnings releases, but actually what's happening inside the company and as a CEO have practical full visibility on all corners of the business. And that's something that I need to take into account. Maybe a comment is that, you know, assuming things go well, you'll see me rather shortly on the owner's list due to LTI programs. And like my approach during this time has not been to trade, I don't expect to trade. So I'm intending to become a long term shareholder in Harvia.

And just to remind you can see really the insider shareholders on our webpages. There are, for instance, in the board of directors and management team, really big shareholders in this company, but they haven't been trading lately actively. Yeah. Your organic growth was likely negative in North America and Q2. Do you believe that you gained market share versus competition? Also, do you see pricing pressures?

Well, again, I think it's, you know, it would not be correct to assess our performance in the in organic growth only looking at quarter two. I think really you should be looking at the first half of the year for the reasons I explained that there was significant shifting between kind of the baseline during last year between quarter one and quarter two. As I explained part of my presentation. And when we're looking at the first half as a whole, I said we added 35 percent to top line. That's 10 million euros. And that's roughly 50 50 split between organic growth and thermos. So actually looking at the first six months of the of the year, it's pretty good. Now, what was the other part in the in the same question? Sorry, there was something that I didn't answer. Price pressure. Yeah, price pressure. Well, price pressure. I'll give you two answers. One is you can look at our so-called materials margin. So the margin we make after you deduct from our net sales, the expenses related to materials and services. And that shows you very healthy development. We had 66 percent margin. And I think it's a strong testament to our ability to sell our products in profitable price points. And of course, it's balancing act between also driving volume growth and being competitive in the market and offering good value for the end user and trade partners. But generally speaking, I feel we're in good position. What comes to our pricing pressure? Of course, at the same time, you know, it is visible that there are many players in northern America. Sauna market. Many players have taken notice of the significant growth of the market. And it's actually, you know, we know it that while there are several analysts and investors following this webcast, they are also representatives from our dear competitors following us as we speak, because we are the reference point of the industry. We are the only pure place Sauna Solutions product provider that's publicly listed and provides rather transparent kind of information of progress. So our dear competitors have also, of course, taken note of how do we as track record in North America. So also it is clear that competition is heating up. But but it's something that has been part of our strategic assumptions for a long time. And that's also one of the reasons why we have increased our OPEC's to make sure that in terms of product leadership, brand leadership, channel leadership, we stay on the pole position.

OK, then more kind of customer segmentation question. Can you describe how do you a customer in North America? What is the customer income bracket? Also, if you discuss demand trends in sauna cabins, in people's yards and sauna in house, is there the differences in demand trends in these categories in North America at the moment?

A great question. And there's I'll give you an archetype, but I still make a make a note that demand for sauna category interest or sauna categories broad based. Now, if you would look at kind of what has been kind of I would say the typical customer that we've been addressing with our most successful product category in US so far, which is the almost heaven sauna sauna cabins. You can think of barrel sauna. It's basically homeowners backyard product. So it's basically American homeowner actually either based in California, Texas or Florida. So in the southern big states and we know that the lady in the family is in the pole position to drive the interest in this category. So kind of lady women, they play a significant role in any practice, any wellness business. And in the US, sauna is considered clearly as a wellness product that provides you kind of longevity benefits, you know, vibrant skin, stress reduction, better sleep, etc. So, you know, we know that ladies are in very important role in shaping the market in the United States. Now I said that almost heaven sauna is like the IKEA would make a sauna good looking, affordable, easy to install product to American homeowners backyard. But we also do have other products like thermosol, which is for the I would say millionaires homes. So high end homespas and that's also a lucrative category. We know that there are many customers in the United States that are willing to spend quite significant amount of money in wellness and an enjoyable life. And actually, we see also increasing trends in the commercial side. So commercial saunas, hotel, spa, fitness clubs, etc. So it's not just one customer type, although in our case, this American owner is overrepresented. It's rather broad based.

Then a calculatory question just to double check the organic sales growth or decline in North America in Q225. Whether organic sales growth 2.4 figure is calculated in local currency. What we publish is our Euro figures. So the organic growth in US terms is higher than what is in our report. So it is not published in dollar terms. Dollar declined quite heavily, especially for Q2. That's true.

And then maybe just give some further flavor. You can, of course, take this assumption that, you know, take the steam category number 3.4 million that we reported and assume that that's thermosol's sale additional. It's actually not entirely correct because we also sold, you know, we had some good deliveries in the Middle East in the steam category. But if you would then compare the growth of the region and what growth thermosol brought, you can see that the organic growth was somewhat negative, but it actually was single digit, not 10 percent. It's single digit negative in euros. And it would have been positive if the currencies would have been constant. Despite all of this, no shifting of the orders.

OK. What about the sales channel in Sweden? Is it already

accomplished, ready? Yes, I'm actually very happy to say that that we have a really strong partner. And practically, as a reminder, around one and a half years ago, Kesko made a choice that they will concentrate only on B2B channel in the technical trade outside Finland. In Finland, they have K-Rautas, which is, you know, focus customers, the consumer. But in all of the other countries, they focus on the B2B side in this so-called technical trade, which meant that kind of the K-Rautas in Sweden were closed. And K-Rauta used to be our key partner in Sweden. Of course, we've been continuing to work with Kesko in the B2B channel, but we still know there was a gap in our consumer channel in Sweden. And I'm happy to say that basically in terms of channel partners, we have now accomplished what I think is a very good and competitive channel, which I hope that in the coming quarters also would be visible in the numbers.

Then we have here five questions in a row, which are rather long. I tried to pick up the... Maybe one by one, so the key ones one by one. Yeah. Would it be reasonable... We are now talking about North America. Would it be reasonable to say that organic growth, excluding last year's delivery shift, was like minus 20 percent or worse in April and then rebounded to more than 25 by

June? Well, I wouldn't comment... It kind of goes into the month level, and I don't think it's really relevant, actually. I said, you know, we're a rather small business still with 175 million turnover last year. And month by month, there's fluctuation for many reasons, and even between quarters, as I explained. And the important thing is to look at our kind of performance over a longer period of time. But it is clear that we had a tougher April. And as I also commented in the CEO report, that we saw signs of stabilization during the quarter.

Okay. You reported cross-marching was at 65.6 percent. It's actually marching after the material and service costs. It's not including the direct labor, which is included in the total labor cost. But this is marching after the material costs. This went up versus 64.8 percent last year. But to my understanding, that includes that 0.8 million euro inventory write-off. Excluding this impact, your cross-marching was just a touch below 68 percent, which is unusual for Q2. Assuming you can maintain your high cross-marching at least 66 percent and give the rebound in U.S. consumer confidence. Are you considering additional promotions to drive sales and leverage OPEC?

Yeah, the calculation is correct. So actually, we had a strong materials margin. So the margin after we deduct materials and services costs from the sales. And it would have been even higher if there wasn't this 800,000 inventory correction, which hit actually that line in the P&L. Now, if we look at, let's take last six quarters since the beginning of 2024. We can see that actually our gross margin typically ranges between 65 to 67 percent, with the exception of fourth quarter last year. Where our margin was clearly below 60 percent. And we at that time commented that it's basically based on significant kind of aggressively priced campaign sales that happened during the Black Friday and Cyber Monday sales season with some of our big trade customers in the United States. So that's kind of the only exception where there would be a significant deviation from the 65 to 67 range. And I think it's a testament to our pricing power. It's also a testament that this is really attractive business and there's really steadiness in our pricing ability. And also, if you look at the first half, our margin was at 65, 66 level for the whole six month period where we grew by 35 percent and half of it is organic. So I think the pricing should be roughly right. And of course, we know that the biggest lever for our value creation is moving top line as we have a high gross margin business and generally rather efficient business model. And that clearly is in our focus that we systematically over time make this company significantly bigger than we are today.

OK, about CapEx. Your CapEx was highest since Q4 2021, which underpins your confidence in future growth. In the past, Tapio Paju-Harju, he was the former CEO, used to be quite explicit about the impact of capacity investments. And during 2021, Ari discussed the CapEx guidance in quite some detail. Understanding what Matias said about competitors turning in on Harvey's webcast and not sharing too much crucial information. Could you nonetheless elaborate the CapEx outlook over the next few quarters? Would you maybe, Ari? Yeah, well, we have increased the level of CapEx slightly lately after, for instance, also the Q1 announcement. And currently, the CapEx levels are somewhere about eight million a year. That's just the estimate and not calculated explicitly for this year. And what we are actually investing in future is in production capacity in US logistics and so forth. Also, streamlining our IT landscape and making the group more integrated, more transparent. And we have also multiple sustainability-based or targeted investments, for instance, in Central Europe. So there is a really confident belief in future and we are now investing slightly more than in the past. Question to Matias. As we are now five years since the COVID boom with more intense sauna use and keeping the cumulative inflation in mind, it seems that we should see some higher replacement demand over the next few years, which should be very favorable for Harvia as it's launched new higher price models.

In short, I would agree with that assessment. We look at just simply the kind of typical replacement cycle for the sauna equipment. We talk about, let's say, between five to ten years in consumer use typically, maybe seven years being kind of the average. We start to now hit the window where those consumers who either bought new saunas or replaced their sauna equipment during the time of the pandemic, they start to come into the replacement window. I would say that that window most likely is more like two years still ahead of us. But I would agree with the assessment that it will also provide an opportunity for our midterm performance.

OK,

coming

back to the US situation, it appears that consumers were just waiting for clarity how the tariffs would impact everyday life inflation. Do the consumers really follow tariffs in the US? I doubt it, but some do. It seems that the tariffs haven't led to significant inflation. Many of your competitors have much lower profitability, meaning that if they want to pass tariffs onto the consumer, they must raise their prices by much more than Harvia to sustain their profitability. Could you elaborate on how the competitive pricing has evolved over the quarter?

It's a great observation and we assess that actually import duties in the United States make Harvia's relative position versus our key competitors stronger. And the key reason for this is that we have too many factory facilities in the United States, in Louisburg, West Virginia, which makes the sauna cabin manufacturing a large factory for us. And also in close to Austin in Round Rock, Texas, as we acquire Thermosol, which makes steam generators for steam saunas plus control units and valve systems. And there's actually a high degree of domestic sourcing for these both factories and significant local value add. And when we look at our key competitors and their manufacturing footprint or sourcing footprint, they clearly are much more dependent on importing products to the US. We also have competitive intelligence. My understanding is that many of them have anticipated higher import duties and actually did the same thing as we did, forward imported ahead of the import duty hikes. And for example, those importing from China have been using those windows of lower import duties to kind of beef up their inventory in the United States. But there is certain time that when our competitors will start to feel the full impact of the import duty kind of environment. And I said, I think we are in good position. At least I wouldn't assume that there's going to be additional pricing pressure towards Harvia. I think it's the other way around that the competitors really need to do some hard calculations, how to keep their businesses afloat and in green figures.

Is Q4 expected to have a similar sized campaign activity in the US as last year?

Well, we don't give forward carnage per se, but it is clear that this phenomenon of campaign based sales is a multi-year kind of trend. And basically it means that there are significant channel partners at each year when the consumer is on the move. And for SaoNas also this kind of winter season is the high selling season. They want to have something interesting that excites the consumers and we want to take part. So it happened in the previous years and we certainly intend to make sure it happens also this year. But I think there's still there are some kind of observations. One is that we grew significantly like 60 percent, over 60 percent in the US during the fourth quarter last year. So we have extremely high sales base, which was coming with a rather low sales margin as such a big share was so aggressively priced products. And our plan is to be more balanced with the pricing. But at the same time, we understand that there's a significant sales base in North America for organic business ahead of us in Q4 and maybe something that is worth taking a note.

Can you talk about how prospects for M&A are at the moment?

Great question. There's actually a lot of movement behind the scenes. And for example, Ari and me, we get approached minimum once per week on pitches from investment bankers and entrepreneurs. And there is a constant flow of activity in Harvia. And we know that there are processes ongoing with different companies. And of course, Harvia is always taking a judgment whether we're interested in looking at something or not. I think when we look specifically at America, one of the kind of challenging thing has been this sort of volatility in the import duty environment, because most of the players in the US, generally, if you think of somebody wanting to buy a US based player in the sauna business, many of them are importing significant part of their portfolio from Southeast Asia or China. And for the seller and for the buyer, this poses a really tricky question that what's the future of this sourcing chain in the future when there's significant pressure of much higher import duty environment for importing products from that part of the world to the US and how agile the players are to adjust their supply network and respond to these changes. So that's kind of one particular kind of challenge when looking at whether the seller and the buyer agree with the valuation, the prospects of the business. But generally speaking, there's a lot of activity behind the scenes in this business.

OK, that was the last question we got for this Q&A. We have spent already one hour and five minutes. Thank you very much for your interest. And we are also available between these shows for analysts and investors to discuss more in detail. Thank you very much. Thank you very much. Have a good day.