Harvia Oyj

And there is a very special place for the body, mind, and spirit. And it's easy to reach. It can be hot. It can be cold. It can be pleasantly warm and smoothly cool. Outside and in. it elevates you and all around you it feels and does good like no other place can we know this place we come from this place we have our own very old word for it it's the same in every language so We invite the whole world to explore, embrace, and enjoy it, always in your own very special way. Let's sauna for the body, mind, and spirit.

Hello, everyone, and welcome to Harvia's quarter 126 earnings webcast. My name is Mattias Järenfelt. I'm the CEO of the company. And with me, I have Ari Vesteren, our chief financial officer. Hello. We will run today's session as follows. I will start presenting by going through the highlights of the quarter one, business results, financial performance, and also steps we're taking to implement our strategy and build Harvia's future. After that, Ari will go through the financial numbers in more details. After which, we are ready for your questions. And as usual, you can submit your questions in the chat box in this webcast window. So let's get going. Quarter one, 26, was a good quarter for Harvia. Our revenue increased by 12.7% to 58.6 million euros. And that represents our all-time high in terms of revenue so far. All growth was organic and revenue grew by 18.3% at comparable exchange rates. We grew in all of our four regions that we report, and particularly strong performance in euros was in APAC and Middle Eastern Africa and Northern Europe. Dollar depreciated a lot versus quarter one last year, around 10%, and that negatively impacted our reported sales that we report in euros. In local currencies, North America grew by over 20%. During the quarter, we delivered also solid profitability by delivering adjusted operating profit of 12.9 million euros, and that represents exactly 22% of our revenue. Profitability was supported by strong revenue growth, which outpaced the increase of our operating expenses. And also by solid gross margin management that was supported by the actions that we have taken during the last year and also during the quarter to offset the impact of the tariffs and also currency fluctuations that have been quite significant during the past 12 months. We have also taken steps forward to implement our strategy and build Harvia's future. That includes systematic investments, for example, in capacity. We have ongoing activities in our Lewisburg factory in West Virginia to expand the capacity as we then start to prepare for the high selling season of the latter part of this year again. We are investing in product development to make sure that we have exciting innovation to bring to the market. And this includes also that we are building and strengthening our IT infrastructure and business processes. And the purpose is to improve productivity, scalability and operational resilience as we keep growing this business. As a part of this development process, the Muuramme factory, which is our main heater manufacturing facility in central Finland, will go live with the new operational IT system during the ongoing quarter, so quarter two. And this transition to the new systems and processes is expected to temporarily extend delivery lead times and shift approximately three to five million euros worth of deliveries from quarter two to quarter three. Also, there will be some temporary operational expenses from this upgrade process that will be visible in our quarter two figures. All in all, Harvey is very well placed to continue to lead and shape the global and growing sauna market. Summarizing the key figures from quarter one, revenue, 58.6 million, and that represents 12.7% growth. At comparable exchange rates, as already mentioned, 18.3%, and all of this growth was organic. Adjusted operating profit of 12.9 million, and that's 22% of our revenue. And that represents operating profit growth of around 8% from the comparison quarter. Healthy operating free cash flow at 12 million euros, and that's 80% cash conversion. We delivered growth throughout the world across all of our reported geographical regions. And out of our four reported regions, three grew by double digit. The largest absolute contribution came from region North America that grew by 12% in euros and over 20% in local currencies. And also Northern Europe contributed significantly by growing 2 million euros over last year's figures. APEC and MEA continued strong double-digit growth at growing nearly 30%, and continental Europe continued to deliver rather modest but steady growth figures. Then I will go through each of the regions briefly. So Northern Europe now represents 24% of our total revenue. Revenue increased by nearly 17%. Why is this happening? I think one of the explanation comes from looking at the baseline. So we have had rather difficult three years in the region, and we believe that this has caused building up of pent-up demand in the region, which is now starting to turn into a real order flow. In addition to that, we've been working systematically to build our commercial access in the region. And that includes finding and building new channel partnerships. And one of the examples is a very successful channel expansion that we've been able to build in Sweden. In continental Europe, the progress is steadier, but still rather modest with 6% growth over last year. And continental Europe represents now 26% of our revenue. Quite significant differences when we look at the countries inside the region. This time, the strongest performance was in Germany and the United Kingdom, while in some of the Western European countries like France, we saw slower development. When we look at our product portfolio and brands, we can see that EOS, which is our high-end brand for commercial use and also premium use in homes, performed particularly well. Then to North America, which I'm sure interests you a lot. So essentially, good growth continued. We grew by 12% in euros, and that's over 20% in local currencies. And just a remark that in North America, we have two currencies that we use. One is US dollar, and we have also business in Canada, where we're selling Canadian dollars. Now, when you look at the baseline, you can see that we had very steep baseline to beat now this time. We grew by nearly 60 percent in quarter one, 25. And in addition to that, we had to work against depreciated dollar. And despite that, reported growth was 12 percent. Where did this growth come from? First of all, we had very strong performance in our heating equipment business, which is the traditional core of Harvia. And we were able to fight a very, very high baseline in our sauna cabin business from last year. We had some weakness in the steam business. Particularly, there was two reasons. One is the dollar. And in local currencies, steam performance was rather flattish. But below our expectations, that was impacted by some slowness in certain key accounts for the steam products. But then again, it's also a rather small product category. So quite small differences in absolute orders have quite significant impact on the percentage. APEC and MEA continued strong growth at growing nearly 30 percent and now representing 8 percent of our revenue. The growth was coming in particular from the big countries in the region that we are systematically building for the future. And that's China and Japan. Of course, in this region, we have also the Gulf region. However, Gulf region represents only around 2% of Harvia Group's total revenue. We saw a slight decline in revenue in the Gulf region during quarter one, but I said in the big picture, it didn't have a material impact. So then briefly looking at the product portfolio, strongest performance in heating equipment that grew significantly, now representing 57% of revenue. Sunnys and Scandinavian hot tubs, 22%. Steam, 7%. Accessories and heater stones, 6%. Spare parts and services, 7%. And here we have the growth pitch. And as you can see, clearly the biggest contribution to our absolute growth came from heating equipment. The demand for our products has been very solid across the world. In Saunas and Scandinavian hot tubs, as mentioned, dollar was a significant factor as Saunas and Scandinavian hot tubs, mainly revenue comes from the United States. We also had very high baseline to beat. STEAM product has similar currency effect since STEAM products we practically sell in the United States and Middle East, where dollar is the currency we used in both of those cases. And as mentioned, there was some softness in orders from certain key accounts in the United States. So what about the strategy? The strategic positioning of Harvi is that we are a global leader in a growing market that has very strong fundamental growth drivers that we believe will be helping us for many years to come. In this business, we want to have an offensive strategy where we shape and lead this market. And we want to do that by excelling in four areas. One, answering the question, what, which relates to our products and portfolio leadership? Where, which answers the questions, which are the countries where we focus most? So countries that matter the most for the future of this business. To whom relates to our commercial execution? So in which channels we play with which brands? and how it relates to our operational excellence and competence development. And we've been systematically working on our strategy again, also during this quarter. And I'm very happy to report that when we look at, for example, the performance that we have had in the heating equipment part of our business, there's significant contribution from the new products that have been introduced into the market, for example, during last year. And one particular product to mention would be Harvia Phoenix, which is a full touch control panel optimized for sauna use and in really sweet price point for the market. Also, EOS branded premium and professional products have been performing very well. When we look at the geographies, of course, we are glad to see that despite lower consumer confidence in North America compared to many years before 25, we've continued to see strong demand from the end users to our category. This story of pleasant, relaxing wellness that improves your physical well-being and also mental well-being is something that really resonates very well across the world, but also particularly in North America. In APEC and Middle East, we're very happy to see that the markets where we focus on keep delivering results. So China and Japan, where we have quite significant own presence, are leading growth countries in that region, providing significant future growth opportunities. Continental Europe, rather steady progress, but positive progress. Maybe jumping to the leading and key channels, one of the things we're now doing in continental Europe is bringing direct-to-consumer online store by Harvia to certain selected continental European markets to inspire the market and also replicate a very successful business model that has been helping us for many years already now in North America. So D2C, easy-to-buy products. And in Northern Europe, this was now the third double-digit consecutive quarter, starting from quarter three last year at 14%, 11% to quarter four last year, and now this nearly 17%. And best-in-class operations, great people, of course, is the foundation. We've been continuing the investments, building and expanding our facilities in Louisbourg, West Virginia, as an example. And I will be talking in a couple of slides from here a bit about the IT infrastructure process. So this is an example of basically doing more of what works. So in simple terms, if you think about strategy, replicate success cases and then change things that don't work. And one of the things that really has been very good for us is our own direct-to-consumer online stores where we sell easy-to-buy, easy-to-install products, beautiful products that sit very nicely in your homes or in your backyard and also very easy to install. So we now are replicating the business model in Germany and Austria with the intention that we will be also rolling this to new countries in continental Europe in the coming months and years. And then let's talk a bit about the IT infrastructure and business process project that we have ongoing. First of all, why are we doing this? The reason is simple. Harvia is a global leader in significant growing market, and we believe that we can grow Harvia significantly in the coming years. That means that we have to have IT systems and processes that support efficient scaling. So significant scaling and profitable scaling. And that's why we're making these upgrades and changes. So we'll have a modern, scalable IT platform, including process architecture that enables growth and expansion. It will help us even further increase the level of optimization across our business processes, not just in the production, but also many of the other core business processes, and will prepare us for the future so that we can use increasingly AI-driven capabilities to drive growth and drive profitability. It will also provide benefits in improving our operational resilience by having a very robust, standardized, integrated and modern system in place. It will help us also in terms of business steering, will provide us better transparency, real-time transparency to our business and different aspects of it, and will enable faster and higher quality decision making. And ultimately, this should translate to a better ability to serve our customers with higher quality, speed, consistency and very competitive offering. Now, this is quite significant piece of work for us, and it will have an impact on our deliveries during quarter two. It will include such things as actually ramping down production for a temporary period of time in Murome, transforming the systems from the old to new and then ramping the production up and because of this we estimate that there will be roughly three to five million euros worth of shipments shifting from quarter two to quarter three and this will of course move also the related gross margin from quarter two to quarter three And as we will be working actually long hours, there's not going to be savings in the, for example, employee cost. The direct labor is still present and basically doing these transitions and ramp ups. So we also expect that there's going to be some impact on the OPEX level as well during the quarter two. However, this is very well planned. The customers have been informed in advance. We have confidence that we will not be losing any sales. So while this would have a negative impact on our quarter two, it should have a clear positive impact on our quarter three. And in addition to having kind of the sales back in the quarter three, we believe that this transition to the more modern system, more efficient and scalable system will start to pay back rather soon. So with that, I would hand over to Ari.

Okay, thank you. So this was actually a great quarter. It was an all-time high quarter in terms of sales, and I actually checked back older quarters. It was the second highest quarter in EBIT, absolute value of EBIT. We have been on a higher level in EBIT percentage of sales, but only once in... terms of money in EBIT. So the growth compounds also in the profitability. Here we see now the key figures for the review period. As you have already noticed, we were able to keep quite a good level of profitability and adjusted operating profit. And the cash conversion improved also. And networking capital, we have been increasing it due to the sales increase and number of employees has gone also slightly up, but far less than how much we have been increasing the sales. Here we see the seasonality of the operating free cash flow. And now if we add those two last quarters, quarter one and quarter four together, we land to a free cash flow of 25.3 million euros. And it happens to be actually quite the same amount of money what we had a year ago, free cash flow during the six winter months. So Harvia has a strong cash conversion and the cash flow. Free cash flow concentrates mainly on the winter months and now we are going down to the Q2, Q3 as in the past. The leverage is actually on a rather low level. It's the pre-thermosol acquisition level already 1.0. And just to remind that our long-term leverage target is to keep the leverage under 2.5. That is set up by our board of directors, but we could also temporarily go over that and we would have also easily additional funding needed, additional funding available from our banks if needed for acquisitions or whatever. The net financial items, the dashed line actually shows more the cash effect. They have been quite steady lately and we have had two interest rate swaps and they will mature now. The first one end of this year and the second one in October. In summer 27, as stated in the interim report, the first one is rather favorable. The second one is quite market terms. We will renew them and try to keep really steady interest costs also in future. The investments during Q1 were much lower than end of last year and also slightly lower than in Q1 2025. And as Mattias already mentioned, we have been investing in IT infrastructure, product development and expansion of the Lewisburg factory in U.S. and the need of expansion continues due to the increase of production output. Here, once more, our long-term financial targets, annual growth of 10% or more, profitability, adjusted operating profit, marching over 20%, and leverage under 2.5%. And, yeah, we pay twice a year. The dividends and the first dividend payment for this year happened actually now end of April. And the second installment is planned for October 26. Well, the dividends have been growing continuously. So now it's time for questions. I've got actually quite much written questions already, mainly from our analysts, but there are also some investors. Mattias will answer more the business-related questions, and if there are any finance or such questions, I will answer them. The first one, sales of Steam products declined, and you pinpointed to lower sales to some key accounts in the U.S. What was the main driver for that? Retail reluctancy to grow inventories, brand losing Steam, overall weaker sell-out at retail. Please tell us specifics. Okay.