U.S. Markets open in 3 hrs 14 mins

Edited Transcript of HARVIA.HE earnings conference call or presentation 8-Nov-19 10:00am GMT

Q3 2019 Harvia Oyj Earnings Press Conference

Helsinki Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Harvia Oyj earnings conference call or presentation Friday, November 8, 2019 at 10:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ari Vesterinen

Harvia Oyj - CFO

* Tapio Pajuharju

Harvia Oyj - CEO

================================================================================

Conference Call Participants

================================================================================

* Maria Wikstrom

Danske Bank Markets Equity Research - Analyst

* Petri Kajaani

Inderes Oy - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [1]

--------------------------------------------------------------------------------

Welcome to Harvia Quarterly Reporting. My name is Tapio Pajuharju. Next to me is Ari Vesterinen, our CFO.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [2]

--------------------------------------------------------------------------------

Hello.

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [3]

--------------------------------------------------------------------------------

Today is a perfect day. It's plus 1 or 0 outside, and slush or snow on the streets. It's about to rain. So this is perfect sauna day. So we are in Helsinki Allas Sea pool. I will review how we've been performing on the quarter and for year-to-date on Harvia's part. So I will start, and Ari will continue with the numbers. And I think we'll have an agenda going through the numbers and actions in brief. Then we'll have a bit of a recap on the strategy, nothing specific, basically highlighting what we've been doing and where we are heading. Then Ari will go a deep dive on the financials. And on the go, you have -- the people who are in the audience here today, you can have live questions during the journey. I think I'm very happy to see that our top line has been performing strong. And at the same token, we've been able to deliver a very good profitability. And I think that's among all the product groups and most of our key markets. And later on, we'll say where we've been very strong. And then we've been also having areas where we've been not so strong, but we'll go through that in detail.

In the U.S., most of you may remember that we acquired Almost Heaven Saunas very late last year. We've been integrating, taking it over and honing and improving the business performance. And at the same time, the operational resources, we've been working on that one. And I think, I'm very happy to see the team working together with us. Highly professional team over there. And I think altogether, we've been able to improve the top line and improve the profitability. And we are maybe even slightly ahead of the schedule on the integration in that respect.

On the operational performance, I think most of the factories have been developing favorably, especially Muurame and the China factory in Panyu have been developing extremely well. On top of that, the logistics in Muurame has been solid and performing very good. Our offering, both on the value-added incremental sales and also the mix has developed favorably and according to the plans. And I think it's worth saying that our plans in the Scandinavian marketplace, Sweden especially, bit in Denmark and bit in Norway, we're now proving that, hey, we can make an improvement on that market, and that will be visible also on the numbers.

Then diving deeper in the pure numbers. And I think the quarter 3, a very good top line growth, slightly exceeding 20%. And at the same time, we've been doing that with a solid good profitability. And also the relative profitability, we've been able to take it 1 step further, and that's good. Earnings per share going to the right direction. And at the same token, we have been enjoying very solid cash flow. And the cash flow, basically, is just an outcome of the good performance on the profitability. And at the same time, we've been having exactly at par of decline with the capital expenditure and our inventories have been roughly flat, and that's why we've been having good cash flow.

Year-to-date, when having a look on the end of September this year, also a very solid 16% and change on the top line, bit of a distant tailwind for the currencies, not the big, but bit both on the Russian ruble as well as on the U.S. dollar. Operating profitability slightly shy of EUR 10 million and a nice improvement, I think, 25%, 26% compared to prior year. Earnings per share, good cash flow, solid EUR 8 million compared to last year EUR 5 million. Net debt, we've been taking the ratio from 2.5, now at 2. Then the equity ratio is also the same level as we started. So a good job in that respect.

Unless you have any questions on this moment, I will dive a bit deeper on arbitrary parts where we're adding value for the company. I think the product offering we've been developing favorably. We've been gradually improving and always offering slightly better, and our premium products are now already taken a bit more share than in the past. At the same time, the professional area, where we have the professional heaters now available, we have semi-professional and professional steam generators on board, those have been picking up. Spare parts maybe not the right word. I think it's more of the accessories. We've been increasing the accessories, safety railings, accessory for the illumination. And then at the very bottom, you will see some of the soft things where we've launched for the Scandinavian marketplace as well as for the Central European market, a new Harvia collection together with [Lutka] for the sauna clothing on that one.

On the product launches, where we've been also putting a bit of an effort on the marketing and investment on that. Cilindro Plus is now available for the Finnish market, Swedish market, gradually becoming available for the Russian marketplace as well. And I think there is also demand on other markets for that. The high-power, high-output Sentio by Harvia 36 kilowatt heaters, they've been enjoying a very solid development. And that's, in a way, a completely new area for Harvia to conquer, and we've been very happy for that.

On the geographical expansion, I think we've been taking good, solid steps forward. On the U.S. marketplace on top of the existing customer base, we've been now restarting the business with the previous #1 customer with full speed on the U.S. and at the same token, we've been opening 2 new accounts, one of them being homedepot.com, where we've been now selling both the barrel saunas and indoor saunas quite successfully.

On the Scandinavian marketplace, especially in Sweden, we have now expanded to the professional channel as well as on the premium channel, and we've been taking baby steps on the same way in Norway and in Denmark.

Productivity improvement. I think most of the processes we've been addressing. No major changes, but a very gradual, solid, continuous improvement on the operations. The Muurame plant, especially, have been doing extremely good job on the KPIs as well as on the logistics. China factory solid operation and continuous improvement becoming very visible on the numbers as well. On the wood manufacturing, especially the U.S. operation, have been gaining speed and gaining efficiency both on the productivity of the factory as well as on the procurement and sourcing in that respect. So all of the 3 avenues of adding value, quite very solid performance.

Then I will show just a short 15-second videotape on the Spot. And those of you who may remember, Spot is, in a way, the easy way to learn on how to use a control unit without organizing a major overhaul of your home. Basically what you need, just to buy the new heater or get the electrician on board, then you have a wireless radio frequency controlled controller unit called the Spot. Here we go.

(presentation)

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [4]

--------------------------------------------------------------------------------

So this basically offers both convenience for the consumers as well as safety because if you put it on, say, 145, 150 centimeters height, none of the children can touch it. So then you have also very childproof sauna in that area. So it's a multifunctional and very neat equipment.

Regarding U.S., I think the integration has been performing well. We've been honing a bit of the product range. We have extended some of the offering. We also have been redesigning some of the models to deliver better profitability. And I think that's been doing quite well. Cross-selling, maybe the better word could be upselling, and I think we've been able to do both cross-selling, but especially upselling. So we've been selling improved better heaters, increased accessories and all of that as a package for the customers and our value-add, thanks to the upselling, has been gradually going up. I'm very happy for the U.S. team to learn fast how to do that.

In the factory in Renick, I think we've been doing very solid steps on the KPIs, both on the operations as well as on the sourcing. So very happy for the performance in the team. And I think I said, we are slightly ahead of the schedule, and I'm very happy for them. And those of you who may remember, we acquired the company, they were slightly on red figures, now they are solid on black numbers, and they are approaching good levels on that respect.

On the geographical split, I think it's worth to say that, okay, Finland the home market, we had a very strong quarter. And I think, clearly, beat the market and gaining share on that one. U.S., both with the existing customer base as well as with the Almost Heaven Saunas a solid performance. And even though we are not highlighting it here, I think it's worth saying that the Scandinavian marketplace was enjoying a very solid growth, it's on the high teens on the top line growth, so good work over there. On the hind side of the coin, the German market was not performing as expected. And it's been bit of a up and down. The first quarter, not good. Second quarter, very good. Now once again, a bit of a softer quarter. But I think going forward for the year, we foresee that it's flat to slightly plus on the German marketplace, but it's compensated with the rest of the European market, basically, France, Switzerland, Spain, Italy and all of that, they're supporting quite strongly the rest of the European market -- marketplace.

Russia, I think we had a very good strong quarter. But having said that, I think Russian market still remains slightly sensitive. And I think we'll do a good year in Russia. But still the market has some issues we need to address.

By product groups, I'm very happy to see that the sauna category has a strong development not only in the U.S. marketplace. But sauna heaters and especially steam generators, a very good quarter on that respect. And maybe just as an education for maybe some of the new listeners. On the sauna heaters and equipment, we command a very good profitability. On the complete saunas and saunas as the profitability is slightly below the average profitability. And I think even though the German market was not rock solid, we are happy to post a small growth on the control unit business as such.

Then for the full year-to-date numbers, roughly the same story, but I would like to highlight the Scandinavia on top of the Finland and U.S. and rest of the Europe, product categories, I think we are very happy with the sauna heater sales being slightly shy of 10% growth on that respect. Then market-by-market, year-to-date numbers, I think Finland, we are posting a 5% growth. That's beyond the market growth, so we've been gaining slightly share. Scandinavia is approaching teens, a good number. Germany, not where we would like it to be, but I think the actions we have taken should bring it flat or better. Other European markets, slightly ahead of our schedule. Russia, solid performance. And North America with our existing distributors, a solid performance and on top of that, highly successful with the Almost Heaven Saunas. And in the U.S., the sauna season is just about starting in the September, October onward. So I think we are in a good shape towards the top of the season.

Then by the categories, sauna heaters, a solid growth. Sauna room, for sure, a nice growth. Control units, slightly on plus. And now I think first quarter was not good for -- with the steam generators, but the 2 other quarters have been excellent and now we have a good number on the steam generators as well.

Then looking at the sales by quarter. I think we had a very strong quarter and a nice on that one. And then the profitability, I think, also jumped from EUR 2.3 million to EUR 2.9 million is a good work by the team. And I think that's not only us who have been doing good, but all of our partners, both on the distribution side as well as our suppliers for the componentry and raw materials done an excellent job.

I think this is just a reminder that we operate in all 3 sauna types. Now we see that the Scandinavian typical standard saunas is doing good. There is a good demand on the steam rooms. Infrared is a bit of a mix. There is the premium and it's doing quite well. Then the entry-level is -- price points are slightly below what we expected. But altogether, I think we are in a good, good place to service all of the 3 categories.

I think we remain very committed to deliver our strategy. And I think we are gradually increasing the average purchase by our customers and offering them basically convenience and easiness in working with us.

Geographical expansion, focus on the Central Europe, Scandinavia, Russian market and then improving in U.S. And on the operations, we focus on the Muurame, China factory and then the [wood] factories in U.S. and Romania in that respect. So that's all from me at this point.

And now I will let Ari to continue a deeper dive on the numbers. Please, Ari.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [5]

--------------------------------------------------------------------------------

So actually Q3 was a very, very, very good quarter as you see. But if we look at the revenue row of the worksheet and calculate backwards, we have had actually already during the last 12 months, net sales of almost EUR 70 million. And the same way, if you take also quite good earnings before interest and taxes, EBIT, the adjusted figure 12 months backwards, we are landing already on EUR 12.6 million. So -- and as Tapio said, we are heading now the main season in our new company in U.S. We didn't have that company yet in our Q4 figures last year. So the dynamics between the quarters have changed a little, and we are expecting, as Tapio said, quite nice Q4 still for the rest of the year. So yes.

Then one thing is operating cash flow. We have been able to improve it due to the concentration of the net working capital. We've been able to reduce the net working capital, for instance, in inventories in the, let's say, old Harvia companies quite substantially since now we are with inventories on the same level than a year ago, but we have 1 site in U.S. more, having almost EUR 2 million on the stock to serve the customers there. So there have been some efficiency improvements in these figures as well.

Then one minor thing, but worth mentioning that we booked at the end of Q3 certain reserves for the key personnel for their incentive program for the beginning of the year and that landed everything to Q3, it was about EUR 300,000. So I would say that about EUR 200,000 of that was semi-extraordinary. But we didn't adjust it because it's, well, normal operating costs due to good success in the business.

So that's some background additional information. The investments, they have been quite on the same level as -- last year in Q3, replacement and small efficiency improvements. In the beginning of the year, we invested in the Renick U.S. sauna factory. So the cumulative level is slightly higher than a year ago in investments. But we will -- we have talked to our investors that we will stay under the EUR 2 million anyhow for this year. Net debt is slightly higher than a year ago. But actually, there is EUR 2.6 million of the IFRS correction in this year, but it's missing from the last year. So our leverage saying the net -- the interest-bearing net debt divided by the adjusted EBITDA is now between our range, planning range. We have said that we will land somewhere between 1.5 to 2.5. So now we are at 2, and we've been able to improve that also during the year. The return on capital employed improved clearly. And we were able also to keep high equity ratio level. So this has been a quite good quarter actually and the year also until now.

Some old pictures, you have seen already, but what is interesting here is that our leverage is really going down now and also the net debt. Somebody might -- somebody might wonder a little why our interest or finance costs vary so much from quarter-to-quarter. In fact, we have actually cash flow-wise, very, very stable interest payments, but we have a EUR 25 million of swap, interest swap between the variable and fixed interest and its fair valuation, as they call, the bankers, changes from month-to-month quite much. And if the fixed interest change, then we will have a change there. So actually, money flow-wise, the interest costs are always quite stable. Yes, investments quite on the same level as last year on Q3.

Then the structure of our shareholders. The nominee registers or actually outside Finland investors, they own 53% of our shares. Gutmann Investment funds, 12.3%. And what is interesting is the share of the households. We have been able to increase the number of the shareholders, small shareholders, quite much after the IPO. 1.5 years ago, we had about 2,000 shareholders and now 4,500 roughly. So people are really interested in the Harvia sauna story, and we are very happy to have them as club members, yes. So -- and then the dividend payout, we really, really want to tell the investment community that we pay twice a year the dividends, at least 60% of the net results and growing dividends. And this happened also this year. So April 15, we paid $0.18 per share. And now 28 October, we paid $0.19 dividend per share. And while having quite strong cash flow, we -- it doesn't change our cash position very much. But in fact, this happened in Q4. So it will be visible in Q4 figures than in cash flow.

Okay. Just to repeat a little our financial targets and outlook. Our long-term annual revenue growth goal is 5% on average. Now we've been much over that level. Profitability -- profitability meaning of adjusted operating profit margin at 20%. Actually the last 12 months we had already 18.1%. So we are not so far away, and we are improving and improving our [efficiency] all the time. And the leverage ratio, as I mentioned earlier, between 1.5 to 2.5. And now we are right in the middle. We don't publish short-term outlook. But as you can hear from the CEO and me, we can comment the business anyhow quite openly.

So do you have any questions to Tapio or me? Please, Maria? By the way, sorry, I didn't show this. This is 1 Harvia sauna on camping place on the mountains in Austria.

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [6]

--------------------------------------------------------------------------------

That's how motoring camping looks like.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [1]

--------------------------------------------------------------------------------

This is Maria Wikstrom from Danske Bank. I had a couple of questions. First of all, could you comment how much the Almost Heaven Saunas were on sales in the Q3 figure? I wanted to go back and like see the organic growth, like without the equity...

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [2]

--------------------------------------------------------------------------------

Okay. The organic growth, I think, on the quarter 3, we are on the 6% range on the organic growth.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [3]

--------------------------------------------------------------------------------

Exactly 5.6%.

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [4]

--------------------------------------------------------------------------------

Yes, to be exact.

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [5]

--------------------------------------------------------------------------------

Perfect. I can then backward calculate from there. Then, you had a good sales growth in Finland of, I guess, it was a little bit more than 10% for the quarter. And I mean you always said that you are more dependent on the replacement -- replacement demand. But still the outlook for the new construction in Finland, I mean, started to be fairly [cluing] me. So is there -- like, have you ever commented any figure that how much of your product, I mean, goes to the -- these constructors for the new builds, so that we get a little bit of idea that, I mean, what percentage that would represent in the Finnish sales?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [6]

--------------------------------------------------------------------------------

It's actually quite a small percentage. What is impacting a bit more compared to prior year is that last year, during the whole of '18, we did quite many projects for the building companies and the hotel complexes and for this year on the sauna sales and project sales, something that we don't have that. The share in the heaters and equipment is actually very, very small and doesn't have a major impact in our numbers.

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [7]

--------------------------------------------------------------------------------

Okay. And then the final question is if you could a little bit elaborate on that Russia was good in this quarter, that I mean, where does it come from? Is it the -- is it the wood burning heaters or the electrical heaters and then a little bit more that if it's, like which geographical areas? And is there like -- what is currently happening in the economy? And how we should model it, I mean, going forward?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [8]

--------------------------------------------------------------------------------

Russian ruble has been strong and steady. And I think the fundamental market is rather steady as well. Having said that, I think we've not been highly successful in expanding our physical distribution in the regions. Still our sales are very dependent on the St. Pete, Moscow and the surroundings. And hence, we see a bit of a sensitivity over there. And the price points in the Russian market, and I think they've not been growing up. And that's why we remain cautious. But I think going forward, should be still a rather steady right, but not the double-digit growth, more of a small single-digit growth going forward.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [9]

--------------------------------------------------------------------------------

It's Petri Kajaani from Inderes. You mentioned Renick and Muurame KPIs going to better direction. Could you elaborate what KPIs are you following? And how far are you from them being at the 100% target level?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [10]

--------------------------------------------------------------------------------

No, I think we are not even close to the 100%, but we follow very basic measurements over there and it's man-hours per pieces and man-hours per euro. And in that respect, we've been going in the right direction gradually. And on the logistics, we basically monitor our picking capacity and accuracy. And those also going to the right direction in -- I think already for quite some time. So I think we have a good program how to continuously improve that. So it's not going to be a major step upwards, but is a continuous improvement in that respect.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [11]

--------------------------------------------------------------------------------

Okay. I would like to hear more of your opportunities and expansion in Scandinavia. You have been doing very well there this year. And what are the reasons behind it?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [12]

--------------------------------------------------------------------------------

I think we've been learning how to grow beyond the do-it-yourself market. Also, in the do-it-yourself market, we have been offering different models than we used to offer. And I think now the price points are gradually going up. And some of you may remember that compared to our peers in the Scandinavian marketplace, first of all, we are not number one. So we are number two, and the gap is quite large for the #1. And the price points we are commanding -- I take an example of a simple wall-mounted heater for Harvia can be EUR 299. And for the competitor, it's almost EUR 500. So I think that's where we've been closing the gap and offering more suitable models for the Scandinavian marketplace. Then for the premium distribution, we've been teaming up with 2 partners over there. Then we also get a bigger share of the project business, together with the partner on the Swedish marketplace. And then for Denmark and Norway, with the existing partners, we've been revamping the offering. We've been entering some of the project business together with them. So that's basically where we are.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [13]

--------------------------------------------------------------------------------

Sales are also quite much people business. We have got a good team there and also with long experience of sauna sales in Scandinavia.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [14]

--------------------------------------------------------------------------------

Okay, good. Let's talk about your U.S. opportunity, then. It's a huge market, but not that advanced in sauna lifestyle as we are here in Finland. What are you doing to increase the overall popularity of the sauna lifestyle? And how are you growing your business there?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [15]

--------------------------------------------------------------------------------

I think we have an excellent position to help people to learn on the entry level and then upgrading from that. And together with our partners who are more at the premium end, we're approaching the market on both sides. With Almost Heaven Saunas on the entry level, which is basically the active outdoor living type of segmentation, together with a minor part on the in-house saunas. Then together with our 4 partners, we are addressing the premium end of the market. And I think the PR is coming from the premium end, but this is where people have the word of mouth going for the larger population. And that's where we are gaining speed.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [16]

--------------------------------------------------------------------------------

Okay. And then what sort of product categories or geographic areas are you now missing from your portfolio, i.e., what attributes would be your optimal targets in organic growth?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [17]

--------------------------------------------------------------------------------

We have made a matrix and figure out what we have, where we are strong and what we are still missing. And I think the professional steam is an area where we are not the expert. We know how to become an expert. We're on that path. But if there will be ways how to speed up the journey, we will definitely have a look. Then on the professional and premium end of the sauna heaters and equipments, we still have hopes, especially on the high power and super premium level where we are not the player today. We know that we can become a player, but takes a lot of time. So if something becomes available on that area, for sure we'll have a look. And then if there is something which is basically helping us to improve our game in the U.S. marketplace or in the Asian marketplace in that respect. But that's basically where we are. There is not a large pool of the companies. It's a fairly small pond. If and when they become available, we'll definitely have a professional look. And if the price point is right, we have the ability to act as well.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [18]

--------------------------------------------------------------------------------

Okay. And final question, you are pretty close already, but what sort of steps do you have going forward to achieve your 20% EBIT level?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [19]

--------------------------------------------------------------------------------

I think it's basically on the 3 parts we are working on, always selling slightly better and doing more of the not-heater-related business where is we earn a better margin. And then on the professional and premium business also the margins are better. In the distribution expansion on the markets where we are not the #1 and we are behind the market price points, we can do step changes over there. And then on top of that, we still have room to improve our both on the physical operations productivity as well as on the logistics. And I think sourcing is not ready yet either. So I think those are the avenues we are working on.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [20]

--------------------------------------------------------------------------------

Traditional sauna heater business in Finland and that has been extremely profitable and old Harvia, so to say, but we have acquired during the last years a couple of bigger companies abroad, and they have been improving very nicely. They have done good work and so forth. But we also believe that we can support and take them together to the next level of profitability.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [21]

--------------------------------------------------------------------------------

And final question after the final question, Tapio. This Almost Heaven Saunas acquisition, you told us that it was making a loss when you bought it. And now in Q2, I think you said that you are halfway through to the -- your target profitability levels. Where are you now?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [22]

--------------------------------------------------------------------------------

I hope I didn't say that. I said we are halfway from 0 to 10 and now I think -- and I think now we are slightly better than that.

--------------------------------------------------------------------------------

Petri Kajaani, Inderes Oy - Analyst [23]

--------------------------------------------------------------------------------

Halfway from?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [24]

--------------------------------------------------------------------------------

Halfway from halfway to 10.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [25]

--------------------------------------------------------------------------------

It's clearly profitable and now we are heading to the main sales season and normally in the production business, it improves the profitability as well.

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [26]

--------------------------------------------------------------------------------

We've been doing some of the issues with the remodeling and repricing. We'll be working on the logistics, then we'll be working on the sourcing and we feel rather confident that we can keep it where it is and take steps forward on the profitability. Maria?

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [27]

--------------------------------------------------------------------------------

I had a couple of follow-up questions. Firstly, on the German market, that it has been a little bit of problematic this year. So can you a little bit elaborate like what are the measures that you are taking in order to basically turn around the trend in Germany?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [28]

--------------------------------------------------------------------------------

We are trying to increase our physical presence at our partners, so we are building up showrooms, not mega showrooms, but showrooms where we can also present the top end of the offering and the medium end of the offering, all the accessories, all the upsell opportunities and then teaching and learning together with our partners how to do that for their audience and customers. And at the same time, we also -- and I think who has been gaining on the marketplace is mainly the low end heaters and componentry. And we will not let that go alone. So we'll also address that. So we will be in the game on that area as well.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [29]

--------------------------------------------------------------------------------

We want to be also close to our customers. For instance, this week, there is a major swimming pool and whirlpool trade show in Cologne, Aquanale, and we are there present with our team and with our booth.

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [30]

--------------------------------------------------------------------------------

Okay, good. And then I just need to ask that, I mean, everything looks going like super well for you guys. And like, if there is something like, okay, well -- like anything that could disturb this picture, then what is something that, I mean, like you would -- you would stay awake the night? Or is something that, I mean, like, what could go wrong in this journey?

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [31]

--------------------------------------------------------------------------------

I think we don't see any gloomy clouds or pictures around. But I think we are not risk-free either. And I think already when we were entertaining the IPO, I think we said our single biggest risk is something happens with the Muurame factory. And I think that's still a potential issue. But we've been planning not to that happen. And I think we've been taken precautions that, that will not happen.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [32]

--------------------------------------------------------------------------------

And we have a serious risk management process in the whole group, and it will review the risk situation at least annually with our Board. And we haven't noticed any new major risks.

--------------------------------------------------------------------------------

Maria Wikstrom, Danske Bank Markets Equity Research - Analyst [33]

--------------------------------------------------------------------------------

And would you see any risk arising for like new EU-level regulations like basically prohibiting burning wood or things like, I mean, currently, like, I think, big changes have happened like suddenly, like plastics have become very bad for the society and basically everybody prefers for paper? So would there be something like regulatory-wise that I mean could...

--------------------------------------------------------------------------------

Tapio Pajuharju, Harvia Oyj - CEO [34]

--------------------------------------------------------------------------------

Okay, we stay very close and we are both on the local level as well as on the EU level, we are part of the team who is basically discussing and preparing and designing those. Don't foresee any major changes. And I think if the changes happen, and I think it's for cleaner burning and less microparticles on the process, that's automatically basically increasing the cost of the equipment. And I think in that respect, even though it would take a bit of time to convert the whole assortment basically into the new -- if there would be a new -- standard new regulation, we'll not be ready on day 1, but we are clearly ahead of the game compared to many of the others. And I think if that would happen, the price points will take quite a hike, and it's not 5% and 10%, it's going to be more. And I think that's in a way beneficial for our type of business in that respect, as long as it's not completely forbidden.

If no other questions, I would like to thank you for the attention. Thank you. Have a good day.

--------------------------------------------------------------------------------

Ari Vesterinen, Harvia Oyj - CFO [35]

--------------------------------------------------------------------------------

Thank you.