Harvia Oyj

OMXH:HARVIA

Earnings Call Transcript 2022-Q3

[Tapio Pajuharju, executive]

Welcome on board on Harvia Q3 reporting. My name is Tapio Pajuharju, I'm the CEO, and next to me, we have Ari Vesterinen, our CFO.

I think all of you have been following us and realize it's not been an easy quarter, but I think we've been doing a good job going forward. And I think the company, as such, is in a good [ status ], the market is in a good shape. So we'll take a bit of a deeper dive on where we are.

I think, first of all, just look at the highlights, I think even in the unfavorable market conditions, Team Harvia and all the brands have been able to gain market share. That's very good. And then I think on the protecting the profitability, the team has done an excellent job in that respect, and we are in a good shape. And then I think in the outlook on the healing with the heat and the sauna penetration globally, I think market has not changed. I think we have the same targets we have had, and that's where we are heading in the future as well.

I think we've been not immune to the Russian invasion of Ukraine, and I think we have been hit directly and indirectly. And I think on the indirect area, the energy, especially in the Germany area, partially in the Europe and on our domestic country, Finland as well, has played a role. I think on the European market, it's been not the normal. All the other markets, I think, have been close to normal, if not, even favorable in that respect. North America, and I think U.S. especially, market penetration on the sauna is still on the rise. Awareness is in the rise and we've been doing a good job on the American marketplace. And then even though the other market area is small, but we've been having good inroads in the new markets, and I think we will further amplify our efforts over there.

Then in our portfolio, we have the one-stop shop covering from the entry level to the premium level for the residential marketplace as well as for the professionals. It has to be said that on the entry level, market has not changed from the previous quarter. It's still softer and very demanding over there, whereas on the luxury premium and professional market, they are normal or close to normal, depending on the geographical region where we are. Entry level heaters and the Scandinavian hot tubs have been soft. And I think the Scandinavian hot tubs is maybe something which is not a must to have. And that has been hurt the most. And I think when we look at the market by market numbers, that's where we're going to see, I think, rather dramatic changes on that one. Sauna room, very favorable still and a premium demand, very resilient on that one. And I think on the markets where we get the data from our customers in the marketplace, we've been gaining share, and I think the position is stronger than in the past.

Profitability, I think we've been enjoying clearly above 20% profitability in that respect. We've been protecting that. And even on this quarter, which has been rather unfavorable in many ways, we've been able to post a very good profitability in that respect. We've been addressing the increasing cost levels. And I think we've been getting all of that now to the prices in full. On the cost base capacity and net working capital, I think we've been taking good measures. Some of that became visible on the last month of the third period and will be fully visible during the remaining part of the year. And then I think even on the very turbulent marketplace, Team Harvia, globally, together with our partners, has done an excellent job. So very happy for the performance on that area.

As said, I think the long-term market growth is there. I think now we have bit of a turbulent times in Europe and partially the consumer confidence, especially on the entry price point, is not going to fade away fast. And I think our visibility on the order stock is going back to the normal. And I think in the past, prior to pandemic, we basically had 2- to 3-week order stock visible, and that's where we are today. But we've been able to operate on this climate and can do that in the future as well. Cost base, I think we remain very active and agile addressing that. And then on the net working capital, I think we have a good plan in place. And as long as the top line is roughly where we expect it to be, we're going to be in good shape on that one. And I think even in this quarter, we've been seeing rather good cash flow and cash conversion, and that's going to continue going forward.

On the investment level, last year, we invested quite heavily in increasing capacity, improving productivity and automation. For this year, remaining part of the year, we only do very few fill-in investments mainly on the production flow, further automation improvement of the productivity in that respect. More premium, more professional and also on the energy efficiency and energy saving area, we have good plans going forward. And on the newer sauna markets, especially outside of Europe, I think we see a very, very good progress over there. And I think markets like some of the Asian market, Japan, among others, Korea and even Australia Oceania is enjoying a rather good sauna boom, and we're going to be taking part on that.

And I think on the outlook, what we have said remains very valid. Now the hiccup with the energy and consumer confidence, when that's going to go away, then we are back to normal on that respect as well. On the profitability -- on top line, we really had a hard time and posted close to 19% decline on that one. And then on the profitability, landed on a slightly above 20% adjusted EBIT, which in this market condition is a job well done. Earnings per share, slightly down but still very healthy and favorable EUR 0.33 and operating cash flow, and I think Ari will dive even deeper on this one, a good result, but it's also good to keep in mind that during the high demand, we were making sure that our customer service is impeccable, and now we are winding down the inventories, but we will not compromise on our customer service. That's where we're going to do a good job. Net debt has been increased, and that's mainly due to the acquisition of the minority shares from EOS, but we are clearly, clearly within our guidance going forward and actually slightly below the 1.5% as we speak. And equity ratio, we're, I think, close to 45%.

When taking the 9 months, picture is slightly different, still slightly on the favorable side. So that's where we can see that the Q2 and Q3 have been very different than the Q1. And I think later when we go through the presentation, we're going to see what has been happening in the 2021 and even a reflection on the '19.

On our 3 profitable growth paths, we've been continuing very steady on the increase in value. And I think on the sauna rooms, we've been doing a very good job, and that's part of the strategy. On the other hand, I think it's good to remember that on the sauna rooms, we've not been able to book equally good profitability as we booked with the heaters and sauna-related equipment. And that's somewhat visible on our profitability. And then behind the sauna room sales, when we go deeper on the product groups, the Scandinavian hot tubs, especially on the home territory, Scandinavia, Finland and some of the Benelux market has been very difficult and we've been taking a big hit on that one. Premium professional doing very okay on the markets where all the saunas are open. And I think people have been investing. And I think still domestic travel and also a bit of a pan-European travel will be there. And I think people are ramping up some of the hotels and some of the fitness clubs and spas going forward. But energy does play a role on this one as well.

COVID restrictions are being eased out. I think China is still the only market where we see some of the saunas being closed. But I think gradually been opening and that's good for our business in that respect. U.S.A. remains strong and I think for the summer period, we felt a bit about softness, and that's mainly about the seasonality. Now we are back on the growth track again. And I think we are closer to the seasonal demand over there, which is extremely good. We've been able to expand our offering. Now we have a very small inroad into the infrared as well. And I think on the European sauna [ malls ], they are now available in the U.S. And in the componentry business, we've been widening our distribution base in the U.S. So that should be good news as well.

Asia, maybe especially Japan and a couple of other countries, that's where we see good progress. And then the Arabian countries, that's where we have lot of good projects, both on the residential marketplace and those are the high-end premium luxury. And on top of that, the hospitality industry, together with hotel chains, hotel owners, spa owners and going a good job over there. The Japan, I think we've been doing a good job with our partner, Bergman, and I think we are even slightly ahead of our plans on the showrooms. And on the sauna availability, together with Bergman and one of their partners, [ TT&E ] Group, we've been making our inroad into the Japanese sauna industry and also part of the local boom and trend over there.

EOS launch to the Scandinavia progressing rather well. And the premium seems to be solid going forward. U.S.A., we have the first orders and the book has not been shipped, still bit of challenging situation with the control units. But I think within the coming months, towards the year-end, even that one is going to be solved. And there's a good demand for EOS equipment on the U.S.

Then on the operational area, daily operations, we've been adjusting and keeping thumb on the pulse. Capacity has been addressed and adjusted. And the cost base, throughout the group, we've been addressing that, unfortunately, also including people and direct labor. And I think when you see our FTE, full time equivalent numbers, that's where some of that is becoming visible. Investments, we already discussed. And then once again, for the team U.S.A., what they've been doing on the new Lewisburg factory is good. We are clearly ahead of our targets over there and people seem to have a good spirit that can go beyond where we are today. Very happy for that.

On the EOS, I think that's, in a way, old news, just recapping, that's one reason why our net debt has increased. We are very happy that we are now the full owner of the EOS Group. And I'm very happy also that Mr. Kunz and his team continue servicing Harvia in the Central Europe and more and more for the U.S. market and Asia as well. Regarding EOS Russia, I think I will comment that in a short while when we have Russia on the agenda in more detail.

So I think this is something which unfortunately is the case. We've been impacted directly and indirectly. We discontinued Harvia business already at the month end of February, March. That's clear. The EOS Russia business, especially the prepaid projects, we've been continuing, and I think we posted close to EUR 1.5 million for the Q3. There is still some projects to be finalized towards year-end, but we are now looking for a solution where we can completely exit the Russia business by year-end. And I think we have good options. And when we have the news, we'll come out with the news and will happen before the year-end.

On the market areas, I think no major change on that one, maybe just because of the very soft hot tub sales. Finland looks even more softer than it should. And then on the U.S., it's gaining share on behalf of Germany and a part of the other European marketplace. Product group, no major change over there. And I think it's bit, in a way -- I think it's not hidden, but it looks like hidden on the 17% on the northwest corner. That's, in a way, all the rest. And that's where we also put all of the infrared, all of the steam rooms, they've been doing good. And those are part of the steam projects and spa projects we've been doing. So they've been doing good. And that's, I would say, almost full in professional or luxury marketplace. So they are intact.

Then maybe jumping on the Q3, market by market. And as you can see, it's been not an easy one. Finland, for the saunas and heaters, is actually much better than this one. Behind these numbers, I think we have almost 70% negative for the hot tubs. So hot tubs is something which is not a must for the people. And I think the installed base is still not strong enough to have replacement. So that's where we have felt the most of the pain over there. Scandinavia, roughly the same.

Our sauna sales and sauna equipment sales in Scandinavia have been rather good. But with the hot tub business, not favorable. Germany, that's more of our own sauna business and heater business, especially other European countries without the hot tubs would be slightly better. And then Russia, this is because of the Harvia exit and [ pausing ] EOS project for about EUR 1.5 million in that respect. And then North America going up and other countries, good progress over there. And I think altogether, soft on the homeland, Europe, rest of the markets, rather solid and going forward. Picture is slightly different because the Q1 was still strong on most of the marketplace. And I think for the Q4, we expect roughly the same what we see on the Q3 to continue, maybe some slight improvement, but not a big improvement in that respect.

Product groups sauna heaters still, especially on the entry level, soft and mainly in the Germany and, I would call, DACH, so Austria, Switzerland on top of that. Sauna rooms, actually very good, but this is also including the Scandinavian hot tubs, that's why it looks negative on this one. Control units, it's very close to the heater business, and they are interlinked, steam generators, especially on the entry level, getting bit of a hit, another, say, a minor hit in that respect. And then when having a 9-month look, it looks different. And so you can see that the Q3 was not very good for the hot tubs in general. On the other hand, Kirami, we are very happy for the acquisition. The team has done a good job, and they've also been converting, and they have a very nice ready-made sauna business under the FinVision brand, that's booked on the sauna rooms. So that's doing rather well in all the markets.

Then having bit of a, maybe, reflection and projection from the '19 to 2021 and this year and quarter-by-quarter. And I think in the past, it's good to remember that this is -- normal seasonality in the sauna business has been so that the Q1 and Q4 are strongest and then you have 2 quarters in between. During the pandemic, the market has been a bit different, and we've been partly guilty for that one as well. We had a very, I would say, thick order book, and we've been pushing the thick order book forward. So that has made the quarters more even. And I think, on the market demand, the dynamics have not changed. But due to our order book and ability to deliver, they've been more steady in that respect. And now I think, going forward, we are approaching more of the similar pattern as we've been used to have in the history. I think it's also good to note if you basically cut out the pandemic on this picture, Harvia is still in a very good trajectory and doing good job in that area, both on the top line as well as on the bottom line. So in that respect, we are on the right track.

And then I think we did a bit of an analysis on the pro forma basis where we are. And as I said, we aim to grow more than 5% per annum, and we've been exceeding that quite well. On the left-hand column, you have the reporting figures as is. Next to it, you have the '19 figures, pro forma basis, as if the companies we have acquired would have been on board already in that time. And then we have today's reporting figures on the Q3 on that one. And that shows that we've been having about 15% growth on the top line, and we've been having 28% growth on the adjusted operating profit. And when you extend the horizon to 9 months, then the numbers are roughly on the same horizon, 22% on the top line and 34% on the bottom line. So I think we are on the right trajectory in that respect.

Then I think just a reminder, Harvia intends to play in all of the 3 sauna types, and I think we'll be rather advanced in the traditional Scandinavian sauna, where our game is in a good shape, and we've been gaining share. On the infrared, I think we have initial inroads, and, as such, the development looks good. But our baseline is still very, very small compared to the big players on the infrared and we are looking for opportunities in that area. And I think maybe the market dynamics will ease out a bit on that one. But we'll see when we have good targets either to team up or to do some of the M&A, I think we remain open and active. And the same applies for the steam. On the bottom left corner, we have our new steam room in Nova. This is the name. We've been having the first showroom orders for that one, and they're on display in some of the markets. But I think to become a big player in the steam business, we need to do something more than that. And I think we have some of the game plan in the books and some of the game plan is on the M&A activity and arena when opportunities do arise.

And then I think we're going to stay loyal for the increasing of the average value of the purchase. And I think that's where we have a good road map, what to do, how to do. And I think even though the energy is maybe a bit of a challenge for that, there is a big installed base of 18 million saunas and some of our very basic and practical solutions can help to increase the energy efficiency of these saunas. And in our innovation pipeline, we have quite good ideas and good projects, how we can do it. Unfortunately, they are not available immediately. They will become available in the 6 to 12 months going forward. And then on the geographical expansion on top of the usual suspect markets, the newer sauna markets, we will increase and amplify our effort over there. And I think we have a good traction on that one. And on the productivity improvement, I think even on the tough times, we are increasing our productivity, and we are monitoring our cost base, cost level extremely carefully. And then on the net working capital, we still have room to improve on that area.

Then I think I will pass the word to Ari. And I think after that, we are ready to entertain questions and comments. So thank you from my behalf. Ari, please.

[Ari Vesterinen, executive]

Thank you. So hello once more. Part of these figures are already very well known for you after Tapio's presentation. But really, we have had, during the very tough times also, still a very good profitability of over 20% of the adjusted operating profit out of the sales, about which we are actually quite happy in the current circumstances. We've been cutting costs in different levels, and it's actually visible also in the number of employees at the end of the period. We had still, end of Q2, 90 employees -- full time employees, more than now end of Q3. So we've been quite actively looking for the productivity in all areas. And actually, we are working on that still and adjusting our capacity and cost base to have a reasonable profitability level.

The net debt, as Tapio said, was increased only because of the EOS acquisition. And currently, what is good is we are back on track with quite high operating free cash flow. When we IPO-ed the company in 2018, we thought that we have a strong cash flow. We have had a strong cash flow also during the years in between, and we've been able to finance acquisitions and so forth out of our cash flow. But during the pandemic years, we were increasing the net working capital quite heavily in order to have enough stock and availability to serve the customers. And now we are able to reduce the net working capital back, and we are slightly reducing also the level of investments, and this shows up in the rather positive cash flow, which I expect to continue also during the next quarters.

Here, you see the -- how the situation in the free cash flow has changed and the cash conversion -- okay, in the long run, it can be over 100%. But we've been historically somewhere between 90% to 95%. And now we are back quite close to that level. And especially during Q3, it was the case. The net debt, even if it increased during Q3, we are still with our leverage, that's the net debt divided by the last 12 months EBITDA -- adjusted EBITDA, we are still under our long-term targets. Our long-term targets are between 1.5 to 2.5. So there is room to maneuver also with the internal cash sources or, yes, pay dividends or whatever. So we are in a very, very strong cash position still.

The net financial items, they have been favorable for us during the last quarters. So actually, we have been making, in IFRS reporting, profits with our net financial items. In fact, the cash flow of the interest and so forth is, of course, normal, approximately 300,000 per quarter. But since we have had some interest rate swap derivatives, which have now, in the current interest environment, quite positive value. We have been able to book profits out of them as well.

As you see, the investments of tangible and intangible assets, they have gone down. We have plenty of capacity we have invested last year very well. And now the investments are more for the small-scale productivity and replacement investments. And this seems to continue also quite a while. The Harvia shareholder structure hasn't changed very much. The share of the non-Finnish shareholders has gone down compared to last year to some extent. And then the households -- Finnish households have been buying quite much Harvia shares. So as you see, end of Q3, we had almost 46,000 shareholders, including the nominee registers. So it's already quite a substantial amount of shareholders and potential customers too. So we hope that we can satisfy everybody also as a shareholder and as a customer.

We haven't changed our long-term financial targets. We are still loyal to them. The pandemic -- during the pandemic years, we've been asked, is this too low or whatever. But this is a good minimum level of growth in the long run and profitability and leverage that was discussed also. Harvia is also a good dividend payer. So our plan is to pay, regularly, increasing dividends and 2 times a year. And in fact, we paid recently at the end of October EUR 0.30 per share, the second dividend installment for this year.

So any questions?

[Tapio Pajuharju, executive]

Yes, now it's time to entertain questions, comments. So I think we are ready, and I think we first take it from the phone line.

[Operator]

[Operator Instructions] We will now take our first question. [Operator Instructions]

[Unknown Analyst]

Yes, this is [ Jonathan from OP ]. So I have a few questions. If we start with the inventory situation in the distribution channel. Could you update us on that? How is that looking at the moment?

[Tapio Pajuharju, executive]

Yes, I think that's a bit of a mix. And I think on the some of the Central European, especially the e-commerce players, their inventory still is, I would say, on the high side. On the other hand, they tend to have also lack of certain products. So I think that's changing. And then for the Scandinavia, Finland included, I think, on the retailers and professional partners' inventories, not high, but I think perception still is that, hey, we need to reduce inventories and do destocking. As a matter of fact, the demand is clearly higher than their ability to fill in the stock. So I think that's going to be balancing out going forward. And outside of Europe, I think they are normal.

[Unknown Analyst]

Okay. And then moving on to the Russian sales receivables. How has the collection proceeded? And how should we look at those going forward?

[Tapio Pajuharju, executive]

We've been able to collect some but maybe, Ari, you can respond on that one.

[Ari Vesterinen, executive]

Yes. We made quite a high reserve of these receivables at the end of Q2. During Q3, we have been able to collect a few hundreds of thousands from Russia, old overdue receivables, and we have payment plans, which we follow thoroughly. And so we didn't make any additional credit loss reserves now at the end of Q3, since we are looking forward to get our money from Russia.

[Unknown Analyst]

Okay. And would you be willing to share the quantity of those receivables, what's the backlog here?

[Ari Vesterinen, executive]

Yes. We have still about EUR 1.5 million receivables, which are not reserved in open reserves in Russia. But currently, money flows in, in small payments.

[Unknown Analyst]

Okay. And then moving on to material component and logistics prices. I think you touched on this topic already a little, but could you perhaps provide a little bit more color on the -- how do you think these -- the prices of this will develop going forward? Do you have any visibility?

[Tapio Pajuharju, executive]

I think we have some visibility and maybe starting with the logistics and on the overseas logistics, I think they tend to go down, nothing already quite drastically. And in some of the legs, they are getting closer to the normal before the pandemic. On the other hand, in certain routes, they still remain high. Even though they are maybe 50% down, they are still double the price they used to be. So there is bit of a variety on that one. On the key raw materials and componentry, I think we are seeing bit of a balancing, if not, even decreasing.

In some of the areas, energy plays a role and like glass and some of the steel grades, they are rather energy-intensive. That's where there is still something to be done and wood materials, they've been gradually going down. But I think overall, now we are in a good shape with our prices being adjusted. And I think, yes, if something happens, we still have room to operate and adjust. But overall, I think we see a bit of a balancing act happening as we speak.

And then on the electronics, I think that's the only area where there is still a bit of a lack of componentry, and you need to have alternative componentry available and the prices, they have not gone down, but I think they no longer go up either.

[Unknown Analyst]

Okay. And then finally, you have very different sales development in -- when we compare Europe to America, for example. Is this mainly due to the different energy situation? Or is there something else impacting the numbers also? If you could perhaps talk about this a little.

[Tapio Pajuharju, executive]

I think the energy tends to be on the headlines, on top of mind, especially the people at our home country, Finland, roughly the same in Germany. And I think Germany people always been very careful with the spending. And I think they remain to be very careful with the spending. I think the willingness and the idea of having sauna has not changed. But for some people, the ability to acquire and do things, that has been, not disappearing, but will be postponed. And the consumer confidence on the entry level has been, I would say, maybe even deteriorating on the very entry level and the people who are on the middle class and upper middle class, they can still act and do. The people who are not on that position, they need to wait, and that's what we see.

And then on the U.S. energy, it's on the agenda, but it's mainly on the gas station, what is the price on the meter? Electricity, not so much. And the consumer confidence, yes, it's an issue in the U.S. as well. But usually, sauna in U.S. is not for the -- I would say, everyone. It's already a very selected group of people who are having interest. And their main motivation is to keep good care of themselves and their close families. So I think that motivation has not changed, remains strong. And remaining rest of the world, I think the same phenomena continues over there. And I think only -- if there are lockdowns due to the pandemic or lockdowns due to the energy availability, that may impact our business and our game going forward.

[Operator]

[Operator Instructions] There are no questions in queue. So I will now hand it back to the speaker.

[Tapio Pajuharju, executive]

Thank you. And now, Ari, I think we can entertain questions from the chats.

[Ari Vesterinen, executive]

Yes, we have plenty of questions here from the chat. So let's take the oldest first.

Can you estimate time line on return to organic revenue growth?

[Tapio Pajuharju, executive]

A very good well-founded question. I think we've been estimating what can happen and how it can happen. Unfortunately, the war has a impact on this one, and if there will be a solution fast, I think there are going to be some kind of a rally going forward. But if there is not a solution, the energy issue will drag on for some time and especially on the Central European marketplace, potentially in Finland as well.

On the other hand, the people who really do calculate and can calculate, when they do the math, and especially in the areas where you need to heat up the property, in any case, it's actually not the cost at all. It's more of a rounding up of the numbers. But I think if I would have the crystal ball, I would say that, okay, still for some time and maybe towards spring, summer next year, it will start easing out. And on the other hand, if the war will be solved one way or the other, I think then we're going to see a very fast recovery. But energy prices most likely will not go back to the same, and that's why I think we tend to work very, very diligently on the smart energy, energy efficiency and all of that solutions. So I'm afraid, I'm not able to give you a very prompt and good answer, but that's how we feel.

[Ari Vesterinen, executive]

Profitability, is it possible for the company to return to the levels of 2021 in 2023 in terms of relative profitability margins?

[Tapio Pajuharju, executive]

Once again, also a very good question. And I think maybe answering a bit from a different perspective. I think now we are in a shape where, rain or shine, we should be able to do plus 20% EBIT. And I think, going forward, if something really bad happens, we may go slightly down. But I think, in general, that's the status where we are. And if we get bit of an incremental volume to the system, then we can return closer. And if we get closer to the volumes we used to have, then we can go even beyond. But there is a volume impact on the business. And that part is dependent on the underlying volume for the business.

[Ari Vesterinen, executive]

How does the management view megatrends affecting the industry? Will Harvia get support from these megatrends in 2023?

[Tapio Pajuharju, executive]

I think we, at least, will not get headwind. I think energy may have some headwind for the new sauna markets, but they've been not impacted. And then for the installed base of the 18 million, I think energy efficiency is also presenting an incremental opportunity to do business. And I think that's where we're going to play. The other megatrends, I think they are either neutral or favorable for Harvia. That's how I would see that.

[Ari Vesterinen, executive]

Another question about the EBIT levels. In some interview, you said that, it will be something between 22% to 27%. When do you think that -- or what do you think, when we will be between this range?

[Tapio Pajuharju, executive]

I said also on the previous question, we are not that far. But I think what we need to get is to get more of a normal market dynamics. When the top line is taking a hit of close to 20%, not doable, but when we are closer to the normal, for sure, we can return. And there is not a long way from 20% to 22%. On the other hand, it's a rather long way from 20% to 27%. So that will then need to have something else fixed as well. But if the volume is there and the markets are normalizing, we're going to be landing on that range.

[Ari Vesterinen, executive]

And a question more of the finance. Are you expecting increase in net debt in 2023?

Well, we explained that we are improving our free cash flow and the cash position will improve. So we are not expecting the net debt to increase, provided that we don't buy some new companies. But if we acquire a company with new debt, then the situation may be something else. But the normal business going forward is very cash-generating and reducing the net debt.

Exit from Russia. What are the biggest risks for Harvia for that exit?

[Tapio Pajuharju, executive]

It's still not in the pocket yet and many things can happen in Russia. But I think the way we've been evaluating the options, we should be in a good shape. And we try to exit with an amicable solution for everyone. If that would not happen, then there would be some [ write-offs ] which are bigger than what we expected. But I think, within soon, I think we are not far away from the year-end. So hopefully, we can soon announce our actions in Russia.

[Ari Vesterinen, executive]

Are you expecting the good progress in North America to continue? And are there any significant risks identified?

[Tapio Pajuharju, executive]

I think on the risk side, nothing major. I think the consumer confidence plays a role over there as well and people's willingness to spend money. But I think usually Americans have had that. When there is something they want, they will act. Energy is an issue, but it's not a big issue in the U.S. and on sauna, energy consumption is not very important in that respect. Competition, for sure, is changing. We have been -- during the past 3 years, lot of new entries into the U.S. marketplace. But I think, in general, I don't see any major risk in the U.S. Sauna penetration in U.S. is still very low and it's also rather regional. We now see that it's becoming a nationwide issue and it's not limited to U.S.A. only, it's fully North American.

And then later, there are inroads to the Latin America as well. And people say, it's a bit of strange, why in Latin America, but I think the same trends, people want to keep good care of themselves, they go to gym, they want to live good long life, and they've been traveling elsewhere. And if they enjoy the sauna, they will build the same wherever they live. And I think that's what we're now experiencing in Latin America. So I think it's not going to go away and no major risks in that respect, more of an opportunity.

[Ari Vesterinen, executive]

On the Scandinavian hot tubs, was Q1 still solid for Harvia overall? And was the sales of the hot tubs already on clear decline in Q1 '22?

[Tapio Pajuharju, executive]

Now this is out of my head and based on memory, what I remember, for example, from the domestic marketplace, there are preseason sales and preseason sales on last year, January, February, March were still normal, if not strong. And then I think the same applies for some of the Scandinavian market places. So I'm afraid, that's ahead of us going forward. On the other hand, I think now we have also reached a bottom with the Scandinavian hot tubs. And it's not a winter product, it's more of a summer and a summer season product. And I think people still -- the people who can will invest. And then this is not energy-related. They are mainly wood burning heated. And in that respect, for the coming season, '23 spring/summer, expecting to see better than we see today, most likely not the same as we had on Q1 '22, but better than we have today.

[Ari Vesterinen, executive]

Increasing interest levels, are they affecting Harvia significantly?

I think there are 3 different components in this question. First of all, the increasing level -- the interest levels are now increasing, and we have actually hedged them very well. Our hedge paper, the swap agreement, is increasing in value. So we are actually currently booking profits out of the increased market price level on paper, but not in a cash flow. In cash flow, the interest, what we pay, we have covered us very well for the coming 4, 5 years.

So it doesn't affect our cash flow very much. Only the, let's say, the accounting profit of the increasing interest levels will someday fade away. But it doesn't -- we are very well covered against the real interest payments. But then the third point is actually the consumer confidence and the people paying higher interest for the mortgage and so forth, so it's difficult to measure or estimate.

What do you think? How does it affect there?

[Tapio Pajuharju, executive]

I think directly, does not impact a lot. On the other hand, we do monitor what is the ratio of new building permits and in many of the markets, it does have no link to Harvia in general. But I think decisions to upgrade homes, decisions to build new homes and maybe bigger renovations, people may think twice before they do it. So I think in that respect, it may have an indirect impact. The indirect impact is somewhat unfavorable, I would say. But outside of Scandinavia, partially maybe Germany, sauna is not for everyone. And I think people usually don't build the sauna with their last penny. So in that respect, we -- I would say that we are rather neutral on that respect.

[Ari Vesterinen, executive]

Why Harvia does not publish short-term outlook?

[Tapio Pajuharju, executive]

Yes, good question. And I think the past 3 years have clearly indicated that that's maybe right. The visibility in our market horizon is short, and many things can happen. But I think the long-term targets we have said and given, I think they remain intact. And I think with these reviews, me, Ari and the rest of the team, we try to give a flavor, we try to give bit of a, I would say, deepness behind the numbers. So I think that should serve as an incremental information on top of the long-term financial targets.

[Ari Vesterinen, executive]

Are there any SGA, that means headcount, or overhead cuts to come in future quarters related to leaving the Russian market?

[Tapio Pajuharju, executive]

I think in Russia, we did not employ a lot of people and the right number escapes my head, but I think we have like 20 people still with EOS Russia. And when we do that, then we will no longer have people in our payroll in Russia.

[Ari Vesterinen, executive]

But generally, the Russian business hasn't been [ doing ] very much marketing money or similar investments lately.

How much would you say was the impact of distributor destocking of the around 20% sales decline?

[Tapio Pajuharju, executive]

I cannot give an overall answer, but I can take an example of one market we know rather intimately. And when we see the -- taking Finland as an example, when we see the sales out of our customers on the professional market, they are with a plus. When we see the retail business for the residential marketplace, they are with a, maybe, 0 or small negative number. And then what you see on the Finnish number was minus [ 30 ]. Let's put it that way, that roughly half of that is the hot tub, roughly half is then the destocking. So that's what you have. It's a double digit. I cannot say what is the last number on that one, whether it's a [ 3 or 6 or 7 ], but anything on that magnitude.

[Ari Vesterinen, executive]

Then there is a question, what is the inventory mix between purchased components and semi-finished and finished inventory?

We will publish that with our annual report. So it's not published during the interim.

[Tapio Pajuharju, executive]

And I'm sorry, I don't have that clearly in my head, so I cannot answer that.

[Ari Vesterinen, executive]

What has been the growth of the global sauna installed base between 2019 and today? How many new saunas have been built in 2020 till 2022 period?

[Tapio Pajuharju, executive]

Wow, very precise question, cannot, out of my head, remember the numbers, but take a look from -- we did a rather good study with the Boston Consulting and then we upgraded even that number during the journey. When we IPO-ed the company, I think, and, Ari, please correct me if I'm wrong, we had roughly close to 16 million saunas on that moment. And today, we estimate that there are roughly 18 million saunas on the marketplace. So then you can take a time line on that. And I think during the pandemic, the penetration really got a different trajectory. But I think, overall, the line is rather steady without the 1 year on that trajectory.

[Ari Vesterinen, executive]

There's one question, which was partly already answered, but I ask it anyhow. North American sales grew by 20% year-to-year. Do you think your client base is less vulnerable to inflation as the sales is still performing? Or is the sauna penetration just so low that the bigger trends like healthy living are overruling the inflation concerns?

[Tapio Pajuharju, executive]

I think, in general, the sauna penetration is still extremely low in the U.S. I don't have the full income profile of our customers. But what we see is that these are the people who can put, I think, the lowest price you can get a sauna in the U.S., maybe $3,500 and the average prices may be only between USD 5,000 and USD 6,000. So these are the people who can put, on their credit card, this type of an amount on one go and don't have to think twice. So I think it's a bit of a -- I would estimate them to be on the upper middle class, entrepreneurs, local guys who have room where to put an outdoor sauna or build an indoor sauna.

So I think these people are not so much impacted on the inflation in general. But on the other hand, they are not immune to the psychology either. So I think they monitor what is happening in the marketplace. And we realize that even on the super-premium people who could afford whatever, they are now thinking also very economically. And I think the crazy, crazy expensive things are now over for some time, which is, in a way, good for us because we tend to be on the good value for money price point in general, even on the luxury.

[Ari Vesterinen, executive]

The other countries showed year-to-year growth, but comparing to Q2 or Q1, the Q3 sales was clearly lower. Is there some seasonality explaining this or what's impacting there?

[Tapio Pajuharju, executive]

I think, in general, the demand has been good and solid, but I think still on the Q2, we did push some of the nondelivered orders to that quarter. And now I think our order book is very close to normal, also in the sauna business. So we don't have any big order backlogs in the books.

[Ari Vesterinen, executive]

Okay. Kirami has been already partly discussed, but I'll read the question anyhow. Could you comment on the sales contribution from Kirami? Total sales in Finland of EUR 6 million looks low relative to acquired Kirami sales of EUR 22 million and perhaps EUR 5 million to EUR 6 million expected in the summer quarter for Finland from Kirami.

[Tapio Pajuharju, executive]

I think Kirami, as a company, have done a good job. The team has done a good job. And when we acquired the company, we knew that maybe the top line is not exactly that. On the other hand, we also had that on the valuation and we're still very happy for the deal and acquisition done. And I think now we are learning that the hot tub is something which is rather sensitive and is a nondiscretionary spending for most of the people.

On the other hand, when we get closer to the summer period, not all people can travel, they will spend time at home, they will spend time at their family and friends. Then I think hot tub will come into play as well. And then on the wood burning issue, I think that's also not a bad idea to have that on this type of an energy situation. On last week, there was an interbad show in Stuttgart. We didn't present any of the hot tubs over there because we thought that is maybe not the right time, not the right place. We saw quite many others doing that, and we saw good attention over there. So I think it will come back and now we just had a very, very soft period.

[Ari Vesterinen, executive]

In the first 9 months of 2022, you reported an organic revenue growth of minus 4.7%. Could you give us an idea about the price volume split?

[Tapio Pajuharju, executive]

I don't have that out of my head. But I think when having a look on our prices and the price adjustments we have done, we are clearly on a double digit, and the first number is not 1.

[Ari Vesterinen, executive]

Yes. There is -- next question is also, what about your change of average selling price in the quarter? In prior quarters, you have said net benefit in H1 was 5%, still the case in Q3. It's all about price increases and how much they bring. But...

[Tapio Pajuharju, executive]

I think on a year-to-date, compared to prior year, the same period, I would say, it's a double digit and the first number is not 1.

[Ari Vesterinen, executive]

Could you share some details around the growth in the last couple of years? Was it mostly driven by the newbuilds and bringing new users into the category that will help the replacement market in the next, let's say, 10 years?

[Tapio Pajuharju, executive]

A newbuild in certain areas has taken a different -- it's been going up. But I think during the pandemic, had taken a bit of a different trajectory and maybe even some of the replacement. When people spending more time at home, they've been doing renovations not only in the bathroom and sauna but all over the place. So that was bit in the books during the pandemic. But I think, in general, the installed base has grown from 16 million to 18 million. That's very important for us, and installed base keeps on going up. It also keeps becoming more and more global in that respect. And all of that is good news for us. And our market shares in the heater and equipment were -- basically during the lifetime of 1 sauna, say, it's 20 years, during that lifetime, you will replace the heater and maybe some of the benches and other componentry 2 or 3x. That's, in a way, good news for us in any case.

[Ari Vesterinen, executive]

You mentioned in Q2 call that 2022 market growth in value could be some 10% and then continue with historic 5% in 2023. Is this still your view?

[Tapio Pajuharju, executive]

I think the overall market look is that. But then I think no one -- not me and none of my colleagues were able to predict what's going to happen in Ukraine and how the impact will be for our company. That was beyond our horizon and beyond our screening. Now we are living that. I think, without this incident, I think we would be roughly on that plan.

[Ari Vesterinen, executive]

So ladies and gentlemen, that was our last question in the chat. If no other questions will come, then...

[Tapio Pajuharju, executive]

Usually Ari is asking very difficult questions and now I start to expect that the last question was his question, but maybe it was not.

[Ari Vesterinen, executive]

No, it wasn't. It was one analyst.

[Tapio Pajuharju, executive]

Okay. Okay. Very good. Hey, thank you for good questions. Thank you for the attention. Wish you a good day. Take care. Bye now.