Hello and welcome to InderesTV. Today I'm in the studio with analyst Rauli Juva and we are talking about Harvia. Hi Rauli.

Happy to be here.

So let's start with the Q1 revenue estimates.

Yeah.

Harvia clearly exceeded them, and growth was entirely organic. What happened? How did this happen?

Yeah, well, obviously they are generally on a good growth track, but for Q1 specifically the company had commented that we knew that in North America in particular there were quite good comparison figures, so I think generally in the market there was a thought that, and also actually, yeah, the US dollar had declined, so it was kind of the last quarter which had a clear negative impact from the USD, so those two combined led to most analysts expecting that the US growth in euros would be quite modest, but it wasn't, so they were able to grow quite nicely and then continue to basically grow in all other areas as well. But in Europe and the Asia-Pacific area they exceeded the expectations. So it was broad-based, basically.

Okay. So, like you said, the fastest with

Yep.

30 percent growth. And our expectation was around 20.

Yep.

Even though deliveries in the Middle East were slightly disrupted due to the war, of course, do you expect that the numbers could have been higher without the war?

Yeah, they could have been a bit higher, and that's not a huge impact, as we were talking about a few hundred thousand or whatever level. That's a minor thing, and also the company said that in total the Middle East area is like 2 percent of their business, so then they have not lost all of it now, so there's just some deliveries they couldn't make they could make, so overall it's not a huge impact to the company, but it definitely did show and will show probably in Q2 as well somewhat in the growth, but it seems not to be hampering too much.

Yeah, nothing to be concerned about. I mean, since the share is so small, I suppose. Harvia commented that the Muurame plant process modernization would temporarily, at least to some extent, delay deliveries.

Yes.

What other consequences or how would this affect the company?

Yeah, yeah, they you know, they typically don't really give guidance or forward looking comments, but now they told that there will be a shift of sales for a few million, 3 to 5 if I remember correctly was the wording, so from Q2 to Q3 because they kind of can't deliver when they do the change. ramp down the factory, which is their biggest one in all of Harvia, especially for the heaters. It's the biggest factory, and during that time when they are not producing they actually still have the costs related to that because people are working there and doing the changeover. So that will hit quite clearly the profitability of Q2 then, and there might be even some extra costs related to the change. But maybe the biggest thing is that they are not selling and they are still having the cost, so that's why we are expecting Q2 earnings will be quite weak, I think. Q2 last year actually was also quite a weak quarter, so it's not a huge drop compared to that. But it would be a soft one, which will be then partly compensated in Q3, but not completely, because there is this kind of a cost impact.

Mm. Yeah, so basically it'll cause softness at least in Q2 and

Yeah.

possibly somewhat in Q3 as well.

Yeah.

Yeah. How do we view Harvia now shifting its strategy towards what it calls holistic sauna experiences instead of just selling the heaters.

Mm hmm.

If you look at margins, is this a risk or an opportunity? Can they maintain the plus 20% EBIT with these holistic solutions?

Yeah, well, short answer is yes. But it depends a bit what we are talking about. They have been obviously in this path for already a, well, at least since the. IPO eight years ago they have kind of been aiming to increase the average purchase and kind of get their share of the market, and they have so far mostly done that by going into the complete sauna rooms instead of just heaters. And that is their main business in the US, and hence it has been growing quite well, and there the margin was before, I think, a bit weaker, but they have been able to get it roughly there. They don't publish it, but my understanding is that it's roughly much on par with the overall group. And when we're talking about holistic experience, that basically just means that they will want to go more also into steam, which they have already in the portfolio, and then maybe further on infrared also more pronouncedly instead of just a traditional sauna. And the margin profile or the opportunity should be pretty equal in those, so I don't think that should be a big thing for the margins as such.

Yeah. Well, when we discuss Harvia, we always talk about M&As, we can't avoid it. So the balance sheet certainly would allow for a transaction. When would you expect one maybe and what could it be?

Yeah, well, I think we talked about this a bit before, but the obvious target now is, like I mentioned, that they would like to go more into the infrared sauna business, which is kind of the last of the three main sauna types they are lacking or they have something, but they don't really have the... know-how in the in the company at the moment, so if they would would find a suitable target uh in the infrared market, that would definitely be uh their their or is the probably the main main thing they are looking for. And w when will that happen of course no one no one knows uh uh in in terms of timing it's now Two years in the summer since they bought this Thermosol steam company, and like you said the balance sheet is already quite strong, so in that sense I think the organization would be ready to do it. Maybe after this big change in Muurame in the summer, if they have that kind of behind them, they should be able to kind of basically go open another integration project, so hopefully they will find something. And the company indicated in the previous quarter, after Q4, they kind of hinted that something might be cooking, but now after Q1 they didn't give a similar signal. So maybe there was something going on which didn't materialize, I don't know. But we definitely know that there are always plans and discussions going on in the M&A space. So let's wait and see when something

Hmm.

materialises.

Yeah, so if we had a crystal ball, I guess.

Yeah, it it can be of course be, of course, something smaller as well in the meantime and some bolt-on things, but this infrared thing would be kind of the main strategic and maybe a bit more, not transformational, but still more meaningful for the long-term growth.

Hmm. And then to wrap it all up, what about our valuation and recommendation?

Yeah, the valuation went a bit up, obviously, with the share price increasing quite nicely on earnings day. It's some P/E 22 and something now for this year, so it's definitely not cheap, but given the double-digit earnings growth we are expecting and very, very good quality and returns on capital of the company, I think that it's definitely in the acceptable range, and then you get a quite nice expected return purely from the earnings growth and a small part of dividends, so we came down from the Buy rating to Accumulate once the share appreciated a bit, but definitely continue to see positively the company as well as the share going forward. Thanks.

Thank you, Rauli. You can read more about Harvia at inderes.se and if you have any questions you can go to our forum and ask and ask them directly from Rauli.