Harvia Oyj (HARVIA) Earnings Call Transcript & Summary

Hello, again. And sorry for the technical problems and challenges. My name is Tapio Pajuharju. I'm the CEO of the company. And next to me, we have Ari Vesterinen, our CFO. I think the technical team maybe got carried away when Finland finally got some medals in the Olympics and they forgot that we have a live show to perform. So sorry for that. But all in all, let's go to the topics of today. We are very happy and proud of what the team Harvia has been achieving. It's all-time best top line with an excellent profitability. And the strong revenue growth continued during the Q4 in all of the markets and in all of the product categories, we did experience some of capacity issues and availability, mainly in the sauna rooms as well as on some of the electronics and control units. All in all, we have gained market share in all of the markets. And as a totality, Harvia became the #1 in the sauna spa market globally, an excellent achievement in that respect. Then on the finishing of the year, especially for the sauna rooms for some of the professional and premium equipment. We finished the year with a very high order stock and gradually taking that on the marketplace. Awareness of the sauna and especially on the health benefits for the ones who will be monitoring the situation for longer term. You see that on top of the North America now sauna benefits on the headlines and on the social media in Asia, Australia, Oceania, and then the people who are monitoring their health and performance. The first application is ordering. They added on the third-generation version sauna as one of the physical exercise, you can tag it on the [ Aura ] experience. Then the ones would be longer on board, remember that during the pandemic time, north of the Alpine region, especially for the do-it-yourself and entry-level market, we've been enjoying a bit of an advanced demand. That continues, but I think what used to be hot is now warm, and it's normalizing in that respect. At the same time, for the southern part of Europe, Arabian markets, Asia, especially, all of the professional market has been in a way lockdown or closed. Now they are gradually opening and gaining momentum, and that's good news for us going forward. Then keeping in mind, it was not a normal year. We've been challenged by the availability of the key componentry raw materials, pandemics, cost inflation, team Harvia has done an excellent job, and I would like to pass my warmest thanks for everyone on board. Amazing work done. You should be proud of what you've been achieving. Very happy for that. Then on the investment front, increasing capacity and productivity, not the normal year. The ones would be longer on board, remember that we've been investing between EUR 2 million to EUR 3 million on a given year. This year, a very special EUR 11.8 million. Very happy to say that all of the investments are on time, and they are on budget and exactly what we were planning to do that. Last week, we had the official inauguration and the ribbon cutting of the Lewisburg facility in the U.S. They've been already operating for a better part of 2 months, but it was officially opened and very happy to also announce that we are slightly ahead of the initial targeted capacity. So they've been doing a very good job. And we still have room to improve on that respect. The EOS facility, where we have upgraded the main part of the machinery in the metal area is now fully installed, up and running, and enjoying the increased capacity and productivity. That's good. Muurame expansion with the new machinery is ready. We are still moving some of the old machinery in line with the new machinery, and that's going to be happening in the first quarter of this year. And then on the warehousing capacity at the Sastamala Kirami factory, we doubled the incoming and outgoing warehousing and logistics capacity over there. That's fully in place and operational. And then the Romanian facility has been completed, but we started, I think it was end of October, the second phase for the sauna factory expansion, and that is getting ready as we speak. Then on the recently acquired companies, Kirami integration is progressing well. And I think we acquired a hot tub -- still water hot tub company. But lately, we realized that we also, on top of that, got a very good innovation pipeline, very good NPD pipeline in the forms of the hot tubs, but also in the sauna and related categories. And I will tell more about that in a second. Sauna-Eurox, the sauna sustainable high-quality, safe sauna stones company has been onboarding well. And it's a bit of a job, but I think the only issue where we've been having issues is that they support a very different hockey team than the people in Muurame and we've been exchanging jerseys. So everyone is now happy and we are in the same family. So that's good. Team EOS has made a remarkable job in the professional premium market. And then lately, we've been introducing EOS to Finnish marketplace, Scandinavia, especially Sweden, and those are progressing according to plan. Then the U.S. approval, even though we have filled in all the applications we can, some of the components we keep on changing because of the availability. And we are late and we will come out with the approval during the first half of this year. On the other hand, the distribution network and everything is ready. So when we have the product available, then we can hit the ground running on that respect. Then of the numbers. I think this is for the ones who have been reading the news from 9:00, old news, but a very good solid top line growth on the exchange rate giving a bit of a tailwind this time. And then on top of the organic growth, for sure, we're enjoying a healthy growth from the Kirami and Sauna-Eurox in that respect. Solid profitability, EUR 11 million, good improvement compared to prior year. The relative profitability takes a bit of less than 1 percentage point down, and that's mainly due to the product mix and then of some of the newly acquired businesses having less than average profitability of the old Harvia. Now when you make the math, that's the outcome. But it's good -- very good solid performance in that respect. Earnings per share, EUR 0.44, a good improvement and cash flow, very solid, keeping in mind that we had a very heavy investment and then also increased intentionally our net working capital, especially the inventories of raw material and componentry. And we've been able to keep a very good solid customer service level in that respect. Then the full year numbers, I think this is also very -- good news, altogether, top line performing well. Revenue altogether in all of the markets, solid and all of the categories. Operating profitability, very nice, and almost doubling from the prior year. And then on the earnings per share, yes, we more than doubled the earnings per share. Cash flow, still a very good, solid EUR 20 million, keeping in mind that we have acquired 2 companies out of the pocket, and we paid EUR 11.8 million for the CapEx is out of pocket. And then we've been preparing for the net working capital to have enough inventory to keep our customers happy. Then taking the 3 strategic paths we are working and first of all, on the increasing of the value of the average purchase, we can say that the premium models and the professional models have been gaining speed. And then on top of the cross-selling, we realize that people have been applying for more versatile, more advanced models, and that's visible in the numbers. And the professional channel, it's up and down depending on the lockdowns but currently gaining momentum, and that's good news for Harvia and especially for the EOS offering thereof. Sauna rooms enjoying a very healthy growth in all of the markets. And if we would have the capacity, we would have boosted clearly the top line. On the other hand, our order stock is healthy and solid going forward. So in that respect, good. Then on the Kirami, I think we've been favorably surprised of their innovation capability on the ready-made sauna markets. And later in the presentation, we show one of the models which has been gaining a lot of attraction. And I think we have a lot of mileage with that one. And altogether with the Kirami team, we are committed to take that on the market, especially for the European marketplace and potentially also for the North America. So we'll come back on that one. Then on the geographical expansion and mainly, I think the first bullet point, this is for the domestic investors and domestic media. Sometimes, we've been asked, hey, what about your business on the export markets and outside of Finland? Very happy to say that it's growing fast. And as we speak on the last quarter, it exceeded 80% share off of the total revenue. And for the full year, it's slightly shy of 80%. So most of our business is outside of Finland. And the market growth, I think, Finland is roughly slightly shy of 10% of the global sauna market, so 90% of the market is outside of Finland. That's where we are focusing. But we will not forget the local domestic market, and I think we'll maintain our level of innovation and capability of driving the market forward also in the domestic marketplace. I think on the last quarter, the other markets were very favorable and they were boosting the business, mainly thanks to the reopening of the markets. Asia, showing signs of recovery. Australia, Oceania picking up on the sauna trend, especially for the health-related consumers. And then on the Arabian markets, the projects are coming into play again, which is good news. Japan, where we've been operating, I think, for more than 20 years, but it's been marginal and then focused on the equipment, mainly on the entry-level equipment, together with our new partner, Bergman. I think we've been upgrading. And together, we became a holistic player in the sauna spa market for the Japan. And I think we are still in the early stages of the journey for there. So very favorable on this topic. In Scandinavia, it's a pity that we don't have Nielsen index supporting us. But I think altogether, when we see what is happening with the marketplace, we are at par or ahead actually of the current market leader. So the team in Scandinavia has done an excellent job in that respect. EOS launch starting in Finland, we have first applications installed and more to come. Scandinavia, the same, especially for Sweden later than in Norway and Denmark. U.S. approval for the EOS delayed as said, but I think we are expecting it during the first half of the year, and we are ready to go. Then on the productivity and capacity, new factory in the U.S., I think it was really like in the movies. The team has done a good job in preparation for the -- moving from the old factory to the new factory. And with the now having 2 months behind our back on the operation, we are exceeding the target. So it's a good job done. Then I think for some of you may have been monitoring what is happening in the U.S. marketplace, during the preparation for the move, I think we withdraw from most of the campaignings of our customers. So we were not actively promoting lately when we have now the capacity back we are now promoting again. So we are expecting to see good dynamics from the U.S. marketplace. Kirami warehousing capacity and also improving the ground around the factory is now finished. And then roughly, we doubled the capacity, both outgoing and incoming goods in that respect. So a very good job from the local team. EOS machinery installation done. And also the flooring and the layout completed, good job over there. Romania, we completed the Phase I, we started the Phase II because we are still having some capacity constraints on the Romania factory, hoping to get it ready during the end of Q1 this year. Muurame, I think the expansion of the early stage of the metal preparation is ready. And then we acquired in December, the adjacent building, which is capable for operational use, but I think we're going to use it mainly for the warehousing capacity to start with, and that's now in action. This is giving a bit of a picture. So we've been not sitting on our hands, even though it's been remote work, mainly. On the top left corner, that's the new expansion in Muurame. Now, it's fully used with the new machinery. Some of the old machinery will be still removed over there to be fully in line with the new machinery. Then the new [ offering ] in the Kirami, they are finished, and we also did a bit of an asphalting and preparing the ground around the factory better. China, the equipment we bought throughout the year and is now fully functional whether Romania factory, new machinery, new ways of working in improving productivity on the top right corner. And then the Lewisburg factory on the bottom left corner and then the new EOS machinery on the bottom right corner, fully intact. And maybe that's the most advanced machinery we have in the group. I'm very happy to see the numbers coming out very solid. Then I think not to forget the newly acquired businesses. Kirami has said, we acquired it for the hot tubs and for the adjacent categories on that one. We realize that they have a very good concept in the readymade saunas. The one you see in the picture is one of their FinVision saunas. I think it's a medium-sized, we have dressing room attached to the sauna, full, nice insulated glass window for the lack of or the forest, for the mountains. That's something you can basically order today, had it delivered to your backyard or anywhere and lifting with the crane, putting it in the backyard and say, on the same day, you can start enjoying the sauna. So it's a very, very quick installation. And I think price-wise, compared to some of the premium ones, we are still clearly more economical and saving a lot of time and effort and I think this is something we have a good future on this one. Then on the Sauna-Eurox, we've been -- Harvia used to be one of the big sellers in the sauna heater stones, but we were mainly focused on the standard olivine diabase. Lately, we've been learning, hey, this company can offer round-shaped decorative stones, red granite and then for the very hard demanding conditions although the shiny black vulcanite. And I think we have a lot of value-adding capacity available on stone markets. And on the stones, it's not only for our own use. We also supply the stones for our peers in the industry. So in that respect, we have a good momentum on the stone business. Then on the pandemic, yes, we've not been immune. I think we've been, like any other company on that respect. On the other hand, we've been sailing with very, very good waters in that respect. Our people have been learning how to do the utmost to avoid. And if we've been getting exposed, we've been not exposed in a team, so we've been able to limit it in a small number of people in a unit. So at the end of the day, we have had no major impact on our operational capability on that respect. And like I said, on the market dynamics, it has had an impact for the north of the Alpine region, the residential market has been enjoying advanced demand, still enjoying, but I think what used to be hot is now warm. And at the same time, the professional market, which used to be almost locked down, is now gradually opening market by market. So that's good news. And then on the availability, cost inflation and pricing, yes, we'll be fighting on that one. For the time being, we have had a very good supply of all of the critical components, only minor delays with the control units and some of the electronics and then on the ability to put it on the market pricing, Harvia has been doing a very good job. And over here, we say we expect. I think today, we can already say that we know it's going to be prevailing for the first half of '22, and we are fully prepared for that. On the market split, I think no major news on that respect. Domestic market remains to be slightly less than 1/5 of the marketplace. Then the area, Germany growing fast, Rest of Europe growing fast, North America enjoying solid growth and lately, even though not visible over here, the Asian market, which used to be almost quiet has been waking up on the last quarter, Japan included. Then on the sales by category, heater is still slightly shy of 50%. Share of saunas and hot tub for sure increasing, and we expect that to increase going forward as well. And then the rest of the category is growing well. And on the 17% of the other product groups, spare parts and services, that's also including our -- how would I say, tailor-made steam rooms and projects. So they fall into this category as steam rooms have been gaining speed now when the pandemic is easing out in some of the like Arabian markets. For the full year, the picture is roughly the same. But over here, you can see that the domestic share is still above 20%, like on the last quarter, it was less than 20%, but altogether, a very similar picture in that respect. And then when having a bit of a deep dive on the markets for the last quarter, I'm very happy to see in the domestic marketplace, we are clearly growing faster than the market. And we've been gaining share on Harvia as well as on the Kirami. Scandinavia, even though the bar itself is smaller, the percentages are good, and we are clearly growing faster than the competition. So we are at par or ahead of our main competitor in Scandinavia. Germany, I think, still enjoying very strong growth over there. Germany and the DACH market for the December, I think most of our customers as well as our own operations, we were closing on the 17th of December, that's visible on the number for the Q4, but altogether, solid performance over there. And the other European countries, extremely good. Russia, even though it's been a volatile journey still the Q4, a solid growth over there and good demand despite of all of the challenges. In U.S., I think there, we've been increasing the order stock and without taking a step away from the campaigns, the numbers could have been bigger. But now I think we have a good path and good demand going forward as well. And then on the full year, this is already somewhat familiar to you. So no major changes over here and very healthy growth in all of the markets. Then by product groups, I think, first of all, the heaters enjoy still a very healthy growth on the last quarter. Sauna rooms good growth for the last quarter. Control units, that's where we were facing a bit of a challenge in the availability, especially for the premium and professional and that's visible on the numbers. And then the steam generators going back on the growth and others growing quite nicely. And for the full year, roughly the same picture prevails over there. And as you can see, the sauna room is enjoying a very, very healthy growth. But also control units, sauna heaters, even steam generators, which is not a Harvia stronghold, we are enjoying good path over there. Then maybe having a look on the quarters. First of all, on the revenue and then on the profitability. I think in the past, when we did not have EOS on board, when we did not have such a big exposure in the North America, and when we did not have Kirami and Sauna-Eurox onboard, we were saying that, okay, the first quarter and the fourth quarter are the strongest. Now I think the picture is more of an even picture throughout the year. So we will not expect such a big peaks for the #1 and #4, it's more of a -- more emphasis on the 4 and 1, but altogether, more stable picture by the quarters. Then I think this is just to remind us that yes, we are very good in the traditional saunas. We still have room to improve on the steam market that we are working on that on our own initiatives as well as on the infrared market, which especially in the Central Europe, North America, Southern America and some of the Asian markets have been gaining speed. We do deliver a good component, but our complete offering is still far from being perfect. So we are working on that. And then we stay loyal to the 3 main topics of our strategy, increasing the value of average purchase, both for the consumers and the professional market. Geographical expansion lately when the new markets are open, and we're going to be there. And then on the productivity and innovation, we stay loyal to improving that. I think at this stage, I will pass the word to Ari and please, you can take a deeper dive on the numbers.

Yes. Thank you. Okay. The most important numbers have been certainly already said, but I had to say that this was an excellent year. Really great job done, 2021. We had an excellent growth rate of 64%. And the earnings per share increased 117%. At the end of the year, we -- during the second half of the year, we really increased our working capital, net working capital, especially inventories, and we invested quite a lot for expanding our capacity. The total investment program was EUR 11.8 million. And I have to say that the normal replacement investments of that, there were less than EUR 1 million. So altogether, we were increasing the capacity quite heavily. And because of the investments and increase of the net working capital, the cash conversion rate, which has been traditionally very good for Harvia went temporarily down. But I have to say that this is money very well spent. And as you see, also the adjusted return on capital employed, after certain adjustments of the goodwill, it increased very nicely. Equity ratio stayed on the same level or increased slightly even if our balance sheet increased over 20%. So we were able to increase the value of the equity and really, the value of the shares in equity. And we had end of the year 824 employees altogether. We got 3 new companies during the year, Sauna-Eurox, Parhaat Loylyt and Kirami. And we were also employing new people in many units. Okay. Here, you see the basics of the debt structure and the finance costs. And on the left part of the picture, you see that our net debt increased slightly, and that's because of the investments. We paid them out of our cash reserves all and also the acquisitions during the year. And one thing what is mentioned -- good to mention is that out of this net debt, the potential minority redemption liabilities or later due acquisition debt -- additional acquisition purchase price debt is missing. So we don't -- we haven't taken any loans for them yet. So they are -- in our report, they are approximately EUR 20 million altogether. Even if we would have those EUR 20 million in our net debt, the leverage would be something around 1.2, 1.3, so rather low and still under our financial targets. On the right side of the picture, you see that the development of the cash-based interest was quite stable during the year. And I have to say that at the end of the year, we also compared a little the market margins of our loans with numbers of banks, and we were able to negotiate more favorable conditions for this year. So this year 2022, so those new numbers are not yet visible here, but I'm expecting slightly lower interest rate costs during H1 at least in 2022. So here, you see the pictures of the big investments. We were investing, really, throughout the whole year, but the biggest investments happened actually in Q2 when we acquired or finally got the U.S. factory building. And then in Q4, when we got plenty of new machinery and also the building next to our Muurame factory in Finland. Here, you see on the right side how the number of shareholders has been increasing very nicely. And we are very delighted to have in this consumer business so many shareholders. And we see also from the picture on the left side that half of our shares are actually owned by nominal-registered investors practically people residing in foreign countries abroad. So -- and then approximately 1/4 of all the shareholders are private households. So that's a very nice split. The Harvia's long-term financial targets haven't changed, but at least for a few years, we believe in faster growth than slightly over 5%. And the profitability, as you see, is now much over the level of 20% adjusted operating profit. And the leverage, as I mentioned, is clearly under our financial targets. And Harvia's dividend policy, it was slightly updated by our Board and we got a bit more flexibility there. And the dividend proposal of our Board to the Annual General Meeting. And now we have to remind first, what we have been paying dividends in the past. In 2021, we made regular dividends EUR 0.39 in 2 installments, one in April and one in October. And then additionally, we paid 70 years [indiscernible] dividend, EUR 0.12. So altogether, in 2021, we paid EUR 0.51 of dividends. And now this will be increased based on this proposal to EUR 0.60 per share. So Harvia is really working for a continuous increase of the dividends over the years. And those dividends, they would be paid in 2 installments, EUR 0.30 in April 2022 and EUR 0.30 in October 2022. So now I think it's time for your questions. I think that we will take first the questions from the telephone line, if there are any. Please.

[Operator Instructions] The first question comes from the line of [ Maria Wikstrom ] from SEB.

Perfect. Thank you so much for taking my call. Can you hear me now?

Welcome on board, Maria.

So just a little bit on did you touch still about the outlook for the coming years. I mean I was actually quite surprised to see the share coming down as much. And I think one of the reasons being that I mean the organic growth being at 20%, which is a good figure. It's down from the, I mean, 43% in Q3. But if I read, I mean, the CEO statement, I mean, you guys say that you see that the above-average market growth is -- you expect it to continue for a few years. And if I think about what you now refer to as above the 5% growth rate. And this statement didn't exist in the Q3 report. So just to give -- if you could give a little bit flavor that what makes you think that this above market growth will prevail for the -- I mean, for the few years ahead? And then a little bit at what kind of magnitude we should be looking at?

Okay. Question. And I think starting with the historical, which has been slightly less than 5%. And in the past, Harvia has been gaining share, and we've been above the 5%. Now sauna is gaining popularity in most of the markets and the sauna penetration of the market is still low. So we expect to see the sauna penetration to improve. And as we are one of the market leaders, we're going to take a share, maybe the larger share of the development in that respect. So hence, we see that it's going to be favorable and clearly above the historical 5%, then I think no one can say whether it's going to be double that, triple, quadruple or what it's going to be, but it's going to be clearly ahead for the few coming years. And lately, what we see, what is -- in general, I think sauna and spa is an item. One is not starting to -- it's not an impulse purchase, first of all. It's a long consideration before you decide to do it. While you make a decision and you are in the process, you will not abandon it either. So I think people have been considering when they make the call, it's going to be a longer process. And that's, in a way, benefiting us. And then even with the current, I think even the markets which has been now experiencing a bit of advanced demand, also the frequency of sauna bathing has gone up and people continue this habit for a long time. And our equipment, for sure, it's not immune to wear and tear. So also the replacement ratio will go up in that respect. So we're going to be enjoying both of that. But I think the new build, new penetration is the main driving force and then may be somewhat higher replacement rate than in the past. And with the new equipment, with new features, cleaner burning, better efficiencies that will give people more impulse also for the replacement market. So in that respect, I think this is the outlook we have made together with our management and with our customers. Ari, anything you would like to add to add?

Our next question...

If I may just continue one more on -- you talked about also that you see probably slightly brighter demand from the B2B side compared to the residential markets. And maybe there that, I mean, what has changed? I mean you do add this comment in your outlook statement. And does it have any impact on the profitability as the channel is different?

First of all, the -- most of the professional markets were even a complete lockdown, Southern hemisphere of Europe, U.K. included. And in some other markets, I think those are gradually opening and people who have real estate where you have sauna, spa solutions available they are reconsidering reopening the projects they've been closing down. That's what we see happening on the project market. And then on the equipment needed for the projects, we are one of the suppliers and we see a lot of activity and inquiries on that area.

Perfect. And then finally, and then I'll move on to the -- then I will stop. But about the capacity issues. So like 2 sides of the question, which one is on this, you said that on the control unit side, you were heard by some problems getting the componentry in, so how long do you think that this will prevail? And then the second, I think you mentioned as well that the demand exceeded the production in the sauna rooms, and I think Romania probably is as part of the problem here. But if you can talk about that as well, that how long these capacity constraints are going to impact on your sales?

I think on the componentry, especially for the electronics and some of the componentry for the control units and also some of the converters, electric converters, that's in the foreseeable at least for the first half of this year. On the other hand, we've been working on our, how would I say, bill of material, we have alternative solutions for that. So we are more capable of acting than we were in the past. So I think those can be solved. And then on the sauna room, capacity and availability, we are gradually improving. Romania is now with full speed on the investments we made during last year. And now when we are able to finish the Phase II end of Q1, then we are getting closer to par with the current demand. And then on top of our own resources, we've been engaging some of third parties. And then for the U.S. if needed, we can basically with rather moderate CapEx, double the U.S. factory capacity. We have not made the decision as of yet. But if needed, we can do that rather fast. It's not going to be available immediately, but I think with a very short lead time of 3 to 5 months can be done.

Our next question comes from the line of [ Jonas ] from OP Financial Group.

Jonas from OP. I have a few questions. I'll take them one by one. First of all, you mentioned that acquisitions weighted on profitability. Could you perhaps elaborate how did Kirami do in Q4 in terms of profitability? And is there kind of a seasonality in Kirami sales that we should take into account when thinking about its profitability?

First, maybe on the profitability, Kirami did a very good, solid job and clearly increased our absolute profitability. But then in terms of relative profitability, they are way below our average. They've been improving, but they're not catching up, but there is still a substantial difference in that respect. And the same applies for Sauna-Eurox, even though performing extremely well, the relative profitability is clearly below Harvia's average in that respect. Then on the Kirami's seasonality, especially for the domestic marketplace, hot tubs tend to be spring, summer, early fall products. So we estimate that on the Q1, Q2 will have a big demand on the domestic marketplace. For the rest of the export markets, the same pattern, but not equally strong profile on the seasonality than in the domestic marketplace.

It's unfair to compare sometimes the acquired companies with the rest of Harvia Group since the rest of Harvia Group has already quite exceptionally high profitability for over 20% of EBIT. And all these companies, we have recently acquired. They are very profitable but not reaching that high level what we have. So mathematically, this average changes the percentage was -- is pushed a little down, but they are very good companies, and they will certainly also improve a little.

Okay. Great. And then you mentioned the negative sales mix changes in Q4. Can you perhaps elaborate this a little bit more? I see that control units grew less, but was there something else too impacting the margin?

I think that's one of them. Then the ratio between saunas and sauna heaters. I think it was a bit of unfavorable on the profitability. And that's then the impact of the newly acquired companies. So altogether, that's causing the impact.

Speaking about the profitability during Q4, I have also hearing a chat, one question about the costs, which were compared to the net sales a bit higher than in the earlier quarters. And the person asked about the explanation for that. Would you like to?

No, I think we've been doing quite many things which underway investment for the future related to maybe getting some of our commercial concepts ready, marketing product-development related and research-related things, and they landed most of those for the Q4, but the benefits will get in the coming quarters going forward.

Okay, great. And if I can continue with a couple more. First of all, price increases and cost inflation, I may have missed this, but can you confirm, did price increases fully offset cost inflation in Q4? And also, if you could talk about 2022 outlook a little in that respect.

I think for the most part of our offering, we were able to fully offset the cost increases. The wooden materials is having a very different volatility and a very different dynamics than the steel. On the wooden materials, we may have gotten minor hits, but nothing big. And then going forward, we keep really thumb on the pulse monitor what's happening. And we are passing the cost inflation to our partners and to the market. And so far, we've not been feeling any major pain or not getting that to the marketplace.

Yes. Okay. And then still continuing with the margin development in 2022. Can you elaborate the mix outlook as margins can differ in the product groups and they also have a -- or can have a sizable impact on the ASP? So can you talk about mix in 2022? What should we expect?

The mix development, I don't foresee any major changes on what we've been experiencing in the past. Then I think the ones who've been remembering how did we onboard almost 7 saunas. And what we've been capable of doing with the profitability in the sauna business. I think early on, we used to together with [indiscernible], we educated that the sauna business is coming in with a lower profitability than the heaters and equipment. That is still somewhat true, but only very little. And I think we've been able to gradually improve the profitability of the sauna business. And going forward, I think we're going to continue on that path. So the gap is getting smaller. Then on the newly acquired businesses, one can expect to have a continuous improvement on the profitability of those ones as well, but still to catch up with the average of Harvia, I cannot say that we will reach that in '22, it will be more of a '23, '24 before we are there. So we'll take steps, but we'll need to take multiple steps before we are there.

Yes. Perfect. And then finally, what is the CapEx outlook for 2022 as you made quite sizable investments in '21?

I think it's going to be substantially less than in '21. We have not set a firm number because we need to remain flexible. But I think if we take a minimum case is, say, EUR 4 million and the max is EUR 7 million, somewhere in between these lines, depending what is needed and how the market behaves. But we want to stay in front of the market that we want to bring new solutions and new innovations to the marketplace as well so we remain flexible in that respect.

Our next question comes from the line of Anders Knudsen from SEB.

Congrats on some strong numbers. I was just wondering when you are talking about better market outlook for the next few years, are we then talking volumes? And then secondly, attached to that, how large price increases have you actually put through? And then just for more the details, in Q4, given your production expansions, is there any under absorption of your fixed cost in Q4 that's worth mentioning that's impacting your gross margins?

Maybe on the first one, I think the volume growth will remain what it is based on the penetration of the replacement ratio. Then on the ability to increase ahead of the costs, yes, we do our utmost. On the other hand, some of the costs are increasing rapidly. So I don't see a lot of headroom over there but some headroom. And then on the cost absorption, I think on the Q4, there was nothing special, which would not have been absorbed. And then going forward, as long as the total market remains roughly on this type of dynamics, I don't see any major need to be worried about that.

But just to be clear, when you talk about the market outlook will exceed the market growth for the historical average. We're talking in terms of volumes, and we are not talking price and volumes, right?

No, we are talking both because I think the new -- sauna awareness is increasing. The sauna penetration is gaining speed on markets where sauna is still a very new phenomena. So I think the penetration rate will be higher than it used to be historically. And then on top of that, the replacement ratio will not go down, it will stay where it is. And maybe with the increased sauna frequency even replacement will slightly go up, but it's very small steps over there. So altogether, it's a combination of volume and price.

Perfect. Very clear. And then finally, you said you exiting Q4 with a very strong order stock. Can you add any figures to that? I mean, issue book-to-bill closer to 1.5 or 1.1? Any further color you could add there?

I can only say that we don't disclose that. But on the other hand, the order intake has remained strong, and we are in a way bulldozing forward with a high order stock as we speak.

[Operator Instructions] And as we currently have no more telephone questions registered, I hand back to the speakers.

Okay. Thank you. We have plenty of questions still here on our chat. So I'll try to keep track of them and not to ask the same question or to comment it 2 times. One question is about the dividends here. Both Inderes and Arvopaperi that's the local Finnish financial newspaper reported that you'd pay [ EUR 0.20 ] dividend this year. So the EUR 0.60 dividend looks like on the soft side, do you expect any major acquisitions in the short term to offset the so-called disappointing dividend?

I think as a part of our strategy and execution of it, we remain fully focused on the organic growth. And on top of that, we've been exploring avenues how to work on the M&A. And as I explained, the classical standard sauna market is of interest, but even more so on this team and infrared areas where we know that we have the offering but we've not been able to commercialize that with the full speed with full force. So in that area, we are looking for opportunities. But as we speak, we have nothing tangible in our pipeline. But I think we are extremely active and extremely focused to deliver something on that front as well.

And as I mentioned earlier, we are striving for continuous improvement of the dividends. And as you see, the money left in the company, it has been well spent. We have had a very good return on that investment also in the company. So that's also good for the shareholders. Then in one business-related question. What is the development of showrooms in Japan? How many of those have already been made? And how many are under construction or in the planning stage.

Wow, very detailed question, I need to remember out of my head, 5, we have completed. They are intact. And I cannot disclose exactly how many we're going to be building on the first half of this year, together with Bergman. But if I would need to estimate the number, I would say, 3 to 5 during the first half, then it's a 3-year program to get the full number out over there. But compared to the past, even the 5 showrooms is a major, major step forward and increasing our exposure and opportunity on the Japanese marketplace. So very happy for the development.

Okay. Now the question is not so exact, but quite personal. If you have to say 2 things that keep you awake at night, what will those be?

I'm a good sleeper also based on the [indiscernible]. I think general geopolitics for sure, what's going to happen on the nearby markets. That also has an impact on energy environment. But even with those news, knowing that this is a very, very strong, safe industry. I'm not too worried about, but those are maybe the 2 things I would consider losing sleep.

Okay. You have a new ESG plan. Do you have plans to use carbon-free steel in heaters in the future?

Carbon free?

Steel.

Steel? Yes, for the -- when it's available for sure, even as of today, most of our steel is recycled and with minimum carbon impact in that respect when the carbon-free steel becomes available for sure, we will have a strong consideration of using it. Currently, it's not available but our local suppliers here, they deliver steel where the recycled part is more than 80%. And then when it's also nearby produced also the impact on the transportation is minimal. So we try to minimize impact on this respect as well. When it becomes available for sure, we have a strong consideration of using it.

Generally speaking about sustainability, ESG, we have been working on that topic quite much during '21 and there will be additional reporting on the EU taxation also on our annual report, which will be published end of week 10, but that has been a very, very active topic now in our company recently.

And then maybe building on the ESG, I think we knew that we are rather okay-ish in that respect and maybe one of the best ones in the industry. When we did the research together with a very established expert on the area, the outcome was even better than we expected. So we are in a good shape to start with, and now we're going to do a gradual continuous improvement on that area as well.

Okay. Then a number question, hard to estimate, but anyhow, how big part of your organic growth of 21% in Q4 came from price increases, should we think it's roughly half between volume and price? We didn't increase that much.

We -- very difficult to say, but trying to make a math backwards, clearly, less than half, I would say. Maybe just -- we increased basically twice, one in the spring and then one in the fall, and some of the fall had a delay. So I would say even less than -- 1/3 is maybe the price roughly.

Okay. We haven't seen any revenue growth in Finland and Germany over the past quarters. I don't think so. Probably it's a misunderstanding.

Please check your numbers again.

Revenues. The revenue was basically flat to the full year '21. Why is that? Please check the...

Check the facts, please.

Yes. Okay, price increases once more. The value of inventory has increased significantly over the past quarters. Are you happy with the current inventory level? How big part of the increase in inventory value is due to the cost inflation?

A difficult question, cost inflation. But on the steel, the cost increases have been substantial, especially on the black steel, stainless steel, slightly less. Electronics, yes, substantial increases on the electronics, but it's more on the availability and being sure that we have the material. The worst impact on the top line and bottom line is when we cannot deliver and we'll miss the order. And if some of our peers can deliver, so we've been trying to keep our customer service level, if not perfect, very good. And I think we have succeeded well in that. Going forward, we know that there is some excess inventory, and I think we will have a small diet on the inventories. But I think the first priority is to have customer service in excellent shape and then gradually have a digest of the excess inventory. So we'll not do any major big steps, but a gradual baby steps on the level of inventory.

Okay. Somebody is asking about more color on what you mean by warm demand, probably you meant advance demand.

Yes, yes, I commented on the advance demand. And in the past, one would describe that to be hot. Now I think it's warm, but then how to define difference between hot and warm, you know it with your fingers when it's burning it's hot and when you can still keep your finger over there, it's warm. So I cannot have any better explanation on that.

And any update on the M&A pipeline?

We stay loyal to our short lists. We have discussions and dialogues, but I said, nothing concrete in the pocket. We keep working on that. Also, we need to be conservative with the valuations. I would like to have an excellent asset, but I would not like to pay too much. That's in our plan. So once we have something, we'll definitely come up with the news.

Then there is quite a detailed question about the Q4 margins. During Q3 '21 call, you said that the cost increases shouldn't have an impact on your profitability. However, your EBIT margin is down by 4 percentage points since Q1 '21. You also said that your target is gradually improve your margins. What should we think about this in significantly lower EBIT margin in -- given significantly lower EBIT margin in Q4 '21 compared to earlier quarters?

I think still the overall ambition to gradually improve our EBIT margin is very valid and intact. Then quarter-by-quarter, like explained on the product mix on incoming new business on board, they may fluctuate. But having a longer perspective like 1 year, I think we aim to increase our relative profitability.

Yes. Year-to-year comparison is probably not -- no better. No better. It's -- the EBIT level has improved a lot in absolute terms and also relatively. Well, then a general question about the health benefits, does Harvia follow the research in health benefits of sauna?

We do, we do. And we also have a bit of an understanding what is coming next. Now what is coming next is also very good news for us, also for the whole industry. So when we have the dates for the publishing ready, we're going to be coming out with the news. So I think it all looks favorable.

So there are a lot of detailed questions we have already answered. Net working capital has been asked a couple of times, Q4. How has the final demand growth developed during the last quarters? The demand of sauna products during the last quarters.

In the same line as the complete awareness and interest in saunas continues to be on a good momentum.

Okay. Currently, I don't have any new chat questions.

I still may come back on the Finland and maybe just to get the facts right. On the Q4, increase was 33.5%, both for the Harvia and Kirami clearly exceeding the market growth, both enjoying. And for the full year, 33%, clearly exceeding the market growth. So even though Finland is maybe just 10% of the complete sauna market, our effort and focus on the domestic market has been good. And in Finland, we've been definitely gaining share.

And now we are here comparing quarter 4 in last year and quarter 4 in 2020.

Yes, yes. And then...

Comparable times.

Full year is '21 against '20 and 1/3 growth, which is beating the market extremely well. Sorry, if we have been misleading, maybe our fault. But if no other questions, I would like to thank for the interest, and I wish you a good day. All the best. Take care. Bye now.

Thank you so much.