Hello, welcome to Harvia's Q3 review. My name is Tapio Pajuharju. I'm the CEO of the Harvia Group. I will be followed by our CFO, Ari Vesterinen shortly, but we are today in the special conditions and special distances, so you will not see me and Ari on the same picture. At the same token, I think there has been some kind of a technical challenge with the telephone landlines, and they are unfortunately not working.
Please, pass your questions and comments on the chat. I will try to accommodate all the challenges in that respect. Let me begin with special thanks to the Harvia Group employees. An excellent job done keeping us all safe and healthy, I think that has been an excellent job. I think that's also visible in the top line as well as on the bottom line. Job well done and very warm thanks on my behalf for everyone on board.
Let's look on the business performance on the top line, very healthy growth on that area. The same applies for the profitability. I think the COVID-19 has caused some major difficulties and issues, but we've been able to cope with that. On the other hand, I think it's also fair to say that we've been gaining some boost on the demand on certain markets and overall the total impact has been favorable for Harvia and the sauna spa industry in general.
The special measures taken have been well- adopted in all of the units, and I think despite of the challenges and a bit of an extra work done by everyone on board, it has had no impact on the productivity and profitability of the company. A job well done on that one. On some of the markets, the demand has been clearly stronger than expected. On the other hand, we've been experiencing on markets which have been very quiet, almost silent during the Q3. I will come back on that one.
The integration of the EOS Group and the new team members have been progressing well, even though we've been not able to do it the normal way. Face-to-face meetings have been very rare and only one occasion, everything else has been done virtually over Teams or other means of remote working. A job well done in that respect. I think the long engagement period and getting us to know each other before the acquisition has helping us on the integration as we go forward.
On the numbers itself on Q3, the top line growth was very substantial, 63.8%. We even got a bit of a headwind on the currencies. With the constant currencies, it could have been even slightly better than that. Organic growth has been very healthy, increasing bit from Q2, where it already was on a very good level.
Now the numbers are 35.6%. Even though we've been adding the EOS and they've been doing an excellent job on their respective markets, the Harvia team has been progressing well on all of the markets. The top line has also resulted in a very good favorable profitability, both on absolute terms where the booking is EUR 6.1 million on an adjusted level. Then in the relative profitability, 21.8%. With the constant currencies, we will be at par with 22%.
Earnings per share, developing favorably, doubling from the prior year Q3 and cash flow has been very favorable on the period. Taking a look on the year- to- date, healthy trend continues. Organic growth close to 25%. Adjusted profitability 15.7%. That's already slightly more than the full last year. Earnings per share on a healthy level, cash flow good. Net debt, performing well.
I think the leverage ratio, which due to the EOS acquisition, we indicated we could be temporarily out of the scope of 1.5-2.5 even exceeding three. We've been able to get it back on the lower end of our range in that respect. Equity ratio at 42.2%. When looking at the activities and the business performance and following the three paths of our profitable growth on the strategy, the increasing value of the average purchase have been progressing well.
I think we've been learning the upselling of the heaters and the heater-related components required well. The wood-burning season has been slightly longer than expected. I think those who've been longer on board may remember that the average price of a wood-burning heater is clearly higher. Usually when you acquire or replace a wood-burning heater, you need to buy accessories, you buy the chimneys, or you buy the connection pipes and all of that equipment. That's automatically boosting the average purchasing in that respect.
Also on the area of the electric heaters, we've been able to sell more premium and with more features and functionality in that respect. We say within the team that this sale of a sauna is an ultimate proof of being successful in adding value in the purchase. I think now when we've been successful in the heater sales and we've been adding on top of that the EOS, which is mainly purely heater and steam generator and control unit-driven, our good performance on the saunas has been slightly hidden.
Please look at the numbers and the sauna performance has been rock solid in that respect. I think, during the Q2, we were facing a bit of a question and didn't know how it's going to work. EOS is on the premium end of the residential market, and then they are on the professional end of the market with the heavy-duty equipment. I think the expectations were not very clear how the premium end of the market will perform and how the professional end will perform.
During Q3, we've been having solid performance on both of the areas, and the sales team have done a great job together with our partners and customers on the marketplace. Regarding the expansion, the North American Almost Heaven Saunas expansion is doing extremely well. The new sales channels have been fully functional and fully operational. We've been having a bit of a challenge with coping up with the volumes, and our capacity has been limited. We've been tackling that with doing less campaigns and less activities. As we speak, we are in the process of installing the capacity expansion in the U.S., but I will come back to that in a second.
Scandinavia marketplace, later when we look at the numbers, you will see that we've been ahead of the market, and we've been receiving a lot of new customers on the residential area, as well as we've been opening the doors for the professional market going forward. Excuse me. Regarding sales force, we've been strengthening our presence in the Asia marketplace and Australia, Oceania.
Having said that, I think we are still in the very early phases, and one could not expect that we will land on a multimillion incremental sales in a short time. We've been able to recruit capable, very professional people on board, and during the journey, we can take clearly better steps forward on these two markets. Productivity improvement, I think despite of the COVID-19, we've been able to increase the productivity.
We've also been getting new team members on board, roughly 40 people on board. I think the onboarding has been done extremely well, because it had almost no impact to the productivity numbers. The core team of Harvia has done a good job of taking these new people on board. I think also in that respect, would like to pass my special thanks to everyone doing the onboarding for the new members.
Regarding the supply chain, during the special conditions, I think there have been what I call extraordinary gymnastics in getting all of the supply chain working like a Swiss clock. We've been extremely good together with our partners and have been able to supply everything needed.
Having said that, at the same time, we've been working with our customers and partners to understand that the lead times, which used to be rather short, have been prolonged, and on the critical components, a number of weeks forward. I think everyone has been adapting the new ways of operating and the new dynamics rather well. The U.S. expansion is on time and on budget. As we speak, most of the Romanian new machinery is being installed or is in the installation process as we speak.
Maybe last but not least, let me now think, it's on the right bottom hand corner of the picture, we have our Muurame solar power station, which has been operational since June, and I think we've been able to produce quite a lot of electricity on the amount, which is basically taking care of all of the ventilation and on the cooling impacts of the Muurame unit. I think this type of things we will plan to do in the future as well.
Regarding the COVID-19, I think we have bit of a mixed feelings and mixed picture. Partially, I think the markets which have been operating normally, they've been gaining bit of an incremental demand and boosting the strong demand. We have markets where the demand has been very quiet, if not silent completely, and I will come back to those in a second. I think seeing what is happening in the market still, we don't see any reason to change the long-term view and the outlook for the company and the strategy in that respect. We'll continue following that path going forward.
Commitment and cooperation of our own personnel together with our partners and our partners' personnel has been extremely well done, and I think that shows that we've been able to select good partners, and the good partners have been also taking good care of Harvia going forward. The volatility of the demand is maybe something where I can paint a bit of the picture or maybe share the flavor how it goes.
I think even the markets where they've been rather quiet or silent, suddenly you may be facing a big peak on the demand, which is unplanned and unforecasted, and that's what we are experiencing today, and will continue. We'll be learning how to work with that and how to address that going forward with the slightly longer lead times. Keeping us all safe and healthy is the primary target of our operation. So far, we've been extremely successful in doing that, but we've also been taking extra measures and will continue doing extra measures in that respect.
I think it's good to remember that we are not immune for the impacts of the COVID-19, we've been having close calls and will be having close calls and try to mitigate all the risks so that we'll have no impact on the performance or the supply to our customers and customers' customers. Components and the availability of componentry has remained reasonably good. We've been mitigating the lack of certain components by increasing our own buffer stocks also informing early in advance what are the new lead times for some of the high volume and critical products of our offering.
When looking at the market split, first of all by the market areas, it's good to remember that even though domestic market has been growing clearly ahead of the market and is still a sizable part of Harvia business, today more than 70% of the business is coming outside of Finland and we've been expanding that.
The other European markets is the second largest. It's been going up quite nicely due to the addition of EOS, but also on the addition of being successful in the sauna sales. North America is clearly going up both on the heaters and equipment sales, followed by the success in the Almost Heaven Saunas is now visible on the split. It's a bit hampered by the incremental sales of the heaters. When you see the absolute numbers of the sauna sales, they look good in North America, both on the equipment and sauna.
Germany, growing up due to EOS being half German, half rest of the Europe and then a stint into the Russia marketplace. Russia, due to the COVID situation, slightly going downwards. Harvia as a standalone, we've been flat or slightly going down, but thanks to EOS we've been slightly growing on the Russian marketplace.
On the revenue by categories, heaters is still far the biggest, even though the sauna has been growing extremely well organically. The control unit sales have been rather okay with the Harvia, but the EOS offering is premium and especially in that respect that most of the heaters and equipment is sold with a premium multifunctional control unit, and that's why the sales of the control units has been growing quite nicely. You take the year-to-date look, roughly the same picture, and I will not go in details on the markets. No major changes on that one.
Maybe the only issue to mention on the sales by product category is the sales of the steam generators. That's maybe hurt most by the COVID-19, as most of the sales are targeted, the markets where COVID-19 has been hurting the demand quite a bit. When looking at the individual markets and the growth, this is the bridge from last year, Q3, from EUR 17 million to EUR 28 million. Seeing that Finland has been growing only EUR 1.3 million, one could say. On the other hand, 22.5% is clearly ahead of the market and the Harvia offering and the team has done a great job on the domestic marketplace.
Even though the pillar is rather small and in Scandinavia, the same applies for Scandinavia and the 22% growth of Scandinavia market is beating the market quite nicely. We've been gaining share. Germany, a excellent growth. Partially, we can give thanks and credit to EOS, but only partially. The Harvia team has also done a good job on that respect. The same applies for the other European markets where both EOS team and the Harvia team have done a great job.
Russia, a bit of a mixed picture and rather volatile, and the COVID-19 has been hurting Russian market quite badly. Without the impact of EOS Russia, Harvia own sales should have been flat or slightly downwards. It's good to remember that also the Russian ruble has been devalued quite a bit, and I think end of the quarter it was rated at RUB 90, whereas I think it was RUB 70 or close to RUB 80 on the respective period last year. North America, solid journey both on the heaters and equipment, and especially on the Almost Heaven Saunas, good performance over there.
Roughly the same picture applies for the year-to-date figures with the difference on the other markets, which is mainly Arabian markets, Asian markets, and then some of the markets which have been hurt quite badly with the COVID-19. On the other European markets, the total numbers are very good and solid, but behind the scenes still we can see that the southern part of Europe has not been recovering from the COVID, and the second wave has been hitting them quite badly.
Markets like Italy, France, Spain, Portugal, they've been rather weak and almost no activity on that area. By product group, it's easy to see that the sauna heater has been growing, partially due to good performance of Harvia, but then we've been adding the EOS on top of that. Sauna rooms, 50% growth, job well done.
Control units, here is where the EOS, I would say, offering has the biggest impact on the control unit sales. Steam generators are growing, but as on the full year- to- date picture, slightly backwards on the steam generator. That's where we have still work to do. I think we've been educating that in the sauna and spa business, quarter one and quarter four are the biggest ones. Maybe on these graphs, it's good to remember that on this Q1 number, that's without EOS numbers, so it's not skyrocketing like this if you would add on the EOS numbers.
When it comes to the quarter three, quarter four, I don't know and I think no one knows what is going to be the impact of the COVID-19. We still anticipate a very good solid quarter four, I think it would be unfair to extrapolate this on a skyrocketing curve in that respect. I think all the dynamics will continue on the sauna and spa market so that it's some seasonality. The middle quarters in between will be slightly softer and the quarter one and quarter four are the top seasons for the sauna and spa industry.
Maybe just a reminder that we operate in all three different sauna categories, the typical Scandinavian sauna with the heater and benches. We've been learning how to entertain the steam room, steam market, and we are in the very early phases of the infrared sauna in that respect. We stay loyal to the critical paths of our strategy execution. We continue increasing the value of the average purchase increasing or expanding on the geographical arena.
On that, I would also add that we are deepening and improving our quality of distribution in certain markets that we put into this channel, and then we continue the productivity improvement. Always we put a picture of a production unit, but it doesn't apply only for the production unit, it applies for all of the processes in the company where we improve the productivity. Now I think it's time to pass the bar to Ari. Ari, please, you can take a deeper dive on the numbers. Thank you.
Hello on my behalf also. My name is Ari Vesterinen. I'm Group CFO of Harvia. In the big picture, the financials, if you look at this table you see that we have basically reached more or less in many profit and loss statement figures, the cumulative figures of the total last year already at the end of September. it means in practice that most of our or actually all our biggest units they have been increasing in sales and also in profitability and then German EOS has also contributed a lot to this growth.
We are quite on the level of the last year on the mid-sales, but then on adjusted profit slightly over. The profitability has been increasing and that's nice. Especially during Q3, we increased our adjusted operating profit in money over 100%. That was a really excellent quarter during very special times.
About the seasonality, we are now in the middle of the main sales season for export markets like U.S., Central Europe and so forth. Now in this year, Q2 and Q3, they have been also very special quarters and it's now really hard to say what is the main season and a low season. We have season this year all the time. If we look at some financials which were not yet mentioned, the earnings per share, they almost doubled during Q3 compared to last year, and we have already reached the earnings per share of 2019.
The operative cash flow was really strong, and that was thanks to, let's say, speeded collecting and some other measures we have had in networking capital and so forth. There is job well- done in many units. The net debt, we were really expecting to have it a bit higher level still in this fall, but the fact is that we have had very strong cash flow already. The beginning of the whole year, the operative cash flow has been EUR +18 million, and a year ago it was EUR 8 million. That leads to lower net debt and lower leverage that what we expected. We are already at 1.5 leverage rates. That's the lower end of our scale.
The adjusted return of capital employed is very good. We have eliminated the goodwill part of the assets, but anyhow it's really nice level of return on investment and it's also much higher than a year ago for the whole year. Equity ratio has improved about 1% unit from the summertime. What is important also is to notice that we have now clearly higher number of employees in the group.
As already told earlier, we have employed about 40 new colleagues, and out of these 587 persons, about 158 are now from EOS Group. Through acquisition, we got also new colleagues. The net debt is, as I said already, going down and that was thanks to the good cash flow, and we have had really strong cash situation in our group end of Q3, EUR 22.9 million, and year ago it was EUR 9 million. After that, we have already paid EUR 3.6 million dividends now end of October, but it's our normal seasonality. Finance costs have increased due to the EOS Group acquisition, and it's normal in that investment situation.
After the Q1, we more or less postponed some investment plans because we didn't know that what will actually happen with the demand and the production output and necessity of having new machinery, and so. During Q2, we were experiencing really strong demand of our products and needed more output and decided to make bigger investments during the summer and during Q3.
We have invested to production facilities in U.S., in Romania, and also slightly in Finland. This means also in practice that the investment level, what we have had until now, roughly under EUR 2 million, it will be going up a little demands. We need just more capacity. It's necessary to satisfy the customers and ship the goods. The structure of our shareholders hasn't changed too much during Q3.
What is only interesting is that big public has found, so to say, the Finnish households, the shares of Harvia as an attractive investment. End of June, we had something like 7,700 shareholders, now 9,200, and I guess we will soon exceed 10,000. The level of the nominal registered and foreign investors has stayed quite the same. The shareholders or, sorry, the members of the board of directors as well as the management and employees, they have also invested quite substantial money in the company and believe very strongly in this business. Harvia's long-term financial targets. We aim and target in the long run a growth rate of over 5%, and that's excluding the mergers and acquisitions.
You have certainly noticed that we've been active lately in acquisitions, and we hope to be able to acquire some interesting companies and companies having perfect fit with us also in future. This 5% is based on the expectation of the long-term sales growth rate of the market. Of course, now the market has had a certain step change during Q2 and Q3 and business is going strong currently also, but this is the long-term view what we think that we will grow. The profitability and improvement of the profitability is always on our focus, and we've been increasing the profitability quite substantially during this year and especially during Q3.
Also, the newly acquired company, EOS, has participated very positively to the profitability. Leverage ratio, yes, it's guideline where we think that the level of our net gearing debt should be, but we can go under that scale and over that scale, depending on the situation. Harvia is a regular dividend payer and our dividend paying policy is that we pay at least 60% of the net income in total annually in two installments. This year we have already paid twice EUR 0.19 in April and in October. Any questions? We don't have now direct loudspeaker questions here, but we get them through the chat. Please.
Yes, I have a couple of questions from Petri Kajaani at Inderes. The first one is, how sustainable level is your EUR 0.6 million net financial costs per quarter? Is this high level just temporary?
Yes. Yes. That's quite closely the normal level. Of course, the value of our interest rate swaps, they may cause some changes on that, but that's quite the normal level right now.
Second question from Petri. How sustainable level is your EUR 1.0 million CapEx costs per quarter? What sort of investments are necessary in the near future since you are growing so fast?
I think like Ari already started to entertain the question, in the past, we used to be below EUR 2 million on an annual basis, and now I think when we see the next steps going forward, they're going to be more than EUR 2 million, but they're going to be not much more on a given year. I would say between EUR 2 million - EUR 3 million, EUR 3.5 million max. We can only take stepwise approaches on this area.
Next one from Petri Kajaani. Everything seems to be going so well for Harvia at the moment, which is great. Could you give us a short review of the major risks you see in the business going forward? What could you, for example, slow down your growth and have negative effect on your very high profitability?
I think on the growth arena, like I tried to inform, we are not immune to COVID-19 either. If something like a big, bad outbreak could hit some of the operational units, for sure we are vulnerable. We try to fight it as much as we can and as good as we can. We try to stay ahead of the game. Despite of that, there is always risk. I think the other big risk which I think is partially mitigated by having EOS unit and factory in Germany, Muurame is a big unit, and then the China unit. If one of these could be hit by fire or something like that, for sure it will have an impact on our future growth and profitability.
Harvia has changed a lot as a company after the IPO. You have mentioned that Harvia has been doing new strategy process during this fall. Can we expect some announcements concerning Harvia's strategy or updated financial targets? Was this process only fine-tuning?
It was mainly fine-tuning. I think all the financial targets remain intact and valid. I think the only issue which I may have forgotten to highlight today on our three paths for profitable growth, the fourth one is for sure, we're going to be actively participating in the industry consolidation and look for suitable additions to the Harvia offering in that respect.
Petri from Inderes continues. You have recruited a lot of new members to Harvia family this year. What sort of contracts, part-time, full-time, the new employees have, and how elastic are these contracts if this year's high demand is partly COVID-19 boosted?
All the recently joined members are with flexible contracts, either short-term contracts or flexible contracts.
Of course, we will also hire then some new core members out of these-
Absolutely.
... people we have got with the temporary contracts, but we have currently mainly temporary contracts for the new people.
Maybe I can add to that. We are very happy to receive such a capable and professional people on board. We've been lucky of the selection.
Also from Petri from Inderes. Is there some pent-up demand in the U.S. since you haven't been able to manufacture with the pace of the fast-growing demand?
Very difficult question. We face more demand than we can supply as we speak. On the other hand, we are prepared for the incremental demand, and soon we'll have more capacity on board. I think that's not going to be the end of the story. We are prepared for the next steps. I think in North America, in general, I think the sauna is in a good trend and booming. Not only, by the way, our type of sauna, it's also the same for the infrared and the steam. We will definitely have a look on that market as a whole and keep up with the demand one way or the other.
At the end of the summer, there were rumors that the German sauna maker Klafs was up for sale. Is there any truth behind these rumors, and would Harvia be interested in looking at this deal?
I think when something is on the merger market, I think there is no smoke without the fire. Most likely something is happening. Definitely if that would be available, we would have a look, but I think that's all I can comment.
From Petri, from Inderes. EOS acquisition and integration have been progressing well, and the extra debt you raised for the deal has already almost fully digested. Is Harvia yet ready for new acquisitions?
I think it goes without saying we are preparing for that. We are looking very diligently at what type of companies and what type of offering could be most beneficial for the Harvia offering and for our customers. In that respect, we remain extremely critical of what to and how to, but for sure we are active on that area.
The price, what we pay, it has to be good also for the shareholder-
Absolutely.
... as an investment.
We have Timo who is asking that, have you considered upgrading the long-term outlook as the company has grown faster than them all the time and is not considering acquisitions?
I think we are considering acquisitions, first of all. I think the underlying market dynamics have not changed, and I think the market is growing slightly below 5%, and our aim on organic level is to grow more than five, so clearly gaining market share and speed on the marketplace. We have room for add-on acquisitions on that respect. They might be small, midsize or large, depending what comes available and what is suitable in terms of the offering and as well as on the valuation, like Ari said.
What was the reason for that Q2 figures were given preliminary information and this time it was not so, even though the growth figures were similar?
I think the Q2 was clearly a shift in the trends. This one was more of a continuation and quite close to our own expectations, and we didn't see any reason why to put out any type of a profit warning in that respect.
We tried to communicate it very positively after Q2, also how the business is going and we gave positive messages, and that's also the situation right now. Business is going positively. We also always compare what are the market expectations, and we were not so far away from the market expectations as in the summer. We decided not to pre-announce.
Growth in the U.S. is strong, especially in outdoor saunas, and investments have been made there to increase production capacity. What is the target for their sales next year, and how much more it is compared to this year? Currently, online stores show sold out signs in the U.S. How much higher the demand is compared to production capacity?
Even if I would know the full answer, I would not share it over here. I think our absolute aim is to keep up with the demand and be ready to supply as needed so we can ramp up the capacity of both indoor and outdoor saunas in the U.S. The U.S. market is also being supported by our European factory in Romania, and then potentially can be also supported from our Finnish factory of the saunas. We do our utmost to keep up with the pace over there.
It's always so when you invest in new machine, in production line or warehouse or whatever, it disturbs also the existing production slightly. That has been also one thing. Now during Q4, the investments get ready. We have, of course, clearly higher production output.
Next one is from Maria Wikström at Danske Bank. What was the organic growth of EOS in Q3?
We don't disclose them separately, these company numbers. Now while this is the acquisition year and integration year, we can make exception. Normally we will not report them separately. It was over 20% also during Q3.
This one is also from Maria Wikström. You say in the release that do it yourself and professional channels, the demand is stabilizing. Is this the comment for Q4, what you have been seeing in the month of October? Has the organic growth came down in October from 36% in Q3?
I think that's not the comment for the Q4, not comment for the October. It's a generic comment, and I think if some of the markets used to be hotter than hot, now they are slightly less hot. I think still we are enjoying a very healthy trend in that respect. I think on the professional market, the variance between the markets is extremely big, and we are experiencing markets where demand is very solid. We also experience a market where there's no demand, and I think that's why this shift is changing a bit, but not in a big way.
Q2 and Q3 have been fantastic quarters with organic growth + 30%. You have commented that part of the advanced demand. Should we still expect you to reach your revenue growth target above 5% next year without EOS acquisition?
We are in the budgeting process and figuring out. I think our aim is to achieve the targets without acquisition for sure. Exceeding 5% means exceeding 5%, and I think there is no scale how much you can exceed 5%.
We have Johannes asking, how do you feel going into 2021? The comparable base is quite high. Do you expect to still be able to grow in 2021 due to your strategy to increase the average ticket size?
I think what is in our own hands, we know that we are capable of executing the plan. What is beyond our control is the market in general. If something would happen on the economic climate and sensitivity of the people who are investing into home improvement, investing into their free time, and the free time facilities. In general, I think sauna is enjoying a very favorable trend throughout the world and the wellness and wellbeing.
Even if the travel is partially changed, at least for some time, domestic travel and the people building their second homes and holiday homes, and paradises on the backyard, I think that is still spot on into our activity. Within our own controllable activities, we feel very strong and solid. Outside of our own control, I think it's going to be an interesting year, and I think everyone who can make an estimate and a guess can be equally right or wrong as me.
We have Maria Mah asking, what kind of growth could we expect from the U.S.?
I think U.S., in most of the categories, is almost like a mature market. When it comes to sauna and spa and wellbeing, there is still a lot to be done. In the area where we are presenting this is the traditional sauna, the journey is on the early stages. We are not entertaining any business in the steam sauna, steam rooms. For the time being, we have no approvals, no licenses to sell. The same applies for the infrared area. In that respect, we are only addressing one-third of the opportunities. They are not in value, they are more in numerical terms, one-third. I think a big part of the business is not in the addressable offering of Harvia as we speak.
Going forward, we will try to find ways how to address also the steam market and how to become a player in the infrared in the North Americas. Currently, our efforts are fully focused on the traditional sauna and the sauna equipment.
We have Ola Surberg from AC Vision Fund. Congrats with good performance and good steering in a difficult period. You mentioned investments were held back earlier in 2020, and now you're doing some catch-up. How will this develop as we move into 2021?
I think some of the projects which were put on hold and due to the, I think even regarding our home base, this is a beautiful country where we have four seasons, and you can only build in summertime. That season we missed. Some of the projects are delayed for the coming summer season. We'll address those. Then I think when we do expansion, some of the expansion and our type of machinery and the way we operate, we don't have big production lines. We have fully automation and big machinery at the early part of the process.
The rest is more of an assembly and a cell type of a base for the factory layout. The ticket size is vary per machinery, say between EUR 100,000 - EUR 1.2 million on the machinery. If you need to build some incremental space for the machinery, then it will add up on the price tag and also add up on the timeline, because building always takes a bit longer time.
We have Carl Öhman asking, what can you say on TylöHelo operational issues?
I don't know them so intimately regarding the operations. I think when you take a holistic picture of the TylöHelo, one would expect them to be enjoying the same favorable trend in the North Americas as we are. They also have the steam business in the U.S., so most likely doing quite okay. On the European arena, I think they've been getting their act together, and they've been improving some of the areas where they used to be weak or mixed feelings on the marketplace. I think they are catching up how to operate on the markets.
We have Maria Wikström from Danske Bank. Do you see that healthy living trend and sauna demand could hit China as well? What is currently happening in Chinese sauna markets?
I think we know exactly how the sauna equipment market is trending and how to build and operate and produce machinery over there. We've been learning how to be a player in the entry-level of the sauna heaters and equipment. We've not been in the sauna business as such, that's why we've been increasing the manpower and the sales force to get a better grip on the market.
Due to COVID-19, unfortunately, our Hong Kong-based resource not been able to travel to mainland China, been doing it virtually, so been a virtual learning. As we go forward, one day we will have face-to-face meetings with the customers and potential customers. Definitely we have plans to take steps forward on the Asian market and China, especially.
China has its own spa culture and sauna clubs and so there is a demand for saunas for sure.
Yeah.
Petri Kajaani from Inderes is asking, has the Narvi factory fire affected the sauna market situation in any ways?
I think what we've been seeing, and also been in discussions with the Narvi and the owners of Narvi, a very unfortunate situation, first of all. I think they've been able to recover, and they organized a special, what I would call it, a temporary workshop where they are manufacturing wood-burning heaters. They've been gradually getting it up and running, which is good for the market.
Today, if you go to one of the do-it-yourself stores, you may see some of the volume products, say, temporarily out of stock, becoming available mid-November or something like that. I know we tried to figure out with our own domestic sales team, have we been able to enjoy a better ride on the wood-burning heaters? Our understanding is that it's been very little impact in our wood-burning market in general.
Mikko Salmi is asking, what kind of product development processes or project Harvia has during this year and in the near future? Is there any technical improvements coming to the products?
I think we try to increase favorable features to our equipment in that respect. I think where we are working, and I think they are very applicable, especially outside of Finland, is safety. Safety is one area where we improve the game and try to be best in the class for sure. The other one is convenience of usage, because when it's convenient to use, the usage frequency also goes up.
The more frequent people do the saunabathing, the more demanding it is for the equipment. The life cycle of the equipment is getting shorter, so we get a replacement sale earlier. The other one I think is on the wood-burning heater, cleaner burning and the lower microparticle emissions, for sure. In general, I think we try to follow the digitalization of the sauna industry, followed by the remote operation operated by the app, and make it fully integrated to the house automation. Those are the areas, just to mention a few.
In long term, is the CapEx sales ratio of 2 - 2.5 a reasonable assumption?
As long as we are roughly on this type of a scale and scope, works well. If we would add up a sizable business on top of that, which is not fully vested in terms of capital, then I think we would need to reconsider improving the productivity and potentially acquiring modern equipment in order to keep the productivity up and running.
The return on investment is so good. If you can share your thoughts on new investments and how fast they get to the group level.
I think we don't share any fixed number on that one, but we are practical businessmen and try to keep it on a very good ROI as well as a very short payback time. In our type of industry, only the big ticket, which are basically must-have investments, may carry a longer payback time than normal. Those are usually the machinery which is core of your base process, which you need to have and you need to replace.
When they're getting old, I think it's the same as like an older car. You don't know whether a 10-year car will drive you back home safely and steadily. Hence you need to invest. On those type of investments, the payback time is longer. Usually, our investments have a very short payback time.
Of course, we have a longer plan of the investments for the future. As we see this year, we have to adapt also to the market situation and the demand. We are flexible. We also change our investment plans quite quickly if necessary.
Yeah, we are utmost agile. If something is needed, we'll definitely go for it. If there's payback, it's almost considered to be done.
Thank you. We don't have any more questions.
Thank you for the time. Enjoy the rest of the day. Wish you all the best. Stay safe. Stay healthy. Thank you. Bye now.