Hello, everyone, and welcome to Harvia's third quarter 2026 earnings webcast. My name is Matias Järnefelt. I am the CEO of the company, and with me I have Ari Vesterinen, our Chief Financial Officer.
Hello.
Today we have the normal agenda. I will start by first covering the key numbers and highlights of the quarter three business and financial performance. I will also say a few comments about our strategy implementation. After my part, Ari Vesterinen will be commenting more in detail the financial performance, and the details of it. Let us get started. Starting with the top line. Harvia's revenue increased by 17% to EUR 53.9 million during the quarter, and all of this growth was organic. All of the regions contributed to revenue growth, growing double digit. This growth was supported in part by approximately EUR 4 million of postponed deliveries from quarter two to quarter three due to a major IT infrastructure and process upgrade program that we completed in our main factory and headquarters in Muurame, Finland, during the second quarter.
Overall, when we look at the markets, we see that the demand picture looks strong. It looks strong in North America, and also we see steady improving picture in Europe and many markets in APAC and Middle East and Africa. Although the exception is that the ongoing conflict in the Middle East seems to impact the Gulf region and also the wider region around it. Looking at the bottom line, our adjusted operating profit was EUR 9.5 million, and that represents 17.7% of revenue. When we look at the P&L, first starting with the gross margin, it remained on a healthy level close to our longer term average gross margins. On the other hand, profitability was somewhat negatively oppressed by elevated personnel cost, other operating expenses, and also somewhat higher depreciations that reflect our past investment in developing the business.
Of course, the current OpEx reflects in part our intent to invest in making this company stronger for the future. What comes to, for example, increasing firepower in marketing, firepower in research and development to make sure that we have the leading products in the market. I will be talking a little bit about the innovation we introduced during the quarter, later in this presentation. There is also a kind of one-time accounting adjustment that concerns region North America, both in terms of revenue and adjusted operating profit. That reduces on group level our operating profit by around EUR 800,000 and revenue by around EUR 700,000. I am very happy to report that the process and IT systems upgrading in our main factory in Muurame was completed successfully.
The actual goal happened during the second quarter, but due to that change, we had some weeks of not delivering during the quarter two. We have been catching up those postponed deliveries during the quarter three in full. That reflects that we are back in full speed, full capacity in our main manufacturing facility. We have also continued investments for growth elsewhere, including we have been expanding our factory in North America to support growth for the future years. This expansion will be supporting us already now during this just about to start winter season. That traditionally in the sauna market is the high season of the year. We have also finalized the development of several new products. I said I will be talking about this a little bit later.
I think that the demand picture that we see generally all over the world is despite the geopolitical and macroeconomic uncertainty, discussions about higher interest rates, consumer confidence, actually we are quite encouraged by the steady picture. I think it reflects the resiliency and the strength of the demand drivers to the category that we represent. Sauna, wellness, and health in a relaxing, pleasant way is a story that resonates all over the world. I am personally convinced that the future for the market and Harvia is bright. Summarizing the quarter three key figures, revenue at EUR 53.9 million, and that is 17% growth compared to the quarter year before. At comparable exchange rates, we grew by 16.2%, and all of this organic, as mentioned.
Adjusted operating profit, EUR 9.5 million, and that is around 8% more than the quarter year before and equaling 17.7% of operating profit margin. Operating free cash flow in our business typically is always lowest during the quarter three. The reason is that we are just about ramping up for the high selling winter season. That means that we manufacture a significant amount of products for finished good inventory so that when the key selling season in the winter, including campaigns around Black Friday, Cyber Monday, we have the firepower, the inventory that allows us to grow, also during the high selling season. So that is reflected in the operating free cash flow. For the first nine months of the year, these are the figures. Revenue growth, revenue at EUR 165 million, and that is around 14% growth, and at comparable exchange rate, around 16% growth, all organic.
Adjusted operating profit, EUR 31 million, and that is around 8% more than during the nine first months of the past year. Year-to-date, our operating profit margin is at 18.7%. Operating free cash flow at around EUR 15 million and cash conversion at around 40%. When we look at the regional picture, of course, it is very pleasing to see that all the regions grew double digit. This time the fastest growing region is Northern Europe, growing by over 20%, and North America grew by 18% in euros, but then again, this region was impacted by the accounting adjustment, and without it would have been also a 20% growth region for us. Northern Europe, as said, grew by 23.5% to EUR 13.7 million and representing one quarter of group total revenue. We saw positive development across the geography, including Harvia's home market, Finland, Scandinavia and the Baltic region.
The performance was supported by deliveries that were postponed from quarter two to quarter three, as the region is heavily skewed towards the heating business in terms of the portfolio mix we sell. At the same time, it is also fair to note that Northern Europe that had very difficult years 2022, 2023, 2024, and even first half of 2025, for the past mid-over a year has shown strong performance. If you look at the, with the exception of quarter two, which was impacted by these delivery delays, but then account back this sort of 20% plus growth during this quarter. We talk about double-digit growth during this period, actually in a very steady way. That is encouraging sign for us also that our home region does provide growth opportunities for us.
Continental Europe grew by 12% to EUR 14.1 million and represents 26% of the total revenue. Continental Europe has been growing now for several years, pretty much usually between 5% to 10%, and this 12% is a bit on the higher side compared to that sort of longer term trend, but as said, boosted by heater deliveries, some of which would have normally happened during the quarter two and happened now in quarter three. When we look at the country picture, there is always some countries a little bit up, some countries a little bit down, but overall the market continued to perform strong. Maybe a couple of highlights for this quarter were the German-speaking Central Europe plus the U.K. North America, strong market demand continued and our multi-year journey had a logical next chapter in its history.
Revenue grew by 18% to EUR 19.6 million and excluding the accounting adjustments, revenue growth was 22.5%. If you look at the left-hand side chart, you can see that it is pretty steady development and you can also take into account that quarter three in 2024 and 2025 were partly elevated due to inorganic growth. Quarter three this year was fully organic growth. As said, pretty steady line, and reflecting the continued growth in interest and demand in Northern American market, that of course is very important for us. This despite all discussion about consumer confidence, pending home purchases, et cetera. We are pretty pleased and believe that this shows the strength of the category overall. When we look at the product mix in North America, cabins grew particularly strong.
In the low end, we had the steam equipment, which is reflecting that traditional sauna category, infrared sauna category, are growing faster than the steam sauna category. APAC and Middle East grew by 12.3% to EUR 6.4 million in quarter three. Again, if you look at the kind of trend over last four years for the quarter threes of each year, there is pretty logical continuation. Of course, quarter three last year was a very strong growth quarter, but otherwise it is pretty steady straight line to that EUR 6.4 million where we are in quarter three this year. When we look at the geographical differences inside this region, we can see that some of the big markets that are the kind of strategic markets where we also have stronger own presence in the market like China, Japan, continue to perform strong, good double-digit growth.
Whereas the ongoing conflict in the Gulf region is dampening the figures for the region somewhat. When we look at the product mix, due to the postponed deliveries from quarter two to quarter three, which practically all of that was the heating equipment. Heating equipment in quarter three was particularly high, nearly 60% of our revenue. Otherwise it is pretty steady, but due to the increasing share of heating equipment, then each of the other categories was pretty much like minus 1 percentage point or pretty much flat. No major shifts there. Looking at the growth across product groups, we can see that heating equipment was the growth leader, growing over 20%, boosted by the Muurame production ramp-up and fulfilling the order backlog. Saunas and Scandinavian hot tubs growing good double-digit number. Steam products growing, but only a little.
This reflects the fact that our steam business is basically based in two regions. One is Middle East, where the conflict is having its toll on our business, and partly that in North America, which is the other region, steam category is growing slower than the traditional infrared sauna categories. A few words about Harvia's strategy. Harvia is the market leader in a category that has in the past been what I would call a niche market, maybe more regional market, but now growing into much broader global wellness segment. The strategy that we have chosen to take is that we want to be a market leader in offensive, inspiring, innovating, taking the market forward, and we want to be the company that shapes this global sauna market so that everyone has a reason to experience sauna.
We are driving forward that strategy through what we call four strategic focus areas, answering questions what, where, to whom, and how? What relates to our products and portfolio, and we want to be the product and portfolio leader of the business and deliver a fuller sauna experience to each sauna built to tap into a bigger spend potential as sauna market and more saunas are being built. Where we are, last year we were around EUR 200 million company, playing the global market. We also have to make choices which are the most important strategic countries where the future of this market, sauna business leadership is defined and decided, and we focus most of our efforts there. It is countries like the U.S., big European countries like Germany, U.K., and big Asian countries like Japan and China.
Elsewhere, we also want to capture opportunities, but mainly through distributor partnerships. To whom is that we want to be also having the leading sales channel, so access to the market. Best retail partners, best distributors, best country importers in, for example, Asia, and strong own D2C. How relates to the fact that we are a growth company. Every year we need to produce quite much more products to sell to keep growing. So we want to have efficiency, scalability, and capacity to grow and grow in a profitable way, including then the competencies and skills that we need to take this business forward. During this quarter, we have taken again many good steps on that journey. When we look at the products and portfolio, we had strong performance in full sauna cabin business in North America. Heating equipment, which is Harvia's core, grew very much.
Also, of course, boosted by postponed deliveries, but overall, the demand picture for the core business stays strong. We've also been working behind the scenes on building more exciting products to our portfolio, and they are launch during this ongoing quarter four and also during quarter one next year. I'll show next slide some highlights from there. Winning in the strategic important markets across the board, I'm very happy to see that the markets where we have stronger own presence, they are performing really well. We generally talk about double-digit growth as the rule. As we keep growing, one part of our strategy is that we take more and more countries under own sales responsibility, so expand our own commercial footprint in the regions to support our continued growth.
Leading in the key channels, when I'm looking at our key channels like mass volume retailers, our own D2C, specialty dealers, importer partners, the growth we reported this year is coming very broadly and all of the key channels we're growing. I think we've also laid out great groundworks in developing the channel access in a sustainable long-term way that will help us deliver hopefully strong results also in the coming years and quarters. Gross margin stayed as said on a healthy level, supported by balanced product mix, channel mix, and also pricing management. One core part of Harvia's strategic thinking is that let's do more of what works, and let's do less of what doesn't work. One of the things that seems to be working really well is direct-to-consumer web stores that have been helping us to grow significantly in North America.
Earlier this year, we launched a direct-to-consumer web store for the German-speaking Central Europe. Now as we've started to approach the high-selling winter season, we really see very rapid uptake in the incoming orders, and that's of course very pleasing to see as we've been working on building that new channel for our channel mix in Continental Europe as well. In terms of best-in-class operations and great people, this kind of a milestone of go live with the new IT infrastructure and processes was a major undertaking for us. Always also these projects come with elevated risk, because they are so big changes, and I'm so happy that I can now report that after quarter three, we are back in fully normal operational levels and our delivery capability is good.
That's of course very important for us as we now have just started the high selling quarter four , high selling quarter one , typically as said historically, these are the big quarters, so it's very important that the operational engine is in good shape, and it is. We've also been investing in expanding our capacity elsewhere, such as expanding our factory in West Virginia, which will be supporting our growth ambitions also this winter in U.S. So overall, what we want to do is we want to grow, and we want to build scalability in our business so that we can see operational leverage coming through as we keep growing, and also strengthened operational resilience, and also transparency for better business steering and efficiency across all functions, and that work is progressing well.
Now, I promised to say a few words about the new products, and here are some products that we've now launched for this winter season. Kaski Cube View sauna cabin on the left-hand side is part of our goal of growing our traditional sauna cabin business, not only in North America but also in continental Europe. Really nice pod-type form factor, full glass front wall and door. Very much something that the early feedback from the market is that this product has all it takes to be a very successful product in the continental European market.
One of the most successful product launches we have done over the past couple of years is the launch of Harvia Fenix control unit, which is our flagship full touch control panel, over-the-air upgradeable, et cetera, and really taking Harvia into the leading position when it comes to digital solutions for sauna and spa. With a new Harvia Cinder, we've taken that Harvia Fenix product that the market loves and actually brought it to lower price points as, I would say, a price fighter in this full-touch category. Really exciting product. We really want to elevate the experience also in the more entry level of sauna products, and we feel that this is a great step forward. In terms of pricing, it's very attractive. At the same time, it's margin-wise a very good product for Harvia.
We also drive digital leadership elsewhere, and one of the examples is that you can actually control selected Harvia saunas. For example, when you have Harvia Fenix control unit, you can control your sauna. Nowadays, not only with your phone but even with your Apple Watch, showing the opportunity to integrate into other digital ecosystems and use them to enhance the sauna experience of the Harvia sauna users. For EOS, which is our high-end brand, the home is in Frankfurt or close to Frankfurt in Germany. One of the most loved product is a product called EOS Mythos, and it has now been upgraded with a very nice, luxurious new surface material, what we call so-called water reflection.
The steel is sort of bending in a natural way that mimics then when the light reflects back from it, the reflections that you would see on the surface of a lake. Very beautiful when you see that alive and creating a luxurious feeling in the sauna where EOS Mythos is heating the sauna. I would hand over to Ari Vesterinen for the financial details.
Okay. Here we see multiple quarters over the time. Of course, analysts especially are asking, what was that adjustment in Q3? Okay, there are always in accounting some adjustments, smaller or bigger, but we have certain internal threshold when we have a bigger adjustment than we seriously think that if we should flag that in the reporting, and now we did it. It is simply matter of revenue recognition of certain big box mover sales from the beginning of this year and also the cost recognition of big box and web shop sales. We booked it, and we wanted to highlight it that this was needed. It is not an extraordinary position, it belongs to normal business. But it was done now in Q3, and I am not expecting similar adjustments in next quarter or so. But this is the fact.
If we now compare the quarter three with quarter three in 2025, and if we look at the quarter three now isolated from the other quarters and calculate back the adjustments we had, EUR 700,000 to the net sales and EUR 800,000 to the EBIT. We were actually on the adjusted EBIT level of EUR 10.3 million and with the net sales of some EUR 54.66 million. So that would have meant, okay, this is just a calculation, but anyhow, that we had an adjusted EBIT of 18.9% during Q3. It is actually very close to Q3, what we had a year ago. Of course, people are asking that, "Hey, what about the operational leverage? Now you had higher sales and basically quite close to the same cost base.
Why didn't you make any higher margins?" The fact is that during this quarter, we have been also developing the business further, and we have, during these eight to multiple international trade shows, and we have had more marketing and business development costs during Q3 than a year ago, substantially more. Also, the depreciations increased. It is visible in our reports, about EUR 400,000 compared to last year. So all these items cause the reduction of the EBIT level percentage somewhat. So here we see then the main financial figures. If we would have had, this is a bit theory, but anyhow, the adjusted operating profit on the level of EUR 10.3 million, it would have had the 17% growth in adjusted EBIT also, as the sales growth now. But okay, we have had a rather good quarter.
We have been preparing for the rest of the year and for the higher winter season, since Q3 is typically, in our business, the lowest sales quarter at all. Okay, we got the boost from Q2 to Q3, about EUR 4 million delayed deliveries from Finland. Now they are in the books, but we were also growing nicely without that effect. We have been employing new colleagues especially in the production facilities, but also, let's say, developing the U.S. operations in customer service, in sales, in many fields, since we see really there further growth to come. But otherwise, there is nothing very special in these financial figures in the big picture. The operating free cash flow, as Matias mentioned, it goes down typically in Q3 and then pops up. Has done that in the past during Q4 when we ship and invoice the inventories.
This has been the pattern multiple years backwards. Now we had a slightly less negative cash flow than a year ago in Q3. The leverage remained on a healthy level of 1.2. A year ago, we had 1.4, and this is much under our long-term financial targets. The net financial items, net of interest income and costs, went slightly down. We have certain swap agreements which, on paper, in the IFRS accounting, might change this position a little, but they did not have so big impact now in Q3 at all. We have continued the investments in facilities, product development, and IT infrastructure. Now in Q3, the investments were not as high as a year ago. A year ago in Q3, we had EUR 2.2 million higher investments. We are looking forward to have the investment in U.S. closed for the expansion of the production facility.
Besides that, we have also rented other warehouse capacity since we have been very strongly now producing for the Q4 campaigns during the Q3, and that is not really visible in the results yet. Harvia's long-term financial targets, just to repeat, we have them the same as in the past: two-digit growth, profitability, adjusted operating profit over 20%, leverage under 2.5. Harvia pays twice a year the increasing dividends, and the last dividend payment, the second from 2025 results, was actually paid out in the beginning of this week. So any questions? I have got here quite many questions in this tool, and let us start to go them through. First, quite U.S.-related question, or U.S. citizen. What is the impact of inflationary pressure and on the gross margin you have not been able to pass along yet, but we have been able to pass it?
I did comment a little bit during my presentation that maybe this question was sent before I made those comments. There has, of course, been a lot of talk in the financial press about what happens generally in the stock market, the AI stock crash somewhat, and increased interest rates, consumer confidence, pending home purchases, et cetera. Despite all of this, we actually see a pretty bright picture for our category. I think there are basically two aspects to it. One is that there is a strong reason to buy our product. People really love this idea of having wellness and health in a relaxing way, and that is basically the value proposition of sauna. It is kind of ancient wellness ritual that is backed by modern science. The second is that kind of the market, we are still in so early phases.
Maybe the situation would be different if there would be, let us say, 50% of American households would have already a sauna. But we talk about a tiny fraction of the American homeowners owning a sauna. So we are still in the very early stage of the adoption curve. Also, if you think about just the affordability of the product, you can go and buy, let us say, a $3,000 sauna from Costco made by Almost Heaven, Harvia. So it is not so expensive product either. So there are many households who have the interest and definitely have the means, as the actual barrier to buy is pretty low, the price point is accessible, the buying process is easy. It is a pretty easy and rewarding assemble yourself project that you can do with yourself and a friend in less than a day.
We see pretty solid demand in North America for the category, and I am very pleased about that.
Then there are a couple of questions we haven't ever asked so detailed, but I asked them, and answered, Teddy, and I asked them anyhow, and you can comment them on a general level. What has been the sales decline in the Middle East?
Generally speaking, if you look at the Middle Eastern region, it represents around 2% of Harvia Group's total revenue. Last year, it was pretty much around EUR 4 million or so. And what we have said is that roughly half of that is at risk during this year because of the ongoing crisis.
What was the growth rate for ThermaSol in Q3?
We don't go into unit-based growth numbers, so we report the growth on the region level and also then, of course, in a product category level. I've noted this earlier, you should not be looking at just the steam category to draw too far fetching conclusions about one particular unit in North America, because I said Middle East plays a big part in the steam category. Also we are leveraging ThermaSol beyond the steam category as a sales channel to access higher end sauna solutions business. ThermaSol's channel is to what I would call high-end home spas, and there's great opportunities for us to provide a broader portfolio of Harvia Group through the sales channel, which is then not visible in the steam figure.
Okay. Your hiring trends suggest strong line of sight on the high selling season. Thus, isn't Q3 2026 just a reflection of the timing of the growth expenses and confidence in the top line growth? In Q3 2025, if I remember well, you were more cautious on the same OpEx as the tariff situation negatively impacted your Q2 performance. So Q3 last year was, say, too strong on the margin side.
Comment and question.
Yeah. Well, maybe a comment here would be that basically the strategic position that we see for Harvia is that we're a global market leader in a growing category. We want to be leading also in the future. There's of course two strategies that you can play. One is an offensive strategy, playing to win, and the other one is conservative strategy, avoiding losing. I'm in the camp that if you're basically building a growth business, there are certain risk you have to take and basically aggressiveness, bit pushing the limits is a prerequisite of executing growth strategy. So that's of course why we have chosen this more growth-oriented strategy. If you look at, for example, now year-to-date performance, we can see that we are above our long-term target when it comes to top line, but somewhat below when it comes to the EBIT margin.
We have chosen this, I would say, growth-oriented strategy because we see so much opportunities in this category and market in the coming years. Personally, I am in strong belief that Harvia will be much bigger company in the future than we are today. Great thing about growth is also that it compounds unlike what I would call profit engineering. The profit margin, that doesn't compound, but growth does compound over time, as you very well know. We think that this is the shareholder value maximizing approach. That, of course, comes with the downside that every now and then, maybe one or two quarters might be a bit below the long-term EBIT target setting. As I said, it's not quarterly target that we've set for ourselves. It's a long-term target.
Last month, Almost Heaven Saunas got a business award, and it was disclosed that a new investment of $5 million was about to get started. What's the timeline of this investment? I assume this is on top of the recently completed investments.
Well, maybe what I would call maybe make a general statement. News like this should not really surprise anyone. The reason is that if you look at our growth trend in North America, over the multiple years we've been growing very strong double-digit growth rates. Now, when we were smaller, let's say $10, $20 million business, growing 30%, 40% was in absolute terms amount of products to manufacture fairly easy still. Just selling 3 to 5 million more next year than the year before already provided great double-digit growth.
Now that last year we were close to $90 million in our Northern American business, and we still want to keep growing strong double digit, then the jumps in terms of absolute kind of a difference from the year before to the current year in terms of revenue we need to deliver in absolute much bigger. I think it should be considered almost as normal that every year we do something. We've been working during this year to expand our special kind of warehousing and shipping docks capacity, which also frees up production floor space in our Lewisburg factory. That gives us certain capacity increase. Then again, we're already thinking that, what do we need to do to make sure that also the year after, so the high selling season year from now, we'll have the needed capacity.
So the thinking is that, we take the historical growth and project it to the future, and that gives us a kind of rough indication of how much more do we need to sell, assuming that the growth trends continue. That's the way we see it. So continuous expansion in North America to be expected assuming everything goes according to our plans and assumptions. I've also commented earlier that what we've done in Lewisburg is, it's now pretty much like two years ago, we bought a quite significant plot of land around the factory we have there making the cabins for North American markets. The first thing we did was really thinking that kind of think big, assuming that this site will produce 5x the revenue, how would the site look like?
Then we walked backwards to the present state and thought what are the first bottlenecks we'll be hitting. So the phase that we've now completed or about to complete, was addressing the first bottlenecks. There's always the next bottleneck, and we'll systematically keep working on the bottlenecks to keep growing the capacity in line with our longer-term expectations what we have for the market.
Okay. There is a question which was actually partly already answered during my presentation. Can you walk us through all the elements that impacted your adjusted EBIT? Were these expected or did something come as a surprise to you? Well, the costs and the plans, they were more or less in our plans. When we observe our sales deductions and revenue recognition and so forth, there are sometimes some things which have to be decided short- term and effects which we didn't know necessarily all in advance, but they were not big surprises, but some anyhow.
Maybe I also will comment a little bit that if you look at the gross margin that we have and maybe if you look at the 10 last quarters, it's pretty much like on average level, but maybe I would say it could have been 1% higher. Then you look at the employee cost, it also could have been maybe 1 percentage point less in terms of share of revenue, and the same goes with the other expense. A little bit growth in depreciation that reflects our past investments. So it didn't come from one particular surprising thing. It's kind of a bit like across the P&L stack. If we hadn't had this adjustment, it would have been 19 and 19 quarters. So 19% sales growth at 19% EBIT margin. So not so far from the 20%.
Still a bit of a miss, but not so far from the long-term targets that we've set.
If some of these costs were planned, do you expect a rebound in Q4 or should we extrapolate this into upcoming quarters as well? Meaning, was this cost pressure temporary or does this continue in Q4? We don't go so much in the details of the accounting, but we don't expect a rebound. We don't expect similar things, but we always inform the market if there are adjustments which go over the normal thresholds we have internally. You have added personnel since last year. Where exactly this has been and which parts of the business? We have had, a year ago in this time, 728 persons and now 816. Would you like to elaborate the growth of the personnel?
Again, it's quite, I would say widespread, but weighting towards North America. Of course, it's simply more blue collar workers in the operational facilities in North America to support continued volume growth. If I take you back two and a half years, we actually established North American sales region only two and a half years ago, 1st of January 2024. Before that, we didn't have a dedicated sales or commercial approach in that geography at all. We kind of started from a very lean team in that place. We have made conscious choice that we increase firepower in, let's say, key account management and customer service, technical support, marketing, et cetera.
Generally we've been building a region that is more professional, more self-sustaining, and ability to carry more the responsibility for the group even as it's becoming bigger and bigger in absolute terms, and also growing as share of revenue as part of Harvia Group. So that's clearly an area where we have seen quite significant changes, but also, let's say in our Finnish Muurame factory, we've been hiring more people as we've been growing, et cetera. Some more firepower also in the global R&D, developing our digital capabilities. So quite many places where we've chosen to increase the firepower.
How should we think about the margin development for the full year? Year-to-date, adjusted EBIT margin is below 19%. Is 20% level realistic?
I cannot really comment on specific, because practically it would be giving, what was it, forward guidance, which is not part of our policy. I do need to leave it to Having said that, there of course is a slight adjustment. Under normal circumstance, we would have been at around 19% EBIT range. If you think about the going concern or a kind of normalized level of profit, as I said, it is not too far from that level. But it is clear that we would like to be, when we look at our long-term targets, very close and preferably even above them. Where we land this year, I will be sharing that in three months' time.
Did the growth in North America meet your expectations? Have you seen any changes in the market demand since Q2?
If I normalize the growth in North America, so kind of neutralize the effect that this accounting adjustment had, because it was specific to North America, it was 22.5% growth, which is pretty good. We have had stronger growth and also some quarters with less growth. I think one of the ways I am looking at the regional performance is that actually, I mentioned this, look at the 10 past quarters. So not just what was happening the quarter before or the year before in that particular quarter. And actually, then you can see interestingly that there is pretty steady flat levels for the regions. So North America during the 10 quarters on a certain level, there is of course fluctuation, some quarters higher, some lower, but generally you can see certain flat level.
The same goes for APAC region, Continental Europe, and actually the only place where we could see kind of more like a bit like a gear shift to a more positive is that Northern European region had kind of, if I am looking at past 10 quarters, kind of the early part of it was clearly low and now the past bit over a year have been kind of on an elevated level. But within that there is variation, so a little bit of vibration. There seems to be, just on observation, there seems to be a tendency that if a region was above that flat level a year ago, then it is hard to beat that baseline. We might then, it seems that in the history we have been a bit lower than after one year after a very strong quarter, and then the other way around.
If the quarter a year ago was a bit lower from the sort of flat level, then the probability that we have been kind of above that trend line is higher. When you look at North America like that, actually it is very logical in what we delivered and overall kind of the long trend that we see is very strong.
This 20% EBIT is challenged from a different angle, but I ask this also. Can you guide us how you plan to get about 20%? To what extent is the dip driven by competition or mix?
Well, I think competition and mix would be visible in the gross margin. Gross margin is over 10, past 10 quarters, we are pretty much in the average. Maybe 1% below, but pretty much in the average. So I think that shows the strength of our competitiveness in the marketplace. Where does the EBIT kind of dip come from? It is basic more like discretionary spending, so what management more like decides in terms of kind of personnel cost in investing in digital capabilities. Of course this major transformation program to upgrade our operational capability through technology to bring scalability has also meant that we have elevated the firepower.
Ultimately, this is kind of the board's and the management decision, how much do we choose to invest in building this business for the future and how much do we optimize for the current quarter or the next quarter? As said, the margins are also pretty small. If you think about just the P&L stack, as I said, if the gross margin would have been 1 percentage point higher and employee and other expenses 1 percentage point lower, it would have been clearly above 20%, especially if you would even take into account this accounting adjustment, as said, quite clearly above 20%. So the margins are quite lean.
Why sales leverage was so weak in Q3 2026? Organic sales up 16% year-to-year, but adjusted EBIT only 8% year-to-year. If you calculate back these adjustments, you can see this effect. Would you like to otherwise comment the Q3 EBIT levels?
No, I think we already discussed this. Basically partly the OpEx level is management decision and it reflects our confidence in the future. The fact that we believe Harvia could be much bigger in the future and we want to be inspiring leader of this category. Partly it reflects the adjustment. If we would neutralize that adjustment, then top line and EBIT growth would have been pretty much in sync.
How do you expect gross margin to develop in future as revenue mix is even more built to third-party retailing in North America?
Hmm. Yeah, actually it is interesting when we look at more like a profitability of margin mix of Harvia, there are certain rules of thumb. One is that the farther away you go from Finland, the higher the gross margin levels tend to be. The simple explanation is that in Finland, sauna is almost at every home. It is very established and mature category. Whereas elsewhere it is an emerging category, and that supports margin levels in the further away countries. The second is when we look at the product mix, we tend to have the highest margin in what I would call the technical equipment side of our business. So the heaters, control panels, and somewhat lower in the solutions part of the business, which is the cabins. But at the same time, the cabin business provides a significant opportunity to drive higher absolute profit.
It is very interesting for us, but still there is a bit this difference that the margin of the equipment business tends to be higher. Then there is also this channel mix that when we sell through channel partners and they are very valuable for us and they provide market access for us and some of them very significant volumes. But when we sell through partners, the margin we make tends to be lower. When we sell through our own D2C, we basically get the full end- user spend. Despite that we invest more in marketing, generating traffic to our websites, et cetera, still the margin of that business is higher. So there is this geographical more distance from Finland. Then there is a product category mix and also the channel mix between direct sales and sell to channel.
It is really like a living picture and there are many variables and overall, the goal for us is to maintain strong gross margins, because that is the engine that keeps Harvia's growth machine running and allows us to keep investing in the future and also then supports this idea that as we grow, then it will be easier for the operational leverage to come through the stack. During the past short-term history, we have decided to invest more in marketing and R&D to fill certain gaps that we have identified. But in the future, we could see that the scale of the business overtakes, and we still can invest what we need to invest in marketing and product development, but actually can get more of that all the way down to the bottom line of the increased sales.
How did in-store sell- through trend at key North American big box retailers during Q3? Were there any timing related factors around customer inventory stacking or replenishment that influenced the quarter as revenues in North America slowed from Q2? Looking ahead, do you have visibility on additional SKU listings in 27 within big box retailers? Are discussions ongoing with other large format or big box retail accounts?
Again, I can comment maybe on the more general level. In North America, we actually tend to have, compared to the size of our business, very little inventories in the channel. I would say the mainstream model, how we work with our big box partners is actually they have historically not carried almost any inventory. We are their drop shipment partner. They sell a market and then take the order and we ship directly to their end user, the consumer. So there has been very little in the channel. That has changed somewhat during this year as many of you know, that we have partners that have now started to take also goods into the regional warehouses and also in the stores as they also see that the category is growing, and they want to be able to serve quickly the American consumer.
In a sense, have a truck and we can load the sauna to your truck bed straight away. But still in the big scheme of things, those inventories are fairly low. Hopefully they will be growing. That of course reflects that we have then a longer-term history of the store sell-out. But all in all, now the partnerships work very well. The partners seem to be very happy with the contribution by Harvia and how we've been able to grow together. Now, of course, there's always the so-called channel concentration risk when you have certain big partners and we want to have a balanced channel landscape. That includes, for example, having strong own direct to consumer, but playing in product categories and playing with strengths that don't conflict the big retail partners that we have.
At the same time, we want to have a balanced mix of retail partners, not just be dependent on one or two or a few, but rather healthy ecosystems. The work happens every day. It happens every day. I'm pretty pleased with the steps we're taking.
Can we comment on the SKU listings for 2027?
The SKU listings, I wouldn't go into the exact details, but when you look at historically every year there's something new. Partly it's a new product, like maybe price point or form factor introduction. Partly we are renewing the portfolio. One of the reasons why we renew the portfolio, kind of ongoing portfolio is we do also ongoing cost engineering because we want to make sure that the partners always have great offers to the market and what was good enough a year ago might not be good enough this year, let alone next year. There's ongoing, I would say, gross margin engineering, also ongoing innovations, et cetera. Practically you can assume that every year we have new listings and some of the old ones drop out.
The Lewisburg expansion was completed in September. Well, there is still some work to do, but this is the question, completed in September. How close to full utilization was the facility by the end of Q3, and how much capacity remains to support near-term growth? At what point do you expect to start evaluating the next phase of capacity expansion?
Maybe a few words. Despite the fact that we grew by 22.5% in North America, and cabin business was actually strongly contributing to that growth, we've also been building in Lewisburg factory finished good inventory for the winter selling season. So that already should give you comfort that we have the firepower it takes to keep growing also during the high selling season. I already answered in a previous question that practically we are looking at the base plan for our capacity planning is that how much we have been growing on average over multiple years in North America, expecting that to continue, and that gives us a baseline of how much capacity do we need to prepare for the coming years.
Once this is completed, we'll start working on the next one pretty much straight away to make sure that a year from now, we have the capacity we need to grow and keep growing in strong double digits, assuming that we're successful in demand generation.
How did the steam product revenue develop in North America? Could you provide an update of the action plan and the underlying drivers of the performance?
Are you still expecting growth trend to improve by year-end as indicated earlier?
Steam as a category looked better now than in the quarter two, so that should also give you some comfort, despite the fact that the Persian Gulf situation has continued even today. So that should give you some comfort. And partly, the softness in the steam category, again, which jump to the North America and omit the Middle East situation. When we look at the different sauna types in the world, traditional sauna, infrared, and steam sauna, we can see that traditional infrared are the fastest-growing categories, and steam as a category grows a little bit less. And then the second, which is something I've already commented earlier, there's also opportunities for us to sharpen our own game, including channel management, account management, things related to product competitiveness.
At some point in time, I've said that we had this 40-point action point list that we're implementing, executing with the aim of accelerating our steam performance in North America. And many of the steps have been taken, and I'm positively viewing the future and hoping that we'll be able to see even better figures then going forward.
What kind of growth did you have in your own sales channel in North America?
We don't go into the specific numbers, but strong growth. D2C has been one of the leading growth channels for us for many years already in North America. Strategically it's very important for us because it allows us to control the consumer experience. We can present what I would call the full power of Harvia there. You would imagine going to a particular reseller, they have actually very limited offering from what I would call the full power of Harvia. So the broader offering that we can serve. It's the experience we can fully control. Also we get a higher share of the end- user spend. This is something we want to grow, but we want to grow it in a balanced way. That's why we have internally a commercial go-to-market strategy that I would summarize, right product to right channel at right price.
We have some of the big box movers that we allow to shine with price, with standard product. Our own D2C, it's about volume products but with options. If you want to have, for example, full glass back window, Wi-Fi controlled heater, maybe the cabin painted in black, et cetera, then the best place to buy it is our own website. Then there's also a great offering that allows the more specialty dealers who sell more premium solutions to shine in their segment.
Each channel has a role to play, and we want to have a synergistic multichannel strategy rather than cannibalistic, where we would be competing with price, with standard products against our own biggest partners. This is not the way we see the successful commercial execution. It's instead what I've just explained, that each of the channel has a role to play and each of the channel add value to our numbers and add value to Harvia brand and market share.
Do you see the IT infrastructure and business process upgrade project having a positive effect on profitability?
I think in the future it will be supporting us. In the short term it has been actually dampening it. Basically, it's a major undertaking. We have had consultants supporting us, et cetera. It's mainly a cloud-based service, so a lot of the cost related to even getting it going, we have booked in the P&L as operating expenses. So it has been actually an activity that has been dampening the shorter-term numbers. But at the same time, where we are now, we're back to full capacity, and in the coming quarters and coming years, we'll be working to make sure we get the return on investment, which is more scalability, more efficiency, more automation, and better utilization of, for example, AI, as a booster for productivity in our key business processes.
Okay. You spoke that the overall health and wellness sector growing and Harvia are transitioning from a niche sauna-only brand to a holistic solution provider to capitalize on this trend. How does your segment channel approach into B2B projects, especially hospitality and more tailored health and wellness destinations, play a role for growth as opposed to B2C segment? Does this specifically mean adapting your commercial team to better control the winning of such projects?
I actually had a very interesting discussion with one of Harvia's long-standing management team members around a week ago, and we talked about that there's roughly 18 million saunas in the world, give and take, and around approximately 100 million people who go to saunas. So 5x more people who go to saunas versus how many saunas there are. The difference obviously is explained by commercial and public saunas, so saunas in hotels, spas, fitness clubs, et cetera. We look at the commercial applications from two angles. One is what's the direct business opportunity provide? So being leader of what I would call professional-grade equipment.
We do not deliver full solutions like we do for the residential space, mainly because we can create the full solution for residential user in our factory, so the sauna cabin plus the heating and control technology to go with it, and it is easy to ship to consumer. Whereas in commercial space, a lot of the value, in many cases, is actually on-site work, custom installations, custom building, tiling, wood paneling of the custom saunas. And there we can tap into more the equipment business. So when we look at the commercial applications, it is mainly heavy-duty, professional-grade equipment that we sell. And it is actually a meaningful opportunity for us. But in the order of magnitude, clearly smaller than the consumer opportunity for us worldwide, because we can have Harvia saunas and cabins in tens of millions of saunas in the world over a long period of time.
But it is also not just the business opportunity directly, but also brand impact. Because if you think about 100 million people go to sauna, what brand should they see there? They should see Harvia. Because then Harvia is the brand that also the professionals choose. So actually the commercial does play an important part of our portfolio and go to market. While revenue-wise, it is a smaller part of Harvia, so we are mainly a consumer company from the revenue split, the types of products we make. But it does support us significantly as we build Harvia into the category-leading global consumer brand because consumers see our brand then in the public spas and saunas.
So hopefully that sort of opens how we look at the commercial and the short answer is yes, we are interested in playing there. We have a commercial sales approach as well and continue to do so.
Back to the numbers. Do you expect a visible negative impact to your material margin from the campaigns in Q4?
Well, again, maybe that would be a bit of a forward guidance, but overall we want to make sure that all business we do gives us healthy margin. And I said, sometimes the margin of error is pretty small, especially when we talk about big volumes and, I would say, tightly priced entry-level products. But the key takeaway from my answer should be that all big parts of Harvia's business should contribute to us being able to hit our long-term EBIT margin goal of 20%.
How much are you investing in digital product development? What are the current or projected returns from digital products?
Well, digital is very interesting, and especially now we talk about digital products and digital solutions. Digital, of course, is very big, like if you think about the AI strategy of Harvia, it goes across the company. It is about operational, it is about enhancing sales, it is AI as part of the solutions. Digital is the same. Digital really cuts across the company. When we specifically look at the product side of it, digital for the next five years mostly plays a road map that actually helps us sell our core product. You can see here, for example, is a new Harvia Cinder control panel. As I said, one of the best-selling product launches for us during the past couple of years has been Harvia Fenix, which is the digital interface in your sauna.
It starts to be almost like a basic requirement to compete, that you have to have much more advanced digital capability, remote control, software upgrades, et cetera, in the sauna control systems. The times have changed, and for us to be able to be competitive and exciting with our core products, they have to have a strong digital offering. At the same time, we are building an installed base of connected Harvia users, and I see a future where at some point in time we will have tens of millions of people as connected Harvia users. Once we get there, of course, that provides very interesting opportunities for various business models and serving the customer base. Starting from easy upgrades, replacement sales. We want to have also a stronger recurring revenue logic in our business, and digital can help in that way. Also, again, digital services, digital content.
It is very important for us, but in the short term, it is mainly about competitiveness of our core product. In the longer term, it could really provide a very nice, very high margin upside to our business.
Thank you very much for your questions. There were also a few other questions which actually treated the same topics we were already answering, so I skipped them. If there is any need for future discussion with the analysts and investors, we are of course available. We have to just check the schedule. We are also active in road shows. We want to spread our investment story and explain the business also to the international investors. So thank you for following us.
Thank you very much, and have a good day.