Harvia’s Interim Report 1 January – 30 September 2022
Harvia Plc, Interim report 3 November 2022 at 9.00 a.m. EET
Harvia Q3: Market conditions impacting both net sales and profitability
This release is a summary of Harvia Plc’s Interim Report January–September 2022. The complete report is attached to this release as a pdf file. It is also available on Harvia’s website at https://harviagroup.com/.
Highlights of the review period
July–September 2022:
- Revenue decreased by 18.9% to EUR 37.4 million (46.2). At comparable exchange rates, revenue decreased by 23.3% to EUR 35.4 million. Organic revenue growth was -19.6% compared to July−September 2021.
- International business amounted to EUR 30.5 million (36.1), making up 81.4% (78.2) of the revenue.
- Operating profit was EUR 7.3 million (11.6), making up 19.5% (25.1) of the revenue.
- Adjusted operating profit reached EUR 7.6 million (11.8), making up 20.4% (25.5) of the revenue. At comparable exchange rates, the adjusted operating profit was EUR 7.1 million (20.0% of the revenue).
- Operating free cash flow amounted to EUR 9.8 million (4.4) and cash conversion was 105.6% (32.9).
January–September 2022:
- Revenue increased by 1.2% to EUR 134.3 million (132.6). At comparable exchange rates, revenue decreased by 2.2% to EUR 129.8 million. Organic revenue growth was -4.7%.
- International business amounted to EUR 105.2 million (104.2), making up 78.4% (78.6) of the revenue.
- Operating profit was EUR 28.1 million (35.5), making up 20.9% (26.8) of the revenue.
- Adjusted operating profit reached EUR 28.5 million (36.1), making up 21.2% (27.2) of the revenue. At comparable exchange rates, the adjusted operating profit was EUR 27.0 million (20.8% of the revenue).
- Operating free cash flow amounted to EUR 18.9 million (16.6) and cash conversion was 56.4% (41.1)
- Net debt amounted to EUR 60.1 million (38.9) and leverage was 1.3 (0.8).
- Equity ratio was 44.9% (41.4).
- Earnings per share was EUR 1.23 (1.37).
Key figures
| EUR million | 7-9/ 2022 | 7-9/ 2021 | Change | 1-9/ 2022 | 1-9/ 2021 | Change | 1-12/ 2021 |
| Revenue | 37.4 | 46.2 | -18.9% | 134.3 | 132.6 | 1.2% | 179.1 |
| EBITDA | 8.9 | 13.3 | -32.6% | 33.0 | 39.8 | -17.1% | 52.5 |
| % of revenue | 23.9% | 28.7% | 24.6% | 30.0% | 29.3% | ||
| Items affecting comparability * | 0.3 | 0.2 | 83.8% | 0.4 | 0.6 | -31.7% | 0.6 |
| Adjusted EBITDA ** | 9.3 | 13.4 | -31.0% | 33.4 | 40.4 | -17.3% | 53.1 |
| % of revenue | 24.8% | 29.1% | 24.9% | 30.5% | 29.7% | ||
| Operating profit | 7.3 | 11.6 | -37.0% | 28.1 | 35.5 | -20.9% | 46.6 |
| % of revenue | 19.5% | 25.1% | 20.9% | 26.8% | 26.0% | ||
| Adjusted operating profit ** | 7.6 | 11.8 | -35.1% | 28.5 | 36.1 | -21.1% | 47.3 |
| % of revenue | 20.4% | 25.5% | 21.2% | 27.2% | 26.4% | ||
| Basic EPS (EUR) | 0.34 | 0.44 | -22.7% | 1.23 | 1.37 | -9.7% | 1.80 |
| Operating free cash flow | 9.8 | 4.4 | 121.5% | 18.9 | 16.6 | 13.5% | 20.4 |
| Cash conversion | 105.6% | 32.9% | 56.4% | 41.1% | 38.5% | ||
| Investments in tangible and intangible assets | -0.8 | -2.5 | -68.9% | -2.9 | -8.0 | -64.0% | -11.8 |
| Net debt | 60.1 | 38.9 | 54.5% | 60.1 | 38.9 | 54.5% | 43.8 |
| Leverage | 1.3 | 0.8 | 1.3 | 0.8 | 0.8 | ||
| Net working capital | 49.1 | 36.7 | 33.9% | 49.1 | 36.7 | 33.9% | 41.9 |
| Adjusted return on capital employed (ROCE) | 61.5% | 112.4% | 61.5% | 112.4% | 112.6% | ||
| Equity ratio | 44.9% | 41.4% | 44.9% | 41.4% | 42.4% | ||
| Number of employees at end of period | 731 | 810 | -9.8% | 731 | 810 | -9.8% | 824 |
* Consists of items outside the ordinary course of business, relating to the Group’s strategic development projects, acquisitions, restructuring expenses and loss on sale of fixed assets, and affecting comparability.
** Adjusted by items affecting comparability.
Financial targets and outlook
The company has set long-term targets related to growth, profitability and leverage. Harvia targets an average annual revenue growth of more than 5%, an adjusted operating profit margin exceeding 20% and a net debt/adjusted EBITDA between 1.5x−2.5x in the long term. The future impacts of changes in IFRS reporting standards have been excluded in the net debt/adjusted EBITDA ratio target.
The company’s management estimates that due to the special circumstances caused by the COVID-19 pandemic, the sauna and spa market experienced exceptionally high demand. The ending of advance demand in the first half of 2022 is not expected to have an impact on the long-term growth expectations of the sauna and spa market, nor on Harvia’s long-term financial targets.
Harvia does not publish a short-term outlook.
Harvia’s dividend policy is to pay a regularly increasing dividend with a bi-annual payout.
Tapio Pajuharju, CEO:
During the third quarter of 2022, we continued to experience extensive direct and indirect impacts of the Russian invasion of Ukraine. In the period, Harvia’s revenue landed at EUR 37.4 million, with decline of 18.9% from Q3 2021. Especially in Europe, high inflation combined with emerging energy shortage reduced consumer confidence. This has impacted the demand of saunas as well as heaters and equipment. In addition, the so-called advance demand caused by the pandemic faded away.
The unfavorable sales development in the third quarter was mainly driven by the demand slowdown in Germany and adjacent markets, combined with the economic uncertainty in Europe. The slowdown has been experienced especially with our wholesalers, sauna builders and major e-commerce clients who have been mainly focused on the entry-level offering. In some other European markets, strong destocking and net working capital programs, especially by our large partners, impacted the volume of the business. This was seen even in markets where the underlying market demand was rather solid. Demand in the European luxury and the professional market has continued close to normal level.
Outside Europe, business continued strong in the third quarter. We maintained strong growth in the large and high-potential North American market. We have also amplified our efforts in the newer sauna markets and are seeing great progress in e.g. Arab countries, Japan and selected other markets. Even in the demanding and complex business environment, we have maintained our ability to take market share, and the awareness and popularity of sauna and its health benefits are still on the rise. Team Harvia and our long-term partners have approached the demanding market situation with a strong professional grip and good spirit.
In Russia, we have discontinued Harvia branded business completely. EOS Russia is finishing the strong base of ongoing and prepaid projects. We aim to finish the projects and aim to exit the Russian business at the year end.
The third quarter’s adjusted operating profit amounted to EUR 7.6 million, decreasing from the high figure of EUR 11.8 million in the comparison period and totaling 20.4% of revenue. Declined sales volume and somewhat unfavorable sales mix lowered relative profitability. The sales of complete saunas developed favorably, which supports Harvia’s strategy, but the more profitable heater and component sales remained soft. However, when comparing our performance to the pre-pandemic times, we have grown very strongly both in terms of net sales and adjusted operating profit, also in pro forma terms.
To adapt to the changes in market environment, demand and inflation, we have already adjusted our capacity, cost levels and net working capital during the period. Most of these taken actions will become fully visible during the remaining part of the year, yet the first results of these actions were already seen at the end of Q3. The decreased net working capital supported our healthy cash conversion of 105.6%. In addition, we have remained proactive and addressed cost increases to the full in our pricing. On top of this, we have increased the efforts in new markets as well as targeting to more professional and premium offering & customer base on our existing markets. We remain very active in adjusting our capacity and cost base when needed. Moving forward, inflation remains high globally for the time being, yet it seems to be balancing in some of the key raw materials.
While the market environment is challenging, it does not affect Harvia’s strategic cornerstones or long-term financial targets. We continue to have full focus on our strategic cornerstones of geographical expansion, increasing the value of average purchase, and improving our productivity. On top of the organic business growth path, we remain active in seeking strategic opportunities on the M&A front. Our innovation pipeline continues to deliver excellent products to the market and we are working on addressing business opportunities connected to energy efficiency and smart energy sauna.
Our mission of healing with heat and providing long and good quality of life has been further supported and amplified by new research and evidence. In recent research by the University of Jyväskylä in Finland, it was shown that combining physical exercise with sauna bathing delivers incremental health benefits.
The sauna and spa market has traditionally been very resilient during economically challenging times, and the positive long-term growth outlook for sauna awareness and the sauna and spa market as a whole is intact.
Press conference on financial results
Harvia will hold a webcast for analysts, investors and media on 3 November 2022 at 11:00 a.m. EET. The conference will be held in English. Harvia’s CEO Tapio Pajuharju and CFO Ari Vesterinen will host the event. The webcast can be followed at https://harvia.videosync.fi/results-q3-2022/ .
You can also participate in the conference by calling:
Finland: +358 9 2319 5436
Sweden: +46 8 5051 0086
UK: +44 33 0551 0211
US: +1 646 843 4609
PIN: 1524215#
A recording of the webcast will be available later at the company’s website https://harviagroup.com/investor-relations/.
For more information, please contact:
Tapio Pajuharju, CEO, tel. +358 50 5774 200
Ari Vesterinen, CFO, tel. +358 40 5050 440
Harvia is one of the leading companies operating in the sauna and spa market globally, as measured by revenue. Harvia’s brands and product portfolio are well known in the market, and the company’s comprehensive product portfolio strives to meet the needs of the international sauna and spa market of both private and professional customers.
Harvia’s revenue totaled EUR 179.1 million in 2021, of which 79% came from outside Finland. Harvia Group employs more than 700 professionals in Finland, China and Hong Kong, Romania, Austria, United States, Germany, Estonia and Russia. The company is headquartered in Muurame, Finland, adjacent to its largest sauna and sauna component manufacturing facility.
Read more: https://harviagroup.com
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