CEO’s review 5 May 2022

Strong revenue growth and solid profitability driven by sauna room sales

In the first quarter of 2022, we reached an all-time high quarterly revenue with solid profitability.

Tapio Pajuharju, CEO

Historically, the first quarter is good in the sauna and spa industry. This was true for 2022 as well, as we reached an all-time high quarterly revenue with solid profitability. Once again, the outcome is excellent, and I would like to pass my sincere thanks to everyone involved.

Despite the somewhat more challenging environment, we have been successful in the market and generated very solid topline growth during the first quarter of 2022, growing 28.2%, or EUR 11.2 million, from the previous year. Our grip on the market is strong, and we have continued to gain market share and further strengthened our position.

The sales performance was very strong in Finland, in the market area of other countries, other European countries and North America in the first quarter. In Finland, we have been successful in the preseason sales and our US sauna and heater offering is in very good shape. After a strong start, the sales in Russia declined sharply as we halted the business operations at the beginning of March. In Central Europe and Germany, the growth rate slowed from the previous year, as there was some softness, especially in entry level offering to local webstores.

This was also reflected in the sales of heater category, which landed only slightly ahead of the previous year. Sauna rooms continued to perform very well and resulted in a strong and healthy growth for the period. Steam generators stayed also nicely on a growth path.

The first quarter’s operating profit was EUR 12.1 million, an improvement of EUR 1.0 million compared to the previous year. The change in sales mix with more weight on saunas together with the increasing cost level took the relative profitability in terms of adjusted EBIT down to 23.8% of revenue (28.1). Due to the increased supply chain volatility, we continued to grow our buffer stocks of critical components and raw materials. This further increased our net working capital and had an impact on our cash conversion.

During the past year, we have been learning how to operate in a very volatile and high inflation supply environment. Despite this experience, the first quarter did bring some new parameters which none of us was able to foresee nor plan for. In addition to the war in Ukraine, the price hikes and availability issues in very basic raw materials like steel and lumber reached extraordinary levels. Our good preparations and hefty buffer stocks enabled us to keep our customer service level as close to normal as possible. While we are rather well-off in terms of most raw materials and components, the availability and prices of certain grades of steel and lumber is a concern.

Full attention has been given to the situation of availability issues and increasing raw material and component prices. The high volatility as well as the scale and scope of the situation has made it almost impossible to mitigate it in full. We have addressed this, and the full effect of our actions will be transferred to our prices with some delay. For Harvia, suspending business in Russia has caused a clear gap in our original business plans. We intend to mitigate this with increased efforts in other markets and deepening the distribution in our core markets. The demand seems to be normal, but we are monitoring the development of consumer confidence extremely closely, and we have increased our sense of urgency and agility. Our actions on growing the market and gradually increasing profitability remain fully intact. Our innovation pipeline is strong, and our new market launches are promising.

On top of this, we will continue to be fully focused on the cornerstones of our strategy by working on increasing the value of the average purchase, geographical expansion, and continuous improvement of productivity. M&As in the sauna and spa market remain active. In line with our strategy, we continue to seek opportunities to grow in the sauna and spa market also through M&A.

The CEO’s review has been published as part of Harvia’s January−March 2022 interim report.

 

Our strategy
Our key strategic priorities to achieve our objectives
Read more
Increasing the value of the average purchase
Geographical expansion
Improving productivity