CEO’s review 11 August 2022

Strategy implementation led to market share increase, normalizing demand and war in Ukraine impacted sales and profitability

Overall, team Harvia and our partners have done good work in the very challenging environment.

Tapio Pajuharju, CEO

In the second quarter of 2022, the direct and indirect impacts of the Russian invasion of Ukraine were felt in both the top line and profitability. The awareness, popularity and usage of saunas continued to increase, yet the advance demand Harvia has enjoyed did fade away and we are returning to more normal market dynamics.

Importantly, as a result of systematic implementation of our strategy, Harvia has continued to strengthen its market share. Sauna is a global business, and we are very pleased with the strong performance in the United States, Scandinavia and other markets, where Asia, Japan, Arabian markets and number of small markets did continue the strong progress. Our strategic investments in USA have been paying off, and we continued our strong performance in sauna sales and operations. Overall, team Harvia and our partners have done good work in the very challenging environment.

In the second quarter of 2022, Harvia’s revenue reached EUR 46.0 million, declining 1.7% from the record-breaking second quarter of 2021.

The unfavorable sales development was mainly driven by the market slowdown in Germany and adjacent markets. The main driver has been a slowdown at our major e-commerce clients who are very focused on the entry-level offering. At the same time, the premium market is solid and professional customers are coming back strong.

In Russia, Harvia has suspended its operations and EOS Russia is finishing the strong base of ongoing and prepaid projects. As planned, the focus of our sales efforts previously set on Russia was successfully directed to other market areas.

The second quarter’s operating profit reached EUR 8.7 million, a decrease from the record high EUR 12.9 million a year before. Combined with softer-than-expected top line, our relative profitability was weakened by an unfavorable sales mix. Strategically important sauna sales performed very well compared to heater and equipment sales. The absolute margin we book on sauna sales is good, yet the relative margin is substantially lower than what we have on heater and equipment sales. In addition, the slower rotation of Russia-related trade receivables resulted in increased provision for potential future write-downs. Our actions to ensure high material availability and service level in the prevailing environment were visible in the increased net working capital, which had a negative effect on our cash conversion.

Global high inflation has left very few costs unaffected, and some basic raw material and especially logistics-related costs continued to beat previous record levels. We have taken systematic and prompt actions in addressing the pricing to the full, yet the entire impact will be visible during H2. In order to mitigate the rising costs and net working capital increase, we have actions in place and we remain extremely agile to boost them further if needed. Our good buffer stock levels and operational planning have kept our customer service on a very good level, yet the availability issues are not entirely over.

The changing market environment 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. The intention of seeking opportunities for growth also via M&A remains unchanged. Our innovation pipeline continues to deliver excellent products to the market as planned.

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.

The CEO’s review has been published as part of Harvia’s January−June 2022 half-year financial review.

 

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