CEO's review

PROFITABLE GROWTH CONTINUED

Harvia’s first quarter of 2020 was fairly strong despite the challenges imposed by the coronavirus pandemic that hit Finland in March. Revenue growth exceeded our 5 percent growth target and the adjusted operating profit increased by 5.8 percent to EUR 4.2 million. Relative profitability remained on a very good level and the adjusted operating margin was 20.6 percent. Our cash flow also developed very favorably.

Revenue growth was especially strong in Scandinavian countries, North America and Germany. Working on the cornerstones of our strategy, i.e. increasing the value of the average purchase and expanding our distribution has resulted in strong growth especially in Scandinavia and in the United States. The total volume of domestic sales was rather stable; the sauna heater sales were strong, but we were not able to increase our share in the sauna room category. The situation in Central Europe varies by market. We are extremely satisfied with the development in Germany. At the same time, however, the coronavirus pandemic has taken a toll on Italy, Spain, France and the Benelux countries. The Russian market was affected by the significant decline in the Russian ruble, which was reflected on the purchasing power of import products, as well as the lockdown caused by the coronavirus at the end of March. This temporarily halted the operations of some local authorities and complicated import process. The coronavirus situation and uncertainty in the Arab countries was also reflected on Harvia’s sales.

Revenue growth was extremely good in the sauna room category with a solid 34.2 percent growth. Revenue in sauna heaters developed steadily, as well. The sales of steam generators and control units was impacted by the market situation in the Arab countries, Asia and Russia. Demand in the US market remained on a very good level both in the Almost Heaven Saunas (AHS) sauna rooms and in Harvia’s sauna heaters and components.

The third cornerstone of our strategy, improving the efficiency of productivity, was unfortunately somewhat set aside by our very strong and professional preparations for the coronavirus pandemic and voluntary quarantines. Nonetheless, productivity remained on an excellent level, even though we were not able to make significant improvements during the first quarter. Thanks to the excellent cooperation and commitment of our personnel, Harvia has maintained almost full operational capability during the coronavirus outbreak.

The acquisition of the majority share of the German EOS Group, a technology leader in professional and premium sauna & spa products, has been a significant strategic step for Harvia. Together we are stronger and will become the global leader in the professional and premium products category. The acquisition will further strengthen our position especially in Central Europe and will open up new possibilities in the US and Asia. The transaction is set to be completed at the end of April, after which we can initiate the integration process as planned.

Due to the coronavirus, we have invested heavily in health and safety with good results. At the beginning of the year, our factory in China began its operations very quickly and has been able to operate at full capacity. The special measures taken at the Harvia units slightly slowed down the normal rate of productivity. Despite of the incremental coronavirus-related arrangements, we have been able to deliver customer orders to the full or with very minimal delays. We are very happy that most of our suppliers and partners have been able to operate almost as usual, and there has been only a temporary shortage of componentry. Our personnel are more than aware of the severity of the situation and have demonstrated an exceptional and entrepreneurial attitude in the challenging situation, all of this without compromising safety. This has allowed us to help and support our customers and partners to survive this difficult situation. The entire Harvia team has done an outstanding job – I would like to pass my humble thanks for the great effort. Thank you!

No company, market or phenomenon is immune to the coronavirus. Due to the relatively large share of the replacement business, it seems that the sauna and spa market is not overly sensitive to the pandemic. At the moment, most of our key customers are gradually returning to the new normal, and the demand in the sauna and spa market has remained mostly on a good level despite the outbreak. We remain humble but keep our determined focus on the cornerstones of our strategy and its implementation by focusing on increasing the value of the average purchase, geographical expansion and continuous improvement of productivity. At the same time, we continue to very closely monitor the market and its changing dynamics in order to be able to take action in a quick and agile manner, if needed. In addition to organic growth, we are actively looking into suitable opportunities to grow in the sauna and spa market through business acquisitions.

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