Harvia Plc, Interim report 4 May 2023 at 9.00 a.m. EEST
Harvia Q1 2023: Strong profitability in mixed market environment
This release is a summary of Harvia Plc's Interim Report January-March 2023. 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
January-March 2023:
- Revenue decreased by 18.6% to EUR 41.4 million (50.8). At comparable exchange rates, revenue decreased by 19.4% to EUR 41.0 million. Organic revenue growth was -16.2%. In the comparison period in 2022, Harvia reached its all-time high revenue for a quarter.
- International business amounted to EUR 31.7 million (39.1), making up 76.5% (77.0) of the revenue.
- Operating profit was EUR 9.2 million (12.1), making up 22.2% (23.8) of the revenue.
- Adjusted operating profit reached EUR 9.3 million (12.1), making up 22.4% (23.8) of the revenue. At comparable exchange rates, the adjusted operating profit was EUR 9.2 million (22.5% of the revenue).
- Operating free cash flow amounted to EUR 11.6 million (7.0) and cash conversion was 107.6% (51.0).
- Net debt amounted to EUR 45.8 million (41.3) and leverage, calculated as net debt divided by 12 months' adjusted EBITDA, was 1.1 (0.8).
- Equity ratio was 49.3% (43.7).
- Earnings per share were EUR 0.34 (0.50).
- On 28 March 2023, the Board of Directors appointed Matias Järnefelt as Harvia's CEO. Järnefelt will start in his position on 1 June 2023.
Key figures
| EUR million | 1-3/2023 | 1-3/2022 | Change | 1-12/2022 |
| Revenue | 41.4 | 50.8 | -18.6% | 172.4 |
| EBITDA | 10.7 | 13.7 | -21.5% | 41.2 |
| % of revenue | 26.0% | 27.0 % | 23.9% | |
| Items affecting comparability * | 0.1 | 0.0 | 2258.2% | 1.8 |
| Adjusted EBITDA ** | 10.8 | 13.7 | -21.0% | 42.9 |
| % of revenue | 26.2% | 27.0% | 24.9% | |
| Operating profit | 9.2 | 12.1 | -23.9% | 34.7 |
| % of revenue | 22.2% | 23.8% | 20.1% | |
| Adjusted operating profit ** | 9.3 | 12.1 | -23.2% | 36.5 |
| % of revenue | 22.4% | 23.8% | 21.1% | |
| Basic EPS (EUR) | 0.34 | 0.50 | -32.6% | 1.45 |
| Operating free cash flow | 11.6 | 7.0 | 66.8% | 34.0 |
| Cash conversion | 107.6% | 51.0% | 79.1% | |
| Investments in tangible and intangible assets | -0.3 | -0.9 | -68.7% | -3.6 |
| Net debt | 45.8 | 41.3 | 10.9% | 54.5 |
| Leverage | 1.1 | 0.8 | 1.3 | |
| Net working capital | 43.6 | 47.8 | -8.9% | 45.3 |
| Adjusted return on capital employed (ROCE) | 49.3% | 102.8% | 54.5% | |
| Equity ratio | 49.3% | 43.7% | 47.3% | |
| Number of employees at end of period | 624 | 834 | -25.2% | 633 |
* Consists of items outside the ordinary course of business, relating to the Group's strategic development projects, acquisitions, business divestments, restructuring 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.
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:
The first quarter remained challenging due to the mixed demand in Harvia's major markets. The impact of the Russian invasion of Ukraine, high inflation, elevated energy prices and clearly lower than normal consumer confidence continued to affect our sales. However, Harvia's profitability and cash flow were on a good level. Additionally, Harvia has continued to gain market share.
During the first quarter of 2023, our revenue landed at EUR 41.4 million, showing a decline of 18.6% compared to the all-time high quarter a year ago.
The geographical markets developed very differently. Demand in Europe, especially the DACH area continued to be soft, as the market remained relatively challenging. This affected both heater and sauna room sales, now also more widely in the premium, luxury and professional segments. Wood-burning heaters continued to have support from consumer preferences related to alternative energy sources. Our Central European e-commerce customers have taken measures to recover their business, yet the market is not showing any major improvement in the demand for e-commerce offering or entry level offering in general. The complete exit from Russia also affected our sales and profitability figures negatively. Scandinavia and Finland performed well despite the challenging market conditions.
In contrast to Europe, markets elsewhere continued their positive performance. North America, including both the United States and Canada, Asia as well as many other newer sauna markets were very dynamic and upbeat. The gradually opening Asian markets offer increasing opportunities for growth. Harvia's intentions to increase footprint in the Japanese sauna and spa market and challenge the incumbent market leader took a significant step forward in March, when Harvia and Bergman signed a letter of intent to establish a joint venture later this year.
Regarding profitability, Harvia's performance during the first quarter was good, as we recorded a EUR 9.3 million adjusted operating profit, which is 22.4% of revenue. This is only slightly down from the first quarter in 2022 with our all-time high sales, when we achieved an adjusted operating profit margin of 23.8%. The measures taken on productivity, cost management as well as diligent and granular pricing continued to pay off. Our ambition is still to deliver above 20% operating profit margin even in this challenging business environment. Our efforts in managing net working capital, especially inventory levels, also materialized well and we experienced a substantial reduction of EUR 10.4 million in inventory value year on year. All these actions contributed positively to our healthy operating free cash flow of EUR 11.6 million.
Once again, team Harvia has done its utmost with excellent commitment to keeping customers happy and succeeded in maintaining solid profitability in the exceptionally demanding market conditions. Hence, I would like to pass my warmest and sincerest thanks to everyone at team Harvia and our long-term partners. We have remained agile in adapting our resources and cost structure to the demand situation. In addition, we have optimized our cost base and rightsized our operations in multiple operating countries and units. As demand in Germany and other DACH countries is expected to remain soft for some time, we have strengthened our efforts in the areas with good market growth, especially in the emerging sauna markets. Furthermore, we have recently initiated incremental sales and marketing actions and efforts to strengthen our position in the premium and professional business.
While the market environment continues to be challenging, it does not affect Harvia's strategic cornerstones nor long-term financial targets. We continue to have full focus on our strategic cornerstones of geographical expansion, increasing the value of average purchase and systematic improvement of productivity. On top of the organic business growth path, we remain active in seeking strategic opportunities in the M&A arena. Our innovation pipeline continues to deliver excellent products to the market. The sauna and spa market has traditionally been very resilient also during economically challenging times.
I am personally very pleased that Harvia's Board of Directors has appointed Matias Järnefelt as the new CEO. Under his leadership and vision, Harvia will continue to strengthen the position as the leading player in the global sauna and spa industry. We warmly welcome Matias to team Harvia.
Press conference on financial results
Harvia will hold a webcast for analysts, investors and media on 4 May 2023 at 11:00 a.m. EEST. 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/q1-2023-result.
You can also participate in the conference by calling. Please register to the teleconference by using the following link: http://palvelu.flik.fi/teleconference/?id=1009974. After the registration, you will be provided with phone numbers and a conference ID to access the teleconference.
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 172.4 million in 2022. Harvia Group employs more than 600 professionals in Finland, China and Hong Kong, Romania, Austria, United States, Germany and Estonia. The company is headquartered in Muurame, Finland, adjacent to its largest sauna and sauna component manufacturing facility.
Read more: https://harviagroup.com
