Ari Vesterinen, our CFO.
Hello
will run the info and data together, but I will kick off with the outcome of 2019. I will briefly go through the performance of the last quarter, as well as the full year of 2019. We'll have a very brief look on our strategy, what we are doing, and I guarantee there is no magic. We'll stay loyal to the three points we've been addressing in the past. We'll stay focused on those ones. Ari will have a bit of a deep dive on the financials of last year. I think all in all, we had a very solid last quarter, and I think the Finns would tend to say not so very bad, and I think we are very happy for the top line growth of slightly shy of 20%, and at the same time we were able to improve our relative profitability.
It was a good job done, and I think the team has done an excellent job in all of the units and all of the key markets. In the U.S., and I think you remember, we acquired Almost Heaven Saunas at the very late of 2018. Since then, we've been focusing on improving on that one, and towards the year end, as I think Ari already indicated on the quarter three, the market demand kept on going up on the U.S. marketplace. On the sauna factory in Renick, we've been improving the productivity in a very nice scale, and we are slightly ahead of our plans in that respect. Jumping on the hard numbers of the last quarter, the top line grew very nicely at 27%. We reached slightly above EUR 20 million on the last quarter, and an excellent growth compared to prior year.
We are very happy to be able to improve the profitability, we exceeded EUR 4 million, EUR 4.2 million to be exact. The benchmark from last year, we beat that quite nicely. We were also slightly ahead of our 20% target in that respect. At least for one quarter we've been able to beat that. The earnings per share grew also very nicely. The last quarter is really very strong on the cash flow, and that also makes the full year cash flow extremely strong in that respect. Taking a look on the full year perspective, slightly shy of 20% top line growth exceeding EUR 74 million. Very good numbers in that respect. On the operating profitability, also a solid performance in that respect, and beating the prior year quite nicely.
Earnings per share going to the right direction, cash flow EUR 15.2 million and I think Ari will go in details in that respect. We'll be also beating our cash conversion benchmarking in that respect. Net debt, okay, going slightly down and equity ratio staying solid and slightly improving on that. Checking what we've been doing on the three different paths, how to add value. First of all, on increasing the average share of our customers' wallet. We've been going up on the price point. Not very big steps, but plenty of baby steps in that respect. We've been introducing new models which are slightly more premium compared to the previous ones. One is the pillar heater Glow, and that has been quite a good success in most of the markets.
Our top seller in the pillar heater Cilindro, we launched a Cilindro Plus, which is slightly improved, slightly higher, a bit of a more, I would say, classical design. Been happy with that performance. Then especially on the professional market as well as bit on the premium market, the Sentio by Harvia launch has been very solid in most of the markets. Then in the world of digitalization and the user friendliness, we introduced the Cilindro Plus with the Spot, which is the radio frequency controlled, no wires needed, easy to operate sauna heater. Then on the wood burning heaters, we updated and upgraded our top selling model, the Pro 20, and that will follow with the rest of the assortment going forward. On the geographical expansion, that's where we also consider expansion, meaning improving the quality of the distribution and improving the depth of the distribution.
We've been doing a good job in the U.S. We renewed the offering. Thanks to that, we've been able to open new channels for distribution. On top of the previous online distribution, we've been opening also The Home Depot. They're very happy for our own direct sales performance, both on our webpage-based sales as well as on our telesales, an excellent job for the second half of the year. Scandinavia, we've been upgrading our presence in the Swedish marketplace, both on the consumer channel as well as on the professional channel. Having said that, I think it's good to remember the professional channel is rather conservative. When opening a new channel, it will not automatically gain a big share, but gradually you can build a business on that respect. Same applies for Norway and to a certain extent, Denmark. Scandinavia, a good step forward.
All of the markets, we've been slightly upgrading our distribution, more premium and then more professional. That's been taken, not major step, but multiple baby steps in that direction. On the productivity, I think both in the Guangzhou, China factory as well as in excellent job done, and I think the team should be very happy with what they've been doing. We are on the continuous improvement path, so we will keep on doing the same improvements going forward. In Renick, the team has done a great job with rather minor incremental investments. We've been able to improve the productivity in big time over there. On top of that, we've been utilizing some of the sourcing synergies, and those are now coming through on the P&L as well. U.S., I think it was a good decision to renew the models in that respect.
At the same time, our average price has gone up quite nicely, and we've been able to open multiple new channels on top of the existing ones. The direct sales, I think the team in that respect has done a good job. I think at the moment, almost 40% of the top line is generated by our own direct sales. That also means that the profitability on the direct sales is somewhat better than on the third-party sales. The productivity, both on operating on the wood as well as building and erecting the saunas, they've done a good job in that respect. On top of that, I think in the early phase of 2019, we were able to gain synergies in the sourcing, and now they are coming through the P&L to the full.
On the markets, as said, on the last quarter, a very good performance in most of the markets. I think the headline tells a lot about it, even though we had a very solid performance on the local domestic marketplace. Most of the other markets beat our solid performance on the Finnish market. We know that we were gaining market share and gaining speed on the Finnish market with a slightly shy of 5% full-year growth. All of the product groups, and I think especially the sauna, both in the U.S., but as well as on the Central Europe, have been growing very nicely. The steam generators, extremely strong month, last three months. On the sauna heat, both on the electric and wood burning heaters, a solid performance on that respect.
I have to say that the control units and Germany, they go hand in hand together, and that's why we're slightly below our own estimates. Knowing the market situation and the demand, I think we still did a good job on the German markets as well as on the control units. We are at par or slightly ahead of our competition in that respect. On the full-year basis, the same trend, not so strong top line growth, I think on the other markets, would like to highlight the Scandinavia. All three markets did an excellent job, I think the speed was gradually going up towards the year-end. On top of that, domestic market, both on the consumer, especially on the professional, good job in that area. North America, we discussed.
Also, I think let's not forget what we've been doing behind the Almost Heaven Saunas. Also on our heater and component business, a very solid performance on the U.S. marketplace. Upselling, upgrading, a more professional offering also on the U.S. marketplace. Other markets, Central Europe, France, solid development, very strong growth. Switzerland, U.K., and it's not only prior Brexit, it's going to continue on that level. We feel that there is some kind of a sauna trend in the U.K. prevailing, and we are part of that. Benelux, Poland, and then the Arab Emirates and related Arabian countries, a good performance altogether. Germany, we discussed on the channels where we are. We've been able to upgrade our offering. We've been giving more professional service. The top line was not according to our expectations. That's also reflected on the product category control units to a certain extent.
Russia, I think we have maintained if not gained share on the electric heaters, wood burning heaters. We unfortunately not been able to improve our position as we expected to improve on the Russian marketplace. I will not go deeper into the product category in that respect. This gives you a good picture on the quarter four. I think Scandinavia is clearly highlighted on this one. Germany, okay, not as expected. Other European markets, solid, double our expected 5% growth. North America, very strong and solid. Maybe it's good to remember last year on quarter four, our North America was not extremely strong because we were more or less focusing on making the deal with Almost Heaven Saunas. During that time, I think the last month was not full in action with that customer.
We came back in business on the beginning of this year. For the full year, the picture is somewhat similar. Some of the relative growth rates are different, but altogether roughly the same type of a ballpark figure. I think you may ask on the organic growth and on the full year organic growth is roughly 5.3%. On the last quarter, 8.3% is the relevant number for that. I think based on our estimate of exceeding 5% growth, we just made it. That's our benchmark on that. On the product groups, sauna heaters, very nice and happy for the 18% growth. Sauna rooms as discussed. Control units, small plus, and I think that's a good job done in the marketplace. Steam generators, very strong and solid last quarter finishing of the year.
Year- on- year, a solid picture on all of the categories. I think this gives you a picture of the seasonality and of the market development. The quarter one is a strong sauna spa. We have bit of a more modest second and third, and then gearing up for the fourth quarter in that respect, and goes both for the top line and then also on the bottom line in that respect. Just recapping that Harvia is operating in all of the three sauna types, the Scandinavian traditional sauna, as well as on the steam baths and saunas, as well as the infrareds and the combination of the infra and traditional sauna. We'll not do any magic.
We'll keep on focused on working on the three paths to add value, increasing of the share of our customers' wallet, as well as the geographical expansion, i.e., meaning also improving the quality of the distribution. Most likely we'll not open many new markets, but it will improve distribution in the existing markets, and on top of that, maybe open couple of small markets. The productivity, even though the visual and the illustration is a factory, we will not only improve productivity of our operations in the factory, as well as all of the processes how we are working with our team, with our customers, and with our partners in that respect. Now I think it's time to pass the work to Ari. Ari will have a bit of a deeper dive on the numbers. Thank you.
Okay. Hello. Now the seasonality of Harvia is quite close, what we think that is typical with the international sauna business. Q1 is strong, and the strongest is typically Q4. Now it happened also for us at the end of the year. We had a very nice growth rate of 27.8% during Q4, and well, it's not only Almost Heaven, and West Virginia, and Denver. We had really also very strong growth in our normal organic business, especially in the heater business. On a group level, we had for the total year 19.6% growth, and that's really nice experience. All the major profitability-related figures improved. Especially, what was for us internal target was to streamline a little our net working capital.
We were able actually to reduce slightly our net working capital, even if the company was growing almost 20%, and to use the capital more effectively. It shows up then in the adjusted return on capital employed without goodwill. Last year in 2018, we had about 32% and now over 38% of the capital return. That's really remarkable improvement. The headcount actually was a little lower at the end of the year than end of the last year, and the main reason is actually that when we acquired the Almost Heaven Saunas business in U.S. at the end of 2018, we got 42 new colleagues in the group, and they were in that day already on our books. The average number of employees grew during the year 2019, 5%, compared to 2018.
When growing the sales almost 20%, this really shows that we were able to improve our productivity in all areas. What is really interesting is also the adjusted operating profit. It grew 28% on the annual level and during Q4, 46%. That was really interesting to see how, for instance, our U.S. operations got really up and running during Q4 for the high season of sauna business in U.S. During the same time, all our other major units were improving their profitability too. It wasn't only U.S. Our finance situation haven't changed too much. What is interesting is the leverage ratio. We have announced that we tend to be between 1.5-2.5.
Now we are on the lower limit of 1.7 already, so we have Some power on our balance sheet to maneuver or pay dividends or make investments, so it's nice to have that possibility. The interest costs, they vary from quarter- to- quarter quite much, depending on the fair valuation of our fixed rate swap contracts. We actually pay quite the same cash flow of interest every quarter. The investments, they have been on the level of EUR 1.8 million all together. We haven't had very big machine investments. One major thing what was part of the Almost Heaven Saunas deal was that we acquired, in April, also the premises in Renick, West Virginia, to be able to develop and co-develop the premises better with the local management and team there. Otherwise, the investments have been pretty much replacements.
In our China factory, we have acquired some sheet plate machines, but they are not very expensive. This is the structure of our shareholders. We have 53% of our shareholders in the nominee register. That means that in practice, they are more or less outside Finland. Our biggest shareholder since last November is Onvest, a Finnish investment company. The share of the households has increased very nicely. In fact, we had during the IPO or after IPO in March 2018, about 2,000 shareholders. End of 2018, we had got already 3,200. During 2019, we got another 2,000 shareholders for Harvia. Thank you everybody very much to coming to the club of sauna investors. Hopefully, you will be satisfied with your investment.
To show also how committed our board and management is to the company, we also announced that we have 9.1% of our shares in the hands of the board members, management team, and also our employees in the factories. In fact, our management team members slightly increased their shareholding during 2019. About the dividend policy, we have announced that we pay biannually the dividends. They've been now typically in April and October, at least 60% of the total income in total. Now the proposal of our board to the annual general meeting is to pay altogether EUR 0.38 per share dividends. First, EUR 0.19 in April after the annual general meeting, then according to the dividend policy, the next part in fall 2020, EUR 0.19 maximum. We pay out now approximately 74% of our total net income of the group to our investors.
It's rather high dividend payouts. Just to repeat, which are our financial targets, the growth rate 5%. It's organic, including some small add-on acquisitions. Our profitability target is to have the adjusted operating profit over 20%. We exceeded that during Q4, the leverage ratio between 1.5-2.5. Any questions or comments?
Now it's time to entertain questions or comments.
Hi, it's Petri.
I talk faster.
It's Petri Kajaani from Inderes. Could you elaborate how has your seasonality in this business changed since the prior Almost Heaven Saunas acquisition? You said that international business has a little bit-
Yes
different seasonality.
Typically, sauna in Central Europe and in the U.S., in North America in general, is a winter product. People know about the healthy benefits of having a sauna. It's good against the flu and all the relaxation and blood pressure things. People also like to get in the warm sauna during the wintertime. They also invest in sauna more than during the summer months in those areas. Here in Finland, in Scandinavia, we invest in sauna over the whole year, but the main season, main peak of the sauna-related sales is actually during Q2 in the distribution channels in Finland.
Your growth was very strong in North America, and it cannot be explained just by the Almost Heaven acquisition. There is big organic growth as well. From where channels this is actually came from this growth, and how do you see your coming quarters or years in North America?
I think on the base business with the heaters and equipment, we continue with the same partners over there. We've been expanding a bit on the professional market over there, added a new distributor on that one, and then the North American, Canadian part of the business, I think we found a bit of new ways how to boost that. That's not visible on the last quarter. That's visible on the total year numbers and going forward.
Okay. Do you still confirm that when you've ramped up the Almost Heaven Saunas and it is running as it's supposed to be running, it can make about 10% EBIT, or has that changed since you are bringing really good numbers from North America now?
I think we have not disclosed in detail, but in the ballpark of that, we bought the company when it was slightly on red numbers. We took it quite fast on the black numbers. We were between 0 and 10 for some time, and now I think we are on the 10-ish, and trying to continue improve that.
Almost Heaven Saunas or actually Harvia US Inc. as it officially called, is also a platform for North American distribution of heaters, and we get also some profit for the heaters in the manufacturing plant in Finland. That adds up also the profitability of the total group.
I think the analogy of what Ari has been explaining, that the heater and equipment business is clearly more profitable than the sauna as a structure is still valid. For sure, we try to improve the sauna business as well.
You mentioned that in I think last time you said that in Scandinavia, you had been granted access to some channels that you hadn't before been, and as it looks like the numbers that you are performing much better than your competitors out there. How is your business in progressing in these new channels going now, and how do you see the future?
I think first of all, this business is very conservative. When opening a new channel, first you need to show what you can do. When you've been able to do that, then you can go for the next step, next step, and the steps after that. I think we've been opening the inroads for the premium channel. We've been opening the doors for the professional channel, but we only been taking baby steps in that respect.
Okay. Your 2019 numbers were excellent in revenues, EBIT, cash flow, your balance sheet is in good position. Why such a small dividend increase?
We are improving our dividends constantly, and now we did it too, compared to last year. We have a quite stable dividend policy, and we pay twice a year good dividend.
I think we announced we are gradually increasing the dividend, so this is gradual increase.
Okay. Yeah, because it seems that you are loading this sort of elephant gun in something that you're trying to shoot now in this M&A field. Is this a wrong assumption that you're?
I think we have no obsession to go strong on the M&A. On the other hand, we already long time ago made a shortlist of candidates who could fit into our portfolio. They in the field of the professional steam, maybe premium sauna market, professional heaters and equipment with the global perspective. If those companies would become available, for sure we would have a look and potentially have an appetite as well.
Okay.
We really like M&A, and we think that we can do it also in future.
Okay. Could you tell how is the Coronavirus affecting your China factory at the moment?
Yeah. I think the people are coming back from the Chinese New Year holidays this Monday. We were supposed to open the factory on Monday morning. The local authorities were inspecting all of the facilities on the Guangzhou, and by the way, our factory is in Guangzhou, not Guangdong like in some of the data were mentioned, is in Guangzhou. They were inspected. We got stamps to be approved, and we are still waiting for the final stamp on the big paper, and most likely going back to work on Wednesday morning, so tomorrow morning.
All right. Do you see any big investments in your factories in the coming quarters or years, or is this current level?
I think this current level is rather sustainable. On the other hand, when you want to make a bit of a larger steps in the productivity improvement, some of the equipment is somewhat more expensive than we've been used to buy. If we take those steps, then potentially we may see a bit of a small hike on the capital needs in that respect, but not the big ones.
Maria looked like having some questions, too.
Okay, yeah. I'll give the microphone to her. Thanks.
I think you partly answered one of my questions was relating to the M&A, and you said that you had a shortlist of candidates. If I recall, Harvia Pro, it's a professional segment, and then you mentioned Steam as well.
Yeah.
If we look geographically, would these be more in the North American area, or can you elaborate that a little bit? Where geographically you would see that this could add value?
I think some of the companies have a regional platform. They are either in Central Europe or they are U.S.-related. Very few have a global distribution and platform, depending on the one which is potentially becoming for sale. That will have an impact on the decision. I think first we try to shoot for the big sauna markets. The sauna markets are Central Europe, Scandinavia, and the emerging markets are in U.S. and Asia. Very few companies have a global network as we speak.
If the acquisition targets have interesting technology or skills, we can also offer the international distribution then. The location isn't that important. The main thing is that we offer the distribution.
You mentioned that the one that is probably coming to the sale, which has international reach.
I think that's not what.
No, that's not what you said.
No.
No.
No.
If you could highlight how the cooperation with K-Rauta, you had this new cooperation on sauna benches and how has that cooperation started?
We're just ramping up the factory in Tallinn the last quarter of 2019, and now the business has been started. I even don't have exact data how it's been running on the first months of this year, but it's been just started.
First deliveries have been already done, and they are in the showrooms already, the products.
We are equipping the K-Rauta stores with our merchandise and displaying the benches, I think that's going according to the plan, I think we are now through 1/3 of the stores in that respect.
Finally, you mentioned that you have done some of the improvements in the Renick factory. If you could elaborate that a little bit, what kind of things you did and what else you could do for the factory in order to bring the efficiency to the level that you have currently in Muurame and China?
Starting with the sourcing, I think we have changed the specification of the sourcing, so we get clearly more yield with the timber sourcing. On top of that, maybe more economical terms. We changed the layout, that's automatically improving the productivity per man-hours done. We have acquired some small incremental machines to improve and help the people to perform their work. That has been doing a, what I call not even any more a baby step, but a big step forward on the productivity of the Renick factory. We are still not ready with our plans on the Renick factory, so we'll do further improvement over there.
We also sell European-made saunas through our U.S. operations. We have also sauna factories in Europe, and they help also to satisfy the U.S. sauna demand.
On top of our local sourcing in the U.S., we are importing saunas made in Europe for the local market through the same logistics. That's not improving the productivity of the factory, which may be improving the productivity of the logistics and service over there. We got some questions.
[audio distortion] Handelsbanken. Concerning Germany, the sales development has been a bit sluggish already some time. What needs to happen to turn the trend, and where is this sort of weakness really arising? What's the main reason why the market is so weak?
I think the market in terms of the buying power is not changed to a big degree, but the consumers are clearly more conservative when making the decisions. We realize that the top premium market is performing as it used to perform. The entry level and the new beginners is also performing as expected. The mid-range, I think people are just potentially delaying the decisions and not so secure with their financial position, and hence they are a bit conservative in decision-making.
We don't disclose the profitability of different areas, but I have to say that we have been concentrating on the improvement of profitability in Germany, too, during 2019, with success.
Any other questions? You would like to entertain? Maria?
Yeah, maybe one more on the Russia market, because I think for an analyst, it has been the most difficult market to actually follow the trends. You said yourself that the demand has been, I don't know which word you used, not fragile, but I guess the changing from one quarter to another.
Sensitive or-
Yeah.
Yeah.
If you could elaborate your feeling going into 2020, how do you see the Russia market developing and the things that you did for improving the market shares through the wood-burning heaters? Has that paid off at all? Tell more details on the market. Thanks.
Starting with the wood-burning heaters, I think on the premium end, we have maintained our position. On the other hand, we've not been able to gain speed on the entry-level wood-burning heaters. The market prices for the entry-level wood-burning heaters have gone even lower than they used to be. Hence, we'll be not pushing that any further. On the electric heaters, demand continues to be solid and steady. We've been maintaining or even gaining our share in that respect. The dynamics of doing business, people are conservative and very fast in decision-making. I think most of our partners have been decreasing their inventories and are working on their cash position. Hence, it makes business a bit volatile. I think the total demand and the volumes are there. The sensitivity of the business has increased.
You may remember that we've been working with three partners, and we are currently working with three partners and making some priority changes with our partners. Any other questions? If not, then we'll thank you for your attention. Have a good day. Thank you.
Thank you very much.