Hello and welcome aboard on Harvia Q1 review. My name is Tapio Pajuharju. I'm the CEO. Next to me, but not next to me, is Ari Vesterinen, our CFO. He's been able to avoid the pandemic for a long time, but finally it catches him, and now we have a positive CFO who is recovering on the home quarantine. Welcome, Ari, as well.
Hi. Hello.
All in all, I think we had a very good quarter, and I'm happy to announce that top line growing nicely. Actually we had an all-time high quarter. I think at this stage I would like to impart my special thanks to the team Harvia and all of the partners who's been working on this with us. The growth was solid in most of the markets and in all product groups. That's nice. I think we would need to highlight Finland, where I think the team Finland succeeded extremely well in the pre-sales for the season. In the very complex market area, which is the other markets and other countries, that's where we did extremely well.
The team over there, both in the Arabian origin countries as well as in Asia, has done a good job. In the other European markets, mainly in the southern hemisphere, good progress over there. We continue very strong in North America, and that's both in the US as well as in Canada. All product groups are growing, but I think it's exceptionally strong in the sauna rooms, and I think that's driven by North America, and Europe as well as in Asia. On the other side of the coin, I think in the entry-level offering, especially for the heaters, for the web stores in the Central European marketplace, clearly some softness over there.
On the other hand, the mid-price point, premium and professional doing normally and good demand on that one. Most of you already know that we did suspend beginning of March all the operations in Russia, and I will go deeper in the Russian situation later in the presentation. On the profitability, very good profitability, exceeding EUR 1 million the prior-year Q1. On the relative profitability, most of you who've been longer on board, we've been telling that, hey, sauna profitability is not equally good as on the heater and equipment. Now when we've been growing quite fast on the saunas, and the modest growth on the heaters, so that's then visible on the relative profitability.
On top of that, later on you will see that there was an exceptionally strong hike on some of the key raw materials. The ones who listened to our year-end review, we announced that we're increasing prices on the Q1, but at the end, and we increased at the beginning, but these were not fully enough and we need to address, and we have addressed that in full, but it will come in with a delay. I think not so much visible maybe in the sauna market general apart from the very entry level heaters on when we see the totality, something like our Scandinavian still water hot tubs, maybe it's not a must and people consider and maybe delay the purchase a bit.
That's where we have a bit of uncertainty going forward. In the supply chain, an extremely good solid performance over there. I think our team has been able to avoid all the challenges which been caused by the very difficult availability and then in certain raw materials, no availability. Still, we've been doing very good. Our customers will be maybe not having the 100% performance in that respect, but we've been clearly above 90% and still very good solid performance for the customer service in that respect. During the first quarter, no major investments and CapEx, but a big number of small fill-in investments mainly in machinery, layout, automation. The Muurame layout transition is still ongoing, and we should be finishing that by the mid-summer.
USA layout is there, and I think we are planning for the next stage over there. Romania, some fill-in, and then in China, small fill-in investments. In Muurame also in the logistics, we've been adding shelving capacity and then ramping up the new building we bought at the end of December. That's gonna be fully in use during the second quarter. Kirami and Sauna-Eurox's integration doing good and according to the plan. EOS is continuing very solid, good performance in all of the markets. Very happy for their performance as well. Jumping to the numbers, and I think you've been having already the sneak peek.
Solid top line growth exceeding EUR 50 million on the top line and a nice 28.2% growth, of which organic 18%. I think a bit of a tailwind due to the currencies, mainly from the US dollar. Now that helped a bit. On the profitability, it's roughly EUR 1 million more than the prior year. On the relative profitability, slightly down, and mainly due to the change in the mix, and then partially because of delayed price adjustments coming into play a bit later stage. Earnings per share €0.50. Cash flow good, but a bit hampered by the increase in net working capital, but that's also intentional. Later on I will tell more details why it's so necessary.
Net debt where it should be, and the equity ratio on the 43.7%. Excellent solid performance for the Q1. I think on our strategic path, we're gonna stay loyal for the three paths we've been choosing. I think on the sauna rooms, that's clear. I think the sauna room sales is maybe the ultimate proof of selling the full one-stop offering. That's where we've been good in all of the markets. Premium models and the professional models doing good on the heaters and equipment. The professional channel is gradually coming back. I think like you've been also reading and monitoring what is happening in certain parts of Asia, it's still volatile.
Up and down again depending on the COVID situation, but gradually taking the normal standard on that one. Then, I'm very happy for the growth in most of the markets, especially in the US. Team has done good job over there. Same applies for Canada. Finland, both in the heaters and equipment as well as on the sauna sales, good performance. Other countries, especially in Asia, Arab origin countries, and then in the other European market, mainly in the southern hemisphere, good work over there. Japan, even though the numbers are not in multi-million level yet, we are gradually getting into the millions and beyond. As we speak, now we have already six showrooms open in Japan.
They are physical showrooms presenting most of our offering from the entry level to the premium and the professional, and the journey continues. As we speak, Mr. Seiji Kasama from Bergman Ltd, he's over here in Finland, and most likely in Muurame, maybe listening. We'll send him best regards as well if he's listening. EOS doing a good job in all of the markets. Entry into Finland and Scandinavia is now ongoing. The U.S. approvals are pending, but as said, during the first half, we will have the first selection approved. I think we are not far away from being there. I'm very optimistic on that one. We'll keep thumbs up and fingers crossed that we'll get there faster than expected.
On the productivity and then capacity expansion, all well. On capacity now we have up to par with the demand. Lewisburg is doing even better than we were planning, and they are beating our target levels on the output and on productivity. On top of that, we've been ramping up incremental capacity. We don't have the full second shift on board, but we have a good strong second shift over there. We have plans to do small fill-in investments on top of that. I think we already captured what we've been doing in the other factories, so we'll not repeat too much on that. With the Kirami and Sauna-Eurox, happy with the performance as said. I think with the Kirami, we bought a Scandinavian still water hot tub company.
As a bonus, we got their FinVision saunas, which we are now, as we speak, converting also into the Harvia offering. These saunas are ones you can basically lift on your backyard or front yard or next to the pool. On the same day, you can start enjoying sauna bathing. The cost of something like this is maybe higher than normally people buying a kit. Then you save time, and at the end of the day, the cost when it's fully erected and in your place is not much more than you would have been buying a kit and having people installing it. We've been seeing that there is lot of good traction on these type of solutions, and we didn't have that in our portfolio earlier.
We are building on that. On the Sauna-Eurox, now we have a good access to the safe, sustainable, high quality heater stones. On top of that, we've been beefing up the premium end and the professional end of the offering. I think during the rest of the year, we're gonna see good breakthroughs on that area. I think very happy to have both Kirami and Sauna-Eurox in the team. Okay. The Russian invasion to Ukraine, I think that has not gone unnoticed by everyone. It's been causing a lot of turbulence for sure on the local Ukrainian marketplace, which is now at a standstill. Russia the same, and we halted and suspended the business beginning of March over there.
It also has some indirect impacts to some of the availability issues, and even a very basic raw material like black steel or even more specified cold roll steel not available as anyone would like to wish. Even the pricing is hiking something which never seen of. We are in a very good solid position with a steady inventory. I think until say late summer, mid-fall, we are very okay on this respect. Then at the same time, we've been able to address the pricing mechanism on that one. Then on the lumber market, some of the sauna grades, even though where they were coming from, Finland or Baltics, the actual source was maybe Ukraine, Russia, or elsewhere.
There seems to be clearly a lack of availability and also price hike on that. We've been finding alternative grades and alternative solutions for that, and we are good to go. I think initially it was causing quite a bit of a hiccup, and not for us only, but I think most in the industry. I think on the sales in Russia, it's good to highlight and flag up that it was roughly slightly shy of EUR 12 million for Harvia in 2021. It's actually also having an impact on the first quarter, even though we had an extremely strong start. January, February, amazingly strong, and then nothing for the month of March onwards.
The minus for the first quarter is actually rather modest or almost non-existing with this 1.2%. As most of you may remember, we don't have our own production facility in Russia. We've been working with two local partners who's been helping us with some of the componentry, mainly metal-related. All of that we've been in-housing, now made in Muurame or with our partners in southwest part of Finland where we have partners who are helping with that. EOS Russia has been operating over there with 26 people on board. We got prepayments which we were not able to return. We will continue fulfilling our liabilities and what we promised over there, and we continue monitoring extremely closely what is happening over there.
We still have some assets, and we have customers who have payables to us. They keep on paying according to the schedule, and in that respect, it's been okay. Ari has been able to repatriate funds from Russia to Harvia accounts in Muurame and in Germany in that respect. So far a steady journey and a good plan going forward. On the pandemic, I think Ari catching the disease is maybe the biggest news for the time being, but he's in a good shape and recovering fast. Apart from the rest, it's mainly affecting the business as usual, maybe a bit more sick leaves than normal. The logistics out of Asia, I think, is the one which is most impacted.
We've been shipping some of the heaters from our China factory to Europe to Asia, and to U.S. That's halted and delayed. I think that will not ease up in the coming 3-4 months. I think we've been learning how to live with that. On the raw materials, I would say economically priced raw materials would be available from the Asia market. Due to the logistics and due to some of the penalty duties on those routes cannot be utilized. On the aggressive price hikes on the key raw materials, we've been addressing those to the full. There is a slight delay getting them into the game.
Once again, we address the prices in the beginning of the year, first of April, and now the new one is coming on the first of July in that respect. For the EOS, we've been also using surcharges and a couple of other mechanisms how to offset the impact. Then we are catching up quite nicely with this. On the revenue by the market and the split, I think the strong performance of Finland is now visible on the domestic share. The other European markets maintaining the share. Germany is now visible and a bit giving up. USA strong and the rest of the world roughly the same as it used to be.
On the category mix, I think now it's visible that, okay, heaters have been giving some room for the sauna room sales. Now we see a very big increase in the pie chart on the sauna rooms. Rest is roughly the same, but I'm very happy that the steam generators have been returning back to growth. Then within the others, we have good favorable baby steps also for the infrared going forward. In that respect, I think our portfolio is very versatile. I'm very happy for all categories being on a nice plus. Having a look still in deeper detail market by market, I think the domestic performance solid and actually very strong.
We continue gaining market share, and I think we are gradually penetrating also to the more premium and more professional than for the institutional commercial like swimming holes, big spas and all of that, which we used to be not as strong as we are on the residential and consumer business. Scandinavia, even though the actual millions is maybe small, the percentage is good. With our understanding with this percentage, we continue gaining speed. Germany, even though I think the number is exactly not what we would like to see, even with this number, we tend to be at par or slightly ahead of the market development and maintaining or even improving our share on the German marketplace.
On the not so good performance is mainly on the very entry-level heaters and mainly in the web store in Scandinavia where we're not been able to grow. No one has been able to grow on that one. I think that's maybe where the uncertainty of the entry-level consumer is most visible. Other European markets, a healthy growth. Russia, I think thanks to very strong January and good February, that's where we are. Going forward, that's not gonna be like this. The impact is roughly what we would expect, slightly shy of EUR 12 million. Divide that by four. We have three quarters to go, and that's the minus we have. We have quite a good plan where to catch up, where to beef up our operations.
It's mainly in the North American marketplace, some of the Asian markets where we are catching speed and closing the gap. It will not happen automatically, so it will happen throughout the year. By the same token, we have a profit protection how to bring back the lost profits from the Russian marketplace. Also that is coming into play, and we are working on that and have good inroads already into that game. North America, extremely solid, both on the heaters and equipment, as well as on the sauna rooms. It's with all customers, all geographical areas of USA. In that respect, a solid performance over there. Today, by the way, we are roughly at par with our supply and demand.
The Lewisburg factory has been capable of ramping up the capacity so that our lead times have gone down from 12 weeks to roughly four weeks. I think that's very good news for the customers, and they're very happy that we can deliver faster. The other countries are doing a good job. We have pockets of excellent increases, and then we have normal performance, but altogether close to 100% increase is not bad at all. On the sales by product categories, I think everything looks rather good.
I think on the sauna heaters and equipment, everyone would have expected a bit better performance, but that's mainly due to the entry-level heaters being soft in the, I would call DACH markets or Central European markets, especially Germany. That's visible over there. Rest looks very normal and actually good in most of the cases. Then maybe just to have a comparison. A very nice top-line growth on the Q1, and then also on the profitability, even though the relative profitability took a bit of a hit. In aggregate numbers, EUR 1 million on top of EUR 11 million, a good work. Then going forward should be rather solid journey on that respect.
Then on our plans, just to remind that, hey, all the sauna types, so the traditional Scandinavian or Finnish type of sauna, steam, where we are not as strong as we would like to be, and then on top of that, the infrared, I think, which has been actually growing faster than we anticipated. We will beef up our game plan on the steam as well as on the infrared and continue the solid performance on the traditional saunas. Stay loyal on the three paths of profitable growth in our strategy. On top of that, for sure, we remain extremely eager and open for the potential M&A, and then especially in the area of infrared, steam, and then maybe in the premium and professional end of the traditional saunas.
If those would come in play, we would definitely have appetite and would be willing to act. We continue doing that. At this stage, I think Ari Vesterinen is looking extremely fresh and good, and I think we can jump on the numbers in that respect. Ari Vesterinen, I will pass the word to you. Welcome.
Okay. Thank you. Yeah, you please change the pages for me. Yeah. Thank you. Yeah. The quarter number one in this year was actually the all-time high quarter ever in the history of Harvia. We exceeded the net sales of EUR 50 million, which is nice. As Tapio already told, the relative profitability took a little hit due to the product mix and inflation. We really strongly believe that we can correct this situation. If we take the adjusted operating profit what we have had now, it's still historically quite good. Reminding that, for instance, in 2020, we had for the whole year about 22.4%.
We have been improving, and we will improve our relative profitability, circumstances allowing it. The basic earnings per share increased nicely to EUR 0.50, and the operating free cash flow of EUR 7 million. Actually, it's less than a year ago. The fact is that we had that in Q4, EUR 3.8 million. We are actually currently improving our cash flow. Even if we have increased still our inventory, I believe that the cash flow will pick up again. The one reason for the better cash flow is of course that we needed less money for investments during Q1. We had very strong investment year in 2021, EUR 11.8 million.
Now we had just some efficiency improvement and add-on investments during Q1 with value of some EUR 900 thousand. The investment level during Q4 was still four times that much. The leverage level 0.8 is still rather low compared to our long-term financial targets. It doesn't include the potential redemption liability of some minority shares or risk payment part of acquisitions. It will be discussed later a little more. The return on capital employed is very good. That was a strong quarter. Next please. Okay. Here we have discussed a little more the financial situation.
On the left part of the picture, you see that the net debt went already down a little. We just remind that there are some redemption liabilities on the balance sheet of EUR 22 million, which are not included in that net debt. One day they may be included. If we would have had that net debt, we would have had a leverage of 1.2. Still quite low leverage. On the right picture, you see that we have been able to reduce the cash-based interest costs. That's the dotted line.
The fact is that we renegotiated our loan agreements end of 2021, and now we see the positive impact on our interest costs. Then in the beginning of 2022, we actually made a new interest swap deal to cover our interest costs against the increasing market interests. In fact that swap deal increased in value quite much during Q1 since the market interest rates increased quite much during Q1. That's why currently the IFRS based interest cost is actually negative, or we made profit in the interests because of these derivative papers which were on a very positive value.
In practice, this means that we are very well covered against the potentially increasing interest rates also for the next four or five years. Next page, please. Here we see the level of CapEx or investments we had during Q1. It was rather low compared to the last year but actually historically quite normal for Q1. There were just some additional investments in production machinery in Finland, North America, China, and Romania. We are still investing in expansion of some production facilities. The level of investments in this year, they will be lower than last year. Next page, please. Here we see the structure of shareholders.
Let's say the foreign part of the shareholders went down a little during Q1, but actually Finnish households increased the share of the ownership in Harvia very nicely during Q1. We had 31% of the shares in the hands of Finnish households. Actually we had at the end of Q1 almost 44,000 shareholders in the company. The shareholding of the board of directors, management, and personnel was 5.4%. On top of that, also Harvia family members who are not in the board, they are also together very substantial owner of the company.
We have to say that the management board and people close by believe really strongly in the ownership of Harvia shares. Next page, please. Harvia's long-term financial targets, we believe in growth, which is exceeding clearly 5%, and the profitability target in adjusted operating profit margin is over 20%, and the leverage range what we have set up some time ago is between 1.5-2.5. Currently, we are on 0.8. Harvia is paying dividends twice a year, and the dividend is regularly increasing. Next, please.
Speaking about the dividends, we paid already now in April EUR 0.30 to the shareholders, and the next EUR 0.30 will be paid in October 2022. The annual general meeting approved the full EUR 0.60 to be paid this year. Next page, please. Okay. Now it's time for the questions. We have got quite much questions through the chat, but probably the local organizer will read these through.
Yeah. I think we will kick in with the teleconference and I think now we are ready to entertain questions.
Okay.
Go ahead. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad and wait for your name to be announced. Your first question is from Nico. Nico, your line is now open. Please go ahead. Hello, sir. Your line is now open. Nico Carpitella.
Yeah, hi, this is Nico Carpitella from Danske Bank. Can you hear me?
Yes, loud and clear, Nico. Welcome on board.
Yeah, thanks. Concerning the sort of organic growth that in Finland, you are not publishing it, but I'm trying to calculate that, and then it seems to sort of in H2 last year, those figures were clearly on the negative side. Now you were reaching double-digit figures in Q1, and then you were talking about the sort of pre-sales activity being at high levels. Do you think that the sort of that will be negatively affecting your Q2 growth organic growth rates? Or how do you see the sort of the Finnish market developing? Then you were talking about the sort of the improved positioning in the commercial and premium segments in Finland. Is that something that could be potentially compensating for the weakness, for example, in the lower price point segments? Could you open up that-
Yeah.
Outlook in the Finnish market a bit more?
Good question. I think the pre-sales is only relevant for the heaters and equipment. We did exactly the same type of a pre-sales year before, but I think we had some learnings on that one. I think now we have a portfolio with the GreenFlame expanding and having a stronger traction on that one. I think it will be nothing extraordinary, and will not be hampering our quarters to come in that respect. Then on the professional projects and on our inroad into that, they are baby steps. Once you get in that, then you take the next steps. Those I think gonna continue for the months and years to come.
Now we are breaking some ground in that respect on areas where our offering was not considered. We have either the Harvia offering available or then we have the EOS offering available. Those will make a permanent impact. The impact is not like EUR millions in a year. It's, say 1 institutional commercial heater is maybe EUR 2,500-EUR 5,000, and then multiples of that is what we achieve in the professional market. The projects even if today we get a request and a tender, it may take time before they are finishing. Some of them are for the latter half of the year for sure, and some of them are even for the early part of next year.
The time to act is clearly longer than in the residential marketplace where it goes through the do-it-yourself retail stores, and the impact you can calculate in weeks or months. This one is a longer journey, but it's a very favorable, a good journey. Also when you get into that, it's I think something you can keep for longer term. I think it's sticky in that respect.
Okay, yeah, thanks. Continuing with the Kirami and those hot tubs. I think that the sort of area that benefited quite a lot from the pandemic conditions also. How do you see the sort of outlook, yeah, for those products going forward?
I think we have not made any formal outlook, but I can maybe comment on the sentiment on the Q1. We realized that on the export market there is a good traction and good momentum in most of the markets. Same impact in Germany as we've been having on entry-level sauna heaters. Then on the domestic marketplace, I think this is an area also maybe where people consider if this is something which is not a must. People are waiting, "Should I do it now or should I do it a bit later?" Then maybe also the spring, which is really late. In Helsinki, you see no ice on the lake or sea anymore when you go further away on Lahti and beyond.
Still snow on the streets and on the ground, so people going to the summer cottage, the hot tub is maybe not the first thing they consider. We'll see how it goes, but I think there is some sensitivity on the hot tubs, at least in the first quarter.
Okay. The last one concerning the sort of North American market. Have you been using more of the sort of sales campaigns in the North American market at the beginning of this year, compared to previous year? What kind of plans do you have for the increased marketing activities?
Uh, comparing-
campaigns with the sort of your partners?
Yeah. Comparing Q1 prior year, roughly the same. Compared to Q4 last year when we would have no campaigns at all, I think in that respect there is a change. Quarter against the quarter one, no major change. The same type of program, and I cannot even tell whether it's an inch stronger or inch less, but it's roughly the same.
Okay. That, that's all for me. Thank you.
Thank you, Nico.
Thank you. There are currently no more questions in queue. As a reminder, if you would like to ask a question, that's zero one on your telephone keypad now.
Let's wait for a moment, and unless we have someone on the line, then I think we can jump into the questions sent in advance.
Thank you. We have quite a lot of questions from the audience. We'll start with sourcing and pricing. How much of the raw material inflation will you be able to pass on to prices, and in what timeframe?
Our aim definitely is to pass everything. I think the timeframe is roughly what we described. With most of the customers, we have agreements which are intact, and if I take an average of those agreements, then they are between, I would say, maximum three months impact in that respect.
Thanks. Where are the Sauna-Eurox stones sourced from? Are there any supply chain threats in this business?
Sauna-Eurox stones are sourced from the southwest coast and they come in conjunction as a side product when people do, I don't know even the right term, but when you get rocks for the building sites and for the roads. We are hand selecting what is gonna be shipped and then hand selecting at the place where there are. I don't see any major issue with that. We have a very solid sustainable high quality heater stone and access to that, and that's something we also offer to our peers and then we tend to be good in that. I don't see. I think the only thing is that some of those are transported with a road transportation from Finland to elsewhere.
There is for sure an impact on the logistics on that one, but it's not been an issue on that.
Okay. Thanks. Has the shortage of raw materials delayed your shipments to customers and caused backlog in your deliveries?
I think I cannot say that it has not had any impact. Some customers have been receiving goods with a delay, but I think in general we've been very close to the intended schedule with most of the customers and maybe, and then it's only a question about week or two where we've been late, and I think no major issue in that respect. We've been using alternative componentry, alternative materials, and we've not been always shipping what originally in the specification. We've always been negotiating with the customers how do we do that, and everyone has been happy with that.
Yeah. At what level are inventories in the sales channel? How good a visibility do you have there? For example, sales in Finland grew strongly, but the Finnish consumers' confidence went down clearly in Q1, so have retail channel inventories gone up?
In general, we don't have a full transparency, but for the key partners and especially like now also announcing today and reviewing the inventories with our, I would say, top five European web stores, that's what we monitor constantly and that's very intimate and immediate pulse you get. On the domestic market, we do that on a daily basis with our sales reps, and then we do that in a monthly basis with our partners. In that respect, we don't see anything extraordinary on the inventories.
Okay.
With the exception of, as said in the German market with the certain web stores where the entry-level equipment has not been moving on the previous pace.
Okay. You commented on the fact that despite the Q1 hit, the margins can be solid going forward. Can we have more details on this? Are your forecast based on what kind of level of inflation? Can we have an idea of the price increase taken in April and planned for July?
The April we have already announced. The April was announced in the full year 2021 report. That was on the magnitude of roughly 5% on the market. Can be less, can be more. Then on the one which is coming through, we've been more, I would say, selective, and we've been not doing as a generic. It's more of a product group by product group. Some of them are going up with a double digit, some of them with the same magnitude as in the previous round. Going forward, we should be, I would say, rather okay, if not good. But providing that the inflation will not take any major hikes going forward.
If that would continue, then we would need to continue addressing the pricing again. Unfortunately, that's the status.
Yeah. Have increased lumber prices affected sauna room profitability?
In certain markets that has been happening, but it's mainly in the US the prices have been rather stable. Also, for the grades we use in our Romanian sauna factory, they've been clearly more modest than in the Northern Hemisphere. In the Northern Hemisphere, the lumber prices have been really volatile and are going up, and that's potentially where we've been not up to speed with some of the adjustments. We'll get up to speed.
Yes. What is the risk of not getting enough components, for instance, from China?
That's an excellent question, and I think the lack of certain components, especially in the electronics, will continue as it is. With our partners, we've been opening new sourcing channels, and some of those come into play. I think in midterm, we are very okay, and even in long term, if things do go back to normal, we should be okay. On a weekly basis there can be issues, but on a monthly basis, they're gonna be sorted out. I don't see any major issue. I think the China logistics is something we need to pay attention, and everyone has been paying attention on that one. The logistical cost has not been going down as expected.
Now we've been also transferring some of the volumes from the China factory back to Europe in that respect. That's what we've been doing.
Right. Something about revenue and profitability. How big portion of your revenue is replacement of old equipment? How long does it usually take, for example, until heaters are replaced?
Yeah. I will try to remember out of my head. On the heater and equipment, we say that roughly 75% of the business is replacement. On the average age of a heater depends, and I cannot say one number. If you would have a small fitness club where you put it on 7:00 A.M., you switch it off 10:00 P.M., you are lucky if you survive four-five years with the equipment with no repair or no spare parts. On a family home, you take good care of the equipment, you can run it to 12-15 years.
I think on average, we say that the electric heater is roughly, say, 10-12 years, and then a wood-burning heater is maybe six-seven years, depending on the condition where you keep it during the winter. On the sauna rooms, we estimate that roughly 60% of the business is replacement and 40% is new build.
Thanks. What is the reason why other products and services category made all-time best sales figures and has been developing so well?
Well, that's where we are hiding a lot. That's where we have, for example, the infrared. We've been doing a bit of a pilot on the infrared, and then also on the steam rooms. We have these spa modules in Tartu, Estonia, where we do spa rooms. As we see in the other countries, on the Arabian markets, always when you sell a project, it's going in with a traditional sauna together with a steam room, and the steam rooms are in that category.
Which one is more profitable category, sauna heaters or sauna rooms?
Oh, sauna heaters are still clearly more profitable. The delta between those twos have been going down quite a bit, but still, I would say that there is a difference in the profitability between sauna heaters and the sauna rooms. Sauna rooms have been catching up, but it's a slow process catching up.
Okay. Why is the growth so low in Germany?
I think the main reason is that the entry-level heaters for the web store dealers they can turn down, and all the rest seems to be rather normal.
Okay. Could you please give a comment on the Russian profitability, both absolute and relative, for instance, effect on margins going forward?
Now my memory is not giving me an excellent service. Maybe, Ari, can you step in and help a bit on the Russian profitability? I would say it's close to average, not a big variance.
Yeah
in that direction.
It's not the top profitability. It's slightly below average profitability for the group.
Okay. Thanks. Can you give us an estimate of how much of the revenue growth was from price increases and how much from sales volume?
Good question. We have not done the analysis on that one, so I cannot tell exactly how did it work. What I would use as a back of the napkin type of an analysis, if we increase the prices roughly by, say, 5% on average, then I think people can do the math.
Okay.
Ari, you would agree?
Yeah. Yeah, that's right. One comment I would like to add to Germany. Yeah, if we check, I just compared during this discussion the figures from 2021. We were growing 100% in Germany in 2021. That might be also one reason why the growth is so slow, low currently in Germany since we have a very strong comparison year.
Oh, you're right. Absolutely right. I think, yes, that's a good addition. I think last year, German market was really on fire, and then we were able to supply almost everything we could. It also looks a bit weak in that respect. Ari, your comment is right.
How much was Finnish organic sales growth in Q1? Do you have any views how has been the sell-out from retail post-war outbreak?
I don't have the organic Finnish number on my head and on the radar screen. Sell-out, I don't know the latest and greatest, but I know it's been okay. Depending also on the region where you are and depending on the category, but I think sauna has been doing rather okay in that respect.
Um-
I think when you see, and if you dive, for example, have a look on the Kesko just came out with their report, and I think there is quite a lot of data on that respect. When going to the do it yourself and driving by on a weekend, then you see what the activity is over there, so still rather busy.
Yeah. Does today's entry-level heater softness typically filter through into weakness in other products over time, or is there no relation? In other words, is this segment normally the first one to weaken as consumer confidence weakens?
Good question. I don't have a good answer. I think we need to learn as we go through. Like Kari said, maybe the weakness is weakness, but not maybe that big of a weakness. The comparison was also strong. I think that's something where we keep thumb on the pulse and monitor on a daily basis what's happening with the web stores and their inventories, and then we'll see how it goes.
Yeah. How was your order book compared to end of December 2021?
Still very, very good and solid.
Good. How much of the Q2 to Q4 growth last year was capacity constrained?
Maybe still one-
Yeah.
One... Not-
Go a-
Not to say something.
Go ahead.
Which is not true. For sure, Russia has the impact. Other than that, it was okay and normal and strong, but Russia for sure has the impact on the order book.
Yeah.
By the way, the Russians would like to order, but for sure we don't deliver anything, so that's the way it is.
How much of the Q2 to Q4 growth was capacity constrained last year? Do you expect comparable growth in the coming quarters with the help of added capacity in Muurame and USA?
The capacity is now fully in play, and I think in terms of capacity, we are very okay. Productivity is also gradually coming into play, so I think for the productivity we'll be enjoying quite nicely. Even last year, the ones who remember how our order books were developing, I think we were able to keep the order books on a certain level where there was no pain and we were able to operate. We ramped up the capacity, mainly the people and the shifts, and that's how we did the last year, and I think this year we'll have no issues with the capacity. It's easier in terms of capacity than prior year.
Would the management prefer faster growth of market share over profitability, or do you prioritize maintaining margins over gaining market share?
I think we for sure want to grow the market share, but we don't like empty calories, so we'll need to do profitable growth in that respect.
Okay. About M&A. Do you see a high certainty for closing M&A transactions in 2022?
I think the roadmap we have developed is very solid, and we have good candidates with whom to get potentially married. It's always question of whether both parties will be happy with the marriage and what is in a way the valuation in that respect. I think we will do our utmost to get something done in that respect. At the same time, I would like to highlight that, okay, something which is extremely high valued, we would consider but might not do or rather wait for the right moment in that respect.
Yeah. Could you add a bit of color on how the demand has developed in the B2B side this year?
The B2B, I think overall has been waking up, but the demand is not in a way immediate demand. It's more of a request, tenders and offers you put in. Like I also explained to Mika, that some of the tenders are maybe for the latter half of this year, maybe even for October, November, December, and some of them are already touching the first half of next year. They come in. There is clearly more activity, but whether you get them in the pocket takes a bit of time before you get them, but you get them step by step.
Could you please give us more color on the activity in Japan?
I think I was very pleased to meet with Mr. Seiji Kasama in Japan on the last weekend, and he's now on the tour in Muurame. A very good systematic plan with our team, and in our team, we have a gentleman by the name of Aku Valta. He's done a good job with the Team Bergman. I think as we go forward, gradually entering the Japanese marketplace and the philosophy and the way they are doing, it's really systematic and sustainable way of doing business. I think we would really love to help and add value to the process. Most of the needed components we have, and some of the components we need to develop.
I think at the same time, we maybe realize that there is an incremental opportunity on the really big professional market where potentially EOS could play a role.
What is the expected approval impact for EOS for the U.S. sales in Q3 and Q4?
We have not set an exact value on that. Most important thing is to get the approval. Then when you launch something which is both premium, maybe even luxury on the residential marketplace, and then for the professionals, you need to do it. You can only do it once. You need to do it very properly. We'd rather do it right than do it with a big volume and then have some issues afterwards. I think when we do. It's good to remember that any equipment from the EOS portfolio, when Harvia is a good decent heater, maybe $700 in the U.S., the EOS heaters are multiples of that. The multiple is not only two, it's clearly more.
Yeah.
The pieces will not be on the same level as Harvia pieces to start with.
What's the expectations of getting the EOS approvals in the United States? What is the reason for the delay?
The reason for delay is availability of components. Then when you do an approval, they will check the full menu and all the ingredients of the heater. If you need to change one of the components because lack of it, then it starts from square one again. As we speak, I could maybe even almost smile. I'm rather sure we have it.
Great. About innovations. What are the most potential novelties for this year and the next year?
I think most of those we've been discussing within this team. I think on the digitalization, we continue developing that further and then taking steps on that. That's already available in most of the markets. The Wi-Fi for the U.S., we got it just like a 8 weeks ago, so that's developing fast over there. On top of that, the steam. We have a plan to make an independently standing steam room on top of the ones which are really done for the hotels and spas and things like that. I think for the urban areas, we have some ideas how to make sauna more versatile and maybe something on that respect. But I cannot tell exactly what's coming out, but something is coming out.
Yeah. There's question about cold therapies.
Ah.
Ice bath and ice plunge.
Good question.
When are those coming?
On the Kirami hot tub area, we also do the cold tub. That's now on the pilot. We have couple of those in our test. One in Muurame on our sauna over there as well. On top of that, we have got the approval for the auxiliary electric heating for the hot tubs. Soon we will be able to offer a hybrid hot tub by Kirami, which is then electric heated and wood-burning heated at the same time, and maybe even at the later stage, some digitalization of the electric edition.
Right. About Muurame. What's the situation regarding the workforce in the Muurame factory? Will more workforce be needed, and will people have possibility to keep their summer vacations?
By the way, last year we also did summer vacation. Vacations you cannot skip. Otherwise you will not have the people long-term in the business. This year I think will be the same. Workforce, I think we have a normal demand. The Russian impact is most visible in our business, both in our Muurame factory as well as on the China factory.
Yeah. Is the Muurame expansion fully up and running already?
Expansion itself is fully up and running, and then the machinery is where it should be and doing what it should be. The next step, which is the transition and new layout, changing the flow and some of the redesigning of the cells, that's ongoing as we speak. Before we go on summer holidays, we should have 90% of that done. When we come back from the summer holidays, 100% of that completed.
Yeah. Are you confident to maintain this 28% growth level for the rest of the year?
I cannot say that anyone is confident in this type of a world. We are confident we'll be growing. Time will tell about the numbers. It's good to remember, now we have still quite a good momentum related to the growth in the first quarter. Going forward, both Kirami and Nordic Sauna will kick in as an existing business. I think on top of that, people need to figure out what is happening on the pricing level and what is happening on the market. But I think we'll. Our aim is to grow for sure.
Yeah. What is your margin target for the year?
We have not set the margin target, but on the relative profitability, our aim is to improve, and I think we have all the means to do it. The question is that, okay, what's gonna happen on the raw material prices and how fast they will change and which direction they will change. But I think our own game plan is fully intact to make it work.
Okay. How flexible is the company about capital allocation regarding returning money to shareholders? With the stock price being down, is there any discussion on buybacks instead of or in addition to dividends?
That's maybe more of a question for the governance and the board. We've been discussing for sure this in detail, but it's beyond my area to comment on that.
Okay. About competition. In 2007, Apple launched iPhone, and management of Nokia didn't see the initial threat in that when it was launched. Do you see any potential threats regarding competition in saunas and heaters? For instance, HUUM saunas have grown really fast during past years all over the world and also made entry to Japan.
I think it has not gone without noticing, and best regards for the HUUM people. Be aware.
Right. Energy prices, they're increasing, including also scarcity, especially in Europe. How big is the risk for Harvia, and how do you adapt to the situation?
I think that's an excellent question, and as long as we stay on reasonable increases which have now been visible. People's behavior and the sauna frequency and using the sauna has not changed. In the professional marketplace, I think now gas has been on a topic in many places. We have a very small part of the business where we deliver gas-driven heaters, Kusatek, for the big event saunas, and we've been monitoring whether there has been any impact of keeping the saunas open or acquiring new equipment. There is none whatsoever for the time being. For sure, if there will be a non-availability of the gas, that may be affected. On the other hand, biogas is also available and may be replacing some of that.
I think the economies in that specific business is based on that the gas heater is more economical than electric. For the time being, electric prices are still in the people's comfort zone on that one and no major issues. If they will be tripled or whatever, then for sure that might be something to consider.
Yeah. Do you expect to open up new delivery channels in 2022?
I think, in our expansion plan, for the new markets, we also include deepening the distribution in certain areas. Yes, we do. Then as we speak, we already have something coming into play, and when they are in play will for sure reflect a bit more on those.
Yeah. I think the last question, the same one that you have already gotten before: Are you sleeping well?
I'm a good sleeper. You can ask my family, and then they oughta tell us the same.
Thank you.
Thank you. I hope we were entertaining the right questions and excellent questions. Thank you for that. Have a good day. Take care. Bye now.
Yes. Bye.