Hello again, and sorry for the technical problems and challenge. My name is Tapio Pajuharju. I'm the CEO of the company, and next to me we have Ari Vesterinen, our CFO.
Hello.
I think the technical team maybe got carried away when Finland finally got some medals in the Olympics, and they forgot that we have a live show to perform. Sorry for that. All in all, let's go to the topics of today. We are very happy and proud of what the Team Harvia has been achieving. It's all-time best top line with an excellent profitability, and then the strong revenue growth continued during the Q4 in all of the markets and in all of the product categories. We did experience some capacity issues and availability, mainly in the sauna rooms as well as on some of the electronics and control units. All in all, we have gained market share in all of the markets, and as a totality, Harvia became the number one in the sauna and spa market globally.
An excellent achievement in that respect. Then on the finishing of the year, especially for the sauna rooms, for some of the professional and premium equipment, we finished the year with a very high order stock, and are gradually taking that on the marketplace. Awareness of the sauna and especially on the health benefits for the ones who'll be monitoring the situation for longer term, you see that on top of that in North America now sauna and benefits are on the headlines and on the social media in Asia, Australia, Oceania. Then the people who are monitoring their health and performance, the first application is Oura Ring. They added on the third generation version sauna as one of the physical exercises. You can tag it on the Oura experience.
The ones who have been longer on board remember that during the pandemic time, north of the Alpine region, especially for the do-it-yourself and entry-level market, we've been enjoying a bit of an advanced demand. That continues, but I think what used to be hot is now warm, and it's normalizing in that respect. At the same time, for the southern part of Europe, Arabian markets, Asia especially, all of the professional market has been in a way locked down or closed. Now they are gradually opening and gaining momentum, and that's good news for us going forward. Keeping in mind it was not a normal year. We've been challenged by the availability of the key componentry, raw materials, pandemics, cost inflation.
Team Harvia has done an excellent job, and I would like to pass my warmest thanks for everyone on board. Amazing work done. You should be proud of what you've been achieving. Very happy for that. On the investment front, increasing capacity and productivity, not a normal year. The ones who've been longer on board remember that we've been investing between EUR 2 million-EUR 3 million on a given year. This year, a very special EUR 11.8 million. Very happy to say that all of the investments are on time, and they are on budget and exactly what we were planning to do that. Last week we had the official inauguration and the ribbon cutting of the Lewisburg facility in the U.S. They've been already operating for better part of two months, but it was officially opened.
Very happy to also announce that we are slightly ahead of the initial targeted capacity. They've been doing a very good job, and we still have room to improve on that respect. The EOS facility, where we upgraded the main part of the machinery in the metal area, is now fully installed, up and running, enjoying the increased capacity and productivity. That's good. Muurame expansion with the new machinery is ready. We are still moving some of the old machinery in line with the new machinery, and that's gonna be happening in the first quarter of this year. Then on the warehousing capacity at the Sastamala Kirami Oy factory, we doubled the incoming and outgoing warehousing and logistic capacity over there. That's fully in place and operational.
Then the Romanian facility has been completed, but we started, I think it was end of October, the second phase for the sauna factory expansion, and that is getting ready as we speak. On the recently acquired companies, Kirami Oy integration is progressing well. I think we acquired a hot tub, Stillwater hot tub company. Lately we realized that we also on top of that got a very good innovation pipeline, very good NPD pipeline in the forms of the hot tubs, but also in the sauna and related categories. I will tell more about that in a second. Sauna-Eurox, the sauna sustainable high quality, safe sauna stones company has been onboarding well.
It's a bit of a joke, but I think the only issue where we've been having issues is that they support a very different hockey team than the people in Muurame. We've been exchanging jerseys, so everyone is now happy, and we are in the same family. That's good. Team EOS has made a remarkable job in the professional premium market. Lately we've been introducing EOS to Finnish marketplace, Scandinavia, especially Sweden, and those are progressing according to plan. The U.S. approval, even though we have filled in all the applications we can, some of the components we keep on changing because of the availability, and we are late, and we will come out with the approval during the first half of this year.
On the other hand, the distribution network and everything is ready, so when we have the product available, then we can hit the ground running on that respect. On the numbers, I think this is for the ones who've been reading the news from nine o'clock, old news, but a very good solid top line growth on the exchange rate giving a bit of a tailwind this time. On top of the organic growth, for sure, we're enjoying a healthy growth from the Kirami Oy and Sauna-Eurox in that respect. Solid profitability, EUR 11.1 million, good improvement compared to prior year.
The relative profitability takes a bit of less than 1 percentage point down, and that's mainly due to the product mix and then some of the newly business-acquired businesses having less than average profitability of the old Harvia. When you make the math, that's the outcome. It's good, very good solid performance in that respect. Earnings per share, EUR 0.44, a good improvement. Cash flow, very solid, keeping in mind that we had a very heavy investment and then also increased intentionally our net working capital, especially the inventories of raw material and components. We've been able to keep a very good solid customer service level in that respect. The full year numbers, I think this is also very good news altogether. Top line performing well.
Revenue, altogether in all of the markets, solid. All of the categories, operating profitability, very nice, and then almost doubling from a prior year. On the earnings per share, yes, we more than double the earnings per share. Cash flow, still a very good solid EUR 20 million, keeping in mind that we have acquired two companies out of pocket and we paid EUR 11.8 million for the CapEx out of pocket. We've been preparing for the working capital to have enough inventory to keep our customers happy. Taking the three strategic paths we are working, and first of all, on the increasing of the value of the average purchase, we can say that the premium models and the professional models have been gaining speed.
Then on top of the cross-selling, we realize that people have been applying for more versatile, more advanced models, and that's visible in the numbers. The professional channel, it's up and down depending on the lockdowns, but currently gaining momentum, and that's good news for Harvia and especially for the EOS offering thereof. Sauna rooms enjoying a very healthy growth in all of the markets. If we would have the capacity, we would have boosted clearly the top line. On the other hand, our order stock is healthy and solid going forward, so in that respect, good. Then on the Kirami Oy, I think we've been favorably surprised of their innovation capability on the ready-made sauna markets.
Later in the presentation, I will show one of the models which has been gaining a lot of attraction, and I think we have a lot of mileage with that one. All together with the Kirami Oy team, we are committed to take that on the market, especially for the European marketplace and potentially also for the North America. We'll come back on that one. On the geographical expansion, and mainly, I think the first bullet point, this is for the domestic investors and domestic media. Sometimes we've been asked that, "Hey, what about your business on the export markets and outside of Finland?" Very happy to say that it's growing fast. As we speak, on the last quarter, it exceeded 80% share of the total revenue.
For the full year, it's slightly shy of 80%. Most of our business is outside of Finland. The market growth, I think Finland is roughly slightly shy of 10% of the global sauna market. Ninety percent of the market is outside of Finland. That's where we are focusing. We will not forget the local domestic market, and I think we'll maintain our level of innovation and capability of driving the market forward also in the domestic marketplace. I think on the last quarter, the other markets were very favorable, and they were boosting the business mainly thanks to the reopening of the markets. Asia showing signs of recovery. Australia, Oceania picking up on the sauna trend, especially for the health-related consumers.
Then on the Arabian markets, the projects are coming into play again, which is good news. Japan, where we've been operating, I think, for more than 20 years, but it's been marginal and then focused on the equipment and mainly on the entry-level equipment. Together with our new partner, Bergman, I think we've been upgrading. Now together, we became a holistic player in the sauna spa market for Japan. I think we are still on the early stages of the journey there. Very favorable on this topic. In Scandinavia, it's a pity that we don't have Nielsen index supporting us. I think altogether, when we see what is happening with the marketplace, we are at par or ahead, actually, of the current market leader.
The team in Scandinavia has done an excellent job in that respect. EOS launch starting in Finland. We have first applications installed and more to come. Scandinavia, the same, especially for Sweden, and later then in Norway and Denmark. U.S. approval for the EOS delayed, as said, but I think we are expecting it during the first half of the year, and we are ready to go. On the productivity and capacity, new factory in the U.S., I think it was really like in the movies. The team has done a good job in preparation for the moving from the old factory to the new factory. With the now having two months behind our back on the operation, we are exceeding the target.
It's a good job done. I think for some of you may have been monitoring what is happening on the U.S. marketplace during the preparation for the move. I think we withdrew from most of the campaigns of our customers, so we were not actively promoting. Lately, when we have now the capacity back, we are now promoting again, so we are expecting to see good dynamics on the U.S. marketplace. Kirami Oy warehousing capacity and also improving the ground around the factory is now finished, and then roughly we doubled the capacity both outgoing and incoming goods in that respect. Very good job from the local team. Our machinery installation done, and then also the flooring and the layout completed. Good job over there. Romania, we completed the phase one.
We started the phase two because we are still having some capacity constraints on the Romania factory, hoping to get it ready during the end of Q1 this year. Muurame, I think the expansion of the early stage of the metal preparation is ready, and then we acquired in December the adjacent building, which is capable for operational use, but I think we're gonna use it mainly for the warehousing capacity to start with, and that's now in action. This is giving a bit of a picture, so we've been not sitting on our hands even though it's been remote work mainly. On the top left corner, that's the new expansion in Muurame. Now it's fully used with the new machinery.
Some of the old machinery will be still removed over there to be fully in line with the new machinery. The new halls in the Kirami Oy, they are finished, and we also did a bit of asphalting and preparing the ground around the factory better. China, the equipment we bought throughout the year, and it's now fully functional over there. Romanian factory, new machinery, new ways of working, improving productivity on the top right corner. The Lewisburg factory on the bottom left corner. The new EOS machinery on the bottom right corner, fully intact. Maybe that's the most advanced machinery we have in the group. I'm very happy to see the numbers coming out very solid. I think not to forget the newly acquired businesses.
Kirami Oy, as said, we acquired it for the hot tubs and for the adjacent categories on that one. We realized that they have a very good concept in the ready-made saunas. The one you see in the picture is one of their FinVision saunas. I think it's a medium size, where you have a dressing room attached to the sauna, fully nice insulated glass window for the lake or for the forest or for the mountains. That's something you can basically order today, have it delivered to your backyard or anywhere and lifting with the crane, putting it on the backyard and say, on the same day, you can start enjoying the sauna. It's a very, very quick installation.
I think price-wise, compared to some of the premium ones, we are still clearly more economical and saving a lot of time and effort. I think this is something we have a good future on this one. On the Sauna-Eurox, Harvia used to be one of the big sellers in the sauna heater stones, but we were mainly focused on the standard olivine diabase. Lately, we've been learning that, hey, this company can offer round shape, decorative stones, red granite, and then for the very hard demanding conditions, although the shiny black vulcanite, and I think we have lot of value-adding capacity available on the stone markets. On the stones, it's not only for our own use, we also supply the stones for our peers in the industry.
In that respect, we have a good momentum on the stone business. On the pandemic, yes, we've not been immune. I think we've been like any other company on that respect. On the other hand, we've been sailing with very good waters in that respect. Our people have been learning how to do the utmost to avoid. If we've been getting exposed, we've been not exposed as a team. We've been able to limit it in a small number of people in a unit. At the end of the day, we have had no major impact on our operational capability on that respect.
Like I said, on the market dynamics, it has had an impact. For the north of the Alpine region, the residential market has been enjoying advanced demand, still enjoying, but I think what used to be hot is now warm. At the same time, the professional market, which used to be almost locked down, is now gradually opening market by market. That's good news. On the availability, cost inflation and pricing, yes, we've been fighting on that one. For the time being, we have had a very good supply of all of the critical componentry, only minor delays with the control units and some of the electronics. On the ability to put it on the market pricing, Harvia has been doing a very good job.
Over here, we say we expect. I think today we can already say that we know it's gonna be prevailing for the first half of 2022, and we are fully prepared for that. On the market splits, I think no major news in that respect. Domestic market remains to be slightly less than one-fifth of the marketplace. Then DACH area, Germanic area growing fast, rest of Europe growing fast, North America enjoying solid growth. Lately, even though not visible over here, the Asian market, which used to be almost quiet, has been waking up in the last quarter, Japan included. Then on the sales by category, heater still slightly shy of 50%. Share of saunas and hot tubs for sure increasing, and we expect that to increase going forward as well.
The rest of the categories growing well. On the 17% of the other product groups, spare parts and services, that's also including our how would I say, tailor-made steam rooms and projects. They fall into this category as steam rooms have been gaining speed now when the pandemic is easing out in some of the like Arabian markets. For the full year, the picture is roughly the same, but over here you can see that the domestic share is still above 20%, like on the last quarter it was less than 20%. Altogether, very similar picture in that respect.
When having a bit of a deep dive on the markets for the last quarter, very happy to see in the domestic marketplace, we are clearly growing faster than the market, and we've been gaining share on Harvia as well as on the Kirami Oy. Scandinavia, even though the bar itself is smaller, the percentages are good, and we are clearly growing faster than the competition. We are at par or ahead of our main competitor in Scandinavia. Germany, I think, still enjoying very strong growth over there. Germany and the DACH market for the December, I think most of our customers as well our own operations we were closing on the seventeenth of December, though that's visible on the number for the Q4. Altogether, solid performance over there.
The other European countries, extremely good. Russia, even though it's been a volatile journey, still the Q4 solid growth over there and good demand despite of all of the challenges. U.S., I think, there we've been increasing the order stock. Without taking a step away from the campaigns, the numbers could have been bigger, but now I think we have a good path and good demand going forward as well. On the full year, this is already somewhat familiar to you, so no major changes over here and very healthy growth in all of the markets. By product groups, I think first of all, the heaters enjoy still a very healthy growth on the last quarter.
Sauna rooms, good growth for the last quarter. Control units, that's where we were facing a bit of a challenge in the availability, especially for the premium and professional end, and that's visible on the numbers. The steam generators going back to the growth and the others growing quite nicely. For the full year, roughly the same picture prevails over there. As you can see, the sauna rooms enjoying a very healthy growth. Also, control units, sauna heaters, even steam generators, which is not Harvia stronghold, we are enjoying good path over there. Maybe having a look on the quarters, first of all on the revenue and then on the profitability.
I think in the past, when we did not have EOS on board, when we did not have such a big exposure in North America, and when we did not have Kirami Oy and Sauna-Eurox on board, we were saying that, okay, the first quarter and the fourth quarter are the strongest. Now I think the picture is more of an even picture throughout the year, so we will not expect such a big deep peaks for the number one and number four. It's more of a more emphasis on the four and one, but altogether more stable picture by the quarters. I think this is just to remind us that, yes, we are very good in the traditional saunas.
We still have room to improve on the steam market, and we are working on that on our own initiatives, as well as on the infrared market, which especially in the Central Europe, North America, Southern America, and some of the Asian markets have been gaining speed. We do deliver good componentry, but our complete offering is still far from being perfect, so we are working on that. Then we stay loyal to the three main topics of our strategy, increasing the value of average purchase, both for the consumers and the professional market. Geographical expansion, lately when the new markets are opening, we're gonna be there. Then on the productivity and innovation, we stay loyal to improving that.
I think at this stage, I will pass the word to Ari, and then please you can take a deep dive on the numbers.
Yes. Thank you. Okay. The most important numbers have been certainly already said, but I have to say that this was an excellent year. Really great job done, 2021. We had excellent growth rate of 64% and the earnings per share increased 117%. At the end of the year, during the second half of the year, we really increased our working capital, net working capital, especially inventories, and we invested quite a lot for expanding our capacity. The total investment program was EUR 11.8 million, and I have to say that the normal replacement investments of that were less than EUR 1 million.
Altogether, we were increasing the capacity quite heavily. Because of the investments and increase of the net working capital, the cash conversion rate, which has been traditionally very good for Harvia, went temporarily down. I have to say that this is money very well spent. As you see also the adjusted return on capital employed, after certain adjustments of the goodwill, it increased very nicely. Equity ratio stayed on the same level or increased slightly even if our balance sheet increased over 20%. We were able to increase the value of the equity and really the value of the shares in equity. We had end of the year 824 employees altogether.
We got three new companies during the year, Sauna-Eurox, Parhaat Löylyt, and Kirami Oy, and we were also employing new people in many units. Okay, here you see the basics of the debt structure and the finance costs. On the left part of the picture, you see that our net debt increased slightly, and that's because of the investments. We paid them out of our cash reserves all, and also the acquisitions during the year.
One thing that is mentioned good to mention is that out of this net debt, the potential minority redemption liabilities or later due acquisition debt, additional acquisition purchase price debt is missing, so we haven't taken any loans for them yet. In our report, they are approximately EUR 20 million altogether. Even if we would have those EUR 20 million in our net debt, the leverage would be something around 1.2-1.3, so rather low and still under our financial targets. On the right side of the picture, you see that development of the cash-based interests was quite stable during the year.
I have to say that at the end of the year, we also compared a little the market margins of our loans with numbers of banks, and we were able to negotiate more favorable conditions for this year, so this year, 2022. Those new numbers are not yet visible here, but I'm expecting slightly lower interest rate costs during H1, at least in 2022. Here you see the pictures of the big investments.
We were investing really throughout the whole year, but the biggest investments happened actually in Q2 when we acquired or finally got the U.S. factory building and then in Q4 when we got plenty of new machinery and also the building next to our Muurame factory in Finland. Here you see on the right side how the number of shareholders has been increasing very nicely, and we are very delighted to have in this consumer business so much shareholders. We see also from the picture on the left side that half of our shares are actually owned by nominee registered investors practically people residing in foreign countries abroad. Then one...
Approximately one quarter of all the shareholders are private households. That's a very nice split. Harvia's long-term financial targets haven't changed, but at least for a few years, we believe in faster growth than slightly over 5%. The profitability, as you see, is now much over the level of 20%, the adjusted operating profit. The leverage, as I mentioned, is clearly under our financial targets. Harvia's dividend policy, it was slightly updated by our board and we got a bit more flexibility there. The dividend proposal of our board to the annual general meeting. Now we have to remind first what we have been paying dividends in the past.
In 2021, we paid regular dividends, EUR 0.39, in two installments, one in April and one in October. Additionally, we paid 70 years' jubilee dividend, EUR 0.12. Altogether, in 2021, we paid EUR 0.51 of dividends. Now this will be increased to, based on this proposal, to EUR 0.60 per share. Harvia is really working for a continuous increase of the dividends over the years. Those dividends they would be paid in two installments, EUR 0.30 in April 2022 and EUR 0.30 in October 2022.
Now I think it's time for your questions. I think that we will take first the questions from the telephone line, if there are any. Please.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad to register. If you would like to withdraw your question, that is zero two. Once again, please press zero one on your telephone keypad to register for a question. Our first question comes from the line of Maria Wikström from SEB. Please go ahead. Your line is open.
Perfect. Thank you so much for taking my call. Can you hear me now?
Loud and clear. Welcome on board, Maria.
Thank you. Just a little bit wanted to touch still about the outlook for the coming years as I mean, I was actually quite surprised to see the share coming down as much, and I think one of the reasons being that I mean, the organic growth being at 20%, which is a good figure, it's down from the I mean, 43% in Q3. If I read I mean, the CEO statement, I mean, you guys say that you see that the above average market growth is you expect it to continue for a few years. If I think about what you now refer to is above the 5% growth rate, and this statement didn't exist in the Q3 report. Just to give
If you could give a little bit flavor that what makes you think that this above-market growth will prevail for the, I mean, for the few years ahead, and then a little bit that what kind of magnitude we should be looking at?
Okay. Good question. I think starting with the historical, which has been slightly less than 5%, and in the past, Harvia has been gaining share, and we've been above the 5%. Now sauna is gaining popularity in most of the markets, and the sauna penetration on the markets is still low, so we expect to see the sauna penetration to improve. As we are one of the market leaders, we're gonna take a share, maybe the largest share of the development in that respect. Hence we see that it's gonna be favorable and clearly above the historical 5%. I think no one can say whether it's gonna be double that, triple, quadruple or what it's gonna be, but it's gonna be clearly ahead for the few coming years. Lately, what we see is...
In general, I think sauna and spa is not an impulse purchase, first of all. It's a long consideration before you decide to do it. While you make a decision and you are in the process, you will not abandon it either. I think people begin considering when they make the call, it's gonna be a longer process, and that's in a way benefiting us. Even with the current, I think even the markets which has been now experiencing a bit of advance demand, also the frequency of sauna bathing has gone up, and people continue this habit for a long time. Our equipment, for sure, it's not immune to wear and tear, so also the replacement ratio will go up in that respect.
We're gonna be enjoying both of that. I think the new build, new penetration is the main driving force, and then maybe somewhat higher replacement rate than in the past. With the new equipment, with a new features, cleaner burning, better efficiencies, that will give a people more impulse also for the replacement market. In that respect, I think this is the outlook we have made together with our management and with our customers. Ari, anything you would like to add?
Thank you.
Thank you. Our next question comes from
If I may just continue one more on, you talked about also that you see probably slightly brighter demand from the B2B side compared to the, I mean, the residential markets. Maybe I mean, what has changed? I mean, you do add this comment in your outlook statement, and does it have any impact on the profitability as the channel is different?
First of all, most of the professional markets were in a complete lockdown in southern Europe, U.K. included, and in some other markets. I think those are gradually opening, and then people who have real estate where you have sauna, spa solutions available, they are reconsidering reopening the projects they've been closing down. That's what we see happening on the project market. On the equipment needed for the projects, we are one of the suppliers, and we see a lot of activity and inquiries on that area.
Perfect. Then I will stop. About the capacity issue, so like two sides of the question, which one is on this. You said that on the control unit side, you were hurt by some component problems getting the componentry in. So how long you think then this will prevail? Then the second, I think you mentioned as well that the demand exceeded the production in the sauna rooms. I think Romania probably solves part of the problem here, but if you can talk about that as well, then how long these capacity constraints are going to impact on your sales?
I think on the componentry, especially for the electronics and some of the componentry for the control units and also some of the electric converters, that's in the foreseeable, at least for the first half of this year. On the other hand, we've been working on our, how would I say, bill of material. We have alternative solutions for that, so we are more capable of acting than we were in the past. I think those can be solved. Now on the sauna room capacity and availability, we are gradually improving. Romania is now full with full speed on the investments we made during last year. Now when we're able to finish the phase two end of Q1, then we are getting closer to par with the current demand.
On top of our own resources, we've been engaging some third parties. For the U.S. if needed, we can basically with rather moderate CapEx double the U.S. factory capacity. We have not made the decision as of yet, but if needed, we can do that rather fast. It's not gonna be available immediately, but I think with a very short lead time of three to five months can be done.
Perfect. Thank you so much.
Thank you, Maria.
That's all from me.
Thank you. Our next question comes from the line of Joonas Häyhä from OP Financial Group. Please go ahead, your line is open.
Yes. Hi, Joonas Häyhä from OP. I have a few questions. I'll take them one by one. First of all, you mentioned that acquisitions weighed on profitability. Could you perhaps elaborate how did Kirami Oy do in Q4 in terms of profitability? Is there kind of a seasonality in Kirami Oy sales that we should take into account when thinking about its profitability?
First, maybe on the profitability, Kirami Oy did a very good solid job and clearly increased our absolute profitability. In terms of relative profitability, they are way below our average. They've been improving, but they're not catching up and there is still a substantial difference in that respect. The same applies for Sauna-Eurox, even though performing extremely well, the relative profitability is clearly below Harvia's average in that respect. On the Kirami Oy's seasonality, especially for the domestic marketplace, hot tubs tend to be spring, summer, early fall products. We estimate that on the Q1, Q2 will have a big demand on the domestic marketplace. For the rest of the export markets, the same pattern, but not equally strong profile on the seasonality than on the domestic marketplace.
Yeah, it's.
Okay, great.
... a bit unfair to compare sometimes the acquired companies with rest of Harvia Plc since the rest of Harvia Plc has already quite exceptionally high profitability, far over 20% of EBIT. All these companies we have recently acquired, they are very profitable, but not reaching that high level what we have. Mathematically, this average changes. The percentage is pushed a little down, but they are very good companies and they will certainly also improve a little.
Okay, great. You mentioned the negative sales mix changes in Q4. Can you perhaps elaborate this a little bit more? I see that control units grew less, but was there something else too impacting the margin?
No, I think that's one of them. The ratio between saunas and sauna heaters, I think it was a bit of an unfavorable on the profitability. That's then the impact of the newly acquired company. Altogether that's causing the impact.
Speaking about the profitability during Q4, I have also here in the chat one question about the costs, which were compared to the net sales a bit higher than in the earlier quarters. The person asks about the explanation for that. Would you like to?
No, I think we've been doing quite many things which are in a way investment for the future related to, maybe getting some of our commercial concepts ready, marketing, product development related and research related things, and they landed most of those for the Q4, but the benefits we'll get in the coming quarters going forward.
Okay, great. If I can continue with a couple more.
Yeah, please.
First of all, pricing, price increases and cost inflation. I may have missed this, but can you confirm, did price increases fully offset cost inflation in Q4? Also if you could talk about 2022 outlook a little in this respect.
Yeah. I think for the most part of our offering, we were able to fully offset the cost increases. The wooden materials is having a very different volatility and a very different dynamics than the steel. On the wooden materials we may have gotten minor hits, but nothing big. Going forward, we keep really thumb on the pulse and monitor what's happening. We are passing the cost inflation to our partners and to the market. So far we've not been feeling any major pain on getting that to the marketplace.
Still continuing with the margin development in 2022, can you elaborate the mix outlook as margins can differ in the product groups and they also can have a sizable impact on the ASP. Can you talk about mix in 2022? What should we expect?
Yeah. Mix development, I don't foresee any major changes on what we've been experiencing in the past. I think the ones who've been remembering how did we onboard almost seven saunas and what we've been capable of doing with the profitability in the sauna business. I think early on we used to together with me and Ari, we educated that the sauna business is coming in with a lower profitability than the heaters and equipment. That is still somewhat true, but only very little, and I think we've been able to gradually improve the profitability of the sauna business. Going forward, I think we're gonna continue on that path. The gap is getting smaller. On the newly acquired businesses, one can expect to have a continuous improvement on the profitability of those ones as well.
Still to catch up with the average of Harvia, I cannot say that we will reach that in 2022. It will be more of a 2023, 2024 before we are there. We'll take steps, but we'll need to take multiple steps before we are there.
Yes. Perfect. Finally, what is the CapEx outlook for 2022 as you made quite sizable investments in 2021?
I think it's gonna be substantially less than in 2021. We have not set a firm number because we need to remain flexible. I think if we take a minimum case is, say, EUR 4 million and the max is EUR 7 million, and somewhere in between these lines, depending what is needed and how the market behaves. We wanna stay in front of the market, that we wanna bring new solutions and new innovations to the marketplace as well. We remain flexible in that respect.
Okay. Perfect. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Anders Knudsen from SEB. Please go ahead. Your line is open.
Thank you very much, and good morning, gentlemen, and, congrats for, some strong numbers. I was just wondering when you are talking about, better market outlook for the next few years, are we then talking volumes? Secondly, attached to that, how large price increases have you actually put through? Then just for more the details, in Q4, given your production expansions, is there any under absorption of your fixed cost in Q4 that's worth mentioning that's impacting your gross margins? Thank you.
Maybe on the first one, I think the volume growth will remain what it is based on the penetration and the replacement ratio. On the ability to increase ahead of the costs, yes, we do our utmost. On the other hand, some of the costs are increasing rapidly, so don't see lot of headroom over there, but some headroom. On the cost absorption, I think on the Q4 there was nothing special which would not have been.
Yeah
... absorbed. Going forward, as long as the total market remains roughly on this type of dynamics, I don't see any major need to be worried about that.
Okay. Just to be clear, when you talk about the market outlook, we'll exceed the market growth for the historical average, we're talking in terms of volumes, and we're not talking price and volumes, right?
No, we are talking both because I think the new sauna awareness is increasing, and the sauna penetration is gaining speed on markets where sauna is still a very new phenomenon. I think the penetration rate will be higher than it used to be historically. Then on top of that, the replacement ratio will not go down. It will stay where it is. Maybe with the increased sauna frequency, even the replacement will slightly go up. It's very small steps over there. Altogether it's a combination of volume and price.
Perfect. Very clear. Finally, you said you're exiting Q4 with a very strong order book. Can you add any figures to that? I mean, is your book-to-bill closer to 1.5 or 1.1? Any further color you can add there?
No. I can only say that we don't disclose that. On the other hand, the order intake has remained strong, and now we are in a way bulldozing forward with a high order stock as we speak.
Perfect. Thank you very much, and congratulations again.
Thank you.
Thank you.
Thank you. Once again it is 01 on your telephone keypads to register for any questions. As we currently have no more telephone questions registered, I hand back to the speakers.
Okay. Thank you. We have plenty of questions still here on our chat. I'll try to keep track of them and not to ask the same question or to comment it 2x . First question is about the dividends here. Both Inderes and Arvopaperi, that's the local Finnish financial newspaper, reported that you'd pay a EUR 2.0 dividend this year. The 0.06 EUR dividend looks like on the soft side. Do you expect any major acquisitions in the short term to offset the so-called disappointing dividend?
Yeah, I think as a part of our strategy and execution of it, we remain fully focused on the organic growth, and on top of that, we've been exploring avenues how to work on the M&A. As I explained, the classical standard sauna market is of interest, but even more so on the steam and infrared areas where we know that we have the offering, but we've not been able to commercialize that with the full speed, with full force. In that area, we are looking for opportunities. As we speak, we have nothing tangible in our pipeline, but I think we are extremely active and extremely focused to deliver something on that front as well.
As I mentioned earlier, we are striving for continuous improvement of the dividends. As you see, the money left in the company, it has been well spent. We have had a very good return on that investment also in the company, so that's also good for the shareholders. One business-related question: What is the development of showrooms in Japan? How many of those 50 have already been made, and how many are under construction or in the planning stage?
Wow, very detailed question I need to remember out of my head. We have five completed. They are intact. I cannot disclose exactly how many we're gonna be building in the first half of this year together with Bergman. But if I would need to estimate the number, I would say three to five during the first half. Then it's a three-year program to get the full number out over there. Compared to the past, even the five showrooms is a major step forward in increasing our exposure and opportunity on the Japanese marketplace, so very happy for the development.
Okay. Now the question is not so exact but quite personal.
Uh-huh.
If you have to say two things that keep you awake at night, what will those be?
I'm a good sleeper, also based on the Oura. I think general geopolitics for sure, what's gonna happen on the nearby markets. That also has an impact on energy environment. Even with those news, knowing that this is a very strong and safe industry, I'm not too worried about. Those are maybe the two things I would consider.
Yeah
losing sleep.
Okay. You have a new ESG plan. Do you have plans to use carbon-free steel in heaters in the future?
Carbon-free?
Steel.
Steel. Yeah, well, for the. Yeah, when it's available, for sure. Even as of today, most of our steel is recycled, and with minimum carbon impact in that respect. When the carbon-free steel becomes available, for sure we will have a strong consideration of using it. Currently, it's not available, but our local suppliers over here, they deliver steel where the recycled part is more than 80%. When it's also nearby produced, also the impact on the transportation is minimal. We try to minimize impact on this respect as well. When it becomes available, for sure we have a strong consideration of using it.
Generally speaking about sustainability, ESG, we have been working on that topic quite much during 2021, and there will be additional reporting on the EU taxonomy also on our annual report, which will be published end of week then. That has been a very active topic now in our company recently.
Maybe building on the ESG, I think we knew that we are rather okay-ish in that respect, and maybe one of the best ones in the industry. When we did the research together with a very established expert on the area, the outcome was even better than we expected. We are in a good shape to start with, and now we're gonna do gradual continuous improvement on that area as well.
Okay. A number question, hard to estimate, but anyhow, how big part of your organic growth of 21.1% in Q4 came from price increases? Should we think it's roughly half between volume and price?
Ah.
We didn't increase that much.
Very difficult to say, but trying to do the math backwards, clearly less than half, I would say. But maybe just. We increased basically twice, one in the spring, and then one in the fall, and some of the fall had a delay. I would say even less than one third is maybe the price roughly.
Okay. We haven't seen any revenue growth in Finland and Germany over the past quarters. I don't think so.
Oh-
It's a misunderstanding.
Please check the numbers again.
Q2 revenue was basically flat the full year 2021. Why is that? Please check the worksheet.
Check facts, please.
Price increases once more. The value of inventory has increased significantly over the past quarters. Are you happy with the current inventory level? How big part of the increase in inventory value is due to the cost inflation?
A difficult question. Cost inflation. On the steel, the cost increases have been substantial, especially on the black steel. Stainless steel, slightly less. Electronics, yes, substantial increases on the electronics, but it's more on the availability and being sure that we have the material. The worst impact on the top line and bottom line is when we cannot deliver and we'll miss the order and if some of our peers can deliver. We've been trying to keep our customer service level, if not perfect, very good, and I think we have succeeded well in that. Going forward, we know that there is some excess inventory, and I think we will have a small dip on the inventories.
I think the first priority is to have customer service in excellent shape and then gradually have a digest of the excess inventory. We'll not do any major big steps, but gradual baby steps on the level of inventory.
Okay. Somebody's asking about more color on what you mean by warm demand. Probably you meant, advanced demand.
Yeah, yeah. I commented on the advance demand, and if in the past one would describe that to be hot, now I think it's warm. How to define difference between hot and warm? You know it with your fingers when it's burning, it's hot, and when you can still keep your finger whether it's warm. I cannot have any better explanation on that.
Any update on the M&A pipeline?
We stay loyal to our shortlists. We have discussions and dialogues, but as said, nothing concrete in the pocket. We keep on working on that. Also, we need to be conservative with evaluations. We would like to have an excellent asset, but would not like to pay too much. That's in our plan. Once we have something, we'll definitely come up with the news.
There is again quite a detailed question about the Q4 margins. During Q3 2021 call, you said that the cost increases shouldn't have an impact on your profitability. However, your EBIT margin is down by 4 percentage points since Q1 2021. You also said that your target is to gradually improve your margins. What should we think about this, given the significantly lower EBIT margin in Q4 2021 compared to earlier quarters?
I think still the overall ambition to gradually improve our EBIT margin is very valid and intact. Quarter by quarter, like explained on the product mix on incoming new business on board, they may fluctuate, but having a longer perspective, like one year, I think we aim to increase our relative profitability.
Yeah. Year-over-year comparison is probably not be-
Much
No better.
Much better.
The EBIT level has improved a lot in absolute terms and also relatively. Well, general question about the health benefits. Does Harvia follow the research in health benefits of sauna?
We do. We also have a bit of an understanding what is coming next. Now what is coming next is also very good news for us, also for the whole industry. When we have the dates for the publishing ready, we're gonna be coming out with the news. I think it all looks favorable.
There are a lot of detailed questions we have already answered. Net working capital has been asked couple of times. Q4, how has the final demand growth developed during last quarters?
Final demand growth.
Yeah. The demand of sauna products during the last quarters.
In the same vein as the complete awareness and interest in saunas continues to be on a good momentum.
Okay. Currently, I don't have any new chat questions.
I still may come back on the Finland and maybe just to get the facts right. On the Q4 increase was 33.5%, both for the Harvia and Kirami Oy clearly exceeding the market growth. For the full year 33%, clearly exceeding the market growth. Even though Finland is maybe just 10% of the complete sauna market, our effort and focus on the domestic market has been good, and in Finland, we've been definitely gaining share.
Now we are here comparing quarter four in last year and quarter four in 2020.
Yes.
Yes.
And now then the full-
Comparable times.
full year is 2021 against 2020 and then 1/3 growth, which is beating the market extremely well.
Yeah.
Sorry if we've been misleading. Maybe our fault. If no other questions, I would like to thank you for the interest, and I wish you a good day. All the best.
Thank you very much.
Take care. Bye now.