Okay, welcome on board on Harvia's Q3 numbers. Today we have Tapio Pajuharju on the presentation. We also have my colleague Ari Vesterinen, our CFO, joining at the financials. I think all in all, the Q3 was strong and solid. We enjoyed a steady growth despite the interesting summer weather. I think we, as normal consumers, enjoyed the weather in Scandinavia, mainland Europe, and almost all over the world. For the sauna business, especially for the impulse items like new heaters and replacement heaters, that was a bit of a tough battle, and we got a bit of a headwind on that. All in all, I think we did a good job, and the Harvia team, once again, presented the business as strong and resilient in many ways. We'll have a short presentation of the business performance.
We'll also go through the cornerstones of our strategy, and then we'll have a deep dive on the financials. In between, we have opportunities for questions. For the audience over here, we can do questions whenever you feel so. For the people on the webcast and on the phone line, we'll do it systematically when there is a good moment for that. I think on the top line, a very steady and healthy growth, and actually slightly ahead of our own estimates in that respect. We got a bit of a headwind on the currencies impacting that. With the constant currencies, the growth rate was approaching 8%, so a very solid number on that. We'll dive deeper on the performance by the markets and by the product groups in a later stage.
On the profitability, I think we had a good number, even though I think we were burdened a bit by the currency on that one. At the same token, we have taken quite strong steps on promoting our three different sauna types and new products and brands on the marketplace. We participated on the Finnish-Scandinavian marketplace, FinnBuild, with a very big investment. At the same time, at the Habitat, which was the first time we presented our Sentia by Harvia for the audience over here, and a good feedback on that. Cash flow continued on a very solid performance as well. When taking the first nine months, the same type of performance on the top line is prevailing and very solid on that respect.
I think it's good to remember that the currencies are not giving us any favors, more of a bit of a headwind in that respect. The same applies on the operating profitability, and the adjusted operating profitability landed on EUR 8 million, whereas with the constant currencies, we would be seeing about EUR 8.4 million in that respect. Cash flow also very solid, and the equity ratio, as expected, very strong, and net debt going down very nicely thanks to the IPO and the position we have on the finances. Maybe just a couple of the highlights on the things we are doing. I think it's good to remember that our top and foremost priorities are basically increasing the average purchase by our customers and our customers' customers. We do expansion on the geographies, specifically on the Central Europe, Scandinavia.
I think also expansion means that it's expansion of our presence in the market, so we will present more of an upmarket and more professional offering within the customer base. At the same time, we are driving the profitability and productivity improvements in our operations in Finland, Romania, and China, as well as on the logistics in that respect. Very happy to say that the team did a good job on the European marketplace, and we've been expanding our presence over there. In Russia, with a bit of hiccups in the beginning, the third quarter was very solid, and we were catching up with electric heaters especially. We also learned how to beef up the offering on the wood-burning heaters. The first launch of a Russian tailor-made wood-burning heater model took place in the quarter 3.
In Sweden, I think we've been able to upgrade our offering and streamline it according to the local needs on the Swedish and Norwegian marketplace. At the same time, I'm very happy to say that we were successful in our recruitment, and we have a new team member helping us on the top line sales, but also becoming a management team member. Tomas Hjälmeby started on the 1st of November and already is in action as we speak. I think the numbers most of you have seen already during the morning, but as you can see, the top line growth was solid. I think especially in Finland and Russia, a good speeding up. On top of that, other markets, and especially the Pacific region, we had good success in the faraway markets like Australia and New Zealand.
On top of that, we have good inroads on the Asian market, not in mainland China, but the nearby markets on that. On the profitability, as said, solid performance, but a bit diversified due to the product mix, currency, and then the investment on the marketing. Market regions, I think we'll not dive deep on the first nine months. We'll more have a go on the prevailing third quarter. There we can see that, okay, Finland, a very solid performance on that one. I think especially on the electric heaters and on the componentry. At the same time, I think it's good to note that the Finnish summer weather did not do a favor for the wood-burning heater sales, and the market is still slightly negative compared to prior levels.
If we take a three-year average, we are still slightly behind on the three-year average on the wood-burning heaters. That is mainly due to the hot summer weather. Some of you were asking how it did impact. Most of the summer cottages are not that big, that people even were—usually they do take a sauna bathing, but this summer when you have 28-29 degrees Celsius, if you have a small cottage, sauna bathing was not an option for some of the people who have a small summer cottage. That was the practical impact. Russia, we entertained the development over there, seen a good catch-up. Still, we are behind the numbers, but we are catching up in that respect.
In Germany, it's good to keep in mind that we have discontinued the private-level business with two customers, and that's impacting both the local German market, but it's also impacting on the product categories, the control units in that respect. When you eliminate all of that, we are roughly at par with the prior level, and we are not happy for the performance, but it's okay compared to the conditions and climate we were facing in the German marketplace. Sauna heaters, and especially the electric heaters, have been growing nicely. The sauna rooms, and I think that's more of a long-term decision what you make, and that's basically what you make despite the prevailing weather on the area.
That is why we have seen a solid development on the sauna sales and the project sales related to sauna, whereas some of the impulse purchase type of decisions were not materializing in the summer months in most of the Central European and Scandinavian marketplace. Maybe just reminding that even though we are the champions of the sauna heaters, we operate in the three different sauna types, and now we have been making inroads on the extended Scandinavian type of a sauna where you have the heater and the benches. At the same token, we have been doing a very good job, and it is not visible in big top line euros yet, but when you consider the amount of steam and spa modules, steam rooms we have been selling, we have been doing a very good job on that respect.
There are good inroads in the infrared, both in the hybrid where you combine a traditional sauna with the infrared, as well as on the infrared componentry for the sauna industry. Just reminding what we are doing on the increasing of the value of the average purchase. We are doing both the upselling, which means that we are offering always slightly better, and then we are offering the combination of a heater control unit and the safety railing and the related accessories, illumination, and the design elements. With the Sentio by Harvia, which we have just been introducing, not selling yet, but being introducing, we are approaching the professional market for the heavy-duty use in that respect, as well as the more, I would say, wealthy consumer segment in that respect.
Geographical expansion, Central Europe, Scandinavia, and then the Russian regions, and on top of that, the U.S. market where we are entertaining the idea of having an incremental distribution on the more luxury market and the southern part of the U.S. market. The productivity improvements in all of the factories. I think more than we've been now implementing the new layout for the logistics. That's already working in the terms of the layout, but the system related to that has been delayed and actually is being taken on board during this and next week. We have the full setup working over there. On the path to increase the average purchase, we've also been introducing a couple of new products. On the upper right corner, we have one of the professional models from the Sentio by Harvia.
It's a 24 KW and 36 KW cubic heater, which is competing on the professional markets with players like KLAFS and EOS in that respect. Very good reception on the introduction, and I think we are starting to see first orders in the Q4 and onwards. They are not going to be coming in with a big volume, but gradually we have been making our way to the professional market in that respect. Building on the success of the Cilindro Pillar Heater, which is the market leader globally on the pillar type of heaters, we are entertaining a new dimension in that respect. It is slightly taller, a bit more visibility, and a bit more safety features on that. We are launching the Cylindra Plus. It is coming in both with a control unit operated as well as operated on the knobs.
On the knobs, they are always illuminated, and there is a childproof lock, so you cannot put it on if you do not have the power and the technique. Children below seven years cannot get it on, so it is a safety model for the markets where people are not so familiar with the equipment. We always sell it with the safety railings on board. Most of you remember that we had a new advanced wall heater launched by the name of the Wall. The Wall is coming in with a higher power, 9 KW, as well as on the combined models, and those are now available. At our China factory, where we have been typically doing the entry-level wall heaters and the entry-level steam generators, we have been expanding to make Glow Pillar Heaters.
We are coming out of the gates with a Glow Corner, which is an excellent unit for the area where you have enough space for a high visual impact heater in that respect. Those are coming out of the gate. Strong streamline on the R&D and more to come. Unless you have any immediate questions, I would pass it to Ari, and Ari will dive deeper into the financials. Welcome, Ari.
Thank you. This is probably the most important sheet that we have. As you have noticed, we had a nice increase of revenues now again. With constant exchange rates, it would have been 7.9% for Q3 and 5.5% for the beginning of the year for the first nine months. The profitability stayed on the good high level, and it would have been also slightly better with constant exchange rates.
The relative profitability went down slightly compared to last year. The main reasons were first exchange rates, then some product mix in the sales, and also increased sauna and sauna project sales, where we had a slightly lower margin than normally in equipment sales. Yes, please.
Can we have a bit more specific about the sales mix impact on the margin?
We have divided the sales mix according to the product groups in our interim report. You can see that we had an increase of the sauna sales of 15% during Q3. It has impacted a bit negatively the profitability, as you have heard certainly from the building industry during these times. Also, there are some price hikes in the cost of labor and materials. It has had some negative impact for Q3. Yes.
If I may add on that, I think we discussed that on the quarter two, where we were not able to fully pass on the increased timber prices. Now we have been, I would say, the majority of the timber prices we have been able to pass on. On the incremental installation costs related to some of the projects, we were not able to pass on and not estimating to the full.
We have had nice reference projects, especially here in the capital area. These projects have had their slightly higher cost than normally. The cash flow improved compared to last year complete, and also for Q3. As you may have also noticed from the past, normally we have the strongest cash flow always during Q4. This has followed now the pattern quite closely.
If you look deeper in the cash flow calculation in the interim report, you may notice that we had quite high other debt last year. That was for unpaid interests and so forth. That's related to the financing structure of the group. Actually, that impacted negatively when we don't have that interest cost anymore, so much in our other debt. In practice, this would have been a bit better on operative level here. Yes. Are there any questions concerning this? We can continue then at the end about the financials also. Otherwise, this networking capital increase, this is really impacted also on the finance structure what we have. It's visible in the appendix of the interim report. The net debt went down slightly. Also, the leverage level what we have in our financial targets stayed between the range of 1.5-2.5.
Now it was 2.3. After the Q1 refinancing of the group, our financing costs went down really strongly. Now we had also some small special additional income from the financing costs due to interest rate swaps. The investments, they have been quite much on the same level as last year. During Q3, we became a couple of projects in-house ready, and also two or three new products were launched. We activate our product development costs to a certain extent. They were also booked as investments. Here is the list of the 10 biggest shareholders. The list stayed pretty the same as at the end of Q4. There are only small changes. You can follow them also on our web pages.
The structure of our shareholding is also quite similar to the beginning of the year with a small change of increase of the foreign investors in Harvia Group. End of Q2, we had 37%, now 38% the nominee registered and outside Finland investors. In fact, they are not visible on this list. We happen to know that we have some foreign investors which own 500,000 shares and so. This is the Finnish system. They are all in one lump sum here in the nominee registered shareholding. Very often in this position, people ask what is the share of the employees. Our employees also are also owning the company. We have almost 7% of the shares in the hands of the employees. Just to repeat our dividend policy, which is in practice quite generous.
We intend to pay twice a year interests, at least 60% of the net result with growing interest. Now we paid the interests for the second half of 2018. After this period, it was paid out in October, 19th of October, EUR 0.18 per share. Our financial targets, they are good to know. We target over 5% growth rate. The profitability, our target is 20% of adjusted EBIT and our f inancial targets, we keep the leverage between 1.5-2.5. These are long-term targets. We do not publish short-term guidance, so to say.
Thank you very much in this moment. Any questions, comments?
If we talk about this Q3 a bit more. Okay. Okay, it is Ari from Danske. You said that the Q3 sales growth was a little bit ahead of your expectations. Could you be a bit more specific where you had the positive element of surprise there?
I think keeping in mind the conditions we were facing and when we saw what is happening on the weather front, we were rather pessimistic in the beginning of the quarter. We saw that it is actually coming up and changing. We also were activating some of our efforts on the area. In that respect, we are very happy for the top line sales on quarter three.
Okay, if we talk about Russia a bit, you had a negative trend clearly in the first half. The currency is still like a headwind, but now the Q3 was much better in the sales. What is the situation in terms of your own actions on the distribution, and how does the market look in Russia generally?
In general, our own actions, we've been now actually doing quite a bit of legwork on the regional cities. Our distribution, the physical distribution is clearly improved, and that's visible. On top of that, we realized that, okay, even though we were not going to focus on Moscow and Saint Petersburg, we realized that the distribution over there was not in a perfect shape either. We've been beefing that up. I think the market continues to stay a strong sauna market, but it's always a bit volatile. I think the price, how would I say, price discipline and the ability to expect what is happening on the pricing is a bit of a not so easy. I think we are playing the game, and we've been playing the game for long term. In that respect, we have three very professional, experienced partners. In that respect, we will sail on the Russian waters with a good momentum.
If I continue, Germany and the private label, like kind of like divestments, we saw a much smaller decline in sales now in Q3 compared to the second quarter. What kind of impact should we expect on that on the rest of the year?
The impact of the private label and these continued two businesses in that respect is going to be fading out by the year end. I think on the German market and the relative markets, the sauna demand is now picking up due to the weather. Now we are approaching the season, which has traditionally been strong on that region. I think in that respect, we should see rather solid performance going forward.
My final question could be a bit related to this previous answer, but Q2 we saw that it is a seasonally smaller one. The summer was too hot in the wrong places, I mean out of the saunas. Now you say that you are well prepared for the kind of like high season, autumn season. What does the well prepared mean?
Well prepared means that we have the offering needed is ready. We have upgraded our offering in that respect. We have merchandise in the inventory, so our ability to serve the market is strong. We are collecting order books, which are looking okay. There are always unpredictable situations, and we see that the Russian market is not the slam dunk. We need to work very diligently with that one. Then on some of our other faraway markets, customers are willing to purchase. The question is, do they have the credit limit to do that is still to be seen.
Okay, thanks. That's all from me.
Hi, it's Petri Kajaani from Inderes. You have had quite nice growth with the sauna rooms lately in Q2 and Q3. Have you decided to push forward more with the sauna rooms, or are you still more of a product company?
I think we are traditionally very product oriented, but gradually we've been pushing the sauna rooms. Thanks to the Sentiotec acquisition at November of 2016, we've been inheriting a solid sauna market in Central Europe. On top of that, we've been beefing the premium end on that region. We've been doing a couple of pilots in the Finnish marketplace. I think we've not been pushing it strongly, but we've been learning that we can make inroads on that. We've also been learning what to do and what not to do on the sauna market in that respect.
Okay, a second question is concerning the other Nordic markets. You have recruited new members to push the sales there. How do you see these markets going forward?
I think the markets are solid and strong, and we are a very good number two on the marketplace. We are gradually climbing up on the marketplace. We've been traditionally strong on the do-it-yourself and the entry level, as well as on the wood-burning market for north of Sweden and north of Norway. On the electric heaters, on the combi heaters, and the professional range, we've been not the name in the town.
We have been now gradually approaching the professional distribution, the electric wholesalers, and the people who are installing the equipment. I think thanks to a person who knows the industry, knows the people, and has the relations, our journey to the more premium and to the professional market will be shorter than in the other way of operating. It is still not a very fast transition. This is a traditional, very conservative industry, so it is going to be a stepwise and gradual move.
Thank you.
Could you elaborate more on German markets? Is that weakness only sort of weather related, or is there something else? Also, how is that Sentiotec acquisition and synergies from that one, how are they now performing?
German market, I think it was mainly weather related for the quarter 3. We have not lost any customers, and we've been gaining some of the medium and small size customers on that respect. I don't foresee any other than a steady step going forward. Competition wise, I think there is one change where we've been facing a thinking, and now we know how to tackle that. EOS, who is very good in the premium heaters, they also came in with the Monuments, which is an entry level heater, and they do that with the private label for the small sauna builders. That's something we will not entertain, so we are ignoring that segment, and we will go for the semi-premium and upwards on that respect. That will basically just enforce our upselling in that respect. In Central Europe, the market really starts in October for saunas and electric sauna heaters. Their sauna and sauna related products are more the winter products. Now we have really strengthened our distribution there through Sentiotec.
And the Synergies?
Synergies are coming in as expected. We are still working on the sourcing synergies, and there is still some mileage on the sales performance. We've been doing some minor fine tuning on the distribution, not in Germany, but on some neighboring markets. Those are just fine tuning, no major step forward in that respect.
You have that 20% EBIT margin target, so what kind of measures are needed to reach that kind of level going forward?
I think it's gradual steps on the upselling and then cross selling on top of that. On the operations, we diligently work on the productivity improvement, on the actual manufacturing. On top of that, also going forward, I think the logistics will play a big role in that respect. We are working on both. I think, which I think we have not been highlighting strong enough, it starts also on the portfolio and the cleanup of the portfolio, which means that some of the smaller SKUs and the lower profitability SKUs will no longer be there. I said this is a conservative and traditional industry, so we will do it stepwise and gradually. Any questions from internet?
Thank you. Ladies and gentlemen, if you do wish to ask a telephone question, please press zero one now. There will now be a brief pause whilst questions are being registered. There are currently no telephone questions, so I will return the conference to our speakers.
Okay. What about you? Any other questions or comments?
Hi, it's Petri Kajani from Inderes again. Your cash flow is strong. Your balance sheet is starting to look like it's reaching these levels that you can make acquisitions. How do you consider taking the M&A step going forward? Are you looking actively now at some prospects, or how would you comment on that?
I think we have been and will be actively looking for targets which will fit our plans. I think on the areas which we've been also entertaining together, if there is something available on the professionals team and that relation, and if there are some equipment or components which would be complementing our offering and helping on the upselling, yes, we are looking for that. Currently, we don't have any concrete project on that arena as we speak.
Thank you.
Okay, thank you everybody.
Thank you.
All the best.