HARVIA PLC ANNUAL REPORT 2020 CONTENTS Highlights of 2020 3 Harvia in 2020 6 CEO’s review 8 Operating environment and megatrends 10 Strategy and its implementation 14 Harvia’s business operations in 2020 17 R&D, innovations and new products 22 Sustainability 25 Harvia as an investment 31 Corporate Governance Statement 2020 35 Remuneration Report 2020 46 Report by the Board of Directors and Consolidated Financial Statements 2020 50 Cover: Aurora Village, Ivalo, Finland, photo: Veikka Hännikäinen This page: Villa Fortuna, Tuusula, Finland, Harvia steam room Back cover: Almost Heaven Saunas Audra Canopy barrel sauna, California, USA 3 HIGHLIGHTS OF 2020 Almåsa Havshotell, Ruotsi 4 SIGNIFICANT INCREASE IN REVENUE AND and distribution of EOS will remain independent. PROFITABILITY The acquisition complements Harvia’s one stop shop offering with EOS’s professional and premium Harvia’s revenue and profitability increased solutions. Harvia became the number one player in significantly during the year. The exceptionally professional saunas and the sauna experience. positive development was boosted by the pandemic and the wellness trend. Regarding net sales, Harvia INTERNATIONALIZATION AWARD OF THE has reached a position at par with the largest player PRESIDENT OF THE REPUBLIC OF FINLAND in the sauna and spa industry globally. The skills and efforts of Harvia personnel have been truly noted and in November, Harvia was granted ACQUISITION OF EOS GROUP CREATES NEW the Internationalization Award of the President of GROWTH OPPORTUNITIES the Republic of Finland. Recognized as a growth In April 2020, Harvia acquired the majority of company, Harvia has developed in 70 years from the German technology leader in sauna and spa a small domestic sauna heater manufacturer into equipment, EOS Group. With the acquisition, Harvia both a global market leader in sauna heaters and further strengthened its position in the professional an internationally recognized sauna and spa brand and premium residential segments as well as in with products and solutions sold in more than the Central European market. In addition, the 80 countries. The journey has required knowhow, acquisition will create new opportunities for EOS tenacity, focus and, above all, deep and thorough and Harvia in the United States, Asia, Russia and understanding of customer needs around the Harvia’s CEO Tapio Pajuharju and chief shop steward the Nordic countries. The integration proceeded as world. The award is an annual recognition given Arto Liikanen. Photo: Susanna Lehto / Business Finland planned and on schedule despite the exceptional to Finnish, internationally successful companies circumstances caused by the pandemic. The sales and communities. EOS Mythos S45 Vapor heater, Russia 5 STRONG SALES GROWTH IN NORTH AMERICA working together towards a common goal. For Swedish physician, Professor Hans Hägglund and example, at the Muurame factory, we reached all-time Finnish cognitive neuroscientist Katri Saarikivi, who The health and well-being trend, coupled with high productivity, and we were agile and able to shared their views about the benefits of sauna on growing awareness of sauna and its health effects, respond to the very volatile demand by increasing health and well-being. increased the demand for sauna rooms in North production output by 30% by the end of June. The America, and sales grew considerably compared company grew profitably, and it can be said that this LEAP IN SUPPLY CHAIN EFFICIENCY to the previous year. We are very pleased that one result was achieved together with our committed and of the major growth drivers was the success of our skillful personnel. Harvia’s journey as an international Regardless of the additional challenges caused by the own Almost Heaven Saunas webstore and direct sauna and spa player continues. Harvia is driven by pandemic, Harvia’s supply chain proved its robustness sales. Due to the strong demand, Harvia invested the same strong entrepreneurial culture on which the and functionality in all factories. The agility and skill in increasing the production capacity of Almost company was founded 70 years ago. of everyone involved enabled an incredible growth Heaven Saunas. The company has also accelerated of up to 30% in the production output of the entire the planning of further expansion investments in Harvia celebrated its 70th anniversary in December supply chain. During the demanding and challenging Harvia’s US factory. by organizing a virtual invitation-only event year, the company received excellent support from its “Healing with Heat”. The keynote speakers included long-term partners. HARVIA 70 YEARS Harvia celebrated its 70th anniversary during a very busy and eventful year 2020. The company made significant efforts together with the whole personnel to mitigate the impacts of the pandemic. The successful and systematic teamwork paid off and the personnel remained safe & healthy and the company remained fully functional throughout the year. Despite the challenging situation, everyone at Harvia looked towards the future, and the company was driven forward by a sense of community and Harvia is driven by the same strong entrepreneurial culture on which the company was founded 70 years ago. Host Mervi Kallio and CEO Tapio Pajuharju at the Healing with Heat virtual event on December 16, 2020. 6 HARVIA IN 2020 ADJUSTED REVENUE REVENUE GROWTH OPERATING PROFIT 109.1 47.3% 24.4 (74.1) (19.6) (13.9) EUR million EUR million (+76.2%) Revenue by market area, % Net debt and leverage Adjusted operating profit and adjusted operating profit margin Oikaistu liikevoitto*,liikevoitto, % milj. euroa NettovelkaVelkaantumisaste 35 10 25 25 5.1 3.1 22.4% 7.2 9 25.4 30 31.9 18.7% 24.4 30.3 8 20 17.5% 20 28.3 25 7 16.2 20 6 15 15 5 13.9 15 4 10 10.9 10 23.9 19.1 10 2.3 3 1.7 1.1 2 5 5 5 1 Finland Other European countries 0 0 0 0 Suomi Muut EuroopanPohjois-AmerikkaSaksa maat Venäjä Muut Pohjoismaat2018 2019 2020 2018 2019 2020 North America Germany Russia Muut PohjoismaatMuut maat Other Scandinavia Other countries Net debt, EUR million Leverage Adjusted operating profit*, EUR million * Adjusted by items aecting comparability Adjusted operating profit margin Almåsa Havshotell, Sweden 7 EARNINGS PER SHARE DIVIDEND PER SHARE* OPERATING FREE 0.83 0.51 CASH FLOW (0.51) (0.38) 28.7 EUR EUR (15.2) (*the Board’s proposal to the Annual General Meeting) EUR million ADJUSTED RETURN ON EQUITY RATIO PERSONNEL CAPITAL EMPLOYED (ROCE) 42.0% 617 (56.6) 73.3% (395) (38.2) Hotel Yöpuu, Jyväskylä, Finland. Harvia Virta heater 8 CEO’S REVIEW One could hardly hope for were very strong in the fourth quarter of the year: our revenue increased by 70.0%. At the same time, Significant growth of a better performance on our full year revenue exceeded the EUR 100 million milestone, landing at EUR 109.1 million. revenue and profitability Harvia’s work-filled 70-year Although the sauna and spa market as a whole has continued, driven by anniversary: Harvia’s business experienced growth due to favorable trends, we nevertheless estimate that a part of this demand is exceptional demand. continued to further pick up still so-called advance demand, which will level out at least partly in the medium term. pace towards the end of the The price of the average purchase progressed STRONG GROWTH IN NEARLY ALL MARKETS year, and the full year turned favorably. A great example of this development is Revenue growth was strong in nearly all markets the strong growth of the complete sauna business out exceptionally strong. and all product groups in 2020. The only exceptions in both Europe and the United States. In addition, were Southern Europe, Russia, Asia and the Arab the sauna heater and component business in the Regarding the net sales, Harvia countries, which were clearly hit hardest by the United States enjoyed a favorable development, and pandemic. The same effect is visible in the steam the performance of Almost Heaven Saunas’ business has reached a position at par generator business, where the cumulative revenue and especially its own webstore and direct sales did not reach the previous year’s level. performed excellently. with the largest player in the The EOS integration proceeded well during the In our domestic market Finland, growth has been sauna and spa industry. year despite the travel restrictions brought on strong and Harvia has strengthened its position. by the pandemic, and we are almost exactly on In Scandinavia, we remain as a challenger, but schedule. The German market has taken a turn to our position has strengthened substantially. The According to Harvia’s estimate, the total impacts strong growth and both Harvia’s sales in Central sauna and spa market as a whole has been well of the pandemic on the sauna and spa markets Europe and EOS’s success in the premium and supported by the underlying strong health and were positive during 2020. For Harvia, the impact professional channel have been excellent. well-being trends. has been exceptionally favorable. Harvia’s sales 9 Business performance continued on a very INVESTMENTS INTO GROWTH AND IMPROVING good level and we succeeded in improving our PRODUCTIVITY profitability. Operating profit for the full year reached EUR 22.4 million and the operating profit In general the investments made in 2020 were margin landed at 20.5%. executed and implemented according to plan. Regarding the US expansion investments, there have been delays in machinery deliveries and the EFFICIENT AND SEAMLESS COOPERATION machinery will be installed in the first quarter of THROUGHOUT THE SUPPLY CHAIN 2021. However, market demand remains so strong Our order books were exceptionally strong at that we have decided to accelerate the screening the end of the year. As consequence, this has led and planning of further incremental investment to somewhat longer than normal delivery times.