Harvia Oyj

OMXH:HARVIA

Earnings Call Transcript 2021-Q1

[Tapio Pajuharju, Chief Executive Officer]

Hello, and welcome to Harvia Q1 reporting. My name is Tapio Pajuharju. Next to me, we have Ari Vesterinen, our CFO.

[Ari Vesterinen, Chief Financial Officer]

Hello.

[Tapio Pajuharju, Chief Executive Officer]

So let's go straight to the work. And I think most of you have been reading our pre-announcement, and I'm very happy to say that we experienced very strong topline growth and exceptionally strong demand and then also a very good profitability. On the previous reports, I think we had a bit of a tumbling in the steam category. But this one, all the markets and all the categories experienced very solid growth. And then I think the ones who will be following the sauna spa market. Overall, I think the awareness has been increasing. The popularity has been increasing and on top of that, we've been boosted by the pandemic a bit in most of the markets. But it's good to remember that still some of the markets are not in a good shape, still the same applies for the Southern European markets, Asian markets and the markets with Arabian origin in that respect.But overall, we've been doing a management judgment. And in the past, we've been saying that the historical growth of the sauna spa market has been slightly below 5%. Our ambition has been to increase the 5% and gain market share. But I think for the years to come, and maybe it's 2 to 3 years, I think the overall sauna spa market will be experiencing clearly above 5%. I cannot say exactly how much above, but say double, could be a good estimate for the coming 2 to 3 years. I think that's good to keep in mind. I think we are still in the manufacturing industry and everything we sell, we also manufacture those. We develop and manufacture. In that respect, where we'll be seeing the hike on the top line. Our supply chain, together with the partners, the people, everyone on board on the Harvia team has done an excellent job. It's an amazingly good job done. Thank you for all who's been involved on this effort. And the journey continues. We've been investing in the -- increasing the capacity and improving our productivity, that will continue. And on the first quarter, we completed the investments in the Romania factory. We've been installing and taking into account and into use. And you saw new profiling machines, dust removals and a couple of logistic improvements on that respect. Same applies for China. That's more on the metal processing. And in Muurame, we've been introducing a new robotic cell for some of the metal processing. And then later on, we'll come back on the big expansion in the Muurame. Also, we've been finalizing the Renick investments in the U.S., and those are now fully intact. I think what we've been now foreseeing, we need to keep eye on the ball and continue making sure that we have enough capacity especially on the sauna componentry and the sauna rooms. And on top of that, some of the sauna heater and equipments, we need to boost our capabilities over there. The Lewisburg factory, which is the factory of the future for U.S. We got the title just recently, and we have the transition plan for that. For the Muurame expansion, we've been now out of the digging mode, and now we are starting to build and growing above the ground level. And then on the integration, I think we are now beyond integration, and we consider EOS being part of the family. And even though we've not been able to travel and meet face-to-face, I think we have the family feeling and everything going according to the plans. Then I think on the new markets, still working on the Asia market. And for the U.S. market, the approvals are in the process, and we're estimating that on the last quarter or towards end of the last quarter of this year, we should obtain most of the licenses to sell in the U.S. and Asian markets in that respect. And then let's have a look on the numbers. Top line growth, almost a 100% and organic growth exceeding 60%, and I consider that to be a good job done and the team has done an excellent job. As you can see on the currencies, we unfortunately got bit of a headwind. And with the constant currencies, we could be doing slightly better. And the same applies on the profitability. We lost roughly about EUR 0.5 million due to the currencies. But altogether, still a very good performance on the profitability. Earnings per share, a nice increase to EUR 0.44 per share. Cash flow, even though the conversion is slightly below our average. It's good to remember that we've been paying out of the pocket, the investments. And on top of that, we've been buying inventory so that we have buffer to operate with the new demand, and that's visible on the net working capital and most likely Ari will entertain that in more detail. Net debt amounting slightly shy of EUR 27 million and leverage of 0.7, which is clearly below our benchmark going forward. Then maybe a bit having a review how we've been doing on our strategic profitable growth path. And first, taking the -- increasing the value of the average purchase. And I think on the sauna, the digitalization of the sauna, we've taken a big step forward when we have an easy to use, fully safe, remote operation for the sauna use with MyHarvia that has been received by the market extremely well. Having said that, still, there is some difficulties in getting all of the componentry. Together with our partners, we are working hard on alternative sources to boost up the volume on the MyHarvia. We are very happy with the market intake on this one. EOS has been introducing a number of new models. Some of those are already available and more to come in the coming quarters, and they've been received very well by the market. And they are both on the professional commercial marketplace as well as on the premium residential market in that respect. Then the sales of the complete sauna rooms has taken a very good step forward. And I think that's also a good measurement of the ultimate success in increasing the average value of the purchase, and that's where we've been doing a good job. Unfortunately, it's been now limited with the available capacity, and we've been forced to prolong some of our delivery times, which are now a deviation of the normal in the past. Then on the geographical expansion, the North American factory is now -- they're well equipped with the sauna manufacturing. And on top of that, with Harvia sauna heaters and equipment, we've been enjoying a very solid expansion over there. We've been taking a number of -- very selective number of new customers on board, mainly on the premium end of the heaters and equipment, and we'll continue doing that. Russia, I don't know how much we've been actually opening this up. But towards the end of last year, we were taking a step into a new distribution model. We used to have, in the Harvia portfolio, 3 rather equal distributors in the Russian marketplace. We've been reducing the number of distribution into 2. And now we have 2 very powerful players, both on the physical distribution as well as on the web store distribution for the Russian marketplace, and that's becoming visible in the numbers as well. Scandinavia, even though we are still not #1 in the Scandinavian marketplace, the team has done a good job, and we've been gaining market share in Scandinavia, especially in Sweden. And in Norway, Denmark, we've taken the baby steps, but I think there is still more to take. And saunas actually experiencing a very nice favorable trend in the Danish marketplace as well. And then unfortunately, the markets are not fully normally yet, but we see some wakening up of the southern part of Europe. The Asian -- certain parts of the Asian markets are waking up and then the Arabia markets are gradually opening. So it's good news going forward. On the productivity improvement, I think we've been doing a good job in ramping up the capacity. And even though we've been increasing the number of employees and people working in the operation, we've been onboarding them extremely well. And that's usually, when you take a lot of new people on board, you will see a bit of a flattened curve on the productivity KPIs, not this time with us. We've been able to continuously improve our KPIs on the operational level in that respect. And it's very good. New machinery is up and running, still a bit of learning -- learning curves with the machinery, but we've been taking them on board and the capacity is coming gradually in Romania and in the U.S. And then, as I said, we are monitoring opportunities where to, first of all, enhance our capabilities and capacity. And on top of that, improve productivity, and we are evaluating a number of programs going forward. Some of those materializing till later this year. Then I think the impact of the pandemic. First of all, we've been blessed, having people very accurate and precise with the safety protocol, and we've been keeping our people safe and healthy. That's the most important thing. And then the same applies for our customers and our partners. So in that respect, we are in a good ecosystem going forward. Availability of certain key raw materials and componentry has been volatile, and the volatility is not going away. And in certain areas, it's getting even worse. But on the other hand, we are fully prepared and we have alternative sourcing, and we have alternative options going forward. So when taking a mid-term review, we should be rather safe with this type of issues forward. At the same token, I think we've been experiencing some pricing volatility, some inflation. We'll be working diligently with our suppliers and partners and with our customers, we've been able to balance the equity in that respect. So going forward, we'll not see a dip in our profitability nor our margins. A bit about the geographical split. And I think it's good to remember that Finland used to be a major part of the business, it still is, but close to 80% of the business is outside of Finland, and the ones who have been on the sauna spa journey for a longer time, remember that roughly 90% of the sauna spa market is outside of Finland. So that's why we focus on expanding outside of Finland. But still, Finland is full of opportunities to grow, and we've been doing good job together with our partners, how we can add value and bring new inspiration to the sauna market, also in the domestic marketplace, and that will continue going forward. European countries experiencing a very strong growth. Germany, especially strong. U.S., good, and mainly all the markets in a good, good shape. Russia, it's visible with the new distribution plan. And on top of that, the EOS team also has done a good job on the Russian marketplace. Then one having a look on the sales by product category, even though we are on a journey from the heater company becoming a sauna spa company and at the end of the day, healing with heat delivering relaxing moments. And that's so well-being heaters, still a big part of our business and actually boosted by the EOS joining the team. So we landed roughly on the same, a bit more than half coming out of the heaters. Sauna rooms growing extremely nicely. But the mathematics now looks a bit wake in this respect. But when you compare the actual euros to euros, a good solid growth in all of the categories. So in a good journey on this one as well. Then having a look on the market-by-market growth. And maybe starting with the domestic marketplace, where we enjoyed slightly above 17% growth. It's a good job and growing ahead of the market. Scandinavia clearly big time ahead of the market and gaining share very nicely, even though the absolute number is just slightly shy of EUR 1 million. It's a good job done. Germany, a good work, both on the heaters equipment and/or related accessories and then sauna rooms going extremely strong on the German marketplace. Roughly the same phenomena and the same picture applies for the rest of the European countries. Russia, as I said, it's a combination of the Harvia new distribution model and EOS being extremely good on their territories. North America, solid sauna sales with our Almost Heaven Saunas both on the web store partners with Costco, Wayfair and the others, but especially happy with the own almostheavensaunas.com web store as well as the direct sales performing extremely well. And then the other countries coming back to life and also the Arabian markets are becoming closer to normal as well as the Asian market. So altogether, a solid growth. On the full last year numbers, I think we estimate that we've been reaching at par with the #1 on the marketplace, maybe even slightly ahead. With these numbers not knowing how they've been performing, I think we are at least on the same position, if not slightly better on that race. And we can claim that we are at least the shared #1 or #1 in the industry for the time being. By the way, the ones who monitor clubs in closer detail, they were bought by private equity, Egeria, and now they made an add-on acquisition, a smaller mid-price point unique sauna maker, [indiscernible], it's a German company, and I think they will continue expanding on their territory going forward. Then having the category look, sauna heaters experiencing a very solid growth. Sauna rooms, extremely good growth and unlimited by the capacity. Control units, thanks to the strong performance in the Central Europe and EOS altogether, close to 200% growth in that respect. Steam, finally, we are on plus numbers, solid plus numbers. Having said that, we are still not the masters of steam, and we need to work on that going forward. And then on the others, a solid growth in that respect. Then maybe just a bit of a reminder how our year was looking last year, and I could remember that now EOS was joining Harvia team on the 1st of May last year. So in the industry, in general, the first quarter and the last quarter are usually the strongest. And I think the same type of a pattern phenomena will continue. And now from -- actually, from the 1st of May onwards, we have the comparable numbers also EOS included. And then just taking a bit of a wrap-up on our categories. Will continue mastering the classical traditional sauna, where Harvia has a very strong position. Then on the steam, we are still not where we would like to be. And I will investigate our own efforts and resources, potentially some amity on that arena. And then infrared, we've been learning the market, it's actually much stronger and bigger than we estimated and our capabilities in that area are not really good on the complete solution. We are good in the componentry, but we need to find a way how to improve our presence in the complete solutions. And then I think later, the ones who'll be monitoring, especially the U.S. marketplace. And if you have access to Instagram, please have a look even today's posting of Mr. Joe Rogan. When he tells what he's doing with his sauna. There is a pattern of what they call alteration. So it's a hot sauna of 15 minutes, cold water, hot sauna, cold water, hot sauna, cold water, repeated 3x, and then you will have the best outcome of the well-being in that respect. So I think we're also evaluating potentially the water element how we could have something in common in our journey with the water element. And then we'll stay loyal and focused on the 3 paths for the profitable growth. So no major steps on this one. Then I think I will pass the word to Ari. And Ari will have a deeper look on the numbers. So Ari, welcome.

[Ari Vesterinen, Chief Financial Officer]

Okay. Thank you. So you already noticed very, very good growth rate what we had. It was actually slightly higher than in Q4. Also the newest acquisition, EOS was also growing quite nicely compared to the last year. So that was a good development. The profitability figures, they have improved a lot, and that's nice. What hasn't improved as much is the cash conversion, and that's really on purpose. We are now investing more for our production capacity, and we've been also assuring that we have enough stock, enough inventory. So we have been also investing in our net working capital. So EUR 1.5 million of investments and EUR 3 million compared to the end of last year, to the net working capital, just to be able to serve the customers and grow the business. Okay. The return of capital because they are extremely good, and equity ratio has been also improving compared to end of the last year. Now we have altogether almost 700 employees in the group, end of 2020, we had 620. And you can see from our interim report, how they are divided between the different countries, but we are mainly having the biggest -- the majority of the employees are outside of Finland nowadays. So Harvia is getting really an international group. So the net debt is going down, thanks to very strong cash flow. We had about EUR 32 million cash at the end of quarter 1. That's EUR 5 million more than end of last year. And thus, the leverage is also going still down. And as said, we pay our investments out of our own pocket. And still, the cash flow is very strong. The net financing costs, they were quite much because of IFRS and then some currency exchange reasons. But the dotted line you see in the right picture shows the cash effect of the financing costs. They went up due to the EOS acquisition in April, May 2020. And now they are going slightly down again. Here, you can see the increased level of investments. We had in Q1, EUR 1.5 million investments when that figure was last year, just EUR 0.3 million. So we've been investing in machinery in different locations. And our estimate for the total investments for this year is something between EUR 5 million to EUR 8 million altogether. So now Harvia is investing in the production capacity. Here, you can see a picture of the new production facility in West Virginia. And that we own now, this building, since April 26. So now we are preparing moving part of the production to that facility and start the production there approximately in September, October. We have had a lot of interest among shareholders and the amount of shareholders end of Q1 was almost 20,000. The basic structure of the shareholders outside Finland, nominal register and inside Finland, it hasn't changed a lot. Outside Finland, investors have been going down slightly, but not very much. So we had end of Q1, 43.5% of the international investors. And especially the private households are now investing or have been investing in Harvia shares, which is very nice. That supports also our reputation as a customer goods provider. We haven't changed our long-term financial targets. But as Tapio talked, we are expecting some step-up of the market during the next 2 to 3 years. So we don't change the long-term expectations. But midterm, we see slightly or clearly over this level right now. So we will be over 5% in net sales growth and profitability over 20%. That's our target. Currently, the leverage is under the lower limit, but -- well, we see what we will do with that cash, but at least we will use it for our internal investments. The dividend policy, well, we paid already dividends almost EUR 6 million mid of April, and the Board of Directors has -- is authorized to decide another EUR 0.19 dividends in fall. The meeting will be someday in the mid-October to decide that. So now we are open for questions, comments, please feel free to give your questions.

[Tapio Pajuharju, Chief Executive Officer]

And I think we have both lines. The chat is open as well as the telephone line is open or to be opened in a minute.

[Operator]

[Operator Instructions] Our first question comes from Maria Wikstrom from Danske Bank.

[Maria Wikstrom, Analyst]

Sir, can you hear me?

[Tapio Pajuharju, Chief Executive Officer]

Yes. Loud and clear.

[Maria Wikstrom, Analyst]

And what an amazing quarter. I have a few questions. I might go back on the line. So if I start with some 2, 3 questions, and then I go back in the line. But I think you touched upon it a little bit on Ari's section because it's the -- I mean, you don't give the short term guidance, but you said that you don't see that this demand that we are currently seeing is impacting on the long-term sales guidance, which is, I mean, 5% annually, that the market is growing. And then at the same time, you say that, I mean, I guess, if I read it correctly, the demand currently is trending well, but you see that part of this is so-called advanced demand. So I mean, how all these gets together?

[Tapio Pajuharju, Chief Executive Officer]

Yes. I think, overall, what do we see, and that's in a way, clear that we can state in most of the markets. But the popularity and the awareness of the sauna is increasing. And the well-being benefits are clearly more known and people are willing to use and invest in that respect. But I think what we don't know completely is the impact of the pandemic and that's why we remain, what I would say, careful in analyzing and stating how the forward demand will look like. And currently, we've been experiencing some advanced demand. And I think that was -- demand will continue for some time. I think no one knows the exact magnitude, timing and scope of that. So that's why we remain -- would I say may be careful on analyzing that. But the underlying growth on the sauna market is evident and it's there, but then the impact of the pandemic and the advanced demand is hard to say or predict, at least to estimate exactly. Now we've been discussing this with our partners in all of the markets, in all of the continents, and no one seems to know exactly how this is going to be played out. So we just need to wait.

[Maria Wikstrom, Analyst]

Sure. That's fair enough. Yes. Then I just wanted to give -- just that I had the numbers correct on the capacity expansion. So if you could walk me through that, I think, I mean you said in Muurame, it's 20% that you add the capacity. Then in North America, it was, I mean, 1/3, but is this now Renick factory? And what about when we take the new factory and then if you walk through the capacity increase in Romania? So I'm kind of trying to get the grip that overall, like how much more capacity you would have at the end of this year compared to what you have had before.

[Tapio Pajuharju, Chief Executive Officer]

Good. Maybe starting with the Muurame. Muurame expansion is for the early part of the processing. So the metal componentry for the heaters and steam generator we are making. And then we will have roughly 20% increase in that. And that will be coming to play late this year, and we estimate roughly before Christmas or about that time. For the U.S., for the current Renick factory, we've been upgrading the capacity from 5,000 saunas, up to 7,500 saunas. Now when we've been operating the new machinery for a number of weeks, we've realized that maybe we can do slightly better than the 7,500 saunas per annum. And then with the new facility, with the new layout, the new flow with the same equipment, roughly would reach 10,000. But then on top of that, we are planning what else we would need to invest and how to do the layout and how to do the flow. So most likely will go beyond that, but I don't have that in an exact number as we speak. And the Romania. I try to figure it out and don't remember the exact number in terms of pieces, pieces of saunas, but roughly putting an incremental 35%, 40% capacity on the Romanian factory. Yes. But I made the math based on the euros, not on the pieces of saunas sold. So might be a couple of percentage here or there.

[Maria Wikstrom, Analyst]

Perfect. I think that gives a good picture. And then I think my final questions on this set. I mean, obviously, I think you guys -- I mean, very brave, I mean, call it, doing the EOS acquisition in the -- like middle of the -- or the early days of the COVID crisis. And if I look at the numbers, it seems that -- I mean, the -- it has been doing, like a -- I mean, doing fantastically. I mean, let's put it that way. So if you could give a little bit of color that is this EOS demand that is currently what is taking place in Central Europe? I mean are they taking market share? Or is the underlying market growing in Central Europe as fast? Or how would you elaborate, I mean, the current growth that EOS is seeing that where is it coming from?

[Tapio Pajuharju, Chief Executive Officer]

So EOS growth is coming from the German and other European markets. I think it's almost evenly split. And on top of that, the Russian market has been starting to do better. And I think EOS has been gaining share, and EOS has been growing very nicely and keeping in mind their size and scope, they've been stretching also their resources and gaining share in Central European marketplace as well as in Germany, and Russia. Based on the performance, I would estimate that they at least par or gaining share even over there.

[Ari Vesterinen, Chief Financial Officer]

EOS is, first of all, serving the sauna industry in Central Europe and the demand of sauna has been increasing. The small sauna manufacturers or bigger, they have good order stock right now. And EOS is there local quick, high-quality sauna heater manufacturer.

[Tapio Pajuharju, Chief Executive Officer]

And I think EOS has basically 3 different business divisions. One is the heater, as in generate our business under the EOS brand, doing extremely well. The Spatronics is for the electronics, the control units and the relevant accessories to that. Also doing solid good work. KUSATEK is the gas driven or gas burning heaters for the large commercial saunas. They have a very solid demand, but due to the pandemic, installations and an overhaul and servicing has been complicated and not according to the plans for the time being. But the demand is there, but we have difficulties of implementing and installing projects.

[Ari Vesterinen, Chief Financial Officer]

Yes. EOS has been growing really clearly during Q1, also internally. So that's a very lucky situation, and that is really a job well done.

[Tapio Pajuharju, Chief Executive Officer]

But of course it's lucky. I say it's very professional management.

[Maria Wikstrom, Analyst]

And do I read it right? I mean, I think -- I mean you mentioned like potential sales synergies at the time of the acquisitions. And given that the approvals are still to be gained in North America, for example. So the sales synergies, I mean, from these acquisitions are yet to come.

[Tapio Pajuharju, Chief Executive Officer]

Yes, like taking the new markets, we've not even started and not sold a single piece in U.S., but sold a single piece in Asia. Apart from the normal EOS, couple of pieces sold to global customers in Asia. And then like Scandinavia, we haven't started.

[Operator]

[Operator Instructions]

[Ari Vesterinen, Chief Financial Officer]

If there are no other telephone questions right now, I have a list of questions coming through the chat. So we can discuss probably them now through. Here, Hardy Valens from Nordea Bank has sent plenty of good questions. Thank you for them. He is first asking about our estimate of the organic growth in coming quarters.

[Tapio Pajuharju, Chief Executive Officer]

Tricky questions, and we don't comment that. I think the only thing we can say is that the order book is strong and the lead times. And I think the ones who will be no longer onboard on the Harvia journey. Our order book and the horizon has been 2 weeks on average. Now it's clearly longer, and I think we foresee favorable demand, at least for some time going forward.

[Ari Vesterinen, Chief Financial Officer]

1So could we elaborate a little the measures we have taken to secure raw material and component availability? Have we somehow increased sourcing volumes, changed contracts, acquired new suppliers or whatever?

[Tapio Pajuharju, Chief Executive Officer]

A very good question and very timely question as well. We've been working on multiple fronts on this one. And starting with the key componentry. We have, first of all, annual contracts with the main suppliers, and they are a large company, so they can cope with the increased demand quite well. On top of that, we have identified alternative sourcing and even executed some of those. When it comes to the electronics componentry, we've been also redesigning and finding alternative componentry doing the same job as with the current ones and then increase the inventories of the critical componentry. The most tricky one of all is the natural material, lumber, all the wood materials. We've been also finding alternative sourcing, alternative grades. And for the time being, we've been capable of supplying everything we've been needed to supply. So in that respect, no hiccups. But going forward, we pay extra careful attention that we have inventories who will enable us to supply according to the demand. Even there are some lead times, which some may be increased, but we keep very close eye on this.

[Ari Vesterinen, Chief Financial Officer]

Okay. Then a question about the cross-selling. How well we have been able to cross sell products. For instance, Harvia products to EOS clients? Or what is the future potential of cross-selling and how fast we think that we can get full benefit of that to sell Harvia products in all Harvia -- through all Harvia companies?

[Tapio Pajuharju, Chief Executive Officer]

I think that's maybe good question. And I will take this very detailed because the EOS distribution and Harvia distribution. Basically, we try to keep separate and operating with independent distribution, independent sales forces. And only with very few exceptions we have customers who can have both brands available, and those we've been identifying. With some of those, we've been starting to do business with both of the brands. But basically, the fundamental decision on this one is that they will remain independent on the distribution. And that was already in the books when we made the acquisition, and that's something we will keep very close to eye that this will also continue going forward. Then when going into new markets, that's where we may have some benefits and cross-selling opportunities. And then behind the scenes, we have a lot of componentry and lot of other synergies we can execute. But as a distribution channel and selling the final products, that's where we will keep the distribution separated.

[Ari Vesterinen, Chief Financial Officer]

Then Hari would like to know some details about EBIT forecast for the future. We probably can't disclose them, but let's discuss generally. Is Almost Heaven Saunas already profitable on EBIT level? That was first question. And the second question, what is our expectations of the EBIT impact of EOS in future?

[Tapio Pajuharju, Chief Executive Officer]

Okay. Good questions. And if I may start with the Almost Heaven Saunas. When we acquired the company, they were slightly on the red figures. We made them together with the team over there. They're quite fast into breakeven. We were single-digit EBIT rather fast, slightly ahead of the schedule. Then we learned that the sauna business can be double digit. We took it to the low teens. And I think on the last quarter, it was not much below -- very close to par with the average profitability of Harvia in 2020. So a very nice improvement on the profitability. The story with the EOS is very different. When we acquired the company, it was extremely -- in an extremely good shape, both on the top line as well as on the bottom line. We've been able to maintain and improve the profitability gradually. So in that respect, it's in a good good shape as well.

[Ari Vesterinen, Chief Financial Officer]

Okay. Harvia's largest global competitor in the sauna and spa industry and what are Harvia's competitive advantages towards it?

[Tapio Pajuharju, Chief Executive Officer]

First of all, even though we are in the same industry, we play in very different fields. Clubs is known for the luxury, super luxury markets for the residential thing. Then they are known for the commercial. They do 5 Star hotels, super premium, fitness clubs, cruiser lines, spas, and that's an area where Harvia is not currently playing. I think the only area where we may face each other in competition is some of the Arabian markets, some of the Russia projects, but we are competing in a very different play field, even though we operate in the same industry. They have a big brand called [indiscernible]. And [indiscernible] sauna is closer to Harvia price point, but still clearly above the premium residential marketplace. And the [indiscernible], they both, it's more of a unique lodge type of a sauna solution for the free time and holiday homes. So in that respect, not really meeting them on a day-to-day basis.

[Ari Vesterinen, Chief Financial Officer]

But okay, generally speaking, what are the main competitive advantages of Harvia in the competition?

[Tapio Pajuharju, Chief Executive Officer]

Why? I think we've been stating those quite loud and clear. We have fully integrated way of operating. So basically, we develop and manufacture everything we sell. So we don't leave a dime on the table that compared to our peers, not clubs , but I mean the other ones. And then I think we work very closely with our customers, and we've been working long term. And then I think the Harvia equipment and the saunas have a unable functionality with a good value for money ratio in that respect. So that's our strong growth. And then I think our long history has one of the best insight into the sauna spa. And we know the healing with heat, relaxing moments in nutshell well-being inside out, and we've been doing the journey quite well together with our customers. So we are clearly ahead of the game in that respect.

[Ari Vesterinen, Chief Financial Officer]

Okay. Then question about our estimate of the sauna market growth in 2020. And possibly for quarter 1 '21, how much we think the market has been growing and what are our expectations for the coming 2 to 3 years?

[Tapio Pajuharju, Chief Executive Officer]

I think this is an industry where Nielsen does not measure, and there is no public data available. Our own estimate is that we've been growing clearly, the market has been growing clearly ahead of the 5%, and that's why we -- after analyzing the market together with our partners and customers can state that at least for the coming 2 to 3 years, most likely, the market growth will beat the 5%. And maybe -- analyze, my judgment at least is maybe double the estimated 5% going forward.

[Ari Vesterinen, Chief Financial Officer]

How do we see the direct-to-consumer sales? What kind of role it could be playing strategically in the future?

[Tapio Pajuharju, Chief Executive Officer]

I think that's something where we've been, especially on the new markets. It's been a pleasure to realize how well that can come into play. And we've been exercising it quite well in the U.S., but also going forward, I think there are pockets of markets where we can go direct. But I think it's beyond any question that we will not step on the toes of our current partners and customers. So that's why we do it very carefully and not to steal business from our current partners and customers is the plan.

[Ari Vesterinen, Chief Financial Officer]

The development of your sales, our sales was rather soft in the other countries region during Q4. But now there wasn't any weakness anymore. We touched upon it briefly during the presentation, but how would we describe the development of these markets, the other countries?

[Tapio Pajuharju, Chief Executive Officer]

If seeing the activity on like the southern part of -- Southern Hemisphere of Europe, they were almost closed for the last quarter of 2020. Now they are gradually opening, but they are not even half open. They are maybe 1/5 open in terms of activity. In the Arabian countries, I think some of the projects they've been just pushing the button and doing it. Hopefully, it's also going forward on that respect. And the Asian markets, which were mainly closed due to the pandemic, now are gradually opening. And every now and then we are receiving inquiries and shipping orders still in a small scale, but gradually waking up.

[Ari Vesterinen, Chief Financial Officer]

Okay. Any plans to adapt the design of smaller saunas in order to market the saunas as a piece of residential equipment? More compact saunas to fit in garage, bathrooms or other smaller home spaces?

[Tapio Pajuharju, Chief Executive Officer]

Excellent question. We've been working on this one already for some time, and we have had already, I think, in our portfolio for more than 6 years, a sauna concept called the SmartFold. The SmartFold is an excellent innovation, and I think we are figuring out how to make it on the next level and how to make it more in the 2020 design and outlook. I think the functionality is there, maybe some of the mechanism has to be for the modern consumers, and then we are good to go on this one. But I think the adaptability and the multi-use of the sauna space is coming into play. And I think we are well ahead with our plans on this one. But still nothing concrete, but stay tuned, I would say.

[Ari Vesterinen, Chief Financial Officer]

How do we see this year's annual revenue split between the quarters?

[Tapio Pajuharju, Chief Executive Officer]

I think that's what I tried to educate on one of the slides. Roughly the same pattern in the sauna spa industry will prevail. Even though the market will maybe smoothen it little bit, quarter 1 strong and quarter 4 strong in general, and I think that will not change a lot.

[Ari Vesterinen, Chief Financial Officer]

Okay. How important are the influencers in social media or marketing in U.S.?

[Tapio Pajuharju, Chief Executive Officer]

I think that's difficult to estimate. But what we see and if you take a couple of the influencers, and I mentioned Joe Rogan, even though he's not a sauna influencer at all, but he's building presence on the sauna market as well. Rhonda Patrick is one of the ones. They generally don't link themselves to any of the brands. They do general publicity and awareness and popularity of the sauna. But I think it's becoming very, very valuable. And when you open any of the social media in the U.S., the frequency of sauna posting and especially boosting about the health benefits is evident. And I recommend to have a bit of a follow-up on the traditional sauna as well as the infrared sauna. And then figuring out the sportsman and the fitness active people or the fitness freaks where the alteration seems to be the new thing going forward.

[Ari Vesterinen, Chief Financial Officer]

Okay. Somebody asking for Harvia pen articles. But that's out of our scope today. Now I don't have any other questions in the chat. Are there new questions on the telephone line, please?

[Operator]

Yes. We have a question from Maria Wikstrom from Danske Bank.

[Maria Wikstrom, Analyst]

I still have a couple of follow-up questions, which, one is, I mean, you mentioned that you will be actively looking at acquisitions. And there was quite a few during 2020. Can you describe that is there ongoing negotiations or like potential transactions that you are currently elaborating, giving a little bit of feel that, I mean, if we should actually expect something already in 2021?

[Tapio Pajuharju, Chief Executive Officer]

I cannot comment on that one, but I can ensure that we remain active on this one. And if there is something which is fitting into our portfolio and is with an attractive evaluation, we have the ability and the ambition to act.

[Maria Wikstrom, Analyst]

Okay. And then one final question, which is that given that, I mean you have progress in many fronts of the business and really going through your strategic targets. And little bit, I mean, getting a view of the management focus areas at the moment. So how would you say that, I mean, currently, I mean, there is, I mean, quite a lot of things going on. I mean, with the capacity expansions. We have EOS getting the approvals for the North American market. There are acquisitions. So how would -- how would you, as a CEO, I mean, devote your time with the different initiatives that you currently have ongoing?

[Tapio Pajuharju, Chief Executive Officer]

I think the -- first of all, a very good question. And I think on the capacity expansion and balancing the supply and demand is high on the focus. Then working closely with our customers and partners is still one of the key success factors where Harvia is what it is today. And then on top of that, I think [indiscernible] deserves a fair share of the time allocation. And then on top of that, bit of a more, I would say, forward-looking actions we've been owning quite a bit of our sustainability, which I think we've been good in the industry, if not one of the best, but how to tell the story. And then on top of that, I think, on the journey of becoming a spa and sauna company delivering healing with heat and the well-being benefits of the sauna. I think over there, we've been progressing quite well, if not extremely well, and I will come out with some of very good concepts on this type of a platform, which is basically adding value on top of the -- selling the actual componentry.

[Operator]

There are no further questions at this time. Please, go ahead, speakers.

[Tapio Pajuharju, Chief Executive Officer]

So I think we covered all the questions. Thank you for active participation. I wish you a very good day. Thank you. Bye now.

[Ari Vesterinen, Chief Financial Officer]

Thank you. Bye.