Honkarakenne is a Finnish log construction company founded in 1958 that manufactures high-quality, healthy and ecological detached homes, holiday houses and public buildings under the Honka® brand. We manufacture log houses and unique wooden houses from the renewable, certified solid wood at our own factory in Karstula – with experience of over 60 years, from more than 85,000 delivered houses and numerous innovations. Our net sales in 2020 totalled EUR 69.7 million, of which exports represented approximately 30%. In 2021, we employed an average of 178 people.
Our business is divided into three business areas:
The target group for detached houses and holiday homes is usually private persons. In B2B projects, the target groups include public sector organisations such as schools and day-care centres, private organisations such as golf centres and ski resorts, as well as other house suppliers who increasingly use logs as building material.
In 2021, around 60% of Group net sales came from Finland, with exports accounting for more than one third. In addition to Finland, our main market areas are Russia, Central Europe and Japan. Our sales network is global, and exports are directed to Central Europe, Russia and CIS countries, as well as Asia.
The demand for our products is supported by the growth in the popularity of wood construction, driven by increased awareness of the health and environmental benefits of log buildings. Consumers’ increased interest in influencing climate change challenges through their own actions and support from decision-makers have accelerated the growth in the popularity of wood construction.
Next to sustainability, consumers are increasingly interested in healthy housing solutions, and we have constant product development to find ecological and healthy wood construction solutions to meet consumer demand. Interest in logs as a building material has increased among consumers and we estimate that log houses will gain market shares from other building materials in detached houses. Wood construction is increasingly favoured also in public construction.
With Honkarakenne's wide product and service range and brand recognition, we have a strong presence at the various stages of the log construction value chain.
We are positioned at the beginning of the log construction value chain when the customer uses our design services or choses a ready-made home kit designed by our architects.
The most important part of the value chain for us is the processing of sawn timber at the Karstula factory into logs or log frames, as well as the components of the log building, such as house facades, beams, doors, windows and various ornamental parts. We use renewable wood from Finnish sawmills as raw material for our logs. Our raw material is PEFC-certified, and we aim to increase the percentage of FSC-certified wood whenever more of it becomes available. Pine logs and spruce stocks are transported from the forest to a nearby sawmill and from there as sawn timber to the Honkarakenne factory, where they are processed into high-quality pine and spruce laminated timber.
The key factor in terms of our cost structure is the purchase of materials and supplies, where the main raw material is wood, and they account for about 2/3 of net sales. Consequently, the success of raw material sourcing and price development of raw materials have a significant impact on our operations and profitability.
From Karstula, the transport companies transport the logs to a construction site where selected builders build the log frame. In these stages of the value chain, we rely on the services of our long-term partner network such as local builders, electrical and HVAC contractors. Neither the stages of the value chain related to the acquisition of timber, logistics and processing of raw logs do not generate net sales for us. At the end of the value chain, services such as maintenance or designing building extension projects for log houses can generate more sales for us.
Most of our business capital is tied up in fixed assets, consisting of the Karstula factory property and manufacturing machinery and equipment. However, our capital needs are moderate and investment needs are low. The investment program of more than EUR 7 million to renew the Karstula production line, launched in the previous strategy period, will be completed in 2022.
The negative working capital structure characteristic for our industry allows working capital to be released as net sales increases, which in turn strengthens our cash flow. With moderate capital commitment we can achieve strong return on capital in our business.
The domestic market is our largest target market and construction in Finland often focuses on summer, which increases the seasonality of demand for our products and services.
In addition, as in the construction industry in general, log construction is cyclical and despite good brand recognition and a strong domestic market position our business is not fully protected from construction cycles. Exports to Central Europe and Asia offset the cyclicality of the business.