Third quarter 2019 results: Organic growth of +2.6% despite
challenging trading conditions, Cost savings program on track,
Moderate adjusted EBITDA margin increase
Paris, October 23, 2019
Highlights
- Net sales at €907.1 million in Q3 2019 (+8.0% versus Q3
2018)
- Positive organic growth([1]) (+2.6%) in Q3 2019, driven
by 10.5% organic growth in Sports and stable sales in EMEA and CIS,
APAC & Latam
- Selling price increases offset purchasing costs and
wage inflation
- Acceleration of cost savings: €12.1 million of net
productivity gains and SG&A reduction
- Adjusted EBITDA([2]) before IFRS 16 application at
€107.5 million or 11.8% of revenues versus €97.7 million and 11.6%
in Q3 2018
- Reported adjusted EBITDA(2) (after IFRS 16 application)
at €115.0 million in Q3 2019
- A positive amount of €5.4 million related to litigation
settlements in Sports included in adjusted EBITDA
- Dedicated action plan being rolled out to restore
operating performance in North America
Commenting on these results, CEO Fabrice
Barthélemy said:
“ In the third quarter, our business delivered
positive organic growth and encouraging results. Our profitability
improvement has been, however, impeded by the weakness of the North
American performance. Therefore we are rolling out a specific
action plan to regain momentum in North America. We are
strengthening our offering through a set of new product
introductions to improve alignment with customer requirements.
Through our Change to Win plan, we are targeting
to be the leader in commercial flooring and selectively grow in
residential. We also aim at improving profitability and we started
seeing results of our cost actions in the quarter. We are also
simplifying our operational processes and focusing our organization
on the needs of our customers. We are now accelerating cost savings
measures, particularly in North America, EMEA and at the corporate
level. Our actions to reduce our leverage by the end of the year
are on track. ”
Net sales by segment
€ million |
Q3 2019 |
Q3 2018 |
% Change |
o/w Organic growth(1) |
EMEA |
223.5 |
225.2 |
-0.8% |
+0.1% |
North America |
230.1 |
206.0 |
+11.7% |
-2.2% |
CIS, APAC & Latin America |
171.0 |
165.4 |
+3.4% |
+0.2% |
Sports |
282.4 |
243.3 |
+16.1% |
+10.5% |
Total Group |
907.1 |
839.9 |
+8.0% |
+2.6% |
(1) Organic growth is the revenue growth on a
like-for-like basis, i.e. at constant scope of consolidation and
exchange rates, and therefore only reflects changes in volumes,
prices and the product mix (note that in the CIS segment, price
increases implemented to offset currency fluctuations are not
included in organic growth). See the definition of alternative
performance indicators at the end of this press release.
Group net revenues amounted to
€907.1 million in Q3 2019, or an increase of +8.0% year-over-year.
This performance reflected positive organic growth (+2.6%), a
positive scope effect (+2.0%) and a positive forex impact (+3.4%),
mainly related to the appreciation of the dollar versus the
euro.
Organic growth returned to positive territory in
Q3 2019 with a 2.6% increase compared with Q3 2018 notwithstanding
a high base of comparison (Q3 2018: +3.4% versus Q3 2017). The EMEA
and CIS, APAC and Latin America segments both recorded flat organic
growth over the quarter, while North America revenues were down
2.2% on a like-for-like basis. In Sports, year-over-year organic
growth remained sustained at 10.5% in the highest quarter of the
season.
The EMEA segment reported net
revenues down 0.8% in Q3 2019. The slight increase in organic
growth was offset by unfavorable exchange rate fluctuations, mainly
with regards to the Swedish and Norwegian krona. Organic growth was
up 0.1% as selling price increases offset lower volumes. It was
affected by the ongoing exit of the Laminate production, as the
Group decided to prioritize some markets ahead of the completion of
the LaminatePark site closure. France stabilized, but Germany was
significantly down year-over-year reflecting an overall slowdown in
renovation and new construction projects. In the UK, uncertainties
around the Brexit resulted in further revenue decline on a
like-for-like basis. The level of activity was sustained in
Southern Europe, and the Nordic region continued to grow during the
quarter but at a slower pace. Tarkett recorded strong growth in
Healthcare and Education thanks to its well-received commercial
vinyl range renewed in April 2018.
The North American segment
reported net revenues up 11.7%, reflecting a positive forex effect
related to the appreciation of the dollar versus the euro (+6.0%)
and Lexmark acquisition which was completed end of September 2018
(+7.9%). Market conditions remained soft, outside demand for LVT
products which continued to grow generating some mix pressure. In
this environment, organic growth was down 2.2% in Q3 2019 versus
solid comps in Q3 2018 (+4.3%), reflecting a mix erosion and volume
contraction. Selling price increases remained sustained.
Residential remained under pressure amid a soft US housing market.
At the end of September, we anticipated deliveries of commercial
carpet in preparation for an implementation of SAP in our carpet
tile business early October.
The CIS, APAC and Latin America
segment recorded net sales up 3.4% compared to Q3 2018,
resulting from slight organic growth of 0.2% and from a positive
lag effect (net effect of currency and selling price adjustments at
€4.5 million). Activity in the CIS is stable in a market
environment that is still challenging. Latin America recorded a
solid level of organic growth resulting from an improved level of
activity and strong pricing power. APAC revenues were slightly up
on a like-for-like basis.
The Sports segment recorded an
increase in net revenues of 16.1% in Q3 2019 thanks to a strong
organic growth of 10.5%, a positive euro-dollar forex effect
(+5.4%) and a slight scope effect (+0.2%). As in the previous
quarter, the performance was driven by turf activities which
strongly progressed year-over-year. The integration of Thermagreen,
The Tennis & Track Company and Grassman was rapidly completed
and generate the expected synergies.
Group Adjusted EBITDA
€ million |
Q3 2019 |
Q3 2018 |
Change |
Adjusted EBITDA before IFRS 16 |
107.5 |
97.7 |
+10.0% |
% of sales before IFRS 16 |
11.8% |
11.6% |
+22bps |
IFRS 16 impact |
7.5 |
- |
|
Adjusted EBITDA reported |
115.0 |
97.7 |
+17.7% |
% of sales |
12.7% |
11.6% |
+105bps |
Reported adjusted EBITDA
amounted to €115.0 million in Q3 2019 including €7.5 million of
IFRS 16 impact. Adjusted EBITDA before application of IFRS
16 reached €107.5 million (versus €97.7 million in Q3
2018).
The margin before IFRS 16 application moderately
improved at 11.8% compared to 11.6% of revenues in Q3 2018 as the
margin decline of the North American segment was offset by margin
increase in EMEA and CIS, APAC and Latam. The Sports segment
increased its margin thanks to litigation settlements (net positive
effect of €5.4 million). This was largely driven by the outcome of
a patent infringement claim initiated by Tarkett.
Volume and product mix effect remained negative
at €11.9 million in Q3 2019, out of which a negative destocking
impact of €3.6 million in the North American segment. The mix
contraction was primarily driven by North America where the
decrease in commercial carpet tile and growth in the highly
competitive LVT category generated a negative effect and weighed on
Group’s profitability.
Selling price increases generated a positive
effect of €5.4 million, which offset most purchasing costs and wage
inflation. Purchasing costs were up €2.0 million compared to last
year as decrease in raw material prices were partially offset by an
increase in energy and freight costs. Salary increases amounted to
€3.8 million year-over-year.
Cost savings amounted to €12.1 million in Q3
2019. Net productivity gains from operations totaled
€10.6 million in Q3 2019, a significant improvement compared
to Q1 and Q2 2019. The transfers of the two Canadian sites
announced in April have been completed on time. The Group started
seeing the results of these cost actions in Q3. The exit of
Laminate production in EMEA is well on track and the site shutdown
in Germany will be completed in Q4. In the North American segment,
productivity gains were however mitigated by the lower utilization
of capacity. Tarkett took actions during the quarter to remediate
the situation, including headcount reduction in the region. In
addition, SG&A costs were reduced by €1.5 million during the
quarter.
The variation of non recurring items compared to
last year amounted to a positive amount of €3.3 million. This
improvement was mainly related to settlements in the Sports
segment. Their positive effect was, however, mitigated by provision
reversals booked in Q3 2018 (healthcare benefit, management
incentives) which created an unfavorable comparison basis.
Exchange rates (CIS countries excluded) recorded
a positive effect amounting to €1.9 million. The appreciation of
the dollar versus the euro was partially offset by the weaker
Canadian dollar, Australian dollar and Norwegian krona. The net
impact of currency and selling-price movements in the CIS countries
had a further positive effect (lag effect of €3.0 million).
Acquisitions improved Group EBITDA by €1.8
million and mostly reflected the acquisition of Lexmark in North
America. Lexmark performance was below expectations in Q3 as
revenues were impacted by several large project delays. We are now
focusing on leveraging the complete product offering combining
carpet and resilient, and particularly LVT and achieving expected
sales synergies. While the order backlog for 2020 is well oriented,
the drop in revenues affected Lexmark’s profitability in the
quarter.
Dedicated Action Plan for North
America
Several measures have been implemented since the
beginning of the year to resume growth. The segment is optimizing
its alignment with market mix by reinforcing its product offering.
New introductions are planned in Q4 in LVT and carpet tile in
mid-price range.
Tarkett now relies on a streamlined sales
structure providing a single point of contact for customers. We
have started to see positive results through several significant
RFPs for 2020, including several deals in Hospitality through
solutions selling (carpet, LVT & accessories).
The North American industrial footprint
reorganization launched in April has been completed on time and
started delivering in Q3. While the segment is pursuing its actions
to improve its industrial cost structure, it also accelerated
during the quarter its cost savings initiatives to reduce SG&A
and downsized its headcount during the quarter.
Outlook
The business environment is expected to remain
soft in EMEA and North America for the flooring business, while
Sports is expected to continue to significantly grow. The CIS
regions are not expected to rebound in the short term. Overall
trading conditions remain more challenging and uncertain than in
2018.
North American Q4 2019 organic growth should be
affected by SAP implementation in commercial carpet in October and
by lower revenues at Lexmark compared to last year. Tarkett has
launched a dedicated action plan in North America to regain top
line momentum, which is expected to deliver in 2020.
As part of its Change to Win plan, Tarkett
implemented a set of cost initiatives to restore its profitability
and is pursuing its continuous improvement program. Restructuring
measures which started delivering in Q3 2019 will positively
contribute to the adjusted EBITDA in Q4. Tarkett is on track to
achieve its €30 million objective of cost savings for 2019. As
the environment deteriorated compared to the beginning of the year,
the Group is accelerating SG&A cost reduction initiatives.
Proactive selling price management is expected
to fully offset purchasing cost inflation, which will be comprised
between €15 million and €20 million for 2019.
Adjusted EBITDA before IFRS 16 application
should be slightly up compared to last year on a full year basis,
while margin is expected around last year level.
We continue to manage very tightly working
capital and capital expenditures to further reduce the net debt
level. The Group confirms its objective of net debt to adjusted
EBITDA ratio at around 2.5x at end December 2019 (before IFRS 16
application). An analysts’ conference call will be held on Thursday
24 October, 2019 at 11:00 am CET and an audio webcast service (live
and replay) along with the results presentation will be available
on https://www.tarkett.com/en/content/financial-results.
Financial calendar
- February 13, 2020: Q4 and Full Year 2019 financial results –
press release after close of trading on the Paris market and
conference call the following morning
Investor Relations
ContactTarkett – Emilie Megel –
emilie.megel@tarkett.com
Media contactsTarkett -
Véronique Bouchard Bienaymé - communication@tarkett.com Brunswick -
tarkett@brunswickgroup.com - Tel.: +33 (0) 1 53 96 83 83
About Tarkett
With a history stretching back 135 years,
Tarkett is a worldwide leader in innovative flooring and sports
surface solutions, with net sales of more than €2.8 billion in
2018. Offering a wide range of products including vinyl, linoleum,
rubber, carpet, wood, laminate, artificial turf and athletics
tracks, the Group serves customers in over 100 countries across the
globe. Tarkett has 13,000 employees and 34 industrial sites, and
sells 1.3 million square meters of flooring every day, for
hospitals, schools, housing, hotels, offices, stores and sports
fields. Committed to change the game with circular economy, the
Group has implemented an eco-innovation strategy based on Cradle to
Cradle® principles, with the ultimate goal of contributing to
people’s health and well-being, and preserving natural capital.
Tarkett is listed on Euronext Paris (compartment A, ISIN:
FR0004188670, ticker: TKTT) and is included in the following
indices: SBF 120 and CAC Mid 60. www.tarkett.com.
Appendices
1/ Bridges
Net sales evolution by division in million euros in the
third quarter
Q3 2018 |
839.9 |
+/- EMEA |
+0.3 |
+/- North America |
-4.6 |
+/- CIS, APAC & Latin America |
+0.4 |
+/- Sports |
+25.5 |
Q3 2019 Sales Like for Like(1) |
861.6 |
+/- Perimeter |
+16.7 |
+/- Currencies |
+24.3 |
+/- Selling price lag effect in CIS |
+4.5 |
Q3 2019 |
907.1 |
Net sales evolution by division in million euros in the
first nine months
9M 2018 |
2,157.3 |
+/- EMEA |
+10.1 |
+/- North America |
-17.6 |
+/- CIS, APAC & Latin America |
-7.8 |
+/- Sports |
+53.4 |
9M 2019 Sales Like for Like(1) |
2,195.4 |
+/- Perimeter |
+59.3 |
+/- Currencies |
+57.4 |
+/- Selling price lag effect in CIS |
+7.3 |
9M 2019 |
2,319.4 |
(1) Like for Like: At same perimeter and
exchange rates. (NB: In the CIS, price increases implemented to
offset currency fluctuations are not included in the organic
growth). Organic growth in the CIS therefore reflects volume and
mix variances only. See the definition of alternative performance
indicators at the end of this press release.
Adjusted EBITDA evolution by nature in million euros in
the third quarter
Q3 2018 |
97.7 |
+/- Volume / Mix, o/w -€3.6m of destocking in North America |
-11.9 |
+/- Sales pricing |
+5.4 |
+/- Raw Material & Freight |
-2.0 |
+/- Salary increase |
-3.8 |
+/- Productivity |
+10.6 |
+/- SG&A |
+1.5 |
+/- Non recurring (o/w Sports settlements +€5.4m) |
+3.3 |
+/- Selling price lag effect in CIS |
+3.0 |
+/- Currencies |
+1.9 |
+/- Perimeter |
+1.8 |
Q3 2019 excl. IFRS 16 |
107.5 |
+/- IFRS 16 impact |
+7.5 |
Q3 2019 incl. IRFS 16 |
115.0 |
Adjusted EBITDA evolution by nature in million euros in
the first nine months
9M 2018 |
213.7 |
+/- Volume / Mix |
-31.5 |
+/- Sales pricing |
+20.6 |
+/- Raw Material & Freight |
-12.5 |
+/- Salary increase |
-12.0 |
+/- Productivity |
+19.6 |
+/- SG&A |
+3.5 |
+/- Non recurring (incl. Q2 inventory write-off & Q3 Sports
settlements) |
-1.2 |
+/- Selling price lag effect in CIS |
+5.7 |
+/- Currencies |
+2.6 |
+/- Perimeter |
+10.8 |
9M 2019 excl. IFRS 16 |
219.3 |
+/- IFRS 16 impact |
+22.3 |
9M 2019 incl. IFRS 16 |
241.6 |
2/ Key figures
Net sales by segment
€ million |
Q1 2019 |
Q1 2018 |
% Change |
o/w Organic growth(1) |
EMEA |
239.0 |
228.3 |
+4.7% |
+5.8% |
North America |
195.8 |
163.5 |
+19.7% |
-0.6% |
CIS, APAC & Latin America |
112.5 |
116.3 |
-3.2% |
-2.2% |
Sports |
77.2 |
59.8 |
+29.1% |
+19.4% |
Total Group |
624.5 |
567.9 |
+10.0% |
+3.7% |
€ million |
Q2 2019 |
Q2 2018 |
% Change |
o/w Organic growth(1) |
EMEA |
231.5 |
236.0 |
-1.9% |
-1.4% |
North America |
233.4 |
214.8 |
+8.7% |
-5.6% |
CIS, APAC & Latin America |
143.1 |
145.4 |
-1.6% |
-3.8% |
Sports |
179.8 |
153.2 |
+17.4% |
+10.5% |
Total Group |
787.8 |
749.4 |
+5.1% |
-0.6% |
€ million |
Q3 2019 |
Q3 2018 |
% Change |
o/w Organic growth(1) |
EMEA |
223.5 |
225.2 |
-0.8% |
+0.1% |
North America |
230.1 |
206.0 |
+11.7% |
-2.2% |
CIS, APAC & Latin America |
171.0 |
165.4 |
+3.4% |
+0.2% |
Sports |
282.4 |
243.3 |
+16.1% |
+10.5% |
Total Group |
907.1 |
839.9 |
+8.0% |
+2.6% |
€ million |
9M 2019 |
9M 2018 |
% Change |
o/w Organic growth(1) |
EMEA |
694.0 |
689.6 |
+0.6% |
+1.5% |
North America |
659.3 |
584.4 |
+12.8% |
-3.0% |
CIS, APAC & Latin America |
426.7 |
427.1 |
-0.1% |
-1.8% |
Sports |
539.4 |
456.3 |
+18.2% |
+11.7% |
Total Group |
2,319.4 |
2,157.3 |
+7.5% |
+1.8% |
(1) Organic growth: at constant scope of consolidation and
exchange rates only reflects changes in volumes and the product mix
(note that in the CIS segment, price increases implemented to
offset currency fluctuations are not included in organic growth,).
See the definition of alternative performance indicators at the end
of this press release.
Adjusted EBITDA
€ million |
Q1 2019 |
Q1 2018 |
Change |
Adjusted EBITDA before IFRS 16 |
35.8 |
29.8 |
+20.1% |
% of sales before IFRS 16 |
5.7% |
5.2% |
+50 bps |
IFRS 16 impact |
7.3 |
- |
|
Reported Adjusted EBITDA |
43.1 |
29.8 |
+44.6% |
% of sales |
6.9% |
5.2% |
+170 bps |
€ million |
Q2 2019 |
Q2 2018 |
Change |
Adjusted EBITDA before IFRS 16 |
76.1 |
86.3 |
-11.8% |
% of sales before IFRS 16 |
9.7% |
11.5% |
-190 bps |
IFRS 16 impact |
7.5 |
- |
|
Reported Adjusted EBITDA |
83.6 |
86.3 |
-3.2% |
% of sales |
10.6% |
11.5% |
-90 bps |
€ million |
Q3 2019 |
Q3 2018 |
Change |
Adjusted EBITDA before IFRS
16 |
107.5 |
97.7 |
+10.0% |
% of sales before IFRS 16 |
11.8% |
11.6% |
+22bps |
IFRS 16 impact |
7.5 |
- |
|
Reported Adjusted EBITDA |
115.0 |
97.7 |
+17.7% |
% of sales |
12.7% |
11.6% |
+105bps |
€ million |
9M 2019 |
9M 2018 |
Change |
Adjusted EBITDA before IFRS 16 |
219.3 |
213.7 |
+2.6% |
% of sales before IFRS 16 |
9.5% |
9.9% |
-45bps |
IFRS 16 impact |
22.3 |
- |
|
Reported Adjusted EBITDA |
241.6 |
213.7 |
+13.1% |
% of sales |
10.4% |
9.9% |
+51bps |
3/ Definition of alternative performance indicators (not
defined by IFRS)
The Tarkett Group uses the following non-IFRS
financial indicators:
- Organic growth
- Adjusted EBITDA
- Free Cash Flow
These indicators are calculated as described
below.
- Organic growth:
- Organic growth measures the change in net sales as compared
with the same period in the previous year, at constant scope of
consolidation and exchange rates.
- The exchange rate effect is calculated by applying the previous
year’s exchange rates to sales for the current year and calculating
the difference as compared with sales for the current year. It also
includes the impact of price adjustments in CIS countries intended
to offset movements in local currencies against the euro.
- The scope effect reflects:
- current-year sales for entities not included in the scope of
consolidation in the same period in the previous year, up to the
anniversary date of their consolidation;
- the reduction in sales relating to discontinued operations that
are not included in the scope of consolidation for the current year
but were included in sales for the same period in the previous
year, up to the anniversary date of their disposal.
-
- Year-on-year net sales trends can be analyzed as follows:
€ million |
2019 |
2018 |
% change |
o/w exchange rate effect |
o/w scope effect |
o/w organic growth |
Total Group – Q1 |
624.5 |
567.9 |
+10.0% |
+2.4% |
+3.8% |
+3.7% |
Total Group – Q2 |
787.8 |
749.4 |
+5.1% |
+3.0% |
+2.8% |
-0.6% |
Total Group – H1 |
1,412.3 |
1,317.3 |
+7.2% |
+2.7% |
+3.2% |
+1.3% |
Total Group – Q3 |
907.1 |
839.9 |
+8.0% |
+3.4% |
+2.0% |
+2.6% |
Total Group – 9M |
2,319.4 |
2,157.3 |
+7.5% |
+3.0% |
+2.7% |
+1.8% |
- Adjusted EBITDA:
- Adjusted EBITDA is calculated by deducting the following income
and expenses from result from operations before depreciation and
amortization:
- restructuring costs intended to increase the Group’s future
profitability;
- capital gains and losses recognized on significant asset
disposals;
- provisions and provision reversals for loss in value;
- costs arising on corporate and legal restructuring;
- share-based payment expenses;
- other one-off items considered non-recurring owing to their
nature.
- Note 3.1 to the consolidated financial statements includes a
table that reconciles operating income with adjusted EBITDA, as
well as the effect of adjustments by type.
4/ Impact of IFRS 16 “Leases” in
2019
IFRS 16 “Leases” standard is applicable since
January 1, 2019. This new accounting standard requires lessees to
recognize, for all leases that it covers, all lease payments yet to
be paid in the form of a right of use under non-current assets on
the balance sheet, with a balancing entry under debt on the
liabilities side.
Based on existing lease contracts, applying IFRS
16 increases non-current assets and net debt at 2019 year end by an
amount of around €90 million.
In the income statement, there is a decrease in
lease expenses recorded under EBITDA, and an increase in
depreciation of non-current assets and interest expense. The
full-year improvement in EBITDA is expected to be around €29
million in 2019, increasing EBITDA margin by around 100 basis
points.
The effect of these changes on the net
debt/adjusted EBITDA ratio is limited to around 0.1x: based on 2018
results, the ratio would have increased from 2.8x to 2.9x. The
documentation of Tarkett’s financing agreements, however, provides
that the effect of changes in accounting standards is neutralized.
As a result, the application of IFRS 16 has no consequences for the
Group’s financing.
The impact on net profit attributable to owners
of the Company is limited.
€ million |
Estimated 2019 IFRS 16 impact on Adj. EBITDA by
segment |
EMEA |
9 |
North America |
8 |
CIS, APAC & Latin America |
6 |
Sports |
3 |
Central |
3 |
Group’s estimated IFRS 16 impact for 2019 |
29 |
([1]) Organic growth is the revenue growth on a
like-for-like basis, i.e. at constant scope of consolidation and
exchange rates, and therefore only reflects changes in volumes,
prices and the product mix (note that in the CIS segment, price
increases implemented to offset currency fluctuations are not
included in organic growth). See the definition of alternative
performance indicators at the end of this press release.
([2]) Adjusted EBITDA: adjustments include expenses such as
those relating to restructuring, acquisitions and share-based
payments. See the definition of alternative performance indicators
at the end of this press release.
- Tarkett_Q3 2019_Results_20191023_PR_ENG FINAL
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