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2016/10/26

Q3 2016 results Strong profitability improvement in a soft demand environment

Q3 2016 results

Strong profitability improvement

in a soft demand environment

Paris, October 26th, 2016

Net sales

Organically, sales decreased by -2.1% vs. Q3 2015. Demand was soft in North America (-0.6%) and Sports
(-0.9%). In EMEA, organic growth was limited to +1.1% mainly due to slower trends in the UK, France and Spain. As expected, economic conditions remained challenging in the CIS countries and in Latin America; sales in the reporting segment CIS, APAC and LATAM contracted organically by -10.1%.

Reported sales reached €794m vs. €809m in Q3 2015. There was no change in the scope of consolidation. Thanks to the selling price increases implemented in the CIS, the net exchange rate impact was positive in that segment, while EMEA was penalized by the drop of the British pound.

Over the first nine months, the Group achieved an organic growth of +1.7% (+0.5% on a reported basis).                                                     

Adjusted EBITDA

The Group delivered a higher adjusted EBITDA of €119m vs. €113m in Q3 2015. The adjusted EBITDA margin increased from 14.0% to a strong 15.0%. EMEA, North America and Sports margins remained solid despite a flat organic growth. In the CIS region, adjusted EBITDA was greatly improved thanks to the positive “lag effect” (net of currency and selling price effects) of +€7m following the recent selling price increases. All segments benefited from the steady pace of productivity actions.

Commenting these results, Michel Giannuzzi, CEO of Tarkett, stated:

“In a soft demand environment, Tarkett has continued to improve its profitability. The increase in EBITDA shows the effectiveness of our productivity actions, in particular our World Class Manufacturing program. We are particularly satisfied with the improvement in the CIS performance resulting from the strong actions on selling prices and cost structure.”

Europe, Middle East, Africa (EMEA)

In EMEA, sales organic growth was +1.1%. While the Nordics, Germany and the Netherlands delivered sound growth, the UK suffered from the recent Brexit uncertainties and Spain continued to be affected by the political deadlock. France was slightly negative on the back of a sluggish remodeling activity. Over the first nine months, the segment delivered a solid organic performance of +4.0%.

Sales in the LVT category (Luxury Vinyl Tiles) continued to grow rapidly across the region. The new production line in Poland, designed to address this demand, is currently starting its ramp-up phase.

The reported sales were down by -3.5% owing to the negative impact of currencies (primarily the British pound), and the reclassification of some Desso sales to other segments.

North America

Net sales in North America have been flat in the quarter (-0.6% organic growth) compared to a strong Q3 2015. Over the first nine months, the segment delivered a robust organic performance of +4.8%.

Tarkett continued to benefit from the growth of the LVT category (Luxury Vinyl Tiles), but faced a softer demand in the commercial carpet mostly in the corporate office sector.

On a reported basis, sales grew by +1.1%, following the reclassification of some sales from Desso Europe.

CIS, APAC & LATAM

In the CIS area, volumes declined at a similar rate to H1’s, leading to a -10.1% organic growth in the segment (excluding price increases in the CIS). The economic conditions in Russia remained difficult, consumer disposable income still being at a low level.

The CIS countries benefited from the three successive selling price increases implemented since September 2015: the ‘’lag effect’’ between currencies devaluation and the selling price increases positively impacted the adjusted EBITDA by €7m. Additionally, Tarkett kept reducing costs and further deployed productivity actions, allowing the segment to improve significantly its profitability versus both H1 2016 and H2 2015.

In Asia Pacific, the activity remained weak, both in Australia and in China. After two solid quarters, Latin America sales were finally impacted by the depressed economic environment, in particular Brazil.

Over the first nine months, the segment reported an organic decline of -8.7%.

Sports

After having enjoyed a strong second quarter, the Sports activity posted a slight organic decrease (-0.9%), owing to a lower proportion of turn-key projects that include revenues from civil engineering. Turf product sales kept growing and running tracks sales remained very dynamic. Over the first nine months, the segment achieved a strong organic growth of +5.1%.

Outlook 

During its Investor Day to be held tomorrow October 27th, 2016 in Paris, Tarkett will communicate its 2017-2020 objectives and strategic initiatives. In the fourth quarter, we anticipate demand to remain soft but we are confident in our ability to continue to improve profitability versus last year and generate strong cash flow. For the full year 2016, we expect net sales between €2,700m and €2,750m, adjusted EBITDA in the range of €315m to €330m and financial leverage between 1.2x and 1.4x adjusted EBITDA.

Financial Calendar

  • October 27, 2016: Investor Day
  • February 9, 2017 : 2016 Yearly Financial Results, to be released after Paris stock exchange closing
  • April 25, 2017: First Quarter 2017 Results, to be released after Paris stock exchange closing
  • April 27, 2017: Annual General Meeting