2018 Annual Results
Good organic growth (+2.1%) in 2018
Profitability penalized by raw materials
2019: priority to improvement of profitability
and cash-flow generation
Paris, February 7, 2019
- Organic growth of 2.1%(1), benefiting from the performance of Sports (+11.7% (1))
- Net sales of €2,836 million, down 0.2% vs. 2017 due to adverse currencies (-3.6% )
- Lower adjusted EBITDA(2): €249 million (8.8% of sales) mainly penalized by raw material inflation
- Net profit(3) of €49 million, equal to €0.78 per share
- Net debt/adjusted EBITDA pro forma : 2.8x
- Dividend unchanged (€0.60 per share) with the option to receive payment in new shares, to be proposed at the AGM
- Focus on cost reduction and cash-flow generation
- Transformation program underway - Presentation of a new strategic plan in June
(1) Organic growth: at constant scope of consolidation and exchange rates (note that in the CIS and Turkey, price increases implemented to offset currency fluctuations are not included in organic growth, which only reflects changes in volumes and the product mix). See the definition of alternative performance indicators at the end of this press release.
(2) Adjusted EBITDA: adjustments include expenses such as restructuring, acquisitions and share-based payment expenses. See the definition of alternative performance indicators at the end of this press release.
(3) Net profit attributable to owners of the Company.
Net sales amounted to €2,836 million in 2018, representing an organic growth of 2.1% compared with 2017, driven by higher volumes, as well as price increases mainly in EMEA and North America.
The Sports segment once again achieved strong organic growth (11.7%), supported by all product categories in all geographical zones. In North America segment, higher selling prices resulted in organic net sales growth of 1.3% in 2018, despite a drop (-2.2%) in Q4 because of production difficulties that affected volumes. Sales in the EMEA segment were stable (-0.1%) in 2018 and up 1.9% in Q4, due in particular to firm momentum in Germany and Central Europe. The CIS, APAC & Latin America segment posted a slight decrease in net sales (-1.5%) after the second half saw consumers become more hesitant in the CIS countries.
Reported sales were stable compared with 2017 (-0.2%). Exchange rates had a 3.6% negative effect, mainly because of the decline in the US dollar, Swedish krona and Brazilian real against the euro. Changes in scope had a 1.3% positive effect, mainly resulting from the acquisitions of Lexmark, one of North America’s leading producers of carpet for the hospitality industry ($120 million of sales in 2017, consolidated in the fourth quarter of 2018) and Grassman, a leading Australian producer of artificial turf (€10 million of sales in 2017, consolidated from February 2018).
Adjusted EBITDA amounted to €249 million versus €315 million in 2017 and the adjusted EBITDA margin came in at 8.8% compared to 11.1% in 2017. The decline in adjusted EBITDA firstly reflects the very large increase in raw materials and transport costs in all segments (negative impact of €48 million), although almost half of that was offset by selling price increases during the year in Europe and North America (positive impact of €22 million). The effect of those price increases gradually improved during the year, enabling the Group to offset almost 60% of its cost inflation in the second half.
Movements in volumes and the product mix had a negative impact on EBITDA in 2018 (-€20 million), mainly because of lower volumes of certain accretive products, such as commercial carpet in North America, as well as inventory reductions in the EMEA region. Adverse movements in exchange rates (CIS countries excluded) also had a negative effect amounting to €8 million. Conversely, the net impact of currency and selling-price movements in the CIS countries was positive because of good pricing management in the region (positive lag effect of €3 million).
Net productivity gains totalled €19 million, lower than the target because of difficulties at two North America production sites in the second half of the year. However, productivity more than offset wage increases (negative EBITDA effect of €14 million, in line with previous years). Recurring SG&A (sales, administrative and R&D costs) are stable. Total SG&A are nevertheless increasing significantly due to a number of one-offs, such as subsidies in 2017 and higher provisions for customer credit risk in 2018. Acquisitions improved Group EBITDA by €8 million. It should be noted that adjusted EBITDA of Sports in 2017 was boosted by $12 million after a positive settlement in a legal dispute.
Net profit attributable to owners of the Company amounted to €49 million (vs. a loss of €39 million in 2017).
Commenting on these results, Fabrice Barthélemy, CEO, said:
“Tarkett achieved good organic growth in 2018 despite a challenging environment in CIS countries. Increases in selling prices offset almost half of the adverse effect of raw materials and transportation costs. The integration of Lexmark is moving forward as expected. We are confident that we will quickly achieve the planned synergies. In the short term, we are focusing our efforts on reducing costs, managing selling prices and maintaining a highly disciplined approach to cash management.
In order to achieve a sustainable improvement in the financial performance of the Group, we have launched a transformation plan focused on innovation in our products and solutions, optimization of our industrial set-up, digital transition and our continued commitment to circular economy. We will detail the initiatives taken in these different areas in a new strategic plan to be presented next June.”