Q3 2018 Results
Dynamic organic growth
EBITDA margin supported by selling price
increases in a context of significant purchasing cost inflation
Paris, October 23, 2018
- Robust organic growth(1) in Q3 2018 (+3.4% vs. Q3 2017), thanks to very strong momentum in Sports (+11.8%)(1) and North America’s good performance (+4.3%)(1)
- On-going positive impact from higher selling prices, partly covering increased raw materials and transportation costs
- Q3 2018 adjusted EBITDA(2) of €98m and adjusted EBITDA margin of 11.6%
- Completion of the acquisition of Lexmark, one of the North American leaders in carpet for the hospitality segment
(1) Organic growth: at constant scope of consolidation and exchange rates (note that in the CIS segment, price increases implemented to offset currency fluctuations are not included in organic growth, which therefore only reflects volume and price effects). 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’s sales continued to grow at a good rate in the third quarter of 2018 and organic growth was up 3.4% compared with Q3 2017, despite the high basis of comparison (Q3 2017 +6.1% vs Q3 2016). Price rises applied earlier in the year are starting to pay off and contributed 0.9 % to sales growth. In North America, additional price increases were applied in September.
The Sports segment remained particularly buoyant in the most important quarter of the year, achieving organic growth of 11.8%. The North America segment continued to improve its performance (+4.3% compared to +3.7% in Q2 2018), boosted by rising volumes and the growing impact of increased selling prices. In EMEA, organic growth was slower (0.9% compared with Q3 2017) due to weaker business levels in France and the UK. Sales fell 4.8%, across CIS, APAC and Latin America segment, suffering notably from uncertain demand in Russia. The Asia-Pacific region continued to grow and selling prices were raised substantially in Latin America.
Reported sales grew by 2.0% compared with Q3 2017 due to adverse exchange-rate movements (-1.9%), mainly related to the Swedish krona and Brazilian real. Changes in scope had a positive impact of 0.5%, mainly due to the Group acquiring Grassman’s assets, a leading Australian synthetic turf manufacturer that generated sales of around €10m in 2017.
The Group’s adjusted EBITDA amounted to €98m in Q3 2018. EBITDA margin came in at 11.6% compared to 12.3% in Q3 2017. Group profitability is affected by a very significant increase in raw material and freight costs (-€13.4m), as well as adverse currency effects (-3.2m, mainly due to the Australian dollar and Brazilian real). Those negative effects are partially covered by the selling price increases, mainly in North America and in EMEA, with a positive impact of €7.1m. Thanks to actions taken at the end of the second quarter in the CIS countries, the net impact of currencies and selling prices evolutions (“lag effect”) was clearly positive at €3.5m.
Net productivity gains amounted to only €3.0m, mainly due to the under-performance of two production sites in North America in a context of strong volumes. In addition, cost containment and targeted restructuring measures continued to yield savings, offsetting normal wage increases.
The acquisition of Lexmark, one of the North American leaders of carpet for hospitality ($120m of sales in 2017) was completed in late September 2018. Lexmark will be consolidated from the fourth quarter onwards. Given Lexmark’s strong performance, the transaction will be immediately accretive to the Group’s EBITDA margin, up to 50 basis points after synergies on a full year basis.
Commenting on these results, Fabrice Barthélemy, Acting CEO, said:
“Tarkett achieved dynamic growth in the third quarter of 2018 mainly thanks to good performance in Sports and Luxury Vinyl Tiles (LVT). As previously announced, selling price increases have reduced the significant impact of inflation in raw materials and transportation costs. In Russia, the activity has been penalized by a more hesitant demand, but the weakness of the ruble was fully offset by selling price increases. We are focused on achieving sustainable profitability improvement through selling price increases, improved industrial performance in North America, accelerated cost reductions and synergies with Lexmark."