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Balta warns 2019 profits will be flat

Flooring group Balta has warned that it expects profits to be flat in 2019 after seeing a 14% drop in profits for 2018.

The group was hit by double-digit drops in rug and residential sales in the year to 31 December, but commercial sales rose strongly, particularly in the US.

Like for like residential sales fell by 11.9%, rugs sales by 10.4% while commercial sales rose by 10.8%.

The commercial division became the group’s largest, helped by the integration of 2017’s Bentley acquisition. Sales rose 25.1% to €214.8m. Residential saw overall sales drop by 12.1% to €206.3m while rugs dropped 13.2% to €198.3.

Divisional profitability rose by 27.8% to €30.6m for commercial, fell 43.4% to €11.4m for residential and by 25.7% to €27.9m for rugs.

As a group full-year sales dropped 2.3% to €636.2m with adjusted EBITDA down 14.2% to €72.4m.

‘We anticipate 2019 to be another challenging and transformational year for our business with adjusted EBITDA broadly flat versus 2018. Our outlook is based on a moderate macro-economic view with the trends we have seen in 2018 set to continue. In general, the European retail trading environment, amplified by Brexit uncertainty, is expected to remain a challenging backdrop for our residential and rugs businesses in Europe. At the same time, the outlook for our US rugs and commercial businesses remains more positive. 2019 will be marked by continued industry-wide raw material and other cost inflation as well as our growth investments in salesforce and related infrastructure. We expect the impact on our full year earnings to be offset by the price actions we have taken together with the first benefits from our growth and cost saving initiatives, which will have a more significant impact as from 2020,’ said Cyrille Ragoucy, Balta chairman and interim ceo.

‘Looking back, 2018 has proven to be a difficult year for Balta. First, we were impacted by a slow trading environment across some of our key markets. In addition, we did not escape the industry-wide trend of cost inflation in raw materials, freight and energy costs. Despite the strong performance of our commercial business and having executed well on the six key initiatives, the aforementioned headwinds led us to lower our expectations for the full year at our H1 2018 results. We ended the year with an improved Q4 in line with this revised guidance.

‘The trading environment across some of our key markets has been challenging throughout most of the year. At the same time, the raw material price increases that started impacting our performance in the second half of 2017 continued to have an adverse effect in 2018 as expected. But in addition to raw materials, inflation in energy and freight costs weighed on earnings.

‘In UK residential, volumes saw a sharp decline after Boxing Day 2017, a trend that continued throughout 2018 as retail and wholesale were under pressure amid a longer period of unfavorable weather and declining consumer confidence. In European rugs, after a good start to the year, trading worsened as of the second quarter and our customers started indicating lower footfall in their stores, with only a slightly improved trend towards the end of the year. Finally, in US rugs, we lost share of wallet with two home improvement customers for the 2018 outdoor season. Despite regaining part of the share of wallet with these customers for the new season resulting in year-on-year growth in H2 2018 and growth in the rest of the US business this was a setback after consecutive years of growth in US rugs. The lower volumes in rugs and residential have materially impacted our earnings evolution year on year.

‘While we saw a decline in our rugs and residential businesses, our commercial division delivered strong growth in 2018, driven by further market share gains in the US where we strengthened our sales teams across the country and increased our focus on national and global accounts.

‘At the start of the year we laid out six key priorities for 2018, focused on growing profitable revenue and delivering an increased level of cost savings. We returned to growth in US rugs in the second half of the year, delivered a solid performance in commercial and increased the share of higher margin broadloom products in residential. At the same time, we successfully completed the residential operational footprint reorganisation, realised the operational synergies from the Bentley acquisition and continued our focus on operational excellence. Though we executed well on these six initiatives, the associated benefits we realised were not sufficient to offset the new headwinds we faced,’ he said.