Caesarstone Company Overview June, 2018

Transcription

1 Caesarstone Company Overview June,

2 Written and oral statements made in this presentation and responses to various questions that reflect our views about our future performance, the Company s financial position, business strategy and plans and objectives of management for future operations constitute forward-looking statements under the Private Securities Litigation Reform Act of These statements, which contain words such as "believe, expect, anticipate, intend, estimate, forecast, project, will, may, should, plan, seek and similar expressions or references to future periods, reflect the beliefs and expectations of the Company and are subject to risks and uncertainties, including those described under Risk factors in the Company s most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission, that may cause actual results to differ materially from the results discussed in our forwardlooking statements. These risks and uncertainties include, among other factors, but are not limited to the strength of the home renovation and construction sectors; economic conditions within any of our key existing markets; actions by our competitors; changes in raw material prices, particularly polymer resins and pigments; fluctuations in currency exchange rates; the success of our expansion efforts in the United States; the outcome of silicosis claims and the claim by our former quartz processor; unpredictability of seasonal fluctuations in revenues; delays in manufacturing and other factors. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. These forward-looking statements are made only as of the date hereof, and neither the Company, nor any of its respective agents, employees or advisors intend, undertake or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice. Disclaimer This presentation includes certain non-gaap measures, which should all be considered in addition to, and not as a substitute for, comparable GAAP measures. A reconciliation of GAAP net income to adjusted EBITDA and adjusted net income are provided below. The Company provides these non- GAAP financial measures because it believes that they present a better measure of the Company s core business and management uses the non-gaap measures internally to evaluate the Company s ongoing performance. Accordingly, the Company believes that they are useful to investors in enhancing an understanding of the Company s operating performance. However these measures should not be considered as substitutes for GAAP measures and may be inconsistent with similar measures presented by other companies. 2

3 A Global Leader in the Attractive Quartz Surface Market Caesarstone invented the engineered quartz countertop; Product and the market Diversified geographical revenue with North America portion of ~58% Proven track record of innovation and sustainable growth Solid global distribution platform - across over 50 countries World-class capabilities in: Manufacturing, R&D and Marketing Attractive financial profile Premium brand, with superior customer value proposition A Global market leader with ~9% global market share (by volume) 1 Experienced and motivated management team 1 Source: Freedonia February 2017 study; company market share derived from company volume sales data and Freedonia global market size Caesarstone surfaces are a centrepiece in millions of homes around the world 3

4 Growth and Profitability Revenue ($mm) Gross Profit and % Margin ($mm) 39.4% 40.2% 43.0% 45.5% 42.4% 40.1% 39.5% 33.5% Adj. EBITDA and % Margin ($mm) Adj. Net Income and % Margin ($mm) % % 23.4% 25.7% 26.1% 25.2% 24.2% % % % 14.8% % 18.4% 16.8% 15.1% % ¹ Adjusted net income attributable to controlling interest 4

5 Market Share The Quartz Market Opportunity 1 Between Total Counter-top market grew 4.9% CAGR Quartz Counter-top market grew 17.9% CAGR $95B 1 Global Counter-top Market The market is historically dominated by Granite, Solid Surface & Laminate Marble - 4% Laminates - 10% Granite - 27% Other - 20% Solid Surfaces - 24% Material Segmentation (2016 sales) Engineered Quartz - 16% Counter-top Material Share 2010 vs.2016 Quartz Is the Fastest Growing Category and Is Still In Its Growth Phase Quartz 7% 16% Quartz 16% 27% Granite 24% Solid Surface Laminate 17% 10% 10% Laminate Granite 28% 27% 4% 4% Marble Development Growth Maturity Dwindling 1 Source: Freedonia February 2017 study; company market share derived from company volume sales data and Freedonia global market size 2 Based on Freedonia retail price (end-user consumer installed price, which includes installation and other related costs) 5

6 Caesarstone s Superior Value Proposition Killer application - Superior to any natural stone Endorsement Impact Resistant Scratch Resistant Stain Resistant Heat Resistant Non Porous Flexible Easy Fabrication Multi-functional Versatile Designs Quartz received the highest overall score among countertop materials Consumer Reports Magazine, USA With computers, quartz has supplanted granite as the people s choice The Washington post, USA You walk into a home and you see the kitchen has Caesarstone in it. It changes the way you look at the value of that house Ty Pennington, TV Personality, USA To me, Caesarstone is where beauty and function come together Mario Batali, Prominent Chef, USA Low cost of ownership & Ever lasting beauty Caesarstone - where creativity meets quality 6

7 A Comprehensive and Lucrative Product Offering Classico Metropolitan Supernatural Concetto P r e m i u m p o s i t i o n i n g Our wide range of evergreen colors and designs Inspired by the industrial trend Proprietary technology Inspired by nature Luxurious marble & granite designs Proprietary technology Hand-incorporated semi-precious stones 7

8 Leading Global Footprint with Diverse Revenue Mix Canada UK USA Israel Singapore 31 Caesarstone Direct Sales in 6 countries (DC & offices) 48 Caesarstone Distributors Australia 10% Indirect distribution 2017 Channels Split 90% Direct distribution 6% - ROW 5% - Europe 8% - Israel 17% - Canada 2017 Region Split 23% - Australia 42% - USA CS partners along the value chain A&D ~240 K K&B ~18 K Fabricators ~9 K Developers/builders ~9 K relevant in the direct sales market 8

9 Positioned to Capture Future Quartz Market expansion Quartz Share of Total Countertop market )By Volume( 1 Caesarstone Market Share )By Volume( 2 82% 87% % % 32% 45% 39% 24% 9% 5% 14% 13% Israel Australia Canada U.S. Israel Australia Canada U.S. 1 Source: Freedonia February Sales figures are based on retail price (end-user consumer installed price, which includes installation and other related costs) 2 company market share derived from company volume sales data and Freedonia market size in each region 9

10 The U.S. Remains a Significant Opportunity U.S. New Housing Starts 1 U.S. Home Improvement Product Sales 2 1,177k 1,286k $327 bn $397 bn E E U.S. Market Penetration (by volume) 3 Caesarstone U.S. Revenue Performance ($mm) 1% increase in penetration $390mm 4 5% 14% YoY organic growth 21% 9% % % 20% 186 (0%) 10% Quartz Share of Countertop Market HousingEconomics.com Feb 18 2 Home Improvement Research Institute, September Source: Freedonia February Company market share derived from company sales volume data and Fredonia market size 4 Calculation applies 1% increase in quartz penetration (by volume) based on 2016 total market volume and 2016 quartz retail prices as provided by Freedonia February 2017 report 10

11 The Surface of Choice in Commercial Properties A long list of design celebrities have chosen CS for their private residences for ex.: Tommy Hilfiger Cher Alexandra Von Furstenberg Courtney Cox Mario Batali Neal Patrick Harris 12

12 Pioneering Innovative Designs and Technology Color Leadership Rugged Concrete

13 Pioneering Innovative Designs and Colors Proprietary Technology Excava

14 Pioneering Innovative Designs and Colors A Trend Setter Cloudburst concrete

15 World Class Manufacturing and R&D Capabilities 3 Production sites 1 in The US, Richmond hill 2 lines 2 in Israel: Sdot Yam and Bar-lev 5 lines Leading by Innovation Caesarstone invented the engineered quartz countertop Since then, our R&D capabilities have advanced to maintain the company s product line at the forefront of the industry Our technologies, product & colors, have been a role model to a long list of followers The company intends to accelerate the investment in R&D and boost the throughput of its capabilities 17

16 Express yourself with Caesarstone 18

17 Financial section 19

18 Quarterly Financial Performance Revenue ($mm) Adj. EBITDA ($mm) YoY Growth: Q1 Q2 Q3 Q4 YoY Growth: Q1 Q2 Q3 Q % 30.4% 30.7% 17.4% % 9.9% 11.0% 12.1% % 11.6% 5.5% 6.0% % 4.6% 7.2% 9.7% (0.3%) % 23.3% 42.4% 16.1% % 10.4% 0.8% 8.2% (9.8%) 18.7% 3.6% (1.5%) % (25.5%) (31.8%) (30.0%) (53.8%) Consistent year-over-year revenue growth across quarters (Industry characterized by seasonality with strong Q3 and weaker Q1 annually) - Solid and growing Adjusted EBITDA through Experiencing significant margin erosion since Q2 17 primarily related to manufacturing challenges, Israel throughput decrease, Polyester prices and strategic M&S investments in the U.S and UK - Commenced counter-measures to improve manufacturing performance

19 Q1 18 Financial Performance Revenue (3.7%) CCB (0.3%) $ Gross Profit (30.5%) $136.4M $136.1M M$ $49.2M $34.2M % margin 36.1% 25.2% Q1'17 Q1'18 Q1'17 Q1'18 (2.2%) 0.1% (5.2%) (6.0%) o The decline in the U.S. was mainly the result of a more competitive environment, including price pressure, and execution challenges o Reduced throughput in Israel o Inventory charges related to logistical inefficiencies, primarily in the U.S. distribution o Increased raw material costs (mainly Polyester) o lower volume and average selling prices in certain regions o Favorable regional mix Adj. EBITDA Adj. Net Income M$ $24.3M (53.8%) M$ $12.5M (73.1%) $11.2M $3.4M % margin 17.8% 8.2% EPS 0.36$ 0.10$ Q1'17 Q1'18 o Gross margin drivers partially offset by reduction in operating expenses due to timing of marketing and selling expenses year over year Q1'17 Q1'18 21

20 Caesarstone Cash Flow Supports Future Growth Capital Expenditure ($mm) Free Cash Flow ($mm) $86.4 $76.5 $13.0M Q1'17 Q1'18 $27.4 $22.9 $22.7 $5.5 $8.8 $13.5 ($25.1M) % of revenue: % 3.4% 4.5% 7.7% 19.3% 15.3% 4.3% 3.8% Q1 18 included: $14.2 million of cash to settle the previously announced Microgil arbitration $10.5 million for payment of the dividend Adj. EBITDA Less Capital Expenditure ($mm) $107.3 Flexible capital structure with $112.1M in cash and short term bank deposits $77.7 $45.0 $50.0 $56.0 $64.3 $30.2 $49.2 Caesarstone current cash position and future cash generation should enable us to accelerate investments in future growth opportunities, both organically and via potential acquisitions % of revenue: 22.6% 19.3% 18.9% 18.0% 6.7% 9.8% 19.9% 13.2% 22

21 Caesarstone - Recent Challenges % GM % Adj EBITDA 30.0 Two major challenges affecting our performance: 1. Competition and execution mainly in the US Increased low cost competition, mainly from China Internal sales and logistics execution challenges 2. Manufacturing efficiency: 36.5% % Innovative designs and colors putting more pressure on our production Richmond Hill ramp up is longer and more complex than anticipated Gross Profit and % Margin and Adj EBITDA ($mm) 42.1% % 40.5% % 38.1% % 36.1% % 34.9% % 32.1% 31.3% % % 25.2% % 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% Short term key focus areas: U.S. Enter and expand Big Box channel Develop an optimized distribution strategy Leadership change Operation Operations process improvement lead by our new VP Operation Richmond Hill Sep 17 leadership change and know-how transfer from Israel already showing major positive results Enhance offering introducing Innovative designs and colors % 10.0% % - Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 0.0% 23

22 CEO Message From Industrial Leader to a World Class Commercial Organization Caesarstone was established as a manufacturer a plant with an innovative superior product. Over the years, it consolidated its sale s channels and developed a desirable premium brand. The company will continue to increase the proximity and the offering to its customers base worldwide. To do that, we will need to continue to shift the center of gravity of the company, from an industrial leader to a world class commercial organization. Along this journey, we will need to use our special tools innovation, superior service, premium brand,together with our experienced and motivated team. 24

23 Thank You 25

24 Adjusted EBITDA Reconciliation USD (0,000) 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A Net Income $29,006 $29,304 $40,367 $64,353 $80,256 $79,458 $76,483 $27,558 Interest Expense, net $2,370 $4,775 $2,773 $1,314 $1,048 $3,085 $3,318 $5,583 Taxes on income $7,399 $3,600 $6,821 $10,336 $13,738 $13,843 $13,003 $7,402 Depreciation and Amortization $10,034 $14,615 $14,368 $14,994 $17,176 $22,334 $28,254 $29,926 Legal settlements and loss contingencies (1) $4,654 $5,868 $24,797 Equity in losses of affiliate, net -$296 -$67 Minority Share in Canada (45%) $348 $252 Adj.EBITDA $49,105 $52,361 $64,329 $90,997 $112,218 $123,374 $126,926 % of sale $0 $0 $0 $0 $0 $0 Compensation paid by a shareholder (2) $266 Excess cost of acquired inventory (3) $4,021 $885 $188 $231 Share-based compensation expense (4) $1,384 $1,259 $3,007 $2,514 $2,642 $2,293 $3,068 $5,277 Inventory - change of estimate -$3,458 $0 Follow-on expenses (5) $1,470 $657 IPO bonus $1,970 Caesarstone USA contingent consideration adjustment $255 Litigation gain -$1,783 -$1,001 Microgil loan and inventory write down $2,916 Provision for employees fringe benefits (6) $939 -$114 Settlement with the tax authorities -$134 Adjusted EBITDA $50,489 $58,774 $69,445 $91,711 $116,553 $125,667 $130,260 $100,429 % of sale 25.4% 22.6% 23.4% 25.7% 26.1% 25.2% 24.2% 17.1% (1) Consists of legal settlements expenses and loss contingencies, net, in 2017 related primarily to Kfar Giladi arbitration, as well as to product liability claims and other adjustments to on-going legal claims. (2) One time bonus paid by a shareholder to Company's employees. (3) Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in (4) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises. (5) Consists of direct expenses related to a follow-on offering that closed in June (6) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel. 26

25 Adjusted Net Income Attributable to Controlling Interest Reconciliation USD (0,000) 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A Net income attributable to controlling interest $28,658 $29,052 $39,632 $63,344 $78,436 $77,766 $74,596 $26,202 Legal settlements and loss contingencies (1) $4,654 $5,868 $24,797 Compensation paid by a shareholder (2) $266 Excess cost of acquired inventory (3) $4,021 $885 $188 $231 Share-based compensation expense (4) $1,384 $1,259 $3,007 $2,514 $2,642 $2,293 $3,068 $5,277 IPO bonus $1,970 Caesarstone USA contingent consideration adjustment $255 Inventory - change of estimate -$3,458 $0 Follow-on expenses (5) $1,470 $657 Litigation gain -$1,783 -$1,001 Microgil loan and inventory write down $2,916 Provision for employees fringe benefits (6) $114 Settlement with the tax authorities Tax adjustment (7) $1,158 Total adjustments before tax $1,384 $6,413 $5,116 $714 $4,677 $6,947 $8,044 $29,960 Less tax on above adjustments (8) $279 $700 $740 $99 $618 $1,031 $1,456 $6,343 Total adjustments after tax $1,105 $5,713 $4,376 $615 $4,059 $5,916 $6,588 $23,617 Adjusted Net Income $29,763 $34,765 $44,008 $63,959 $82,495 $83,682 $81,184 $49,819 % of sales 15.0% 13.4% 14.8% 17.9% 18.4% 16.8% 15.1% 8.5% (1) Consists of legal settlements expenses and loss contingencies, net, in 2017 related primarily to Kfar Giladi arbitration, as well as to product liability claims and other One time bonus paid by a shareholder to Company's employees. (2) Consists of charges to cost of goods sold for the difference between the higher carrying cost of the inventory of two of the Company's subsidiaries- Caesarstone USA's inventory at the time of its acquisition and inventory that was purchased from its distributor and Caesarstone Australia Pty Limited's inventory that was purchased from its distributor, and the standard cost of the Company's inventory- which adversely impacts the Company's gross margins until such inventory is sold. The majority of the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in (3) Share-based compensation includes expenses related to stock options and restricted stock units granted to employees of the Company. In addition, includes expenses for phantom awards granted and related payroll expenses as a result of exercises. (4) Consists of direct expenses related to a follow-on offering that closed in June (5) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israel Tax Authority and with the National Insurance Institute of Israel. (6) Relates to an adjustment of provision for taxable employee fringe benefits as a result of a settlement with the Israeli Tax Authority and with the National Insurance Intitute of Israel. (7) Tax adjustments for the three and twelve months ended December 31, 2017 and 2016 were based on the effective tax rates for these periods, respectively. 27