Last year, despite the global macroeconomic situation and supply chain difficulties, it seemed that the manufacturer of work surfaces for the home, Even Caesar of Kibbutz Sdot Yam, was finally on the right track, after several difficult years in its business. The company, which in 2018 experienced a severe upheaval that included a reduction in financial forecasts, frequent changes in management and a loss of confidence on the part of investors in the capital market, began to expand its activities in the field of production and marketing of surfaces for use in kitchens, bathrooms and toilets also for other raw materials besides quartz, made purchases and even began to talk about arriving for annual revenues of one billion dollars in 2025.
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However, in March of this year, Ibn Kiser surprised when he announced an almost immediate change in the position of the CEO: Yuval Magid, who managed the company from August 2018, was replaced by Yos (Yosef) Sheeran, who is in his second turn managing Ibn Kiser, after leading it between 2009- 2016, including during its initial public offering on Nasdaq in 2012. The previous CEO of Magid held the position for four and a half years, after replacing the interim CEO Yair Orbuch, who was appointed to the position after his predecessor, Ra’anan Zilberman, unexpectedly resigned from the position after only about a year.
Shiran didn’t wait long, and last week, alongside the publication of the financial statements for the first quarter of the year, he announced a global reorganization plan, which primarily includes the closing of the old Eben Kiser factory in Kibbutz Sdot Yam – the factory from which its operations began about 30 years ago. The move also includes the layoffs of about 150 employees, and this after at the end of last year Even Caesar parted with 200 employees in a previous streamlining process. This is a first step in streamlining and may be followed by more. At the end of 2022, Ibn Caesar employed 2,100 workers, of which 655 were from Israel. The company emphasizes that the closure of the factory will not affect its production, which will move partly to the site in the north of the country, and the smaller part to the USA and possibly to East Asia.
Sheeran explained that the reorganization plan “will allow us to best deal with the operational challenges the company is facing. First and foremost, we focus on improving cash flow.” He added that closing the factory is not an easy decision for the company, but “we believe this is a necessary step to streamline the production of Caesar Stone and make it more flexible, and to reduce our expenses. The old factory poses a series of challenges in order to meet the requirements of the local regulation.”
Caesar Stone could have upgraded the two production lines of the existing factory, at an expense estimated at many tens of millions of dollars. However, the heavy regulation in Israel made this upgrade unprofitable. A stricter standard concerning the emissions of styrene (a dangerous chemical emitted in the production of the company’s surfaces), which came into effect about a decade ago, has already led to large investments by Caesar Stone in regulation, costs that burdened the company. In February 2022, despite the struggle waged by the company, the standard was tightened. Against the background of the desire to improve the financial results, and despite the accompanying difficulty, the company decided to close the factory.
In the conference call held by the company with analysts after the publication of the reports, Sheeran said that “it is clear that Caesar Stone is behind in terms of its ability to present profitability and value to shareholders, and we are determined to improve this.” In his estimation, the reorganization plan will help the company return to profitability and capture market shares, as well as to improve the flow – in which it already recognizes an improvement, with a positive flow from operations amounting to $7.9 million in the first quarter.
Revenues in the quarter amounted to $151 million, an 11.6% decrease compared to the corresponding quarter, and the company posted a net loss of $3.8 million, compared to a profit in the corresponding quarter. On a non-GAAP basis, it lost $6 million, several times the analysts’ forecasts, and EBITDA shrank by more than 95% to $0.5 million. The company even suspended the annual forecast.
--A threatening front is active in Australia
One of the factors that probably paved Sheeran’s way back to the CEO throne, is the company’s situation in Australia, one of the main markets of Caesar Stone, with 16.8% of sales (including New Zealand) in 2022. Its other large markets are the USA (49.5% of sales) and Canada (13.5%).
In the first quarter of the year, sales in Australia remained unchanged from the corresponding quarter, when in local currency terms there was an increase, but the general trend there is less positive. At the beginning of the year, the issue of silicosis made headlines in Australia – an incurable lung disease that characterizes the workers exposed to the dust created when processing the surfaces produced by the company.
In the past, a huge class action lawsuit against the company in Israel by an injured employee ended in a settlement. Now, after publications in the local media, the Australian government is reviewing the regulation in the field, and a labor union launched a campaign in which it called on the government to ban the use of engineered stone from 2024 – a position that is supported by ministers in Australia.
There are already changes in various regions of Australia that limit the use of this material or place safety requirements regarding it. In Eben Kiser’s extended report for 2022, it states that regulatory initiatives in various countries are necessary to maintain health and safety, but such changes may disrupt the market or impose a burden on manufacturers and distributors, so that they switch to using other materials, which may harm the company’s business.
Also according to her, further changes in the regulation could significantly harm her business. Even Caesar employs 124 people in Australia. So it seems that the unsettled situation there had something to do with the change in the position of the CEO and possibly also for the need for reorganization. At the same time, the situation in the US is not promising either: in the conference call, Shiran was asked about the growth strategy there, and he replied that the company has a strong infrastructure and team, and intends to take steps to improve the results.
Total losses (on paper)
stock Caesar’s stone It was issued on Nasdaq in 2012 and three years later traded at a record price that reflected the company’s value of about 2.5 billion dollars. From that peak, the stock fell by about 93%. The biggest losers “on paper” from the current situation are the company’s largest shareholders – the Tana Investment Fund It is headed by Dr. Ariel Halperin and Kibbutz Sdot Yam, who together own about 40% of the shares (over 20 of those fired are Kibbutz members).
The Tana Fund, which focuses mainly on companies from the kibbutz industry, invested in Caesar Stone in 2006, and seven years later made an exit with a 5-fold return on the investment, when it sold shares for $186 million. In 2016, the fund returned for another investment round when it purchased shares for 43.5 million dollars. Later, after the stock fell, the fund purchased additional shares for approximately $30 million. Today, when the share price reflects a company value of only 160 million dollars, Tana, on paper, is losing tens of millions of dollars on its second round in Caesar’s Stone. The company’s shareholders must be hoping that Sheeran’s second round will be better than Keren Tana’s, at least as it stands so far.
