Business context and reporting period
Caesarstone Ltd. designs, sources, manufactures and sells engineered stone, porcelain and natural stone surfaces, primarily for countertops, in more than 60 countries. This Form 20-F covers the fiscal year ended December 31, 2023; it is an annual report, not a standalone Q4 filing. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars.
The company closed its Sdot-Yam, Israel production facility during 2023 and announced the closure of its Richmond Hill, Georgia facility, effective mid-January 2024, as it restructures its manufacturing footprint and increases sourcing from third-party production partners.
Key financial metrics
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $565.2 million | $690.8 million |
| Gross profit / margin | $91.9 million / 16.3% | $163.2 million / 23.6% |
| Operating income (loss) | $(88.0) million | $(58.7) million |
| Net income (loss), consolidated | $(108.2) million | $(56.4) million |
| Net income (loss) attributable to controlling interest | $(107.7) million | $(57.1) million |
| Basic and diluted loss per share | $(3.13) | $(1.66) |
| Adjusted EBITDA, non-GAAP | $(9.4) million | $51.9 million |
| Operating cash flow | $66.5 million | $(23.3) million |
| Capital expenditures | $11.2 million | $17.8 million |
Cash and cash equivalents were $54.6 million and short-term bank deposits were $36.5 million at year-end, for approximately $91.1 million in combined cash and deposits. Current assets were $319.9 million versus current liabilities of $121.2 million. The balance sheet shows $5.1 million of current bank credit and maturities plus a $2.1 million long-term bank loan; it also reports a $0.5 million long-term related-party loan. Separately, the contractual-obligations discussion describes $5.1 million of bank credits and debt as due within 12 months, so the filing’s debt presentation should be reconciled. Lease liabilities totaled $138.1 million, including $26.0 million due within 12 months.
Operating cash flow benefited substantially from a $101.5 million inventory reduction; inventory fell from $238.2 million to $136.4 million. Management said cash, operating cash flow and available borrowing capacity were expected to cover capital, working-capital and liquidity needs for at least the next 12 months. This is management’s assessment, not a guarantee.
Material changes versus the prior comparable period
- Revenue declined 18.2% year over year, or 17% on a constant-currency basis, primarily due to lower sales volumes amid inflation, higher interest rates, weaker housing activity and competitive pressures. The United States, the largest market, contributed 48.1% of 2023 revenue; Australia, Canada and Israel contributed 18.8%, 13.4% and 4.0%, respectively.
- Gross margin contracted to 16.3% from 23.6%. Management cited lower plant utilization and fixed-cost absorption, higher unit logistics costs and raw-material costs, partly offset by lower shipping costs and favorable selling prices. Average costs of minerals and polyester fell during 2023, but did not prevent margin deterioration.
- Adjusted EBITDA swung to a $9.4 million loss from $51.9 million of adjusted EBITDA in 2022. Adjusted net loss attributable to controlling interest was $46.4 million, compared with adjusted net income of $10.6 million. These are non-GAAP measures and should be considered alongside GAAP results.
- The 2023 income statement included $47.9 million of impairment and restructuring expense. The filing identifies $45.0 million of noncash long-lived-asset impairments, including a $27.5 million charge for Richmond Hill and $16.6 million for the Sdot-Yam right-of-use asset, as well as approximately $2.9 million of restructuring costs. Goodwill had been fully impaired in 2022, when the company recorded a $44.8 million charge.
- Operating cash flow improved from a $23.3 million use to $66.5 million provided, mainly reflecting inventory liquidation and lower raw-material and shipping costs. Investing cash use was $40.5 million, including $36.5 million placed in short-term bank deposits and $11.2 million of capital expenditures. Financing cash use was $23.8 million, primarily bank-credit repayments. No dividend was paid in 2023.
Outlook, commentary and principal risks
- No specific 2024 revenue or earnings guidance is provided in the supplied filing text. The company expects to increase purchases from production business partners (PBPs); third-party-produced products represented approximately 22.4% of 2023 revenue. Management expects this sourcing trend to continue in 2024.
- The company expects the Richmond Hill closure to generate approximately $20 million in annual savings through footprint optimization. The savings are forward-looking and depend on successful implementation and the ability to maintain supply, quality and service through remaining facilities and third parties.
- Australia’s announced ban on the use, supply and manufacture of crystalline-silica-containing engineered stone is expected to take effect July 1, 2024, subject to formal adoption. Australia accounted for 18.8% of 2023 revenue. Caesarstone is working to offer alternative materials, but demand and replacement-sales outcomes remain uncertain.
- Silicosis and other bodily-injury litigation is a significant contingency. The company estimated approximately $25.7 million of exposure for pending claims in Israel and Australia and recorded a provision; it reported $8.4 million of insurance receivables and estimated net exposure of $17.3 million. U.S. claims were at an early stage and the company could not estimate their outcome. Actual losses and insurance recoveries could differ materially.
- Other material risks include continued weakness in renovation and residential construction, reliance on a concentrated group of markets and major retailers, increased PBP dependence, supply-chain disruption and concentration in Turkish mineral suppliers, foreign-exchange exposure, and the potential effect of Israel’s war and related disruptions on employees, operations and shipping. The company reported 42 Israeli employees called up for reserve duty.
- The company recorded $21.3 million of income-tax expense in 2023 and established a full valuation allowance on deferred tax assets in Israel and the United States after three consecutive years of taxable losses in those jurisdictions. Future tax benefits and cash taxes may be affected by tax-authority challenges and eligibility requirements for Israeli incentives.
Most important facts for investors to verify
- Reconcile the debt disclosures: the balance sheet reports $7.2 million of bank borrowings in total, while the contractual-obligations section cites $5.1 million due within 12 months.
- Track whether demand, volumes and gross margin stabilize, and whether the company can return to positive adjusted EBITDA without relying on non-GAAP adjustments.
- Assess realized savings and operational effects from the Richmond Hill closure, and the cost, quality and delivery risks of greater PBP sourcing.
- Monitor implementation and sales impact of Australia’s silica-containing engineered-stone ban, including the pace of alternative-product adoption.
- Follow silicosis claim developments, changes to the recorded provision, and collection of the reported insurance receivables.
- Evaluate liquidity and cash conversion after the significant inventory reduction, alongside lease obligations, capital needs and the company’s stated 12-month liquidity outlook.