Caesarstone Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing; quarterly figures below provide the Q4 comparison. Amounts are U.S. dollars unless stated otherwise.
Business context and reporting period
Caesarstone designs, manufactures, sources and resells engineered quartz, porcelain and natural stone surfaces, primarily for countertops. Products are sold in more than 50 countries. The United States, Australia (including New Zealand), Canada and Israel represented 85.1% of FY2021 revenue. Results include the Omicron U.S. business and the Lioli porcelain business.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $643.9 million | $486.4 million |
| Gross profit / margin | $171.5 million / 26.6% | $133.9 million / 27.5% |
| Operating income / margin | $27.4 million / 4.3% | $22.5 million / 4.6% |
| Net income | $17.9 million | $7.6 million |
| Net income attributable to controlling interest | $19.0 million | $7.2 million |
| Adjusted EBITDA / margin | $68.2 million / 10.6% | $62.1 million / 12.8% |
| Net cash from operating activities | $20.7 million | $47.6 million |
Adjusted EBITDA and adjusted net income are non-GAAP measures; the company excludes items including legal settlements, acquisition-related amortization and share-based compensation. FY2021 adjusted net income attributable to controlling interest was $28.6 million, versus $16.5 million in FY2020. Basic and diluted EPS were $0.51, versus $0.21.
Q4 2021: Revenue was $171.1 million, gross profit $39.7 million (23.2% margin), operating income $3.3 million and net loss $3.3 million. Adjusted EBITDA was $11.5 million and adjusted net income attributable to controlling interest was $0.2 million. Q4 2020 revenue was $136.9 million and net loss was $2.0 million.
Balance sheet and liquidity: At year-end, cash and cash equivalents were $74.3 million, marketable securities totaled $19.9 million, current assets were $408.5 million and current liabilities were $183.3 million. Short-term bank credit and current maturities totaled $12.5 million; the filing reports $18.1 million utilized of $18.9 million in available short-term credit lines. Operating lease liabilities were $166.1 million, with $182.2 million in undiscounted future lease payments. The company said existing cash, operating cash flow and available borrowing capacity should meet capital expenditure, working-capital and liquidity needs for at least the next 12 months.
Operating cash flow fell to $20.7 million, principally as inventory increased $54.2 million. Capital expenditures were $31.5 million. Cash and cash equivalents declined from $114.2 million to $74.3 million. The company paid $10.7 million in dividends during 2021, including $0.10 per share in Q4.
Material changes versus the prior comparable period
- Revenue rose 32.4% year over year, driven mainly by acquisitions and higher demand; on a constant-currency basis, revenue increased 28.1%.
- Gross margin declined 0.9 percentage points to 26.6%, and adjusted EBITDA margin declined 2.2 points to 10.6%. Management cited sharply higher polyester and shipping costs, partly offset by selling-price increases, product mix and favorable exchange rates. Average polyester cost rose about 54% and quartz cost rose 12%.
- Operating cash flow decreased by $26.9 million, with higher inventory the principal stated factor. Marketing and selling expense rose 38.2% to $85.7 million, partly reflecting growth spending and the acquired businesses.
- Finance expense, net decreased to $7.6 million from $10.2 million, primarily reflecting derivative gains. The effective tax rate fell to 9.8% from 38.1%.
- Year-end inventory rose to $204.7 million from $152.1 million. Cash and cash equivalents decreased by $39.9 million during 2021.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no quantified revenue or earnings guidance. Management expected supply-chain disruption to continue through 2022 and planned to return manufacturing-facility capital expenditures toward pre-COVID levels in coming years.
- Supply and input costs: COVID-related logistics constraints, raw-material price volatility and dependence on Turkish quartz suppliers remain risks. The filing also warns that the Ukraine conflict could disrupt supply of clay and bentonite used in porcelain production and increase costs.
- Silica litigation: The company recorded approximately $42.9 million for bodily-injury claims in Israel and Australia; it cited $6.7 million of insurance receivables and estimated net exposure of about $36.2 million. Insurance coverage for newly diagnosed silicosis claims is limited or unavailable in some markets. The Israeli class-action settlement requires a one-time payment of NIS 9.0 million (about $2.9 million), with performance continuing into 2022.
- Debt covenant: Lioli was not in compliance with certain Indian bank-loan covenants at year-end, so its approximately $9.5 million loan was classified as current. The filing says a replacement loan agreement was signed in January 2022.
- Goodwill: Goodwill was $45.8 million. The auditor identified market capitalization below book equity as an impairment indicator; the company recorded no impairment, but the valuation depends on forecasts and other significant assumptions.
- Other exposures: The company disclosed a $3.8 million liability for uncertain tax positions, regulatory scrutiny over styrene emissions at Israeli plants, and continuing integration and employee-retention challenges at Lioli and Omicron. Kibbutz Sdot-Yam and Tene together beneficially owned about 40.7% of shares as of March 2022, and related-party leases and services are material.
Most important facts for investors to verify
- Whether price increases and product mix can offset raw-material, freight, labor and other cost inflation without weakening demand or margins.
- Whether inventory growth converts to sales and cash, and whether operating cash flow recovers from FY2021’s decline.
- Lioli’s covenant position, the terms and execution of the replacement financing, and the acquired businesses’ operating performance and integration progress.
- The adequacy of the silica-claims provision and insurance recoveries, including potential developments in litigation, regulation and coverage.
- Goodwill impairment sensitivity, future lease and related-party payment obligations, and the company’s ability to maintain liquidity as credit lines are heavily utilized.