Company Overview June, 2018 1 Written and oral statements made in - - PowerPoint PPT Presentation

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Caesarstone Company Overview

June, 2018

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Disclaimer

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

• bjectives of management for future operations constitute “forward-looking statements” under the Private

Securities Litigation Reform Act of 1995. 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 forward- looking 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

• pinions contained in this document are provided as at the date of this presentation and are subject to

change without notice. 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.

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A Global Leader in the Attractive Quartz Surface Market

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Caesarstone invented the engineered quartz countertop; Solid global distribution platform - Proven track record of innovation and sustainable growth Diversified geographical revenue A Global market leader Premium brand, with superior customer value proposition World-class capabilities in: Experienced and motivated management team Attractive financial profile

Caesarstone surfaces are a centrepiece in millions of homes around the world

Product and the market with ~9% global market share (by volume)1 across over 50 countries with North America portion of ~58% Manufacturing, R&D and Marketing

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Growth and Profitability

198.8 259.7 296.6 356.6 447.4 499.5 538.5 588.1 2010 2011 2012 2013 2014 2015 2016 2017 78.3 104.3 127.4 162.1 189.7 200.2 212.5 197.2 39.4% 40.2% 43.0% 45.5% 42.4% 40.1% 39.5% 33.5% 2010 2011 2012 2013 2014 2015 2016 2017 50.5 58.8 69.4 91.7 116.6 125.7 130.3 100.4 25.4% 22.6% 23.4% 25.7% 26.1% 25.2% 24.2% 17.1% 2010 2011 2012 2013 2014 2015 2016 2017

¹ Adjusted net income attributable to controlling interest

29.8 34.8 44.0 64.0 82.5 83.7 81.2 49.8 15.0% 13.4% 14.8% 17.9% 18.4% 16.8% 15.1% 8.5% 2010 2011 2012 2013 2014 2015 2016 2017

Revenue ($mm) Gross Profit and % Margin ($mm)

• Adj. EBITDA and % Margin ($mm)
• Adj. Net Income and % Margin ($mm)1

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Quartz Is the Fastest Growing Category and Is Still In Its Growth Phase

The Quartz Market Opportunity1

2010 2016

Counter-top Material Share 2010 vs.2016

Granite Quartz

16%

Growth Development Maturity Dwindling

10%

Market Share

24% 27% 4%

Solid Surface Laminate 4% Marble

Between 2010 – 2016

Material Segmentation (2016 sales)

Engineered Quartz - 16%

Marble - 4% Laminates - 10% Other - 20% Granite - 27% Solid Surfaces - 24%

$95B1 Global Counter-top Market

The market is historically dominated by Granite, Solid Surface & Laminate

Total Counter-top market grew 4.9% CAGR Quartz Counter-top market grew 17.9% CAGR Granite 28% 27% Quartz 7% 16% Laminate 17% 10%

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Caesarstone’s Superior Value Proposition

Non Porous Scratch Resistant Multi-functional Easy Fabrication Flexible Stain Resistant Heat Resistant Impact Resistant Versatile Designs Killer application - Superior to any natural stone

Low cost of ownership & Ever lasting beauty

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

“

To me, Caesarstone is where beauty and function come together”

Mario Batali, Prominent Chef, USA

“

Endorsement

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

“

Caesarstone - where creativity meets quality

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A Comprehensive and Lucrative Product Offering

Our wide range

• f evergreen colors

and designs

Classico

Hand-incorporated semi-precious stones

Concetto

Inspired by the industrial trend Proprietary technology

Supernatural

Inspired by nature Luxurious marble & granite designs Proprietary technology

P r e m i u m p o s i t i o n i n g

Metropolitan

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2017 Region Split

Singapore Israel Canada USA Australia UK

Leading Global Footprint with Diverse Revenue Mix

CS partners along the value chain 31 Caesarstone Direct Sales in 6 countries (DC & offices) 48 Caesarstone Distributors

relevant in the direct sales market

2017 Channels Split

23% - Australia

42% - USA 17% - Canada 8% - Israel 5% - Europe 6% - ROW 10% Indirect distribution 90% Direct distribution ~240 K A&D ~18 K K&B ~9 K Fabricators ~9 K Developers/builders

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2016 2010

85% 52% 39% 13% Israel Australia Canada U.S.

Positioned to Capture Future Quartz Market expansion

82% 32% 9% 5% 87% 45% 24% 14% Israel Australia Canada U.S.

Quartz Share of Total Countertop market

)By Volume(1

Caesarstone Market Share

)By Volume(2

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The U.S. Remains a Significant Opportunity

1,177k 1,286k

2016 2018E

U.S. New Housing Starts1

$327 bn $397 bn

2015 2019E

U.S. Home Improvement Product Sales2

5% 14%

Quartz Share of Countertop Market 2010 2016

U.S. Market Penetration (by volume)3 Caesarstone U.S. Revenue Performance ($mm)

31 60 87 123 186 223 223 245 2010 2011 2012 2013 2014 2015 2016 2017

21% 9% 42% 50% YoY organic growth 20% 10%

1% increase in penetration ≈ $390mm4

(0%)

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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

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Pioneering Innovative Designs and Technology

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Color Leadership

Rugged Concrete 4033

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Pioneering Innovative Designs and Colors

Proprietary Technology

Excava 4046

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Pioneering Innovative Designs and Colors

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A Trend Setter

Cloudburst concrete 4011

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World Class Manufacturing and R&D Capabilities

Leading by Innovation 3 Production sites

Caesarstone invented the engineered quartz countertop 2 in Israel: Sdot Yam and Bar-lev – 5 lines 1 in The US, Richmond hill – 2 lines 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

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Express yourself with

Caesarstone

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Financial section

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Quarterly Financial Performance

YoY Growth: ‘13-’14 23.5% 30.4% 30.7% 17.4% ‘14-’15 14.2% 9.9% 11.0% 12.1% ‘15-’16 8.4% 11.6% 5.5% 6.0% ’16-’17 16.7% 4.6% 7.2% 9.7% ’17-’18 (0.3%) YoY Growth: ‘13-’14 25.4% 23.3% 42.4% 16.1% ‘14-’15 15.3% 10.4% 0.8% 8.2% ‘15-’16 (9.8%) 18.7% 3.6% (1.5%) ’16-’17 5.5% (25.5%) (31.8%) (30.0%) ’17-’18 (53.8%) 2014 2015 2016 2017 2018

• Solid and growing Adjusted EBITDA through 2016
• 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

Consistent year-over-year revenue growth across quarters

• Adj. EBITDA ($mm)

22.1 30.4 35.9 28.1 25.5 33.5 36.2 30.4 23.0 39.8 37.5 30.0 24.3 29.6 25.6 21.0 11.2

Q1 Q2 Q3 Q4

Revenue ($mm)

94.4 116.1 123.3 113.6 107.8 127.5 136.8 127.4 116.9 142.3 144.3 135.0 136.4 148.9 154.7 148.1 136.1

Q1 Q2 Q3 Q4

(Industry characterized by seasonality with strong Q3 and weaker Q1 annually)

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Q1’18 Financial Performance

• Gross margin drivers partially offset by reduction in operating expenses due

to timing of marketing and selling expenses year over year $136.4M $136.1M

Q1'17 Q1'18 (3.7%) CCB (0.3%) $

$49.2M $34.2M

Q1'17 Q1'18 M$ 36.1% 25.2% % margin (30.5%)

$24.3M $11.2M

Q1'17 Q1'18

17.8% 8.2%

M$ % margin (53.8%)

• The decline in the U.S. was mainly the result of a

more competitive environment, including price pressure, and execution challenges

(5.2%) (2.2%) 0.1% (6.0%)

• Reduced throughput in Israel
• Inventory charges related to logistical inefficiencies,

primarily in the U.S. distribution

• Increased raw material costs (mainly Polyester)
• lower volume and average selling prices in certain regions
• Favorable regional mix

$12.5M $3.4M

Q1'17 Q1'18

0.36$ 0.10$

EPS M$ (73.1%)

Revenue Gross Profit

• Adj. EBITDA
• Adj. Net Income

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Caesarstone Cash Flow Supports Future Growth

$5.5 $8.8 $13.5 $27.4 $86.4 $76.5 $22.9 $22.7 2010 2011 2012 2013 2014 2015 2016 2017

Capital Expenditure ($mm)

% of revenue: 2.8% 3.4% 4.5% 7.7% 19.3% 15.3% 4.3% 3.8%

$45.0 $50.0 $56.0 $64.3 $30.2 $49.2 $107.3 $77.7 2010 2011 2012 2013 2014 2015 2016 2017

• Adj. EBITDA Less Capital Expenditure ($mm)

% of revenue: 22.6% 19.3% 18.9% 18.0% 6.7% 9.8% 19.9% 13.2%

Flexible capital structure with $112.1M in cash and short term bank deposits Caesarstone current cash position and future cash generation should enable us to accelerate investments in future growth

• pportunities, both organically and via potential acquisitions

$13.0M ($25.1M) Q1'17 Q1'18

Free Cash Flow ($mm)

Q1’18 included:

• $14.2 million of cash to settle the previously announced Microgil arbitration
• $10.5 million for payment of the dividend

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Caesarstone - Recent Challenges

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:
• 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)

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

42.6 60.0 58.5 51.4 49.2 51.9 49.7 46.3 34.2 36.5% 42.1% 40.5% 38.1% 36.1% 34.9% 32.1% 31.3% 25.2% 19.7% 27.9% 26.0% 22.2% 17.8% 19.9% 16.5% 14.2% 8.2%

Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18

• 10.0

% Adj EBITDA % GM

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CEO Message

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. 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

• ur experienced and motivated team.

The company will continue to increase the proximity and the

• ffering to its customers base worldwide.

From Industrial Leader to a World Class Commercial Organization

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Thank You

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Adjusted EBITDA Reconciliation

(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

• f the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

(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 2014. (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.

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%

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(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

• f the inventory acquired from Caesarstone USA was sold in 2011, and the majority of the inventory acquired from the Australian distributor was sold in 2012.

(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 2014. (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.

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) 939.25

• $114

Settlement with the tax authorities

• 134.20

Tax adjustment (7) 342.00

• $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%