Socialist Zionist Robot Pool Cleaners: The Rise of Israel's Maytronics

Maytronics, a kibbutz company, has seen its share triple in three years as it uses technology to keep ahead of rivals.

Teddy Brauner (Laam) / Dreamstime

It’s called the Dolphin, but it looks more like a turtle and operates like a snail. Crawling along the bottom of a swimming pool, the device removes debris and dust from the water while scrubbing the pool’s floor and walls, reducing the need for chemicals to treat the water. It moves in a straight line across the bottom of the pool, climbing up the side, shimmying rightward when it reaches the waterline and then moves downward to clean another row.

The Dolphin is more than a curiosity. Maytronics, the Kibbutz Yizre’el-owned company that makes the device, has enjoyed booming sales and profits, and seen its share price climb 55% annually over the past three years. On Sunday, the shares closed up 1% at 8.91 shekels, which means it is trading at a relatively modest price-to-earnings ratio of 14. With sales of 353 million shekels ($91.5 million) in the first nine months of 2014, the latest for which figures are available, the company is on target to show a doubling in sales in 2014 compared with 2011, with net profit growing eight-fold. Net profit was 72 million shekels in the first nine months of last year.

Three years ago, the kibbutz turned down an offer to buy Maytronics for about 345 million shekels, which at the time reflected a 27% premium over its market value. Since then the company has seen its market cap grow to 860 million shekels.

The catch for investors is that with an average daily trading volume of just 192,000 shekels on the Tel Aviv Stock Exchange, getting a bit of the action is no easy task.

But even with such an impressive rate of growth, Maytronics has barely captured the potential for robot pool cleaners. The automated pool-cleaning market is worth some $300 million a year and Maytronics has about a 37% share of that, with an astonishing 150 different models of robot. But there are some 21 million swimming pools around the world – almost half of them in the United States – and only about 12% are cleaned by robots.

Maytronics was founded in 1983 by Kibbutz Yizre’el in northern Israel, which bought the rights to the first pool-cleaning robot from its inventor. The company went public in 2004, but the kibbutz still controls 65% of the company. Maytronics tread water for almost 20 years, but its perseverance paid off and in 2001 it began to show significant growth.

The company hasn’t been resting on its laurels. Over the past few months, it has launched new robot models that can be controlled by a smartphone application. Another app offered by stores that sell the robots can diagnose a technical problem and get it repaired by remote control.

The new line is a major jump forward over anything in the market today, and it will take the company’s competitors years to catch up, boasts Yuval Beeri, the CEO of Maytronics. “We’re investing in research and development more than any of our competitors, because they’re investing in their other products at the same time. Therefore we can come out with a whole new series every four years and can charge more than our competitors. The distributors understand this today. They’re no longer pressuring us about price, but demanding higher quality and features.”

Branching out

Apart from technology, Maytronics is looking to boost sales by expanding into other kinds of pool equipment, such as lights, filters and pumps, whose combined market is estimated at some $3 billion a year, 10 times the segment it is serving now.

The company is currently working on developing a product to treat pool water that will gather more reliable data on water quality and provide more accurate treatment, such as determining the optimum amount of chlorine in the pools. “We identified an area where we have the ability to surprise the industry with a product now under development. The minute it matures, it will be a paradigm change for treating pool water,” promises Beeri.

The product’s development has been part of a three-year learning process. “There’s a lot of room for innovation, and because of that we established a business development department, which comprises a marketing side as well as a development side and is separate from the robots business. It is completely devoted to creating new growth engines,” he says.

Another product that Maytronics is developing will offer an integrated security system for the pool and surrounding area, to ensure that no one enters the pool without permission or supervision. The product will extend the range of one it has already developed that warns when someone or something enters the pool without the owner’s knowledge or permission.

“Hundreds of children in the U.S. die every year from drowning in private pools. We have no doubt that demand [for safety products] will grow, and here we have the ability to be pioneers,” says Beeri.

The only country that has a law requiring the use of safety devices is France, where Maytronics controls most of the market, but safety and insurance considerations should make the security technology Maytronics is developing a hit where it isn’t, he says. “Even without regulations in other countries, it will be an engine of growth for the company, all the more so if there are regulations. We’re the market leaders in this area.”

With a growing product line and new technology, the company aspires to revenues of 650 million shekels in 2018, which would mean more than doubling its sales in five years. To meet the goal, it has set sales targets of 40 million shekels in each of two new areas, safety and water treatment, by 2018 with an operating margin of 17%.

In addition, Maytronics is planning on getting rights to exclusively distribute products it did not develop itself through its subsidiaries in Australia, the U.S. and France.

Needless to say, the company’s business is very seasonal because three-quarters of the world’s swimming pools are in the Northern Hemisphere and pool-cleaning robots, where are much more common. To help smooth out those seasonal bumps and increase sales, Maytronics is now pursuing markets in the Southern Hemisphere.

The company started in Australia, where after a lot of hard effort, it succeeded in penetrating the Australian market, increasing its sales from $1 million to about $20 million in just five years. Beeri says the growth came only after the company formed its own unit there to market and distribute its products. Maytronics isn’t ruling out setting up similar subsidiaries in other major Southern Hemisphere markets like South Africa and Brazil to deepen its penetration.

Kibbutz coup

The company does not keep its robots in inventory because it sells such a large number of models; rather, it manufactures according to orders from distributors from its single factory in Israel. The factory employs 250 to 400 workers, depending on the season, 40 of whom are from the kibbutz.

“There’s an advantage to manufacturing in one place: The knowledge, the proximity to the development and quality,” says Beeri. “As long as the company knows how to be profitable we have no intention to change this. But we are constantly examining the changing market conditions, and maybe that will change in the future. I’m not embarrassed to say that Zionism also plays a role here.”

A factory owned by a kibbutz can be a source of conflict between the needs of the kibbutz and the needs of the business, but Beeri says that this is not the case with Maytronics.

“The kibbutz knew, even before the privatization, to enforce a Chinese Wall between the kibbutz entity and the community, and management of the company. That is expressed in a policy of noninterference in the work of the CEO, so there are no pressures such as hiring workers [from the kibbutz]. They let the company compete peacefully, which is rare in kibbutz society,” says Beeri.

Isn’t there something ironic that many kibbutzim which remained communal are enjoying the fruits of capitalism?

“Not only is there no contradiction, in my opinion it is a necessary condition. In order to maintain a cooperative kibbutz system, we need a very successful factory. Kibbutzim that did not have this went to privatization faster,” he says, referring to the phenomenon of kibbutzim giving up communal property and egalitarian principles to run on a more businesslike basis. “It’s a good thing for the communities that have found lucrative enough sources [of income] to preserve their values.”