Maytronics to Test the TASE's Waters

Tel Aviv's sweaty financial market is in for an all-too-rare dip in cool water in the coming days as Kibbutz Yizrael's Maytronics goes public. The company manufactures electronic pool-cleaning robots, and its Dolphin brand is considered the world leader in the field. The Dolphin sweeps the swimming pool, brushes the sides and floor, vacuums debris, filters the water and mixes chemicals entirely automatically, with no manual intervention.

The company's draft prospectus, which it began distributing this week to market players, includes a few interesting figures on a market that is not well-known in Israel, but is considered prestigious worldwide: private swimming pools. The market is mostly the United States, Europe and Australia, which together have some 8 million pools, with additional 400,000 built annually.

Maytronics comments in the prospectus that its products are considered advanced and the company aims for the high end of the pool-cleaning market. Buyers usually have a middle to high income level, and as this group increasingly purchases automated technologies, electronic products have similarly increased their share of the pool-cleaning market. In contrast, where there is cheap labor readily available, electronic devices have a much lower market penetration rate.

Currently, just 6 to 10 percent of all pool cleaning devices sold are electronic, but Maytronics sees this market growing as owners of older pools upgrade to electronic systems. However, the price of the electronic devices is a substantial barrier to growth. The price of the pool itself also plays a role in the decision to invest in an automated cleaning system: The lower the price of the pool, the less worthwhile it is to invest in expensive ancillary equipment.

Another relevant point in electronic devices' market penetration capabilities is the length of the swimming season in the target market and whether the locale is "hot" or "cold." In a cold climate, or someplace with a short swimming season, pool owners prefer not to buy electronic cleaners, because the price is high relative to the use they will get from the device. But even a long swimming season, such as in the southwestern United States, is not necessarily good for the company. In that case, pool owners hire maintenance firms to handle their pools, and these firms do not usually use electronic cleaners.

Maytronics estimates that 70,000 robots a year are purchased for private pools, which translates into $120 million, and another few tens of thousands of robots for public pools, worth some $50 million. Robot sales are growing at a pace of 8 to 10 percent annually, and Maytronics sells a few tens of thousands of robots, priced between $800 and $3,000.

The entire global pool market is valued at about $10 billion annually, with pool-cleaning devices, including the simpler versions as well as fully-automated robots, accounting for $500-600 million of this sum.

The prospectus recounts the tale of the global pool market since the 1960s, including the development of pool cleaning technologies.

Maytronics' revenues soared 114 percent in just three years, from NIS 56 million in 2000 to NIS 119 million in 2003. The plant can churn out 120,000 devices annually and operates at 50 percent capacity at the moment. Earnings rose from NIS 500,000 in 2000 and a NIS 1.5 million loss in 2001 to profits of NIS 5 million in 2002 and NIS 11 million in 2003.

The company plans to raise NIS 45 million on the Tel Aviv Stock Exchange at a company value of NIS 135 million. The institutional offering will be conducted next week, and company executives start their road show today. The offering will be underwritten by Leumi & Co., Clal Finance and Meitav.

The company has virtually no bank debt (less than NIS 2.5 million) and shareholders' equity of NIS 35 million. CEO Ofer Shahar says the company is stable financially and the money raised is earmarked for development and marketing.

The pool market is very seasonal. Most purchases are made prior to the start of summer, so the first two quarters of the year account for 75 to 85 percent of the company's annual sales. The first quarter of 2004 was a strong one for Maytronics, with 15 percent growth in sales over the parallel period, to NIS 66 million. Net profits jumped 25 percent, to NIS 18.8 million.

Before going public, Maytronics will distribute a NIS 4 million dividend to Kibbutz Yizrael, its first dividend ever. In order to attract investors, the company is initiating a policy of distributing 25 percent of net profits.

Kibbutz Yizrael, founded by immigrants from Australia, South Africa and New Zealand, is known for sticking to the communal kibbutz tradition. Forty of the factory's 100 workers are kibbutz members. The kibbutz provides the company with a package of services, including physical space, human resources and management fees, in exchange for which it receives about NIS 10 million annually.

Prior to the initial public offering, the body managing the kibbutz's finances (the economic council) met with the managements of other kibbutz-owned companies that have already gone public, including Palrom and Gan Shmuel. Maytronics' chairman of the board is Kibbutz Maagan Michael's Shaul Ashkenazi, who also serves as chairman of Plasson, which is already traded.

Using locals as practice runs

Although Maytronics controls 75 percent of the Israeli pool-cleaning market, this accounts for just 1 percent of its sales. Nonetheless, Maytronics sees the Israeli market as an important target.

Why? The prospectus offers an interesting perspective on Israeli pool owners' behavior. Israelis tolerate poorer maintenance than does the rest of the world - and this gives Maytronics an indication of possible problems in its products. In other words, if a robot can clean Israeli pools without breaking down, it can probably clean anything and it is ready to be sold to foreign clients.

Also, sales in Israel are important for direct contact with the market and its needs, and to create a channel for analyzing the robots' performance. Maytronics also deems the Israeli market important because it offers two other extreme situations - "hard" water (high salinity) and a relatively long summer season.