Feb 11, 2015
Executives
Allison Townsend - ICR Yos Shiran - Chief Executive Officer Yair Averbuch - Chief Financial Officer
Analysts
Stephen Kim - Barclays Will Wong - JPMorgan David Goldberg - UBS George Staphos - Bank of America Merrill Lynch Patrick Murray - Credit Suisse John Baugh - Stifel John Flynn - Barclays
Operator
Good day and welcome to the Caesarstone Fourth Quarter 2014 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Allison Townsend of ICR. You may begin.
Allison Townsend
Thank you, operator and good morning to everyone. Before we get started, I would like to remind everyone of the company’s Safe Harbor language.
Certain statements in today’s conference call and responses to various questions may constitute forward-looking statements. We wish to caution you that such statements reflect only the company’s current expectations and that actual events or results may differ materially.
For more information, please refer to the Risk Factors contained in the company’s Annual Report on Form 20-F. In addition, the company will also make reference to certain non-GAAP financial measures, including adjusted gross margin, adjusted operating expenses, adjusted net income, adjusted net income per diluted share, adjusted net income attributable to controlling interest, adjusted EBITDA and various metrics that maybe presented on a pro forma basis.
The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company’s fourth quarter earnings release, which is posted on the company’s Investor Relations website. With that, I am pleased to now turn the call over to Yos Shiran, Caesarstone’s Chief Executive Officer.
Yos?
Yos Shiran
Thank you, Allison. Good day and thank you everyone for joining us to discuss our fourth quarter.
We had a solid finish to a strong year. I would like to start with some highlights for the quarter.
Sales increased 17% over last year to a new fourth quarter record of $113.6 million. Adjusted EBITDA grew by 16% to $28.1 million in the fourth quarter.
Adjusted net income was $21 million, up 20% versus last year’s fourth quarter. Adjusted net income per diluted share was $0.69 versus $0.49 in the fourth quarter last year.
This was a strong finish to the year and in line with our expectations. We believe the demand to our products remains strong and our brand remains a clear leader in our markets.
Caesarstone continues to be recognized for its high-quality, innovative and inspirational design and excellent service. As we begin 2015, we are excited to see continued quartz growth in our main markets, launching new and differentiated products led by our Supernatural series expanding capacity at our new manufacturing facility in Richmond Hill, Georgia and strengthening our global brand.
Now, I would like to give an updates on each of our major markets both for the quarter and the total for the year. Fourth quarter sales in the United States grew 43.1% to $49.6 million.
The United States has been both our largest on our fastest growing markets. For the full year, sales in the United States were $185.6 million, an increase of 50.4% over the full year of 2013.
We believe our growth in the U.S. demonstrates that the quartz material conversion story is happening as we had expected.
Our growth also displays our leading position in the marketplace. We will continue to see a strong opportunity for growth in the U.S.
market and we believe our new manufacturing facility will further enhance our service level and time to market in the U.S. Australia sales in the fourth quarter were $28 million, up 15.1% compared to the prior year.
On a constant currency basis Australia was up 24.3%. For the full year, Australia sales grew 19.6% to $107.5 million.
On a constant currency basis the full year growth rate was 27.4%. Australia remains a solid market for us.
Canada sales in the fourth quarter grew 14.8% to $13.8 million, up 26.5% on a constant currency basis. For the full year Canada sales grew 17.6% to $57.9 million.
Full year growth was 26.2% on a constant currency basis. We expect to see continued strong growth in Canada.
Sales in Israel for the quarter were $8.9 million, down 15.9% versus last year. On a constant currency basis sales were down 9.3% resulting from a weak housing market.
For the full year Israel sales were down 1.8% to $41.3 million, down 3.8% on a constant currency basis. Europe sales in the fourth quarter decreased 24.8% to $5 million, down 17.9% on a constant currency basis.
This was primarily due to an unusual strong quarter in the prior year, when we were making up for delayed deliveries associated with the startup of our new ERP system. For the full year Europe sales were $23.1 million, up 0.6% and up 0.8% on a constant currency basis.
Revenue in the rest of the world during you the quarter was down 3% to $8.4 million, basically reflecting a challenging foreign exchange environment. On a constant currency basis, growth was 3.5%.
For the full year sales in the rest of the world were $32 million, up 10.1% and up 10.4% on a constant currency basis. I want to note briefly that there has been press reports in Israel about an initiation among some of our employees at our Bar-Lev facility to form a labor union.
We do not know what the outcome of these deliberations among our employees will be and I raise that here solely to make sure that there is no confusion as the result of the press reports. In general during fourth quarter we continued to execute well and increased our manufacturing throughput.
As we look ahead while we experienced temporary inefficiencies and startup costs particularly in the first and third quarters, our capacity expansion in the U.S. would allow us to increase volume, better allocate inventory to serve demand and enable us to capture more of our global opportunities.
Thank you and I will turn the call over to Yair.
Yair Averbuch
Thank you, Yos and good morning to everyone. I will start with our income statement for the fourth quarter.
Sales in the fourth quarter increased by 17.4% to $113.6 million compared to $96.8 million in the same quarter of last year. On a constant currency basis, sales increased by 22.7% versus last year.
Gross margin in the quarter was 43%, the same margin as last year. Significant favorable mix related to our differentiated products and benefits of scale were offset by negative exchange rate fluctuation, strong growth from IKEA, which include lower margins publication installation revenues, and to a lesser extent an increase in quartz prices.
Operating expenses in the fourth quarter were $25.9 million or 22.8% of sales versus $21.8 million last year, which was 22.5% of sales. Operating leverage was offset by increased general and administrative expenses.
I would like to note that in addition to other items, we began to incur G&A costs associated with building organizational infrastructure in anticipation of opening our new manufacturing facility in the United States. Operating income grew by 16.3% to $23 million compared to $19.8 million in the fourth quarter of last year.
Our operating margin for the quarter was 20.2% of sales largely in line with 20.4% in the same period last year. Adjusted EBITDA in the quarter, which eliminates share-based compensation expense, the excess cost of acquired inventory and other non-recurring items increased by 16.1% over prior year to $28.1 million, a margin of 24.7% versus last year margin of 25%.
Finance income in the quarter was $0.8 million compared to finance expense of $0.4 million last year. This difference was primarily due to foreign exchange fluctuation.
Our taxes in the fourth quarter were $3.3 million or 13.9% of income before taxes compared to last year’s tax rate of 12.1%. Adjusted net income attributable to controlling interest in the fourth quarter increased by 20.3% to $21 million or 18.5% of revenue compared with $17.5 million last year, which was 18.1% of revenue.
Adjusted diluted earnings per share in the quarter were $0.59 on 35.45 million diluted shares. Last year, adjusted diluted earnings per share were $0.49 on 35.39 million diluted shares.
Now, I would like to note some of our full year financial performance highlights. Sales for the full year were up 25.5% and up 28.4% on a constant currency basis.
Gross margin was 42.4% in 2014 compared to 45.5% last year. Once we exclude the $3.5 million beneficial change in the value of the inventory related to the ERP implementation from last year and a $0.8 million unfavorable provision adjustment related to attractive [ph] taxable employee fringe benefit in this year, the decrease in gross margin would have been 190 basis points.
This primarily reflects a negative exchange rate impact and our growth from IKEA, which is the lower gross margin from the installation and publication companies. Both factors were partially offset by positive differentiated product mix and scale benefit.
Operating margin was 21.2% this year, in line with our operating margin of 21.3% last year. [Indiscernible] an improvement of 110 basis points if we exclude one item I just mentioned in the gross margin discussion and reflects strong leverage of our operating expenses.
Our adjusted EBITDA grew 27.1% to $116.6 million, a 26.1% margin, up 40 basis points versus 2013. Adjusted diluted earnings per share grew by 28.3% to $2.33 and we drove operating cash flow of $76 million.
Our year end balance sheet was strong with cash and short-term bank deposits of $54.3 million, after capital expenditures of $86.4 million primarily for our U.S. facility and after $20 million dividend paid in Q4.
We are pleased with the strong performance. With respect to our 2015 guidance, taking into consideration, among other items, the current exchange rate and the temporary inefficiencies associated with opening our new U.S.
manufacturing facility, we are expecting revenue in the range of $515 million to $525 million and adjusted EBITDA in the range of $123 million to $129 million. Thank you.
And we are now ready to open the call for questions.
Operator
Thank you. [Operator Instructions] And we will go first to Stephen Kim of Barclays.
Mr. Kim, your line is open.
Stephen Kim
Thanks very much, guys. Yes.
Can you hear me? It’s Steve Kim.
Yos Shiran
Yes, we hear you.
Stephen Kim
Well, okay, great. Hey, guys.
Yes, just wanted to sort of follow-up on two things. First of all, I have a little bit of difficulty understanding the adjustment you gave to the gross margin, I was wondering if you could just repeat that again for us?
And then secondly, if you mentioned I think that there would be some start-up costs that you anticipate I think in the first and third quarters of this year, I was wondering if you could quantify those for us in your outlook, particularly for EBITDA? Thanks.
Yos Shiran
Okay. So, in 2013, we had one-time credit associated with the valuation of our inventory of around $3.5 million related to the time of the ERP implementation.
So, that was a beneficial result one-time for 2013. This year, there was a one-time negative $0.8 million in gross margin associated with some employee taxable income.
So, if you exclude those two one-time impacts, the ongoing margin went down by 190 basis points.
Stephen Kim
Okay, got it. That helps.
Thank you for that. And about the….
Yair Averbuch
Yes, to the other question, Stephen, yes, so we intend to start production on our sixth line, the first in the U.S. during Q2 and we incur a lot of cost in Q1 before we make any production.
The same phenomenon will occur in Q3 ahead of production in Q4. So, this will negatively impact the EBITDA.
In Q3, of course it’s a stronger quarter and we will already have some production from the U.S. factory, but in Q1, there is no production, but still we incur the costs.
So, this is something we mentioned. If everything is calculated into the guidance, but the distribution between the quarters of course could be affected by that.
Stephen Kim
Can you quantify that for us a little bit more precisely, Yos?
Yos Shiran
Yes. Steve, when we take the – there are two things, one is the startup cost in Q1 and Q3, ahead of each line in operation and then there is – the fact that there is a learning curve and the lines will not start in 100% capacity.
So if we are comparing the difference on the inefficiencies, the temporary inefficiency of the Europe lines in total compared to the Israeli lines, this is an EBITDA drag of around $11 million for 2015.
Stephen Kim
About $11 million?
Yos Shiran
Yes.
Stephen Kim
Okay, great. That’s very helpful.
And then just my last question relates to your quartz supply contracts, are they U.S. dollar denominated or they denominated in shekels?
Yos Shiran
Most of them are denominated in U.S. dollars.
Stephen Kim
Okay, great. Thanks very much guys.
Operator
Thank you. We will take our next question from Michael Rehaut of JPMorgan.
Will Wong
Hi, this is actually Will Wong on for Mike. I was wondering if you guys could talk about what the impact of FX was on the quarter and also what level of headwind you are expecting in your full year guidance from FX and also if you could remind us of the amounts that you hedged and also what the swings in each of your major currencies, the Australian dollar, Canadian dollar, the shekel, and also the euro have on earnings?
Yos Shiran
Yes, so regarding Q4 first, the revenue impact in Q4, it was $5.2 million compared to the same quarter in 2013 and – of exchange rate impact and the EBITDA impact was approximately $2.3 million. With regards to this year 2015 guidance versus 2014 average, so the overall impact of the exchange rates, the current view of our – of the exchange rate, they are now – they are impacting our guidance by $35 million – approximately $35 million in the revenue and approximately $30 million in EBITDA.
Now if I were to compare the exchange rates that we see today versus the exchange – their relative exchange rate of 2014, then the Australian dollar depreciated by 13.3%, the Canadian dollar weakened against the U.S. dollar by 11.2%.
Those are both detrimental in both old and new lines for EBITDA for the company. Euro and NIS also depreciated versus the dollar.
Euro depreciated 13.8% and shekel depreciated by 8.1% versus 2014 rate, the current rate. The depreciation of the euro and NIS are detrimental to revenue but favorable to EBITDA.
And again as I mentioned the total impact we have to make is $35 million for – due to the exchange rate fluctuation and $35 million in revenue and approximately $30 million in EBITDA.
Will Wong
Okay, thanks. That’s very helpful.
And can you talk about the impact of raw materials primarily quartz and resins and what impact that had on the quarter as well as your outlook is for 2015. And also just going forward, can you talk about where you plan on sourcing quartz for the U.S.
facility and if there is any cost differential between procuring in the U.S. versus other areas?
Yair Averbuch
Yes. For Q4 2014 versus Q3 – Q4 2014, then there was quartz prices went up and that caused around less than 60 basis points impact on gross margin for Q4.
In 2015, we expect some additional pressure from quartz pricing, again, not much less than 60 basis points. And on the sourcing, I will let Yos answer.
Yos Shiran
Yes. So, regarding quartz, it looks there are some good opportunities for sourcing quartz in the U.S.
However, until this is finalized, which is not 100% sure, we will continue to purchase quartz from Turkey and other places. We expect Turkey to still be relevant for some of the supply to the U.S.
factory. And this means that we pay more for quartz until we find a local – a good local quartz supplier.
So, it seems that there are good opportunities in the States, but as we start we will buy from Turkey, which will increase the quartz prices compared to [indiscernible] because of the price.
Will Wong
Okay, got it. And then just last question, I was wondering if you just share with us your outlook for the U.S.
in terms of what you are seeing with commercial versus residential, as well as new construction versus repair remodel activity? Thank you.
Yos Shiran
Yes, I don’t think there is big difference from our last updates. So, in general, the market is good and we continue to perform well.
And between the different elements, it is more or less what we know. So, in the States, revenue stem from home starts is about 25%, innovation 60%, and commercial 15%.
Operator
Thank you. We will go next to David Goldberg of UBS.
David Goldberg
Thanks. Good morning, everybody.
My first question given the robust growth that we are seeing in the U.S. quartz market, do you have any insight into what your competitors are doing?
Are you seeing anybody kind of step up their efforts to try to gain market share? It seems like you guys are probably growing faster than the overall market.
So, I am just wondering about the competitive response now?
Yos Shiran
Hi, David. So, it’s a good question.
However, we don’t have objective numbers. Regarding that, we definitely have inside continued dimension, but this is something that we keep inside.
What we have is the Freedonia reports and hopefully this year, we will have new reports issued by Freedonia. So, we will have better, let’s say, better Freedonia picture of what is going on.
David Goldberg
But just anecdotally from people selling the product in the U.S. and from what you are hearing, you are not really hearing about a change in the competitive behavior?
Yos Shiran
I think that overall also according to publications in magazines, you can see that overall the quartz penetration continues to grow and the acceptance of quartz continues to grow. And the quartz is becoming the preferred products for [indiscernible] in the States, but – and there is a lot of activity from all angles.
Of course, what we do, what others are doing, and also quartz from China and other places. However, as I said, we don’t have – we don’t know how to quantify it.
David Goldberg
Okay, got it. My other question was about the potential cost that there is unionization in Israel, you also mentioned in the opening remarks, have you guys explored what that would look like in terms of additional costs for you?
Yos Shiran
I think in your case same. Can you repeat the question?
David Goldberg
The question, I think in the opening remarks, you talked about the potential efforts to unionize in Israel?
Yos Shiran
Yes. So….
David Goldberg
And I was wondering if you were able to give additional cost that that would create for you?
Yos Shiran
Well, first of all, there is no union. And what we are reporting, we are reporting on attempts to establishing a union by few employees.
This does not mean that there will be any union. The reason we reported it is because there was some publications in Israel and we would like – since it happened, we are likely all set to know about it.
We don’t know whether there will be if there is an union, we don’t know what will be the impact on costs if any.
David Goldberg
Okay, thank you for the clarification.
Yos Shiran
Thanks.
Operator
Thank you. [Operator Instructions] We will go next to George Staphos of Bank of America Merrill Lynch.
George Staphos
Thanks. Hi, everyone.
Thanks for the details. Congratulations on the year and the progress.
I guess, the first question I had to the extent possible in this kind of form, can you update us on how your new products, Supernatural etcetera are doing in the marketplace, if not with numbers, perhaps a bit more qualitative discussion? And I had a couple of follow-ons.
Yos Shiran
Hi, George. So, the Supernatural series continues to do very well in most of our markets.
We are excited about the launch of the Calacatta in the States. We already introduced the Calacatta, but it was quite a soft launch.
Now, we are gearing up in terms of our efforts around the Calacatta. We are also launching additional new products in the United States, few variations of countries, other granite look, new granite look products and we expect those to be received well in the market.
However, of course, we don’t know you will have to wait and see. What we do see is that one of the concrete products and of course the Calacatta is well received in Australia, Canada and we expect that it will be well received in the States.
George Staphos
Yes. Relative to Calacatta, when do you think you would have enough visibility to deem it a success in the U.S., so if you are rolling it out now, would it be a fourth quarter ‘15 event, I am not trying to be too precise here or do you think you would have a pretty good view by second quarter?
Yos Shiran
Of the whole launch in general, probably we will have some indication in the third quarter. Of the Calacatta specifically, we already started to sell and it sold quite well in the fourth quarter.
We expect both sales in the States to grow. And this will be now probably in Q2 and if not then in Q3.
George Staphos
Okay, thank you for that. Secondly, I was hoping you could just update us if possible on your thoughts for capital spending this year and looking at the balance sheet recognizing it’s the end of the year and you have obviously had the new lines coming on.
Inventory popped up a bit, is that all associated with the preparatory work ahead of lines six and seven or are there some other things going on there, so CapEx and inventory levels?
Yos Shiran
Well, I think to answer the CapEx, Yair will address it. As to the inventory level, what you see is that we are building inventories towards Q2.
So, we try to operate and manufacture all the time to obtain the maximum throughput that we can. So, it causes a little bit of growth in the inventory and we see it as a positive thing.
We expect that this may roll down, especially in the first half of the year, because we don’t have enough capacity yet. However, towards the second half, we hope that the startup of line number six, the first line in the States will help us in terms of servicing the markets.
So, this is as far as inventory regard. Yair?
George Staphos
Okay, thank you.
Yos Shiran
Yes, I think just about the CapEx. So, Yair will address it.
Yair Averbuch
Regarding CapEx we invested this year around $86 million in cash for CapEx, most of which went for the U.S. factory.
And the next significant thing was their completion of the line five in Israel. We are expecting our 2015 CapEx to be approximately 25% below that level, but that is before we may add additional money for the Phase 2 of the Europe’s plant which we are currently reviewing.
And once we will make decisions we will announce and update on that.
George Staphos
Understood. And then my last two questions, I just want to make sure I understood, foreign exchange based on your current analysis the negative impact to EBITDA is a $1.3 million effect or a minus $3.0 million effect.
And then could you update us on the silicosis litigation? Thanks and good luck in the quarter.
Yos Shiran
The FX impact is again $35 million on revenue and $13 million on operating income or EBITDA for that matter.
George Staphos
That’s what I thought. And silicosis?
Yos Shiran
Silicosis, nothing new to report about what we said in the past, we continued to deal with it and probably it will accompany us in the next few years, but there is nothing new.
George Staphos
Thank you very much.
Yos Shiran
Thank you.
Operator
Thank you. We will take our next question from Michael Dahl of Credit Suisse.
Patrick Murray
Good morning. This is Patrick Murray on for Mike.
Within guidance could you give us a sense for how much revenue is assumed from the opening of the U.S. plant this year?
Yos Shiran
Well, we are not breaking out how much revenue will be from each plant, but you should assume again as we said the first line in the U.S. will be operational in Q2.
The second line only in Q4 and there will be significant learning curve. So and I think that with that you can assume something very close to what we have in launch.
Patrick Murray
Okay. Thanks.
And then with respect to the revenue guidance for ‘15, it seems like a nice increase given the FX headwinds, is this suggesting a strong expectation for the rollout of Calacatta or other high end products and how should we think about the product mix impacting price going forward in 2015?
Yos Shiran
I think the guidance takes into consideration more at the current level with of course increase as the collection, but there is nothing special that is built into its apart of 4Q original and of course the most significant impact is in the FX and the startup of the factory.
Patrick Murray
Okay. And then just one more if I could, could you talk a bit about how dealer inventories look right now and if you have been able to get some incremental supply of the popular lines in there?
Thank you.
Yos Shiran
Patrick, can you repeat the question?
Patrick Murray
Sure, sorry. Could you talk a bit about how the – your dealer inventory channel – how inventory looks there and if you have been able to get more supply of the popular product lines in there?
Yos Shiran
The dealer inventory if you are relating to the stone suppliers in the States or the different licensees around the world.
Patrick Murray
Yes. I guess specifically in the United States, but if you have comments about around the world too that will be great?
Yos Shiran
So I don’t think there is anything – again no significant changes. We suffer here and there for because of short inventory and also because of strikes in ports in the States.
But as far as inventory regard, there is nothing special there.
Patrick Murray
Okay, thank you.
Operator
Thank you. We will take our next question from John Baugh of Stifel.
John Baugh
Thank you. Good morning, Yos and Yair.
I was wondering if we could talk just about the plant startups here. I assume the lines each will be a similar capacity of about $100 million, could you just tell us roughly what the startup time in months is to get to full capacity in Israel and how you think about that maybe slightly longer with the U.S.
lines six and seven?
Yos Shiran
So, what we expect for the lines in the States is that it will take us at least 6 months until we get to full capacity and maybe longer. We don’t know yet.
We have to wait and see. So far, the project in the States was done according to the schedule and hopefully of course the ramp up in production will also reflect a good performance.
The Israeli line number five is just in the last quarter I think reached to full capacity, but it was a different way of doing things. I don’t know if you recall, but we started with one part of the line and then we added another part to the line, part of it was quite innovative and it took us more time than we usually expect.
So, anyway going back to the States, take at least 6 months until we get to a reasonable and strong performance there.
John Baugh
And Yos, would you be starting line six in early in Q2, late in Q2, middle of Q2 and then if you could talk about the plan in terms of how the machinery maybe similar or different, the process you already touched on the quartz and the people. Anything that’s different from say line five in terms of the U.S.
capacity?
Yos Shiran
Basically, the lines are quite similar generally speaking to line number five. Line number six is relatively simple.
Line number seven will be a little bit with some add-ons. A part of that, there are no big differences.
The lines are going to be newer. So, hopefully, we could expect that down the road we will be able to produce a little bit more.
As far as the quartz and the people there, everything looks fine. And I think it’s fair to say again for the sake of calculation, if you can relate to the mid quarter starting point, however, at the end this is not mathematics.
So, it could vary.
John Baugh
Great, thank you. And my final question, are you assuming here any polyester release in 2015 to help offset some quartz inflation?
Thank you.
Yos Shiran
So, regarding polyester, so far we haven’t seen the reduction that [indiscernible] would suggest no way near that. We did see some reduction in the current guidance.
If there will be further, then we will be better off, but we are not sure about that.
John Baugh
Thank you. Good luck.
Operator
Thank you. We will return to the line of Michael Rehaut of JPMorgan.
Will Wong
Hi, guys. It’s Will again.
Just a quick question on the tax rate going forward just given the share from the U.S., does sales is increasing, just wondering what – how we should think about the tax rate in ‘15?
Yos Shiran
Yes. It’s actually the guidance that you previously gave in our discussion when a line in the U.S.
in full capacity for the full year, we leveraged around $3 million of additional tax compared to $1 level line. It appears to be still accurate, but let me make it easy on the last year, we are expecting taxes next year to go up from around 14.5% this year to something between 17% to 19% next year.
Will Wong
Okay, great. Thank you.
Operator
Thank you. We will return to Stephen Kim of Barclays.
John Flynn
Hey, guys. It’s actually John Flynn for Stephen.
This one is really quick, so you have guided that you are expecting $35 million headwind on the top line from FX, if you apply the margin that you guided, I would have thought that EBITDA impact would have been something closer to $8.5 million in 2015, but you guided $13 million headwind from FX on EBITDA, what are some of the additions outside of just transitional impact of FX that would increase that headwind?
Yos Shiran
Now, the $30 million is strictly an impact of FX, nothing else. We didn’t add to this anything.
We didn’t raise our capital [ph] since. So that is just FX.
So, probably we have some differences in the way we calculate it, but remember that if you take $28 million from 2013, it won’t be as accurate because as we go in Canada, we go in Australia, so the exposure becomes bigger as time goes by and new dwell in those regions.
John Flynn
Got it. So, was the implication that the non-U.S.
business is going to have meaningfully higher margins than the U.S. business in ’15, just because of all the incremental costs that you are incurring with the plant startups?
Yos Shiran
Again, can you repeat the question?
John Flynn
Yes. So, I am just wondering, is that implying that the profitability in the U.S.
is going to come down pretty considerably in the near-term just because of these incremental costs, and that it’s something that you would expect a snapback in ‘16 once the plants are at full operating capacity?
Yos Shiran
Yes. So that is pretty accurate.
So, what we have said is that there was a $30 million of FX impact and $11 million of temporary inefficiencies related to the opening of the new lines, which most of which we hope will go away next year after the learning curve, maybe not 100%, but it will probably be a lot better than 2015.
John Flynn
Okay, alright. That’s helpful.
Operator
Thank you. We will return to Will Wong of JPMorgan.
Will Wong
Hi, guys. Last question, regarding the FX headwinds, are you able to raise price in some of the areas where you are seeing big headwinds like Australia and Canada just to offset some of that?
Yos Shiran
Yes, we are able to raise prices. And we do it to – according to what we believe is right compared to the hurts in margin for us and of course what the market can absorb.
So, it’s not immediate and it’s not that – there is change in the Australian dollar, we will meaningfully raise prices, but we raised prices last year. And we do relate to that, but if not immediate and the changes in the Canadian and the Australian dollar at least – especially in the last few months was relatively soft.
So, it takes time to digest, and also would likely to see what is the trend.
Will Wong
Okay. So, within your revenue guidance, you haven’t baked in any price increases for 2015 currently in those areas?
Yos Shiran
We did some. What you see is what really is after what we expect to do in the different markets.
Will Wong
Okay, great. Thank you.
Yos Shiran
Thanks.
Operator
Thank you. With no further questions, I would like to turn the conference back over to Mr.
Yos Shiran for any closing remarks.
Yos Shiran
Thank you all for joining us today. We are pleased with our fourth quarter and 2014 year end results.
As we head into 2015, we are excited for the opportunity for continued growth globally. We intend to continue pursuing the developments and launching innovative products with inspirational design.
We expect to operate our new production facility and better service our markets and the demand for our products. And we aim to leveraging on our strong brands.
We believe that we have the right strategy to further promote our business and position in the markets going forward. Thank you again for your support and time.
And have a good day. Bye.
Operator
Thank you for your participation. That does conclude today’s conference.