Avgol 2025: volume is back, but profit still waits for the U.S. line

Getting To Know The Company

Avgol is a global producer of nonwoven fabrics, mainly for hygiene products. It does not sell a consumer brand. It sells a critical input to major diaper and hygiene manufacturers, so its economics are driven less by shelf space and marketing and more by product quality, operating consistency, long-term relationships with very large customers, and the ability to run production lines at high utilization without slipping on specifications. By the end of 2025 the group had 14 active production lines across North America, Israel, China, Russia and India.

What is working right now is fairly clear: volume has come back. The company ended 2025 with an 11.3% increase in sales volume, a 7.1% increase in revenue to $374.9 million, and a sharp rise in sales to KC. The new line in Mocksville entered commercial operation toward the end of the first quarter and the U.S. site is already adding volume and capacity. Russia also remained profitable, with roughly 80% utilization and positive cash generation.

But this is not a breakout year. It is a transition year that only made it halfway. Despite the volume growth, gross profit fell to $47.0 million, gross margin compressed to 12.5% from 13.8% in 2024, underlying EBITDA slipped to $45.1 million, and the company still posted a net loss of $2.1 million. The active bottleneck is no longer demand. It is the need to move Mocksville from basic and relatively simple products toward fuller use of the line’s capabilities, including additional product qualifications and more advanced soft products, so the new capacity starts to carry real operating economics.

That is also where a superficial reading can go wrong. Receivables fell, leverage remained under control, and the bond series was fully repaid, but part of the working-capital improvement came from more receivables discounting and more reverse factoring with major customers, not only from cleaner collections. At the same time finance costs jumped sharply, mainly because of shekel strength versus the dollar and the end of interest capitalization for the U.S. project. In other words, Avgol bought itself time and flexibility, but it still has not proved that the new volume translates into the bottom line.

There is also a practical screen that should be stated early. Trading in the stock remains thin and short-interest data stayed negligible throughout the period. This is not a crowded-positioning story. It is a story in which the market is likely to wait for the next few reports before deciding whether 2025 was an operating trough or just another interim year.

Four points to take from 2025 right away:

• Demand came back before profit did. Volumes rose, but Mocksville is still not efficient enough to release the margin.
• Receivables came down on the balance sheet, but financing rose behind the scenes. Non-recourse receivables discounting rose to $32.6 million and reverse factoring rose to $26.1 million.
• KC proved there is room to grow. The constraint moved from revenue toward execution.
• The balance sheet bought time, not resolution. The bond was repaid and credit lines were extended, but 2026 is still a proof year.

Events And Triggers

The story of 2025 is the shift from construction to proof. That is not a small shift. The new U.S. line has already been built, launched and added volume. What remains is to see whether it will also add economics.

Mocksville entered commercial operation, but not full profitability yet

The first trigger: the sixth line at Mocksville entered commercial operation toward the end of the first quarter of 2025. The project cost about $90 million, in line with management expectations and on schedule, and all payments to suppliers were completed by the end of the year. That matters because there is no over-budget or unfinished-project argument left to hide behind.

But that commercial start is still not the same thing as full profit release. Since commercial operation began, the line has mainly been producing basic and relatively simple products while only partially using its full capabilities. In the analyst presentation management was explicit: output kept rising in the fourth quarter and key operating KPIs improved, but the coming months are still dedicated to additional product qualifications, fuller use of the line’s capabilities and scaling production of more advanced soft products. The really important stage is still ahead.

The second trigger: the new line gives Avgol a real commercial option in the U.S. market and expands the product set it can offer customers, but it also raises the proof bar. If, after an additional 20 thousand tons of annual capacity, the company still shows gross-margin erosion, the market will not give it credit for capacity on its own.

The funding layer improved, but did not disappear

The third trigger: on February 20, 2025 the company signed a committed NIS 100 million credit facility, with negative pledge and financial covenants that matched those previously given to holders of Series D. Then, on December 17 and 18, 2025, existing credit facilities of about NIS 30 million and about NIS 100 million were extended through the end of 2026. On January 15, 2026 the committed NIS 100 million line was also extended through December 15, 2026. In parallel, Series D was fully repaid on December 31, 2025.

Financially, that is a good outcome. The company extended time, preserved flexibility and removed a public debt series. But it is also important to say what it does not mean. It does not mean Avgol suddenly sits on excess cash. It means management prefers to enter 2026 with as much funding oxygen as possible, precisely because Mocksville still has not proved itself in full.

External friction remains on the table

The fourth trigger: U.S. tariff policy is already touching the business. Avgol America imports raw materials, equipment, spare parts and finished goods from several countries affected by tariffs, in annual scope of about $50 million. The company halted imports from China into the U.S., tried to replace imported procurement with local procurement, and opened negotiations with customers and suppliers. After those actions management estimates a negative impact of about $1 million per year. This is not existential, but it is one more offset against the operating improvement the company still needs to produce.

The fifth trigger: on October 28, 2025 Brazil opened an anti-dumping review into imports of nonwoven fabrics from Israel, China and Egypt. The company is already participating in the process, and the review is expected to last 12 to 18 months. At this stage the company says it still cannot estimate the impact. This is exactly the kind of issue that can sit quietly for a few quarters and then turn into a commercial headache.

The sixth trigger: at the governance level, Dilip Kumar Agarwal ended his term as chairman in January 2026, Diego Boeri was appointed in his place, and another director was appointed in February 2026. This is not an operating engine, but it does show that 2026 opens with refreshed leadership around the next proof phase.

Efficiency, Profitability And Competition

The central data point of 2025 is a paradox. Revenue rose, volumes rose, and reported EBITDA even edged up, but the real operating economics did not move forward. Anyone looking only at sales could miss that the company is still paying for the move from line construction to efficient line operation.

The top line looks good. Revenue rose to $374.9 million, mainly because of higher sales volumes. But part of that increase was offset by lower average selling prices, mainly due to adjustments in raw-material indices. That is already an important reminder: at Avgol, volume growth is not automatically the same as revenue quality or profit growth.

The operating line looks weaker. Gross profit fell to $47.0 million and adjusted gross profit, excluding the effect of raw-material indices, fell to $44.7 million from $48.6 million in 2024. Underlying EBITDA also slipped to $45.1 million from $45.6 million. In other words, reported EBITDA rose to $47.4 million mainly because the raw-material index effect was favorable in 2025, but on the cleaner economic base the year did not really improve earnings power.

The reason is not mysterious. Management itself points to product mix, lower operating efficiency at the U.S. site after commercial launch of the new line, higher production-input costs, the impact of tariffs and FX moves. Avgol is already benefiting from the new volume, but not yet from the productivity that would justify it.

Customers show that demand exists, but they also sharpen the concentration issue

On one side, the customer base is a moat. More than 90% of 2025 sales went to customers that have been with the company for more than 10 years. On the other side, the concentration is obvious. P&G generated 31.1% of revenue and KC another 25.5%. Together the two customers accounted for 56.6% of the group’s sales.

What is truly interesting is the change inside that concentration. Sales to P&G fell 1.8% even though volumes sold to it rose 4.8%, mainly because average selling prices were lower. With KC the story was the opposite: sales rose 36.5% and volumes rose 36.0%. That means demand is there, and even strong, but it did not arrive through a stronger pricing environment. It arrived through volume.

That matters because the framework agreements with major customers do not include binding volume commitments. They set the legal structure, forecasts, prices and adjustment mechanisms, but actual sales still happen through purchase orders in the ordinary course of business. So the order pace remains a live test even when the relationship itself looks stable.

Competition did not disappear, it just moved to another place

Avgol is not operating in a competition-free market. Quite the opposite. The company describes excess supply in Asia, new lines at competitors, and pressure on margins. At the same time the market is moving toward lighter, softer and more advanced fabrics. That supports Avgol’s strategic direction, but it also sharpens the challenge: the new line in Mocksville has to move beyond simple base products, otherwise the added capacity lands exactly in the part of the market where pricing pressure is already heavier.

The company has a clear advantage in quality, global footprint and relationships with very large customers, and it explicitly notes that nonwoven production lines made in China are still considered lower quality than German-made lines. That is a real moat. But a quality moat does not remove the need to prove efficiency. In 2025 the market gave Avgol volume. In 2026 it will want proof that this volume was not bought at the expense of profitability.

That chart gets to the heart of the problem. Avgol’s 2025 issue is no longer only at the gross-profit line. It sits in the transition between operating profit and net profit. After $18.0 million of operating profit, finance costs almost erased the whole amount. So even if the operating improvement continues, net profit will remain behind unless Mocksville stabilizes and the financing pressure eases.

Cash Flow, Debt And Capital Structure

To read Avgol correctly, the cash framing needs to be explicit. Here the relevant lens is all-in cash flexibility, not only the normalized cash generation of the installed business. The reason is straightforward: the company came out of a heavy investment year, extended credit lines, repaid a bond and funded a U.S. operating ramp at the same time. In that setting, the key question is how much cash is actually left after real uses of cash.

All-in cash flexibility, not only theoretical cash generation

On an all-in cash-flexibility basis, the company generated $35.0 million of operating cash flow in 2025. That is a good number. But it does not stand alone. In parallel there was $24.4 million of investing cash outflow, mostly around the new U.S. line, and another $23.2 million of financing outflow, mainly long-term debt repayment and repayment of Series D. The result was a decline in cash to $51.2 million from $60.9 million.

In other words, Avgol did not burn cash at an alarming rate, but it also did not finish 2025 with a sense of excess. That distinction matters. The company ended the year with cash, with credit cushion and with a reasonable balance sheet. It did not end the year with full capital freedom.

Working capital looks better, but part of it was bought with financing

This is one of the least obvious points in the filing. Trade receivables fell to $28.0 million from $34.0 million, and the average credit period in the fourth quarter fell to 57 days from 61 days. On the surface that looks like a clean improvement. But at the same time, non-recourse receivables discounting rose to $32.6 million from $26.1 million, and reverse factoring with key customers rose to $26.1 million from $24.0 million.

That does not make the policy problematic. The company uses those tools as part of regular liquidity management and emphasizes that the sales are without recourse. But it does change how the balance sheet should be understood. Part of the improvement in receivables comes from financing structure, not only from better collection or a cleaner underlying business picture.

Inventory fell to $36.1 million from $38.5 million, mainly because of lower finished-goods inventory and lower raw-material prices. That helps as well. But again, the right picture is one of careful, well-funded working-capital management, not of a company whose cash-conversion question has already disappeared.

Debt is manageable, but rates and FX consumed the profit

Avgol’s balance sheet looks better than the net loss suggests. Equity rose to $203.8 million, the equity ratio rose to 44.2%, tangible equity stood at $202.1 million, and the company complied comfortably with all financial covenants. Net debt to EBITDA was 2.75 versus a ceiling of 4.25, unused credit lines stood at $86.9 million at year-end, and S&P Maalot reaffirmed the ilA+ rating with a Stable outlook in January 2026.

The other side of the story is that financing is no longer cheap for the income statement. Net finance expense rose to $17.0 million from $10.1 million in 2024. In the fourth quarter alone finance expense rose to $5.2 million from $2.9 million, and in the analyst presentation the company attributed about $4.7 million of the damage to the strong shekel versus the dollar and the fact that interest on the U.S. project is no longer capitalized.

The funding structure of the U.S. line is also a reminder that the new capacity is already sitting on capital that has to justify itself. The U.S. subsidiary loan taken to support cash flow, mainly for the new line and refinancing, was in a $75 million framework at SOFR for six months plus 2.1%, and the outstanding balance at the end of 2025 was $68.8 million. To secure it, Avgol America pledged the fifth and sixth production lines in the U.S. This is not immediate pressure, but it is a real operating demand: the new line has to earn a return on the capital already tied to it.

The accounting value is there, but shareholder value still needs proof

Another important point is the gap between accounting value and value the market is ready to pay for. At the end of 2025 the company’s net asset value was above its market value, so it had to perform an IAS 36 impairment test. No impairment was identified, and the company presented a recoverable amount of about $483.8 million against an operating-asset carrying amount of about $343.7 million.

The analytical meaning here is not necessarily that the market is wrong. It is something else: the accounting still supports the asset value, but the market is not willing to turn that into trust until it sees profitability and cash flow. That is the difference between value created on paper and value that is accessible to shareholders.

Outlook

Avgol enters 2026 with several of the big questions already answered. Demand did not disappear. The large customers stayed. The new line came up on time. Series D was repaid. The real test now is whether the volume recovery turns into earnings quality.

Four issues that define 2026 from the start

• 2026 is a proof year, not a breakout year. The company no longer needs to prove that someone will buy from it, but that it can earn properly on the new volume.
• Mocksville is the central variable. Management itself says the coming months are dedicated to product qualifications and better operating performance.
• The raw-material tailwind looks weaker. The company says 2026 exposure to raw-material index changes may be higher than in 2025 because contracts that reduced that exposure were not renewed, or were renewed in lower scope.
• The funding layer is no longer quietly absorbing the problem. It hit the bottom line clearly in 2025, and it will be hard to ignore in 2026 if margins do not recover.

What has to happen over the next 2 to 4 quarters for the thesis to strengthen? First, the Mocksville line needs to move from basic and relatively simple products into more advanced products, especially in the soft-product layer. If that happens, Avgol can show that the new capacity is not only more tonnage, but also better mix and better margins.

Second, the company needs to show that underlying EBITDA begins to rise together with volumes, rather than erode. In 2025 that did not happen. There was already operating progress in the fourth quarter, but gross profit still fell. That is exactly the point the market will test in the coming reports.

Third, raw-material exposure may be less supportive in 2026. The company already notes that in January 2026 the decline in polypropylene prices stopped and turned into slight increases, and that the impact on the first quarter is expected to be negative but not material. That is a reasonable management call, but also a reminder that the mechanism that helped in 2025 may not help to the same extent in 2026.

Fourth, demand quality needs to be watched, not just quantity. Framework agreements remain in place, through December 2026 with P&G and through April 30, 2026 with KC, but they do not contain binding purchase-volume commitments. The relationships are supportive, but they do not replace actual execution.

That is why 2026 looks like a proof year. Not a reset year, because the business and balance-sheet base are real. Not a breakout year, because the improvement still is not flowing through to net profit. If one short label is needed for the coming year, it is this: the year when Avgol has to prove that Mocksville can make money, not just tons.

Risks

Two major customers are both a moat and a risk

P&G and KC together account for more than half of revenue. That gives Avgol volume, stability and standing with first-tier global customers. But it also means any change at either customer, in pricing, volume allocation, product mix or procurement structure, can matter. Since the framework agreements do not include binding volume commitments, that risk remains open.

The new line can improve the story, but it can also prolong it

Avgol itself defines difficulties in commissioning new lines as a material risk factor. That is not theoretical. It showed up in 2025 through lower efficiency in the U.S., higher depreciation, higher production cost and the ongoing qualification phase. If Mocksville drags, the company could find itself with more capacity, more debt and more depreciation without enough margin improvement to compensate.

FX and financing cut both ways

The company is exposed to the dollar against the shekel, euro, yuan, ruble and rupee. In 2025 the shekel strengthened 12.6% against the dollar and the ruble strengthened 23.1%. Ruble strength supported profitability and equity in Russia, but shekel strength had a clearly negative effect on finance expense. This is a reminder that FX can help one layer and hurt another.

There is no financial hedge magic on raw materials either. The company does not use systematic financial hedging for polypropylene prices and prefers natural protection through price-adjustment mechanisms with customers. That makes industrial sense, but it leaves the group exposed to the time lag between procurement cost and selling price.

Russia, tariffs and Brazil

Russia remained profitable and cash-generative, but the company itself defines the geopolitical situation there as a material macro risk. U.S. tariff policy and the Brazilian anti-dumping review add another layer of uncertainty. None of these looks thesis-breaking right now, but together they raise the execution bar.

Capital spending requirements are not over

The company itself defines ongoing capital-investment needs as a special risk. That matters because Avgol operates in a market that requires line renewal, product-quality improvement, and continued adaptation to a world of lighter, softer and more advanced fabrics. In other words, even if 2026 improves, this is not a business suddenly entering a relaxed cash-harvest phase.

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Conclusions

Avgol ends 2025 in better shape than the net loss alone suggests, but in weaker shape than the volume growth suggests. Demand came back, KC expanded, the new line started on time, leverage stayed controlled and the bond was repaid. The main block is that Mocksville’s economics are still not mature, which leaves FX, financing and factoring too visible in the report.

This is no longer a demand-recovery thesis. It is an execution thesis. If Mocksville moves into more advanced products and improves efficiency, Avgol can look very different. If not, 2025 will be remembered as the year when capacity came back before profit did.

Current thesis: Avgol has already proved that volume is back, but 2026 will determine whether the new U.S. capacity can turn that volume into profit.

What changed: The center of the story moved from demand to efficiency. The sharp increase at KC and the rise in volumes show the market is there, but the profitability is not there yet.

Counter-thesis: 2025 may have been only an operating and accounting transition year, and once Mocksville moves through higher-end qualifications, the same sales base could produce a relatively sharp improvement in margins and earnings.

What could change the market’s interpretation over the short to medium term: one report in which Mocksville shows volume, better gross profit and less financing pressure could change the market’s understanding faster than any presentation.

Why this matters: because Avgol’s main gap today is between operating value that has already been built and shareholder value that still has to come through cleaner net profit and more reliable cash flow.

What must happen over the next 2 to 4 quarters, and what would weaken the thesis: to strengthen the thesis, the company needs to show advanced product qualifications in Mocksville, an end to gross-margin erosion, and cash flow that keeps improving without leaning too heavily on discounting. If the ramp drags, finance costs stay elevated, or regulatory and commercial friction grows, the thesis weakens quickly.