Overseas: Operating Cash Looks Strong, but the Lease Layer Tells a Different Story

The main article already established that 2025 was an operationally strong year for Overseas. Revenue grew, margins improved, and operating cash flow reached NIS 104.9 million. This follow-up isolates one issue only, but it is the issue that changes how that number should be read: the gap between the debt the bank measures and the debt the cash flow actually has to serve.

This is the core gap. The banking ratio looks comfortable, 2.1 against a ceiling of 5.6, because the debt definition in the financing agreements excludes lease liabilities. But at the end of 2025 lease liabilities stood at about NIS 196.5 million, more than total gross bank debt of NIS 151.7 million. So anyone looking only at covenant debt gets a much calmer picture than the real economics of the funding stack.

That does not mean the company has entered debt distress. It has not. The filing shows total credit lines of NIS 56 million, with NIS 42.45 million still unused close to the publication date. The point is different: Overseas can look comfortable to the bank while still leaving very little room for common shareholders after leases, interest, amortization, and distributions.

Where the bank test ends

Overseas' dividend policy calls for distributing at least 50% of distributable profit, subject to solvency, and any distribution above 50% of solo net profit requires prior bank approval. On the same page the company also makes the key point clear: the debt-to-operating-profit covenant is calculated on net financial debt, excluding liabilities created by the lease accounting standard.

That explains how two statements that sound inconsistent can both be true. On one hand, the company is comfortably within covenant limits. On the other hand, once leases are brought back into the picture, the funding burden looks much heavier.

What matters here is not just that leases add another line to the balance sheet. They change the scale of the picture. On the banking layer, Overseas looks like a company that brought net financial debt down to NIS 147.3 million. On the broader economic layer, it carries about NIS 348.2 million of financing liabilities, roughly 1.6 times equity. So the real discussion is not whether the company is breaching a covenant. The real question is how much cash is left after it services the layer that the covenant does not even count.

The lease maturity table changes the reading

The contractual liquidity table sharpens the point further. Within one year, contractual cash flows for bank loans and bank credit amount to NIS 62.4 million. At the same time, contractual cash flows for leases reach NIS 42.8 million. Even in the near term, leases already account for almost two thirds of the banking burden.

That burden also does not disappear quickly. In year two, leases require another NIS 39.5 million, in years 3 to 5 another NIS 70.8 million, and beyond five years another NIS 106.2 million remains. Bank debt, by contrast, is mostly gone after the first five years. Anyone looking only at bank amortization sees a liability stack that is being worked down. Anyone adding the lease layer sees a much longer payment tail.

This is why the line that "leases are just IFRS 16" misses the point. A lease is not identical to a standard bank loan, and in some cases it also has an operating dimension. But from a cash perspective it is still a real, multi-year payment layer. The filing itself shows that even where there is a partial offset, it is limited. In the Kiryat Sde HaTeufa warehouse sublease, lease-sublease receivables stood at NIS 13.1 million at the end of 2025. That helps, but against roughly NIS 196.5 million of lease liabilities it is only a modest offset.

There is also an important qualitative point. In the Ben Gurion airport authorization, the company pays the higher of an annual base fee of about NIS 0.7 million or 6.2% of the gross revenue of that activity. That means part of the lease layer is not just a fixed background cost. It also participates in the upside when activity grows. So not every operating improvement at the air-cargo terminal reaches the shareholder layer intact.

Operating cash is mostly absorbed before it reaches shareholders

This is where the gap between operating cash and shareholder cash becomes concrete. The cash flow statement shows NIS 104.9 million from operating activities, and that is a strong number. But in the same year the company recorded NIS 101.7 million of cash uses in financing activities. Of that, NIS 39.8 million went to long-term debt amortization, NIS 31.5 million to lease-principal repayments, NIS 20.4 million to interest, and NIS 9.7 million to dividends.

The implication is sharp. After financing activity, only about NIS 3.2 million was left. After NIS 8.1 million of CAPEX and NIS 2.3 million invested in intangible assets, the all-in reading falls to roughly NIS 7.2 million in the red. That is exactly the point where strong operating cash stops being enough. The business generates cash, but the debt-and-lease layer captures almost all of it before it becomes real excess cash for shareholders.

That chart reveals two different things. First, already in 2025 operating cash was almost entirely absorbed by actual financing uses. Second, on a forward-looking read, just the first year of contractual cash due to banks and leases totals about NIS 105.2 million, almost identical to all the operating cash the company produced in 2025. That is before CAPEX, before future dividends, and before any negative move in volume or working capital.

This is not a distress call. The company still has unused credit lines and is not close to breaching its covenants. But it is very much a call that says the real 2026 test is not whether Overseas can keep posting a decent EBITDA number. The real test is whether it can open a wider gap between cash coming in from operations and cash going out for debt service, leases, and distributions.

Dividend policy is working as designed, not as an equity holder would prefer

This is where the paradox becomes fully visible. In 2025 the company paid two dividends, NIS 5.78 million in September and NIS 3.96 million in December. After the balance sheet date, at the March 16, 2026 board meeting, it approved another NIS 2.8 million dividend to be paid on April 13, 2026.

That last number matters because it is almost exactly 50% of 2025 net profit, which came in at NIS 25.08 million. In other words, the policy is working exactly as written: the company generates profit, stays within covenants, and continues to send part of the cash out. But that also exposes the weakness of the framework. A policy built around distributable profit and covenant comfort does not necessarily align with lease-adjusted cash flexibility.

That is why the post-balance-sheet dividend matters more than its absolute size. At NIS 2.8 million, it is not an extreme move. But it shows that the company still treats accounting profit and banking headroom as a sufficient basis for distribution, even though only NIS 4.4 million of cash remained at the end of 2025. At the shareholder layer, that means the cushion is still narrow, and every small operational wobble, collection delay, or additional lease burden hits the cash buffer faster than it hits the banking ratios.

Conclusion

The main article showed that Overseas' 2025 operations look better than they did in prior years. This continuation sharpens where that reading stops. Below the operating line, the lease layer changes the interpretation completely: it is larger than bank debt, it runs for longer, and together with debt service and interest it absorbs almost all of the operating cash flow.

The thesis here is not that the bank is about to shut the tap. The thesis is that the bank and the equity holder are not measuring the same thing. For the bank, a ratio of 2.1 against a ceiling of 5.6 is enough. For the shareholder, the relevant question is different: after leases, interest, amortization, and distributions, is there finally real excess cash left. So far, the answer is still not really.