Emet: why the receivables improvement did not really clean up working capital

Working Capital: the line that improved, and the pocket that stayed heavy

The main article already argued that Emet's record revenue did not turn into record cash flow. This follow-up isolates the mechanism: the receivables improvement was real, but it did not release working capital. It simply pushed the burden into accrued income, while the company also lost part of the free funding it used to get from deferred revenue.

At first glance, the headline looks cleaner. Current trade receivables fell to NIS 401.6 million from NIS 420.9 million, and the average credit period shortened to 74 days from 93 days. Anyone stopping there would conclude that the group cleaned up a meaningful part of the cash-cycle pressure. That is only part of the picture. Current accrued income rose to NIS 91.2 million from NIS 71.7 million, and long-term customers and accrued income climbed to NIS 30.8 million from NIS 12.6 million. In other words, the company is carrying fewer classic billed receivables, but more revenue that has already been recognized and still has not been billed or collected.

The second half of the story sits on the other side of the balance sheet. Deferred revenue, which is effectively low-cost customer funding before full delivery, fell to NIS 46.2 million from NIS 59.1 million. Put the two directions together and the balance sheet is clearly working less in Emet's favor. At the end of 2024, the gap between customers and accrued income on the one hand and deferred revenue on the other stood at NIS 446.2 million. By the end of 2025 it had widened to NIS 477.3 million. That is roughly NIS 31.1 million more balance-sheet weight, despite the apparently healthy decline in current receivables.

What matters here is that this does not look like a classic credit-quality problem. The expected credit-loss allowance barely moved, at NIS 1.823 million versus NIS 1.849 million, and the group says no single customer accounted for more than 10% of sales. That distinction matters. This is not a collection collapse. It is a billing and cash-conversion issue. A lower receivables line on its own does not tell the right story.

The aging table also shows that the cleanup is not perfectly clean. Amounts not yet due fell to NIS 350.2 million from NIS 377.5 million, but the 61 to 90 day bucket and the 91 to 120 day bucket rose to NIS 6.4 million and NIS 8.1 million, from NIS 3.2 million and NIS 2.8 million a year earlier. The over-120-day bucket was broadly flat at about NIS 8.8 million. This is not a sharp deterioration, but it is not a fully polished collections picture either.

The problem moved into another line item

The customer-contract note exposes that shift much more directly. Total accrued income rose to NIS 121.3 million from NIS 79.3 million. That is a jump of roughly NIS 41.9 million in one year. Deferred revenue moved the other way, falling to NIS 46.2 million from NIS 59.1 million. In simpler economic terms, Emet ended 2025 with more revenue already booked and less cash collected in advance.

The economic meaning of that mix is heavier than a quick balance-sheet read suggests. A billed receivable that stays open is standard working capital. Revenue already recognized but not yet billed is just as heavy from a cash standpoint, and often less visible. When deferred revenue falls at the same time, the company is not only financing more of the operating cycle itself, it is also enjoying less natural customer funding.

Cash flow from operations confirms that this was not just an accounting presentation issue. In 2025, the rise in receivables and accrued income consumed NIS 18.6 million of cash, and the decline in deferred revenue consumed another NIS 12.7 million. Together that is a NIS 31.2 million drain. In 2024, the exact same pair of lines barely hurt cash: receivables and accrued income consumed NIS 14.5 million, but the rise in deferred revenue added NIS 16.5 million, for a net positive effect of about NIS 2.0 million. That is a deterioration of roughly NIS 33.2 million in one year, from just two contract-balance lines.

That is the key number, because it separates two questions that are easy to blur together. The first is whether Emet is selling. The answer is yes: revenue rose to NIS 1.497 billion. The second is under what economic terms that revenue is being recognized, and when it turns into cash. The answer there is less clean. 2025 looks like a year in which revenue moved ahead faster than billing and cash collection.

The investor deck also hints at where the cycle stretches

The investor presentation was not designed as a working-capital note, but it does provide an important clue. On the slide explaining the dollar effect in the infrastructure segment, management lays out a sequence in which the supplier invoice is received when the goods leave the port of origin or arrive at the company site, then a 3 to 5 week integration and testing phase follows, and only after delivery to the customer is the customer invoice issued, with payment collected later under the agreed terms.

That slide was meant to explain margin pressure, not working capital. Even so, it says something important about revenue quality. If part of the business, especially the infrastructure segment, works in a cycle where supplier billing comes first, then execution follows, and customer billing only comes later, there is no contradiction between a lower receivables line and higher accrued income. This is exactly the kind of structure in which the company completes performance, recognizes revenue, and still waits for billing or cash collection.

It is worth being disciplined here. The slide does not prove that all of the NIS 41.9 million jump in accrued income came from this sequence, and not all accrued income belongs to the infrastructure segment. But it does show that Emet's own management describes an operating cycle in which the time gap between supplier billing and customer billing is not trivial, and in that kind of cycle, faster collections alone do not necessarily release working capital.

Cash flow tightened before growth even starts to matter

The margin hit from the dollar got a lot of attention, but the pressure here runs deeper. Cash flow from operations fell to NIS 54.8 million from NIS 82.6 million even as revenue grew. This is where a stricter all-in cash-flexibility frame is the right one, because the issue is not only the business's reported cash-generation power, but how much real room is left after actual cash uses.

In that frame, the starting point is NIS 54.8 million of operating cash flow. From there, the company still had to fund NIS 6.3 million of reported CAPEX, NIS 7.0 million of acquisitions, NIS 17.1 million of interest paid, NIS 13.2 million of lease principal, NIS 19.2 million of dividends to shareholders and minorities, NIS 19.1 million of long-term debt repayments, and NIS 1.7 million of contingent-consideration payments. That leaves a negative NIS 28.8 million before new borrowing. The same calculation was negative NIS 8.6 million in 2024. In other words, even when taking operating cash flow at face value, real balance-sheet room tightened by about NIS 20 million.

The company obviously did not run out of cash. It finished the year with NIS 67.3 million on hand, broadly similar to the NIS 68.5 million at the end of 2024. But getting there required financing: cash flow from financing included a net NIS 17.3 million increase in short-term bank credit and NIS 33.0 million of long-term borrowing proceeds. Consistent with that, net debt rose to NIS 155 million from NIS 123 million. That is the heart of the point. The balance sheet did not break, but it had to work harder to preserve roughly the same cash balance.

What would make the relief real

The counter-thesis here is both smart and plausible: part of the 2025 pressure may be timing-related, shaped by execution cycles, exchange-rate effects, and acquisitions, which means accrued income could unwind back into cash relatively quickly if the dollar stabilizes, billing catches up, and project timing normalizes. That is a real possibility and it should not be dismissed.

But as of the end of 2025, it is still only a possibility. To argue that working capital has truly been cleaned up, it is not enough to see another drop in receivables. At least three things have to happen together: accrued income needs to come down materially, deferred revenue needs to stop shrinking, and operating cash flow needs to cover a larger share of real cash uses without leaning on more debt. Until that happens, the receivables improvement is mostly a relocation of the problem inside the contract cycle, not a full solution.