Zanlakol 2025: Dairy Is Growing Fast, but Vegetables and Cash Still Need a Proof Year

Getting to Know the Company

Zanlakol is no longer just a canned vegetables and sauces story. In 2025 it is a food group with two very different engines: a long established vegetables business with familiar brands and relatively strong profitability, and a dairy operation that is still moving from a private label and regulated products model into a broader branded portfolio. On paper that combination can look attractive, a mature cash generator next to a new growth leg.

What is working right now is clear enough. Sales rose 10.2% to ILS 530.9 million, dairy revenue climbed 29.5% to ILS 162.4 million, the dairy unit launched about 30 new products, and capacity utilization reached about 75% on a plant that can now handle about 40 million liters. That is real progress. The asset bought in 2023 is no longer just a turnaround concept.

But that is only half the picture. A superficial read can easily conclude that Zanlakol has already cleaned up the balance sheet and is now simply scaling into the next phase. That is incomplete. Vegetables still carry the economics of the group. The vegetables segment generated ILS 368.5 million of revenue and ILS 73.7 million of segment profit in 2025, while dairy, despite the strong top line growth, generated only ILS 6.4 million. Dairy is growing, vegetables are still paying the bills.

The active bottleneck is not capacity. Both plants still have room to grow without an immediate large investment step. The bottleneck is the quality of growth: pricing power, product mix, margin protection against retailers and imports, and above all the ability to turn reported profit into cash. Cash flow from operations fell to ILS 42.6 million, year-end cash dropped to ILS 2.0 million, the company paid ILS 20.0 million of dividends, repurchased ILS 5.9 million of shares, and approved another ILS 14.0 million dividend after year-end.

That is why 2026 looks like a proof year rather than an automatic breakout year. If dairy keeps lifting margins, if vegetables stop eroding, and if working capital starts releasing cash, the read can improve quickly. If not, Zanlakol will remain a company that can grow revenue while still looking too demanding on cash.

A compact economic map for 2025 looks like this:

There is also a market screen to keep in mind. Short positioning is negligible, with short float at 0.00% and SIR at 0.07 at the end of March 2026. That means there is no crowded bearish positioning around the name. But the latest trading turnover was only about ILS 69.9 thousand. So even if the operating story improves, liquidity is still a practical constraint.

Events and Triggers

The first trigger: 2025 was the year in which the dairy unit stopped looking like a rescued asset and started looking like a business that has to be judged on execution. Management consolidated the dairy portfolio under the Ramat Hagolan Dairy brand, expanded non regulated categories, launched about 30 products, and kept folding the dairy sales and logistics model into the wider group infrastructure. That is important because it moves the dairy unit away from low flexibility private label and regulated products toward a more discretionary mix.

The second trigger: the fourth quarter already showed that the story is still messy. Revenue in the quarter rose 2.7% to ILS 128.2 million, but operating profit fell 13.2% to ILS 16.1 million and net profit fell 21.6% to ILS 8.6 million. That is not noise. It suggests that the pressure from vegetables margins and the heavier selling and overhead cost base are starting to outrun the revenue growth headline.

The third trigger: capital allocation is sending a mixed message. On one hand, bank debt has nearly disappeared, the company keeps buying back shares, and dividends continue. On the other hand, cash itself has been depleted, and the board still approved another dividend after year-end. That can be read as confidence, but it can also be read as a fairly aggressive payout policy at a stage where the new growth engine is still proving itself.

The fourth trigger: dairy regulation remains part of the thesis. The target raw milk price rose gradually during 2025, while regulated end product prices are updated with a lag. That compresses margins during the period in between. On top of that, a structural dairy reform returned to the policy agenda in late 2025, although it was not yet included in the 2026 economic plan at the report date. The business is still operating inside a framework that can shift through regulation.

The common thread across these triggers is that the question is no longer whether the company can grow. It already did. The question is what kind of growth this is, and whether that growth can carry the cost structure, the working capital cycle and the payout policy at the same time.

Efficiency, Profitability and Competition

The key 2025 figure is a paradox: revenue increased by ILS 49.3 million, but operating profit declined by ILS 2.2 million and net profit declined by ILS 2.9 million. That is the real headline. Stopping at the revenue line misses the economic shift underneath.

What ate the top line improvement

Gross profit rose 7.0% to ILS 165.3 million, but gross margin fell from 32.1% to 31.1%. At the same time, selling and marketing expense rose 16.4% to ILS 60.9 million, and G&A rose 22.9% to ILS 24.3 million. Management ties the increase in selling expense mainly to distribution and brand investment, while the increase in G&A is linked mainly to the management compensation plan.

That leaves three forces at work:

1. Volume effect: sales did grow, especially in dairy.
2. Price and cost effect: the company did not fully pass through the cost inflation that hit the vegetables business.
3. Mix and commercial expense effect: part of the growth came with a higher selling and branding bill.

The same pattern shows up in EBITDA. It was essentially flat, slipping from ILS 101.8 million to ILS 101.7 million, while EBITDA margin fell from 21.1% to 19.1%. So even the broader profitability measure weakened in quality terms.

Vegetables still finance the group

The vegetables segment grew 3.5% to ILS 368.5 million, but segment result fell 7.5% to ILS 73.7 million, and segment margin fell from 22% to 20%. In the fourth quarter the pressure was clearer: vegetables revenue fell 4% to ILS 87.0 million and segment result fell 23% to ILS 13.7 million.

Management’s explanation is unusually useful here. It says that higher procurement and production costs tied to local agricultural yields flowed into the fourth quarter as inventory turned, while a stronger shekel and lower China commodity prices increased imports. At the same time, the company did not raise selling prices. That means the pressure is not just accounting noise. It is a real price-cost squeeze inside a tougher imported and private label environment.

And that leads to a non obvious point. The vegetables plant does not look capacity constrained. Potential annual capacity is about 90 thousand tons and 2025 utilization was only about 73%. The bottleneck is commercial, not physical. Pricing, shelf space, mix and retailer power matter more than plant utilization at this stage.

Dairy is growing, but it has not changed the profit balance yet

Dairy did show real progress. Revenue rose 29.5% to ILS 162.4 million and segment result jumped from ILS 2.7 million to ILS 6.4 million. In the fourth quarter alone, dairy revenue rose 20% to ILS 41.2 million and segment result rose from ILS 0.8 million to ILS 2.4 million.

But the right read is still cautious. Even after the jump, dairy segment result amounts to only 4% of revenue. That is materially better than the 2% seen in 2024, but it is still not enough to make dairy a standalone earnings driver. Dairy is an improving growth engine, not yet a mature margin engine.

This is where the competitive context matters. The company itself says its market share is negligible in the categories where it operates. It competes against large incumbents such as Tnuva, Strauss and Tara, as well as smaller cheese players and importers. So moving toward more non regulated products is strategically sound, but it does not automatically translate into pricing power. The next step is not just more SKUs. It is proving that the expanded mix can carry better margins.

What the first read can miss

The first read can easily treat the dairy growth as proof that the company has already become a different business. That goes too far. Vegetables still generate roughly 92% of the group’s segment economics. Dairy is improving, but it still depends on vegetables continuing to fund the transition. If vegetables stay under pressure and dairy is still in build-out mode, both engines can weigh on the group at the same time.

Cash Flow, Debt and Capital Structure

The balance sheet is tempting on first glance. Bank debt is down to only ILS 0.9 million, equity to assets improved to 47.9%, and the company’s own leverage ratio fell to minus 0.4%. That can make the financial risk look almost solved. It is not that simple.

The right cash frame here is all-in cash flexibility

For Zanlakol, the useful cash frame is all-in cash flexibility, not a narrow recurring cash view. The question is not only what the business generates before uses, but how much cash is left after real uses of cash.

That 2025 bridge looks like this:

• cash flow from operations: ILS 42.6 million
• CAPEX: ILS 29.5 million
• lease principal repayment: ILS 4.9 million
• dividends: ILS 20.0 million
• share buyback: ILS 5.9 million
• net bank debt repayment: ILS 8.8 million

After those uses, cash fell by ILS 26.5 million. So the business reported profit, but it did not leave free cash behind. It consumed cash.

The gap between net profit and operating cash flow did not come from a blowout in receivables. Receivables actually declined by ILS 4.2 million. It came from working capital and payout choices. Working capital changes consumed ILS 26.6 million, mainly because inventory rose by ILS 15.8 million and supplier balances fell by ILS 10.5 million. At the capital allocation layer, management kept distributing cash.

There is another layer underneath that. Outstanding factoring transactions that had not yet been collected stood at about ILS 40 million at the end of 2025. Legally that is not classic bank debt with recourse, because the bank does not have recourse to the company if the customer fails to pay. Economically, though, it still tells you that part of the working capital cycle is being financed by selling receivables. So the cash position should not be read as if the cycle has already normalized.

Working capital is structural, but it still needs funding

Zanlakol’s model is inventory heavy by design. That is not automatically negative. The company says finished goods inventory averaged about 132 days in 2025, which makes sense for a vegetables business where production is tied to short agricultural seasons and inventory must serve sales until the next cycle. Raw materials and packaging inventory averaged only about 14 days, so the real weight is in finished goods, not input stockpiles.

Still, structural does not mean free. Year-end inventory reached ILS 146.5 million, up from ILS 130.7 million a year earlier. As long as dairy is growing and vegetables still require seasonal stock building, the group will need either more cash, more financing, or less payout.

Bank debt is down, but the lease burden did not disappear

This is the other easy trap in the story. Bank debt has indeed almost disappeared. But lease liabilities did not. They still amount to ILS 112.4 million at year-end 2025. That is the legacy of the 2023 sale and leaseback transaction on the Alon Tavor site, which carries annual rent of ILS 10 million linked to CPI over a 15 year lease term, with an extension option.

So anyone looking only at ILS 0.9 million of bank borrowing will miss the real fixed financial commitment that remains in the structure. This is not a conventional leverage problem, but it is a real limit on flexibility.

Capital allocation is now part of the thesis

The company paid ILS 20.0 million of dividends in 2025 and spent ILS 5.9 million on share buybacks. After year-end it approved another ILS 14.0 million dividend. The rationale is easy to see: low bank debt, positive earnings, a balance sheet that does not look conventionally stressed.

But the correct read is two-sided. Yes, this signals confidence. It also means real cash is being distributed at a stage when the dairy unit is still proving its economics, CAPEX remains meaningful, and the cash balance has already dropped close to the floor. That is the practical blocker in the story.

Outlook

Before looking forward, five non obvious points from 2025 matter most:

1. The main top line growth comes from dairy, but the main economics still come from vegetables.
2. The likely 2026 bottleneck is not capacity, but pricing, mix and working capital.
3. Low bank debt does not equal low financial commitment because the lease burden remains large.
4. The company kept distributing cash during a year in which liquidity fell sharply.
5. The fourth quarter already suggests that 2026 may be harder than the annual revenue growth headline implies.

What kind of year is 2026

2026 looks like a proof year. Not a reset year, because the company is not in distress. Not a breakout year, because the new engine has not yet proved enough profitability. It is a year in which Zanlakol has to show that two very different operating engines can become one convincing economic story.

On the dairy side, management needs to prove that the move toward non regulated categories, single brand focus and broader assortment can lift margin, not just volume. That matters because raw milk, the core input in the segment, accounts for more than 60% of raw material and packaging purchases in the dairy business, and its price is updated through a regulatory mechanism. When end prices do not move as quickly, the margin gap becomes the real test.

On the vegetables side, the company has to show that late 2025 was a pressure point, not the start of a longer erosion cycle. Management explicitly says a stronger shekel and lower China commodity prices boosted imports, while local production costs rose and selling prices did not. So the next test is not another volume headline. It is whether margins can be defended.

What must happen over the next 2 to 4 quarters

First, dairy profitability has to keep moving up. Another 20% or 30% revenue gain is not enough if segment profitability remains around 4%.

Second, cash conversion has to improve. The company does not need to stop distributions immediately, but it does need to show that operating cash flow can once again fund CAPEX, lease payments and shareholder returns without draining the balance.

Third, vegetables need to stabilize. If the fourth quarter turns out to be a one quarter margin reset, the story becomes much easier to underwrite. If it turns into a trend, the whole group thesis gets tougher.

Fourth, capital allocation has to stay tied to actual cash generation rather than only reported earnings. In 2026 the dividend itself becomes part of the operating read.

What can change the market reading

A positive surprise would come from another leg up in dairy margin, together with visible working capital release. That would let the market read Zanlakol as a food group with a genuine second earnings engine.

A negative surprise would come if dairy growth still depends on promotions and commercial spend while vegetables keep losing margin and payouts continue as if cash were abundant. In that case the market could start reading the dividend and buyback not as strength, but as over-distribution.

Risks

Customer concentration and pricing power

Zanlakol sells 90.3% of revenue into the local retail market, depends on the three largest retail chains, and discloses one large customer that represented ILS 60.95 million, or 11.48% of 2025 revenue. That is not single customer dependence in the classic sense, but it is a concentrated retail structure where price increases are never a unilateral decision.

Regulation and input costs

The dairy exposure is straightforward: raw milk target prices move quarterly, while regulated selling prices move with a lag. In vegetables, pricing is still exposed to sector frameworks and to local cost inflation in areas the company cannot fully control. In both segments, real profitability is tied to external variables as much as to internal execution.

Inventory, factoring and payouts

The model runs on inventory. That is part of the business, not a defect, but it does create a steady funding need. Add about ILS 40 million of factoring and a still generous distribution policy, and you get a system that functions, but with less room for error than the tiny bank debt line suggests.

Northern operating concentration

The group’s two main sites are in Alon Tavor and Katzrin. The company reports no material operational effect from the war or later security escalations, and says it managed through labor and supply issues. That is encouraging. It still leaves the group with concentrated operations in the north, while many of its agricultural and milk suppliers are also based mainly in that region.

Imports and private label competition

In vegetables, the company faces local producers, importers and private label brands. In dairy, management itself says market share is negligible in the categories where it operates. That means the edge still has to be built through execution, brand, innovation and distribution. If one of those slips, there is not yet enough structural pricing power to cushion the impact.

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Conclusions

Zanlakol goes into 2026 with two conflicting messages. On one side, this is a company that is still growing, with a dairy business that is starting to look real and a balance sheet that looks lighter on bank debt. On the other side, profitability weakened, cash thinned out, and shareholder distributions remained aggressive precisely while the new growth engine still needs proof.

The core conclusion is simple: Zanlakol is building a second growth engine, but it is still being financed mostly by the old one. That can work, but it is not settled yet.

Current thesis: Zanlakol is now a two-engine food business in which dairy drives growth, vegetables still drive profits, and the real test is whether that mix can start producing durable cash rather than only reported earnings.

What has changed versus the simple legacy read is that the dairy business no longer looks like a rescue asset. It is growing, broadening its mix and becoming commercially relevant. At the same time, 2025 also proved that the next step is harder. The company now has to show margin and cash, not just sales.

The strongest counter-thesis is that the hardest part may already be behind it: bank debt is almost gone, dairy is growing quickly, and a moderate further improvement in dairy margins together with stabilization in vegetables could put the group back on a better earnings and cash path. That is a credible objection, which is exactly why the next few quarters matter.

What can change the market reading in the near to medium term is the combination of three datapoints: dairy margin, working capital release and the relationship between payouts and cash on hand. If those move in the right direction, the read can improve fast. If not, even another year of revenue growth may no longer be enough.

Why this matters is that Zanlakol is no longer just a branded vegetables company. It is trying to build a different profit mix. If that works, business quality improves. If it stalls, the group can remain stuck between two worlds, not enough dairy profit to change the story, and not enough vegetables margin to fund it comfortably.

What must happen over the next 2 to 4 quarters is further dairy margin expansion, stabilization in vegetables, and a real rebuild in cash after CAPEX, leases and distributions. What would weaken the thesis is another stretch in which revenue keeps rising while cash keeps getting tighter.