Carmit in 2025: Profit Is Back, but the Real Test Is Still the Credit Framework

Getting To Know The Company

At first glance Carmit can look like a simple story: a confectionery manufacturer that got some relief after the cocoa shock. That read is too shallow. 2025 was a more meaningful repair year than that. Revenue rose to 305.5 million shekels, EBITDA rose to 32.1 million shekels, and the company returned to a 5.4 million shekel net profit after a loss in 2024. This was no longer just a one-segment rescue. Sugar and bakery both moved back into operating profit, inventory came down, and year-end cash almost doubled.

But the picture is still not clean. The active bottleneck at Carmit is not demand. It is working capital and credit. At the end of 2025 the company had 18.4 million shekels of cash against 142.6 million shekels of gross bank debt, and net finance expense still absorbed 62% of operating profit. Even when operations improve, the financing layer is still heavy enough to dictate the tone of the year.

This is also why a shallow read of cash flow can mislead. Cash flow from operations jumped to 25.8 million shekels after minus 5.2 million in 2024, but part of that recovery came from working-capital release, especially lower raw-material inventory. In the same year average customer credit actually rose to 92 million shekels, and total inventory still stood at 52.6 million shekels. In other words, Carmit looks healthier, but it is still not a light business financially.

The stock itself adds another screen. At the latest share price, around NIS 19 per share, market value is roughly 106 million shekels, below year-end net bank debt of about 124 million shekels. Latest daily turnover was only about 10 thousand shekels. So even if the operating story improves, this is still a name with a real actionability constraint.

The economic map is straightforward:

Four points hold the whole thesis together:

• The 2025 recovery was broader than it first appears, because sugars and bakery moved from losses into operating profit instead of chocolate carrying everything alone.
• Anyone telling themselves this was only a cocoa story is missing the fact that chocolate gross margin barely improved and is still well below 2023.
• Cash flow improved, but it leaned in part on a 16.6% drop in inventory and a sharp reduction in raw-material stocks.
• The key event for the next cycle sits after the balance-sheet date: a new credit framework that lengthens maturities, lowers spreads, and removes a fragile positive-net-income covenant.

Events And Triggers

The central trigger: the post-balance-sheet credit reset is the most important event for understanding Carmit now. The new agreements with Bank Hapoalim and Discount extend long-term debt maturity to about 15 years, set long-term pricing at prime plus about 0.5%, increase on-call facilities at Hapoalim by about 5 million shekels, and set short-term pricing at prime plus about 0.25%. The real point is not only price. It is structure. The company is moving from a tighter framework toward one that tries to buy time.

What stood behind it: in 2024 the company ended the year in a loss and therefore failed the covenant that required positive annual net income. The banks granted one-time waivers. In 2025 Carmit returned to compliance with all covenants, but the fact that it needed waivers in the previous year explains why it moved quickly to redesign the framework. This was not cosmetic. It was a repair of a weakness that had already been exposed.

The operating signal: 2025 was not just about stabilizing the base. The company invested 1 million shekels in an advanced development lab and hired a pastry chef who joined the development team as an applications manager. That is not a line item that moves profit on its own, but it does show where management wants the next layer of value to come from: industrial customers, professional customers, and product development with higher added value.

The commercial signal: during the year Carmit launched CLIF in Israel under its broader cooperation with Mondelez, after already distributing Marabou locally. This does not replace Carmit's own manufacturing base, but it does widen the import and distribution arm. In other words, another earnings layer is being built that is not fully dependent on in-house production.

The ownership and capital signal: in April 2025 the controlling shareholder and related parties bought 726,343 shares off-market for about 8.75 million shekels, lifting their combined stake to roughly 62.44% of the company. After the balance-sheet date the company also approved a 1 million shekel dividend. Taken together, those moves signal confidence, but they do not erase the financial tension. They only suggest management believes it is becoming more manageable.

The more interesting point is that the positive and negative triggers sit in the same layer. The new credit framework should ease financing cost and refinancing pressure, but it also replaces an old accounting covenant with new covenants tied directly to EBITDA and operating working capital. So the story is moving away from accounting optics and toward a more economic test of the business. That is an improvement, but it is also a more demanding proof point.

Efficiency, Profitability And Competition

The improvement did not come only from chocolate

Chocolate is still the heart of Carmit. It generated 71.4% of revenue and 13.8 million shekels of operating profit, almost 73% of group operating profit. But that is not the whole story. The sugars segment moved from a small operating loss to 3.1 million shekels of operating profit. Bakery moved from a 0.8 million shekel operating loss to a 1.4 million shekel operating profit. Granola, which outside investors might instinctively treat as the cleaner category, actually went the other way, with operating profit down from 1.46 million to 0.57 million shekels.

That matters because it means the 2025 improvement was not just a recovery in one raw material. If this were only a cocoa story, most of the repair should have shown up inside chocolate. Instead, the recovery was broader: two previously weaker segments improved, while one seemingly attractive segment weakened.

What really happened to margins

Gross profit rose to 62.1 million shekels, and gross margin improved to 20.3% from 19.3% in 2024. That is a real step forward, but it should not be overstated. In 2023 gross margin was 22.5%. So even after a better year, Carmit still has not returned to its pre-cocoa gross-profit quality.

Inside chocolate itself, gross margin was 18.2% in 2025 versus 18.5% in 2024. That is barely any relief. The segment did grow 10.6% to 218.2 million shekels of revenue, but the model there has not yet become comfortable again. Part of the growth came from pricing rather than quantity, and the company also says its cocoa supplier demanded additional collateral and brought payment terms forward. At the same time Carmit began to use CBE, a cocoa-butter substitute, in some recipes and became the exclusive distributor of that product in Israel. That is a smart move, but it is also a signal. When a food manufacturer starts adjusting recipes and payment terms around its core input, cost pressure is not really gone.

The sugars segment tells a different story. Revenue rose only 6%, but gross margin jumped to 31% from 24%, and operating profit moved decisively into positive territory. That is higher-quality recovery, because it is not based on a big sales leap alone. Bakery also returned to profit, with gross margin up to 20.1% from 15.3%, and export accounting for 37% of the segment's sales.

Granola did the opposite. Revenue rose 16.3%, but gross margin fell to 25% from 28%, and operating profit weakened. Management's explanation is revealing: more sales into the consumer market, higher selling and marketing costs, and more imported products with heavier raw-material consumption. So even when a segment grows, not all growth is equally valuable.

Competition matters, but the practical issue is not only competition

Carmit operates in crowded categories: Strauss, Unilever, Diplomat, Leiman Schlussel, importers, private labels, and a long list of competitors across categories. The company also admits it does not have complete and reliable market-share data because retail market inputs are incomplete. That is important, because management itself is not presenting a clean market-share dominance story to support the thesis.

But in this report competition is not the only practical problem. The more important issue is the quality of the commercial terms behind the sales base. One customer in chocolate alone accounts for 10% of consolidated revenue, and that customer sits in the industrial market. The same industrial market also makes the biggest contribution to operating profit. So the right read is not only that Carmit sells more chocolate. It is that it sells more to the customers that carry the best economics. That is a strength, but it is also concentration that deserves attention.

There is another important constraint: no meaningful backlog. In most segments orders are short dated, and the company explicitly says there is no material order backlog at the report date. That means 2026 will not be judged on long-dated contracted visibility. It will be judged on order cadence, commercial terms, inventory discipline, and the ability to hold margin without buying revenue too expensively.

That chart matters because it surfaces one of Carmit's real positives. In chocolate, sugars, and bakery the company is still far from full utilization. If demand holds, it has room to grow without immediately entering another heavy capex cycle. By contrast granola is already close to the ceiling, and that is exactly where earnings quality weakened. So not every segment has the same upside profile.

Cash Flow, Debt And Capital Structure

Cash flow: the full picture is better, but still not comfortable

Here the framing matters. On a normalized cash-generation basis, 2025 was much better: cash flow from operations reached 25.8 million shekels versus minus 5.2 million in 2024, and relative to 32.1 million shekels of EBITDA that is already a reasonable conversion year. But on an all-in cash flexibility basis, meaning how much cash is really left after actual cash uses, the story is still tighter.

The company ended the year with 18.4 million shekels of cash. That is better than 9.4 million a year earlier, but it is still a narrow cushion against 93.5 million shekels of short-term bank debt, 49.2 million shekels of long-term bank debt, and 8.1 million shekels of lease liabilities. Even 25.8 million shekels of operating cash flow does not make that structure light.

What drove the cash recovery? The company explicitly says the improvement came from profit plus lower inventory and shorter inventory days. That shows up in the balance sheet too: total inventory fell to 52.6 million shekels from 63.0 million, but most of the move came from raw materials, which dropped from 38.9 million to 23.4 million shekels. Finished goods actually rose from 16.9 million to 22.0 million. So 2025 cash flow tells the story of pressure release after 2024, not necessarily a model that has already become structurally easier to fund.

The customer side is not fully clean either. Receivables rose to 82.7 million shekels, credit days stayed at 80 to 90 days, and average customer credit jumped to 92 million shekels from 62 million in 2024. That means cash improved, but not because collection discipline suddenly tightened. At the same time average supplier credit rose to 41 million shekels from 34 million, with 60 to 70 days of supplier credit. So Carmit still leans on the balance-sheet relationship between customers and suppliers to hold the model together.

Debt and covenants: this is the heart of the story

At the end of 2025 equity-to-assets stood at 27.4%, above the old covenant levels, and the company returned to profit. That is a real improvement versus 2024, when it breached the profit covenant and received a one-time waiver from the banks. But this is still not a place for an overly relaxed read. The financing agreements also include cross-acceleration mechanics, so stress at one institution can cascade.

The big difference is that Carmit will not stay under the same covenant set. The new credit framework changes the question. Instead of depending on a positive-net-income requirement every year, the banks have moved toward tests that are closer to the actual economics of the business: long-term net debt to EBITDA, and short-term debt relative to operating working capital.

This is an important improvement, but it is not one-directional. On the one hand, Carmit gets a more workable framework. On the other hand, the new covenants test exactly the two places where the company still needs to prove stability: EBITDA and operating working capital. So 2026 will not only be a year of lower effective pricing. It will be a year in which operating improvement needs to be stable enough to carry a new debt structure over time.

Interest-rate and FX sensitivity also matter. The company says that every 0.5% move in the Bank of Israel rate changes annual financing cost by about 650 thousand shekels. It is also exposed to the dollar, euro, and pound, while hedging only part of net exposure. In 2025 the shekel strengthened sharply against the dollar, and FX still showed up both in finance expense and in cash. So even after a better credit framework, Carmit will remain sensitive to the funding environment.

Outlook

Before looking at 2026, four findings define the starting point:

• Carmit has real capacity headroom in chocolate, sugars, and bakery, so it does not need a major capex step just to grow.
• It has no meaningful backlog, so forward visibility is weaker and depends on ongoing commercial execution.
• Chocolate gross margin still has not returned to 2023 levels, so 2025 should not yet be called a full normalization year.
• The new credit framework can change the picture relatively quickly, but only if EBITDA and cash flow hold without help from inventory release.

That leads to the central conclusion: 2026 looks like a proof year, not a harvest year. If Carmit can keep sugars and bakery profitable, prevent further deterioration in granola, and show that lower financing cost is actually flowing into earnings and cash, the market may start to read 2025 as the beginning of a structural change. If not, 2025 may look in retrospect more like a repair year supported by inventory, pricing, and a friendlier debt framework.

What has to happen next for the read to improve:

Chocolate has to become a margin engine again, not just a revenue engine

The cocoa shock of 2024 forced price increases. In 2025 exchange cocoa prices were already down about 9%, but chocolate gross margin barely improved. So the next read will need to show whether the mix of somewhat easier cocoa markets, CBE substitution, and better commercial execution is actually leaving more money behind.

Working capital has to stop being the hidden swing factor

2025 benefited from inventory release. That is not a repeatable engine forever. If customer credit stays at 80 to 90 days and the company cannot hold tighter inventory discipline, a large part of the cash-flow repair can fade quickly. The new covenant with Hapoalim, which ties short-term debt to operating working capital, turns this from an analytical watchpoint into an actual financing condition.

Financing cost has to start falling in reality, not just on paper

Management itself says the updated framework should reduce financing cost and improve flexibility. That should be testable fairly quickly. If finance expense remains very high even after longer maturities and better spreads, the problem will clearly run deeper than pricing. If visible improvement starts to show, that can become the main trigger of the next cycle.

The newer growth layers need to prove they add value, not just volume

The new lab, the expanded import offering, and the Mondelez cooperation are all sensible strategic moves, but for now they are still optionality layers. Carmit needs to show that they bring stronger customers, better margins, or better export economics. Without that, they remain an interesting outer ring around the core business rather than a thesis-changing shift.

What can change the market's interpretation over the short to medium term is a combination of three things: at least one quarter with broad-based operating profitability, a visible decline in finance expense, and proof that cash flow is not once again being built on supplier stretch or one-off inventory release. Because liquidity in the stock is weak, even a positive surprise may not immediately translate into efficient price discovery. That does not change the business test.

Risks

Commercial concentration

In chocolate there is one customer that accounts for 10% of consolidated revenue, and the industrial market is also the largest contributor to operating profit. So a setback with a key industrial customer can hit the exact engine that is holding the year together.

Supplier concentration, cocoa, and logistics

One main supplier still accounted for 49% of raw-material and packaging purchases, even though that was down from 58% in 2024. Roughly half of inputs are sourced abroad, and imported products can take up to about five months to arrive. That leaves Carmit exposed to the combination of commodity pricing, FX, shipping, and supplier-credit terms.

Funding and rates

Even after the credit reset, short-term debt is still high, the agreements include cross-acceleration mechanics, and every 0.5% move in the Bank of Israel rate is worth about 650 thousand shekels annually in financing cost. Carmit has bought time, but it has not detached itself from the rate environment.

Working capital and commercial terms

Average customer credit of 92 million shekels and average supplier credit of 41 million make it clear that the operating balance sheet is still heavy. Any change in trade terms, collection pressure, or a need to rebuild safety stock can quickly pressure cash again.

Facilities and operating footprint

The main Tziporit site is still waiting for final occupancy approval and transition from a development agreement to a lease structure because of planning changes in the area. In addition, the sugars segment depends on the leased Barkan facility, which has been extended to the end of 2029 but remains an external asset for a core production line.

FX and export

Export rose to 45.6 million shekels, mainly to the United States. That is positive, but it also adds FX, regulatory, and external-demand sensitivity. The company hedges part of the exposure, not all of it. So the bottom line can still move for reasons that are not purely operational.

Conclusions

Carmit exits 2025 in a better place than it entered it. Operating improvement is broader, cash flow recovered, and the bank framework became more workable. But this is still not a clean story of a business that has already stepped into a higher-quality regime. Heavy debt, demanding working capital, and sensitivity to raw materials and FX still sit between the operating recovery and clean value for shareholders.

Current thesis: in 2025 Carmit moved from operating repair into the phase where it tries to turn that repair into a sustainable funding structure, but the proof still lies ahead.

What changed: this is no longer a company relying only on chocolate to survive the year. Sugars and bakery are back to generating operating profit, and the banks agreed to a framework that is more aligned with the actual economics of the business.

Counter-thesis: 2025 may have been mostly a pressure-release year. Inventory came down, cocoa markets eased somewhat, and the banks provided a friendlier structure. If one of those supports fades, Carmit could quickly fall back into a model with margins that are still too thin.

What can change the market read: reports that show a real drop in finance expense, sustained profitability in the secondary segments, and positive cash flow that is not once again built on working-capital games.

Why this matters: Carmit has already shown it can manufacture, distribute, and sell. What matters now is whether it can turn that into profit and cash without leaning so heavily on banks and the balance sheet.

Over the next 2 to 4 quarters the hurdle is fairly clear. For the thesis to strengthen, Carmit needs to show that EBITDA stays at a level that supports comfortable compliance with the new covenants, that finance expense actually comes down, and that cash flow stays positive even without another one-off inventory release. What would weaken the story is renewed pressure in chocolate, another working-capital build, or a situation in which the new credit framework improves optics but not real economics.