Novolog in 2025: Health and Digital Improved, but Logistics Still Drives the Cash Story

Getting to Know the Company

On paper, Novolog looks like a diversified healthcare services group. In practice, its economics are still dominated by logistics. In 2025, logistics generated roughly 86% of revenue and about 66% of segment-level Adjusted EBITDA before IFRS 16. That means health and digital can improve meaningfully and still fail to offset a deep operational problem in the core engine.

What is working now is clear enough. The health division returned to positive operating profit, the digital division remained small but profitable with a high gross margin, and the company still ended the year without using financial credit lines. But the picture is not clean: logistics stepped down after the SAP rollout, operating cash flow almost disappeared, and cash fell from ILS 247.6 million to ILS 121.8 million in a single year.

That is the real story. A superficial reading might focus on the “debt-free balance sheet” headline or on the 70% dividend policy. That would miss the actual change. Novolog does not look balance-sheet distressed, but it no longer looks like a company with comfortable financial flexibility either. Add one practical screen constraint: the market cap is around ILS 518 million, but the latest daily trading volume was only about ILS 7 thousand. Even if the business improves, the stock remains very illiquid.

The right question for 2026 is not whether Novolog has three profitable segments. That question is too easy. The real question is whether logistics returns to stable service, managed volume, and cash generation without creating more exceptional costs, more litigation, and more reputational drag. Until that happens, health and digital are support layers, not a replacement engine.

Quick Economic Map

That last chart matters because Novolog’s revenue line does not tell the whole story. In a large part of institutional pharma distribution, the company recognizes revenue on a net basis, meaning mostly the commission, while the economic volume handled is much larger. So anyone reading only the revenue line may understate the real change in scale. In 2025, managed activity volume fell 11.7% to ILS 6.35 billion. That is not just accounting geometry. It is a real business decline.

Events and Triggers

First trigger: On January 6, 2025, the logistics division went live with a new SAP ERP system, replacing the old AS400 platform. This was not framed as a cosmetic IT upgrade. It was meant to reshape logistics operations with direct interfaces to the Ministry of Health, distribution partners, and institutional customers. The company even pre-stocked customers before go-live. In other words, management knew this was a sensitive transition. The results show how sensitive.

Second trigger: The damage did not stay in the first quarter. In 2025, logistics revenue fell 12.7%, operating profit dropped 88.6%, and Adjusted EBITDA declined 22.4%. The fourth quarter makes it clear that the story was still not over: logistics revenue fell 36.6% to ILS 308.2 million, and the division moved to an operating loss of ILS 3.6 million. So even if the disruption started early in the year, its impact dragged much longer.

Third trigger: In May 2025, a class action and motion for certification were filed against the company and various pharma companies, alleging damages caused by medicine supply disruptions linked to the SAP rollout. The plaintiffs estimated group-wide damages above ILS 50 million, and the company recorded a provision of ILS 6.2 million. For the market, this is not just a legal event. It is a sign that the operational disruption became both a financial cost and a possible reputational issue.

Fourth trigger: In January 2026, the company signed an agreement to sell 100% of Novohelet, but this is not a simple exit from the entire home-care platform. Before closing, a reorganization is meant to transfer psychiatry, hospice, and medical-equipment activities into another company owned by Novolog. In practice, the sold business is the respiratory and supportive home-equipment activity. In March 2026, the consideration was amended to ILS 14.5 million, payable upfront at closing, subject to working-capital adjustments. The company has already recognized an estimated loss of about ILS 4.4 million on the deal.

Fifth trigger: The strategic framework approved in August 2024 sharpened the company’s focus around two arenas: product vendors on one side and service providers on the other. That framework is rational, and it explains why management is willing to sell certain activities while still evaluating inorganic growth. But that is exactly where the tension sits: a cleaner strategy helps the story only if the logistics core returns to generating cash rather than just shrinking the portfolio.

Efficiency, Profitability, and Competition

Logistics still sets the economic outcome

The easiest mistake in reading Novolog is to treat the three segments as if they were equally important. They are not. Even after a weak year, logistics remained the unit that explains most of the group’s revenue and most of its segment EBITDA. That is why a ILS 3.2 million increase in health Adjusted EBITDA and a ILS 0.5 million increase in digital Adjusted EBITDA were nowhere near enough to absorb an ILS 18.5 million decline in logistics.

Another common mistake is to read logistics gross margin like a normal distributor. The company explicitly notes that logistics gross margin is materially affected by the sales mix between private and institutional customers, because some revenue is recognized gross and some net. So a logistics gross margin of 5.4% in 2025 versus 7.0% in 2024 does not, by itself, mean the business became economically weaker by exactly that amount. But that does not mean the problem is only accounting. Managed activity volume fell, EBITDA fell, and the weakness was still visible in the fourth quarter. The hit was real.

The most useful way to read the segment is through the gap between two stories. On one hand, it has real strengths: meaningful logistics infrastructure, a large center in Modiin, sterilization capabilities, clinical-trials logistics, and long-standing pharma relationships. One undisclosed customer alone accounted for ILS 471.3 million of revenue in 2025, around 26% of consolidated revenue. On the other hand, that same central position leaves the business highly exposed to execution mistakes, shifts in distribution agreements, and trust erosion.

The segment reporting helps separate operating damage from reporting noise. In 2025, logistics included around ILS 14.9 million of exceptional expenses tied to the SAP rollout, roughly ILS 3.7 million of stock-based compensation expense, and a benefit of about ILS 10.5 million from revaluing financial liabilities to non-controlling holders. So looking only at adjusted EBITDA gives too soft a picture, while looking only at reported profit gives too harsh a picture. The correct reading is in the middle: the operational hit was real, but there was also a meaningful layer of one-off items.

Health looks better, but it is not fully clean yet

Health Services was the positive side of the year. Revenue rose 5.4% to ILS 217.9 million, operating profit moved from a loss of ILS 3.6 million to a profit of ILS 5.2 million, and Adjusted EBITDA rose 16.4% to ILS 22.8 million. The company ties that mainly to higher demand in psychiatric home hospitalization, and the fourth quarter kept that direction, with revenue rising to ILS 59.0 million from ILS 46.2 million a year earlier.

But this segment also needs a careful reading. The operating improvement came alongside the Novohelet sale process and a loss recognized on the deal. More importantly, Novohelet is not leaving as a whole business. Psychiatry, hospice, and medical-equipment activities are supposed to stay inside the group. That means 2026 will not simply be “less health.” It will be health with a different mix. That can improve focus, but it also makes year-over-year comparison harder.

The segment itself is built from very different businesses: home services, the Ein Tal ophthalmology platform, labs, insurer-facing services, and personalized medicine. That gives some diversification, but it also makes the segment harder to read. When one activity is sold and another stays, the right question is not just whether accounting value was created, but what earnings actually remain and how sustainable they are after the carve-out.

Digital is profitable, but still too small to rescue a weak year

In 2025, Digital generated ILS 27.3 million of revenue, up 3.9%, and ILS 10.1 million of Adjusted EBITDA, up 5.1%. Its gross margin was 56.5%, far above the rest of the group. This is clearly the higher-quality economic slice of Novolog, built around medical content, digital promotion, appointment booking, schedule management, and telemedicine.

That makes it strategically interesting, especially because it sits on long-term healthcare digitization trends and some customer overlap with the rest of the group. But at the current scale it is still only about 1.5% of group revenue. It can improve the quality of the mix. It cannot, on its own, repair a weak year in logistics.

Cash Flow, Debt, and Capital Structure

I am mainly using an all-in cash flexibility lens here, meaning how much cash truly remained after the period’s actual cash uses. Under that framing, 2025 was weak. Operating cash flow was only negative ILS 0.7 million, versus positive ILS 158.5 million in 2024. At the same time, investing outflows were ILS 56.4 million and financing outflows were ILS 67.3 million. The result was a cash decline of ILS 125.8 million, from ILS 247.6 million to ILS 121.8 million.

What drove that picture? Not heavy bank debt, but a combination of layers: operating weakness around SAP, ILS 44.8 million of intangible-asset investment, total capital investment of ILS 63.8 million, ILS 26.0 million of lease principal repayments, ILS 18.0 million of interest paid, and ILS 20.0 million of dividends. In other words, even without meaningful financial debt, financial flexibility can shrink quickly when the business stops converting earnings into cash.

It is important to separate this from a narrower normalized cash-generation lens. If the goal were only to estimate the recurring earning power of the business, one could argue that some of the software and infrastructure spending is long-term investment and should not all be charged to a single year’s operating quality. But that is not the main point here. The main point is financing flexibility. Under that lens, the report is not clean: even if part of the spending is growth-oriented, the cash still left the company.

To the company’s credit, this is still not a classic leveraged-balance-sheet story. At year-end, Novolog was not using its financial credit lines, the group had about ILS 484 million of available credit frameworks, and bank covenants are not tested unless credit use reaches ILS 50 million or more. Equity was ILS 368.9 million, far above the ILS 50 million floor in the bank undertakings. So there is no immediate covenant-pressure story here.

But that does not remove the cash test. Even without financial debt, the group still has undiscounted lease commitments of about ILS 254.2 million, including roughly ILS 35.0 million due within one year. In 2025 cash terms, that already showed up as ILS 26.0 million of lease-principal repayments and ILS 10.6 million of lease-interest expense. So “no debt” does not mean “no fixed cash burden.”

One more nuance matters a lot in Novolog: the company’s working-capital presentation is unusual. In drug distribution, customer and supplier balances are shown gross on the balance sheet, while much of institutional revenue is recognized net. That makes ordinary DSO, DPO, and inventory-day analysis almost useless. In 2025, customers fell by ILS 717.2 million while suppliers fell by ILS 868.6 million, largely because of working-capital shifts, commercial understandings, and lower logistics activity. That is why it would be wrong to read the balance-sheet contraction as clean working-capital release. If it were truly healthy release, operating cash flow should have been strong. It was not.

Outlook

First finding: Even though Novolog has three profitable segments, it is still wrong to read the company as balanced. Logistics is still too large and too important for that.

Second finding: A recovery cannot be measured by revenue alone. In logistics, the right metrics are managed activity volume, segment EBITDA, and the absence of new exceptional costs.

Third finding: The Novohelet sale can sharpen focus, but it is not equivalent to exiting the whole home-care story. The carved-out psychiatry, hospice, and medical-equipment activities stay inside the group.

Fourth finding: The problem is no longer just operational. It is also cash-related. Until logistics starts generating cash again, cleaner strategy language and acquisition optionality stay secondary.

That leads to the core judgment: 2026 looks like a proof year, not a breakout year. The company says it does not expect to need additional funding for current operations over the coming year, while also evaluating inorganic opportunities. That is a reasonable position only if logistics truly stabilizes. If stabilization takes longer, the market may start to read capital allocation, dividend policy, and M&A language much more cautiously.

What has to happen over the next 2 to 4 quarters for the thesis to improve? First, logistics needs to show stable service and managed-volume recovery without a fresh wave of compensation, exceptional operating cost, or supply disruption. Second, the legal process around SAP-related disruption needs to stay near the existing provision rather than becoming a larger economic burden. Third, the Novohelet transaction needs to close so investors can understand what earnings remain inside Health Services after the carve-out. Fourth, cash needs to stabilize even after leases, CAPEX, interest, and dividends.

What could break the thesis? Another weak logistics print, another provision tied to the disruption, a delayed or weaker Novohelet closing, or acquisition talk before cash generation normalizes would all reinforce a more conservative reading.

In the near term, the market is likely to focus on three things: whether logistics weakness was truly a one-off trough, whether the Novohelet sale really creates focus rather than just exits a business at a weak point, and whether the sharp cash decline was a bridge-year event or a sign that the model needs more capital than it appears to.

Risks

The first risk is structural dependence on logistics and pharma-distribution agreements. The company distributes to a wide range of health funds, hospitals, and private customers, but its economic engine still depends on pharma relationships and service continuity. One major customer accounted for ILS 471.3 million of 2025 revenue, and the company does not disclose the identity. There is a moat here, but also concentration.

The second risk is unfinished execution risk. SAP is live, but the class action and the weak fourth quarter both show that it is too early to say the story is fully behind the company. Until the numbers normalize, this remains a real yellow flag.

The third risk is equity quality. Goodwill still stood at ILS 145.0 million after a ILS 7.1 million impairment in Gsap during 2025. That does not make the balance sheet weak by itself, but it does mean a meaningful part of equity rests on valuation assumptions and on the success of past acquisitions. After taking ILS 7.5 million of impairments in Novohelet and Pronto in 2024 and another ILS 7.2 million in Gsap in 2025, goodwill cannot be treated as passive balance-sheet padding.

The fourth risk is privacy, cyber, and professional-liability exposure. Health and digital operate around sensitive information, and the company itself notes that it does not carry dedicated cyber insurance except for certain digital activities. That is not a quarterly risk item, but if it does materialize it could damage both operations and reputation.

The fifth risk is market actionability. Short interest itself is not extreme, but liquidity is very weak. When daily turnover is measured in only a few thousand shekels, even a better business story may take time to show up in the stock.

Conclusions

Novolog exits 2025 as a company with a more interesting business mix than the first consolidated number suggests, but also with a more visible bottleneck than before. Health and digital improved, strategy is clearer, and there is no immediate bank-pressure story. On the other hand, logistics is still too large, the cash hit is already real, and the next phase requires operating proof rather than better strategic language.

The core thesis is simple: Novolog can come out of 2025 more focused and stronger, but only if logistics starts showing recovery in both service and cash. What changed is that health no longer looks like a purely mixed bag, and digital continues to show quality. What did not change is that the engine determining the investment read still sits in logistics.

Current thesis: health and digital are supportive, but logistics still decides whether Novolog is a recovery story or an erosion story.

What changed: Health Services moved back into operating profit, digital remained profitable, and Novohelet entered a disposal process. At the same time, the cash decline made balance-sheet flexibility a much more central part of the story.

Counter-thesis: 2025 was mainly a one-off disruption year. If SAP is now behind the company, there is no material financial debt, unused credit lines remain available, and health keeps improving, then the market may be overstating the weakness.

What could change the market reading in the near to medium term: a sharp recovery in logistics volume and profitability, a clean Novohelet closing, or, on the negative side, another operational stumble and another exceptional charge.

Why this matters: because Novolog is no longer being tested only on the breadth of its portfolio, but on whether it can translate that portfolio back into stable service, repeatable earnings, and accessible cash for shareholders.

What must happen next: if logistics stabilizes, the legal issue stays contained, the Novohelet sale closes, and cash stops bleeding over the next 2 to 4 quarters, the read improves materially. If any of those four fail, 2025 will look less like a transition year and more like a sign of a deeper problem.