Plasto Cargal 2025: Corrugated Improved Cash Flow, But 2026 Still Has to Clear the Banks' Test

Getting to Know the Company

Plasto Cargal may look like a small packaging manufacturer, but its economics are much less balanced than the consolidated revenue line suggests. On one side sits corrugated packaging, with NIS 446.9 million of 2025 revenue, about 86.5% of the group total, and NIS 15.7 million of regular operating profit at the segment level. On the other sits flexible packaging, which generated NIS 69.6 million of revenue, lost NIS 6.2 million on the regular operating line, and still runs at only about 70% of optimal capacity. This is not a business with two comparable engines. It is a corrugated business carrying a second activity that is still in turnaround mode.

What is working now is real. Revenue rose 6.9% to NIS 516.4 million, operating cash flow jumped to NIS 44.4 million from just NIS 0.3 million in 2024, inventory fell by NIS 20.0 million, and receivables fell by NIS 8.9 million. That is not the picture of a company weakening everywhere. Corrugated grew, stayed profitable, and still operates near 90% capacity at the Lehavim plant.

What is still not clean is the financing layer. At year-end 2025 the group had negative working capital of about NIS 10 million, short-term credit facilities of roughly NIS 105 million with net usage of about NIS 96 million, and on top of that the banks kept a June 30, 2026 EBITDA test in place together with a mechanism that can lead to a NIS 10 million rights issue. That is why the shallow reading, that 2025 already closed the financing-pressure story, does not hold up.

The second easy mistake is to stop at the annual number. On a full-year basis gross profit rose to NIS 59.5 million and the gross margin improved to 11.5%. But in the second half, gross profit fell 21.4% to NIS 24.8 million, gross margin dropped to 9.5% from 12.1%, and the group moved into an operating loss of NIS 4.4 million. In other words, 2025 was not a smooth repair year. It was a year in which a better first half met a weaker second half.

The shareholder-level screen is therefore straightforward: in early April 2026 the market cap stood at about NIS 44 million, against NIS 144.3 million of equity, roughly NIS 152.8 million of bank debt, and about NIS 196.1 million of lease liabilities. That explains why the Plasto Cargal story does not stop at revenue. It quickly turns into a question of who carries the cash flow, who absorbs the weakness, and how much real room remains versus the banks.

One short table frames the business map better than a generic description:

Customer and supplier concentration is actually manageable. No single customer accounted for 10% or more of group revenue in either segment, and based on the segment employee disclosures the two activities employed 454 people together at year-end 2025. That matters because the issue here is not classic customer concentration. It is mix quality: one segment works, and the second still does not produce positive economic weight.

Events and Triggers

The Lehavim deal bought time, it did not close the story

The event that explains how 2025 should be read was not born in 2025 at all. After selling the remaining 50% stake in Cargal Lehavim to Mega Or, total consideration reached about NIS 75 million, of which about NIS 67 million was cash and about NIS 8 million came through debt assignment, and the group recorded a capital gain of about NIS 25 million. But the interesting part is what happened to the money: NIS 36 million went to immediate bank debt repayment, and NIS 46 million of short-term credit was converted into long-term loans that start amortizing in January 2027 over 30 months.

That move eased immediate pressure, but it also drew a ceiling. The banks set a review for the third quarter of 2026 to reassess the suitability of the group’s financial covenants, and if no updated agreement is reached, each lender can accelerate its own loan. So Lehavim did not end the financing story. It pushed it forward and moved it into a 2026 proof test.

The option exercise added some oxygen, not a solution

In October 2025 the court approved a temporary roughly 5% reduction in the exercise price of Series 8 options for a short window between October 30 and November 6, 2025. The move led to the exercise of 504,343 options and brought in about NIS 2.526 million. That money helps, but it does not change the financing picture on its own. It strengthens the cushion, not the thesis.

The 2026 test is already written into the bank agreements

The most important trigger around the stock sits in the financing documentation. If the group reports annual EBITDA below NIS 65 million on the trailing four quarters ending June 30, 2026, the company committed to carry out a one-time NIS 10 million rights issue for ongoing group liquidity, with the control group committed to participate pro rata. In January 2026 the company also disclosed an additional commitment of the same type for the year ending June 30, 2027.

The implication is simple: the banks do not see 2025 as a clean exit year. They see it as a bridge year that still requires more proof before pressure is fully released. That is the core capital-markets issue here, much more than whether revenue rose another 5% or 7%.

War is no longer at the center of the thesis

For 2025 the company describes no material war impact on sales, on its financial condition, on financing sources, or on covenant compliance. That matters precisely because it narrows the excuse set. If 2026 turns difficult, it will be hard to attribute the main problem to an external shock. In the current report, the heavier environment is the rate environment.

Efficiency, Profitability and Competition

The operating story of 2025 starts with a paradox. Revenue rose, gross profit rose, and cash flow improved, yet the group still ended the year with a NIS 24.3 million net loss and a second-half operating loss. So the higher top line has not yet become a clean improvement in business quality.

What happened in practice is that the rise in revenue to NIS 516.4 million met three weights: selling and marketing expense rose to NIS 33.4 million, G&A rose to NIS 16.6 million, and other expense net came in at NIS 5.4 million, mainly because of fixed-asset and development-asset impairments this year, versus a positive Lehavim capital gain in 2024. That is why 2025 earnings quality is weaker than the top-line growth suggests.

Corrugated is still the real business

Corrugated is where the group still produces real economics. Revenue rose 9.1% to NIS 446.9 million, and regular operating profit improved to NIS 15.7 million from NIS 12.4 million in 2024. At the plant level, this is not an engine still looking for its footing: Lehavim operates at about 90% of maximum capacity, management estimates market share at around 22%, and through 2023 to 2025 no single customer represented 10% or more of group revenue.

The segment’s advantage is not long backlog but speed and availability. Finished-goods inventory is usually kept to only a few days, paper inventory typically covers about 90 days, and the company competes through packaging solutions, delivery performance, and ties with strategic customers. That is a real industrial model, but it also requires meaningful working capital and raw-material inventory.

The main cost driver is just as clear. Paper usually represents 85% to 90% of corrugated raw-material purchases, and in 2025 it accounted for about 51% of corrugated cost of sales. The three main paper suppliers represented 32.4%, 27.5%, and 12.2% of raw-material purchases, and the company states it has no dependency on a single supplier. That means the risk is not point concentration. It is the ability to maintain pricing and efficiency when the core input is so dominant in the cost base.

Flexible still has not climbed out of the hole

In flexible packaging the picture is the reverse. Revenue fell to NIS 69.6 million from NIS 73.4 million, the regular operating loss widened to NIS 6.2 million from NIS 4.0 million, and after other expenses the segment ended 2025 with an operating loss of NIS 11.1 million. That is no longer background noise inside the consolidated number. It is an explicit drag.

The reason is not only weaker volume. It is a hard commercial environment. The company describes intense competition from importers and local producers, with specific pressure from Turkey and India. In 2024 the Turkey crisis and Red Sea disruption temporarily reduced import pressure, but in 2025 imports from India normalized. That is important because it explains why management talks about a shift toward more sophisticated products and efficiency measures, not just waiting for better demand.

The accounting data reinforce that reading. In 2025 the flexible segment recorded a NIS 3.020 million inventory write-down, and the group also booked a NIS 908 thousand impairment against the KAG cash-generating unit. The valuation used for that test assumed a 13.5% long-term gross margin, 0% long-term growth, and an 11.25% after-tax discount rate. If the long-term gross margin were 5% below management’s estimate, the group would have needed another NIS 3.4 million impairment. That is a useful indication that the margin of safety in this segment is not wide.

The crack already showed up in the second half

The second-half numbers are the key signal for 2026. In the second half, revenue was almost flat year over year, NIS 260.0 million versus NIS 260.6 million, but gross profit fell to NIS 24.8 million from NIS 31.5 million, and gross margin dropped to 9.5% from 12.1%. Management attributes that to inventory write-downs, higher production costs, and higher labor expense.

That point matters because it says the problem is not only financing. There is operating slippage inside the business as well. If 2026 starts with a similar revenue line but without a return to healthier margins, the market will read 2025 mainly as a working-capital release year, not as a broad operating repair year.

Cash Flow, Debt and Capital Structure

Cash is where the framing has to stay disciplined. In normalized cash-generation terms, meaning the ability of the business to produce cash before heavy capital uses, 2025 was clearly better. Operating cash flow rose to NIS 44.4 million from only NIS 0.3 million in 2024. But that is not the same thing as all-in cash flexibility, which asks how much cash was left after actual uses.

The operating cash-flow improvement was built to a large extent through working capital. Receivables fell to NIS 148.7 million from NIS 157.5 million, inventory fell to NIS 86.7 million from NIS 106.7 million, and the company explicitly explains that the move reflected lower customer credit days, higher customer advances, lower raw-material purchases, and inventory write-downs. That is a meaningful improvement, but it also means a large part of the cash-flow jump came from balance-sheet release, not only from better profitability.

On an all-in basis, the picture is tighter. Operating cash flow was NIS 44.4 million, but the group also had NIS 21.3 million of reported CAPEX, NIS 22.0 million of lease repayments, and NIS 23.0 million of long-term debt repayment. That means the business did not generate enough cash to fund investment, leases, and debt service all at once before financing support.

That chart highlights what the operating cash-flow headline hides. 2025 was not a year in which the business self-funded comfortably. It was a year in which cash flow improved materially, but the group still needed short-term credit and small equity-linked support to keep the year-end cash position from eroding sharply. So the fact that year-end cash only fell to NIS 8.7 million from NIS 9.6 million does not mean financing stopped mattering.

On the other hand, this is not a covenant-breach story. At the group level tangible-equity-to-tangible-assets stood at 21.0% against a 12% minimum, tangible equity stood at NIS 131 million against a NIS 120 million floor, net debt to EBITDA was 2.5 against a 5.5 ceiling, and short-term net financial debt to operating working capital stood at 72.6% against a 90% ceiling. At the Cargal level the numbers are more comfortable again, with a 29% equity ratio and 2.31 net debt to EBITDA against a 4.5 ceiling.

That is exactly the complexity. The company is not close to a technical covenant breach, but it is also not in a place where banks can be ignored. It is no coincidence that the auditors included an emphasis-of-matter paragraph on the company’s financial condition, and no coincidence that going-concern assessment was treated as a key audit matter. Management and the board say the group can meet its obligations based on an updated cash-flow forecast, existing credit lines, and the ability to realize assets if needed. That is moderately reassuring language, but it also says the story still runs through cash management, not just through sales growth.

Outlook

The five non-obvious findings of Plasto Cargal’s 2025 are these:

Finding one: the jump in operating cash flow is real, but it leaned heavily on lower inventory and lower receivables. That is an important improvement, not yet proof of stable free cash generation.

Finding two: corrugated is not only larger, it is almost the whole business. One segment generates the bulk of the revenue and regular operating profit, while the second still absorbs part of the improvement.

Finding three: the 2024 debt reorganization bought time, but it left behind a hard bank-supervision mechanism. The story moved from immediate pressure to a proof test.

Finding four: second-half deterioration means the annual headline looks better than the run rate into year-end.

Finding five: this is not a backlog story waiting to be recognized. Corrugated orders are very short-cycle, and flexible packaging enters 2026 with only NIS 6.993 million of binding backlog, of which NIS 6.321 million sits in the first quarter.

The right conclusion from this is that 2026 looks like a proof year. It is not a breakout year, because there is still no evidence that flexible is turning or that margins have stabilized. It is not a rescue year either, because covenants are still well inside limits and corrugated continues to carry the economics. It is a year in which the company has to show the banks and the market that the 2025 improvement can continue without another forced equity step.

What has to happen in practice? First, corrugated has to keep holding profitability even with paper accounting for roughly half of its cost base and the plant already running near full. That means pricing discipline, efficiency, and customer discipline, not just volume. Second, flexible has to show that efficiency measures and procurement savings are actually translating into better gross economics rather than staying only inside a valuation model.

Third, the company has to get through the June 2026 bank test. If trailing-four-quarter EBITDA through June 30, 2026 falls short of the threshold, the company may enter July 2026 with a NIS 10 million equity need unless one of the agreed exemption mechanisms is triggered. That is not a technical side issue. It is an event that can quickly change how the whole 2025 story is read.

Fourth, cash-flow improvement has to continue without another aggressive inventory release. Since 2023 the company has explicitly been reducing paper purchases in order to lower inventory and produce positive operating cash flow. That move worked. The 2026 question is whether good cash generation can continue when there is less room left to release inventory without hurting availability and service.

Risks

The biggest risk is financing, not operations

The main risk at Plasto Cargal is not a collapse of activity but a situation in which partial operating improvement does not fully release the financing layer. The company has negative working capital, heavily used short-term facilities, a June 2026 EBITDA test, and banks that kept the right to reopen the covenant discussion in the third quarter of 2026. That is not a tight-covenant picture, but it is definitely a debt story that still has to be managed closely.

Flexible remains the core business risk

Flexible packaging still suffers from an uncomfortable combination of import competition, underutilization, polymer-price sensitivity, and a meaningful fixed-cost base. Monthly rent at the Mishmar Hasharon plant stood at about NIS 447 thousand at year-end 2025, against only about NIS 53 thousand of monthly sublease income, and the segment itself ended the year with a heavy operating loss. On top of that, the valuation assumptions for the unit point to limited safety margin.

This segment also carries one useful outside warning signal. The environmental monetary sanction imposed on KAG was settled at NIS 1.4259 million and has been paid in full, so there is no open bomb left in the statements. But the very existence of the matter is a reminder that this plant operates under tighter environmental regulation, and that this too is part of the segment’s operating burden.

Rates and raw materials can erase part of the improvement

The company estimates that every 1% move in the Bank of Israel rate changes annual financing expense by about NIS 1.8 million. At the same time, in corrugated the core raw material, paper, represents about 51% of segment cost of sales. So even if demand holds up, profitability remains highly sensitive to two outside variables: the price of money and the price of the main input.

Counterparty disclosure remains limited

The company stresses that it has no dependence on a single customer or supplier, and that is a real positive. But the names of major customers and suppliers are not disclosed, aside from anonymous splits among paper and polymer suppliers. So investors know there is diversification, but not enough about counterparty quality. That is not a material flaw in the report, but it is an analytical limitation.

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Conclusions

Plasto Cargal exits 2025 in a better position than the one it entered, but not in a clean one. Corrugated is again carrying the business, operating cash flow improved sharply, and covenants are currently well inside limits. On the other side, flexible packaging is still losing money, working capital has turned negative again, and the banks left a very explicit 2026 test on the table. In the short to medium term, that is exactly what will shape the market’s reading.

Current thesis: Plasto Cargal enters 2026 with a real improvement in cash flow and corrugated operations, but the shareholder case still depends on proving that this improvement is enough to get through the bank test without forced equity and without another year of losses in flexible packaging.

What changed versus the earlier understanding: 2025 proved that corrugated can still produce cash and release working capital, but it also made clear that flexible packaging is no longer side noise. It is a material drag on earnings quality.

Counter thesis: if rates fall, procurement savings and efficiency moves in flexible start to show up, and corrugated keeps running near full, then 2025 may end up looking like a trough year that is still enough to pass the 2026 test without dilution.

What could change the market’s reading in the short term: a half-year report showing that EBITDA clears the June 2026 hurdle, or alternatively a proactive capital move that replaces that risk, would change the reading quickly. Another quarter of flexible-margin slippage and cash flow leaning again on short-term credit would push the discussion right back to financing.

Why this matters: at Plasto Cargal the real question is no longer whether there is revenue, but whether the cash created by corrugated is enough to carry both flexible packaging and the financing layer without eroding shareholder value.

What has to happen over the next 2 to 4 quarters: corrugated has to preserve profitability and working-capital discipline, flexible has to narrow its operating loss, and the company has to reach the June 2026 test date with enough room versus the banks to avoid forced equity support. What would weaken the thesis is another margin slide, even heavier short-term credit use, or capital raising triggered by failure to meet the threshold.