Amir Shivuk: Why 2025 Profit Got Stuck in Receivables, Inventory, and the Bank

Where the Profit Got Stuck

The main article already showed that Amir Shivuk's 2025 looked better in the income statement than in the cash flow statement. This follow-up isolates the mechanism behind that gap. It was not a year of obvious commercial weakness. Operating profit rose to NIS 70.2 million and net income to NIS 45.2 million. But sales terms, inventory build, and the funding structure kept the cash with customers, on the shelf, and eventually on the bank line.

The important point is that the pressure did not come from a lack of positive working capital. On the contrary. Working capital ended 2025 at NIS 216.4 million, slightly above NIS 213.6 million a year earlier. That headline can calm the reader too quickly. What really changed was not the existence of positive working capital, but its composition: more receivables, more inventory, less supplier funding, and much more bank credit.

That is also where earnings quality comes in. When receivables reach NIS 541.2 million, 55% of total assets, and average customer-credit days rise to 128 from 121, the question is no longer only whether Amir sold better. The question is on what terms it sold, how much of those terms it financed itself, and what happens if collection speed does not move back in line with profit.

The Receivables Book Got Heavier

The most sensitive part of the story sits in receivables. The auditor notes that receivables stood at NIS 541.2 million at year-end 2025 and the allowance for expected credit losses at NIS 26.7 million. This line carries 55% of total assets, so even a small change in collection assumptions, collateral quality, or workout pace already changes the earnings-quality read on the full year.

What is more interesting is that the deterioration was not uniform. Total average customer-credit days rose to 128 from 121. But inside that, company customers rose to 131 days from 121, while feed-mill customers actually improved to 114 from 120. That matters because it means the pressure did not come from every activity deteriorating together. It did not come from the feed mill, the engine that carried the profit.

The note also makes clear that this is not a classic single-customer concentration story. Amir describes a broad customer base across different agricultural industries, wide geographic dispersion, decades-long commercial relationships with many customers, ongoing checks against external databases, business-information services, credit insurance, collateral, and in some cases liens. In other words, the main risk is not that one anchor customer disappears tomorrow. The risk is credit discipline across a very large book, and a heavy reliance on management judgment about who will pay, when, and at what pace.

The insurance layer does not cover the whole book either. Company policy is to insure only customers with exposure of NIS 1 million and above, excluding kibbutzim and kibbutz purchasing organizations, and total insured ceilings stood at NIS 57 million at the end of 2025. That is not a bad number by itself. It does remind the reader that not all of the NIS 541.2 million receivables book sits under the same protection net.

Supplier Funding Retreated and the Bank Filled the Gap

The line that connects the whole picture is that supplier funding moved backward exactly when receivables and inventory moved forward. Suppliers and service providers fell to NIS 346.3 million from NIS 368.4 million. At the same time short-term bank credit jumped to NIS 113.3 million from NIS 51.2 million. That is no longer a small quarterly swing. It is a funding substitution.

There is also a more subtle point here. In the financial-risk note Amir explains that it is exposed to the euro and the dollar because of imported goods, and that to reduce that exposure it sometimes prepays part of its suppliers, in some cases against interest-bearing shekel bank credit. So part of the shift from supplier funding to bank funding is not necessarily a commercial mistake or a deterioration in supplier relationships. It can also be a currency-risk-management choice. But from the shareholder's perspective, the result is the same: the cost and pressure move into Amir's financing line and balance sheet.

That becomes even clearer when looking at financing cost against what the company got back from customers. Finance income fell to NIS 4.4 million from NIS 7.1 million, and the company explicitly attributes the drop to lower interest income from customers. At the same time finance expense rose to NIS 16.0 million from NIS 13.3 million, mainly because of higher average bank borrowing and updates to contingent-consideration liabilities. Put differently, in 2025 Amir got less compensation from customers for the credit it extended to them, while paying more to the bank for the credit it needed itself.

That is also why the additional funding lines matter. Inside payables and accrued expenses, year-end current liabilities include NIS 19.6 million of current contingent consideration. So even after the bank line expanded, the short-term layer still carried additional obligations from prior strategic moves. 2025 was not only a year in which the bank funded working capital. It was also a year in which the expansion strategy kept demanding current cash.

The Audit Key Matter Is the Right Warning Sign

The fact that the allowance for expected credit losses was defined as a key audit matter does not mean the auditor identified a severe collection failure or disputed the financial statements. The audit opinion itself is clean. The meaning is different: when receivables account for 55% of assets, and the allowance depends on aging, overdue status, collateral, and post-balance-sheet collection behavior, this is the place where management judgment becomes too material to skim over.

The audit procedures show exactly the right risk. The auditor tested the allowance calculation based on customer aging, delays, and collateral, examined customers that were overdue relative to their agreed credit days, reviewed how those balances developed after the balance-sheet date, and held discussions with management regarding customers flagged in the review. That is a test of collection quality and credit discipline, not of theoretical accounting profit.

That is why the right read on 2025 is not simply "there are or are not bad debts." The right read is that the receivables book became heavy enough to make the whole profit analysis more sensitive. Even if management is right in its estimates, even if collateral is solid, and even if no material deterioration is ultimately recorded, investors should now demand more cash proof and place less weight on accounting profit alone.

What Has to Change in 2026

The first checkpoint is customer-credit days. If 128 days becomes the new base, or if the broader customer book stays around 131 days, Amir will keep financing customers at the expense of its own flexibility. If those numbers start moving down, it will become much easier to believe that 2025 profit quality was better than the cash flow suggested.

The second checkpoint is supplier funding versus the bank line. No one should expect the company to stop every early payment to suppliers when that supports currency-risk management or product availability. But the bank-funded substitute should not keep growing at the same pace. If supplier balances keep falling while the bank remains the main source of funding, the pressure stays structural.

The third checkpoint is operating cash flow. After a year in which NIS 45.2 million of net income ended as negative NIS 7.8 million of operating cash flow, the next report has to show that the gap was a bridge and not a permanent state. Without that, it will be hard to argue that the profitability improvement has already moved from accounting into business economics.

Bottom Line

Amir's 2025 profit was not fake. It was simply generated on terms that left the cash somewhere else. Receivables stretched, inventory grew, supplier funding retreated, and the bank carried the year.

That is exactly why the auditor focused on expected credit losses. Not because the company has already fallen into a collection problem, but because in 2025 the quality of its earnings was determined less by the operating line and more by collection speed, collateral quality, and the ability to move the funding burden back from the bank into the normal economics of the business.