Shva: Dividend Policy, the Securities Book, and the Real Cash Box

From Profit to Cash

The main article already showed that Shva's 2025 bottleneck was pricing, not demand. This follow-up isolates what sits one layer lower, in capital allocation. That is the real point here. The formal headline looks orderly, a 50% to 70% dividend policy tied to annual profit, but the real ability to distribute cash depends on a different question: how much money remains after investment, lease payments, and dividends, and how much of the liquidity layer is actually free.

The numbers that define the debate are straightforward. In 2025 Shva generated NIS 53.8 million of net cash from operating activity and reported net profit of NIS 45.3 million. In the same year it invested NIS 41.7 million in property, plant and equipment and intangible assets, repaid NIS 2.348 million of lease principal, and paid NIS 60.0 million of dividends. By year end, cash and cash equivalents were down to only NIS 15.5 million, from NIS 44.1 million a year earlier.

That was already an aggressive move, but it was not the end of the story. In March 2026 the board approved another NIS 30.0 million dividend, equal to about 66% of 2025 profit. In total, within a one-year window, Shva paid or approved NIS 90 million of distributions, while year-end cash covered only about half of that. That is why the real discussion is not whether Shva has "liquid assets." It is how that liquidity is built.

The Policy Says Less Than It Seems

In March 2025 the board updated the dividend policy so that the company would distribute at least 50% and no more than 70% of annual net profit, excluding non-recurring gains not generated by ordinary activity, and only as long as no material harm would be caused to cash flow or investment plans. On paper, that looks conservative. The chairman also frames the NIS 60 million paid in 2025 and the additional NIS 30 million approved in March 2026 as a move to optimize capital structure and improve return on equity.

But 2025 itself shows that this framework is only part of the story. The first dividend, NIS 30 million in March 2025, fit the new policy neatly and was defined as 59% of 2024 earnings. The second dividend, another NIS 30 million in August 2025, was explicitly defined as outside the updated policy, and was justified by two very different drivers: a recalculation of the regulatory safety cushion following economic work, and excess cash accumulated from prior years.

That is a material point. Actual distributions were not driven only by the payout ratio. They were also enabled by releasing operating and regulatory excess capital. Anyone who reads the "50% to 70%" headline and assumes that it tells the whole story misses the more important mechanism.

Another important point is that the profit test is barely the constraint here. Retained earnings available for distribution stood at about NIS 209 million at the end of 2025. In accounting and legal terms, Shva had substantial room. The debate shifts to another question: how much of the NIS 150.9 million of liquid assets is genuinely excess, and how much is a regulatory and operating cushion the company still needs to hold.

And this is where the report stops half a step before the most important number. It explains that the minimum operating cushion is measured as six months of ongoing operating expenses plus an additional amount to cover various risks. It also explains that the cushion calculation was updated in August 2025. But it does not put a shekel amount on that updated cushion. The reader gets the logic behind the distribution, but not the disclosure needed to calculate independently how much liquidity is truly free.

The All-in Cash Flexibility Bridge

This continuation needs to be explicit about the cash frame. The relevant bridge here is all-in cash flexibility, not normalized cash generation. The reason is simple: this is a question about dividends, balance-sheet flexibility, and capital-allocation room after real cash uses. The report also does not disclose maintenance capex separately, so any "normalized" bridge would already require analyst estimation.

The right starting point is NIS 53.8 million of net cash from operating activity. Because that number already includes interest and taxes, the correct lease adjustment here is lease principal, NIS 2.348 million, rather than total lease-related cash outflow. Add to that NIS 41.7 million of spending on property, plant, equipment, and intangible assets, and what remains is only about NIS 9.8 million.

That is the decisive number. Before dividends, before another turn of the securities book, and before any talk of "capital-structure optimization," 2025 left Shva with less than NIS 10 million of all-in cash flexibility. From there, NIS 60 million of dividends went out. That means the 2025 distribution was not funded by operating cash generation alone. It was funded by securities monetization and by a direct drawdown of cash balances.

This chart sharpens what net profit alone can blur. Before securities sales, the bridge was already about NIS 50.2 million negative. Net sales of NIS 23.0 million from the securities portfolio narrowed the gap, but did not close it. In the end, the cash box itself fell by NIS 28.5 million.

There is an important precision point here. If someone chose to start from cash flow before interest and tax, the bridge would look somewhat different. But using the report's natural operating-cash starting point, NIS 53.8 million after financing and tax, the conclusion remains the same: the 2025 dividend was a capital-allocation choice, not the natural result of cash left over after everything else.

The Real Cash Box Sits in the Securities Book

The balance sheet tells the second half of the story. Cash and cash equivalents fell by NIS 28.5 million to NIS 15.5 million. At the same time, trading securities fell by NIS 12.5 million to NIS 135.3 million. Together, Shva still ended the year with NIS 150.9 million of liquid assets. But that is not the same kind of liquidity.

The cash note shows that NIS 12.68 million of year-end cash sat in shekel interest-bearing deposits and another NIS 2.857 million in foreign currency. The cash box itself is therefore already small. The trading-securities note shows that the main cushion sits in an investment portfolio: NIS 108.7 million of government bonds and notes, plus NIS 26.7 million of equities in Israel and abroad.

That is the difference between "there is liquidity" and "there is cash." Shva does have a relatively high liquidity base, and it does not depend on external financing. But the real cash box now sits mainly in the securities book, not in cash that is simply waiting to be distributed. That matters because the report itself defines the proprietary securities portfolio as the company's main source of market risk.

Management does describe a conservative policy, mainly government bonds and deposits, with up to 10% in corporate bonds, up to 15% in equities through index products, portfolio duration capped at five years, and FX exposure capped at 10% of the book. But even a conservative portfolio is not the same thing as cash in the bank. It is a liquidity cushion whose value and accessibility are shaped by markets, rates, and portfolio management.

And that brings in a third, quieter finding. The securities book did not just fund liquidity. It also supported profit. Net finance income rose to NIS 11.7 million, of which NIS 12.6 million came from marketable securities, while only NIS 1.220 million came from interest on bank deposits. In other words, the same securities book played two roles in 2025: liquidity cushion and earnings engine. That is one reason net profit looked more comfortable than the all-in cash bridge suggests.

What Has to Happen Next

The March 2026 dividend sharpens the question rather than resolving it. On one hand, NIS 30 million is about 66% of 2025 earnings, which makes it look fully aligned with the updated policy. On the other hand, the amount is almost double the year-end cash balance. The practical message is therefore not only that "earnings support the payout." It is also that the company continues to rely on the broader liquidity layer, led by the securities book.

From here, four checkpoints matter. First, whether 2026 rebuilds cash from operations rather than mainly through another portfolio turn. Second, whether the elevated 2025 capex level really reflects a heavy investment year that can moderate, or a new base level. Third, whether the board provides clearer disclosure on the size of the regulatory safety cushion after the update. Fourth, whether the finance line continues to soften the picture if market conditions become less supportive.

If those four things move in the right direction, 2025 can be read as a year in which Shva released genuine excess capital without weakening resilience. If they do not, the market may begin to ask whether distributions are running ahead of what the real cash box can actually produce.

Conclusion

The main article argued that Shva's 2025 issue was the gap between an old tariff and a new cost base. This continuation adds an important layer: capital allocation is already behaving as if that gap is solvable, while the all-in cash bridge has not yet proven it.

This is not a distress read. Shva still has NIS 150.9 million of liquid assets, no need for external financing, a strong customer base, and critical infrastructure status. But it is a more precise read of the cash box. Not NIS 150.9 million freely available for distribution, but NIS 15.5 million of cash plus NIS 135.3 million of investment assets, part of which is needed for the operating and regulatory cushion, part of which generates profit, and part of which is serving in practice as the liquidity source for dividends.

That is why the Shva dividend debate should not begin with the payout ratio. It should begin with how much cash remains after capex, lease principal, and dividends, and how much of the securities book is truly excess. That is where the company's real cash box sits.