Alon Tavor Between Derivatives and Debt: Why Net Profit Fell Much More Than Operating Profit
Alon Tavor did not post an operating collapse in 2025. Revenue rose and operating profit before depreciation was broadly intact, but heavy debt, derivative revaluations and euro sensitivity pushed net profit sharply lower and made the accounting picture far noisier than the plant’s actual operating output.
What This Follow-up Is Isolating
The main article argued that Menif and real estate are still carrying Mivtach Shamir, while the real 2026 test sits inside Shamir Energy. Within Shamir Energy, Alon Tavor is the asset where a first read can mislead most easily. Operations did not break in 2025. What broke was the simple link between operating profit and net profit.
That matters because Alon Tavor ended the year with revenue of NIS 695.3 million, up from NIS 648.8 million in 2024, and operating profit before depreciation and amortization of NIS 286.9 million, almost unchanged from NIS 283.1 million a year earlier. Yet net profit fell to just NIS 50.1 million from NIS 106.7 million. Anyone stopping at the bottom line could conclude that the asset weakened materially. That is only a partial reading.
This follow-up isolates that gap: how a power plant that kept producing, kept billing, and kept sending cash upstream still reported a much weaker bottom line in the same year. The answer sits in the combination of higher depreciation, a larger debt stack, an embedded derivative, hedging revaluations and continued euro sensitivity.
Why Net Profit Fell Much More Than Operating Profit
The gap starts below the operating line, not in the core asset. Revenue rose by about 7%, and operating profit before depreciation and amortization rose by about 1.3%, so the operating engine was still functioning. Operating profit itself fell by 8.7% to NIS 169.0 million, partly because depreciation and amortization climbed to NIS 117.9 million from NIS 98.1 million. That was not accidental: the peaker project was completed in October 2025, its commercial license became effective on October 16, 2025, and depreciation on that new asset started from that date.
But even that does not explain a more than 50% drop in net profit. The real damage came from net financing cost. In 2025, Alon Tavor recorded financing expenses of NIS 123.1 million against financing income of NIS 19.3 million, leaving net financing expense of NIS 103.7 million. In 2024 that line was only NIS 46.5 million. That is the core bridge.
Inside financing expense, three components stand out: NIS 47.8 million from revaluation of the embedded derivative, NIS 31.2 million from revaluation of economic hedging derivatives, and NIS 42.3 million of interest on loans. On the positive side, financing income included NIS 12.4 million of foreign exchange gains and NIS 6.9 million of interest on deposits and others. The bottom line was hit not because the plant stopped generating, but because the financing and accounting layer became much heavier.
The message is straightforward: if you stop at EBITDA, you miss the financing burden. If you stop at net profit, you miss that the asset is still producing a strong operating result.
What Is Accounting Noise and What Is Cash Reality
This is where the distinction between accounting noise and real cash cost matters. The cash flow statement shows a far more mixed picture than the income statement alone.
| Item | 2025, NIS million | Why it matters |
|---|---|---|
| Cash flow from operating activities | 229.0 | The plant still generated meaningful operating cash |
| Derivatives revaluation | 79.0 | An accounting item that was added back in operating cash flow |
| Reported CAPEX | 273.8 | 2025 still carried the final peaker build-out burden |
| Interest paid | 80.0 | A real cash cost of debt |
| Bank loan repayments | 225.5 | A real cash outflow, not accounting noise |
| Dividends paid | 126.5 | Actual cash distributed to owners |
| New bank loans received | 477.0 | This is what closed the funding gap in the year |
On an all-in cash flexibility basis, the year was tight. Operating cash flow of NIS 229.0 million was not enough on its own to cover reported CAPEX of NIS 273.8 million, interest paid of NIS 80.0 million, bank loan repayments of NIS 225.5 million and dividends paid of NIS 126.5 million. That is why NIS 477.0 million of new bank loans mattered so much, and why year-end cash fell by only NIS 17.1 million.
That does not mean derivatives are irrelevant. Quite the opposite. They explain why the earnings line became noisy. But they are not the only bottleneck. The practical constraint is a heavy capital structure that, in 2025, still had to carry both an intensive peaker investment year and cash distributions to shareholders.
Debt, the Euro and the Embedded Derivative
The debt structure explains why Alon Tavor looks much more volatile than the plant itself. At year-end 2025, bank debt stood at NIS 1.959 billion, up from NIS 1.715 billion at the end of 2024. That stack includes three senior euro-denominated facilities with an original aggregate amount of EUR 431 million, alongside NIS 963 million of senior debt for the peaker.
On the other side, Alon Tavor’s availability revenues are euro-linked. Economically, that creates a partial natural hedge against the euro debt. Accounting does not eliminate the volatility. The company separates a euro embedded derivative from the PPA with Noga because the euro is not the functional currency of the parties and is not the usual denomination for Israeli power purchase agreements. Changes in the fair value of that component therefore flow through profit or loss.
At the end of 2025, net derivative liability stood at NIS 109.8 million, of which NIS 106.9 million came from the embedded derivative and NIS 2.9 million from economic hedging derivatives. Sensitivity remains material even after year-end: a 5% move in the euro changes profit and equity by about NIS 10.0 million after tax, and a 10% move changes them by about NIS 18.1 million to NIS 18.7 million.
That is exactly where it becomes easy to confuse economic hedging with quiet reported earnings. There is a partial economic offset here, but there is no smooth earnings line. As long as the euro debt and the embedded derivative remain material, net profit will stay much more volatile than operating profit.
What Reaches Mivtach Shamir Upstream
At the group level, Alon Tavor contributed NIS 23.1 million of profit in 2025, down from NIS 49.8 million in 2024. In the same year, the group received a NIS 60 million dividend from MRC in respect of 2024 and 2025. That gap matters: cash moving upstream was stronger than the accounting contribution booked through earnings.
There is also an accounting layer behind that result. Mivtach Shamir changed its accounting policy retroactively so that, in the group’s consolidated accounts, the embedded derivative tied to the euro-linked pricing mechanism is no longer separated. In practical terms, the group is trying to strip part of the accounting noise out of its reported share of Alon Tavor’s results. That is why its reported contribution is not a simple one-third translation of Alon Tavor’s standalone net profit.
But even after that adjustment, the core conclusion does not change. Alon Tavor is an asset that still knows how to produce electricity, operating profit and cash, but it does so under a large debt burden and clear foreign exchange sensitivity. The value moving upstream is real, but it is not free. It depends on a highly levered asset where accounting volatility and debt service coexist.
Conclusion
Alon Tavor in 2025 was not an operating-collapse story. It was a story of an asset whose revenue rose, whose EBITDA was broadly intact, and which still sent cash upstream. What crushed net profit was not weaker plant performance, but a much heavier financing layer, a larger embedded derivative and continued euro sensitivity.
For Mivtach Shamir, that matters because the gap between cash and accounting profit can mislead in both directions. Anyone looking only at the bottom line will miss an asset that still generates cash. Anyone looking only at operating profit will miss a capital structure in which interest, amortization and FX volatility still determine how much of that value is actually left for shareholders. The 2026 test is therefore straightforward: after the peaker build-out year, can Alon Tavor show recurring free cash after full debt service, rather than just operating profit that looks healthy on paper.
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