Mer: How much of the 2025 earnings improvement really turned into cash

What Actually Unlocked In Cash Flow

The main article argued that Mer’s 2025 improvement came from a better mix and a calmer balance sheet. This follow-up isolates the more important question for a project-heavy business: how much of 2025 earnings really turned into cash, and where working capital is still holding money back.

The short answer is that cash conversion did improve, but not as cleanly as the cash-flow headline suggests. Operating cash flow rose to NIS 79.4 million from NIS 45.5 million in 2024, well above net profit of NIS 41.3 million. That looks like a sharp step up in earnings quality. In practice, most of the improvement came from a release in customers and unbilled receivables, while inventory rose, suppliers moved against the company, and billed receivables actually increased.

That is the core point. Mer did not solve its working-capital problem. It changed its shape. Instead of pressure that came mainly from contract assets, 2025 ended with lower unbilled receivables but higher billed receivables, higher inventory, and different frictions in Israel and in the Global segment.

The four points that matter most are these:

1. Cash-flow improvement came first and foremost from customers and unbilled receivables. That line added about NIS 12.5 million of cash in 2025 after consuming about NIS 44.0 million in 2024. That is a NIS 56.5 million swing year on year.
2. The total receivables decline is misleading. The line item fell by NIS 12.1 million to NIS 266.5 million, but inside that total, billed receivables rose by NIS 8.2 million to NIS 125.9 million and overdue balances nearly doubled to NIS 30.8 million from NIS 14.8 million.
3. Inventory moved the other way. Inventory rose by NIS 15.0 million to NIS 91.8 million, with finished goods up by NIS 12.0 million. That is cash still tied up inside the operating system.
4. The two main segments pull working capital in different ways. In Israel, customer days improved but inventory remained heavy at about NIS 67 million. In Global, inventory was smaller at about NIS 25 million, but the gap between customer days and supplier days stayed wide at 44 days.

That chart matters because it separates three different layers. Net profit improved, operating cash flow improved much more, but after leases, CAPEX, and debt repayment, only about NIS 14.8 million remained in 2025. That is better, but it is not the same as saying all the earnings turned into freely available cash.

Where The Cash Flow Was Really Built

To understand conversion quality, the NIS 79.4 million of operating cash flow has to be unpacked. At the non-cash earnings level, Mer received fairly standard help: NIS 19.2 million of depreciation and amortization, NIS 16.8 million of net finance expense, and NIS 4.8 million of tax. The less routine story sits in working capital.

In 2025, working-capital movements contributed a combined NIS 8.7 million of cash after consuming NIS 19.1 million in 2024. But even here, the source matters. Customers and unbilled receivables added NIS 12.5 million, while inventory consumed NIS 15.0 million and suppliers consumed another NIS 14.6 million. The offset came from other payables and accruals, which added NIS 26.0 million.

So 2025 cash-flow improvement did not come from a situation where every moving part in working capital suddenly started working together. The opposite is closer to the truth. One pocket released cash, while inventory and suppliers pulled in the other direction. In quality terms, this was a partial improvement, not a full clean-up of the operating cycle.

What matters in that chart is not just direction but composition. In 2024, Mer tied up far too much cash in customers and unbilled receivables. In 2025 that same line swung positive, but working capital did not really become light. It simply leaned on a different support.

Receivables: Less Unbilled Revenue, More Open Invoices

The first read of the balance sheet looks positive. Customers and unbilled receivables fell to NIS 266.5 million from NIS 278.6 million. But this is exactly where the note needs to be opened. The decline did not come from a broad-based clean-up in collection. It came from a NIS 19.2 million drop in unbilled receivables, to NIS 140.5 million from NIS 159.7 million. At the same time, billed receivables rose to NIS 125.9 million from NIS 117.6 million.

The reasonable inference is that part of the 2025 improvement came from work that had already been performed and had been sitting in the unbilled layer moving into a more advanced billing stage. That is positive. But it is not the same as saying the customer profile became more conservative across the board. Open invoices actually increased.

The second and sharper point is the ageing profile. Overdue balances rose to NIS 30.8 million from NIS 14.8 million. Most of that increase did not happen in the deepest bucket. It was concentrated mainly in balances overdue by up to 60 days. That is somewhat reassuring, because balances overdue by more than 120 days rose only to NIS 6.0 million from NIS 5.5 million. Still, it is a reminder that the move from unbilled receivables to open invoices does not mean the cash is already in hand.

Expected credit-loss allowance barely moved, at NIS 3.262 million versus NIS 3.274 million. So this is not evidence of a sharp credit-quality deterioration. It is, however, clear evidence of a shift in the risk mix: less contract-asset exposure that has not yet reached invoice stage, and more open receivables still waiting to be collected.

There is another important layer in the same note. Transaction price allocated to unsatisfied or partially unsatisfied performance obligations fell to NIS 628.3 million from NIS 668.3 million. That does not prove a collection problem on its own, but it does mean the release in unbilled receivables did not come alongside a parallel expansion in future performance obligations. The reasonable inference is that 2025 benefited from better billing progress on the existing base, not from a broader contractual base.

Inventory: The Cash Did Not Disappear, It Moved Into Stock

If the receivables line offered some relief in 2025, inventory pulled the cash the other way. Inventory rose to NIS 91.8 million from NIS 76.8 million, a 19.6% increase. Most of the move came from finished goods, which climbed to NIS 54.5 million from NIS 42.5 million. Raw and auxiliary materials increased more modestly, to NIS 37.3 million from NIS 34.3 million.

That is meaningful because finished goods are not just theoretical stock. They represent cash already invested in a more advanced layer of product or project execution. When that line grows by NIS 12 million in a year when the company is also reporting a sharp improvement in cash flow, the question becomes whether this is inventory being built for near-term delivery, or a sign that recognition and collection are still lagging the procurement cycle.

The segment split makes the point clearer. The Israel segment carried about NIS 67 million of inventory at year-end, while Global carried about NIS 25 million. In other words, roughly 73% of total inventory sat in Israel, precisely the segment that has become the group’s main growth engine and main economic weight. That matters because it means the question around the quality of Israeli growth is not just a margin question. It is also a funding question.

That is why the decline in customer days in Israel does not close the issue. Yes, customer days improved to 130 from 142. But if the segment is simultaneously carrying about NIS 67 million of inventory, part of that collection improvement has already been absorbed one layer earlier in procurement and execution.

Two Segments, Two Different Bottlenecks

The segment disclosures help explain why the problem is easy to miss in the consolidated view. Global ended the year with NIS 67.1 million of current-assets surplus over current liabilities. Israel ended with NIS 88.2 million. On paper, both segments still show positive working-capital cushions. In practice, each carries a different bottleneck.

In Global, customer days rose to 123 from 104, while supplier days rose to 79 from 63. The company explicitly says that a large part of the gap reflects activity where suppliers are not paid on a back-to-back basis against customer collections. So even after some improvement in 2025, Global still carries a built-in funding mismatch. Customers pay more slowly than the company pays through part of the chain.

In Israel, the picture is the reverse. Customer days improved to 130 from 142, while supplier days were almost unchanged at 139 versus 140. At the level of days, Israel actually enjoys a slightly friendlier supplier profile than customer profile. But that is also where most of the inventory sits. So Israel looks cleaner on collection, while Global looks heavier on timing mismatch. Both, in different ways, keep working capital at the center of the story.

The geographic disclosure adds another nuance. The company describes normal payment terms of 15 to 120 days from customer approval to issue an invoice. In practice, average credit days on sales to Israel and other markets stood at 139 days, Central and South America at 132 days, and Africa at 104 days. That means the real project economics are slower than the formal payment terms suggest. In a setup like that, even a modest delay in approval, milestone completion, or invoice release quickly turns into working-capital drag.

The Cash Bridge: What Was Actually Left After Real Uses

To avoid mixing up operating cash flow with cash that really remained available, the right bridge here is all-in cash flexibility. That is the appropriate framing because the issue is not just whether the business produced cash, but how much of that cash was still left after everything the company actually had to pay in 2025.

The bridge starts with NIS 79.4 million of operating cash flow. From there, NIS 13.0 million of actual lease cash has to come off, along with NIS 11.8 million of CAPEX and intangible investment, NIS 38.6 million of long-term debt repayment, and another NIS 1.2 million of net reduction in short-term credit. After those real cash uses, about NIS 14.8 million remained.

That has a double meaning. On one hand, it is a positive number. The same picture was about NIS 9.9 million in 2024, so there was improvement even after the real uses. On the other hand, it also shows that the jump in cash flow did not create a huge cushion. A very large share of the cash went to debt reduction, leases, and ongoing investment. That is exactly what should happen when a company is strengthening its balance sheet, but it also means the story has not yet reached the stage where cash generation is truly free.

There is one more point worth keeping in view. Cash rose to NIS 67.7 million, but bank and other credit still stood at about NIS 100.8 million, with almost all of it sitting in current liabilities. So the 2025 improvement is real, but it is still dependent on continued cash performance. Mer is not yet in a position where heavy working capital can be dismissed as accounting noise.

Conclusion

Mer’s 2025 earnings improvement did turn into cash, but only in part, and by a less clean route than the NIS 79.4 million operating cash-flow headline implies. What was released was mainly the unbilled-receivables layer. What was not solved was the need to fund larger billed receivables, higher inventory, and different payment frictions in Israel and Global.

The continuation thesis is straightforward: 2025 was a real year of better earnings-to-cash conversion, but not a year in which the working-capital problem was solved. The bottleneck moved. It did not disappear.

That leads directly to the 2026 watchlist. If Mer keeps reducing unbilled receivables without allowing billed receivables to keep rising, and if Israel inventory starts rolling into delivery and collection instead of continuing to build, then cash quality will genuinely improve. If not, 2025 will look like a good cash-flow year mainly because one layer of the balance sheet was released, not because the business now runs with a lighter working-capital model.

What should be measured in the next reports is not just the level of operating cash flow. It is three much more concrete things: whether open receivables stop rising, whether inventory starts to come down, and whether Global narrows the gap between customer days and supplier days. Those are the checkpoints that will determine whether 2025 was the start of a new cash-conversion quality level, or simply a year when part of the existing work moved into a later billing stage while the cash got stuck elsewhere.