Shenap 2025: Battery Margins Recovered, but ADI and the Dividend Still Pressure the Cash Cushion

Getting To Know The Company

On a quick read, Shenap looks like a battery company. That is no longer the full picture. At the consolidated level it is indeed almost entirely batteries, with ILS 246.2 million of revenue in 2025. But beneath that headline sit two 50% holdings, Keslo in tires and ADI Systems in automotive accessories, and those businesses reach the listed company mainly through the equity line rather than through consolidated revenue. Anyone reading only the top line misses the real economic structure of the group.

What is working now is fairly clear. The battery business stopped deteriorating, gross margin improved to 25.0% from 24.4% in 2024, and in the fourth quarter alone it reached 29.0%. Keslo also looked better, with revenue up 4.3% and gross profit up 12.2%. Covenants are nowhere near stress, and the A2.il rating was reaffirmed in February 2026 with a stable outlook. This is not a company entering 2026 under immediate debt pressure.

But it is not a clean thesis either. The active bottleneck has shifted from the quality of the battery core to the quality of the holdings and the use of cash. ADI moved from ILS 105.9 million of revenue and ILS 4.0 million of profit in 2024 to ILS 99.8 million of revenue and a ILS 9.9 million loss in 2025. At Shenap’s level that also translated into a ILS 12.4 million impairment on the investment. At the same time, Shenap paid ILS 15 million of dividends during 2025 and, after year-end, approved another ILS 10 million, while year-end cash fell to only ILS 4.7 million.

That is the core of the story. The company is no longer judged only on whether it can sell batteries and import tires. It is judged on whether it can carry three very different layers, batteries, tires, and accessories, without one weak layer or an over-generous dividend policy eating into the cash cushion of the listed company.

That is why 2026 looks like a bridge year, not a breakout year. For the read to improve, the market needs to see three things: battery margins holding beyond the fourth quarter, ADI stopping the slide, and dividend policy moving closer to how much cash really remains after actual cash uses. Until then, the story is interesting, but still messy.

The Economic Map

That chart is not a substitute for the consolidated filing. It is a correction to a shallow read of it. Keslo and ADI do not appear in the top line, so anyone looking only at Shenap’s revenue mainly sees batteries. Anyone looking at the group’s economics sees that Keslo is almost as large as the core, while ADI is still material enough to change the quality of the group even without sitting inside consolidated revenue.

That picture matters as well. Revenue did not collapse, but comprehensive income almost disappeared over two years, from ILS 41.2 million in 2023 to ILS 5.7 million in 2025. That is exactly why Shenap cannot be read only through the consolidated operating core. The real question is what eroded on the way down.

Events And Triggers

The first trigger: the battery business finished the year in much better shape than it looked mid-year. Revenue in the fourth quarter rose to ILS 74.0 million from ILS 70.4 million in the third quarter, and gross margin jumped to 29.0%. Management ties much of that improvement to lower FX rates feeding into purchase prices. That is important, but it also limits the conclusion. The improvement is welcome, yet the market still needs to see whether it holds without the same tailwind.

The second trigger: ADI stopped looking like an option and became a point of friction. Revenue fell 5.7%, profit flipped into a ILS 9.9 million loss, and Shenap recorded a ILS 12.4 million impairment on the investment. Within ADI itself, there was also a full fair-value write-down of the City Transformer investment, with a cumulative after-tax effect of about ILS 8 million. Anyone who wants to dismiss the impairment as a one-off still has to deal with the fact that ADI’s ongoing business also weakened.

The third trigger: Keslo is entering 2026 with a large operating move. In August 2025 it signed a lease for a new logistics center in Kibbutz Barkai, totaling about 22.7 thousand sqm, including about 15 thousand sqm of warehouse area, for 10 years with an option for another 10. Rent and related expenses are about ILS 770 thousand per month, indexed, and the move, racking, and inventory systems are expected to cost about ILS 22 million. If the move works smoothly and the old site is successfully leased out, this can improve the operating base. If not, it becomes another capital layer on top of a business that already depends on imports and a global brand partner.

The fourth trigger: the recycling chain in batteries has still not fully normalized. A fire at Hacornes in the second half of 2024 hurt its ability to recycle used batteries, and the effect continued into 2025 through a worse pricing formula for the segment. By late in the third quarter of 2025 Hacornes had returned to activity, but not to full recycling capacity. The company estimates no material effect in 2026, but this is still a reminder that even a business with a broad customer base can carry operating concentration elsewhere in the chain.

The fifth trigger: the dividend has become an analytical issue rather than just a payout policy. During 2025 Shenap distributed ILS 10 million for the fourth quarter of 2024, ILS 1 million for the first quarter of 2025, another ILS 1 million for the second quarter, and ILS 3 million for the third quarter. On March 24, 2026, after the balance-sheet date, the board approved another ILS 10 million for the fourth quarter of 2025. The amounts are not huge relative to equity, but they are large relative to the cash left on hand.

Efficiency, Profitability, And Competition

The key point is that Shenap is not one story. Batteries look like a mature business fighting mainly FX, raw materials, and commercial terms. Keslo looks like a distribution business with brands, scale, and execution quality. ADI looks like a business that now has to re-earn its economic relevance in a structurally changing vehicle market. Blend those three layers together and it becomes easy to miss where value is really being created and where it is being lost.

Batteries, better stability, but not full proof yet

Battery-segment revenue fell 1.7% to ILS 246.2 million, but gross profit still rose 1.1% to ILS 61.6 million. In other words, 2025 was not a growth year. It was a quality-repair year. Gross margin improved to 25.0%, while selling and marketing expenses stayed broadly flat.

That chart shows why 2025 did not look the same from start to finish. The first half was weaker. The second half was meaningfully better. That is encouraging, but it matters why the improvement happened. The company itself links the fourth-quarter margin jump to lower FX rates feeding into purchase costs. So it would be wrong to read 29% as if that is automatically the new structural margin of the business. It is better read as evidence that the core can generate strong profitability when conditions cooperate, and then tested against what remains in more normal conditions.

From a competitive standpoint, the battery segment still rests on a wide local distribution advantage. It has more than 2,000 customers in Israel, and no single customer accounts for more than 5.2% of segment revenue. That is good dispersion. On the other hand, 84% of revenue still comes from starter and backup lead-acid batteries, so there is no new product engine here that changes the map. And the customer base does not eliminate concentration elsewhere: used-battery sales depend on Hacornes, the only recycler in Israel.

Keslo, the business that looks stronger than the consolidated headline

Keslo is one of the main reasons the top-line read of Shenap is misleading. Tire-segment revenue rose 4.3% to ILS 225.1 million, gross profit rose 12.2% to ILS 62.7 million, and gross margin improved to 27.9% from 25.9%. That is a strong result for a distribution business.

What supports the segment is not only the number but the market structure behind it. Keslo has 750 to 1,000 active customers, with no material dependence on a single customer. It also operates with a recognizable brand portfolio led by Continental, Barum, Dunlop, Fulda, Cooper, Alliance, and Yokohama. That is a real competitive asset.

But it has a price. The Continental distribution agreement runs through August 31, 2026, with automatic extension for two additional one-year periods through August 2028 if conditions are met. It includes a purchase target that grows 3% per year and a commitment to spend at least 2% of annual purchases on marketing in order to receive reimbursements and bonuses. If targets are missed, termination can be triggered with 120 days’ notice. In other words, the agreement is both moat and dependency.

ADI, the problem is not only the impairment

ADI is where the easy reading gets risky. It is tempting to say 2025 was mainly hurt by a one-off impairment. That is only partly true.

The business itself already weakened. The top ten customers, mostly vehicle importers, account for 68% of ADI’s revenue, with each representing between 1% and 16%. Some of those relationships are not even anchored in written contracts. Beyond that, the new-car market is changing the rules, because more vehicles now arrive with built-in active safety systems, while tax incentives are no longer as supportive of non-active aftermarket systems.

That is a critical point. If ADI were losing money only because of a failed minority investment, 2025 would be easier to dismiss as noise. But when revenue itself is falling, when the market is shifting structurally, and when customers are concentrated, the impairment should be read as a symptom of a broader problem.

Cash Flow, Debt, And Capital Structure

This is where the right lens is all-in cash flexibility, meaning how much cash remains after all real cash uses, not only after the part that is convenient to present as operating cash flow. Through that lens, 2025 looks less comfortable than the balance-sheet headline suggests.

Cash flow from operations came in at ILS 23.8 million. On paper that looks solid against pretax profit of ILS 9.9 million. But the cash flow also leaned on about ILS 4.0 million of lower battery inventory, another ILS 5.0 million of lower inventory at Keslo, and a ILS 12.2 million increase in suppliers and other payables. Against that, trade receivables rose by ILS 12.3 million in batteries and ILS 8.2 million in Keslo. So this is a business that does generate cash, but not without working-capital friction.

That chart shows what really happened to the cash balance. Operations generated cash, and investing activity was net positive as well, mainly because of an ILS 8 million dividend received from Keslo against ILS 3.1 million of CAPEX. But financing pulled out ILS 44.8 million. That included ILS 25.5 million of short-term bank-credit repayment, ILS 2.2 million of lease-principal repayment, ILS 2.1 million of interest paid, and ILS 15 million of dividends.

Put differently, once the analysis looks at cash left after CAPEX, leases, interest, dividends, and debt repayment, the picture becomes much tighter. It is no coincidence that cash fell from ILS 20.8 million to ILS 4.7 million.

The important point is that this is not a story of immediate financial distress. Quite the opposite. Short-term credit and loans fell to ILS 42.4 million from ILS 67.9 million, equity to balance sheet improved to 70.8%, and Shenap remains well inside its financial covenants. Tangible equity stood at ILS 258.7 million at year-end against a minimum of ILS 70 million, equity to balance sheet stood at 71% against a minimum of 20%, and the debt-coverage ratio stood at 2.0 against a ceiling of 4.0. Keslo’s covenant headroom also remains comfortable.

That is exactly why 2025 should not be framed as a debt story. It is a capital-allocation story. When covenants are wide and the rating is stable, the real question is not whether the company survives. It is whether it uses that flexibility to rebuild a cash cushion or to keep distributing cash too aggressively relative to the state of the holdings.

Another yellow flag sits outside the debt line. In the fourth quarter of 2025 the company booked another ILS 7.3 million provision for soil remediation in Netanya, after ILS 4.6 million had already been booked in the fourth quarter of 2024. The provision balance at the end of 2025 stood at ILS 13.5 million. This is not an existential threat, but it is a reminder that even a mature operating base can still carry an environmental tail that consumes cash and attention.

Outlook

Before getting into detail, four findings deserve to be stated upfront because they are easy to miss on a first pass.

• First, the consolidated filing is no longer a good enough measure of Shenap’s economics. Keslo and ADI sit outside revenue, so the top line can look reasonably stable even while the quality of the holdings changes materially.
• Second, the improvement in batteries is real, but at least part of it rests on more favorable FX conditions in the fourth quarter rather than on a deep structural pricing or competitive shift.
• Third, ADI is not presenting a narrow accounting issue but a weakness tied to a changing vehicle market, customer concentration, and contractual uncertainty.
• Fourth, payout policy is more aggressive than the cash picture. Even if covenants are wide, the cash balance itself is no longer wide.

What has to happen in batteries

The battery business remains the core holding the thesis together. For the read to improve, gross margin needs to stay closer to the second half of 2025 than to the first half. The company does not need to repeat 29% every quarter, but it does need to show that the improvement was not just a one-quarter FX event.

At the same time, working capital needs watching. The increase in receivables during 2025 was explained both by stronger fourth-quarter activity and by longer credit terms to a specific customer. If sales are preserved mainly through more generous credit, the quality of the improvement will be weaker than the margin alone suggests.

What has to happen at ADI

ADI is the main quality test for 2026. The business does not need to turn into a growth story overnight. It does need to stop deteriorating. That means showing that relationships with vehicle importers are holding, that the market’s move toward built-in systems is not wiping out ADI’s relevance, and that the 2025 loss is not the start of a longer erosion trend.

This is also where the main counter-thesis sits. If ADI stabilizes, the 2025 impairment could prove to be a clearing event rather than the next step toward further decline. If it does not stabilize, the market may start to read both the holding itself and Shenap’s room for continued dividends in a much harsher way.

What has to happen at Keslo

At Keslo, 2026 is an execution test. The move to the Barkai logistics center has to happen without a material cost overrun and without damage to service levels or inventory flow. At the same time, if the old site is indeed leased out at around ILS 0.5 million per month, as management’s survey suggests may be possible, that can create a useful offset. Until that happens, it is better treated as an option than as a fact.

There is also a commercial test here. The Continental agreement is moving toward a renewal point, while purchase targets keep rising. So 2026 will be judged not only on gross margin but also on whether the core supplier relationship stays intact on terms that remain economic.

What kind of year is next

The right name for 2026 is a bridge year with a discipline test. It is not a reset year, because the operating core in batteries and tires did not break. It is not a breakout year, because ADI is still wounded and the cash cushion is too narrow relative to the generosity of the payout. It is a year in which the group has to show that the good parts really translate into accessible cash and stability at the equity-accounted layer.

The market has several short-term checkpoints here. If the first half of 2026 shows battery margins holding up, no further deterioration at ADI, and a somewhat more cautious dividend stance, the read will improve quickly. If the opposite happens, the market will likely focus much more on the quality of the holdings and the cash cushion than on the improvement in the operating core.

Risks

Against all of that, it is also worth stating what does not stand out. As of the filing date there were no material legal proceedings. That does not remove execution risk, but it clarifies that 2026 pressure is not mainly legal or covenant-driven. It is operational, commercial, and capital-allocation driven.

Conclusions

Shenap ends 2025 in a complicated but not broken position. The battery core looks better, Keslo looks even better than the consolidated line suggests, and the balance sheet is far from stress. On the other hand, ADI no longer allows itself to be treated as a side holding, and the pace of cash distributions is higher than the comfort level suggested by the remaining cash balance.

That matters for the market’s near-term read as well. Anyone focusing only on better batteries will see progress. Anyone focusing only on ADI’s impairment will see weakness. The right read sits in between: this is still a group with good operating assets, but it has to re-prove discipline at the holdings layer and at the cash layer.

Current thesis in one line: Shenap enters 2026 with a steadier battery core and a stronger Keslo, but ADI and the dividend leave the thesis dependent on proving holding quality and cash discipline.

What changed versus the previous read: It used to be easier to think of Shenap as a battery story with two side holdings. By 2025 it is clear that the equity-accounted holdings now shape much of the story’s quality, positively through Keslo and negatively through ADI.

The strongest counter-thesis: The market may be overreacting to a one-off impairment while the battery business improved, Keslo is producing good results, covenant headroom is wide, and the rating remains stable.

What could change the market’s interpretation in the short to medium term: battery-margin resilience into early 2026, stabilization at ADI, clean execution of Keslo’s Barkai move, and a more cautious dividend signal.

Why this matters: because in Shenap’s 2025 story the question is no longer only how much profit was recorded, but how much of the group’s value actually turns into accessible and durable cash for shareholders.

What must happen over the next 2 to 4 quarters: ADI has to stabilize, Shenap’s battery business has to hold a reasonable margin without unusual credit stretch, Keslo has to complete the logistics move without a material cost overrun, and dividends need to lean more on real excess cash. If one of those breaks, the thesis weakens.