Victory: How Much Really Remains After Leases, CAPEX and Dividends

What This Follow-Up Is Isolating

The main article already established that Victory's cash picture at the shareholder layer is much weaker than the EBITDA headline suggests. This continuation isolates that gap: not how much the chain earned on paper, but how much cash really remained after the three uses that are easiest to underweight in a leased food-retail model, leases, CAPEX and dividends.

The short version: annual EBITDA of about ILS 241.0 million sounds comfortable. In practice, cash paid for leases reached ILS 156.2 million, CAPEX was ILS 50.1 million, and cash dividends were ILS 27.0 million. After all three, only about ILS 7.7 million remained.

This is an all-in cash flexibility bridge. It does not try to estimate maintenance CAPEX, and it does not build a normalized cash-generation number. It deducts the actual cash uses recorded in 2025. That is the right frame when the question is how much real flexibility remained after rent, store investment and distributions.

The Bridge From EBITDA To Cash Left Over

The number that explains the story is not EBITDA by itself, but the residue after the heavy cash uses. In 2024, Victory still had about ILS 35.2 million left after leases, CAPEX and dividends. In 2025, that residue fell to about ILS 7.7 million. Even before bringing bond amortization into the picture, the buffer narrowed by ILS 27.5 million in one year.

This deterioration did not come from a collapse in gross profit. Quite the opposite, gross profit rose to ILS 634.3 million and the gross margin improved to 25.18%. The problem is that the layer below the headline became heavier. Cash paid for leases rose to ILS 156.2 million from ILS 141.6 million, and CAPEX rose to ILS 50.1 million from ILS 43.3 million. More cash is now going out both for the existing store base and for its expansion.

If bond principal repayment of ILS 16.7 million is added, the picture already turns slightly negative, at about ILS 8.9 million. That is not the core title of this follow-up, but it does show how narrow the ILS 7.7 million residue really is.

Why IFRS 16 Flatters the Wrong Line

The filing gives a useful lesson in the difference between an earnings picture and a cash picture. Excluding IFRS 16, Victory's 2025 operating profit would have been ILS 43.6 million, versus ILS 72.3 million as reported. In other words, the standard lifts the operating line by ILS 28.7 million because rent moves out of selling expenses and into depreciation and finance costs.

But in the very same reconciliation, profit before tax is actually higher without IFRS 16, ILS 50.2 million excluding the standard versus ILS 31.5 million as reported. Net profit was also higher without IFRS 16, ILS 38.4 million versus ILS 24.0 million reported. Put simply, the standard flatters the layer from which investors most easily extrapolate EBITDA, but it does not protect the bottom line, and certainly not the cash balance.

What matters is that this is not a clean accounting exercise. The lease note shows how deeply embedded the burden is in the business model: 70 leased buildings used as stores, plus the headquarters and central warehouse, lease terms of 5 to 21 years, most contracts linked to CPI, and some contracts with a variable component based on sales. In 2025, right-of-use assets increased by ILS 122.2 million without cash outflow, and the financing-liabilities reconciliation shows ILS 93.8 million of new leases plus ILS 28.4 million of remeasurement. The chain is not only carrying a high lease base, it is still feeding it through new openings and lease remeasurement.

The Covenants Look Comfortable, But They Are Testing the Wrong Pressure

The most misleading part of the filing is how easy it is to read the bond covenants as confirmation of a wide safety margin. Formally, that is true. The tangible equity to tangible balance-sheet ratio stood at 43.8% versus a 16% minimum, and tangible equity stood at about ILS 388 million versus a floor of ILS 125 million. The dividend restriction also requires equity after distribution to stay above ILS 160 million, while year-end equity stood at ILS 400.4 million.

But that is exactly the point: the covenant definitions strip out lease liabilities and right-of-use assets. So they are testing a much narrower financial pressure than the one equity holders actually feel. From the bondholders' perspective, Victory looks far from any breach. From the cash perspective, the same lease layer is still absorbing ILS 156.2 million a year.

This gap matters even more because the liquidity section provides a two-layer picture. Cash, bank deposits and short-term financial assets stood at ILS 74.2 million at the end of 2025, versus ILS 125.2 million a year earlier. But cash and cash equivalents alone stood at only ILS 26.6 million, versus ILS 81.0 million at the end of 2024. So even if the covenant picture looks roomy, the immediate cash cushion is already much tighter.

Bottom Line

Victory does not look like a company under covenant stress. It looks like a company whose real test has moved from the balance sheet to the cash layer. In 2025, EBITDA still looked healthy and gross margin even improved, but after leases, CAPEX and dividends only ILS 7.7 million remained. That number is too small to describe the cash position as genuinely comfortable.

The implication for the next 2 to 4 quarters is fairly clear. To reopen that margin, Victory will need one of three things: stronger operating cash flow, slower store opening and CAPEX intensity, or a distribution policy that is aligned with the actual cash residue rather than only with the covenant test. Without one of those, EBITDA can still look acceptable and the covenants can still look comfortable, while real equity-level flexibility remains narrow.