Had-Asaf follow-up: how receivables, inventory, and on-call debt locked the cash cycle

Where the Cash Cycle Locked

The main article argued that Had-Asaf's 2025 problem did not stop at margin compression. It moved into the balance sheet. This follow-up isolates the mechanism itself: receivables stretched, inventory swelled, and short-term bank funding stepped in to keep the cycle open.

That matters because these are not three separate stories. When sales shift more toward contractors and less toward traders and steel processors, collections take longer. When the company carries more imported stock and more billets, cash sits longer in inventory and in production. And when supplier days do not open up on the other side, the gap moves almost automatically to the bank.

The good news is that this still does not read like a classic credit event. Most of the receivables book is not yet overdue, and the doubtful-debt provision even declined. The less comfortable part is that a cash cycle does not need an obvious collections crisis to lock. It is enough for customers to pay a bit slower, inventory to sit a bit longer, and the funding layer on the other side to remain short and expensive.

That chart sharpens a subtle point. The filing presents two different customer metrics: the receivables note shows the average credit period rising to about 74 days from 67, while the balance-sheet discussion shows customer days in the working-capital model rising to 64 from 57. They are not the same calculation, but they point in the same direction. Cash came back more slowly.

Receivables did not break, but they did slow

Net receivables ended 2025 at NIS 438.3 million, and the auditor flagged the line as a key audit matter because it equals 32% of total assets. That is no longer background noise. Once a book of that size grows, even a moderate slowdown in collections becomes a balance-sheet event.

The more interesting point is that the issue does not currently look like a book-quality collapse. Out of NIS 468.3 million of gross receivables before provisions, about NIS 381.6 million had still not reached their due date. The doubtful-debt provision also fell to NIS 30.0 million from NIS 34.1 million. So the book is not shouting credit failure, but it is clearly signaling a slower cycle.

This is also where management ties the pieces together. The rise in customer days in the Israeli steel segment is linked to a shift in customer mix, fewer sales to traders and processors and more sales to building contractors. That may be commercially understandable in the market, but it is expensive at the cash level.

Inventory grew exactly where cash is hardest to release

The inventory picture is sharper still. Inventory days rose to 102 from 85, and total inventory rose to NIS 470.2 million from NIS 423.7 million. The company explains the increase mainly through larger quantities of imported raw rebar inventory because delivery times rose, and through higher billet inventory. In the inventory note itself, the most striking line is work in process, which jumped to NIS 72.9 million from NIS 28.5 million.

That is the heart of the problem. Heavy inventory is always a use of cash, but work in process is inventory you cannot release with one quick decision. It is already inside the operating process. So 2025 did not just create more inventory. It created more cash trapped midway between raw material and invoice.

Suppliers did not provide the offset

If receivables and inventory had risen while supplier days had also stretched, one could argue that part of the cycle was being funded internally through the supply chain. That is not what happened. Supplier days stayed at 17, and payables to suppliers and service providers actually fell to NIS 100.8 million from NIS 114.2 million.

The implication is straightforward: Had-Asaf did not finance this heavier cycle through suppliers. It carried the burden itself. That is why operating working capital rose by NIS 64.4 million to NIS 761.8 million, already 41% of sales.

Why NIS 30.8 Million of Net Income Became Only NIS 7.1 Million of Operating Cash Flow

This is where the filing moves from a balance-sheet explanation to a cash-flow explanation. Had-Asaf finished 2025 with NIS 30.8 million of net income, but only NIS 7.1 million of operating cash flow, versus NIS 120.3 million in 2024. This is not just weaker earnings. It is a collapse in the quality of cash conversion.

That bridge shows that the weakness of 2025 was not born only on the income statement. Non-cash adjustments still added NIS 82.3 million, but working-capital movements pulled out NIS 72.6 million, and another NIS 33.4 million went out through interest and tax payments. In other words, even before growth claims or strategic framing, the business generated too little cash relative to what the accounting profit still implied.

This is also where two different questions need to be separated. One is whether the company remained profitable. The answer is yes, but less so. The second is whether that profit was self-funding. In 2025 the answer became much less comfortable.

On-Call Debt Closed the Gap, but Also Made It More Structural

To read this correctly, the cash bridge has to shift to an all-in cash-flexibility frame rather than stopping at operating cash flow. The reason is simple: the thesis here is not "how much the business generates before investment," but how much real room is left after the actual cash uses of the year.

Operating cash flow was NIS 7.1 million. Against that stood NIS 51.5 million of PP&E purchases, NIS 18.7 million of advances for PP&E, NIS 11.7 million of lease-principal repayment, and NIS 0.8 million of dividends paid to non-controlling interests. That means all-in cash flexibility was negative by about NIS 75.6 million before any additional bank funding.

That is exactly where the on-call debt enters the story. Short-term bank credit rose to NIS 332.0 million from NIS 268.7 million, an increase of NIS 63.4 million. The filing explicitly says the increase came mainly from lower positive cash flow from operations and especially from higher working capital. In other words, the bank did not fund a new growth initiative. It funded a cash cycle that stopped closing on its own.

There are two more important layers here. The first is structure. The bank-credit note lists only short-term bank borrowing, and in the liquidity table the full NIS 332.0 million sits within one year. The second is price. The loans carry floating interest, and a 0.5% increase in prime rate changes pre-tax profit by about NIS 2.45 million.

On one hand, the company is still far from a covenant event. Equity of NIS 777.8 million and an equity-to-assets ratio of 57% are not covenant-stress numbers. On the other hand, that is exactly what can mislead a shallow read. The 2025 story is not immediate covenant danger. It is growing dependence on short-term funding to carry a heavier working-capital base.

The group itself almost says this outright. In the liquidity note, it states that bank loans are used mainly for working-capital needs and that the group aims to preserve a balance between ongoing funding and flexibility through short-term on-call loans. The wording is clean, but the economic translation is simpler: the cycle does not close from within, so it has to be rolled from outside.

What Has to Change From Here

The way out does not depend on one magic number. For the cash cycle to release, three things need to happen together.

First: customer days need to stop rising. That does not require a dramatic collections event, but it does require the contractor mix not to keep stretching the cycle.

Second: inventory days, and especially work in process, need to come down. Without that, even a moderate revenue recovery will remain trapped in stock and production.

Third: short-term borrowing needs to stop climbing. If working capital stays heavy and short-term debt keeps rising, 2025 will look less like a weak year and more like the start of a new and weaker cash regime.

Bottom Line

This follow-up compresses the 2025 story into one sentence: Had-Asaf did not lose only margin. It lost cycle speed. Customers paid slower, inventory sat longer, and suppliers did not fund the gap. That is why on-call debt became not just a flexible tool, but the layer holding together a cycle that internal cash flow no longer covered.

That matters because it changes how any future improvement should be read. If revenue recovers but customer days and inventory days do not improve, the recovery will be more accounting-based than cash-based. If the cycle starts releasing and short-term credit stabilizes, then 2025 can still be read mainly as a bridge year. That is the real test of 2026.