Gan Shmuel: The Fair-Value Investment and the Drag Below Operating Profit
The main article focused on the price reset and the Thailand proof test. This follow-up shows that a different risk layer sat below operating profit: a $6.779 million revaluation loss on TransAlgae, alongside loans and guarantees, cut Gan Shmuel's pre-tax profit and pushed the fourth quarter into a loss.
The Drag That Does Not Sit in Juice Operations
The main article argued that 2025 was a price-reset year and a Thailand proof year. This follow-up isolates a different line entirely, one that does not sit in export sales, gross margin or plant efficiency: the investment measured at fair value. A reader who stops at operating profit sees $25.03 million. A reader who goes one line lower sees that the revaluation loss alone reached $6.779 million, and another $1.356 million was deducted through the company’s share of losses from equity-accounted investees. That is why pre-tax profit fell to $16.94 million, and why in the fourth quarter an operating profit of just $0.4 million became a pre-tax loss of $3.011 million.
This is an earnings-quality issue, not an operating one. The revaluation loss itself was not a 2025 cash outflow, but it does show that Gan Shmuel’s bottom line was also being cut by a financial asset valued through a sensitive appraisal model. And against an overly easy reading, this is not just a paper line. Around the holding sit non-convertible loans and guarantees as well. So TransAlgae needs to be read not as a side note, but as a potentially recurring drag below operating profit.
The Bridge Below Operating Profit
On a full-year basis, the gap between operating profit and pre-tax profit reached $8.09 million. The revaluation loss alone consumed more than a quarter of operating profit and about 42% of net income. In the fourth quarter the picture turned sharper still: the fair-value line and the equity-accounted loss line did not merely trim profit. They overwhelmed it.
That number matters because it changes the read on 2025. The main article correctly described the pricing squeeze, the weaker East and the fact that Thailand still needs to prove itself. But the bottom line deteriorated beyond that. In the fourth quarter, the revaluation loss alone was more than six times the quarter’s operating profit. So anyone looking only at plants and exports can miss a separate risk layer that cuts earnings after the operating business is done.
This Is Not Just a Holding, It Is an Exposure Stack
The first thing to get right is that the $8.689 million line is not the whole story. It is only the year-end balance of the fair-value financial asset. Gan Shmuel invested in TransAlgae in 2016 and 2019 through loans that were converted in August 2020 into preferred shares representing 16% of the issued and paid-up share capital on a fully diluted basis. In January 2021 it added a $2.5 million SAFE investment, which gives it the right to receive shares in the next financing round at the lower of a price implied by a $65 million post-money valuation or a 20% discount to the next-round price.
The SAFE terms themselves already show why the line needs a careful read. If a sale or liquidation event occurs before the next financing round, Gan Shmuel is entitled to the higher of the original investment amount and the amount it would have received as if shares had been allocated at a $65 million post-money valuation. That does not remove valuation risk. It only shows that the exposure is not sitting in a plain ordinary-share structure.
Beyond that, the company states explicitly that after the equity and SAFE investments it also extended additional non-convertible loans to TransAlgae, which totaled $680 thousand at December 31, 2025, with fixed interest rates ranging from 3% to 8.3% across different agreements. In September 2025 it also extended a non-convertible NIS 261 thousand loan to Bralgae, a wholly owned subsidiary of TransAlgae. And in December 2024 and May 2025 the company signed two guarantees for Bralgae’s debts to Bank Hapoalim, NIS 1.599 million each, or NIS 3.198 million in total. According to the filing, 60% of any amount paid under those guarantees is secured back to the company by a third party, so the net exposure is capped at about NIS 1.279 million.
| Layer | Amount | What it is | Why it matters |
|---|---|---|---|
| Fair-value financial asset at 31.12.2025 | $8.689 million | The year-end value of the equity and SAFE holding after the appraisal | This is the line that generated the 2025 revaluation loss |
| Matching balance at end 2024 | $15.468 million | The starting point before the 2025 revaluation | Shows how much value was erased within one year |
| Non-convertible loans to TransAlgae | $680 thousand | Debt exposure separate from the fair-value asset | The risk does not sit only in the valuation model |
| Loan to Bralgae | NIS 261 thousand | Non-convertible loan to TransAlgae’s subsidiary | Extends exposure beyond the main entity |
| Guarantees for Bralgae | NIS 3.198 million gross, about NIS 1.279 million net | Two guarantees to Bank Hapoalim with 60% third-party backing | Adds an obligation layer that does not appear in the revaluation line itself |
The implication is that the real question is not only whether the fair value went up or down. The question is how many layers of equity, debt and support already sit under that asset. The 2025 revaluation loss did not come out of a thin passive holding. It sits on a wider exposure structure.
Why This Does Not Look Like a Pure One-Off Write-Down
The company explains that it presents the TransAlgae investment at fair value because it is not involved in ongoing management, has no right to appoint directors and even waived veto rights over TransAlgae employment agreements. That is why the line is not being carried through the equity method, and that is exactly what makes it volatile.
At December 31, 2025 an independent external appraiser valued the total holding in equity and SAFE using an OPM model and Monte Carlo. Activity A, non-engineered micro-algae cultivation, was valued through DCF using management forecasts, a 25% discount rate and a 1.5% long-term growth rate. Activity B, genetically engineered algae, was valued through a cost approach with a 33% reduction to the estimated technology cost. The models also used volatility assumptions of 90% for Activity A and 110% for Activity B.
The sensitivity analysis says this drag can recur. A 1% change in the discount rate for Activity A changes the investment value recorded in the financial statements by about $385 thousand down or $407 thousand up. A change in the technology-cost reduction rate to 50% cuts investment value by $807 thousand, while a cut to 25% increases it by $378 thousand. In other words, even without an extreme event, fairly contained assumption changes can move this line by hundreds of thousands of dollars.
That is why a $6.779 million loss in 2025 does not read like a classic one-off write-down that can simply be ignored. The year-end balance still stands at $8.689 million, so as long as the asset remains on the balance sheet and the valuation model remains dominant, the line below operating profit can keep moving sharply without any direct link to quarterly juice execution.
What This Does Not Say About the Industrial CGU
This is the point where two different stories should not be merged. In the note on goodwill and intangible assets for the industrial segment, the company shows a December 31, 2025 balance of $4.1 million, made up of $3.7 million of goodwill, $0.3 million of rights to purchase fruit and other rights, and $0.1 million invested in young orchards. The recoverable amount of the industrial cash-generating unit was determined on a value-in-use basis, using a pre-tax discount rate of 12.74% and a fixed 1.5% growth rate.
The important point is that the company states there are no reasonably possible changes in key assumptions that would cause the industrial segment’s carrying amount to exceed the recoverable amount by a significant margin. In addition, the impairment line that appears in the intangible-assets table was recorded in 2024, not in 2025. So if a reader is looking for the sharper 2025 drag, the search should not start from industrial goodwill. This year, the center of gravity sits first in the financial asset.
That distinction matters because it prevents an overly broad reading of the whole bottom line as a core industrial impairment story. The company does have a real operating problem, as the main article already showed. But the hit below operating profit was not created, at least for now, by the industrial segment’s fruit rights or goodwill. It was created by an external investment measured at fair value, alongside the loans and guarantee layers around it.
The Bottom Line
The right read here is that 2025 earnings quality was shaped not only by pricing, demand and Thailand, but also by a fair-value line that removed $6.779 million while sitting inside a wider exposure structure of loans and guarantees.
Any operating recovery in 2026 will also have to pass this test. If the industrial business improves but the value of TransAlgae keeps slipping, part of that profit will still disappear below operating profit. So this is not a side note about an external holding at the edge of the filing. It is a direct question about how quickly Gan Shmuel’s earnings actually make it through to shareholders.
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