Afi Capital: Why the future gross profit in the project tables is not yet shareholder cash
The project tables show ILS 1.241 billion of expected gross profit, but only ILS 799.9 million is the company's share and only ILS 681.8 million is still unrecognized. Once the footnotes exclude part of future financing effects and 2025 ends with negative operating cash flow of ILS 90.5 million, the accounting pipeline is clearly still far from shareholder cash.
The main article argued that 2026 will be a test year for funding discipline and margins at Afi Capital. This follow-up isolates one of the easiest mistakes to make in the annual report: reading the future gross-profit line in the project tables as if it were already close to cash for shareholders.
That shortcut does not hold. In the summary table, the company shows ILS 1.241 billion of expected gross profit across projects under execution and marketing. But the same table already cuts that number down to ILS 799.9 million at the company's share of gross profit, and to ILS 681.8 million at the company's share of gross profit not yet recognized. That is before the footnote that excludes part of future financing effects, and before checking what actually happened in 2025 cash flow.
So the headline number is not wrong. It just belongs to an earlier layer in the chain. It says there is activity, future sales and project-level profitability on paper. It still does not say how much of that number will remain for the listed company after partners, after financing, after required equity injections, after interest, after collection timing, and after the gap between accounting recognition and free cash.
What the big number really says
The right way to read the summary table is to move through it layer by layer rather than stop at the first number:
| Table line | 31.12.2025 | What it is | What it is not |
|---|---|---|---|
| Total expected gross profit across projects | ILS 1,241.0 million | Expected gross profit across Tables A + B | Not the company's share, not net profit, not cash |
| Company's share of gross profit | ILS 799.9 million | Expected gross profit attributable to the company | Still not cash, and still before part of future financing effects |
| Company's share of gross profit not yet recognized | ILS 681.8 million | Future company-share gross profit that has not yet passed through the P&L | Not collections, not cash on balance sheet, not released surplus |
| Company's share in expected surplus per appraisal or business plan | ILS 1,148.7 million | A project-level modeled surplus line | Not reported cash, and not a direct measure of free cash available to shareholders |
The key point is not just the ILS 681.8 million number. It is the path the company itself draws to get there. Out of ILS 1.241 billion of expected gross profit at the full-project level, about ILS 441 million is already outside the company's attributable share. So even before the financing question and before collections, there is a material step down from project-level economics to listed-shareholder economics.
The surplus line does not solve that problem either. The footnote says it is based on the latest appraisal or on a business plan with required adjustments. That makes it useful as a project indicator, but it is still a modeled line, not a reported cash balance. Reading it as if the cash is already sitting at the listed-company level is too aggressive.
The footnotes that change the read
The timing footnote: the occupancy date in the tables refers to the earliest possible occupancy of the first building, not the final occupancy date of the project as a whole. In other words, a date such as Q4-26 or H1-28 is not the point at which the full project economics become cash.
The sales footnote: the sales ratios in the tables are based on signed contracts regardless of collections and regardless of revenue recognition. That is an important distinction. Signed contracts do indicate demand, but they are not the same as cash collected.
The financing footnote: the company explicitly states that expected revenue and expected gross profit do not include capitalized financing expense on shareholder loans, except in certain imbalance cases, and also do not include future effects from a significant financing component. That is the core issue here. The most eye-catching line is a gross-profit line before part of the financial cost of the model.
The profit-structure footnote: the company also states that expected gross profit includes the company's share of contractor profit at the execution company and management fees charged when there are partners in the project. So this is not a pure, simple development-profit line. It already blends several economic layers into one figure.
Put together, those four footnotes change the entire interpretation. The project table is useful for understanding volume and potential. It is not a cash table, not a net-profit table, and not a table of value already accessible to common shareholders.
The current year already shows how little of gross profit survives
The best way to test this shortcut is not in theory but in the 2025 results themselves. In 2025 the company reported revenue of ILS 833.3 million and gross profit of ILS 121.4 million. Net profit, by contrast, was only ILS 23.5 million.
That is the point. Even before looking forward, 2025 already shows that a large part of gross profit is consumed on the way to net profit. Selling and marketing plus G&A were ILS 46.7 million, the share of results from equity-accounted companies was negative ILS 9.2 million, net finance expense was ILS 34.9 million, and tax was ILS 7.1 million. Anyone trying to read the ILS 681.8 million of not-yet-recognized gross profit as almost-cash is skipping the very layers that already absorb much of the reported gross profit today.
The financing footnote makes that distinction even sharper. If 2025 already carried ILS 34.9 million of net finance expense, and the future gross-profit line does not include part of future financing effects, there is no serious way to read that future gross-profit line as if it mechanically approaches the bottom line.
Where the cash gets stuck
In residential development, accounting profit and cash almost always diverge. At Afi Capital that gap is especially visible in 2025. Before the real-estate working-capital layer, meaning before activity in real-estate assets and liabilities, operating cash flow stood at ILS 117.6 million. But once inventory, land and customer-contract timing came into the picture, the story flipped.
The increase in land inventory, buildings under construction and apartments for sale consumed ILS 57.9 million. The decline in liabilities related to land purchases consumed another ILS 27.3 million. The change in assets and liabilities from contracts with customers consumed ILS 122.8 million. After all of that, operating cash flow was negative ILS 90.5 million.
That is also the right frame for year-end cash. Cash rose to ILS 204.0 million, but not because development activity had already converted itself into free cash. It rose mainly because 2025 included ILS 374.5 million of new loans from banks and financial institutions and another ILS 341.4 million from bond issuance, against ILS 271.9 million of loan repayments, ILS 123.6 million of interest paid and ILS 15.0 million of dividends.
This is the difference between an accounting pipeline and all-in cash flexibility. At the gross-profit layer, the projects look large and attractive. At the full cash layer, the company still relies on a wide financing stack to carry inventory, land, buyer-financing structures and collection timing.
The company itself explains that mechanism clearly. It funds activity through equity, customer advances, bank and institutional credit, and sometimes mezzanine loans. Projects under execution generally require minimum equity of 10% to 20%, and facility agreements also depend on permits and sales targets. When free-market apartment payments are not received linearly over the construction period, the company explicitly describes a situation in which it needs to extend contractor loans to buyers, bear the interest cost and also use credit facilities to build the project.
That is the clause that connects the project tables to the cash-flow statement. The future gross profit is not disappearing. It is simply traveling through a heavy financing layer before it can become cash. The year-end balance sheet shows how thick that layer still is: bank and institutional loans stood at ILS 1.018 billion, bonds stood at ILS 613.7 million, and equity was ILS 505.4 million. At the same time, the balance sheet carried ILS 180.7 million of contract assets against ILS 77.0 million of contract liabilities. That does not mean every shekel there is uncollected, but it does show that accounting recognition is, in part of the activity, still ahead of cash.
Bottom line
Afi Capital's project tables do say something important: the company has meaningful activity volume, a broad project inventory and substantial future gross profit at the project level. But they do not say that the number already belongs to shareholders as cash.
The move from ILS 1.241 billion of expected gross profit at the total-project level to ILS 799.9 million at the company's share is already the first cut. The move from ILS 799.9 million to ILS 681.8 million not yet recognized is the second cut. From there come the heavier ones: financing effects not fully included in the tables, required equity and mezzanine layers, signed contracts that are not collections, occupancy dates that are not full-project completion, and a slow conversion of project-level profit into free cash.
If the thesis has to be reduced to one line, it is this: at Afi Capital, future gross profit is first an indicator of work volume, and only later a candidate to become shareholder cash.
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