Primotec in 2025: Without the Defense Tailwind, the Core Business Now Has to Prove Itself

Getting To Know The Company

At first glance, Primotec looks like a manufacturer and marketer of cleaning materials, paper, disposables, and medical equipment. That is only half the story. Economically, it is first and foremost a procurement, import, logistics, and distribution platform for institutional customers. In 2025 only 19% of cost of sales came from self-manufactured goods, while 41% came from imports and 40% from local suppliers. That matters because the real value driver is not only a production line. It is the ability to hold a broad catalog, serve tenders, manage inventory, and reach customers quickly.

What is working now is that this platform still produces solid earnings even after a less exceptional year. Revenue fell 9.6% to NIS 273.3 million and operating profit fell 26.2% to NIS 36.9 million, but operating cash flow remained positive at NIS 42.0 million, net income was still NIS 22.8 million, and the fourth quarter was the strongest quarter of the year on both revenue and profit. In other words, 2025 does not look like a break in the business. It looks like a return to earth after an unusually strong defense-demand spike.

That is also Primotec's active bottleneck for 2026. It is not debt, it is not plant capacity, and it is not an immediate production constraint. The real test has shifted to a different question: can the company preserve healthy institutional margins when Ministry of Defense orders return to a more normal level, and can it do so without draining the cash balance through dividends, investment, and operational relocation?

There is also a practical filter here. Market cap is about NIS 205.8 million, but the most recent daily turnover was only NIS 47.9 thousand, and short interest is negligible. That does not change the business, but it does change how the market reacts to it. In a stock like this, even a good report may not be repriced quickly.

The fast economic map for Primotec looks like this:

Another way to understand the company is through revenue concentration by product group. In 2025 the four largest product groups were disposables at NIS 114.1 million, paper at NIS 69.8 million, cleaning and toiletries at NIS 58.2 million, and medical, nursing, and related equipment at NIS 26.8 million. So this is not a business built around one narrow category. On the customer side, however, concentration is real: within the institutional segment, the Ministry of Defense and the IDF contributed NIS 97.9 million of revenue, equal to 39.4% of the institutional segment and 35.8% of total company revenue.

Events And Triggers

The central insight around 2025 is that the report does not describe a crisis. It describes normalization. Anyone who reads only the annual drop in revenue and profit may miss that the company enters 2026 from a more stable position than the headline suggests, but without the unusual tailwind that made 2024 easier to read.

The fourth quarter was the strongest quarter of the year

Fourth-quarter revenue reached NIS 70.4 million, versus NIS 64.1 million in the first quarter, NIS 70.2 million in the second, and NIS 68.5 million in the third. Fourth-quarter operating profit, NIS 10.0 million, was also higher than in any other quarter of the year, and net income reached NIS 6.4 million. That is a key datapoint because it shows Primotec did not exit the year in deterioration. It entered 2026 with relatively stronger momentum.

The defense ministry remains the anchor customer, just not at the same extreme level

The big change in 2025 was not the loss of the defense ministry. It was the return to a less exceptional level. Revenue from the Ministry of Defense and the IDF came to NIS 97.9 million, versus NIS 117.1 million in 2024 and NIS 107.9 million in 2023. The company explicitly says that IDF orders returned to levels similar to the pre-war years after an unusually high 2024. That is the right read: 2024 was an exceptional upside year, and 2025 was a normalization year.

On one hand, that improves the quality of the earnings read. If Primotec can stay profitable without extraordinary defense demand, that is meaningful. On the other hand, it sharpens the concentration issue. When that customer still represents more than one-third of revenue, it is too early to argue that the business is fully diversified.

New tenders improve visibility, but they do not create hard backlog

At the end of December 2025 the company won a new hygiene-products tender for the Ministry of Defense, subject to signing a budgeted price agreement. The arrangement can run for up to 36 months, with an option for the Ministry of Defense to extend it by up to another 24 months. In parallel, in May 2025 the disposable-products arrangement was extended through December 11, 2028.

Those are positive developments, but they need to be read correctly. This is not the same as hard backlog. These frameworks do not include minimum-volume commitments, and each order is placed separately. So contract duration matters, but it does not remove the need to see actual order flow. The hygiene tender also includes an annual price-update mechanism, half linked to foreign exchange and half to CPI, which provides partial cost protection. Still, if emergency inventory is not maintained as required, the agreements also include a penalty layer.

The investment portfolio stopped being a separate story, but it still left a mark

The financing line looked worse in 2024. In 2025 net finance expense fell to NIS 6.0 million from NIS 15.3 million, but that still does not mean the core business suddenly became fully clean. The company realized about NIS 5.7 million of financial assets during the year, and by year-end still held about NIS 3.2 million of an illiquid dollar investment that generated a roughly NIS 3.7 million loss during 2025. So the non-operating investment layer became smaller, but it still affected how the year should be read.

The dividend is both a signal and a test

During 2025 the company paid a NIS 25 million dividend, and after the balance-sheet date the board approved another NIS 20 million distribution. That is a clear confidence signal. At the same time, this is exactly the point that sharpens next year's test: how much cash actually remains after distributions, investment, and the obligations tied to the operating-footprint transition.

Efficiency, Profitability, And Competition

The most interesting part of the 2025 story sits in earnings quality, not only in the absolute level of earnings. Primotec sold less and earned less, but not in a way that points to a loss of control. The key is to understand where the pressure came from, and what it still says about the company's competitive position.

This is much more of an institutional platform than it first appears

In 2025 the institutional segment generated NIS 248.8 million of revenue, about 91% of total sales, and NIS 32.1 million of operating profit. The retail and distributor segment generated NIS 23.0 million of revenue and NIS 3.5 million of operating profit. Primotec is therefore first an institutional supplier with scale and breadth, and only then a complementary retail activity.

That also explains why the company's profit is more sensitive to tenders, logistics, delivery terms, and customer mix than to the utilization rate of any single production line. Catalog breadth, availability, and the ability to serve large institutional tenders are the real competitive edge. It is no accident that the company reports about 2,500 products, about 5,400 active customers, and about 320 suppliers. This is a network business.

That chart matters for competition too. In a business like this, the competitive question is not only who manufactures at the lowest cost. It is who can provide the broadest institutional offering, stay available, keep the product basket relevant, and price correctly when the largest customer changes pace. That is a real edge, but it does not remove the concentration risk.

Margin pressure came from customer mix, not from an operating breakdown

Institutional-segment revenue fell by about 10%, mainly because of lower Ministry of Defense orders and a decline in the medical and nursing category, while hospitality actually recovered. At the same time, the company says institutional operating profit and margin also fell because of lower sales and weaker sales margins, influenced by customer mix and stabilized purchase prices.

That is a subtle but important point. In 2024 the business benefited from both exceptional volume and a more favorable mix. In 2025, once the exceptional layer disappeared, Primotec was left with a business that was still profitable, just less fat. Gross margin fell to 38.6% from 39.6%, and operating profit fell faster than revenue. Even so, 2025 gross margin remained above the 34.4% level of 2023, so this does not look like a collapse in pricing power.

The retail segment is also more interesting than it first looks. Revenue fell by about 7%, and the company links that in part to a deliberate decision to reduce work with some customers in order to preserve profitability. So at least on the margin, 2025 was not a year of blindly chasing volume. That improves the quality of the earnings read, even if it does not solve the anchor-customer issue.

Production is not really choking the business, and that changes the whole read

Anyone looking only at the plants could assume Primotec's problem is capacity. The numbers say otherwise. At the Ofeq Klir paper plant, production fell to 1,321 tons in 2025 and capacity utilization dropped to 35% from 38% in 2024 and 43% in 2023. At the Speedy cleaning and cosmetics plant, output fell to 7,132 tons and utilization dropped to 33% from 36% and 38%, respectively. That does not look like a system hitting a production ceiling. It looks like a business whose real constraint sits in demand quality, mix, and resource allocation.

The move of the main paper activity from Ofakim to Be'er Sheva was completed by the end of January 2025, and during 2025 the company also prepared cleaning and cosmetics production areas at the Be'er Sheva site. But by the report date, production there had still not started. So 2026 is not a test of whether Primotec has enough machines. It is a test of whether it can use the footprint it already has to hold better profitability with a more normal customer mix.

Cash Flow, Debt, And Capital Structure

The easiest mistake in reading Primotec is to blur two different pictures together: net income and operating cash flow look relatively good, but the full cash picture after all uses is much less generous. In this case it makes more sense to use an all-in cash-flexibility framing, because the core question is how much cash really remains after dividends, investment, leases, and debt service.

Operating cash flow still supports earnings, but it does not tell the whole story

Operating cash flow came in at NIS 42.0 million, above net income of NIS 22.8 million. That means 2025 is not a year of accounting profit completely detached from cash. The drop in receivables to NIS 72.7 million from NIS 81.6 million and the decline in inventory to NIS 38.3 million from NIS 40.3 million also helped keep operating cash flow positive.

But that is exactly where the reader has to stop. This picture says the core business still generates cash. It does not say that a lot of cash was left after the real uses.

On an all-in basis, 2025 free cash looked very thin

In 2025 Primotec invested NIS 10.5 million in fixed assets, paid NIS 25 million in dividends, repaid about NIS 2.1 million of lease principal, and reduced bank debt by about NIS 12.7 million. Put all of that against operating cash flow and the cash picture turns negative by about NIS 8.2 million. That is exactly why year-end cash fell to NIS 3.0 million.

The picture can be softened somewhat if one includes realizations of financial assets, but that is no longer core operating cash. So the more conservative read is that the business itself still looks healthy, while the real cash cushion is much smaller than operating cash flow alone would suggest.

Debt itself does not look like the problem

The debt side actually looks quite comfortable. Short-term bank debt fell to NIS 31.2 million from NIS 41.7 million, long-term bank loans fell to NIS 2.3 million from NIS 4.5 million, and net bank debt came down to about NIS 30.5 million. Near the report date, total banking facilities stood at NIS 133.0 million, of which only about NIS 31.8 million were utilized.

The covenant picture is also wide open. Tangible equity to balance sheet stood at 65.7% against a 22% minimum, tangible equity was NIS 165.6 million against a NIS 40 million minimum, and net financial debt to EBITDA stood at 0.69 against a ceiling of 5. Even rate sensitivity is not dramatic right now: a 1% rise in prime would reduce annual net income by only about NIS 258 thousand. So 2025 is not a story of banks pressing the company into a corner. It is a story of a company that can distribute capital because the balance sheet is strong, but still has to be careful not to confuse debt headroom with excess cash.

The financing line is cleaner now, but not fully clean

Net finance expense fell sharply versus 2024, and that is clearly an improvement. Still, part of the 2025 read has to separate the business from what remained of the investment portfolio. The company says it made no new investments in 2025, only realizations. At the same time, the remaining illiquid dollar investment still created a roughly NIS 3.7 million loss.

The point is simple: 2025 earnings are cleaner than 2024 earnings, but not yet fully free of portfolio noise. If 2026 comes through without that extra layer, it will be easier to read Primotec's earnings as the true operating earnings of an institutional supply platform.

Outlook And Forward View

Before going deeper, it helps to organize four points that a quick reader can easily miss:

• 2025 was a normalization year, not a break year. The decline versus 2024 came mainly from the disappearance of unusually high defense demand, not from a general business unraveling.
• Primotec is mainly an institutional distribution platform, not a factory waiting for capacity. Falling utilization rates and the heavy weight of imports and external sourcing mean the next test is commercial and operational, not engineering.
• New tenders are not the same as hard backlog. Longer framework duration matters, but without minimum volumes the company still has to prove actual order flow.
• This is a proof year, not a debt-repair year. The balance sheet is comfortable. The question is earnings quality and cash discipline.

What has to happen for the read to improve

First, the Ministry of Defense has to remain a large customer, but not the only one carrying the story. Hospitality already helped in 2025, and now the company needs to show that industry, commerce, institutions, and medical and nursing customers can together create a less defense-heavy mix.

Second, institutional sales margins need to stabilize without emergency-driven demand. The company already says that 2025 margin pressure was shaped by customer mix and stabilized purchase prices. If 2026 brings a better civilian mix, or at least stops the margin erosion, it will be easier to argue that 2024 profitability was not just a one-off episode.

Third, capital allocation has to look disciplined. After NIS 25 million distributed in 2025 and another NIS 20 million approved after the balance-sheet date, investors now need to see that Primotec still keeps real room to maneuver. The company does not look bank-stressed, but if the cash balance continues to hover around only a few million shekels, the capital story will move quickly from "strong balance sheet" to "distribution discipline."

What could derail the read

The most immediate risk is an overly optimistic read of the tender wins. It is easy to look at the extension of the disposables framework and the new hygiene award and infer strong visibility. That is too early a conclusion. Without minimum volumes, and with the customer free to place orders as needed, what really matters is execution pace.

The second risk is that the market ignores the fact that 2025 also benefited from debt reduction and investment realizations, and focuses only on whether net income stayed above NIS 20 million. That is too partial. The more important question is whether any cash remains after distributions, investment, and the operating-footprint transition.

The third risk is that Primotec keeps carrying underutilized production infrastructure without turning it into a business advantage. If the move to Be'er Sheva remains mostly a real-estate and footprint rearrangement rather than a margin-improvement lever, it will not solve the actual bottleneck.

2026 looks like a proof year

This is not a year in which the company has to prove survival. It is already profitable, lightly leveraged, and well within bank limits. It is a year in which it has to prove three capabilities at once: earning well without exceptional defense demand, holding on to the anchor customer without leaning only on that customer, and staying disciplined on capital even though the balance sheet gives it room to distribute.

If that happens, 2025 will look in hindsight like a base-reset year. If it does not, 2025 will remain the year that showed the business is good, but less resilient than 2024 implied.

Risks

Customer concentration is higher than is comfortable

The Ministry of Defense and the IDF represented 35.8% of company revenue in 2025. That is not just a large number. It is also a number that has to be read correctly: this is not backlog in the project-finance sense, but a more open framework-order structure. So tender wins and extensions do not remove the dependency. They only soften it.

FX exposure and sourcing costs

Roughly 53% to 55% of procurement in recent years was denominated in foreign currency, mainly dollars and euros. The hygiene tender includes a partial price-update mechanism, and the company held a small dollar investment at year-end, but that is not a full hedge for the procurement model. If FX moves against the company, the pressure goes straight into margin.

The operating footprint is still in motion

The paper-plant move to Be'er Sheva has been completed, but the cleaning and cosmetics production areas prepared there were still not operating by the report date. At the same time, a claim for evacuation was filed around the Speedy site at the end of 2025 over alleged construction deviations, and the company itself says that an earlier move would require meaningful transport and preparation costs. The compensation dispute around the vacated Ofakim site is also still ongoing, even if management does not expect a material effect. This does not look existential right now, but it is a real friction point.

Shinzon remains a small but real question mark

Shinzon's goodwill, NIS 4.8 million, was not impaired in 2025 even though the activity continues to post operating losses. The impairment test relied on a value-in-use model with a 19.95% pre-tax discount rate and early-year revenue growth assumptions of 7.6% and 15%. That does not force an immediate write-down, but it does mean there is still an optimism layer that has not yet been fully proven.

Thin tradability

With low daily turnover and negligible short interest, investors do not get a rich market signal here. As a result, any mispricing, positive or negative, can stay in place for longer than it would in a more liquid name.

Bottom Line

Primotec exits 2025 as a profitable company with a comfortable balance sheet and an institutional supply platform that still works without the exceptional conditions of 2024. What supports the thesis is a strong fourth quarter, debt that is nowhere near stressed, and continued access to Ministry of Defense tenders. What blocks a cleaner thesis is that the largest customer is still very large, the tender frameworks are not hard backlog, and the cash balance looks far less comfortable after all real uses.

In the short to medium term, the market will focus less on whether Primotec can earn money at all and more on whether 2025 was a healthy normalization year or the start of a longer earnings fade. That is the heart of the story. If the company shows that it can preserve good margins and still leave cash in the business without the defense-order spike, the read improves. If not, 2024 will look in hindsight like a year that is simply hard to repeat.

The current core thesis is that Primotec has gone back to looking like a more normal institutional supply business after an exceptional year, and that business still knows how to earn money. What changed versus the 2024 read is that proof will no longer come from a defense tailwind. It will have to come from earnings quality and from the ability to broaden the civilian base at least somewhat. The strongest counter-thesis is that this caution is unnecessary because the company has already shown it can stay profitable, it lengthened its Ministry of Defense frameworks, and the balance sheet gives it room for generous capital returns without real stress. That is a serious argument, but it still needs to be proven across a few ordinary quarters.

What could change the market read in the short to medium term is a combination of three signals: maintaining real order flow from the Ministry of Defense without pretending it is hard backlog, showing that hospitality, industry, commerce, and institutions can replace part of the gap, and proving that cash remains after dividends, CAPEX, and the operating transition. Why does that matter? Because in Primotec the value is not determined only by how much it sells, but by how much of that profit is actually accessible to shareholders after all the friction and all the real cash uses.

Over the next 2 to 4 quarters, the company needs to show stable institutional margins, operating cash flow that continues to support earnings even after distributions, and orderly execution of the footprint transition. What would weaken the thesis is renewed margin erosion, even deeper dependence on the main customer, or a situation in which dividends look more generous than the cash left in the company.