Rekah Follow-up: Where Working Capital Is Stuck and What the Shelves Are Telling You

The main article argued that Rekah exited 2025 with weaker cash generation, compressed profitability, and greater dependence on large customers. This follow-up isolates where that pressure is actually sitting: on the shelves. The question here is not whether Rekah can manufacture or source product. The question is how much cash remains tied up when inventory grows faster than forward visibility.

Three points frame the issue immediately:

• The problem is in finished goods, not in raw materials. Finished-goods inventory rose to NIS 52.0 million, up 32.8%, while raw materials and packaging fell to NIS 26.6 million, down 25.8%.
• Hard forward visibility weakened, not improved. Binding backlog for 2026 fell to NIS 29.4 million from NIS 47.2 million a year earlier, with declines in every quarter of 2026.
• Q4 did not release the pressure. Revenue barely moved, but gross profit fell 16% and gross margin compressed to 21.2% from 25.5% in the comparable quarter.

Where It Is Actually Stuck

The number that sharpens the picture is operating working capital. It rose in 2025 to NIS 120.7 million from NIS 113.2 million in 2024. That was not driven by receivables running away. Net receivables were almost unchanged at NIS 127.3 million versus NIS 126.5 million. In other words, the cash did not get trapped mainly at the customer line. It got trapped in inventory.

The composition matters more than the headline. On the consolidated balance sheet, total inventory rose to NIS 91.0 million, but the move was highly uneven: finished goods jumped by NIS 12.9 million, lottery-ticket inventory rose by NIS 4.8 million, and raw materials and packaging fell by NIS 9.3 million. Even after stripping out the special segment the way the company does in the working-capital section, inventory still rose to NIS 82.3 million from NIS 78.6 million, and almost all of that increase came from finished goods.

That leads to the key analytical conclusion. If raw materials are down while finished goods are up, this is no longer only a safety-stock story or a supply-chain hedge. It is a sell-through story. The inventory has already moved through the cycle: it has been produced or purchased, and it is now waiting to become revenue.

That does not automatically mean the inventory is impaired. The company explicitly says imported items require higher inventory months because of longer delivery times, and that finished goods are produced against existing demand, with most of that inventory expected to be sold within the coming year. Product shelf life also runs three to five years, about four years on average. That is the strongest counter-thesis here: the shelves may look heavy, but management still frames the inventory as fundamentally healthy and built to preserve availability. The point is that this explanation cannot be read in isolation. It has to be tested against the rest of the evidence.

The Shelves Got Heavier As Forward Visibility Weakened

The uncomfortable signal is not just the inventory line. It is the meeting point between inventory and forward visibility. Binding backlog for 2026 fell to NIS 29.4 million from NIS 47.2 million a year earlier. That is a 37.7% decline, and it is not concentrated in one weak quarter. It is spread almost evenly across the year: NIS 11.6 million for Q1 2026 versus NIS 18.6 million a year earlier, NIS 8.3 million versus NIS 13.3 million for Q2, NIS 4.2 million versus NIS 6.7 million for Q3, and NIS 5.3 million versus NIS 8.6 million for Q4.

That is the core tension. If inventory had increased alongside a growing binding backlog, it could be read as preparation for demand. Here the opposite is happening: shelves are fuller while the amount of hard committed demand entering 2026 is lower.

There is also a disclosure nuance that matters. The company says most private-market orders are generated on an ongoing consumption basis rather than in advance. It also says framework agreements with Maccabi and Meuhedet are not treated as binding backlog until purchase orders are actually issued, even though management views realization as highly likely. So it would be wrong to say the inventory has no demand support. But it is fair to say that the portion backed by hard committed orders is materially smaller than it was at the end of 2024. Put differently, a larger share of working capital now rests on management’s view of demand and order flow rather than on hard contractual visibility already recorded in backlog.

That matters because it changes the quality of the inventory, not just its size. Inventory backed by hard backlog is mostly waiting for execution. Inventory backed more heavily by ongoing consumption, renewed orders, and non-binding frameworks depends more on real sell-through and on the company’s ability to protect margin while moving product.

Q4 Did Not Offer A Release Valve

If shelves had become heavier ahead of an accelerating quarter, the market could be more patient. But the Q4 section points in the opposite direction. Revenue was essentially flat at NIS 76.9 million versus NIS 76.2 million a year earlier. On the surface, that looks stable. Underneath, cost of sales rose to NIS 60.6 million from NIS 56.7 million, gross profit fell to NIS 16.3 million from NIS 19.4 million, and gross margin compressed to 21.2% from 25.5%.

Management’s explanation is that production output in Q4 was lower, partly because of shortages in material availability. That matters, because it suggests the margin erosion was not caused by a collapse in demand. But it does not solve the working-capital problem. It arguably makes it more important. If Q4 closed with weaker gross profitability and a NIS 2.5 million operating loss, there is no year-end signal here of inventory being cleared rapidly and at better economics. The year instead ends with heavier shelves and weaker unit economics on the conversion of those shelves into revenue.

That leads to an important distinction. Some of the inventory build may well reflect a difficult supply environment rather than weak demand. But once inventory does not move out with stronger margin support, the logistical explanation stops being sufficient. The market will look less at why inventory arrived there and more at how quickly it turns back into cash, and at what economic cost.

Why This Rolled Straight Into Cash

Annex A to the cash-flow statement makes the point directly. In 2024 inventory released NIS 14.1 million of cash. In 2025 it absorbed NIS 8.5 million. That alone explains a large part of the drop in net cash generated from operating activities, which fell to NIS 12.9 million from NIS 26.5 million. It is also notable what did not happen: receivables released NIS 0.7 million, versus an NIS 8.5 million drag in 2024. So the operating cash deterioration was not driven by customers. It was driven mainly by inventory.

And that is before other recurring cash uses. If operating cash is tested against two recurring operating uses, NIS 7.0 million of capital expenditure and NIS 7.5 million of lease-principal payments, the picture is already tight: NIS 12.9 million of operating cash did not cover those two items together. Add another NIS 2.2 million of contingent-consideration payments, and it becomes clear how much the heavier shelves narrow flexibility even before re-entering the broader debt and funding discussion.

The evidence still needs to be handled carefully. The report does not currently show clear proof of broken inventory or large write-downs on the way. But the direction of change in inventory quality is less comfortable than it was a year earlier: 2025 included roughly NIS 664 thousand of inventory write-down expense, whereas 2024 had included roughly NIS 914 thousand of write-down reversals. That is not a balance-sheet shock by itself, but it is not the same trend.

What Has To Be Proven Next

From a 2026 perspective, the story is simpler than it first looks. Rekah does not need to prove that the inventory exists. It needs to prove that the inventory turns. Three signs need to appear together for the year-end 2025 shelves to look like temporary noise rather than a genuine working-capital blockage.

The first is a decline in finished goods without hurting product availability. If finished goods do not start to fall in the next reports, it will be difficult to argue that the build was only transitory. The second is a recovery in gross margin, because clearing inventory through discounts, promotions, or absorbed production inefficiencies does not solve the issue. It only replaces high inventory with weaker profitability. The third is a recovery in operating cash flow that comes from inventory normalization itself, not only from one-off items or temporary relief in receivables.

The bottom line in this follow-up is blunt. In 2025 Rekah’s working-capital problem did not get stuck mainly in customer credit, and it did not get stuck mainly in raw materials waiting for production. It got stuck on the shelves. Until the company shows that this inventory can turn again at a reasonable pace and with better economics, the shelves will keep telling a less comfortable story than management’s framing: less a pure availability buffer, more cash waiting to leave the warehouse and become revenue.