Birman: The Funding Model Behind The Inventory

Where the funding model actually sits

The main article already established that Birman’s cash remains trapped in inventory and working capital, and that short-term credit is the active bottleneck. This follow-up isolates the mechanism behind that picture: Birman is not only selling panels, hardware and appliances. It is selling availability. To sell availability it carries broad inventory, gives customers time, pays suppliers faster than customers pay it, and lets the banks fund the gap.

This is not a solvency thesis. The company says it has no bank covenants, no personal guarantees from controlling shareholders, and sufficient access to financing sources. But the quality of funding is tighter than the headline suggests. Out of NIS 242.2 million of interest-bearing debt at the end of 2025, NIS 238.1 million already sits inside current liabilities, and only NIS 4.1 million remains beyond one year. At the same time, cash stood at just NIS 244 thousand, and the company explicitly says that during the period it did not usually hold cash balances or deposits as policy.

Four findings frame this funding model:

• First: inventory fell to NIS 161.1 million from NIS 166.1 million, and inventory days improved to 237 from 273. That is a real improvement, but it still leaves the company carrying a very heavy asset base in order to support service levels.
• Second: purchases from suppliers rose to NIS 215.3 million from NIS 188.7 million, yet trade payables fell to NIS 17.5 million from NIS 19.3 million, and supplier days dropped to 27 from 33. The growth was not financed by suppliers.
• Third: the company reduces part of its FX exposure through faster supplier payment and short-dated forward contracts, but that very choice keeps supplier credit short and pushes the working-capital burden onto the banks.
• Fourth: 86% of Birman’s financial liabilities are floating-rate, and a 1% move in the variable rate would add about NIS 2.0 million of annual finance expense. That is not side noise. It is part of the model.

Inventory is not a mistake. It is the product

Birman does not carry large inventory because it lost control. It carries large inventory because that is the core of its commercial promise. The company says explicitly that its inventory policy is based on holding broad and available stock so it can supply customers continuously and quickly, and that the long production and shipping cycle from overseas requires it to hold significant inventory in its logistics center.

At year-end 2025 inventory stood at NIS 161.1 million. Out of that, NIS 121.8 million was purchased goods and merchandise, NIS 19.2 million raw materials, NIS 625 thousand auxiliary materials, and another NIS 19.5 million goods in transit. Average inventory during the year was NIS 172.4 million. In other words, the balance sheet is not holding spare shelf stock. It is holding service infrastructure.

The more important detail is that this is not seasonal or fragile inventory. The company explains that most products are made of wood, metal and plastic and can be stored for years, and that most are not exposed to fashion or seasonality. That is exactly why the availability model can work. But the same feature can also lull the reader into the wrong conclusion. Inventory that does not spoil quickly still consumes funding.

This is where the audit layer matters. The external auditor defined the existence and valuation of inventory as a key audit matter because of the size of the balance and because the related provision is a critical estimate. The slow-moving inventory provision rose to NIS 9.9 million from NIS 8.7 million. Under Birman’s policy, an item held for more than 365 days with annual usage below 15% is reviewed further, and items aged 4 to 5 years are generally classified as slow-moving. So the risk is not only whether inventory exists. It is whether the mix stays commercially alive.

There is also a less obvious layer here. Birman describes arrangements in which it holds inventory in its warehouses against a customer commitment to order over several months, while revenue is recognized only upon final delivery. That means even inventory with a committed customer behind it can remain funded by Birman until the actual exit point.

This chart shows the core issue. Inventory days did improve meaningfully. But that improvement is not enough when customers still take time and suppliers no longer provide much of it.

Customers buy time, suppliers mostly do not provide it

The other side of availability inventory is receivables. Trade receivables rose to NIS 149.1 million in 2025 from NIS 143.9 million, and the annual average rose to NIS 148.2 million from NIS 137.0 million. Customer credit days edged down to 123 from 127, but that is still a very long cycle for a business selling in local shekel terms. The company also says receivables are not insured by credit insurance, and that most customers pay mainly through post-dated checks. About 46% of receivables are backed by personal guarantees, and the expected-credit-loss provision fell to NIS 2.7 million from NIS 8.6 million. That suggests the issue here is not necessarily customer quality. It is the time the cash remains outside the company.

Now compare that with the supplier side. In 2025 supplier days fell to 27 from 33, even though purchases from suppliers rose 14.1% to NIS 215.3 million. Trade payables and service payables fell to NIS 17.5 million from NIS 19.3 million, and open foreign-currency supplier balances fell to NIS 10.8 million from NIS 12.0 million.

This is not accidental. Birman explains that a meaningful part of imports from Asia and China is paid in cash in advance or through upfront payment plus a bill of lading, while suppliers from Europe, the US and South America usually provide 60 to 150 days of credit. But then it adds the critical point: for pricing and commercial-positioning reasons, the company often pays a meaningful part of its suppliers in cash even when they are not in Asia or China, in exchange for higher availability or supplier discounts.

That is the core of the model. Birman is effectively buying availability and sometimes better procurement economics, but part of the price is paid in time. The faster the company chooses to pay in order to secure supply, discount or FX control, the less supplier funding it keeps and the more of the working-capital burden it pushes onto the bank.

Banks close the gap

This is where the funding structure has to be read without softening it. At the end of 2025 the company had NIS 355.0 million of non-binding bank credit facilities, including guarantees, against NIS 242.8 million of utilization. But the facilities are explicitly non-binding and can be changed by the banks at any time. So this is a usable cushion, not a contractual one.

Inside that utilization there was NIS 214.9 million of short-term bank credit, NIS 23.3 million of current maturities of long-term loans, and another NIS 6.4 million of short-term foreign-currency loans. Against that, non-current bank loans were only NIS 4.1 million. In practice, nearly the whole interest-bearing funding layer already sits inside the next 12 months.

The chart shows why the slight decline in total debt does not really change the picture. Total interest-bearing debt fell to NIS 242.2 million from NIS 250.0 million, but duration remained extremely short. Even by the board report’s own metric, loans and bank credit equaled about 62.6% of total assets. This is no longer just seasonal support for working capital. It is a central funding layer of the business model.

Two liquidity datapoints also need to be read together: the current ratio fell to 1.15 and the quick ratio stayed at 0.56. On a standalone basis that is not automatically alarming. Together with the policy of not holding cash balances, and with NIS 238.1 million of financial debt already sitting in current liabilities, it means actual liquidity is built around bank access, not around cash on hand.

Cash flow supports the same reading. Operating cash flow was NIS 36.1 million in 2025, but financing cash flow was negative NIS 34.1 million, and year-end cash remained only NIS 244 thousand. In other words, the business does generate operating cash, but it retains almost no comfort layer.

Rate and FX risk are part of the model, not a side note

Anyone who reads Birman only through inventory and receivables misses the third leg of the story: rates and FX. The company says all sales are in shekels, while all products are imported and mainly denominated in US dollars and euros. In 2025 supplier payments were 58% in dollars and 42% in euros. The board report says Birman used short-dated forward contracts during the year, and also tends to pay cash to a meaningful part of suppliers in order to reduce open liabilities.

The point is not simply that there is FX exposure. The point is how Birman chooses to manage it. At the report date it had forward contracts to buy only USD 1.0 million and EUR 300 thousand. That is a short-dated and partial hedge layer, exactly as management describes it. Much of the remaining exposure is dealt with operationally through faster supplier payment and through rolling bank lines.

Rates matter no less. 86% of the company’s financial liabilities are floating-rate, and a 1% move in the variable rate would add roughly NIS 2.0 million of annual finance expense. In 2025 Birman had NIS 208.5 million of prime-based short-term bank credit, and the board report says the company recorded NIS 12.3 million of net finance expense on those balances. In parallel, Note 16’s sensitivity table shows that a 10% rise in the dollar would reduce pre-tax profit by about NIS 700 thousand, while a 10% rise in the euro would reduce it by about NIS 539 thousand.

The right conclusion is not that FX is bigger than rates or the other way around. The point is that Birman runs a model in which part of the operational hedge, faster supplier payment, increases dependence on short-term bank funding. That is why supplier policy, FX management and funding structure cannot be separated.

Bottom line

Birman is not stuck with inventory because of a one-off mistake. This is the economics of the model. The company carries large inventory in order to sell availability, gives customers relatively long credit, chooses to pay suppliers faster to secure supply and discounts, and then uses bank lines to bridge the gap.

The good news is that there is no immediate covenant edge, no personal guarantees, and inventory days did improve. The less comfortable news is that the funding layer barely changed: almost all debt remains short-term, most of it is floating-rate, and the cash box stayed almost empty even at the end of a year with positive operating cash flow.

That makes the 2026 test straightforward. If Birman shows further reduction in customer days, stable inventory quality and an actual decline in short-term bank credit, the model will look more resilient. If sales keep growing while supplier days remain low and cash remains near zero, any new rate, FX or supply-chain shock will flow straight back into finance expense.