Gaon Holdings: How Neot Hovav and Working Capital Are Eating the Cash
Gaon Holdings did generate operating cash in 2025, but NIS 34.7 million was absorbed by working capital and another NIS 39.0 million went into fixed assets. Neot Hovav may eventually save NIS 7 to 9 million a year, but for now the cash pressure looks much broader than a single project.
The main article made one point clearly: profit improved, but cash did not follow at the same speed. This continuation breaks that gap into two very different engines. One is working capital, money tied up in customers, inventory, and other operating balances. The other is Neot Hovav, an operational move that looks strategically sensible but still consumes cash before it delivers savings.
That distinction matters because not every cash drag should be read the same way. If the pressure mainly comes from a project with a defined budget and visible future savings, a bridge year is manageable. If the pressure comes from a pattern in which revenue rises together with inventory, receivables, and short-term credit, that is much closer to a structural cash appetite.
Gaon Holdings did not stop generating cash in 2025. On the contrary, cash flow from operations reached NIS 45.3 million against net profit of NIS 33.9 million. The problem is that this was not cash left available after real uses. Working capital absorbed NIS 34.7 million, purchases of fixed assets consumed another NIS 39.0 million, and lease payments took a further NIS 14.2 million. So the right discussion is not whether cash flow existed, but whether enough of it remained after the actual cash uses of the year. It did not.
Working Capital Is Where the Deeper Answer Sits
The interesting point is the reversal, not only the 2025 absolute number. In 2023 working capital released about NIS 49.9 million. In 2024 it still released about NIS 31.6 million. In 2025 it absorbed NIS 34.7 million. That is not just quarter noise. It is a NIS 66.3 million swing versus 2024, and when that happens at the same time as short-term borrowing rises, it is hard to dismiss as accounting volatility.
That picture says something simple: this was not one line item breaking. Several balance-sheet lines moved against cash together. Receivables increased, inventory increased, and the other receivable balances increased as well. The offset on the other side was limited. Suppliers added about NIS 4.8 million and other payables plus customer advances added another NIS 2.3 million, but that was nowhere near enough to neutralize the pressure on the asset side.
Receivables, This Is a Real Yellow Flag
Trade receivables rose to NIS 248.9 million from NIS 225.9 million at the end of 2024. Management ties that increase to the scale and timing of sales, the mix of customer credit terms, and also to the first-time consolidation of TMNG in the amount of about NIS 11.5 million. That matters, because it means not all of the increase came from a deterioration in organic collections. Part of it came with the broader group perimeter.
Even after that adjustment, though, collection quality looks less clean. Past-due receivables rose to NIS 38.4 million from NIS 29.4 million a year earlier. Out of that amount, NIS 33.7 million was already more than 120 days overdue. That does not prove the cash is lost, and the company explicitly says that based on past experience and the debtors' credit quality it saw no need for an additional allowance. Still, this is a clear checkpoint: when overdue balances rise and the expected credit loss allowance actually declines by NIS 0.5 million to NIS 14.3 million, investors cannot rely only on a broad statement that everything remains collectible.
In plain business terms, receivables no longer look only like a byproduct of growth. They look like part of the financing layer that the balance sheet is extending to the activity. If that balance starts to come down in 2026, 2025 can be read as a bridge year. If not, it becomes evidence that the group needs more capital to carry the same activity level.
Inventory, The Issue Is Not Only Size but Mix
The company explains the inventory increase, from NIS 257.7 million to NIS 278.4 million, as preparation for the realization of order backlog. That is a reasonable explanation, but the inventory mix makes the story more interesting. Raw materials actually fell by NIS 36.0 million, while finished goods rose by NIS 42.6 million and commercial inventory rose by NIS 15.8 million. In other words, the cash did not get stuck mainly at the front end of the chain. It moved deeper into the conversion process, where inventory is already much closer to sale or delivery.
That distinction matters. If inventory had mainly grown in raw materials, it would have been easier to frame the build as a procurement cycle or an input-cost issue. When the increase sits in finished goods and commercial inventory, the test shifts to the speed of conversion into revenue and collections. That makes 2025 look less like a temporary purchasing bulge and more like a year in which the company had to finance near-sale inventory until the market and the customers absorbed it.
There is also an explicit financing layer here. At the end of 2025 the consolidated companies had documentary letters of credit for inventory purchases of about NIS 14.4 million. That is lower than the prior year, but it still shows that inventory is not just an accounting line. It consumes financing capacity, so if inventory remains high, the pressure on funding sources remains high as well.
Neot Hovav, A Sensible Operating Move That Still Sits on Cash
This is where timing and economics need to be separated. The additional 84 dunams at Neot Hovav do not look like a vanity project. The group received the land to expand the footprint next to the existing steel plant, the site-preparation budget stands at about NIS 38 million, and within that amount NIS 19 million for land and initial development had already been fully paid, while another roughly NIS 9 million had been paid for development work. At the same time, the plan also requires the construction of a 5,000 square meter logistics center at an estimated cost of about NIS 22 million.
The comforting part is that the project comes with explicit operating logic. The company estimates that use of the additional area will save rent and logistics costs in the range of NIS 7 to 9 million a year. So unlike working capital, this is not money disappearing without a story. It is an investment that is supposed to replace recurring external cost with a more efficient asset base.
At the current stage, though, Neot Hovav is still a cash consumer, not a cash returner. Net investing cash flow in 2025 was negative NIS 35.7 million, and purchases of fixed assets alone totaled NIS 39.0 million. The company explicitly links the increase in short-term bank credit, from NIS 226.6 million to NIS 258.6 million, both to working-capital financing and to fixed-asset investments, including the purchase of the additional 84 dunams. That is the important bridge between the two parts of the story: Neot Hovav is not the only explanation for cash pressure, but it is clearly part of why the company could not absorb the working-capital build without leaning more heavily on short-term funding.
This is also where the difference between temporary and structural pressure becomes clearer. Neot Hovav looks temporary in form: it has a defined budget, a stated use case, and a stated annual saving. Working capital looks more structural: it rises with activity, sits in receivables and inventory, and requires repeat funding as long as the cash conversion cycle does not shorten.
What Has To Change for This to Look Temporary Rather Than Embedded
The cautious reading is that 2025 included two things at once. On one hand, the group invested in an asset that could lower costs later. On the other hand, it financed day-to-day activity with more cash and more short-term credit. So the answer to whether this is temporary or structural is not binary.
The temporary piece: Neot Hovav. As long as the project keeps moving according to plan and the NIS 7 to 9 million annual savings genuinely start to appear, 2025 can be read as a year that carried future cost efficiency.
The more structural-looking piece: working capital. Higher inventory, higher receivables, longer-dated overdue balances, and higher short-term credit already look like an operating model that consumes more capital, not just one project that weighs on a few quarters.
The 2026 decision point: if Gaon Holdings shows lower inventory, lower overdue receivables, and stabilization in short-term credit, it will be easier to say the balance sheet was only bridging a transition. If Neot Hovav continues to progress while working-capital lines remain stretched, the market will have to read the issue as something deeper than project timing, namely a business model with a higher ongoing cash appetite.
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