Elspec: How much of 2025 was FX and how much was business

The main article argued that Elspec’s 2025 headline looked weaker than the underlying business. This follow-up isolates one question only: how much of the damage was real business weakness, and how much was simply the same business being translated into fewer shekels. This filing allows a sharper answer than usual because management gives both an explicit estimate for FX damage to revenue and profit before tax, and formal sensitivity tables that show how much dollar and euro exposure still remains in the numbers.

The short answer is fairly blunt. On revenue, 2025 was not only an FX year. Out of an ILS 8.35 million decline versus 2024, management attributes about ILS 4-5 million to FX. That means roughly half to three-fifths of the drop came from currency, while the rest still looks like real business weakness. On profit before tax, the picture is more extreme: the decline was ILS 5.474 million, while management’s FX estimate stands at ILS 5-6 million. Put simply, almost the entire drop at that line can be explained through FX.

That distinction matters for the 2026 read. Elspec did suffer genuine business weakness in 2025, especially in systems and in target markets in Europe. But the magnitude of the damage at the bottom of the income statement was much larger than the business deterioration alone, because FX hurt not only revenue translation but also margins and the finance line.

Where FX Ends And The Business Begins

To read 2025 properly, two different questions have to be separated: what happened to revenue, and what happened to profit before tax. They are not the same story.

This table is the core of the continuation. On revenue, it would be wrong to say that 2025 was only about currency. There is still a few million shekels of business damage left after stripping out the management FX estimate, and that fits well with the 14% decline in the systems segment and the 3% decline in measurement, alongside slower wind and automotive demand in Europe. But on profit before tax the story almost flips. There, the FX estimate nearly overlaps the entire decline.

That changes the correct reading of the year. The activity did weaken, but not on the same scale that the pre-tax line alone may suggest. In that sense, 2025 was both a weaker business year and an FX year, just not with the same weight.

The chart shows why management’s estimate does not look excessive. The dollar weakened by about 12.5% against the shekel during 2025 and by 6.7% on an annual average basis. The euro weakened by 1.3% by year-end and 2.7% on an average basis. For a company where 95% of sales are exports, and management says about 60% of revenue is denominated in dollars and about 35% in euros, that is not background noise. It is a direct hit to reported shekel revenue.

FX Hit Three Different Layers, Not One

The simplistic read is that FX only translated the same sales into fewer shekels. That is true, but incomplete. In 2025 FX hurt Elspec through three different layers.

The first layer is revenue translation. This is the easiest one to see: most sales come from abroad and are denominated mainly in dollars and euros, while the group’s functional and presentation currency is the shekel. So even if the customer paid the same price in the original currency, the reported shekel revenue still shrank.

The second layer is profitability. The company says explicitly that cost of sales was also affected by the gap between exchange rates at the time inventory was purchased and the rates at the time of sale. That is no longer only a translation issue. It is transaction economics. When inventory and part of the input base are bought at one set of rates while revenue is recognized under weaker translation, margin pressure becomes real. That is why management can reasonably estimate a ILS 5-6 million FX hit to profit before tax, which is larger than the ILS 4-5 million hit to revenue.

The third layer is financing and foreign-subsidiary translation. Net finance moved from income of ILS 168 thousand in 2024 to expense of ILS 1.150 million in 2025, with the explanation tied to shekel strength against the dollar and euro and the revaluation of monetary balances. At the same time, the foreign-operations translation component in other comprehensive income deepened to a loss of ILS 882 thousand versus ILS 118 thousand in the prior year. In other words, FX did not stop at sales. It flowed into financing and equity as well.

The company also does not present a hedge program that smooths a year like this. It speaks about sales-price adjustments where possible, non-accounting spot hedges with immaterial cost, and a natural hedge because part of raw materials and subcontractor expense is also denominated in dollars and euros. That is not “no hedge,” but it is also not a full protective layer against a sharp FX year.

Why The Sensitivity Tables Do Not Contradict Management’s Estimate

This is one of the less obvious points in the filing. The end-2025 sensitivity tables show that a 10% change in the dollar would move profit before tax by ILS 1.666 million, while a 10% change in the euro would move it by ILS 896 thousand. A reader who stops there may think those figures are too small relative to management’s ILS 5-6 million FX estimate. That would be the wrong read.

The reason is simple. The sensitivity tables test the exposure at the year-end balance-sheet date, assuming all other variables stay constant. They are not trying to recreate everything that happened through 2025. They do not capture the full-year translation of sales, they do not capture the inventory timing effect between purchase rates and sale rates, and they do not capture all of the income-statement and consolidation dynamics that ran through the year. They are a point-in-time question. Management’s estimate is a full-year operating question.

Put differently, these are two different numbers measuring two different things. One asks how much year-end exposure is still left. The other asks how much the year already suffered from FX in practice.

The chart still tells an important story of its own. Year-end FX sensitivity increased versus 2024 in both currencies, and especially in the euro. So even after a difficult 2025, Elspec did not exit the year with a trivial currency exposure. Dollar and euro moves can still materially shift profit before tax from the 2026 starting point.

So How Much Of 2025 Was Business

The precise answer is that 2025 revenue was a mix of FX and weaker business, while profit before tax looks largely like an FX year. That is not the same thing.

On the business side, the weakness was real. Both segments declined, especially systems. The reasons management gives include slower wind and automotive markets in Europe, and also the US tariff program, even though the direct tariff impact during the reporting period was defined as not material. So anyone trying to explain all of 2025 through exchange rates alone would miss what happened to demand.

On the profit side, it is hard to ignore that management’s ILS 5-6 million FX estimate is almost identical to the actual ILS 5.474 million drop in profit before tax. That does not prove that the business itself did not weaken. It does prove that the gap between the headline and the economic reality of the year ran through currency.

The right way to hold both truths at once is straightforward: 2025 was a weaker revenue year, but the pre-tax line looked especially weak because FX added another layer of damage. If end markets do not recover in 2026, Elspec will still struggle. But if FX stabilizes, reported results can look cleaner even without a dramatic business rebound.

Bottom Line

This continuation does not end with “it was all FX.” That would be too convenient, and it would not be correct. On revenue, there is still a real business shortfall of about ILS 3.35-4.35 million after stripping out management’s FX estimate. But on profit before tax, the conclusion is much sharper: almost all of the 2025 decline looks like FX.

That matters because small industrial exporters are often read through the bottom line first. In Elspec’s case, 2025 was a weaker business year, but it was also a currency year that greatly amplified the size of the reported damage. So the core 2026 question is twofold: does the business itself stabilize, and does FX stop working against it at the same intensity. If only one of those happens, the picture will still be mixed. If both happen together, 2025 may look in hindsight like a year that was bad mainly in the way it translated into shekels.