Novolog in the First Quarter: Cash Returned Through Working Capital, Logistics Still Has a Gap to Close
Novolog opened 2026 with positive operating cash flow and a higher cash balance, but the quarter still does not prove a clean logistics recovery. Managed activity fell, adjusted EBITDA declined even after excluding Operation Roaring Lion, and short-term bank credit became part of the story again.
Novolog delivered part of what investors needed to see after 2025: cash increased and operating cash flow turned positive, but logistics has not yet returned to a run-rate that allows the SAP disruption to be treated as closed. Consolidated revenue was almost unchanged year over year, while the jump versus the fourth quarter mainly reflected a shift in the private-market sales segment that does not lift gross profit in the same way. Managed activity fell 4.5%, and logistics adjusted EBITDA fell 43.8%, or 30.7% even after excluding the effect of Operation Roaring Lion. On the positive side, selling, general and administrative expenses fell and consolidated operating profit rose to NIS 5.1 million, so real efficiency work is already visible. The blocker is the quality of the recovery: positive cash flow came mainly through working-capital and supplier movements, while average short-term bank credit rose to NIS 64.3 million. The quarter therefore improves liquidity, but it does not yet close the business question raised in the previous logistics analysis: whether logistics is returning to stable volume, service quality and EBITDA, or merely moving from a crisis quarter into a bridge year. In the next reports, the consolidated revenue headline will matter less than whether managed activity, EBITDA and cash flow after all actual cash uses improve together.
Company Setup
The group operates across three healthcare service areas: pharma and life-sciences logistics, home and institutional healthcare services, and digital tools for physicians, clinics and patients. This is not a regular service company where reported revenue tells the whole story. In logistics, part of the activity is structured so that institutional customer sales are reflected through customers and suppliers on the balance sheet, while the income statement captures mainly the commission. That makes managed activity, working capital and supplier credit almost as important as reported revenue.
The economic machine is a mix of margin and working capital. When logistics works well, pharma suppliers fund a large part of the turnover, customers pay, and the company earns commissions, adjacent services and operating leverage. When service quality is hit, as it was after the 2025 SAP rollout, the damage does not stop at the revenue line. It reaches managed volume, customer confidence, exceptional expenses, litigation and short-term funding needs.
In the first quarter of 2026, the company no longer looks like a business in acute operating distress. It ended the period with NIS 163.2 million of cash, no ordinary long-term financial debt on the balance sheet, and digital remains profitable. That is still not enough to call 2026 a recovery year. Logistics is still the largest division, and it still determines whether the group generates recurring cash or merely manages a large turnover base with a narrow margin.
Logistics EBITDA Still Has Not Closed the SAP Gap
The comfortable headline is that consolidated revenue was NIS 505.8 million, almost unchanged from NIS 506.9 million in the comparable quarter, and operating profit rose from NIS 3.4 million to NIS 5.1 million. That picture is not wrong, but it is not the most important one. The 2025 comparison quarter still included NIS 12.2 million of exceptional SAP implementation expenses, so a comparison based only on operating profit flatters the current quarter.
The metric that brings the discussion back to the operating core is adjusted EBITDA, the non-IFRS measure the company uses to manage its divisions. Here the recovery is incomplete. Consolidated adjusted EBITDA fell from NIS 33.6 million to NIS 24.4 million, a 27.4% decline. Even after excluding the estimated NIS 4.9 million impact of Operation Roaring Lion on logistics and healthcare together, adjusted EBITDA was NIS 29.3 million, still down 12.7% year over year.
The sharpest gap is in logistics. Revenue in the division slipped slightly to NIS 445.7 million, but managed activity fell 4.5% to NIS 1.80 billion. That matters because the company has already explained that reported revenue is affected by gross-versus-net treatment and customer segment mix, so managed turnover is the better indicator of volume flowing through the system. If that volume is still declining, the issue is not only whether a technical failure was fixed, but whether the activity base has returned to its former level.
Management points to two external impacts in the quarter: a NIS 2.4 million logistics hit from Operation Roaring Lion, mainly in sterilization, clinical trials and biomed services, and a NIS 1.5 million consolidated gross-profit hit from dollar weakness. Those explanations are relevant, but they do not erase the problem. Even after excluding the operation, logistics adjusted EBITDA fell from NIS 18.5 million to NIS 12.8 million. The quarter offers evidence of operating stabilization, not proof that logistics profitability has returned to a normal base.
Cash Returned Through Suppliers and Short Credit
The best news in the report is cash. Operating cash flow was NIS 62.0 million, compared with negative NIS 109.6 million in the comparable quarter. After NIS 11.0 million of investing cash outflow and NIS 14.6 million of financing cash outflow, all-in cash flexibility after actual cash uses was about NIS 36.4 million before exchange-rate effects and asset-held-for-sale classifications. That is a real improvement versus 2025, when annual operating cash flow was almost zero.
Still, this is not normalized cash generation that can be carried straight into a full-year view. The cash-flow appendix shows that the quarter relied on a NIS 312.2 million increase in suppliers, against a NIS 226.1 million increase in customers and a NIS 28.1 million increase in inventory. In other words, suppliers funded part of the cash rebound, not only operating profit. That is natural in the company's logistics model, but it also means the continuation of the improvement depends on collection timing, activity mix and the ability to preserve supplier terms without stretching short-term credit.
The number that sharpens the point is average bank credit: NIS 64.3 million in the quarter, compared with only NIS 31 thousand in the comparable quarter and NIS 5.8 million on average in 2025. The company describes this bank funding as short term, usually 10 to 20 days, so this is not a long-term debt problem. But against an investor presentation that emphasizes a strong balance sheet with no debt, it is important to separate a relatively clean quarter-end balance sheet from higher intra-quarter working-capital funding.
Conclusions
The first quarter advances two open issues from prior coverage, but closes neither. On SAP, the class-action process remains around the NIS 6.2 million provision, and the parties have reached an agreement in principle on a settlement framework, so there is no current sign of accounting escalation beyond what was already recorded. On the operating side, logistics still has to show that managed activity stops declining and that EBITDA recovers without an easy comparison base and without excluding war-related effects.
In healthcare, the NovoHealth sale was completed after the balance-sheet date for NIS 14.5 million after working-capital adjustments, and the excluded assets were transferred to another company-owned entity. Pronto also signed an agreement to sell its diagnostic genetic laboratory activity for up to NIS 1.5 million, while the kits and reagents activity stays in the group. These moves sharpen the portfolio, but the next reports need to show the division's revenue and profit base after the disposals, not only the one-time proceeds.
The current read is that Novolog exited the quarter with better liquidity and the beginning of operating order, but not yet with full proof that the 2025 disruption is behind it. The counter-thesis is credible: Operation Roaring Lion, dollar weakness and working-capital timing may have made the quarter look weaker than the underlying trajectory, and efficiency is already visible in operating profit. For the market to read 2026 as a recovery year rather than a bridge year, logistics has to restore adjusted EBITDA and managed volume, healthcare has to show a clearer profit base after the disposals, and cash flow has to remain positive after leases, investments, interest, dividends and lower short-term credit use.
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