JTI Moves to Diplomat: Globrands Loses Profit, Diplomat Must Convert Gross Revenue Into Margin

The important point in JTI's transfer is not merely the replacement of one distributor with another. It is the gap between what is being removed from Globrands Group and what still has to be proven at Diplomat. Globrands reported that JTI will not renew the distribution agreement that ends in February 2027, after JTI products represented about 46.2% of the group's 2025 net sales, and estimated that the termination will reduce annual net profit by about NIS 35 million compared with 2025. Diplomat, by contrast, received a new distribution agreement through the end of 2031 and is expected to begin distribution in February 2027, or earlier by written agreement, but it did not receive a ready-made NIS 35 million net-profit stream. It received an estimated gross annual revenue figure of about NIS 2.2 billion, including purchase tax of about 80%, together with performance targets, minimum quantities, a bank guarantee, and a dedicated distribution setup. The correct read is therefore not that a large revenue line simply moved from one company to another. JTI removed a dense and concentrated profit source from Globrands and gave Diplomat a large activity that still has to convert gross revenue into margin and cash flow. The next proof point comes in 2027: how much working capital Diplomat absorbs before contribution appears in the financial statements, and what Globrands can place against a supplier that held almost half of its net sales.

One Supplier, Two Different Economics

The two filings provide a clean view of the supplier transfer. On June 23, 2026, JTI informed Globrands that, because the parties did not reach agreement on commercial terms, they decided not to renew the agreement that is expected to end in February 2027. Globrands added that JTI selected another party to distribute its products in Israel, and that the termination has no connection to the BAT agreement and no dependency between the two agreements.

On Globrands' side, the company gave the number that makes the event material: JTI sales were about 46.2% of consolidated 2025 net sales, about 45.3% in 2024, and about 45.1% in 2023. The company estimates that termination will reduce annual net profit by about NIS 35 million compared with 2025 net profit. This is not merely lost revenue. It removes a profit contribution that had been built into the company's operating model.

At Diplomat, the same event looks even larger through the top line. Its subsidiary Diplomat Distributors was selected to distribute JTI products in Israel and entered into an agreement under which JTI remains responsible for import, marketing, and product labeling. Diplomat's compensation will include revenue from JTI product sales in Israel and KPI fees from JTI based on performance targets. Diplomat estimated gross annual revenue of about NIS 2.2 billion, including purchase tax of about 80%.

The gap is in the word gross. Diplomat's revenue figure includes a large tax component, so it is not equivalent to profit contribution and not even to a normal consumer-goods margin base. At Globrands, by contrast, the company already framed the impact in net-profit terms. That creates the asymmetry: Globrands' hit is more visible, while Diplomat's contribution depends on terms that are not yet quantified in the report.

Diplomat's Number Is Large, but It Comes With Tax, a Guarantee, and Targets

Diplomat is a much broader distributor than Globrands. In its annual report it describes an import, marketing, and distribution platform for consumer products in Israel and abroad, with more than 2,000 SKUs and thousands of customers. The Israel segment alone generated about NIS 2.255 billion of revenue in 2025, while the group generated about NIS 3.754 billion of consolidated revenue. Against that base, a gross annual number of about NIS 2.2 billion sounds like an addition that could almost double the Israel operation.

That is exactly where the headline can mislead. The new agreement includes purchase tax of about 80% inside the gross revenue figure. That tax passes through price, but it does not behave like ordinary gross profit. If an investor reads the number as a normal consumer-goods revenue line, the investor assigns too large an earnings base to Diplomat.

The agreement structure also carries obligations. Diplomat committed to performance targets, minimum purchase quantities according to an annual forecast, a bank guarantee, and additional commercial undertakings. JTI also has the right, from the second agreement year, to reduce the company's sales by up to 20% of average sales in the first agreement year. Diplomat is entering a large relationship with a high-quality supplier, but that supplier retains control mechanisms, targets, and flexibility.

The company said it will establish a dedicated distribution setup and that the cost is not material. That matters. Still, the cash question matters more than the accounting label: tobacco distribution at this scale requires customer credit, inventory coordination, collection, guarantees, and delivery execution. Diplomat's annual presentation already shows a new logistics center in Caesarea, intended to serve the Israel operation and CDSL, with ramp-up expected through June 2028. JTI may fit into an existing distribution platform, but it also adds load to a system that is already in a major logistics investment cycle.

Diplomat's contribution will become clear only when the company separates gross revenue, purchase tax, gross profit, KPI fees, distribution costs, and working capital. Until then, the agreement is a clear and high-quality growth event, but not immediate proof of margin expansion.

Globrands Loses Part of Its Profit Structure, Not Only Sales

For Globrands, the loss is easier to read because the model was concentrated. In the 2025 annual report, the company presented smoking products as its central activity: segment revenue was about NIS 601.1 million out of about NIS 784.9 million of consolidated net revenue, or 76.6% of net revenue. Inside that segment, JTI and BAT were the two anchor suppliers.

The existing JTI agreement was not a generic supply arrangement. It included Globrands' responsibility for customs, taxes, and charges in Israel related to import and sale of the products, payment terms of current plus 75 days to JTI, a commitment to maintain average inventory of about two months, and a bank guarantee that stood at NIS 45 million as of the annual report. This was a working-capital intensive and operationally tight activity, but it had produced known profit for the company over many years.

The termination changes the center of gravity. Globrands emphasized that the decision is not connected to BAT, so it is not right to assume an automatic hit to both suppliers. But even if BAT remains, Globrands moves from a model with two tobacco anchors to one in which a single supplier carries greater weight and the alternative has to be built outside the JTI relationship.

The company said it will examine relationships with suppliers in different fields and work to reduce costs. That is the right direction, but it is not a fast substitute for profit. In the annual report, Globrands itself wrote that if an agreement with one tobacco company ends, it can expand into non-tobacco suppliers, reduce costs, or expand candy, snack, and quality-of-life activities. The problem is that those fields together were 23.4% of revenue in 2025, and in May 2026 the company had already announced a reduction in candy and snack activity and a narrower focus within that field. Replacing JTI is therefore not only about finding new sales. It is about finding comparable profit density.

The estimated NIS 35 million annual net-profit hit is the starting point. It does not include possible future changes, and it does not eliminate Globrands' ability to cut costs or bring in new suppliers. But it defines the size of the hole management has to close before the economics can stabilize.

What Will Decide the Read in 2027

The event now moves from winning and losing the supplier to proving the economics in the financial statements. For Diplomat, the first measurement will not be gross revenue. It will be how much remains after purchase tax, distribution costs, customer credit costs, inventory, the guarantee, and JTI target achievement. If the company reports a large revenue increase without clear improvement in operating profit or cash flow, the market will have to treat the agreement as large but low-margin activity. If it can show KPI fees, operating margin, and cash flow that fit its existing distribution business, JTI becomes a real growth event.

For Globrands, the measurement is the opposite. The company does not need to prove a new revenue line; it needs to show how quickly it reduces the profit hit. That can come from cost savings, new suppliers, deeper BAT activity, or a different operating structure. Each path is harder than announcing that alternatives are being examined, because it must replace a supplier that held almost half of net sales and contributed measurable net profit.

Timing also matters. Globrands' agreement ends in February 2027, and Diplomat is expected to begin then or earlier by written agreement. That means 2026 should still carry much of the old economics, while the full change appears only in 2027. Near-term reports may therefore give Globrands a misleading sense of stability before the full hit, and they will not yet show Diplomat's full operational investment and working-capital build.

The conclusion is that the event is not symmetrical. Globrands has already given a negative profit number, while Diplomat has given a positive gross revenue number that has to travel through a more complex economic mechanism. Ignoring purchase tax and working capital makes Diplomat look like an immediate winner. Focusing on profit and cash flow produces a more cautious read: Globrands must close a visible profit hole, while Diplomat must prove that JTI's huge gross revenue does not remain mostly a pass-through of tax and product across the balance sheet.