Fattal Holdings 1998 Signals Profitable Momentum Ahead

Fattal Holdings 1998 ((IL:FTAL)) has held its Q4 earnings call. Read on for the main highlights of the call.

Fattal Holdings 1998’s latest earnings call struck an upbeat tone, emphasizing strong revenue growth, sharp EBIT and margin expansion, and a welcome return to positive free cash flow. Management acknowledged headwinds in confectionery, China water and from geopolitics and FX, but argued that operational gains and strategic execution clearly outweighed the challenges.

Broad-Based Top-Line Growth

Group net sales climbed to ILS 12.5 billion in fiscal 2025, up 11.6% year on year, with Q4 revenue rising 10.2% to ILS 3.2 billion. Management highlighted that growth was broad-based, with core segments contributing meaningfully rather than relying on a single engine.

EBIT and Margin Expansion

EBIT for 2025 surged 35.6% to ILS 1.02 billion, lifting the full-year EBIT margin to 8.2%. In Q4, EBIT jumped 62.3% to ILS 282 million, pushing the margin to 8.9%, and operational margins reached 9.6% when excluding kitchen activity, underscoring underlying profitability gains.

Coffee International as Growth Engine

Coffee International delivered standout results, with annual net sales up about 31% to ILS 6.2 billion and Q4 sales up roughly 24% to ILS 1.6 billion. EBIT more than doubled to ILS 493 million for the year and soared 270% in Q4 to ILS 173 million, driving Q4 margin expansion to 10.9% from 3.6%.

Record Performance at Três Corações

The Brazilian JV Três Corações posted record numbers, with Q4 net sales of BRL 3.59 billion, up 23.9%, and Q4 EBIT of BRL 464 million, up 364%, for a 12.9% margin. Full-year sales reached BRL 14.1 billion and EBIT BRL 1.26 billion, lifting the annual EBIT margin to 8.9%.

Net Income and Cash Flow Strengthen

Improved operating performance flowed through to the bottom line, as Q4 net income attributable to shareholders more than doubled to ILS 151 million and full-year net income rose 7.6% to ILS 450 million. Free cash flow turned positive, reaching ILS 215 million for the year versus a negative ILS 51 million previously, with Q4 FCF at ILS 554 million.

Balance Sheet and Leverage Metrics

Net debt ended 2025 at ILS 2.2 billion, slightly higher year on year, but leverage improved thanks to stronger earnings. Net debt-to-EBITDA edged down to 1.6x from 1.7x, signaling a more resilient balance sheet despite continued investment and expansion.

Productivity Gains and Strategic Execution

Management reported strong progress on productivity, indicating they are on track, or even ahead, to achieve cumulative savings of ILS 300–400 million. In Israel, SKU rationalization cut the portfolio from 1,300 to 780 items while still sustaining more than 5% CAGR in core categories, demonstrating disciplined focus.

Innovation, Capacity and Yoki Acquisition

The group continued to invest for growth, opening an alternative-milk plant in northern Israel and launching carb-free and fermentation-based dairy alternatives alongside new Shabbat and soda water offerings. In Brazil, the Yoki acquisition at 0.4x revenues expands dry-food presence and boosts distribution reach from 100,000 to a combined 400,000 points of sale.

Cocoa Prices Squeeze Confectionery Margins

The Fun & Indulgence confectionery segment underperformed as elevated cocoa prices compressed operating income throughout 2025. Management conceded that confectionery weighed on group profitability but expressed confidence that margins should improve in 2026 as pricing and cost actions take effect.

China Water JV Faces Competitive Pressure

In China, the HSW water JV confronted fierce competition from players such as Xiaomi, forcing heavy marketing and discounting. As a result, Q4 net income fell 48% to CNY 42 million and full-year net income declined 25% to CNY 179 million, with management noting that profitability recovery is in progress but remains a near-term drag.

Finance Costs, Taxes and FX Headwinds

Net income growth lagged the jump in EBIT as finance expenses rose, driven by a stronger shekel and higher interest costs in Brazil. Tax expenses also increased due to changes in profit mix and the absence of prior-year provision releases, while currency headwinds from the stronger shekel dampened reported foreign results.

War-Related and Execution Risks

Management discussed operational and geopolitical risks, noting that the war in Israel has created uncertainty even as business continuity and employee protections have been maintained. They also flagged execution risk around integrating Yoki, warning that Brazil’s exceptional Q4 margins are unlikely to be fully sustainable during the 18–24 month turnaround.

Guidance and Outlook for 2026

Looking ahead, the company expects 2026 to build on Q4 2025 momentum, targeting more than 5% CAGR and moving margins toward the 10–12% range from an 8.2% FY EBIT level. Management reiterated goals for ILS 300–400 million in productivity savings, continued cash generation, moderate leverage, a normalized 8–9% margin platform in Brazil and turning Yoki into a core, higher-margin business by end-2026.

Fattal Holdings 1998’s call painted a picture of a company gaining earnings power and cash discipline while actively managing pockets of weakness and external risk. With Coffee International and Brazil driving growth, and clear plans to lift margins and integrate Yoki, investors are likely to see 2026 as a year of consolidation and further profitable expansion.