Shaniv in the First Quarter: Paper Margin Improves While Lease Liabilities Offset Debt Relief

Shaniv delivered the first evidence that the operating improvement seen in 2025 was not only the result of consolidated real estate or accounting tailwinds: the paper segment sold slightly less, but its operating profit jumped, and operating cash flow moved from a 17.7 million shekel outflow to a 49.9 million shekel inflow. Still, this is not a clean read. Net profit of 33.4 million shekels includes about 20.1 million shekels of other income, mainly from the Yan remeasurement and the sale of 51% of Shaniv Real Estate, so it is stronger than recurring operating earnings. Financial debt fell to 128.5 million shekels and covenant headroom is wide, but the real estate transaction also put long-term lease liabilities on the balance sheet, bringing total short and long lease liabilities to roughly 163.5 million shekels. The first quarter therefore moves Shaniv's proof year forward, but does not complete it. For the market to see a deeper change, Shaniv needs to show that paper margins can hold after favorable input costs, that aluminum can pass price increases through to customers, and that cash remains strong without asset sales and favorable working-capital timing.

The Post-Menivim Company Is Already In The Numbers

Shaniv is no longer exactly the company that appeared in the 2025 annual report. After the latest annual analysis and the work around the Menivim REIT transaction, the first quarter presents the new structure: an industrial and consumer-products company selling paper products, cleaning, automotive and personal-care products, aluminum and disposable products, a distribution arm consolidated through Yan, and a 49% holding in Shaniv Real Estate instead of full consolidation of the real estate assets.

Shaniv's economic machine combines margin, working capital and cash return. In paper and cleaning products, it must generate high volume through retail and private label without giving up margin. In aluminum and disposable products, it is more exposed to input prices, currency and import competition. On the balance sheet, the question is how much of the cash produced by the business remains available after inventory, customer credit, investments, leases, dividends and debt repayment.

The first quarter answers part of what was left open at the end of 2025. Bank debt really fell, working capital looks more comfortable, and Yan is now inside the distribution chain. But the friction point moved: less bank debt, more long-term lease exposure to assets that were previously inside the group, and still a heavy dependence on paper to support earnings quality.

Operating Profit Improved For The Right Reason, But Not Through Revenue

Group revenue fell 1.2% to 233.0 million shekels. That does not sound like a strong start to the year, but the mix matters more than the total change. Gross profit rose 5.1% to 61.4 million shekels, and the gross margin increased to 26.4% from 24.8% in the comparable quarter. The explanation sits mostly in paper: lower pulp costs, a stronger shekel against the dollar and lower shipping costs, together with Yan consolidation reducing part of the freight burden.

The headline number is operating profit: 37.6 million shekels versus 13.5 million shekels in the comparable quarter. That would be too shallow a read. Other income contributed 20.1 million shekels, including roughly 13.9 million shekels from the Yan remeasurement after the increase to 90%, and roughly 6.3 million shekels from the sale of 51% of Shaniv Real Estate. Excluding those one-off gains, operating profit from current operations was 17.5 million shekels, or 7.5% of sales, compared with 13.5 million shekels and 5.7% in the comparable quarter.

Paper is why the quarter works. External sales in the segment edged down to 103.3 million shekels, but segment operating profit before unallocated expenses rose to 17.0 million shekels, and the margin rose to 16.5% of sales from 10.7%. This is higher-quality than ordinary revenue growth because it came mainly from better input and shipping costs rather than from volume growth. The less comfortable side is that sales did not grow, and private label represented 52% of paper segment sales, compared with 46% for Shaniv brands and 2% for external roll sales. After the customer concentration and private-label analysis, this quarter still does not prove that commercial dependence has been diluted.

Cleaning, automotive and personal care provided a steadier contribution: sales rose 0.9% to 93.8 million shekels, and segment operating profit rose 22.0% to 8.2 million shekels. Margins improved here as well, but Sasatech brands represented 59% of segment sales and private label 41%, so the improvement still lives alongside a meaningful share of private-label and retail-led sales. Aluminum and disposables remained the pressure point: sales fell 7.2% to 35.8 million shekels, and segment operating profit fell 42.5% to 3.1 million shekels. The cancellation of the Chinese tax subsidy on aluminum rolls, import competition, the increase in global aluminum prices and the increase in the minimum wage make the next quarter important: Opal raised prices by 15% at the beginning of the second quarter, but the current report does not yet show whether that increase will stick with customers without further volume pressure.

Cash Arrived, But Part Of The Flexibility Came From Deals

Operating cash flow is the strongest number in the quarter. Shaniv generated 49.9 million shekels from operating activities, compared with a 17.7 million shekel outflow in the comparable quarter. Profit after adjustments contributed 30.7 million shekels, and working capital contributed another 25.4 million shekels. Within that, inventory fell by 12.2 million shekels, suppliers rose by 6.5 million shekels and payables rose by 21.4 million shekels, against a 14.0 million shekel increase in customers.

That is positive evidence that the improvement is not only accounting profit, but recurring cash generation must be separated from all-in cash flexibility after actual cash uses. Including the Yan purchase, the Shaniv Real Estate sale, taxes on the disposal, CAPEX, dividends, lease repayments and bank credit reduction, cash rose by 16.2 million shekels. That is a good result for a transition quarter, but it also reflects an asset sale and working-capital release, not only a normal run-rate of profitability.

Bank debt fell sharply. Total financial debt declined from 275.6 million shekels at the end of 2025 to 128.5 million shekels at the end of March, and short-term bank debt net of cash fell to 91.5 million shekels. Covenant headroom also looks comfortable: tangible equity of 35.9% versus a 25% requirement, net financial debt to EBITDA of 1.23 versus a 5.0 ceiling, and operating profit to finance expenses of 3.44 versus a 1.5 requirement.

Still, the Menivim transaction did not only remove debt from consolidation. It also turned assets that were inside the group into leased assets, with lease agreements of up to 24 years and 11 months and recognition of a right-of-use asset and lease liability of 123.0 million shekels. At quarter-end, short and long lease liabilities together stood at roughly 163.5 million shekels. The balance-sheet improvement is real, but it does not mean the economic burden disappeared. Part of it moved from bank debt to long-term rent.

Pricing, Brands And Cash Still Need Proof

Three points will decide whether the first quarter was the start of a deeper improvement or mostly a quarter helped by favorable conditions. The first is paper. Lower pulp prices and the strong shekel supported margins, but volumes declined slightly. If inputs rise or currency moves the other way, Shaniv will need to show that it can protect pricing and margin without that support.

The second is aluminum. This segment already showed a sharp drop in profitability, and group management responded with a 15% price increase at the beginning of the second quarter. That can restore part of the margin, but it also tests pricing power in a competitive environment. If volume continues to decline, the price increase will not be enough to turn the segment from an earnings drag into a supporting engine.

The third is cash quality. The company continues to distribute a quarterly dividend of 2.5 million shekels, and in May 2026 declared another 2.5 million shekel dividend. In the current quarter, that is well covered by operating cash flow, but a quarterly distribution policy should be tested against recurring cash flow, not against a quarter that included a real estate sale and working-capital relief. As long as operating cash flow stays near the current level, the distribution looks measured. If customers absorb cash again, inventory rises or leases weigh more heavily, the dividend becomes a pressure point rather than only a confidence signal.

The background also includes an unusual security and economic event. The company's plants in southern and northern Israel are defined as essential facilities and operated fully during wartime, but the company cannot reliably estimate the future impact of security scenarios on its activity. That matters especially in aluminum and chemicals, where input costs already moved in response to events. The market may therefore read the first quarter first through the debt reduction and paper margin improvement, but the next reports will quickly test whether that improvement survives less favorable input conditions.

Conclusion

Shaniv's first quarter gives a good answer to one question and only a partial answer to another. The good answer is that the industrial activity can produce more profit and cash after the Menivim transaction: paper improved, cleaning and automotive products contributed, and bank debt fell sharply. The partial answer is whether the company is already free of the next financing and investment cycle. That still requires caution, because part of the profit is one-off, part of the cash came from transactions, and long-term lease liabilities are now a large balance-sheet item.

The current read is that Shaniv's proof year started well, but is not complete. What would improve the interpretation over the next few quarters is paper margins holding without excessive reliance on pulp and currency, successful pass-through of the aluminum price increase without a sharp volume hit, and operating cash flow continuing to cover investments, leases and dividends without asset disposals. The strongest counter-thesis is that the quarter already proves most of the story: debt is down, covenants are far away, Yan is consolidated, and the company generated nearly 50 million shekels of operating cash flow in one quarter. That is true, but not enough. In a manufacturing and distribution company with inventory, customer credit and long-term rent, the test is not only whether one quarter is profitable, but how much of that profit repeats and how much remains in cash after all uses.