Had-Asaf in the First Quarter: Cash Flow Repaid Short-Term Credit, Margins Still Lag

Had-Asaf's first quarter gives only a partial answer to the question left open at the end of 2025. On the one hand, the company did exactly what was missing then: it released working capital, generated NIS 127.9 million of operating cash flow, and repaid about NIS 101 million of short-term bank credit. That matters because in our previous annual analysis, the pressure had shifted from profit to working capital and short-term funding. On the other hand, this is still not a quarter that proves a clean business recovery. Revenue fell 20%, net profit fell 53%, and before unusual other income, operating profit was much weaker than the reported figure. The current conclusion is that the company bought itself a better liquidity quarter, but did not yet solve the margin problem, the reliance on short-term credit, or the high inventory position. In the next few quarters, the market will focus less on the one strong cash-flow quarter and more on whether raw rebar inventory falls, margins stabilize, and Romania remains profitable after the tax and quota changes.

A Margin and Working-Capital Machine Pressured by Raw Rebar

Had-Asaf is an industrial and import company in steel and construction products. Most of the business is in Israel, through production, processing, and trading of reinforcing steel, welded mesh, piles, metal wires, and products used in infrastructure, construction, agriculture, defense, and industry. Alongside this core, the company operates a trading and fencing-mesh activity in Romania, a complementary construction-products business, and smaller activities such as wood and wood products.

Economically, this is mainly a margin and working-capital machine. The company buys raw materials and imported products, holds meaningful inventory, sells to contractors and traders on credit, and finances a large part of the operating cycle with short-term bank credit. Net profit alone is not enough here. The real questions are whether sales are made at a reasonable margin, whether customers pay on time, whether inventory does not get stuck, and whether the banks continue to provide usable credit lines.

The company trades at a market cap of around NIS 459 million, while equity stood at NIS 785.8 million at the end of March. That gap may look attractive on paper, but it also reflects what the market is worried about: a cyclical industrial business exposed to import prices and the dollar, with large inventory and short-term credit that is not fully backed by binding written agreements. The short-interest signal adds little pressure here, because short interest as a percentage of float is almost zero.

The simple headline for the quarter is weakness: revenue fell to NIS 406.7 million, down 20% year over year, and gross profit fell to NIS 41.1 million. But the product split tells a sharper story. Raw rebar, the product most exposed to imports and price pressure, fell 39%. Processed rebar fell much less, and welded mesh was almost stable.

This split matters because the revenue decline is not just a general demand issue. Global oversupply, imports from China and Greece, lower steel prices, and a weaker dollar hit the company's ability to sell raw rebar at good prices first. At the same time, demand for processed rebar actually increased versus the comparable quarter, but that mix did not rescue profitability. Processed activity requires more transport and service, and selling and marketing expenses rose 11% while revenue declined.

The consolidated gross margin fell to about 10.1%, compared with about 11.1% in the comparable quarter. In the Israeli steel core, revenue fell 18% and segment profit fell 34% to NIS 17.3 million. In other words, the quarter did not only sell less, it also left less money from every shekel of sales after inventory cost and direct expenses. That is the first proof point that the company has not yet returned to stable profitability.

Reported operating profit also needs a cautious reading. Operating profit was NIS 18.7 million, but it included NIS 8.2 million of net other income, mainly compensation for Iron Swords war damages and an insurance recovery. Before that income, operating profit was about NIS 10.5 million, versus about NIS 28.6 million in the comparable quarter before other expenses. The reported number therefore looks better than the recurring operating power of the quarter.

Cash Flow Repaid Short-Term Credit, but Inventory Is Still on the Balance Sheet

The strong point in the quarter is not profit, but cash. Operating cash flow was NIS 127.9 million, compared with NIS 25.7 million in the comparable quarter and NIS 7.1 million for all of 2025. This was a sharp change, and it came at the right time: the company used it to repay about NIS 101 million of short-term bank credit, reducing short-term credit from NIS 332.0 million at the end of 2025 to NIS 231.1 million at the end of March 2026.

But strong cash flow is not the same as normalized cash generation. Most of the cash came from working-capital movements: a NIS 31.9 million decline in receivables, a NIS 44.7 million increase in suppliers, and a NIS 45.9 million increase in payables, other credit balances, and customer advances. These items can generate cash in a specific quarter, but they do not necessarily repeat at the same pace every quarter. At the same time, inventory increased by NIS 21.9 million during the quarter and by NIS 49.5 million versus March 2025.

On an all-in cash flexibility basis after actual cash uses, the quarter was positive. Operating cash flow funded NIS 17.4 million of net investing outflow, including fixed-asset purchases and fixed-asset advances net of a dividend and proceeds from the Had Atir disposal, as well as NIS 3.0 million of lease principal repayment and NIS 101.0 million of short-term credit repayment. After all of that, cash still increased by NIS 6.5 million.

The problem is that the cash improvement still does not bring the operating cycle back to a comfortable place. Operating working capital fell to NIS 671.1 million, but it still represented 38.3% of sales, compared with 32% in the comparable quarter. Inventory days rose to 122 days from 89 days, with the company attributing this mainly to higher imported raw rebar inventory because of longer delivery times and higher inventory in Romania. Customer days were almost unchanged, at 59 days versus 58 days, so the cash improvement came more from lower receivable balances due to lower sales, suppliers, and customer advances than from a clear shortening of collection terms.

The credit structure also still deserves caution. Had Metals has on-call credit lines from three banks totaling about NIS 700 million, but they are not written and are not binding. Average utilization in the quarter was about NIS 235 million, and the company is in compliance with its financial covenants, with equity of about NIS 786 million and an equity-to-assets ratio of 56%. The covenant headroom is comfortable, but the reliance on a non-binding credit framework keeps working capital at the center of the story.

Romania Stayed Profitable, but the Carbon Tax Interrupted the Recovery Story

Romania was one of the key checkpoints after 2025. In our follow-up analysis on Romania, the question was whether the move back to profit was a recovery engine or a temporary trading profit. The first quarter does not close that question positively. Romania revenue fell 58% to NIS 13.7 million, and operating profit fell to only NIS 366 thousand. The company attributes the decline to market slowdown following the carbon tax that took effect on January 1, 2026, and to the need to assess the market response and practical implications of that tax.

The positive point is that Romania remained profitable, and the gross margin rate was not materially different from the comparable quarter. The negative point is that the profit base remains very small, and there is now evidence that a regulatory or commercial change can quickly cut activity volume. Before the expected import quota reduction in July, this is not enough to assume that Romania has become a stable engine.

The complementary construction-products segment had a better quarter, but it is too small to change the whole company. Segment revenue rose 2% to NIS 23.8 million and operating profit rose 36% to NIS 677 thousand, mainly thanks to lower imported product costs as the dollar weakened. This improves diversification, but it does not replace the Israeli steel core, which generated more than 90% of external revenue in the quarter.

The smaller capital events in the quarter also do not change the picture. The company received a NIS 5 million dividend from Had Atir and sold its entire holding in that company for NIS 4.5 million. These amounts helped fund investment cash flow, but they are not a recurring profit source. At the same time, fixed-asset advances increased by NIS 22 million as part of investments in technological improvements and capacity expansion. If those investments do not reduce costs or improve actual output, they remain another cash use in a period when margins have not yet recovered.

Conclusions

The first quarter improved Had-Asaf's liquidity position, but it has not yet changed the quality of the business. The company proved it can release working capital and repay short-term credit quickly when the operating cycle allows it. It did not prove that margins have returned, that inventory is starting to fall, or that Romania can serve as a meaningful profit engine under less favorable regulatory and commercial conditions.

The current read is cautiously positive on the balance sheet and negative on operations. The counter-thesis is that the weak profit quarter mostly reflects a tough comparison base, temporary import pressure, a weaker dollar, and the security-related March disruption, while the balance sheet already showed fast repair through short-term credit repayment and working-capital release. That is a reasonable argument, but it needs proof in the next few quarters: lower inventory, stable customer days, operating profit that does not rely on insurance or compensation income, and Romania that remains profitable after the quota reduction.

In the short term, the market is likely to focus on three numbers more than on the net-profit headline: inventory, short-term credit, and gross margin. If the strong first-quarter cash flow proves to be a one-off release and margins remain under pressure, the balance-sheet repair will not be enough to change the interpretation. If the company continues to repay short-term credit without rebuilding inventory and without further gross-margin erosion, 2026 can shift from a working-capital pressure year to a real stabilization year.