Bikurey Hasade in the First Quarter: Revenue Jumped, but Working Capital Absorbed Most of the Improvement

Bikurey Hasade delivered exactly the kind of first-quarter report that forces a separation between revenue and value. Consolidated revenue rose 25.8% to NIS 599.8 million, and Shuk Ha'ir returned to same-store sales growth, but gross margin fell to 23.7% of sales and EBITDA was almost unchanged at NIS 32.9 million. Net profit rose to NIS 15.1 million, yet operating cash flow fell sharply to NIS 16.4 million, mainly because growth in customers and the credit portfolio needs funding before it turns into real cash flexibility. The positive read is that the quarter gives a first sign that Shuk Ha'ir is not repeating the 2025 decline, and that non-bank credit is already contributing more profit. The yellow flag is that this improvement comes with low-margin sales channels, long customer credit, only NIS 7.3 million of cash, and dividends approved after the balance-sheet date. The quarter therefore improves the demand picture, but it still does not prove that the group can turn the new activity volume into margin, cash flow, and a cleaner balance-sheet read.

The Group Is Selling More, but the Engine Still Needs Working Capital

The group has three very different engines: distribution and marketing of fresh agricultural produce, the Shuk Ha'ir food retail chain, and non-bank credit through Green Arc and Sheva Finance. This is not a simple retailer and not only an agricultural distributor. Its real economic engine is a mix of volume, logistics, and customer credit: the more the group sells, the more it has to finance customers, inventory, suppliers, and credit lines, and only afterward does it become clear how much of the profit remains for shareholders.

The prior annual analysis framed the monitoring point clearly: agriculture had improved, Shuk Ha'ir had weakened, and credit had grown quickly, but the balance sheet funded too much of the gap. The first quarter changes part of that picture. Shuk Ha'ir returned to same-store sales growth, and the credit segment increased profit before tax. Still, the problem did not disappear. It shifted from whether demand exists to how much it costs to fund that demand.

The number that explains the quarter is the gap between revenue and EBITDA. Consolidated revenue rose by NIS 122.8 million year over year, but EBITDA totaled NIS 32.9 million, almost identical to NIS 33.0 million in the prior-year quarter. That means a large part of the growth added volume, not necessarily margin or free cash.

The New Revenue Comes With a Cost: Gaza, Promotions, and New Stores

In agricultural produce, revenue grew by NIS 96.5 million, or 26.75%. The split matters more than the headline: about NIS 40.5 million of the increase came from sales to wholesalers under the authorized-supplier activity, about NIS 40 million came from the retail market, and about NIS 16 million from institutional customers. The company also sold 29% more volume, while selling prices fell by about 2%. That mix explains why revenue looked strong while agricultural segment profit before tax slipped slightly to NIS 16.2 million from NIS 16.5 million.

The authorized-supplier activity for approved dealers from the Gaza Strip is an important first-quarter finding. It is characterized by high sales turnover and low profitability, because a large part of it relies on third-party engagements for products that are not marketed by the company. This does not make the activity negative. It does mean that these revenues should not be treated like normal agricultural distribution revenue, where the group has better control over product, margin, and customer economics.

Shuk Ha'ir supplied the more encouraging part of the quarter, but still not a full proof point. Retail revenue rose by NIS 28.5 million, or 19.94%, and same-store sales rose 13.57%. That matters after the 2025 decline, because the chain brought back traffic and sales not only through new stores but also through existing stores. Yet segment profit before tax was only NIS 385 thousand, almost unchanged from NIS 371 thousand in the prior-year quarter. The explanation is in the margin: marketing moves and promotions hurt selling prices, while wage expenses rose because of new stores and employee hiring.

That closes only half of the 2025 monitoring point. Shuk Ha'ir showed it can restore sales. It has not yet shown that those sales come with profitability that justifies a broader footprint, the purchase of the remaining 10%, or another wave of store openings.

The Incremental Profit Comes From Credit, and the Shareholder Layer Matters

Non-bank credit is the only segment where profit jumped sharply in the quarter. Segment revenue rose to NIS 18.5 million from NIS 13.2 million, and profit before tax increased to NIS 7.7 million from NIS 4.0 million. The customer portfolio in non-bank credit reached about NIS 665 million, compared with about NIS 481 million in the prior-year quarter, an increase of 38.3%.

This is a real improvement, but it is not free. The segment note states that the managerial results of equity-accounted companies are presented on a 100% activity basis, not according to the company's ownership and profit rights. Segment profit is therefore useful for understanding the operating engine, but it is not the same as the amount that belongs to public-company shareholders. In the consolidated financial statements, the company's share of profits from equity-accounted investees increased to NIS 3.0 million from NIS 1.7 million, which is the more relevant accounting bridge.

Credit growth also increases funding needs. Current net customer credit on the balance sheet rose to NIS 229.1 million from NIS 137.8 million in the prior-year quarter, and long-term net customer credit rose to NIS 39.6 million from NIS 10.2 million. On the other side, bank credit and current maturities rose to NIS 296.7 million from NIS 172.9 million. The average amount of short-term loans taken by the company reached NIS 289.4 million, compared with NIS 167.1 million in the prior-year quarter, while Green Arc's average rose to NIS 297.2 million from NIS 227.0 million.

This is a business where credit growth can be profitable, but it also increases dependence on short-term bank funding and floating-rate debt. Management says most Green Arc and Sheva Finance transactions are linked to prime on both the customer and funding sides, which limits the direct interest-rate exposure. The indirect exposure remains: a high-rate environment over time can increase customer credit risk, even if the accounting spread is preserved.

Cash Flow Explains Why the Quarter Has Not Changed the Whole Picture Yet

On cash flow, the quarter does not look like a period in which growth is already releasing cash. Operating cash flow totaled NIS 16.4 million, compared with NIS 70.2 million in the prior-year quarter. Within operating cash flow, customers and other receivables absorbed NIS 49.5 million, net customer credit grew by NIS 23.7 million, and inventory increased by NIS 2.4 million. A NIS 46.6 million increase in suppliers and other payables offset part of the pressure, but did not remove it.

The right frame here is all-in cash flexibility after actual cash uses, not only operating cash flow. In the quarter, the company recorded NIS 16.4 million of operating cash flow, invested NIS 8.2 million in property and equipment, repaid NIS 7.3 million of lease liabilities, and repaid NIS 12.9 million of short-term bank credit. A NIS 10.1 million repayment of a loan from a related company and NIS 1.0 million from disposal of property and equipment helped balance the movement, and cash still declined by NIS 0.8 million to NIS 7.3 million.

The dividend reinforces the same point. The company declared a NIS 5 million dividend in March that was paid in April, and in May declared another NIS 5 million dividend to be paid in June. Those amounts are not large relative to equity, but they matter more against NIS 7.3 million of cash and a business that continues to use short-term bank credit to fund customers and working capital.

The Next Quarters Will Decide Whether This Is Volume or Value

The first quarter is an early proof year signal, not a full turning point. On the positive side, Shuk Ha'ir restored same-store sales growth, the credit segment increased profit, and agricultural produce showed it can increase volume even in a difficult logistics and security environment. On the heavier side, gross margin fell, agricultural segment profit did not advance despite the revenue jump, Shuk Ha'ir still barely earns, and cash flow after key uses did not leave much surplus.

Two strategic moves will be judged through the same filter. The chilled-vegetables transaction adds an activity with about NIS 45 million of 2025 revenue, but it is structured as a new company in which Bikurey Hasade South will hold 51% and work to obtain credit lines while providing collateral of up to 100% of the financing. The valuation for the remaining 10% of Shuk Ha'ir is NIS 17.2 million, and the required corporate approvals have not yet been received. In both cases, the question is not whether the group can add control and volume, but whether it is buying profit and cash flow or another activity layer that needs funding.

The current conclusion is that the group advanced on demand, but has not solved the quality-of-growth question. The read will improve if the authorized-supplier activity and the IDF tender preserve margin, if Shuk Ha'ir turns same-store growth into more meaningful profit before tax, and if the credit portfolio keeps growing without pulling in more short-term bank funding. If not, the first quarter will mostly prove that the group can generate volume, while still needing to prove that the volume stays inside the company.