Energy Infrastructures in the First Quarter: Higher Profit, Weaker Cash Flow, and a State Agreement Still Missing
Net profit rose to NIS 5.3 million, but profit excluding the Haifa memorandum effect fell to NIS 8.6 million and operating cash flow dropped to NIS 27.7 million. The quarter strengthened flows and port services, yet the state framework, heavy investment cycle, and environmental exposure still determine the quality of the credit story.
Energy Infrastructures opened 2026 with higher net profit, but the quarter does not read as a clean operating improvement. Revenue barely moved, gross profit and operating profit declined, and comprehensive profit excluding the Haifa memorandum effect fell from NIS 11.1 million to NIS 8.6 million. What held the quarter together was a stronger contribution from fuel flows and port services, mainly around jet fuel and the effects of Operation Roaring Lion, not a broad improvement across all operating segments. At the same time, operating cash flow fell to NIS 27.7 million while the company kept investing tens of millions of shekels in projects that still need to turn into recurring receipts. The active bottleneck remains the same: this is a strong national infrastructure company, but the state framework, the terms of the new Haifa setup, project execution, and environmental exposure still determine how much of that strength becomes return and financial flexibility. The quarter is therefore better than the flat revenue line, but weaker than the net-profit line.
Company Overview
Energy Infrastructures is a government infrastructure company that operates a central part of Israel's fuel system: storage and delivery of refined products, crude oil storage, fuel transportation pipelines, and port services. This is not an energy company that earns from the price of oil. It is a regulated infrastructure company that sells storage, transportation, and unloading services, mostly under tariffs set by order. Its economic engine is therefore not rapid growth, but essential assets, regulated tariffs, heavy capital investment, and the ability to earn cost recovery and a return over time.
The right screen here is a credit and infrastructure screen, not a regular equity screen. The company became a reporting entity after issuing bonds, but it does not have an actively traded equity line. The market therefore mainly asks whether the debt is supported by stable cash flow, state ownership, and projects that progress without creating unusual funding pressure.
The first-quarter activity mix moved more than the consolidated revenue line suggests. Revenue was NIS 100.4 million, almost unchanged from NIS 100.9 million in the comparable quarter, but under the consolidated total the mix shifted sharply: crude oil storage fell, fuel flows and port services strengthened, and refined-product storage stayed close to its prior level. That matters because each segment rests on a different set of drivers: the Bazan relationship, jet-fuel imports, port activity, tariffs, and operating continuity during disruptions.
Profit Rose, but Quarter Quality Was Weaker
Net profit rose to NIS 5.3 million from NIS 4.5 million in the comparable quarter, an increase of about 19%. That is the positive headline. But operating profit fell to NIS 7.8 million from NIS 8.4 million, and the operating margin fell to 7.8% of revenue from 8.3%. In other words, the bottom-line improvement came mainly below the operating line, not from a broad improvement in the business itself.
The table excluding the impact of the memorandum of understanding with Haifa Municipality makes the point sharper. Comprehensive profit excluding that effect fell to NIS 8.6 million, from NIS 11.1 million in the comparable quarter. Stripping out the Haifa effect, the quarter does not look like a step change. It looks like lower underlying profitability. Operating expenses tell the same story: maintenance, municipal taxes, and lease payments increased, while lower insurance and depreciation expenses only softened the impact.
The point is not that the quarter was weak. It is that the quarter was less decisive than the bottom line suggests. Energy Infrastructures benefited from lower finance expenses, mainly due to lower inflation, and from stronger fuel flows and port services. But operating profit and the Haifa-adjusted measure still do not provide enough evidence of a deeper improvement.
Fuel Flows and Port Services Carried the Quarter
Revenue from fuel flows rose to NIS 44.1 million from NIS 36.5 million, while segment results rose to NIS 19.1 million from NIS 12.5 million. Port services still lost money, but the segment loss narrowed to NIS 3.5 million from NIS 5.2 million, and revenue rose to NIS 16.2 million. The business source is clear: significant jet-fuel imports in March and higher jet-fuel flows related to Operation Roaring Lion.
The other side is crude oil storage. Segment revenue fell to just NIS 5.8 million, from NIS 16.6 million in the comparable quarter, and segment results fell to NIS 0.8 million from NIS 8.7 million. Part of the gap comes from revenue from the sale of surplus crude oil included in the comparable quarter. The crude-storage decline therefore should not be read only as ordinary deterioration, but the segment's dependence on specific conditions and on Bazan still matters.
This is the continuity point from the prior Deep TASE coverage of Bazan dependence, which focused on whether the company can offset part of its Bazan dependence over time through imports, refined products, and fuel flows. The first quarter provided a signal that supports that side of the story: flows and port services can pull the company when crude oil storage is weak. This is a mix shift, not proof of full Bazan-economics replacement.
Cash Flow Does Not Yet Cover the Heavy Investment Cycle
The key gap in the quarter is cash flow. Operating cash flow was NIS 27.7 million, compared with NIS 66.2 million in the comparable quarter. The company attributes the decline mainly to a fall in suppliers and service providers versus an increase in the comparable period, and to effects linked to a VAT refund on a diesel inventory purchase in the comparable quarter. On the positive side, receipts from the functional-continuity project increased and supported cash flow.
All-in cash flexibility after actual cash uses was tighter. In the quarter, the company generated NIS 27.7 million from operations, invested NIS 53.0 million in fixed assets, repaid NIS 3.6 million of loans, and paid NIS 0.8 million of lease principal. Before net deposit collection, that leaves a cash gap of about NIS 29.8 million. Net deposit collection of NIS 11.8 million reduced the decline in cash to NIS 18.0 million, but it is not a substitute for operating cash flow that covers investment.
The projects themselves are advancing, and that is positive. In the functional-continuity project, the company invested about NIS 20 million during the quarter, bringing cumulative investment to about NIS 406 million out of an estimated cost of about NIS 560 million. Six sections have already been completed at a cost of about NIS 261 million, with annual receipts of about NIS 21.7 million. The company recognized about NIS 3.4 million of first-quarter revenue from this project.
The six-tank Eshal project also continues to consume capital before contributing fully. The company invested about NIS 14 million in the project during the quarter, bringing cumulative investment to about NIS 212 million out of an estimated cost of about NIS 337 million. Three of the tanks are intended to be leased to Israel Electric Corporation, with total volume of 150 thousand cubic meters for 20 years from delivery, and three are intended for commercial storage. This is no longer an idea-stage project, but it is not yet a full cash-flow source.
The Government Companies Authority metrics explain why project execution matters. FFO, operating profit adjusted for depreciation, amortization, and one-offs after interest and tax payments, to adjusted debt stood at 6.5%, versus a short-term target of 11% to 18%. ROCE, return on capital employed, stood at 0.3%, versus a target of at least 3% in the current period. Equity to total assets stood at about 45.4%, close to the upper end of the 35% to 45% target range. This is not immediate financial stress, but it does prove that the company still needs to show that investment is lifting returns, not only expanding fixed assets.
The State Framework Still Controls Haifa
The major bottleneck was not solved in the first quarter. Negotiations with the state resumed continuously, but as of approval of the financial statements the asset-operation framework agreement and the real-estate agreement had not been signed. The company expects signing those agreements to involve material payments, including lease payments and tax liabilities that it still cannot estimate. Some of those payments may be recognized in tariffs, but that still does not make the picture simple, because the agreements are expected to affect the capital structure, the nature of payments to the state, and tax matters.
The link to the new refined-products port in Haifa turns this into a practical point, not only a legal one. In October 2025, Israel Ports Company received approval to contract with Energy Infrastructures, without a tender, for the construction and operation of a new refined-products port in Haifa Bay. But that engagement is subject, among other conditions, to prior approval of the financing model and cost allocation to unloading and loading tariffs, signing a new asset-operation agreement, and an opinion examining the link between the new port and a new refined-products storage farm. Until the operation agreement is approved, the company cannot advance the engagement process for port construction except with prior written approval from the Accountant General.
The environmental risk layer also did not disappear. In March 2026, most of the company's arguments were rejected in a hearing with the Ministry of Environmental Protection concerning alleged deficiencies in the KMD pipeline between Ashdod and Jerusalem, and the ministry is considering using its powers, including imposing a financial sanction. After the reporting period, on May 15, 2026, a refined-products leak occurred at one of the company's facilities, and the company still cannot estimate the event's impact on its results. This does not by itself change the company's credit quality, but it reminds investors that environmental exposure is part of the risk routine, not a footnote.
There is also a newer trigger, but it does not yet change revenue. On May 24, 2026, Enlight Renewable Energy was selected as the winner of a tender for the planning, construction, financing, operation, and maintenance of battery energy storage facilities. This could become a way to use assets and infrastructure for a newer energy activity, but at this stage the quarter only provides a direction: there is still no financial contribution, and not enough detail to assess the economics that will remain with Energy Infrastructures.
Conclusion
The first quarter reinforces a mixed read on Energy Infrastructures. On one hand, the company owns essential national infrastructure, the rating remains stable at Aaa.il, and fuel flows and port services showed an ability to absorb part of the weakness in crude oil storage. The functional-continuity project is already generating revenue, and the Eshal tanks are progressing within a relatively clear investment framework. On the other hand, the net-profit improvement does not prove broad operating improvement: Haifa-adjusted profit declined, operating cash flow weakened, and the investment cycle still requires funding before releasing full returns.
The next few quarters are not only about whether revenue starts growing again. Three things need to happen together: more functional-continuity sections need to be completed and add recurring receipts, the state agreement needs to advance in a way that enables Haifa to move without creating new capital-structure uncertainty, and FFO-to-debt and ROCE need to improve. The strongest counter-thesis remains that state ownership, regulated tariffs, and national importance make most of these risks manageable. That is a reasonable argument, but the first quarter is a reminder that even an essential company still needs to prove that heavy investments are beginning to work for the debt, not only expanding fixed assets.
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