Primotec in the First Quarter: Stronger Profitability While the Pricing Agreement Is Still Missing

Primotec's first quarter gives the first answer to the question left open at the end of 2025: can the company preserve profitability without relying on an exceptional defense-demand tailwind. The first answer is positive, but not complete. Revenue rose only 3.0%, while operating profit rose 25.7% and net profit rose 31.0%, mainly because gross margin improved to 41.37% and the institutional segment produced stronger profit. The quarter shows that the business can earn more even when the top line is not breaking out, but it does not close the two more important issues: the new Ministry of Defense pricing agreement has not yet been signed, and the NIS 20 million dividend leaves liquidity more sensitive than the profit line alone suggests. Cash flow from operating activities was NIS 11.5 million and supported earnings, but after the quarter's actual cash uses the company ended with only NIS 1.8 million in cash and cash equivalents, before the dividend paid after the balance-sheet date. The next few quarters need to show that the margin is not only the result of favorable mix and a stronger shekel, that the old Ministry of Defense extension turns into a binding pricing agreement, and that the Beersheba operating move begins to reduce friction rather than add another cost layer.

Revenue And Profitability Improved Through Margin

Primotec is mainly an institutional supply platform with complementary production of cleaning, paper, packaging, disposable, medical and welfare-related products. That is why this quarter should be read less through revenue growth itself and more through margin quality: the company sold a little more, but each shekel of sales left much more on the way to operating profit.

First-quarter revenue was NIS 66.1 million, compared with NIS 64.1 million in the corresponding quarter. Gross profit rose to NIS 27.3 million from NIS 25.0 million, and gross margin rose to 41.37% from 38.92%. Operating profit rose to NIS 9.4 million, and the operating margin rose to 14.23% from 11.66%. Against a market capitalization of about NIS 196 million, quarterly net profit of NIS 7.0 million can attract attention, but that number matters only if profitability repeats after mix, currency and defense-demand effects normalize.

The source of the improvement is the more interesting part. Cost of sales declined slightly, from NIS 39.2 million to NIS 38.7 million, even though revenue increased. The company benefited from the stronger shekel against the dollar, which lowered foreign-currency purchase costs, while also absorbing higher wage and other costs. In other words, the improvement is not just a technical decline in purchase costs, but a combination of currency, product mix and better-profitability sales.

The product-group split shows that growth was not broad-based. Disposable paper products rose to NIS 29.8 million from NIS 25.1 million, and medical equipment and furniture rose to NIS 7.2 million from NIS 5.7 million. In contrast, paper products declined to NIS 15.3 million from NIS 18.6 million, and cleaning and toiletry products declined to NIS 13.1 million from NIS 14.2 million. The point is important: the quarter presents better profitability, but it does not yet prove smooth demand growth across the product base.

The institutional segment remains the center of gravity. Revenue there was NIS 58.5 million, almost unchanged from NIS 58.2 million in the corresponding quarter, but segment profit rose to NIS 8.1 million from NIS 6.4 million. In business terms, the company did not need much more volume to produce much more profit. That is a positive signal as long as it does not rely on one customer, convenient purchase timing or a non-recurring saving.

The Ministry Of Defense Still Provides Volume, Not Full Visibility

The previous annual analysis on Primotec left the Ministry of Defense as the main 2026 proof point. The first quarter strengthens part of the picture, but it does not close it. Ministry of Defense revenue increased by about NIS 9 million compared with the corresponding quarter, while sales to other customers declined, partly because of security events and the end of several customer relationships. So institutional profitability improved, but revenue quality still depends on how much of that volume returns in the coming quarters and at what price.

The sharper point sits in the contract terms. The old agreement for cleaning and hygiene products, which the company won in August 2017, was extended again until July 31, 2026. At the same time, the tender won in December 2025 has not yet turned into a funded and binding pricing agreement. Continuity with the anchor customer exists, but for now it rests on an extension of the existing framework rather than on the economics of a closed new tender.

That is the difference between a large customer that keeps ordering and backlog that can be priced with confidence. The company does not present binding Ministry of Defense backlog, and the margin depends on the actual order mix, product basket and price adjustments. If the pricing agreement is signed on good terms, the first quarter will look like early proof that the new tender can support profitability. If extensions continue without a new agreement, the market will get more revenue, but less visibility on price and margin.

Cash Flow Supported Earnings, The Dividend Narrows Flexibility

Cash flow from operating activities was NIS 11.5 million, slightly above NIS 11.3 million in the corresponding quarter, and higher than net profit. That is a good point for a company managing inventory, receivables and suppliers. Average customer days also declined to 85 from 89 in the corresponding quarter, while supplier days rose to 71.5 from 67.5. The gap still means the company finances customers for longer than it receives supplier credit, but the quarter does not point to working-capital deterioration.

The cash story needs two separate layers. In all-in cash flexibility after the quarter's actual cash uses, before the dividend paid after the balance-sheet date, the company began with NIS 3.0 million in cash and cash equivalents, generated NIS 11.5 million from operating activities, used NIS 0.6 million in net investing activities and used NIS 12.0 million in financing activities, mainly credit and lease repayments. The result was a decline to NIS 1.8 million in cash and cash equivalents at quarter-end.

The dividend changes the balance-sheet interpretation. On March 31, 2026, the company declared a NIS 20 million dividend, which was paid after the balance-sheet date. That obligation already appears as a current liability, and explains a large part of the decline in equity to NIS 161.9 million and the increase in current liabilities to 34.3% of the balance sheet. This is not an immediate debt problem: the financial covenants are far from their limits, with tangible equity of about NIS 152.4 million versus a minimum requirement of NIS 40 million, a tangible equity ratio of 59.6% versus a minimum of 22%, and net financial debt to EBITDA of about 0.44 versus a ceiling of 5.

Still, a large cash distribution by a company ending the quarter with relatively low cash makes cash-flow quality more relevant than accounting profit. If the next quarters keep producing double-digit millions of shekels in operating cash flow, the dividend will look like cash return from a profitable low-debt company. If margin weakens or working capital consumes more cash, the dividend will look less like a comfortable policy and more like an early use of financial flexibility.

What Decides The Next Few Quarters

In April 2026 the company received a business license through the end of 2036 for the Ofek Clear plant, which moved to the main Beersheba property. That closes part of the paper-plant transition risk and shows that the Beersheba investment is not only a future plan. Still, paper-product revenue declined in the quarter to NIS 15.3 million from NIS 18.6 million, so the license is an important operating milestone, not yet proof that the move is improving sales, utilization or profitability.

The current conclusion is that Primotec opened 2026 better than the modest revenue-growth headline suggests. Profitability improved, the institutional segment showed operating leverage, cash flow supported profit, and Beersheba received an important operating milestone. But the quarter does not turn the company into a clean case: the new Ministry of Defense agreement is not closed, product growth is not broad-based, and the dividend narrows cash flexibility even though covenants are far from pressure.

The next interpretation will stand or fall on three things. First, the signing of the new Ministry of Defense pricing agreement and whether it preserves institutional-segment profitability. Second, the repeatability of the gross-margin improvement even without exceptional help from mix or currency. Third, cash flow after inventory, receivables, suppliers, investments and distributions. If all three move together, the first quarter will look like the beginning of a good proof year. If one breaks, the profit increase will remain a strong number, but less conclusive.